Lone Star's 20-Year Dispute... How Korea Overcame 'Extremely Slim Odds' (Comprehensive)

Adoption of Hana Financial Group?Lone Star ICC Arbitration Award as Evidence Without Government Participation
Annulment Committee: "Serious Violation of the Fundamental Principle of Due Process under International Law"

Jung Hongsik, Director of the International Legal Affairs Bureau at the Ministry of Justice, is holding a briefing on the Lone Star ISDS cancellation decision at the Ministry of Justice, Government Complex Gwacheon, Gwacheon-si, Gyeonggi Province on the 19th. Photo by Yonhap News

The decisive factor that enabled the Korean government to win the multi-trillion-won international lawsuit against the U.S.-based private equity fund Lone Star, which lasted for 13 years, was found to be the government's argument of a "serious violation of due process."

According to a comprehensive report by The Asia Business Daily on the 19th, the Korean government's success in overturning the International Centre for Settlement of Investment Disputes (ICSID) ruling-which had ordered Korea to pay Lone Star 216.5 million dollars (approximately 281.5 billion won) in compensation and ultimately resulted in zero compensation-was due to its relentless focus on the fact that "the tribunal used evidence that should not have been admitted."

On August 31, 2022, ICSID ruled that the Korean government must pay 281.5 billion won, equivalent to 4.6% of the damages claimed by Lone Star. In response, in July 2023, the Korean government filed for annulment of the ruling with ICSID, citing manifest excess of powers by the tribunal, serious procedural violations, and failure to state reasons.

In the annulment proceedings, the government emphasized that the tribunal deprived it of the right to present its case and cross-examine by admitting as evidence the International Chamber of Commerce (ICC) arbitration award between Hana Financial Group and Lone Star, in which the government was not a party. The government also actively argued that the tribunal violated the principle of evidentiary trial by recognizing government liability based solely on conjecture or expert evidence, and that it was unlawful to acknowledge the government's liability for compensation even while ruling that decisive evidence did not exist in the case.

The Korean government highlighted the fact that it was unfair to use the outcome of a dispute between Hana Financial Group and Lone Star, in which the government was not involved, as evidence against the government.

Previously, when filing for annulment, the government submitted the opinion that "the tribunal, without any specific basis, assumed that the government concealed evidence and shifted responsibility onto the government, overlooking the basic principle that the party asserting a favorable fact bears the burden of proof."

Ultimately, the annulment committee accepted the Korean government's arguments. The committee determined that "the original arbitral award seriously violated the fundamental principle of due process under international law by adopting as key evidence the ICC arbitration award between Hana Financial Group and Lone Star, in which the Republic of Korea was not a party, and relying on it to hastily recognize the illegality of the Financial Services Commission and the state's liability."

The committee further ruled that "the parts of the original award recognizing the illegality of the Financial Services Commission, state liability, causality, and damages to Lone Star must all be annulled in succession."

Kim KapYoo, attorney at Peter & Kim, who represented the Korean government in the Lone Star case for 13 years, said, "The previous tribunal ruled that both the Korean government and Lone Star were at fault, but there was no evidence that the Republic of Korea was at fault. The decisive point in the annulment proceedings was our argument that the outcome of a dispute in which the government was not involved was used as evidence, without giving the government an opportunity to defend itself."

He added, "Using the decision of an arbitration procedure in which the Korean government did not participate as evidence constitutes a serious violation of due process. Since that part was flawed, there was essentially no need to consider anything else."

As a result of this decision, the Korean government's obligation to pay the principal compensation of 216.5 million dollars and related interest to Lone Star, as recognized in the arbitral award, has been annulled. The government will also be able to recover approximately 7.3 billion won in legal costs incurred during the annulment proceedings within 30 days.

The Ministry of Justice stated, "This is the first case in which the Korean government's liability for compensation has been annulled in ISDS annulment proceedings. As the government's meticulous review and strategic case response have been proven on the international stage, this is expected to serve as a meaningful precedent for future ISDS cases."

Meanwhile, Lone Star has announced that it is considering further legal action in response to the annulment of the previous tribunal's award regarding the sale of Korea Exchange Bank. Lone Star stated, "We look forward to bringing the case before a new tribunal and are confident that the new tribunal will also recognize Korea's unlawful conduct and award Lone Star the full amount of damages."

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