[Invest&Law] Possibility of Year-End Conclusion in Lone Star Cancellation Lawsuit... Interest Snowballing if Lost

Hundreds of Billions in Additional Delayed Interest...
Compensation Amount Increases with Exchange Rate

The final oral arguments in the 'Lone Star arbitration award annulment' case were confirmed to have taken place in the UK at the end of last month. A conclusion is expected as early as this year, and if the government loses again, it will have to pay hundreds of billions of won in additional delayed interest alone, with the expected compensation amount likely to be much larger than initially anticipated due to the rise in exchange rates.

Supreme Court, Yonhap News

Final oral arguments from January 21 to 23... Government claims violation of rules of evidence

According to a comprehensive report by Law Times, the International Centre for Settlement of Investment Disputes (ICSID), under the World Bank, held a special committee meeting in London, UK, from January 21 to 23 last month to conduct the final oral arguments in the annulment (nullification) case of the Investor-State Dispute Settlement (ISDS) award filed by both the Korean government and Lone Star against each other. In ICSID ISDS annulment cases, the parties dispute only legal issues, not factual matters. It is akin to a 'legal review,' similar to a Supreme Court appeal.

According to the ICSID Convention, only five grounds are recognized for annulment: ▲defects in the constitution of the arbitral tribunal ▲manifest excess of powers by the tribunal ▲corruption of an arbitrator ▲serious procedural rule violations ▲failure to state reasons. Because each ground is judged strictly, annulment decisions are rare.

The Korean government filed for annulment in September 2023, claiming ▲tribunal excess of powers ▲procedural rule violations ▲failure to state reasons. In the final oral arguments last month, it is reported that the government argued that "the arbitral tribunal recognized the government's liability based solely on speculative and hearsay evidence without decisive proof, which violates the rules of evidence." When the arbitration award was issued in August 2022, Professor Brigitte Stern of Sorbonne University in France, who dissented on behalf of the Korean government, pointed out that "there is no precedent for holding a government liable under international law based solely on speculative and hearsay evidence."

With the final oral arguments concluded, only the award remains. Legal circles expect a decision as early as this year or early next year, though it could take more than a year until a conclusion is reached.

"Delayed interest alone estimated at 60 billion won"

If the government wins this annulment case, all concerns will disappear, but the problem arises if it loses again. Due to the strong dollar trend in recent years, the compensation amount and delayed interest are estimated to be much larger than at the time of the award.

The compensation amount is $216.5 million. At the time of the award, it was about 280 billion won, but based on the exchange rate on the 21st of this month, it reached approximately 310 billion won, an increase of about 30 billion won.

Delayed interest is analyzed to exceed 60 billion won. The delayed interest is calculated by compounding the annual interest rate of the 1-month US Treasury bond on the principal compensation amount. According to legal expert Attorney Song Ki-ho (age 62, Judicial Research and Training Institute class 30), applying the 1-month US Treasury bond rate of 4.37% as of February 5 this month and calculating from December 3, 2011, to February 5, 2025, the delayed interest on the compensation is estimated at $42,925,061. In Korean won, based on the exchange rate on the 21st, this amounts to 61.61892 billion won.

The legal costs incurred in responding to the annulment case are also expected to have increased more than anticipated due to exchange rate effects. According to the Ministry of Justice, the Korean government spent about 47 billion won on law firm legal advisory fees, arbitration costs, and other litigation expenses during the Lone Star ISDS case from 2012 to 2022.

The US-based hedge fund Lone Star filed an investor-state dispute (ISD) arbitration lawsuit in November 2012, claiming that the Korean government delayed approval of the sale of Korea Exchange Bank, causing Lone Star to sell the bank at a lower price and suffer losses. Ten years later, in August 2022, the ICSID arbitral tribunal recognized the Korean government's liability and ordered payment of $216.5 million, half of Lone Star's claimed damages of $433 million, which corresponds to 4.6% of the $4.6795 billion Lone Star originally claimed from the Korean government.

Hong Yoon-ji, Law Times Reporter

※This article is based on content supplied by Law Times.

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