Attributing commercial acts of public pension funds to the sovereign: A comment on Elliott Associates v. Korea  

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Public pension funds (PPFs), which may be defined as large pool of capital owned and managed directly or indirectly by governments to finance public pension systems (see OECD), are recently named “the most influential capital on the planet” – a November 2023 study by Thinking Ahead Institute reported that PPFs make up 52.8% of the world’s largest 100 asset owners, larger than the assets under management of sovereign wealth funds (SWFs) (On the difference between both forms of state-owned investment vehicles, see here). Global SWF already observed in 2021 that PPFs “have gained in significance and activity to such an extent that they are today similar in behaviour to SWFs”. It is thus not unexpected that PPFs will start getting involved in transnational dispute settlement proceedings and attract scrutiny with respect to their corporate identity and their formal ties with the state, as has been the case with SWFs (see here and here). Notably, in June 2023, an UNCITRAL tribunal interpreted the Investment Chapter of the 2007 Korea-US Free Trade Agreement (KORUS) to allow the US hedge fund Elliott Associates to sue the Republic of Korea for the commercial decision of a Korean PPF in connection with a 2015 merger tainted by corruption at the highest governmental level.

This blog post examines a contentious aspect of the Elliott Associates v. Korea Award, i.e., whether the exercise of shareholder voting rights by Korea’s National Pension Service (NPS) in the context of a merger vote qualified as “measures adopted or maintained by” Korea under KORUS. The tribunal ruled that NPS was a de facto state organ, and its actions were therefore “attributable to the Korean state”. This reasoning underpinned the tribunal’s exercise of jurisdiction over an essentially intercompany dispute arising from a commercial act, which arguably broadened the treaty’s coverage. Key to this outcome was the tribunal’s conflation of attribution tests under KORUS and law of state responsibility without clear justification. The award is currently subject to set-aside proceedings in the United Kingdom, precisely on the correctness of the tribunal’s finding on subject-matter jurisdiction. Furthermore, Korea is facing a separate, ongoing UNCITRAL arbitration brought by another US hedge fund also arising from NPS’s actions in the same merger vote, making this analysis timelier than ever.

Attribution as a jurisdictional issue and the law of state responsibility: jumping over the small gate?

The Elliott case arose from the 2015 merger between two subsidiaries of the Samsung group of companies, Samsung C&T and Cheil Industries. Elliott, a minority shareholder in Samsung C&T, had vocally opposed the deal for diminishing the value of its investments and waged a shareholder campaign to block it, which was unsuccessful. The dispute entered the investment treaty realm after facts became public of quid pro quo between high-ranking Korean politicians and tycoons to rig the voting, including Korea’s former president, former minister of health and welfare, and Samsung vice chairman. According to reports, they pressured the management of NPS, another minority shareholder and the holder of the casting vote at the Samsung C&T special meeting on the merger, to approve the deal to protect the interests of the family-controlled Samsung group and assist with the latter’s controversial succession plan. NPS itself was established as a PPF management corporation with a separate legal personality from the Korean government, incorporated to manage the country’s pension reserve funds under the National Pension Act (Arts. 1, 24, 26). In the arbitration, Elliott convinced the tribunal that NPS’s merger vote, influenced by the government, was arbitrary and violated the Minimum Standard of Treatment provision of the KORUS, ordering Korea to pay US$53.6 million in damages.

At the outset, the tribunal was called upon to decide on whether the impugned measure, i.e., NPS’s exercise of voting rights, fell under Article 11.1 KORUS (titled “Scope and Coverage”). Pursuant to Article 11.1.1, the treaty’s investment chapter applies to “measures adopted or maintained by a Party”, defined, for the purposes of the KORUS Investment Chapter, in Article 11.1.3 of KORUS as:

measures adopted or maintained by

(a) Central, regional, or local governments and authorities; and

(b) Non-governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities.        

It is important to note that this provision concerns the scope of measures covered by the Investment Chapter, i.e., jurisdiction ratione materiae. In determining its own jurisdiction, the tribunal neither ruled unequivocally that NPS is a government authority under Article 11.1.3(a), nor dealt with the possibility that there might be jurisdiction under Article 11.1.3(b) by finding that NPS is a state instrumentality. While a thorough analysis of both questions is beyond the scope of this post, it is worth underscoring that NPS hardly fits within the category of government authority. Under Korean administrative law, NPS would qualify as “a legal entity, organization, or institution owned or controlled by the State other than the State or a local government” (emphasis added) (see Act on the Management of Public Institutions, Art. 4(1)). NPS is also not listed as one of the authorities or administrative agencies as part of Korea’s public administration structure as stipulated in the Korean Constitution and the Government Organization Act (see also here). The tribunal itself could not conclude that NPS is formally a government authority under Korean law, instead conceding that NPS is “organized as a corporation operating under private law” (para. 444).

