Issue Analysis: First Known ISD Arbitration Under Korea-U.S. Free Trade Agreement

The Korean media is reporting that last month, a U.S. investor filed a Notice of Intent to Arbitrate pursuant to the Korea-U.S. Free Trade Agreement (KORUS FTA). If filed, this would be the very first investor-state dispute (ISD) arbitration filed under the KORUS FTA, which came into effect in late 2011. Notably, the Trump administration almost unilaterally withdrew from the KORUS FTA until the North Korea crisis made it think better.

It appears that the claimant is a Korean American who invested in certain real estate in Seoul. The city government of Seoul designated the real estate to be re-developed, and paid the claimant approximately US $810,000 as compensation. The claimant claims the compensation was too low such that it amounted to expropriation of her real estate. Rather than suing in Korea, the claimant filed the Notice. The claimed damages appears to be around US $2 million.

Although $2 million is certainly not a trivial sum of money, the claim is small potatoes in the realm of ISD arbitration. ISD arbitration is an extremely specialized field, and attorneys in that field are very, very expensive. (US $1,000 an hour would be considered very reasonable, and at the absolute minimum, the claimant would have at least three attorneys working on the case. An international arbitration case on which I am currently working involve four law firms and at least a dozen lawyers.) In addition, the parties must pay for the time of the arbitrator, who is him/herself a seasoned attorney or law professor who would command more than US $1,000 an hour.

Then again, perhaps this claim might be a beginning of a new trend in which ISD arbitration would become (relatively) more accessible to ordinary investors. If an investor cannot trust the national courts, it is the function of the ISD arbitration to provide relief in a more dependable way. Perhaps there is a way to craft a more affordable path for an ISD arbitration.