The Republic of Korea -v- Mohammad Reza Dayyani & Others


[2019] EWHC 3580 (Comm)




Mr Justice Butcher


The Republic of Korea


Mohammad Reza Dayyani & Others


20 December 2019

Case Summary

In this case, Butcher J rejected an application to set aside an investment arbitral award under s. 67 of the Arbitration Act 1996. The claims were in respect of “investments” and were brought by “investors” within the meaning of the relevant provision of the investment treaty in question.

The Facts

The arbitral claim had been brought by the Iranian shareholders (the Dayyanis), in a Singaporean special purpose vehicle (“D&A”), following D&A’s failed purchase of a Korean company (“Daewoo”), majority-owned by a debt resolution agency (“KAMCO”), in turn majority-owned by the Republic of Korea (the “Republic”). D&A and the sellers of Daewoo (the “Sellers”), who included KAMCO, had executed an agreement for the sale of Daewoo (the “SPA”) requiring D&A to pay a deposit (the “Deposit”) and to submit letters of confirmation to the Sellers by a certain date in a form and substance satisfactory to the Sellers. D&A paid the Deposit and then submitted letters of confirmation. The Sellers rejected the letters as unsatisfactory and subsequently purported to terminate the SPA on the basis satisfactory letters had not been received by the relevant date.

The Arbitral Award

The Dayyanis commenced arbitration proceedings against the Republic pursuant to a bilateral investment treaty between the Republic and Iran dated 31 October 1998 (the “BIT”). The tribunal decided, inter alia, that it had jurisdiction, the Republic had breached the BIT and the Republic should repay the Deposit with interest and costs.

The Appeal

Article 12(1) of the BIT provided that “Any legal dispute arising directly out of an investment between an investor of one Contracting Party and the other Contracting Party shall be settled amicably between the two parties concerned.”

The Republic sought to argue that none of the SPA, the Deposit, the rights conferred on D&A nor Dayannis and/or D&A’s efforts (the “Alleged Investments”) in concluding and performing the SPA constituted an “investment” within the meaning of Article 12(1) and 1(1) on three alternative grounds: (a) these were not “property or assets”; (b) these lacked the characteristics of an investment (c) these were not “invested…in [the Republic]”.

Butcher J rejected (a), (b) and (c), holding the SPA and the Deposit were such investments. As to (a), the definition of investment in Article 1(1) was very wide given its reference to “every kind of property or asset” which covered the SPA and the Contract Deposit. Although the Judge found the words covered property and assets into which investors commit resources (as well as those put in by an investor) and that there was no requirement something be of economic value to be an investment, he stated he would still have concluded the SPA and Contract Deposit fell within that definition, even if he hadn’t reached those interpretative conclusions. As to (b), he rejected an argument of the Republic’s that an “investment” necessarily has the characteristics of (i) a contribution (ii) investment risk as opposed to mere contractual risk, and (iii) duration both because an investment does not necessarily have those characteristics and in any event the investment did have them. As to (c), Butcher J held this argument had no independent force – insofar as the SPA and the Deposit were investments, they were invested in the Republic.

Butcher J held the Dayyanis had standing under the BIT, rejecting a further argument of the Republic that the Dayyanis were not “investors” for the purposes of the BIT and were entitled to claim in respect of investments held by D&A. There was no express requirement in 12(1) that an “investor” have direct legal interest in the “investment”. To imply such a requirement would be to rewrite the BIT. In support of this conclusion he cited a number of investment awards in which tribunals have concluded that claimants with indirect interests in investments are entitled to bring claims in respect of those investments, such as shareholders bringing claims in respect of the assets of the companies in which they have a shareholding.

In addition, there was an issue as to whether arguments raised by the Republic that the acts of the Sellers and KAMCO were not attributable to the Republic for the purposes of Article 12 of the BIT raised jurisdictional questions within the meaning of s. 67. The Judge answered this in the negative. The Republic was plainly a party to the BIT and if it denied attribution then it had a “legal dispute” with, arguendo, an investor within the meaning of s. 12(1). In his view, it would be surprising and inconvenient were such issues jurisdictional since that would entail national courts hearing factually and legally complex issues which are integral to the merits of many claims.