Decade-long ISDS lawsuit vs Lone Star costs S. Korean gov't $40 mn

The South Korean government is found to have spent nearly $40 million in litigation expenses for its decade-long legal dispute against U.S. private equity firm Lone Star Funds over a sale of Korea Exchange Bank, now Hana Bank, but the cost would go up as Seoul is readying to appeal for the latest ruling.

The Korean Ministry of Justice released the international arbitrator Investor-State Dispute Settlement (ISDS)’s verdict on the legal case between the Korean government and Lone Star over the sale of Korea Exchange Bank. According to the report, the Korean government spent $38.14 million and Lone Star $37.31 million in legal expenses related to their ISDS case. Their expenses include spending made in Korean won and euros.

The Korean government’s expense in Korean currency was converted into U.S. dollar based on an exchange rate of 1,430 won per dollar on Thursday.

However, spending on its legal dispute with Lone Star will likely go up as the Korean government prepares to seek revocation of the judgement.

The legal dispute began after Lone Star claimed damages from the Korean government with accusation for causing delay in approving in the sale of its stake in Korea Exchange Bank, which resulted in massive losses for Lone Star. Lone Star Funds acquired a 51.02 percent stake in Korea Exchange Bank in 2003 and tried to sell its stake to HSBC in 2007 that fell through. It managed to sell the stake to Hana Financial Group in 2010.

In 2012, the U.S. hedge fund filed for a $4.7 billion investor-state dispute against the Korean government with the International Center for Settlement of Investment Dispute, an arbitration body of the World Bank.

The ISDS in its final ruling made in August this year ordered the Korean government to pay $216.5 million won, or 4.6 percent of $4.7 billion claimed by Lone Star.

Rejecting the accusation of unfairness in administrative procedures, the Korean government is planning to file for cancellation of the ruling.

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