S. Korea wins ISDS case against Swiss elevator giant Schindler, blocks W325b in claims

South Korea's Ministry of Justice said Monday that its full victory against Swiss elevator company Schindler in an investor-state dispute settlement case had been finalized.

The ministry said it had confirmed that Schindler did not file an annulment petition with the Paris Court of Appeal within the legally prescribed period. That makes final the arbitral tribunal's decision to dismiss all of Schindler's claims — totaling approximately 325 billion won ($240 million) — and to order Schindler to reimburse the government approximately 9.6 billion won in legal costs.

Schindler filed the ISDS case in 2018 under the Korea-EFTA Investment Agreement, a pact between South Korea and the European Free Trade Association member states of Switzerland, Iceland and Liechtenstein. The company claimed that the Korea Fair Trade Commission, the Financial Services Commission and the Financial Supervisory Service had failed to properly exercise their regulatory and investigative powers, causing the share price of Hyundai Elevator — in which Schindler had invested — to fall and inflicting significant losses.

Schindler alleged that Hyundai Elevator had entered into derivatives contracts to defend its management control, conducted unnecessary rights offerings between 2013 and 2015 to maintain those contracts, and in 2016 transferred call options — the right to purchase shares at a set price — to Hyundai Elevator's management at below-market prices. The company also argued that the regulators' failure to conduct proper investigations constituted a breach of obligations under the investment agreement.

The government rebuffed those claims, arguing that the dispute was fundamentally a management-control conflict between Schindler and Hyundai Group shareholders and that attributing responsibility to the state under international law was improper. It said each regulatory action had been carried out in strict compliance with domestic laws and practices, particularly noting that the Financial Supervisory Service's review of rights-offering securities registration statements had been conducted lawfully.

Schindler had initially set its claim at approximately 490 billion won (259 million Swiss francs) before reducing it at the final hearing stage to approximately 325 billion won ($216.9 million) in damages. The company cited the decline in Hyundai Elevator's share price attributable to the rights offerings, ongoing costs incurred to maintain derivatives contracts as a result of those offerings, and harm to shareholder interests from the below-market transfer of call options.

The arbitral tribunal ruled in March, siding with the South Korean government and rejecting all of Schindler's claims. Under the "loser pays" principle, the tribunal ordered Schindler to pay approximately 9.6 billion won in total legal costs plus interest accruing until the date of payment.

The tribunal declined to accept the argument that the regulators had acted arbitrarily or improperly, and also rejected claims that the government had unfairly shielded Hyundai Group or abused its regulatory authority in bad faith. "We will continue to respond to international investment disputes in a professional and systematic manner to do our utmost to protect the national interest," the ministry said.