South Korea has secured a sweeping victory in its decades-long dispute with Lone Star Funds after a world tribunal annulled a 2022 ruling that had ordered Seoul to pay greater than $230 million to the Dallas-based non-public fairness agency.
The newest resolution, issued by an annulment committee on the Worldwide Centre for Settlement of Funding Disputes (ICSID), wipes out the Korean authorities’s legal responsibility and stands as one of many rarest outcomes in investor-state arbitration.
Prime Minister Kim Min-seok introduced on Tuesday in Seoul that the ruling was delivered early Monday morning, Washington time, fully canceling the earlier award, together with curiosity.
The tribunal additionally directed Lone Star to reimburse the Korean authorities 7.3 billion received ($5 million) in authorized charges inside 30 days.
“With immediately’s resolution, the federal government’s total compensation obligation, roughly 400 billion received at present change charges, has been eradicated,” Kim mentioned.
A RARE OVERTURNING OF AN ICSID AWARD
Full annulments at ICSID are exceptionally uncommon. Since 1972, the tribunal has issued greater than 500 awards, of which solely 25 have been annulled and simply eight, together with Korea’s case, have been voided of their entirety.
Fewer than 2% of all ICSID rulings have ever been totally overturned.
The end result strengthens Seoul’s leverage ought to Lone Star try a brand new arbitration, mentioned authorized specialists.
“The probabilities of profitable a full annulment had been extraordinarily slim,” mentioned one worldwide arbitration lawyer. “For Lone Star, restarting a case involving occasions from 15 to twenty years in the past would require a smoking gun, which is awfully unlikely to be unearthed now.”
THE GLOBAL FINANCIAL MELTDOWN HITS
Lone Star first entered Korea in 2003, shopping for Korea Change Financial institution (KEB), now renamed to Hana Financial institution, for 1.38 trillion received. 4 years later, it struck a deal to promote the lender to HSBC for about $6.3 billion, a worth that will have yielded greater than 5 occasions its unique funding.
However Korean regulators postponed their evaluate of the sale, citing Lone Star’s prison trial over alleged stock-price manipulation at a KEB credit-card subsidiary.
By the point officers had been able to proceed, the 2007-08 world monetary disaster had taken maintain, and HSBC withdrew its supply in September 2008.
In 2012, Lone Star offered its KEB stake to Hana Monetary Group for 3.92 trillion received, roughly half the value HSBC had agreed to pay.
The non-public fairness agency claimed the delay amounted to improper state interference and filed an ICSID declare that 12 months looking for $4.7 billion in damages.
After ten years of hearings, ICSID dominated in 2022 that Korea ought to pay $216 million, simply 4.6% of the quantity Lone Star demanded, plus curiosity.
The drastically diminished compensation prompted challenges from each side.
Lone Star argued the award was far too low, whereas the Korean authorities sought annulment subsequent 12 months on grounds that the tribunal exceeded its authority and dedicated procedural errors.
THE HSBC DEAL AT THE HEART OF THE DISPUTE
The failed HSBC sale grew to become the centerpiece of Lone Star’s declare.
The US fund insisted that regulatory delays derailed a extremely worthwhile exit that will have generated returns far above these realized from the 2012 sale.
Seoul countered that HSBC’s withdrawal stemmed from market turmoil in the course of the world monetary disaster, fairly than from the federal government’s evaluate course of.
ICSID’s 2022 ruling acknowledged a part of Lone Star’s argument however drastically scaled down the damages. That partial award has now been nullified in full.
WHAT HAPPENS NEXT?
Lone Star may provoke a brand new arbitration or search a negotiated settlement.
However the annulment sharply narrows its path. Any recent declare would hinge on details already scrutinized for greater than a decade, with restricted room for brand spanking new proof or revised arguments.
Authorized specialists say the ruling locations Seoul in a far stronger place going ahead.
With the sooner award erased and litigation prices ordered again to the federal government, Lone Star could also be extra inclined to discover a settlement fairly than embark on one other protracted battle, authorized specialists venture.
