Lone Star's 20-Year Dispute: How Korea Overcame the 'Slim Odds'

Adoption of ICC Arbitration Award Between Hana Financial Group and Lone Star as Evidence Without Government Participation
Government's Right to Plead Deprived... Liability Recognized Based Solely on Speculative Evidence
Government Actively Argues Vi

The decisive factor that enabled the Korean government to win the international lawsuit worth trillions of won against the US-based private equity fund Lone Star, which had lasted for 13 years, was found to be the government's argument of a "serious violation of due process."

According to a comprehensive report by The Asia Business Daily on November 19, the reason the Korean government was able to overturn the International Centre for Settlement of Investment Disputes (ICSID) ruling, which had ordered Korea to pay Lone Star $216.5 million (approximately 281.5 billion won), and achieve a result of zero compensation, was its persistent focus on the fact that the tribunal used evidence that should not have been admitted as evidence.

On August 31, 2022, ICSID had ruled that the Korean government must pay 281.5 billion won, equivalent to 4.6% of the damages claimed by Lone Star. In response, in July 2023, the Korean government filed for annulment of the ruling with ICSID, citing clear excess of authority by the tribunal, serious procedural violations, and failure to state reasons.

In the annulment proceedings, the Korean government focused on the fact that the tribunal deprived the government of its right to defense and cross-examination by admitting as evidence the International Chamber of Commerce (ICC) commercial arbitration award between Hana Financial Group and Lone Star, in which the government was not a party. The government also actively argued that the tribunal violated the principle of trial by evidence by recognizing government liability based only on speculation or expert testimony, and that it was unlawful to acknowledge the government’s liability for compensation even though it ruled that there was no decisive evidence in the case.

In other words, the government highlighted that the result of the dispute between Hana Financial Group and Lone Star, in which the government was not involved, was used as evidence of wrongdoing by the government.

Previously, when filing for annulment, the government stated, "The tribunal, without any special grounds, assumed that the government had concealed evidence and shifted responsibility to the government, overlooking the basic principle that the party asserting favorable facts bears the burden of proof."

Kim Kap-Yoo, attorney at Peter & Kim, who represented the Korean government in the Lone Star lawsuit for 13 years, explained, "The previous tribunal ruled that both the government and Lone Star were at fault, but there was no evidence for the part that Korea was at fault. We argued during the annulment proceedings that the tribunal admitted as evidence the result of a dispute in which the government was not involved, without giving the government an opportunity to defend itself, and that was the decisive blow."

He added, "Using the arbitration award from proceedings in which the Korean government did not participate as evidence constituted a serious violation of due process. Since that part was wrong, there was essentially no need to consider anything else."

As a result of this decision, the obligation of the Korean government to pay Lone Star the principal compensation of $216.5 million and the related interest, as recognized in the arbitration award, was canceled. The government will also be able to recover approximately 7.3 billion won in litigation costs incurred during the annulment process within 30 days.

Meanwhile, Lone Star has announced that it is considering additional legal action in response to the annulment of the previous arbitration tribunal’s ruling regarding the sale of Korea Exchange Bank. Lone Star stated, "We look forward to bringing the case before a new tribunal and are confident that the new tribunal will also recognize Korea’s illegal acts and order full compensation for Lone Star’s damages."