Mason Capital LP and Mason Management LLC v Korea - KORUS FTA UNCITRAL - PCA Case No 2018-55 - Statement of Defence - English and Korean - 30 October 2020
1. In accordance with Procedural Order No. 4, the Republic of Korea ("Korea") hereby submits its Statement of Defense in response to the Amended Statement of Claim submitted by the claimants in this arbitration, Mason Capital L.P. and Mason Management LLC (together, "Mason"), on 12 June 2020, under the Free Trade Agreement between the Republic of Korea and the United States of America (the "Treaty"), and pursuant to Article 21 of the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (the "UNCITRAL Rules").
2. With this arbitration, Mason asks Korea to backstop the speculative bet that it made that the shareholders of two Samsung Group companies would reject a proposed merger. When that gamble failed and the merger was approved by a majority of shareholders in both companies, Mason sold all of its shares. It did so under no pressure from anyone, let alone from Korea. Yet Mason now wants Korea to pay the profit that Mason says it would have earned had it not sold its shares at the time.
3. Mason seeks to implicate Korea in this dispute on the most tenuous and indirect of grounds. Mason says that Korea's National Pension Service (the "NPS") (one of dozens of shareholders in the merging companies) voted in favor of the merger when there was no valid economic reason to do so. According to Mason, the only possible explanation for that vote was the wrongful intervention of Korean officials. Never mind that many other sophisticated foreign and Korean funds concluded, too, that the merger made good economic sense and voted in favor, Mason claims that, absent such intervention, the NPS would have voted against the proposal and the merger would have failed.
4. Mason's case theory rests on a fiction: 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 specifically rejected that claim. While former President [...] did indeed accept bribes from [...] (and was subsequently 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 vote.
5. Mason's claim does not suffer only from fundamental evidentiary flaws. It also fails on threshold questions of jurisdiction and admissibility. Among other issues, Mason cannot prove state action under the Treaty, because the NPS does not form part of the Korean state (it is an independent corporate entity administering a pension fund) and did not exercise any delegated sovereign powers when it voted (just like virtually every other private shareholder) on the proposed merger. The analysis should end here. But, even if the NPS could be considered part of the Korean state, this would take Mason's claim no further. Neither the merger vote nor any alleged official "instructions" in this respect constituted state measures "relating" to Mason or its investment in Korea as the Treaty expressly requires. In voting on the merger, the NPS was only exercising its right as a shareholder. Mason was not (and did not need to be) in its contemplation.
6. On the merits, Mason does not come close to stating a claim under the demanding treaty standards. Mason says that Korea breached the minimum standard of treatment of aliens under customary international law (which the Treaty expressly references), but Mason cannot show the outrageous conduct that the authorities require. First, in exercising its own shareholder rights, the NPS had no duty to account for the interests of other shareholders. Its only duty was to Korean pensioners, to maximize the value of their savings. The fact that its vote on the merger may have incidentally affected the interests of Mason, or any other shareholder, is no ground for liability, not under the Treaty and not under domestic law. Second, Mason acquired its shares in just one of the merging companies (SC&T), doing so after the proposed merger was announced and in full knowledge of the merger ratio (set by a statutory formula) that Mason now says was unfair to SC&T's shareholders. If Mason was harmed when the merger was approved by the other shareholders at the announced ratio, it has only itself to blame. The Treaty is not an insurance policy for speculative gambles.
7. Mason's national treatment claim fares no better. According to Mason, Korea sought to favor Korean nationals - [...] and his family - when (allegedly) procuring the NPS's vote in favor of the merger. The claim runs into the same lack of evidence as the allegation that [...] bribed former President [...] to support the merger. But, even if Mason could cure that evidentiary hole, and assuming further that it could show that the NPS's vote constituted "treatment" under the Treaty, Mason was "treated" in just the same manner as the dozens of other Korean (and foreign) shareholders in the merged companies.
8. Mason's case also fails on causation. Mason cannot prove that, absent the alleged interference by Korea, the NPS would have voted differently. In fact, Mason's own evidence establishes that the vote would have been "unpredictable." This is fatal to its case. There were in any event several objective economic reasons for the fund to favor the merger. The merger was touted by market commentators as a key part of the restructuring of the Samsung Group away from the traditional chaebol model. In contrast to Mason, the NPS was widely invested across the Samsung Group (in 17 different companies) and stood to benefit from the overall group restructuring. Mason protests that the merger made little economic sense for SC&T's shareholders. But, again in contrast to Mason, the NPS was invested in both merging companies. In any event, Mason's negative opinion was evidently shared neither by the multiple securities analysts who endorsed the merger at the time nor by the many other SC&T shareholders who voted for the merger (including large sophisticated foreign investors such as the sovereign wealth funds of Singapore, the UAE and Saudi Arabia).
9. Finally, Mason's case on damages is audaciously speculative. The crux of Mason's damages case is that this Tribunal should ignore the fact that Mason voluntarily sold its shares in August 2015, disregard the market price that Mason then received, and instead award damages to Mason based on Mason's own subjective assessment of the true value of these shares or what it might have earned in the future, based on myriad contingencies.
There is no sound basis in law or economics for that claim. In any event, Mason's damages claim is substantially overstated (by more than 60%) because Mason continues to claim as its own losses those allegedly suffered by its Limited Partner, a Cayman entity with no protection under the Treaty and no standing in this arbitration. This is an error of law and common sense (which Korea identified in the preliminary objections phase of this arbitration).
10. Mason seeks to justify its pursuit of this arbitration by weaving salacious details of Ms. [...]'s alleged corruption into its narrative about the Merger. But, when the prejudicial rhetoric is stripped away, Mason's complaint describes a dispute between shareholders, not an investment treaty claim. This case should never have been brought, and Korea should never have had to take on the trouble and considerable expense of responding to it. The claim should be dismissed and Mason ordered to pay costs.