Korean Government Wins Outright in 320 Billion Won International Investment Dispute: Implications of the Schindler ISDS Case

As a major shareholder of Hyundai Elevator, Schindler raised the objection that the company's capital transactions were carried out for the purpose of defending corporate control rather than out of managerial necessity.

Specifically, the following transactions were at issue.

On the basis of its dissatisfaction with the supervisory authorities' response and its investment losses, Schindler applied the Korea-European Free Trade Association (EFTA) investment agreement and brought ISDS proceedings against the Republic of Korea.

In other words, this is a structure in which an internal corporate control dispute, combined with claims of investor losses, was converted into an issue of state responsibility and ultimately expanded into international arbitration.

In response, the Korean government recharacterized the essence of the case as a corporate control dispute between companies.

On this premise, the government presented the following defense theory.

The most important legal principle in this award is that the mere circumstance that the outcome of a state's regulation operated to the disadvantage of an investor does not give rise to a violation of international law.

In other words, the standard for determination is not the outcome of the regulation, but whether the conduct in question was unlawful under international law.

In determining whether there had been a violation of fair and equitable treatment (FET), the arbitral tribunal made clear that mere grievances or outcome-focused assertions are insufficient and that clear evidence is required.

It also reaffirmed the standard that discrimination against a foreign investor is likewise not recognized on the basis of abstract assertions alone, and that specific and objective proof is required.

The arbitral tribunal interpreted the obligation of ‘full protection and security (FPS)’ under the investment agreement as a concept in principle limited to physical protection.

Accordingly, it took the view that the state is not recognized as bearing an obligation to actively intervene and protect even ordinary corporate management or the course of legal disputes.

It further determined that even if legal protection were regarded as included, where a domestic judicial system exists and relief can be obtained through it, the state's obligation of protection has already been satisfied.

This award offers the following implications for companies and investors.

Within such a structure, companies and investors may face the following legal risks.

At Daeryun Law Firm LLP, customs specialists holding the licensed customs broker qualification, international trade attorneys, and finance attorneys collaborate to review legal risks in advance at the investment-structuring stage and to systematically analyze the elements of dispute that may arise in the course of responding to regulation.

It also examines, on a proactive basis, the legal issues that may become problematic in the course of a company's business decision-making, and for transaction structures involving foreign investors, it establishes response strategies that take into account even the possibility that an international investment agreement may apply.

Where a dispute has materialized, it designs the direction of the response by linking domestic litigation and international arbitration, and it builds a strategic defense theory grounded in the interpretation of the investment agreement and the evidentiary structure.

Through this, it presents comprehensive solutions so that companies can prevent escalation into an unexpected international investment dispute and respond effectively to disputes that have already arisen.