An ISD lawsuit is facing the Korean government for the third time. According to the Finance Committee on Sept. 22, Iranian electronics company Entekhab Group filed an international arbitration lawsuit against South Korea on Sept. 14, demanding the return of a security deposit.
The Investor State Dispute (ISD) litigation system lets a foreign investor receive compensation through an international arbitration lawsuit when the host nation’s laws or policies bring damage to the investor. But the system is lopsided for investors, and may infringe on the public policies of a nation. Thus, during the ratification of the Korea-U.S. FTA, the system was labeled as a virulent article.
Entekhab is claiming that the group canceled the contract to take over Daewoo Electronics, as the Korean government transgressed the principle of fair and equitable treatment during the M&A process. With respect to the claim, a Korean government representative said, “We cannot accept Entekhab’s claim.” The representative also stated, “We have discussed ways to cope with the claim by forming a united system involving related government departments, since Entekhab expressed its will for arbitration in Feb. We will continue to do so in the future.”
The Iranian company threw its hat in the ring to take over Daewoo Electronics, saying, “We will cultivate the company as one of the top three brands in Iran with Samsung and LG.” Entekhab was selected as the preferred bidder in April of that year. In Nov., the company paid 10 percent of the purchase price to its creditors. At that time, the largest shareholder of the troubled Korean electronics company was KAMCO, while Woori Bank was the main creditor bank. Entekhab submitted a letter of commitment (LOC) to the creditors in compliance with the contract in Dec. The LOC is under the name of Korean financial companies, and Entekhab has about 417.4 billion won (US$354.1 million) to be paid later.
But citing flaws in the LOC, the creditors terminated the contract with Entekhab and took the contract deposit of 57.8 billion won (US$49 million). This ISD case sets itself apart from the cases of Lone Star and Hanocal owned by Mansur, as this case does not have an arbitration organization. Lone Star’s and Hanocal’s ISD cases against the Government of Korea are put into the hands of the International Centre for Settlement of Investment Disputes (ICSID).
But Entekhab has opted for an ad hoc arbitration method without any interruption by an arbitration organization. The United Nations Commission on International Trade Law (UNCITRAL) is not an arbitration organization. Anyone can use arbitration rules made by the UNCITRAL. Ad hot arbitration is relatively less transparent, as it is devoid of an arbitration organization.