'Government-Lone Star Dispute' Arbitration Procedure Ends... 6 Years After Final Hearing

Lone Star Filed ICSID Claim in 2012... "Delay in Approval of Foreign Exchange Bank Sale"
Government: "Based on Principle of Equal Treatment for Nationals and Foreigners... Fair and Impartial Treatment Without Discrimination"

Lee Sang-gap, Director of the Legal Affairs Office at the Ministry of Justice, is briefing on the progress of international investment disputes (ISDS), including the dispute with Lone Star, at the Government Seoul Office in Jongno-gu, Seoul, last September. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Heo Kyung-jun] The arbitration tribunal for the international investment dispute case (the Lone Star case) filed by the U.S. private equity firm Lone Star against the Korean government has declared the "end of proceedings." The declaration of the end of proceedings means that the arbitration process has been completed.

The arbitration tribunal, pursuant to Articles 38 and 46 of the ICSID Arbitration Rules, will issue an award within 120 days after the declaration of the end of proceedings, or within 180 days if there are special reasons making it difficult to issue the award within 120 days.

On the 29th, the Ministry of Justice announced that the case filed by Lone Star against the Korean government at the ICSID in Washington, D.C. in November 2012 was notified of the declaration of the end of proceedings about six years after the final hearing was concluded in June 2016.

Lone Star claimed that the Financial Services Commission took arbitrary and discriminatory measures by delaying approval of the sale of Korea Exchange Bank without just cause, and that the National Tax Service imposed arbitrary and contradictory taxation, demanding $4.6795 billion from the Korean government. When a foreign investor suffers damages due to measures taken by the host country, they can apply for arbitration at an international arbitration institution under the Investor-State Dispute Settlement (ISDS) system.

In September 2007, Lone Star attempted to sell Korea Exchange Bank to HSBC, but the sale was canceled as the Korean government did not approve it. Subsequently, in 2012, Lone Star sold Korea Exchange Bank to Hana Financial Group. Claiming that the delay in the sale caused a drop in price, Lone Star filed an ISDS lawsuit against the Korean government the same year, seeking damages in the range of 5 trillion KRW.

The Korean government argued through submitted documents that administrative measures related to Lone Star were conducted fairly and equitably without discrimination, based on the principle of equal treatment of nationals and foreigners under international laws and treaties.

Between 2013 and 2015, the Korean government and Lone Star exchanged written submissions including 1,546 pieces of evidence and 95 witness and expert statements at ICSID. Subsequently, four hearings were held in Washington D.C. and The Hague, Netherlands, until June 2016. In June last year, former Canadian Supreme Court Justice William Ian Binnie was appointed as the new presiding arbitrator. In October of the same year, a Q&A session was conducted via video conference.

Lone Star argued that the Korean government delayed approval of the sale of Korea Exchange Bank beyond the review period stipulated in domestic laws and exerted undue pressure to lower the sale price. On the other hand, the Korean government countered that the review period for sale approval stipulated by law was only advisory, and considering the period for document supplementation, the period was not exceeded. Furthermore, a criminal trial that could affect Lone Star’s major shareholder qualification was underway at the time, justifying the delay.

The Korean government plans to promptly analyze the award through a task force led by relevant ministries once the award is issued, review follow-up measures, and disclose related information as transparently as possible within the scope not violating related laws and regulations.