To overcome this difficulty of characterizing NPS as a government authority, the tribunal framed the question simply as “[w]hether the conduct of the NPS is attributable to the respondent” and based its analysis on the ILC Articles on State Responsibility (ARSIWA) (the respondent itself framed its arguments in this manner. See Award, paras. 368 & 387). In so doing, the tribunal conflated the issue of attribution as a jurisdictional issue (ratione materiae) governed by the treaty (as a matter of lex specialis) and the issue of attribution as a substantive question governed by customary international law codified in Articles 4-11 ARSIWA (see Hamester v. Ghana, para. 144; Mesa Power v. Canada, para. 340; Tulip Real Estate v. Turkey, para. 327). While both attribution questions seek to explain which conduct amounts to a sovereign act, the definition in KORUS, as discussed below, is narrower than what customary international law provides.

Since Article 11.1 of KORUS is about establishing the tribunal’s jurisdiction and not about determining the state’s liability/responsibility, the purpose of the narrowed definition is quite clear: to circumscribe the tribunal’s competence. States are free to limit their consent to adjudicatory jurisdiction, and this is without prejudice to the question of state responsibility, which belongs to the merits (See ICJ Fisheries Jurisdiction (Spain v. Canada), paras. 55-56). By providing a narrowed definition of sovereign act, Article 11.1.3 limits the types of measures that can activate the treaty’s coverage and the tribunal’s jurisdiction. This narrowing of scope is evident from the exhaustive terms of Article 11.1.3, which cannot be broadened or deviated from by relying on customary international law (as the arbitrators themselves acknowledged in Award, para. 441).

Firstly, Article 11.1.3(a) uses the wording “governments and authorities”. On its face, it does not encompass the attribution of conduct of private law entities controlled by or dependent on the government. Moreover, Article 11.1.3(a) does not employ the word “organ”, let alone adopt the distinction between de jure and de facto organs recognized by ARSIWA (Commentary to Article 4, para. (11)). This distinction became prominent post-ARSIWA through the International Court of Justice (ICJ) judgment in the Bosnian Genocide case, the rationale being to prevent states from escaping responsibility when they commit acts through entities legally separate from, but acting in “complete dependence” on, the state (2007 Judgment, paras. 392-393). The context and rationale behind this doctrine, belonging to the law of state responsibility, cannot be presumed to apply to questions of jurisdiction, which hinges on the states’ consent. If the states parties to KORUS wished Article 11.1.3(a) to cover both de jure and de facto organs, they could have chosen a more general, catch-all language, e.g., to include “any agency, instrumentality or entity controlled by” the government (see Iran-US Claims Settlement Declaration, Article VII(3)–(4)), or even incorporated the language of Article 4 ARSIWA. Instead, the states elected a narrower formulation. Therefore, “governments and authorities” in Article 11.1.3(a) should reasonably be understood as only referring to political subdivisions of a state (cf. 2012 US Model BIT, Article 2(b)), which NPS is clearly not one.

Secondly, the narrow language “governments and authorities” must be read in conjunction with “non-governmental bodies” in Article 11.1.3(b). As implied by the US in its non-disputing party submission (NDPS), Article 11.1.3(b) is the only jurisdictional gateway for acts of state enterprises (see paras. 4-5 where the US characterized “state enterprise” as a “non-governmental body”; Article 11.8.5 KORUS also classifies “state enterprises” not exercising delegated governmental powers as “private parties”). Consequently, commercial acts of state enterprises – such as PPFs – are excluded from the scope of the tribunal’s jurisdiction since they are not expressly mentioned in Article 11.1.3(b), which only refers to the exercise of powers delegated. Hence, assuming that a commercial act was attributable to the state under the law of state responsibility, e.g., if it was taken under the state’s previous instructions or direction and control (Article 8 ARSIWA), or the state’s subsequent acknowledgment and adoption (Article 11 ARSIWA), it still would not be captured by Article 11.1.3(b). Any other interpretation would render the specific reference to the exercise of powers delegated in Article 11.1.3(b) redundant or meaningless. Again, the tribunal did not analyze whether NPS as a non-governmental body acted in a manner that falls under Article 11.1.3(b).

