Kim and Lim v The Government of Korea - Notice of Intent to Submit a Claim to Arbitration under Article 8-20 of the Canada-Korea Free Trade Agreement - 18 February 2023
Country
Year
2023
Summary
Table of Contents
A. Introduction
B. Properly Documented Notice of Intent
C. Facts and Measures at Issue
i. The Korean "Redevelopment" Law
ii. The Claimants' Investment
D. Legal Claims Raised by the Claimants Pursuant to the CKFTA
i. The GOK has Illegally Expropriated the Claimants' Investment
a) The Expropriation of the Claimants' Investment is Devoid of Public Purpose
b) The Expropriation was Not in Accordance with Due Process of Law
c) The Expropriation is Discriminatory
d) The Compensation Available under the Korean "Redevelopment" Law is Inadequate
ii. The GOK has Failed to Accord the Claimants Treatment No Less Favourable Than That It Accords the Investors of Korea and Non-Parties
iii. The GOK has Failed to Uphold Its Obligation of Minimum Standard of Treatment
E. Relief Sought by the Claimants
A. INTRODUCTION
1. The Government of Korea ("GOK") has expropriated a commercial real estate property located at [ ] Sindang-dong, Jung-gu, Seoul, South Korea (the "Investment"), owned by Mr. [ ] Kim and Ms. [ ] Lim (together the "Claimants"), who are investors of Canada, in violation of its obligations under the Canada-Korea Free Trade Agreement ("CKFTA").
2. As discussed in detail below, pursuant to the Korean Act on the Improvement of Urban Areas and Residential Environments ("Improvement Act"), the Investment has been included in a redevelopment project provided under the Act (the "Sindang 8 Project") against their will, and it has been taken from the Claimants to be demolished for the so-called redevelopment.
3. This expropriation violates the CKFTA because, inter alia, it was undertaken in furtherance of the private interests of the project's proponents, not for public purpose. In addition, the Investment was not expropriated on payment of prompt, adequate, and effective compensation, because affected properties are required under the Improvement Act to be valued and compensated based on the "publicly announced price". The GOK has previously acknowledged that such price is neither adequate nor effective.
4. The treatment that has been accorded to the Claimants also constitutes discrimination that is prohibited under the CKFTA. Chief among others, investors of properties not included in a redevelopment project drawn up by the project's proponents (including the properties located in other areas designated for improvement projects under the Improvement Act) are not subject to expropriation. In addition, the Claimants have been offered a right to purchase a residential property for the expropriation of their commercial property under the Improvement Act. However, to benefit from the residential property capital gains tax exemption under the Korean Income Tax Act, one must be a resident of Korea. As such, by calculating the value of the Investment without considering tax implications, the treatment accorded to the Claimants is by definition discriminatory against foreign investors who reside abroad.
5. The GOK has also failed to accord the Investment minimum standard of treatment ("MST"), including the fair and equitable treatment ("FET") and full protection and security ("FPS"). This breach is inherent in the coerciveness and arbitrariness of the redevelopment regime under the Improvement Act, whereby a group of private property owners is entrusted by the GOK to cause the demolition of all properties in that zone in their self-interest, without any legitimate justification or meaningful due process.
6. In light of these breaches and the resulting losses and damages (currently estimated to be over KRW 5,928 million at fair market value), the Claimants seek full restitution of their Investment as relief. To this end, and given that the demolition of the property at issue has not yet taken place, the Claimants also seek an interim measure of protection should subsequent consultations not result in a mutually agreeable solution in order to ensure that the future tribunal's jurisdiction to order restitution as an award is made fully effective, and also to preserve evidence that is critical to the core elements of the dispute--namely the property, which is critical evidence of, inter alia, its fair market value.
7. As such, pursuant to Article 8.20 of the CKFTA, and with a view to resolving this dispute amicably through consultation and negotiation contemplated by Article 8.21, the Claimants serve the GOK with this Notice of Intent to Submit a Claim to Arbitration ("NOI").
8. Protected information that the Claimants intend to use in an arbitral hearing should subsequent consultations not result in a mutually agreeable solution appears in square brackets and in yellow highlights. This information is protected because it constitutes confidential business information and personal privacy information that is privileged or otherwise protected from disclosure under a party's domestic law, including the Korean Personal Information Protection Act. As such, the Claimants understand that information designated as protected in this NOI shall not be disclosed under Article 8.35 of the CKFTA.
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E. RELIEF SOUGHT BY THE CLAIMANTS
52. Due to the GOK's violations of the CKFTA, the Claimants have suffered expropriation and loss of their Investment with the estimated value of over KRW 5,928 million. If the negotiations and consultations resulting from this NOI do not result in a mutually agreeable solution, the Claimants reserve their right to submit a Claim to Arbitration under Article 8.23 of the CKFTA and seek the following relief:
- Full restitution of the Investment to the Claimants free of all measures found to be in breach of the CKFTA in accordance with Article 8.41(1)(b).
- Interim measures of protection pursuant to Article 8.40 of the CKFTA to:
- ensure that the Tribunal's jurisdiction is made fully effective, in particular to preserve critical evidence (including the property at issue) necessary to assess the fair market value of the Investment and other key elements of the potential dispute which necessitate continued access to the property; and
- ensure that the Tribunal's jurisdiction is made fully effective, in particular to ensure that restitution is available to the Claimants as a relief as provided under Article 8.41(1)(b) of the CKFTA.
- Costs in accordance with the applicable arbitration rules.
53. Consistent with Article 8.40 of the CKFTA, the interim measures contemplated by the Claimants do not require the Tribunal to order attachment or to enjoin the application of the measures for the following reasons.
54. First, the measures complained of have already taken place when the Investment was expropriated and the Claimants merely seek an interim measure of protection against disposal of the proceeds from the unlawful conduct at issue in order to preserve evidence (e.g., for fair market valuation) and effective jurisdiction of the Tribunal. Second, the Claimants do not ask for attachment or enjoinment of the Sindang 8 Project as such; rather, they seek the preservation of certain evidence critical to ensuring the Tribunal's jurisdiction is made fully effective. For clarity, preservation of the Investment does not prevent other activities under the Sindang 8 Project, such that subsequent steps in the process (e.g., formal transfer of title, preparation and approval of a Management and Disposal plan, eviction, demolition, and construction, etc.) can be taken while preserving the evidence. Without an interim measure of protection, the Sindang 8 Association may expedite the demolition of the Claimants' property ahead of the schedule it would otherwise have planned but for this NOI, which would result in destruction of critical evidence.
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