Legal experts skeptical of benefits from protracted Lone Star-Korean gov't dispute

Justice Minister Han Dong-hoon, right, attends a cabinet meeting held at the presidential office in Seoul, Tuesday. Yonhap

No real benefits expected from seeking annulment

By Anna J. Park

The Korean government plans to seek an annulment proceeding of an international tribunal arbitration ruling that ordered the country to pay $216.5 million plus interest in damage compensation to Lone Star. The move comes in response to the U.S.-based private equity fund's annulment application submitted at the end of last month, asking the arbitration tribunal to cancel the ruling by the International Centre for Settlement of Investment Disputes (ICSID) last August.

“The Korean government was notified by the secretariat of the ICSID on July 29 that Lone Star submitted the annulment application of the arbitration ruling. The government is thoroughly reviewing the annulment application submitted by Lone Star, and plans to file an annulment (of our own) within the deadline that falls on Sept. 5,” the Ministry of Justice announced earlier this week, vowing not to waste taxpayers' money.

The specific reasons for the annulment remain unknown, but Lone Star is believed to view the amount of compensation granted by the ICSID ruling as being too small ― only a 4.6 percent of the $4.68 billion that it originally demanded from the Korean government. Lone Star argued that it is not a sufficient amount for the risk that it took to bail out the now-defunct Korea Exchange Bank (KEB) 20 years ago.

“We are disappointed in the amount of the award which fails to fully compensate Lone Star and its investors for losses resulting from the Korean government's wrongful conduct or for the risks Lone Star took in rescuing KEB in 2003, and the value it added for the benefit of all of KEB's shareholders and the Korean banking system,” the U.S. hedge fund stated, following the ICSID ruling in last year.

Lone Star first brought the case to the investor-state dispute settlement body in late 2012, arguing that the Korean government inflicted astronomical losses on the firm by pressuring and delaying the approval of its sale of KEB. But the Korean government succeeded in significantly lowering the amount of compensation at the international tribunal, citing the U.S. investment firm being convicted in local courts on charges related to stock price manipulation schemes.

The ICSID ruling last year seemed to put an end to the years-long legal battle between the two parties, yet the dispute will likely to go on, as both sides are vowing to fight the ruling. However, legal experts are skeptical, saying there seems to be no real benefits in dragging out the trial.

“The ICSID Convention currently sets forth five grounds on which an award may be annulled ― the improper constitution of the tribunal, manifest excess of powers by the tribunal, corruption on the part of a tribunal member, serious departure from a fundamental rule of procedures, or failure to state reasons. Out of the five grounds, parties that seek annulment mostly cite either excess of powers or serious departure from a rule of procedures. Yet, given existing precedents citing those grounds, it won't be easy to prove the deficiencies in the grounds in this particular case,” Professor Choi Won-mog from Ewha Womans University Law School, an expert in international disputes, told The Korea Times, Tuesday.

The professor explained that the annulment procedure usually takes one or two years until a decision is reached. That is less time than the arbitration trial itself would take, as the nullification proceeding only examines the grounds of nullification brought up by the parties.

“Considering the single-trial nature of arbitration, the finality of the legal contention is already fixated. Annulment cases only review whether cited grounds for nullifying the ruling are met. If the tribunal acknowledges the annulment case brought up by any of the parties, then a new panel of arbitration will be formed, starting the whole process all over again, although the previous legal findings would help to hasten the process. If the annulment proceeding is dismissed, then the compensation will remain intact,” Professor Choi added.

Another legal expert, Jeffrey Jones, attorney at Kim & Chang, who advised Lone Star on its past acquisition of KEB, said he hopes the two parties will put the dispute to rest.

“It's a very painful history and (I think) it'd be good for both parties to get it over with as quickly as possible,” Jones said.