Dayani family filed second arbitration over delayed payment of first-round award

Tribunal rules unanimously that non-compliance with an award cannot justify a new ISDS claim

The Ministry of Justice building in Gwacheon, Gyeonggi Province. [Ministry of Justice]
The Ministry of Justice building in Gwacheon, Gyeonggi Province. [Ministry of Justice]

South Korea has won a second investor-state dispute settlement case brought by Iran's Dayani family, who argued that the government delayed paying damages awarded in an earlier arbitration over the acquisition of Daewoo Electronics — now known as Winia Electronics. The government successfully defended against a 770 billion won ($567 million) claim.

The Ministry of Justice held a briefing Wednesday morning at its Gwacheon, Gyeonggi Province headquarters, announcing that an arbitration tribunal ruled unanimously in the government's favor Sunday in the second ISDS case filed by six members of the Dayani family in October 2021. The tribunal also ordered the Dayani family to pay approximately 4 billion won, or 75 percent, of the government's legal costs, as well as about 800 million won in arbitration administrative fees.

The Dayani family, the controlling shareholders of Entekhab, Iran's largest home appliance and petrochemical conglomerate, entered the bidding for Daewoo Electronics in 2010 when the company was undergoing a workout process. Selected as the preferred bidder, the family paid a deposit of 57.8 billion won to Korea Asset Management Corp. and other Korean creditors and submitted a letter of investment commitment. Korea Asset Management Corp. later terminated the acquisition contract, citing concerns about the Dayani family's financial standing.

In 2015, the Dayani family filed a first ISDS claim against the government, alleging that the creditors had wrongfully confiscated the 57.8 billion won deposit. In June 2018, the arbitration tribunal sided with the family, ruling that the forfeiture of the deposit violated investor protection obligations under the Korea-Iran bilateral investment treaty.

The government sought to annul the award, but a British court rejected the application in December 2019. While the government moved to pay the damages, it faced difficulties due to restrictions on foreign currency and financial transactions stemming from US economic sanctions against Iran. In 2022, it paid about 62.2 billion won of the roughly 85.8 billion won first-round award and deposited the remaining 23.6 billion won with the court following a seizure and collection order.

Despite this, the Dayani family filed the second ISDS in October 2021, claiming the government had failed to properly pay the damages. The family argued that the non-payment violated the good-faith obligation and breached provisions of the Korea-Iran bilateral investment treaty on fair and equitable treatment, most-favored-nation treatment and transfer guarantees.

The government formed a joint response team led by the Ministry of Justice's director general for legal affairs, coordinating with related ministries to map out its defense strategy. The Financial Services Commission took the lead on the first ISDS case, while the Ministry of Justice handled the second. The Dayani family initially sought about 1.26 trillion won but reduced the claim to about 770 billion won following the government's rebuttal.

The Dayani family argued that the delay in paying the first-round award itself constituted a violation of the treaty obligation to comply with arbitral awards, and that this could serve as an independent basis for a new ISDS claim. The tribunal rejected that argument, finding that allowing a fresh ISDS solely on the grounds of non-compliance with a prior award would run counter to the purpose of investment treaties. It also found that the payment delays were an unavoidable consequence of compliance with international economic sanctions.

The Ministry of Justice said the ruling "can serve as an important precedent establishing legitimate legal and diplomatic standards for reconciling compliance with international sanctions and the obligation to implement ISDS awards when those two requirements come into conflict."

The government has been on a winning streak in ISDS cases. The ministry announced earlier this month that an arbitration tribunal's decision to dismiss all of Swiss elevator maker Schindler's 320 billion won damages claim against the government had been finalized. Last November, the government also prevailed in an annulment suit related to the 400 billion won ISDS case that Lone Star had filed over the sale of Korea Exchange Bank.


bell@heraldcorp.com