Case Summary: The severance test in Republic of Korea vs Elliott Associates LP

By Augusto Garcia, Luke Zadkovich

Introduction

When a party succeeds in a jurisdictional challenge against only part of the award, a key question is whether the entire award collapses or the surviving parts can stand on their own.

In a recent decision of the English High Court (the “HC”) in Republic of Korea vs Elliott Associates LP [2026] EWHC 368 (Comm), the HC held that determining the extent to which set aside parts influenced (or tainted) the surviving ones required remitting the matter to the tribunal. The HC also highlighted the importance of making arguments in the alternative in the event some bases for the award are set aside.

The case concerned a 2023 investment arbitration award arising from the claim of the fund Elliott Associates LP (“Elliott”) that the Republic of Korea (“Korea”) breached the free trade agreement between Korea and the United States (the “FTA”).

The claim arose out of the interference of Korean governmental authorities, via the vote of the Korean National Pension Scheme (“NPS”), to procure a merger between the companies SC&T and Cheil, both companies within the Samsung group. The tribunal found in Elliott’s favour. Korea filed a jurisdictional challenge in England under s.67 of the Arbitration Act 1996 (the “AA”) against the award. It was initially rejected by the HC, but the Court of Appeal held that the challenge had to be resolved by the HC.

The HC held that the Korean Presidential Office (the “Blue House”) had instructed NPS to vote in favour of the merger rather than form an independent judgment.[1] However, the acts of NPS were not attributable to Korea because the FTA had displaced the application of article 8 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (the “ILC Articles”).

The HC thus set aside the sections of the award which found that the NPS was an organ of Korea or that its conduct was attributable to Korea. The HC remitted to the tribunal the issue of causation of breaches by the Blue House for determination whether they could stand on their own.

Factual Background

In 2014, leadership succession issues began to brew within the Samsung group. The media speculated that, concerning inheritance tax planning considerations, two companies within the group could merge, SC&T and Cheil.[2] Elliott and NPS were shareholders in SC&T, where NPS had the decisive vote on whether the merger would proceed.[3] Elliott opposed the merger.[4]

The NPS’s internal procedures dictated that this type of decision should be referred to its Expert Voting Committee (“EVC”), which had rejected a similar merger.[5] However, this referral did not take place.[6] The HC found that the NPS was instructed to fabricate synergies between the companies to justify the merger ratio.[7] The merger was ultimately approved, and Elliott commenced and prevailed in the arbitration.

The tribunal held that NPS was not a de jure organ of the state under Korean law, but it was “functionally and financially closely linked to, and effectively part of, the Korean State.”[8] This meant that the NPS’s conduct was attributable to Korea.

Korea challenged the award in England under s.67 of the AA. The HC rejected the challenge finding that it was not a jurisdictional issue whether an investment complied with the treaty requirements. The Court of Appeal disagreed and sent the case back to the HC to resolve the jurisdictional challenge de novo.

The HC’s decision

The severance test

In the arbitration, Elliott’s arguments related to: (i) measures adopted or maintained by the Blue House and (ii) measures adopted or maintained by the NPS.[9]

As set out below, the HC found that (ii) did not constitute breaches according to the FTA because the NPS’s measures were not attributable to Korea. Based on previous case law and the severance test,[10] the HC found that it is possible to set aside part of an award:

“while leaving the remainder of the award in place and capable of being enforced, when it is apparent from the face of the award that that part of the award which is to remain capable of enforcement does not depend on those parts being set aside, and where there is no realistic possibility that the arbitrators would have made a different decision in the preserved part of the award but for those findings made in excess of jurisdiction – “the severance test””[11]

After analysing the award, the HC held that it was not open for it to conclude that causation was established concerning the Blue House’s measures alone, i.e., without the findings that the NPS’s measures were attributable to Korea.[12]

This is notable when contrasted with the outcome of a similar arbitration between Mason Capital LP and Mason Management LLC (“Mason”) and Korea. In the Singapore-seated arbitration, the tribunal found that the NPS’s measures were not attributable to Korea but that Korea had breached the FTA because of the Blue House’s measures.[13] Korea challenged the award for lack of jurisdiction, which was rejected by the Singapore Court deciding inter alia that whether the investment complied with the FTA requirements did not create a jurisdictional hurdle.[14]

NPS’s acts were not attributable to Korea

The attribution analysis focused on article 8 of the ILC Articles and article 11.1(3) of the FTA. Article 8 of the ILC Articles states that the conduct of a group or group of persons is attributable to a state if it is acting on the instructions, or under the direction or control of the State. Such conduct may include commercial acts as well as the exercise of regulatory, administrative or governmental authority.[15]

On the other hand, for the relevant purposes, the FTA provided for the following grounds for attribution.[16] The first regarding central, regional, or local governments, and authorities. The second regarding non-governmental bodies in the exercise of regulatory, administrative or governmental authority. The tribunal considered that the latter did not include commercial acts performed by non-governmental bodies (such as voting as a shareholder).

Here, based on the FTA’s language and article 55 of the ILC Articles, the HC held that article 11.1(3) was lex specialis that displaced article 8 of the ILC Articles regarding state attribution.[17]

The HC found that the NPS’s acts were not attributable to Korea because (i) the NPS was not a de jure organ or a de facto state organ of Korea (article 4 of the ILC Articles)[18] and (ii) by voting in the merger, the NPS was not exercising governmental authority (article 5 of the ILC Articles).[19]

Although the HC rejected the applicability of article 8 of the ILC Articles, the HC concluded that it would have found that article 8 was met as a result of the State organ’s instructions to the NPS to vote for the merger.[20]

The HC concluded that the award should be set aside concerning the findings that the NPS was an organ of the state and its conduct attributable to Korea. The HC remitted to the tribunal for reconsideration the issue of causation of the Blue House’s measures and the relief award. In other words, whether Elliott was entitled to relief from the Blue House’s measures alone, as the Mason claimants were.

Commentary

The HC’s court decision provides a useful example of the severance test and how it may affect the enforceability of awards when they are partially set aside by the English Court. On a practitioner’s point, the HC noted that there may be benefit in pleading alternative grounds for jurisdiction which would survive if another ground is successfully challenged.[21]

Finally, the HC conducted an intricate analysis de novo of the jurisdictional challenge in the context of an investment arbitration. This decision thus sheds light on treaty interpretation and displacement of important principles such as article 8 of the ILC Articles.

References:

[1] Republic of Korea vs Elliott Associates LP [2026] EWHC 368 (Comm), para 210.

[2] ibid 30-31.

[3] ibid 45.

[4] ibid 35.

[5] ibid 29.

[6] ibid 59, 70.

[7] ibid 208.

[8] ibid 14(v).

[9] ibid 242.

[10] IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2008] EWCA Civ 1157 [14] and ACN 006 396 413 Pty Ltd v International Movie Group (Canada) Inc [1997] 2 VR 31 (decision of Supreme Court of Victoria).

[11] ibid 254.

[12] ibid 265.

[13] ibid 23.

[14] ibid 24-25.

[15] ibid 206.

[16] The Court also considered the rule of customary international law reflected in article 7 of the ILC Articles also applied “and would defeat an argument that measures adopted by a state organ or a non-state organ in the exercise of delegated government power would not meet the Article 11.1(3) requirements of attribution if they exceeded the organ’s authority or contravened the delegate’s instructions.” ibid 202.

[17] ibid 188, 206-207.

[18] ibid 150-161.

[19] ibid 175.

[20] ibid 210.

[21] ibid 268-269.