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An international arbitration institution is set to rule on a decade-long legal tussle between South Korea and Lone Star Funds as soon as next month over the US private equity firm’s sale of a bank in the Asian country.Lone Star initiated the arbitration in November 2012, making a filing with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) to request the South Korean government to pay $4.7 billion for its estimated losses related to the Texas-based PEF’s sale of a stake in Korea Exchange Bank (KEB).The ICSID has recently noticed both parties that the institution expected to complete its final award on the case by April 30 by email, according to legal sources in South Korea on Monday.There is only one award in an ICSID case, and it is the tribunal's last decision that disposes of the case, according to the arbitration institution. Any other ruling before the final award, such as a decision on liability, is not considered an award, and recourse cannot be taken against it until after the award is rendered, it said.Legal sources in South Korea predicted the final ruling on the South Korea-Lone Star case as soon as May or June, considering such procedures.The award is final and binding and can be recognized and enforced in any ICSID member state. There is no appeal against an award, but there are limited post-award remedies available under the ICSID convention.Once the presentation of the case is completed, the proceeding is declared closed and the award must be signed in the next 120 days, with the possibility of an extension of 60 days. Usually, the closure of the proceeding occurs after the tribunal has deliberated and concluded that it has no further questions for the parties.DELAYED APPROVAL?Lone Star sought compensation through investor-state dispute settlement (ISDS), saying the PEF suffered losses due to delayed approval by the government on the sale of a stake in KEB.The PEF bought a 51% stake in the bank for 1.4 trillion won ($1.1 billion) in 2003 and signed a deal to sell it to HSBC at $6.2 billion in 2017. But the deal collapsed in September 2008 as HSBC decided not to purchase the local bank. Lone Star eventually sold the KEB stake to South Korea’s Hana Financial Group at 3.9 trillion won in January 2012. The former headquarters of KEB in Seoul, South Korea Lone Star said the deal with HSBC collapsed because the South Korean government delayed approval. In addition, the PEF said the government pressured to lower prices and unfairly taxed when it sold the stake to Hana.The government, however, said the authorities postponed the decision as Lone Star went on trial that affected its eligibility as a major stakeholder, including a criminal trial on the manipulation of the stock price of a former credit card unit of KEB.The country also said the sale price fell because the US firm was found guilty of the case, denying the claim the authorities intervened in the negotiation for the sale. On taxation, the authorities said they considered specific facts for each taxation.IMPACT ON OTHER ARBITRATION CASESDespite the government’s refutation, the ICSID is likely to make a favorable ruling for Lone Star as ISDS is a system to protect investors, legal sources said.The decision is expected to have an impact on other ISDS cases since it is the first against South Korea with the largest compensation request. The government is currently dealing with six ISDS cases against foreign companies including Elliott Management, Mason Capital Management and Schindler Group.The government was reportedly considering steps to protest against any unfavorable decision to the country, although it is difficult to reverse such a ruling in an international arbitration case.The authorities also mull various measures to handle carious ISDS cases with the Ministry of Justice proposing an establishment of a dedicated unit to deal with international arbitration cases to the new government’s transition committee.By Jin-Seong Kimjskim1028@hankyung.comJongwoo Cheon edited this article.
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