Government Files Request to Cancel Lone Star ISDS Ruling... "Legal Errors in the Decision" (Comprehensive)

On the 1st, our government filed a request to annul the international investment dispute (ISDS) arbitration ruling that recognized the Korean government’s liability to pay approximately 280 billion won in compensation related to the sale of Korea Exchange Bank by the foreign private equity fund Lone Star. This comes 488 days after ICSID issued the ruling.

The Ministry of Justice announced on the same day that it had filed a request to annul the ruling with the International Centre for Settlement of Investment Disputes (ICSID), citing clear ultra vires acts by the tribunal, serious violations of procedural rules, and lack of reasoning. This decision was made five days before the deadline for the annulment request, which is September 6 (September 5, U.S. Eastern Time).

Regarding the tribunal’s ultra vires acts, the Ministry of Justice argued that “the tribunal recognized the government’s obligation to compensate without specifying any ‘concrete illegal acts’ by the Financial Services Commission, which is a requirement under international law for state responsibility, thus making a judgment contrary to international legal principles.”

It further pointed out that “the delay in the sale of Korea Exchange Bank was caused by Lone Star’s stock manipulation crimes, not by government actions, so causality under customary international law is not recognized, yet the government’s liability was acknowledged.”

The Ministry of Justice also stated that the tribunal violated procedural rules by depriving the government of the right to present arguments and cross-examine witnesses during the adoption of the International Chamber of Commerce (ICC) commercial arbitration award between Hana Financial Group and Lone Star, who were not parties to the case.

It claimed that the tribunal violated the principle of evidence-based adjudication by recognizing the government’s liability based on speculative or expert evidence alone, while admitting that there was no “smoking gun” evidence, which was illegal.

The Ministry of Justice said, “The tribunal unjustly shifted responsibility onto the government by presuming without special grounds that the government concealed evidence,” and “it overlooked the basic principle that the party asserting favorable facts bears the burden of proof.”

Additionally, the Ministry explained that although the tribunal stated that Lone Star had reasonable expectations regarding its investment and profit realization in Korea Exchange Bank, it did not provide any basis for these expectations, which constitutes a lack of reasoning.

On November 25, 2010, Kim Seung-yu, Chairman of Hana Financial Group, and John Grayken, Chairman of Lone Star, are shaking hands after signing the Share Purchase Agreement (SPA) for Korea Exchange Bank at the Grosvenor Hotel in central London, UK.
[Photo by Yonhap News]

It also pointed out that the tribunal recognized government liability without special grounds or explanations, even though the sale price reduction would not have occurred without Lone Star’s stock manipulation, and that the ruling contained contradictory statements regarding the Financial Services Commission’s pressure to lower the sale price.

Previously, in 2012, Lone Star filed an ISDS claim alleging that our government unfairly intervened in the sale process of Korea Exchange Bank, causing damages of 4.6795 billion dollars (approximately 6.1 trillion won). Lone Star had purchased Korea Exchange Bank in 2003 for 1.3834 trillion won and negotiated sales with several companies before selling it to Hana Financial Group in 2012 for 3.9157 trillion won. Lone Star demanded compensation, claiming that government intervention caused it to lose the opportunity to sell at a higher price and forced it to lower the price.

On August 31 last year, ICSID ruled that the Korean government must pay Lone Star 216.5 million dollars (approximately 280 billion won based on an exchange rate of 1,300 won per dollar), which is 4.6% of the damages claimed by Lone Star. Lone Star also filed a request to annul the ruling with ICSID on July 29, arguing that the compensation amount was insufficient. Lone Star cited ultra vires acts, procedural rule violations, and lack of reasoning as grounds for its request.

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