An American investment fund obtained a USD 48m UNCITRAL award against Korea under Chapter 11 of the United States-Korea Free Trade Agreement (the “Treaty”).  Korea challenged the award under section 67 of the Arbitration Act 1996 (the “Act”), arguing the claim did not fall within Chapter 11 and the tribunal lacked jurisdiction.  The Court of Appeal determined that Korea’s challenge did go to the tribunal’s substantive jurisdiction and remitted the section 67 application back to the Commercial Court for determination on its merits.

Background:

The claimant, Elliott Associates, commenced arbitral proceedings against Korea under the Treaty.  It claimed that the office of the President of Korea and the Korean Ministry of Health and Welfare had improperly interfered, through the National Pension Service of Korea, to procure a merger involving a Korean company in which the claimant had invested, Samsung C&T Corporation, contrary to the claimant’s interests and wishes.  It alleged these actions breached Korea’s obligations under the Treaty.

The tribunal rendered an award of approximately USD 48 in the claimant’s favour.  Korea challenged the award under section 67 of the Act.  It argued that the claim did not fall within Chapter 11 because, as required by Article 11.1, (1) there was no “measure” by Korea, (2) any measure was not “adopted or maintained” by Korea, and (3) any measure did not “relate to” the claimant or its investment.  Accordingly, Korea argued, the tribunal had no jurisdiction.

Foxton J determined that Korea’s challenge did not go to the tribunal’s substantive jurisdiction because the offer to arbitrate in Article 11.16 of the Treaty was freestanding: it was not conditional on the requirements from Article 11.1(1) being met.  This meant Korea’s challenge did not go to the tribunal’s substantive jurisdiction, as the tribunal had jurisdiction to determine disputes between States and investors, including as to whether the Article 11.1(1) requirements were satisfied.  Korea appealed.

Court’s Decision:

The Court of Appeal (Phillips, Falk and Bean LJJ) allowed Korea’s appeal and remitted the section 67 application back to the Commercial Court for determination on its merits.

Phillips LJ, delivering the leading judgment, held that the interpretation question was “a matter of international law and must be the same (or at least approached in the same way) whether being determined by an ITA tribunal or the English court”.  As a matter of interpretation, the “scope and coverage” requirements in Article 11.1(1) did impose jurisdictional limitations on the offer to arbitrate.  Foxton J was wrong to conclude otherwise.  This meant Korea’s challenge did engage section 67: it was a challenge to the tribunal’s substantive jurisdiction.

The Court’s decision was in line with the interpretation of Article 11.1 that was agreed in diplomatic correspondence between the United States Department of State and Ministry of Justice in Korea—that a tribunal constituted under Chapter 11 had no jurisdiction unless Article 11.1(a)’s requirements were satisfied.  Korea applied to adduce the diplomatic exchange as fresh evidence to support its appeal.  The Court considered it was neither necessary or appropriate to consider the admissibility and effect of this correspondence.  It merely noted the coincident interpretations.  The Court further observed that its interpretation was in line with the conclusions reached by many eminent investment tribunals