When is an issue a jurisdictional issue?

In Republic of Korea v Elliott Associates LP [2024] EWHC 2037 (Comm), the English Commercial Court rejected a challenge to a US$50 million treaty award brought by the Republic of Korea (“Korea”) under section 67 of the English Arbitration Act 1996 (“AA”). The decision is of interest as it touches on when, in a non-ICSID investment treaty arbitration, a tribunal’s decision on matters which might broadly be classified as “jurisdictional” is liable to challenge under s.67AA.  

Background

Section 67AA allows parties to arbitrations seated in England and Wales to challenge awards on the basis that the tribunal lacked “substantive jurisdiction”. That is defined in s.30(1)AA and encompasses whether there is a valid arbitration agreement, whether the tribunal was properly constituted and what matters have been submitted to arbitration.

The award in this case arose from an English seated UNCITRAL arbitration commenced by EALP (a US investment fund) against Korea under the investment protection/ISDS provisions of Chapter 11 of the US/Korea Free Trade Agreement (the “Treaty”). EALP’s claim concerned the Korean government’s alleged intervention in the merger of two Samsung companies – Samsung C&T and Cheil Industries. EALP, a minority shareholder in SC&T, opposed the merger, and alleged that the Korean government improperly interfered to ensure that the National Pension Service (“NPS”) (another minority SC&T shareholder) voted in favour the merger, in breach of the Minimum Standard of Treatment and National Treatment Obligations in Chapter 11 of the Treaty.

Importantly, Article 11.1(1) of the Treaty provides (in summary) that the Chapter 11 protections extend to: (i) “measures”; (ii) “adopted or maintained by [Korea]”; (iii) “relating to” investors or covered investments. In its award, the tribunal held that these requirements were made out: the NPS’s conduct in voting the shares constituted a measure adopted or maintained by Korea relating to EALP or its investment, as required by Article 11.1(1).

It then went on to find that, on the merits, Korea had breached the Minimum Standard of Treatment Obligation in Article 11.4 and issued an award in EALP’s favour accordingly.

Korea sought to challenge the award in the English courts under s.67AA on the basis that the tribunal lacked “substantive jurisdiction”. As to this, it argued that the tribunal’s conclusion that the NPS’s conduct constituted a qualifying “measure” in accordance with the Article 11.1(1) requirements was wrong. This raised a threshold question of whether those issues were properly categorised as issues relating to the tribunal’s “substantive jurisdiction” (as defined in s.30(1) AA), such that a s.67AA challenge could be brought at all.

Decision of the Commercial Court

Foxton J held that the issue of whether the requirements in Article 11.1(1) were satisfied was not a matter of “substantive jurisdiction” with the result that Korea’s s.67 challenge was dismissed. He pointed out that concepts (such as requirements of nationality, subject matter and temporal limitations) which may be broadly treated as “jurisdictional” in investment treaty arbitration would not necessarily be treated matters of “substantive jurisdiction” for the purposes of ss.30(1)/67AA [27-28], and summarised the principles that can be drawn from key past authorities on where the dividing line is drawn (see [37]). When these were applied to the specific provisions and the structure of the Treaty in issue, he concluded that, correctly interpreted, Article 11.1(1) did not constitute a limitation on the offer to arbitrate (which itself was contained in Article 11.16); the result being that the interpretation of Article 11.1(1) was not a matter of “substantive jurisdiction”. The main reasons for this (see [69]) included that:

• Article 11.1(1) appears in Section A of Chapter 11, a section dealing with the substantive content of the obligations owed to investors, rather than Section B, which addresses dispute resolution and contains the offer to arbitrate (in Article 11.16).
• Section B of Chapter 11 (in which Article 11.16 is found) sets out limits on the scope of the offer to arbitrate (such as the need for an “investment dispute”) but does not refer to Article 11.1(1) as such a limitation. Rather, Article 11.1(1) sets out the scope of the protection afforded by Chapter 11.
• Construing Article 11.1(1) as a limit on the scope of the offer to arbitrate would be inconsistent with the fact that Article 11.16 contained an offer to arbitrate not only claims that a party had breached an obligation under Section A but also claims that a party had breached an investment authorisation or an investment agreement (which would, by extension, also have to be limited by Article 11.1(1) if Korea’s construction were correct).
• The issues raised by Article 11.1(1) are closely integrated with the merits of the dispute and were very fact sensitive (for example, the issue of whether there had been a “measure” potentially involved examining the content of conversations of high-level individuals in the Korean government). Whilst not determinative, this weighed against a finding that the issues were jurisdictional.

Comment

The judgment is an important illustration of the principles that the English court will apply to determine, in a non-ICSID investment treaty context (court review of ICSID awards being far more restricted), what issues are matters of “substantive jurisdiction” and therefore are capable of being challenged under s.67AA. The dividing line will depend on the text of the particular treaty and circumstances of each case, and may be difficult to draw, but it is of substantial importance to parties wishing to challenge arbitral awards: challenges under s.67AA entail a full rehearing whereas challenges under, for example, s.68AA involve much more limited review.

Foxton J granted Korea leave to appeal the judgment to the Court of Appeal, so the judgment may not be the last word on this case.