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The South Korean government emerged victorious for the first time in an investor-state dispute settlement (ISDS) cases initiated by a US investor in connection with land redevelopment. But no determination has yet been made on whether the South Korean expropriation system is in violation of the South Korea-US Free Trade Agreement (KORUS FTA).

The Ministry of Justice announced on Sept. 30 that it had won an arbitration decision in its favor on Sept. 27 in an ISDS case by a US investor demanding around US$3 million in reparations. Contending that while they had received expropriation compensation for a housing development zone they owned in the Daeheung neighborhood of Seoul’s Mapo District but that the amount fell short of a “fair market price,” the US investor was requesting around US$2 million to reflect the difference in land compensation according to the KORUS FTA, along with US$1 million in compensation for emotional damages.

The South Korean government stressed that the real estate purchased by the petitioner did not represent an investment within the designated scope of protections under the KORUS FTA – an argument that the arbitration court ultimately sided with. The determination was made on the fact that the petitioner was a citizen of the Republic of Korea rather than the US at the time the KORUS FTA went into effect on Mar. 15, 2012. The arbitration court also said the petitioner did not represent an “investor” as defined by the KORUS FTA, noting that their purchasing of real estate to serve as a residence for their family, only to subsequently rent out a portion of it, could not be viewed as “typical” investment behavior.

Song Kee-ho, an attorney and expert in international investment disputes, noted that the “arbitration decision is limited in significance, since it was not a victory on the merits in terms of whether the South Korean expropriation appraisal and assessment system is lawful according to the KORUS FTA.”

“It means that a person who was not a US citizen at the time the KORUS FTA went into effect is not entitled to investor protections according to the KORUS FTA,” he explained.

By Choi Woo-ri, staff reporter

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