Value context and insight. lkm@koreatimes.co.kr
Will gov't win ISD suit over Lone Star?
By Lee Kyung-min
By Lee Kyung-min
Opinions are divided over whether the recent win of Hana Financial Group against Lone Star Funds bodes well for the ongoing, higher-stakes dispute suit involving the Korean government and the U.S.-based private equity fund.
The government maintains the suit may help or at least not hurt the case, but industry watchers and lawyers caution against any rash conclusions given little information is available of the highly secretive proceedings.
On May 15, Hana Financial Group said it won an international arbitration case against the U.S. buyout fund over its purchase of the Korea Exchange Bank (KEB), later acquired by the group to become KEB Hana Bank.
The International Chamber of Commerce (ICC) found in favor of Hana Financial, dismissing Lone Star's claim of “fraud, duress and mistakes.”
The ruling came nearly three years after Lone Star filed the suit seeking over $1.4 billion (1.6 trillion won) against the financial group saying the latter cut the buyout price of KEB, citing government pressure.
John Grayken, Lone Star Funds chairman / Korea Times file
In a ruling in English obtained by The Korea Times, the ICC said Lone Star's claim of fraud was groundless since Hana Financial committed no deceptive acts.
“Lone Star unilaterally believed the regulatory authorities would not have approved the sale of KEB shares without a price reduction,” it said.
The ICC said the claimed duress also lacked merit.
It dismissed the allegation that Hana threatened “there would be no approval unless a price reduction is made.”
“In view of the overall circumstances, it is difficult to characterize such an act as a threat,” it added.
“Since the deceptive act and duress claims have no merit, the mistake claim is dismissed accordingly,” the ICC concluded.
However, the ruling will have a limited impact on the much dragged-out investor-state dispute settlement (ISDS) claim involving the Korean government and Lone Star, according to legal experts.
“The ruling only speaks to Hana Financial's liability, not that of the government over the course of the shares sales process,” said Song Ki-ho, a former head of the international arbitration committee under the Lawyers for a Democratic Society, a group of liberal lawyers.
The key point of contention, in his view, concerns whether Lone Star can be recognized as a major shareholder at the time of the stake sale, and thus be eligible to seek protection under the ISDS proceedings.
“The government would have won had it been simply about that. But nothing is conclusive at this point given we have no information as to which witnesses have given their accounts during the proceedings.”
Whether the financial authorities had been deliberate in delaying the sales approval is open to interpretation, another key point of contention, he noted.
“Repeated delay of the sales approval had legitimate reasons. But if the ruling views the delay as a continued act of undue intervention, it may hurt the government's case,” he added.
Noh Joo-hee, also a member of the lawyers' group, said the ongoing ISDS proceedings will review the ICC ruling.
“The private sector and the government may be inclined to make predictions that suit their respective interests. But we will have to wait and see until the ruling comes out,” she said.
Lone Star filed the suit in November 2012 seeking over $4.7 billion from the Korean government saying the financial and tax authorities deliberately postponed the approval of the sales of KEB shares and levied 800 billion won in what it considered a “punitive” tax.
The private equity firm believes the Korean government's inaction resulted from fierce public criticism that a foreign private equity fund took advantage of KEB.
The ISDS case is expected to reach a settlement as early as September.