Victory in '400 Billion Won' Lone Star Dispute... "Achievement in Protecting Taxpayers' Money" (Comprehensive)

Obligation to Pay Compensation Principal and Interest Canceled
Lone Star Ordered to Pay 7.3 Billion Won in Legal Costs
'Violation of Due Process' Was the Decisive Factor for Victory

The South Korean government has won a ruling in the case regarding the cancellation of the international investment dispute (ISDS) arbitration award related to the sale of Korea Exchange Bank by the foreign private equity fund Lone Star. This marks the conclusion of the Lone Star dispute after 13 years. With this ruling, the obligation to pay the principal and interest on compensation has been extinguished, relieving the government of a compensation liability of approximately 400 billion won.

Prime Minister Kim Minseok (second from left) is holding an emergency briefing on the 'Lone Star International Investment Dispute (ISDS) Cancellation Application' at the Government Seoul Office Building on the 18th. To the right of Prime Minister Kim is Justice Minister Jung Sung-ho. Photo by Yonhap News Agency

Relieved of 400 Billion Won Compensation Liability

Prime Minister Kim Minseok held an emergency briefing at the Government Seoul Office on the 18th, stating, "At 3:22 p.m. today (1:22 a.m. Eastern Time in the United States), the Lone Star ISDS annulment committee of the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C. delivered a decision in favor of the Republic of Korea."

The annulment committee canceled both the obligation to pay the principal (216.5 million dollars) and interest on the compensation to Lone Star, which had been recognized in the arbitration award in August 2022. Prime Minister Kim said, "Based on the current exchange rate, all compensation liabilities amounting to approximately 400 billion won have been retroactively extinguished." The annulment committee also ordered Lone Star to pay the South Korean government approximately 7.3 billion won in litigation costs incurred during the annulment proceedings within 30 days.

Prime Minister Kim emphasized, "This is a significant achievement in protecting national finances and taxpayers' money," and added, "It is a recognition of the Republic of Korea's sovereignty over financial supervision." He continued, "It is the result of active responses by government agencies, including the Ministry of Justice," and described it as a major diplomatic success in the external sector, following the successful hosting of the Asia-Pacific Economic Cooperation (APEC) summit, Korea-U.S.-China-Japan summit diplomacy, and the conclusion of customs negotiations since the launch of the new administration."

Prime Minister Kim Minseok is holding an emergency briefing on the 'Lone Star International Investment Dispute (ISDS) Cancellation Application' at the Government Seoul Office on the 18th. Photo by Yonhap News

Justice Minister Jung Sung-ho stated at the briefing, "After the December 3·12 coup, in a situation where both the President and the Justice Minister were absent, the Director General of the International Legal Affairs Bureau and the staff did their utmost. They went to ICSID themselves and presented oral arguments, and these efforts combined to produce this positive result." He also expressed his gratitude to the public for their support.

"Violation of Due Process Was the Decisive Factor for Victory"

The government cited the violation of due process as the reason for the favorable ruling. Jung Hongsik, Director General of the International Legal Affairs Bureau at the Ministry of Justice, said, "The decisive factor for the annulment committee to accept the Korean government's application was the significant violation of due process during the arbitration proceedings." He also explained that the grounds for the annulment application included excess of authority by the arbitral tribunal.

Director Jung also recalled, "In January this year, there was a three-day oral hearing in London, United Kingdom. During the hearing, the annulment committee members asked many questions about the violation of due process, which gave us a positive impression regarding the outcome."

The government has not yet received the decision document. Director Jung added, "The decision is over 120 pages long," and said, "We will analyze it and provide a detailed press release and additional media briefing in the future."

This case began in 2003 when Lone Star acquired Korea Exchange Bank for about 1.3 trillion won and later sold it to Hana Financial Group in 2012 at nearly three times the purchase price. Lone Star claimed that the Korean government caused it to miss the opportunity to sell at a higher price and demanded damages. In 2022, the original arbitration award ordered the payment of 216.5 million dollars in compensation, but both Lone Star and the Korean government filed for annulment, leading to the current ruling.