Lone Star Rejects ICSID Annulment of Korea Payout, Signals New Arbitration Over KEB Sale Dispute

Lone Star Rejects ICSID Annulment, Eyes New Arbitration Against South Korea

U.S. private equity giant Lone Star has publicly rejected the recent annulment by the International Centre for Settlement of Investment Disputes (ICSID) of a significant award against the South Korean government. This defiant stance signals the firm's intention to pursue a fresh round of arbitration in its long-standing dispute over the sale of Korea Exchange Bank (KEB).

The announcement comes just days after an ICSID ad hoc committee nullified a portion of a 2022 ruling that had mandated Korea to pay approximately 400 billion won (equivalent to $272 million) to Lone Star. The original award was part of an investor-state dispute concerning alleged interference by Korean regulators in Lone Star's efforts to divest its stake in KEB.

Lone Star's Stance: Procedural Annulment, Confidence in New Tribunal

In a formal statement, a spokesperson for the U.S. firm expressed "disappointment" with the ad hoc committee's decision, emphasizing that the annulment was based "on procedural grounds" rather than the merits of their claim. Lone Star reiterated its conviction that Korean regulators "improperly blocked and interfered" with its multi-year process to sell its controlling interest in KEB. The firm articulated its readiness to "present its case again to a new tribunal," expressing confidence that a new panel would validate its claims of unlawful action by Korea and award full damages.

The original ICSID ruling in August 2022 had ordered the Korean government to pay Lone Star $216.5 million, plus accrued interest. This stemmed from a 2012 claim by the private equity firm, alleging that Korea's government obstructed its 2007 plan to sell a controlling stake in KEB to HSBC by delaying crucial regulatory approvals, leading to estimated losses of $4.68 billion.

Reason for Annulment and Korea's Position

According to the Ministry of Justice, the ad hoc committee found that the initial tribunal committed a procedural error by relying on findings from a separate commercial arbitration between Lone Star and Hana Bank, conducted under the International Chamber of Commerce (ICC). A Ministry of Justice official confirmed that this annulment effectively "wipes out the payment obligations entirely."

Future Legal Avenues: Expert Insights

With Lone Star hinting at a "new tribunal," attention now turns to the company's next legal strategies. An anonymous legal expert from a Seoul graduate school of law outlined two primary procedural avenues available to Lone Star post-annulment.

One option involves a resubmission under Article 52(6) of the ICSID Convention. This provision explicitly allows either party to request the establishment of a new tribunal after an award has been nullified. The expert noted that while "the door is open for resubmission," the legal and practical implications would largely depend on the specific arguments Lone Star presents and how a new tribunal decides to manage the re-opened dispute.

The second potential route, as per the professor, is to initiate an entirely separate arbitration outside the ICSID framework. Lone Star's broad reference to a "new tribunal" should not automatically imply a commitment to remain within ICSID. The firm could, for instance, pursue its case through another arbitration center, such as the ICC. However, this path would introduce complex questions regarding jurisdiction and whether such a new claim would be treated distinctly from the previous proceedings.

Uncertainty and Government Preparedness

The legal expert stressed that Lone Star has yet to disclose any specific procedures, filings, or timetables, making its exact next move unclear. Furthermore, it's impossible to ascertain which side holds an advantage at this juncture, as the evidence Lone Star intends to present remains undisclosed.

In response, the South Korean Ministry of Justice stated its commitment to closely monitor the evolving situation. A senior official affirmed that the government is preparing for "any action the firm may take under ICSID or other institutions" and is ready to respond through appropriate channels once Lone Star initiates any formal procedure. As Lone Star keeps its concrete next step under wraps, the legal community watches to see if a second arbitration will indeed commence and which procedural path the firm will ultimately choose.