The conclusion that Article 11.1.3 is narrower than – not coterminous with – the general attribution rules in the law of state responsibility escaped the tribunal’s analysis (in contrast with the holding in Al Tamimi v. Oman, paras. 320-322, where the narrow terms of a treaty provision would prevail as a matter of lex specialis over attribution rules in ARSIWA). The tribunal in Elliott also refused to definitively conclude that an investment treaty can only be breached by sovereign acts (Award, para. 625), a point that other tribunals had unambiguously resolved in the affirmative (see Bayindir v. Pakistan, para. 377, Impregilo v. Argentina, para. 294 and Omega v. Panama, para. 318). By taking an equivocal stance, the tribunal implicitly endorsed the possibility that its jurisdiction also extends to commercial acts of state enterprises or business decisions of private entities under the state’s control (see Award, paras. 445-446) – a substantive issue – thereby broadening the jurisdictional reach of Article 11.1.3 KORUS.

Conflating PPF and the state: Blurred line between de facto organs and “separate entities”

The tribunal overcame the difficulty of characterizing NPS as government authority by reading Article 11.1.3(a) to encompass a de jure/de facto organ analysis. But as the previous part argues, this goes beyond the treaty’s scope. While such a finding would rightly enable the attribution of commercial act – the exercise of shareholder voting rights to approve a corporate action – to the state for the purpose of finding responsibility (ARSIWA Commentary to Article 4, para. (6)), the tribunal was faced with a distinct issue of jurisdiction ratione materiae under Article 11.1.3, which does not cover commercial acts of state enterprises. Be that as it may, the tribunal’s conclusion that NPS is a de facto organ is even more untenable.

First and foremost, it is doctrinally settled that attribution is “based on criteria determined by international law and not on the mere recognition of a link of factual causality” (ARSIWA Commentary to Article 2, para. (4)). Rather than buttressing its analysis on a normative foundation or drawing inspiration from the case law on ARSIWA, the tribunal candidly embraced a factual/descriptive approach, stating that:

“Article 11.1.3 of the Treaty makes no reference to Korean law, and accordingly the determination of whether an organ is to be considered an organ of the State cannot be based solely on Korean law but must also take into account the relevant facts”,

and it proceeded to rule based on “the wealth of evidence before it” (Award, paras. 444-445). Crucially, no reference was made to any international law criteria of de facto organ; the relevance of the ICJ’s “complete dependence” test in Bosnian Genocide was dismissed in an opaque manner in footnote 657. Attribution here was thus treated merely as an “empirical statement based on an underlying factual matrix”, contrary to the letter and spirit of the ARSIWA rules the tribunal professed to be applying.

Moreover, the tribunal failed to articulate the principles underlying its conclusion that NPS is “functionally and financially closely linked to, and effectively part of, the Korean State” (Award, para. 445). Instead, the tribunal simply cited general evidence of operational linkages between NPS and the Korean state (e.g., appointment of officials by ministries, the state-owned nature of the fund, mandatory contributions of citizens to the fund, state supervision and audits), the state-wide purpose of NPS’s operation, and NPS’s impact on the state’s budget (Award, para. 444). Beyond that, however, it offered no insight as to what level of governmental supervision is normal and arm’s length, or what it believed amounted to substantial or extensive state control over NPS’s management and activities. This only invites more questions because PPFs and SWFs generally possess the characteristics cited by the tribunal (to varying degrees), i.e., public origin of administered resources, macroeconomic aims driving the investment activities, and general control by the home state (Adinolfi, pp. 234-235).    

The tribunal’s reasoning ultimately failed to persuade when it gave little to no weight to the fact that NPS possessed a separate legal personality. In principle, the existence of a legal personality “cannot be presumed to be merely fictitious” (see Viñuales, para. 83). When an enterprise is legally separate from the state, jurisprudence of investment tribunals requires a high standard to rebut the presumption of independent personality in order to characterize it as a de facto organ, such as through “the performance of core governmental functions, direct day-to-day subordination to central government, or lack of all operational autonomy” (e.g., Almås v. Poland, para. 207-209; Ortiz v. Algeria, paras. 167–169). Likewise, in practice, when SWFs (similar for present purposes to PPFs) avail themselves of organ status to benefit from state immunity before national courts, they are afforded the same rebuttable presumption of separateness (notably, the rules of attribution in the law of state responsibility and immunity are comparable); national courts put primacy on this formal link of separate legal personality over and above state control, including the public origin of resources and power of government to appoint directors and officials (see cases cited in OECD, pp. 14-18).

