The Gale Investments Co., a U.S. real estate development company that has sued POSCO Engineering & Construction over the Songdo International City development project in Incheon, has filed a request for arbitration to settle its dispute with the South Korean government over the development of Songdo International City in Incheon.
The New York property developer said on June 11 (local time) that it has filed a $2 billion arbitration application with the International Center for Settlement of Investment Disputes (ICSID) under the World Bank against the Korean government regarding the $35 billion Songdo project.
Gale's attorney asserted that “Korea expropriated a substantial portion of Gale’s investment in an unlawful manner,” adding that “Korea caused Gale more than US$2 billion in damages.”
The attorney also said that “Korea unfairly and inequitably took from Gale the value of investments, discriminated against Gale, conspired to divest Gale of its investments, and used its public powers to harass and coerce Gale into ceding valuable rights.”
In March this year, Gale filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce (ICC) to settle its dispute with POSCO E&C, its partner in NSIC, a joint venture set up to execute the Songdo project. Gale demands that POSCO E&C pay 2.27 billion won in damages, claiming that the company caused it losses by “overcharging hundreds of millions of dollars in construction work and engaging in extensive violations of its contractual and statutory duties to Gale.” Gale also initiated proceedings in the U.S. District Court for Southern District of New York (SDNY).
The Songdo project began in 2002 to build an international business hub on the landfill of 5.74 million square meters. Gale established NSIC jointly with POSCO E&C in a 7-to-3 investment ratio. They jointly built, among other things, more than 20,000 residential units, luxury hotels, a convention center, Songdo Central Park, and a Jack Nicklaus Signature golf course. However, the project has been stalled since July 2015 as Gale and POSCO E&C have been at odds over profit and cost allocation.
The Board of Audit and Inspection of the Korean government took issue with the joint venture’s failure to attract overseas investment in 2010 and Gale's improper receipt of $179 million through dividends. Based on this, the Incheon Metropolitan Government ordered NSIC to sell its land back to the city. Last year, POSCO E&C split with Gale, taking on full project financing loans.
Gale countered that the $179 million it received was an appropriate compensation for project costs and that attracting foreign investment is not mandatory. The Wall Street Journal said that Gale claims that the Korean government has not done enough to reform regulations such as labor laws and financial regulations to attract foreign companies.
The ICSID arbitration commences after a 90-day notice period. The legal battle between the South Korean government and Gale is expected to begin around September.
The Korean government believes that Gale has decided to take legal action against the Korean government as its dispute with POSCO E&C over profit sharing remains unresolved. "I understand that the government's failure to implement as many regulatory reforms as Gale wanted is not something that can be legally contested," said an official at the Ministry of Trade, Industry and Energy. "We will prepare for the lawsuit through the Ministry of Justice's response team."