"Arbitration Award Cancellation Application Success Rate Only 11.5%... Thorough Analysis Needed for Lone Star Case"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyung-min] As the South Korean government is reviewing a request to annul the International Centre for Settlement of Investment Disputes (ICSID) ruling that ordered it to pay approximately 280 billion KRW to the US-based private equity firm 'Lone Star,' voices are emerging cautioning against overly optimistic views that there is a sufficient chance of success.

According to academia on the 5th, Professor Oh Hyun-seok of the Department of Economics and Trade at Keimyung University published a paper titled "Recent Trends and Case Analysis of ICSID Annulment Decisions" in the Sogang Law Review released last June.

In his paper, Professor Oh emphasized, "As of the end of 2020, there have been only 6 cases where the entire ICSID arbitration award was annulled and 13 cases where it was partially annulled, totaling just 19 cases."

Considering that a total of 165 annulment requests for arbitration awards have been made, including withdrawals and procedural suspensions, and only 19 cases were fully or partially annulled, Professor Oh explained that the actual success rate is merely 11.5%.

He further noted, "Through many annulment decisions, the theoretical foundation regarding the application and interpretation of annulment grounds has become clear," and also pointed out, "Reckless annulment requests aimed at alleviating political and financial burdens are continuing, significantly undermining the effectiveness of ISDS."

The Ministry of Justice is focusing on the volume of dissenting opinions as a basis for considering the annulment of the Lone Star dispute ruling. Since the dissenting opinions, which do not recognize the South Korean government's liability, are unusually extensive, there is a high possibility that the annulment request will be accepted.

Regarding this, Professor Oh advised that the ruling should be examined with the possibility in mind that the large volume of dissenting opinions may be due to one arbitrator appointed by a disputing party actively presenting opinions favorable to the party that selected them.

The ICSID arbitration tribunal consists of three arbitrators. Of these, two arbitrators, excluding the presiding arbitrator (chair arbitrator), are each appointed by the parties involved in the investor-state dispute settlement (ISDS).

According to Professor Oh's paper, in the 1984 ISDS ruling between the German company Kl?ckner and the Cameroon government, the arbitrator appointed by Kl?ckner issued a dissenting opinion spanning 53 pages, arguing that the ruling was incorrect and should be annulled. The dissenting opinion in the ruling between the South Korean government and Lone Star is also known to be about 40 pages. This is believed to have been influenced by Brigitte Stern, an honorary professor at Paris 1 Panth?on-Sorbonne University, who was appointed by the South Korean government and authored the dissenting opinion.

Other cases include the 2012 Daimler vs. Argentina case and the 2008 Duke Energy vs. Peru case. In most cases where the losing country's or company's arbitrator issued extensive dissenting opinions, these led to annulment requests by the respective country or company.

Professor Oh stated, "The dissenting opinions of arbitrators appointed by the parties significantly contribute to the increase in annulment requests for arbitration awards," and warned, "If this trend continues, parties will seek de facto agents who actively and aggressively represent their interests rather than fair and independent arbitrators," expressing concern that "the foundation of the ISDS system could be shaken."

Based on these points, Professor Oh also predicted that the government's annulment request is unlikely to lead to an actual annulment. He advised, "We have already experienced a futile annulment request after losing the ISDS case with the Dayani family (Iran) in 2018," and added, "In the case of ICSID annulment procedures, thorough preparation based on detailed analysis of existing annulment decisions is necessary."

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