Contrary to this settled practice, the tribunal in Elliott offered no clear justification for dismissing NPS’s nature as a separate and autonomous entity carrying out commercial activities as an investor. It would be interesting to test the tribunal’s reasoning by comparing NPS to other “independent” PPF management entities, such as CPP Investments and Caisse de dépôt et placement du Québec (which were both created by public acts – act of parliament and act of national assembly respectively – and established as Canadian Crown corporations with board members appointed by the government, and the funds they managed are state-owned and funded by mandatory pension contributions) and whether the tribunal’s decision might have implications on the attribution of commercial acts of these entities to Canada, for example. In the absence of criteria to distinguish which facts are determinative to allow the piercing of the corporate veil, the tribunal potentially opened the floodgates of treaty claims against states for the conduct of PPFs and SWFs, regardless of whether the impugned act is of a governmental or commercial nature. In addition, this interpretation multiplies the fortunes of investor claimants who may be able to sue the host state in investment treaty arbitration for the damages arising from the commercial activities of a PPF, and bring the latter before a domestic court for the same conduct (owing to the restrictive immunity theory).

Concluding Observation

The reliance on ARSIWA rules of attribution in Elliott Associates v. Korea to supplement and substitute the treaty text is very precarious. The state parties, by agreeing on an exhaustive definition of state measures in Article 11.1.3 KORUS, excluded from the scope of the tribunal’s jurisdiction the conduct of non-governmental bodies (such as PPFs) which might otherwise have been attributable under the customary rules of attribution in ARSIWA. While the tribunal chose to depart from the treaty’s text, it is unclear whether the tribunal was indeed applying customary rules of attribution, or any rule at all, by failing to determine the criteria of attribution. Investment treaty awards have been annulled for failing to define the threshold for the applicability of a customary international law norm (see Enron annulment decision, para. 395) or for falling back on custom to depart from the specific standard provided by the applicable treaty provision, regardless of the substantive similarities between the two (see Sempra annulment decision, paras. 204-08).

By dispensing with a jurisprudential inquiry and assessment of the appropriate normative framework to determine whether a state enterprise is a de facto organ, it is doubtful what kind of “guidance”, if any, follows from the reference to ARSIWA in the Elliott case, except, perhaps, the notion that a normative framework is unnecessary. Lack of consistency has long been a problem in ISDS, such that the “same rule of customary international law was interpreted differently in the absence of justifiable ground for the distinction” (UN Doc No A/CN.9/935 (14 May 2018), para. 21). If the tribunal’s approach to attribution becomes the authoritative interpretation of Article 11.1.3 KORUS, it risks imposing on the states parties a more onerous task of having to defend themselves against a wider range of treaty claims under the treaty, arising from commercial acts of PPFs and other separate entities not contemplated as part of “governments and authorities”. Borrowing the words of one of the arbitrators, the approach would result in “an unjustified broadening of the jurisdictional gateway” (Mr. Thomas KC, Separate Opinion, para. 6). This is not sustainable for the general development of ISDS jurisprudence, considering that expansive interpretation of jurisdiction is one of the primary reasons fueling the backlash against the system. Whether this approach will influence other tribunals to be more adventurist may be worth addressing through an even more explicit treaty language, greater use of joint interpretations, or the possible creation of an appellate mechanism as one of the ISDS reform proposals to be discussed in July 2025 in UNCITRAL Working Group III.

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Igor Popovic says

March 29, 2024

Dear Daniel.

Thank you for the very interesting piece. I find your arguments to be persuasive and straightforward, unlike the tribunal's rationale in this case.

Speaking of the outcome, you speak about a possibility of annulment in general terms (if I read the post correctly). Still, are there any reactions from Korea not to align with the award? Are they going to challenge the ruling?

Kind regards,


Daniel Pakpahan says

April 5, 2024

Thanks for your comment, Igor. I feel that the tribunal's reasons were reflective of compromises
resulting from weighing conflicting considerations in reaching its conclusions re: attribution. Yet my arguments are not only directed at the consistency of the reasoning but the substantive correctness of the tribunal's conclusion.

Indeed, Korea has sought to set aside the award at the seat (in London), not due to contradictory reasoning, but an alleged lack of substantive jurisdiction partly since the vote of the NPS could not be attributed to the state (I hyperlinked a press release by Korea's MoJ earlier in my post). I assume this is a request for a de novo review of the tribunal's jurisdictional decision (per Section 67 of the Arbitration Act 1996 as held in Dallah Real Estate and Tourism Holding Company v Pakistan [2010] UKSC 46). We'll see if the court will vindicate the points I raised in this post.

It is also interesting to note that this option of a de novo review of jurisdiction (i.e., no deference to the tribunal's ruling) might not be available in the future, if the UK Law Commission's proposal for a drastic reform to Section 67 (to apply a measure of deference when an award is challenged based on jurisdictional grounds) is adopted.