Korea scores major legal win in annulment of $216.5M Lone Star order, prime minister says

The Korean government scored a major legal victory on November 17 by overturning an earlier ruling that had ordered it to pay $216.5 million in damages to U.S.-based private equity firm Lone Star Funds.

The annulment committee of the International Centre for Settlement of Investment Disputes (ICSID) ruled that Korea is no longer required to compensate Lone Star for alleged losses related to its sale of Korea Exchange Bank (KEB). The decision also nullifies the estimated 400 billion won ($273.2 million) — which includes interest — that the government had been ordered to pay.

The ruling comes 13 years after Lone Star filed an international arbitration suit claiming the Korean government had unfairly interfered in the sale of KEB. Tuesday’s annulment committee also ordered Lone Star to reimburse the Korean government for approximately 7.3 billion won in legal expenses incurred during the annulment proceedings, within 30 days.

“At approximately 3:22 p.m. today, the annulment committee delivered a ruling in Korea’s favor, retroactively voiding roughly 400 billion won in damages previously awarded against the government,” Prime Minister Kim Min-seok said in a briefing on November 17. He called the decision “a significant achievement in protecting public finances and taxpayer money” and said it affirms “Korea’s sovereign right to financial regulation.”

Lone Star initiated its investor-state dispute settlement (ISDS) case in November 2012, claiming the Korean government delayed and devalued the sale of KEB, causing the firm $4.68 billion in losses. The ISDS system allows foreign investors to seek damages through international arbitration when a host country’s policies cause financial harm.

In 2003, Lone Star purchased a 51 percent stake in KEB for 1.38 trillion won and sold the bank in January 2012 to Hana Financial Group for 3.92 trillion won. The transaction netted the firm a return of about 4.7 trillion won, which led to public criticism that a major financial institution had been sold off at a “bargain” price due to negligent oversight by the authorities and led to a foreign equity fund to profit from it as a result.

In August 2022 — a decade after the original claim — the ICSID tribunal ruled that Korea must pay Lone Star $216.5 million in damages, plus interest. The amount awarded represented approximately 4.6 percent of Lone Star’s original claim.

Both the Korean government and Lone Star filed annulment requests following the tribunal’s ruling in 2022. The government argued that legal errors in the ruling met the annulment criteria under the ICSID Convention and called for a complete reassessment of the compensation order.

In October of the same year, Korea also submitted a correction request, citing excessive damage calculations and duplicate interest. In May, the tribunal accepted all of Korea’s claims, reducing the damages by approximately 600 million won.

Lone Star’s annulment request argued that the damages were insufficient. Korea’s Ministry of Justice, meanwhile, reiterated in its request that there were legal flaws in the original decision.

The government’s success in overturning the arbitration award is being attributed to its persistent focus on procedural violations during the original arbitration process. Korean legal representatives argued that the tribunal had accepted arbitration documents between Hana Financial Group and Lone Star without allowing Korea the opportunity to cross-examine or respond, thereby infringing on due process.

“The key factor was that the due process violations during the arbitration proceedings were significant enough for the annulment committee to accept our arguments,” said Jeong Hong-sik, head of the Ministry of Justice’s international legal affairs bureau and lead official on the case. “The committee had shown strong interest in these procedural questions during oral hearings held in London in January this year.”

It is extremely rare for an ICSID tribunal ruling to be annulled. According to the ICSID, only 25 of 503 decisions rendered between 1972 and 2025 have been annulled. In only eight of those cases — including Korea’s dispute with Lone Star — was the tribunal’s decision entirely overturned.

BY JEONG JIN-WOO   [yoon.soyeon@joongang.co.kr]