Elliott Associates LP v Republic of Korea - KORUS FTA - Elliott-Samsung-Cheil - PCA Case 2018-51 - Statement of Rejoinder and Reply to Defence to Preliminary Objections - English and Korean - 13 November 2020
I. INTRODUCTION AND EXECUTIVE SUMMARY
1. This remains a claim about a vote by one minority shareholder--the NPS--on a Merger it had nothing to do with proposing, at a Merger Ratio it did not set, and on which it was, like every other shareholder, entitled to vote as it saw fit.
2. In its Statement of Reply and Defense to Preliminary Objections dated 17 July 2020 (Reply), the Claimant fails to overcome the basic facts that undermine its claim.
(a) The NPS guidelines required the NPS Investment Committee to deliberate on how the NPS should vote on the Merger, which is what it did.
(b) The members of the NPS Investment Committee deliberated on the Merger for hours, carefully considering a wide range of data and analyses before reaching an independent decision.
(c) Even if the separate Special Committee had made the decision, there is no basis to find that it would have rejected the Merger.
3. Despite having access to thousands of pages of new material that the ROK has produced in good-faith compliance with its document production obligations, including investigation and court records from various proceedings in the Korean courts, the Claimant has failed to overcome these facts. Instead, the Claimant resorts to misrepresenting that new evidence or presenting it in a selective and wholly misleading fashion. Thus, for example, the Claimant now relies on various extracts from what it calls the "testimony" of individuals somehow connected to the Merger vote, but what it quotes are interview statements prepared by prosecutors, not actual court testimony. The actual testimony in court of those same individuals, which the Claimant ignores, often contradicts the interview statements. Further, the Claimant in several places claims that a particular statement was made--including an instruction to approve the Merger, obviously a material issue in this case--when in fact what it is quoting is an individual's ex post facto impression of a conversation, not what was actually said. In short, the Claimant attempts to prove its claim by innuendo, stringing together a series of statements that it takes out of context or otherwise misrepresents.
4. The Claimant's apparent hope is that the gravity of some of the proceedings before the Korean courts--though they turn on wholly unrelated domestic legal standards and though many relate to alleged acts wholly unrelated to the Merger vote--will be enough for it to make out a Treaty claim.
5. In fact, the Claimant's reliance on the Korean court cases reveals the fiction at the foundation of its Treaty claim: that then-President [...] prevailed on the NPS as a quid pro quo for a bribe she received from the heir-apparent to the Samsung Group, [...]. The Korean courts, after evaluating the evidence, have rejected that claim. While former President [...] did indeed accept bribes from [...] (and was impeached, tried and jailed for doing so), those bribes were offered and paid after the Merger had been approved and thus were unrelated to the shareholder vote the Claimant challenges in this arbitration.
6. The Claimant offers no meaningful response to the ROK's causation arguments, whether as to liability or damages. Any alleged harm was caused by the ratio at which stock in the merging companies was exchanged--and the Claimant accepts (as it must) that the ROK had nothing to do with fixing the Merger Ratio.
That alone is sufficient to end the Claimant's case.
7. On damages, the Claimant's case remains as speculative and unfounded as it has been from the start. Indeed, the Claimant has changed its damages argument yet again, ignoring its own experts' opinions in so doing. The latest iteration of the Claimant's damages demand is even more outlandish than what came before, seeking a windfall in circumstances where previously-withheld evidence now confirms that it suffered no loss at all.
8. The ROK once again respectfully urges this Tribunal to look beyond the Claimant's supposition and hyperbole to examine the evidence in the record against the applicable Treaty standards. To that end, the ROK begins this Rejoinder with an executive summary setting out in dispassionate terms the structure of the arguments and supporting evidence that follow in this submission.
B. EXECUTIVE SUMMARY
9. As detailed fully in this Rejoinder, the Claimant's claim fails at several stages.
10. First, the Claimant has failed to overcome various threshold issues raised by the ROK in its SOD, each of which warrants dismissal of its claim.
(a) Having first disregarded the Treaty requirement that impugned actions constitute "measures", the Claimant now advances an interpretation of "measures" that is effectively limitless in scope. While the ROK agrees that the term "measures" as used in the Treaty has a broad meaning, it cannot be without limit, and does not encompass the activity that the Claimant relies on for its claimed breach of the Treaty. See Section II.A.
(b) The Claimant has continued its failure to show that the relevant acts of the NPS can be attributed to the ROK. The acts of the NPS--whether analysed under Article 11.1.3(a) of the Treaty, which mirrors ILC Article 4, or under Article 11.1.3(b) of the Treaty, which mirrors ILC Article 5--are not attributable. ILC Article 8 has been excluded by the parties to the Treaty, but even if it remained applicable, the Claimant has failed to show its requirements are met. See Section II.B.
(c) The Claimant has continued its failure to prove that it has a qualifying investment under the Treaty. Its latest testimony and other evidence prove that it planned only a short-term gamble geared toward a quick profit, so it has failed to demonstrate the necessary duration to bring its investment within the Treaty's protections. Further, new evidence shows that the Claimant did not itself provide any contribution for a large portion of its investment, an additional basis for that portion to be denied protection under the Treaty. See Section II.C.
