Korea to challenge Int'l tribunal decision on Lone Star suit
Justice Minister Han Dong-hoon addresses a ruling by the International Centre for Settlement of Investment Disputes (ICSID), during a press briefing held at the government complex in Gwacheon, Wednesday afternoon. Yonhap
Int'l tribunal orders Korean gov't to pay US private equity firm $216.5 mil.
By Anna J. Park
Korea will request the cancellation of an international tribunal's decision ordering it to pay U.S. private equity Lone Star Funds $216.5 million plus interest over a dispute that began more than a decade ago, the Korean government said Wednesday.
"Although the award at the court acknowledged only a partial amount of what Lone Star claimed, the Korean government finds it hard to fully accept the ruling," Justice Minister Han Dong-hoon said during a press briefing, Wednesday.
“The government will seek to file for its cancellation or suspension of implementation. We cannot waste a single penny of taxpayer money.”
The briefing came a few hours after the Washington-based International Centre for Settlement of Investment Disputes (ICSID) delivered a long-awaited verdict on the investor-state dispute settlement suit that Lone Star filed in 2012 to demand $4.68 billion in compensation from the Korean government.
In the verdict, the Korean government is also ordered to pay monthly interest on the amount dating back from 2011, which is estimated to be around $13 million, according to the Ministry of Justice.
“Given that dissenting views of the court's arbitrators fully sided with the Korean government's stance (that it does not need to pay Lone Star), it is worthwhile to pursue the matter till the end within the court's procedure,” Justice Minister Han stressed, adding that the ministry will do its utmost to protect taxpayers' money.
Under the ICSID's procedures, either party of a court case can file an application for partial or full annulment of an award within 120 days after the award's rendering. Once the application for annulment is registered, an ad hoc committee with three members of the Panel of Arbitrators will be formed to make a decision on the application.
“The award could be nullified, if the Korean government receives good judgment on its side in the annulment procedure,” a legal expert in the field of international arbitration said.
Although the government has decided to pursue the ICSID's annulment procedure, the ruling is still largely viewed as the Korean government's overall victory, according to the Ministry of Justice.
“The arbitration court only accepted 4.6 percent of the $4.68 billion that Lone Star claimed, while the Korea government won the case regarding the remaining $4.46 billion or 95.4 percent of the claimed money,” the justice ministry stated in a press release.
Market insiders see that the Korean government generally fared well in the court, considering the large claim made by Lone Star in the first place.
“The award payment ruling on the part of the Korean government is a little regrettable, but considering the huge sum of claim asked by the opposing party, the Korean government seems to have fared well,” a high-ranking financial official who was involved in the case told The Korea Times.
Lone Star Funds founder and owner John Grayken, left, shakes hands with Hana Financial Group Chairman Kim Seung-yu, after signing a sales and purchase agreement (SPA) for Korea Exchange Bank (KEB) at a hotel in London, November 2010. Yonhap
The arbitration court's decision came 10 years after Lone Star brought the case to the international arbitration tribunal in late 2012, arguing that it suffered massive losses worth $4.68 billion due to the Korean government's delay and pressure in approving its sale of Korea Exchange Bank (KEB).
Lone Star purchased KEB in 2003 for around 1.3 trillion won ($970 million), selling a 51.02 percent stake to Hana Financial Group in 2012 for 3.9 trillion won. The U.S.-headquartered private equity firm claimed that the Korean financial authority delayed its previous sales deal with HSBC in 2007, without proper grounds, resulting in huge losses on its part.
The Korean government argued against such claims that there were problems with Lone Star's qualifications to be a major shareholder of KEB, adding that a number of criminal cases were ongoing at the time, resulting in the unavoidable delay in the process.
Market experts say one of the key factors attributed to the Korean government's overall victory against the private equity firm's $4.68 billion demand at the ICSID was Lone Star's guilty conviction in 2011 at the Korean Supreme Court regarding stock price manipulation. Lone Star was fined 25 billion won by the court, and the arbitration court seems to have considered it favorably in the Korean government's defense.
Since 2006, local prosecutors have investigated Lone Star rigorously over an intentional stock price plunge of KEB's card affiliate, following its 2003 acquisition of KEB, to lower its acquisition cost. President Yoon Suk-yeol, Justice Minister Han Dong-hoon and Financial Supervisory Service (FSS) Governor Lee Bok-hyun were involved in the investigation as prosecutors.