hankyoreh

Lone Star

An attorneys group plans to submit an opinion calling for the dismissal of the private equity firm Lone Star‘s claim for over US$4.3 billion in damages from the South Korean government in an investor-state dispute (ISD), which will have its third trial next January.

With its opinion, the group MINBYUN-Lawyers for a Democratic Society is planning to take the opinions of South Korean civil society directly to the arbitrators after previously having two applications to observe the trial were rejected.

MINBYUN’s international trade committee said on Nov. 22 that it planned to turn in a request the following day for permission to submit an opinion to the International Centre for Settlement of Investment Disputes (ICSID), which is currently hearing the case between Lone Star and the South Korean government. The group hopes to gain permission from the court to submit an opinion based on ICSID provisions stating that third parties not directly involved in the trial are allowed to submit a brief, according to the legal precept amicus curiae.

In its request, MINBYUN accuses Lone Star of “partially concealing its industrial capital ownership in submitting materials to the South Korean government in order to avoid Banking Act regulations stipulating that industrial capital [non-financial business operators] cannot acquire banks during its 2003 acquisition of Korea Exchange Bank.”

Hongik University economics professor Jun Sung-in explained that Lone Star “filed its ISD according to the bilateral investment treaty (BIT) between South Korea and Belgium.”

“The argument is that the case should be dismissed because unlawful investment is not subject to the terms of the BIT,” he added.

The argument that the US-based private equity firm constitutes “industry capital” first surfaced in 2011-12 when it sold Korea Exchange Bank to the Hana Financial Group. The sale was approved by the Financial Services Commission, which said Lone Star “did constitute industry capital at one point, but there is no basis for viewing it as such now.”

At the time of the sale, many interpreted this decision as reflecting arguments that the only available response to declaring Lone Star industry capital would be to issue an order for its sell its shares - which would only aid it in its “eat-and-run” strategy.

Song Gi-ho, an attorney with MINBYUN‘s international trade committee, said that “the same people [such as Minister of the Office for Government Policy Coordination Choo Kyung-ho] who gave KEB to the industry capital at Lone Star have now set up a government task force to file suit against it.”

“They’re not going to be able to bringing up problems that were their own fault in Lone Star’s acquisition of KEB during the arbitration hearings,” Song explained.

MINBYUN also noted that the South Korea-Belgium BIT only allows for international arbitration on tax issues in cases where a fair domestic trial is deemed unlikely.

In particular, it claimed that Lone Star was not eligible to file suit after previously doing so in South Korean court over what it claimed were problems with taxation on profits from its Star Tower sale.

If granted permission to submit a brief, MINBYUN also plans to attach additional details and documentation.

The attorney’s group also submitted a recent request to the court to be allowed to observe the third and final trial, which is set to take place in the Dutch city of The Hague next January. The possibility of that happening appears unlikely after its requests for the first and second trials were rejected over objections from the parties to the dispute.

Meanwhile, MINBYUN has also filed an information disclosure request suit, claiming that the South Korean government has been consistently secretive, declining to disclose even the amount claimed by Lone Star.

Kim Cheol-su, who heads the international legal affairs department at the Ministry of Justice, explained that the court had designated the preliminary documents containing the exact amount of Lone Star’s claim as confidential.

“It would have a negative effect on the case if we were to defy the court’s order,” Kim explained.

Kim also said the ministry would “consider” the question of disclosing whether it was Lone Star or the South Korean government that rejected MINBYUN’s request to observe the proceedings.

By Lee Soon-hyuk, staff reporter

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