Seoul Scores Victory: Lone Star's Long Goodbye Takes a Costly Turn

South Korea Celebrates Victory as Lone Star Arbitration Award Annulled

Seoul – In a significant legal victory, the South Korean government has successfully overturned a previous arbitration ruling ordering it to pay $216.5 million, plus interest, to U.S. private equity firm Lone Star Funds. The decision, announced Tuesday by Prime Minister Kim Min-seok, brings an end to a contentious investor-state dispute that has plagued relations between Korea and Lone Star for over a decade.

Seoul Scores Victory: Lone Star's Long Goodbye Tak...

The annulment committee of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C., sided with South Korea, effectively nullifying the August 2022 award. The ruling eliminates all financial obligations previously imposed on the Korean government, marking a decisive win after a long and arduous legal battle.

The dispute stemmed from Lone Star's

The dispute stemmed from Lone Star's 2012 claim that the Korean government deliberately obstructed its 2007 attempt to sell its controlling stake in Korea Exchange Bank (KEB) to HSBC. Lone Star argued that delays in regulatory approval, orchestrated by the Korean government, ultimately scuttled the deal and resulted in substantial losses estimated at $4.68 billion.

The origins of the conflict trace back to the early 2000s, a period when South Korea was still recovering from the devastating 1997 Asian financial crisis. Lone Star and its affiliates made significant investments in KEB and other Korean companies, including Kukdong Engineering & Construction. These investments, however, soon became embroiled in controversy.

In 2007, the National Tax Service (NTS) launched an investigation into Lone Star's operations in Korea, arguing that the firm effectively maintained a permanent business presence in the country. The NTS levied approximately 800 billion won in taxes. While Lone Star initially challenged the tax assessment, the Supreme Court ultimately ruled in its favor, rejecting the NTS's claim.

Presidential office spokesperson Kang Yu-jung expressed gratitude for the successful conclusion of the case, acknowledging the unwavering support of government officials, legal advisors, and the Korean public. The annulment represents a significant achievement for the Korean government, solidifying its position in international investment disputes and potentially setting a precedent for future cases. The victory is expected to alleviate concerns about the impact of the initial ruling on the Korean economy and restore confidence in the country's regulatory environment.