(d) Finally, new evidence supports the ROK's initial arguments that the Claimant's claims are an abuse of process. The Claimant restructured its investment to take advantage of Treaty protections after it foresaw a dispute, by selling its Swap Contracts--which did not represent a qualifying investment--to buy Samsung C&T shares directly, at a time when it (i) knew the Merger was imminent, (ii) believed the Merger would harm its investment, and (iii) believed (wrongly) the NPS would decide the Merger and was part of the ROK. The Claimant's claim is also an abuse of process because it already has settled its dispute over the value of its shares with Samsung C&T, and now seeks to sidestep that Settlement Agreement and claim a windfall from the ROK. See Section II.D.
11. Second, on the merits, the Claimant has continued its failure to prove a Treaty breach.
(a) At the outset, the Claimant's Reply still fails to satisfy the legal standards to prove that the ROK caused the alleged breach of the Treaty.
Its augmented "10 steps" are rife with misrepresentations, errors, and arguments readily contradicted by other evidence in the record. As the ROK shows, these "10 steps" lead nowhere. See Section III.A.
(b) Even if the Claimant's narrative were sustainable as a matter of fact (it is not), it does not prove a breach of the international minimum standard of treatment. The Claimant must satisfy a high threshold to show this Treaty breach, and has not done so. Further, that the Claimant assumed the risk of which it now complains--buying shares after it knew of the Merger about which it now complains--should lead the Tribunal to reject this claim. See Section III.B.
(c) Finally, the Claimant has continued its failure to show that the ROK denied it national treatment. The Claimant bases its claim entirely on a supposed comparator--the "[...] family"--that was not in like circumstances to EALP, and in doing so ignores actual comparators in like circumstances. A proper analysis can leave no doubt that the Claimant was accorded the same treatment as Korean nationals in like circumstances. See Section III.C.
12. Third, the Claimant pursues a damages claim that is speculative and unfounded, and in fact now contradicts the opinions of its own experts in a desperate attempt to claim an extraordinary windfall to which it is not entitled.
(a) At the outset, previously-withheld evidence shows that the Claimant in fact made a profit from the Merger through its interests in Cheil shares.
As the ROK and its quantum expert, Professor Dow, show, those Cheil interests earned the Claimant a profit that effectively wipes out the alleged loss it claims from its sale of Samsung C&T shares after the Merger. In short, this is a damages claim that should never have been brought. See Section IV.A.
(b) The Claimant has altered its damages claim for a third time, now suggesting that the Merger proposal itself was necessary as the catalyst for its supposed massive profit, since, on this new theory, a rejection of the Merger, coupled with the Samsung Group's adopting wholesale the Claimant's proposal for a complete restructuring, would immediately have led the Samsung C&T share price to rise to match the "value" of those shares as the Claimant now presents it in this arbitration.
(i) The Claimant's own experts evidently disagree: Mr Boulton QC opining that a large "holding company" discount would remain even if the Merger was rejected, and the Claimant's new expert, Professor Milhaupt, offering only that the rejection of the Merger was one step that might eventually, over an unspecified period of time, increase the Samsung C&T share price.
(ii) In fact, there is no reason whatsoever to expect that rejection of the Merger would have increased the share price. On the contrary, the rejection of a single proposed corporate transaction would have had no impact on the discount, which has persisted for decades. The ROK's expert on Korean corporate finance, Professor Kee-Hong Bae, explains his view that the Merger in fact resulted in a more transparent ownership structure and reduced corporate governance risk--without which there is no reason to have expected a stock price jump.
(iii) The damages claim also contradicts the latest testimony of Mr Smith, EALP's former manager, whose evidence (unsurprisingly) is that the Claimant never expected it could earn the more than 80 percent return on investment it now demands from the ROK. See Section IV.B.
(c) The Claimant has continued its failure to prove that the alleged acts of the ROK caused its purported loss. The Claimant cannot show that the ROK's impugned conduct was a but-for cause of its loss: absent the alleged conduct, the NPS (like any other shareholder) could very well still have voted in favour of the Merger, and even if it did not, the Merger might still have been approved. The Claimant also has failed to show that the ROK's alleged conduct was a proximate cause of its loss, since the application of the Merger Ratio--which was set by statute on timing chosen by the Samsung Group, not the ROK--was an intervening event that actually caused the alleged damages. See Section IV.C.
(d) Based on Professor Dow's second expert report, the ROK then shows that, even accepting that the ROK might have caused some kind of loss to the Claimant, the Claimant's calculation of that purported loss remains deeply flawed and wholly unreliable. See Section IV.D.
13. In concluding this Rejoinder, the ROK sets out and provides support for the adverse inferences that it asks the Tribunal to draw as a result of the Claimant's continued failure to honour its document production obligations (see Section V), and finally offers its request for relief (see Section VI).
