The government won the case to annul the ruling in the international investment dispute between Korea and U.S. private equity firm Lone Star over the sale of Korea Exchange Bank. The government will not have to pay any of the 400 billion won (at the current exchange rate) in damages and interest it was initially ordered to pay to Lone Star, and it will recover 7.3 billion won in litigation expense from Lone Star.
This kind of case is considered highly unusual. The government prevailed over Lone Star by beating the very low probability of "1.6%."
◈ Director General Jeong Hong-sik "Got a positive feeling at the oral hearing in January"
Previously, Lone Star filed an investor-state dispute settlement (ISDS) claim, saying it suffered $4,679.5 million (about 6.1 trillion won) in losses because the government intervened improperly in the process of selling Korea Exchange Bank. The International Centre for Settlement of Investment Disputes (ICSID) under the World Bank on Aug. 31, 2022, ordered the Korean government to pay $216.5 million, equivalent to 4.6% of the damages claimed by Lone Star, plus interest.
Lone Star filed an annulment action in July 2023, arguing the damages were insufficient. The government also filed for annulment in September of the same year, saying there was room to contest the ruling on legal grounds. At the time, the Minister of Justice was Han Dong-hoon, former People Power Party leader.
According to the government on the 19th, the ICSID ad hoc committee on the 18th (local time) decided in favor of Korea. ICSID annulled both the obligation to pay the principal amount of damages and the interest. This brings to a close the dispute between the government and Lone Star that had continued for 13 years since November 2012.
The reason the government was able to overturn the initial decision and win was that Lone Star violated procedure. Jeong Hong-sik, head of the Ministry of Justice's international legal affairs bureau who took part in the annulment action, said at a briefing held the previous evening at Government Complex Seoul that the tribunal exceeded its authority, Lone Star violated due process, and the tribunal failed to properly set out the main reasons for its decision, all of which led to the government's victory.
Jeong, the Director General, added, "At the oral hearing held in London, England, in January, the committee members asked many questions about this, so I got a positive feeling (that a win was possible)."
Cases in which an ICSID award is fully annulled, as in this example, are very rare. Arbitration is a single-instance system, and annulment is recognized only when there are procedural defects. From 1972 to the first half of this year, annulment was granted in 25 out of a total of 503 awards, and only eight of those were fully annulled. This victory means the government beat odds of 1.6%.
◈ "ISDS response must be strengthened" international legal affairs bureau established under Minister Han Dong-hoon
Minister of Justice Jung Sung-ho said at a briefing the previous evening about the government's win, "Some might say this had been in motion before the new administration took office, but this is not about any particular administration," and added, "In January, with the president and the minister absent, we did our utmost on our own to go to ICSID and deliver oral arguments, and those efforts seem to have come together to produce this good result."
Minister Jung Sung-ho also introduced Jeong Hong-sik, Director General of the international legal affairs bureau, who was seated at the briefing, saying he is a "capable expert in international law and international arbitration," and added, "The effort was truly immense."
The international legal affairs bureau mentioned by Minister Jung Sung-ho was established in August 2023, when former leader Han was heading the Ministry of Justice. Previously, two divisions handled international legal affairs, but with the creation of the bureau, it was expanded to one bureau and three divisions.
At the time, the Ministry of Justice said about establishing the international legal affairs bureau, "Major ISDS cases such as the Lone Star and Elliott ISDS rulings have become issues one after another, making it an urgent task to strengthen our response capabilities," and added, "We will further strengthen the ISDS response system by subdividing it into prevention, response to pending issues, and institutional improvement."
The inaugural head of the international legal affairs bureau position remained vacant for more than half a year before Director General Jeong Hong-sik was appointed in February last year. Jeong graduated from the Indiana University Law School in the United States and worked as an attorney at a local law firm there. After returning to Korea, starting in 2006, Jeong served as a professor at the College of Law and the law school at Chung-Ang University. Jeong also served as an ICSID conciliator and as an international arbitrator at the International Chamber of Commerce (ICC).