The Republic of Korea v Dayyani & Ors

A challenge under section 67 of the Arbitration Act 1996 is determined by a de novo rehearing of substantive jurisdiction. A BIT defining investment as every kind of property or asset is not confined to its illustrative examples. Contractual rights may constitute property. An asset requires ownership and economic value, but need not be marketable. The treaty need not contain unstated requirements of active contribution, investment risk or duration, although those features may exist in the particular investment. A BIT may protect a controlling indirect shareholder in relation to company-held assets. A dispute about attribution of acts to the host state ordinarily concerns the merits, not jurisdiction.

The Republic applied under section 67 of the Arbitration Act 1996 to set aside an investment arbitration award for want of substantive jurisdiction. The Dayyanis had commenced arbitration under the Korea-Iran bilateral investment treaty concerning the failed acquisition of Daewoo Electronics. The tribunal had unanimously found jurisdiction and a breach of the fair and equitable treatment standard, and by majority had awarded the Contract Deposit, interest and costs.

Picken J’s order of 1 February 2019 directed a Phase 1 hearing on whether the pre-closing share purchase agreement, the deposit and related activities were investments; whether the Dayyanis had standing as indirect shareholders; whether attribution was jurisdictional; and whether the tribunal had found an independent direct breach by Korea.

The application was dismissed. The court conducted a de novo rehearing of the jurisdiction issues. The award had no automatic legal or evidential weight, although its reasoning could be persuasive.

1. Investment. Article 1(1) of the BIT used a broad definition covering every kind of property or asset. The listed categories were illustrative and not exhaustive. An asset required ownership and economic value, but not marketability. Property included a definable and identifiable right or interest with some permanence or stability, following the formulation in National Provincial Bank v Ainsworth [1965] AC 1175. Rights in personam could qualify.
2. The BIT covered both property or assets into which resources were committed and property or assets put in by the investor. The concluded SPA was property or an asset before Closing because it created vested and contingent enforceable rights, including the Sellers’ obligations to use best efforts. The Contract Deposit was money and also represented enforceable contractual rights or a receivable. The SPA and deposit therefore each constituted an investment. The wider totality of the Dayyanis’ operations, insofar as distinct from those matters, was not shown to be an asset or property, but that finding was immaterial.
3. The BIT did not import unstated requirements of contribution, investment risk and duration. In any event, the SPA and deposit satisfied those characteristics: resources and obligations were involved, the arrangements had material duration, and they were exposed to political risk beyond ordinary counterparty risk. The territorial requirement was also met because the SPA was governed by Korean law, concerned a Korean company, contemplated performance in Korea, and the deposit remained in a Korean account.
4. The BIT contained no direct-ownership requirement. A controlling shareholder could qualify as an investor in company-held assets and assert treaty rights in its own capacity. Diplomatic-protection decisions were confined to that distinct regime. The reasoning in Poštová Banka A.S. and Istrokapital SE v Hellenic Republic ICSID Case No. ARB/13/8; 9.4.2018 was unpersuasive. The Dayyanis therefore had standing for treaty purposes.
5. A dispute over whether acts of sellers or KAMCO were attributable to Korea was a legal dispute between the investor and the Contracting Party. Article 12 was wide enough to include that issue. Attribution was ordinarily a merits question, unless it was manifest that the entity had no link whatever to the state. The tribunal therefore had jurisdiction.
6. Question 6 did not arise on the primary reasoning. In any event, the majority had found an independent direct breach by Korea, separate from attribution of the Sellers’ or KAMCO’s acts. The tribunal had jurisdiction to make that finding and the dispositive provisions of the award would have been unchanged.

This was a first-instance Commercial Court determination. The judgment records that Picken J, by order dated 1 February 2019, directed a Phase 1 hearing of the jurisdictional questions. The present application was heard and dismissed by Mr Justice Butcher.