 Unless otherwise specified, capitalised terms in this Statement of Rejoinder and Reply to Defence to Preliminary Objections (Rejoinder) have the meanings given them in the ROK's Statement of Defence dated 27 September 2019 (the SOD).
Table of contents of the document
II. SEVERAL THRESHOLD ISSUES WARRANT DISMISSAL OF THE CLAIMANT'S CLAIM
A. THE IMPUGNED ACTS OF THE ROK AND OF THE NPS ARE NOT "MEASURES" UNDER THE TREATY
1. That the term "measure" is broad, but has limits, is the more appropriate and reasonable interpretation
2. The NPS vote on the Merger is not a "measure"
3. The alleged "measures" lack a legally significant connection to, and thus are too remote to support, the Claimant's claims
B. THE ALLEGED ACTS OF THE NPS ARE NOT ATTRIBUTABLE TO THE ROK
1. The acts of the NPS are not attributable to the ROK under Article 11.1.3(a) of the Treaty
2. The NPS did not exercise governmental powers under Article 11.1.3(b) of the Treaty
3. The acts of the NPS are not attributable to the ROK under ILC Article 8
C. THE CLAIMANT'S SAMSUNG C&T SHARES ARE NOT A COVERED INVESTMENT
1. The Claimant's Swap Contracts are not qualifying investments under the Treaty
2. The Claimant's shareholding in Samsung C&T does not qualify for protection under the Treaty
D. THE CLAIMANT'S CLAIM REMAINS AN ABUSE OF PROCESS
1. The Claimant restructured its investment so that it could pursue litigation
2. The Settlement Agreement resolved the issues the Claimant now seeks to place before this Tribunal
III. THE CLAIMS STILL FAIL ON THE MERITS
A. THE ROK DID NOT CAUSE A BREACH OF THE TREATY
1. The Claimant has still failed to satisfy the legal standards for causation
2. The Claimant's augmented "10 steps" still do not prove an unbroken chain of causation
B. THE ROK HAS AFFORDED THE CLAIMANT THE INTERNATIONAL MINIMUM STANDARD OF TREATMENT
1. The Claimant must meet a high threshold to prove a violation of the minimum standard of treatment required under the Treaty
2. The Claimant has failed to satisfy the high threshold for showing that the ROK breached the minimum standard of treatment
3. The Claimant's knowing assumption of the very risk that it now claims came to pass defeats its minimum standard of treatment claim
4. The impugned conduct did not involve an exercise of sovereign power that could implicate Treaty obligations
C. THE ROK HAS ACCORDED THE CLAIMANT NATIONAL TREATMENT
1. The ROK's Treaty reservations bar this claim
2. The Claimant's national treatment claim does not in fact relate to the "treatment" of its investment
3. The Claimant was treated as favourably as domestic investors in like circumstances
IV. THE CLAIMANT'S DAMAGES CLAIM REMAINS DEEPLY FLAWED AND CANNOT JUSTIFY ANY AWARD OF DAMAGES
A. THE CLAIMANT HID THE PROFIT IT MADE ON THE MERGER
B. THE CLAIMANT'S NEWEST DAMAGES CASE SUFFERS INTERNAL CONTRADICTIONS
1. The Claimant never expected to recover its own NAV estimate of its SC&T shares
2. Mr Boulton QC and Professor Milhaupt both argue that the "Korea discount" would disappear upon rejection of the Merger, but neither performs any analysis to support this, and their conclusions are contradictory
3. The Claimant ignores its own experts to claim damages based on an investment return that those experts do not believe could have been achieved
C. THE ALLEGED ROK ACTIONS DID NOT CAUSE THE CLAIMANT'S LOSS
1. The ROK's impugned acts were not a "but-for" cause of the Claimant's alleged loss
2. The ROK's impugned acts were not the proximate cause of the Claimant's alleged loss
D. THE CLAIMANT'S ALLEGED LOSS CALCULATION REMAINS DEEPLY FLAWED
1. The Claimant and its witnesses contradict each other on damages issues and conduct no analysis to support their conclusions
2. The Claimant's and its experts' criticisms of Professor Dow's first report are unfounded
3. Professor Dow shows that Mr Boulton QC's new damage theories "are conceptually flawed, empirically un-supported, and contradicted by EALP's own beliefs"
4. Professor Dow shows that the Claimant assumed the risk the Merger would occur
E. OTHER QUANTUM ISSUES
1. To the extent further mitigation was not possible, it is because the Claimant's damages theory is untenable
2. The Claimant's assertion that it is actually entitled to a 32.6 percent interest rate highlights the unreasonable nature of its position, as does its insistence that its Korean won investment be repaid in US dollars
V. THE ROK IS ENTITLED TO CERTAIN ADVERSE INFERENCES AGAINST THE CLAIMANT
A. THE STANDARD FOR ADOPTING ADVERSE INFERENCES IS MET HERE
B. THE TRIBUNAL SHOULD ADOPT THE FOLLOWING ADVERSE INFERENCES. 278
VI. REQUEST FOR RELIEF
ANNEX A: UPDATED TABLE OF KOREAN COURT PROCEEDINGS