Government-Lone Star '10-Year Financial Dispute' in Numbers

Government-Lone Star International Dispute in Numbers
Photo by Asia Economy

[Asia Economy Reporter Kim Hyung-min] The investor-state dispute settlement (ISDS) lawsuit between our government and the U.S.-based private equity fund 'Lone Star,' which will conclude on the 31st, is expected by the legal community to be recorded as the longest and largest international lawsuit in history.

In terms of scale and complexity of issues alone, it is undoubtedly the largest among the ISDS lawsuits our government has faced or is facing. Many insiders refer to the ISDS case with Lone Star as a "comprehensive set of international lawsuits."

First, the lawsuit took 10 years until the verdict was delivered. Lone Star, which acquired Korea Exchange Bank in 2003, began negotiations to sell it again in 2006. In September 2007, Lone Star attempted to sell it to Hongkong and Shanghai Banking Corporation (HSBC), but our government did not approve the sale. This was because Lone Star was undergoing a criminal trial, and it was judged that this could affect its eligibility. Eventually, Lone Star changed direction and sold its 51.02% stake in Korea Exchange Bank to Hana Financial Group in 2012 for 3.9157 trillion won. Lone Star filed the ISDS lawsuit in November 2012, claiming that the government's measures delayed the sale process and lowered the price. The verdict on the 31st will come about 9 years and 9 months after the lawsuit was filed. The hearing procedure ended on June 29th earlier this year, which was the 3,508th day since the lawsuit was filed.

Photo related to Lone Star

The scale of the lawsuit has swelled to around 6 trillion won ahead of the verdict. When Lone Star filed the lawsuit in November 2012, the amount was in the 5 trillion won range, but fluctuations in exchange rates and other factors caused the amount to increase. Initially, Lone Star sued the government for compensation of $4.6795 billion. Converted at the current exchange rate, this is about 6.286 trillion won. Lone Star calculated the compensation amount by adding the approximately 2 trillion won difference between the failed sale price to HSBC and the amount paid to Hana Bank, as well as taxes withheld on the sale price to Hana Bank. Essentially, Lone Star aims to recover all costs incurred during the sale of Korea Exchange Bank through this lawsuit.

During the lawsuit, both our government and Lone Star submitted about 1,636 documents to the tribunal. The International Centre for Settlement of Investment Disputes (ICSID) held four hearings on the case between October 2013 and June 2016 in Washington D.C., USA, and The Hague, Netherlands. The government and Lone Star submitted 1,546 pieces of evidence and 95 witness and expert statements. After the appointment of William Ian Binny as the new presiding arbitrator, a Q&A session was held via video conference in October 2020. A month later, Lone Star proposed to withdraw the ISDS case if the government paid $870 million, but the government rejected the offer.

Ultimately, the key issue in the lawsuit is whether the measures taken by our government during Lone Star's sale process of Korea Exchange Bank were lawful and whether there was intentional delay. Our government claims it followed "lawful procedures," while Lone Star argues it was subjected to "unfair pressure." Attention is also focused on how the tribunal will rule on Lone Star's claim that the government denied tax exemption benefits guaranteed under the Korea-Belgium Double Taxation Avoidance Agreement in order to maximize tax collection.

The outcome of the lawsuit is expected to have significant repercussions. Approximately 6 trillion won of taxpayers' money may be paid as damages. Additionally, responsibility issues may arise concerning Han Duck-soo, the Prime Minister, and Choo Kyung-ho, the Minister of Strategy and Finance, who were involved in Lone Star's acquisition and sale of Korea Exchange Bank at the time. Prime Minister Han was a legal advisor at Kim & Chang, which represented Lone Star when it acquired Korea Exchange Bank in 2003, and Minister Choo was the Vice Chairman of the Financial Services Commission during Lone Star's sale of Korea Exchange Bank.

Prime Minister Han Duck-soo served as a legal advisor at Kim & Chang, which acted as Lone Star's legal representative when Lone Star acquired Korea Exchange Bank in 2003. Prime Minister Han explained, "I was not personally involved."
[Photo by Yonhap News]

Moreover, our government still bears the lingering impact of losing an ISDS lawsuit in June 2018, where it was ordered to pay 73 billion won in damages to Dayani, the major shareholder of Iran's Entekhab Group. If it loses again this time, the shock is expected to be considerable. That case was filed by Dayani, the major shareholder of Iran's Entekhab Group, who challenged the sale process of Daewoo Electronics in 2015. Entekhab Group was selected as the preferred bidder for the merger and acquisition (M&A) of Daewoo Electronics in 2010, but disagreements over the purchase price led to a missed payment deadline and contract termination. Dayani sued the government, claiming that it violated the Korea-Iran Bilateral Investment Treaty (BIT) and should return the contract deposit and delay interest.

This content was produced with the assistance of AI translation services.