LSF-KEB Holdings SCA and others v. Republic of Korea

Case summary

At a glance

Parties: LSF-KEB Holdings SCA, LSF SLF Holdings SCA, HL Holdings SCA, Kukdong Holdings I SCA, Kukdong Holdings II SCA, Star Holdings SCA, Lone Star Capital Management SPRL (all Belgium) and Lone Star Capital Investments S.à r.l. (Luxembourg) v. Republic of Korea
Case no.: ICSID Case No. ARB/12/37
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules in force as of 10 April 2006
Treaty: Korea–Belgium-Luxembourg Economic Union BITs of 1976 (in force 3 September 1976) and 2011 (in force 27 March 2011); Korea–Belgium Tax Treaty also invoked
Tribunal: Ian Binnie (President, from 22 June 2020), Charles N. Brower, Brigitte Stern. V.V. Veeder was President from 2013 until March 2020.
Court: ICSID ad hoc Committee: Lawrence Boo (President), Doug Jones, Eva Kalnina
Sector: Banking; sale of a controlling stake in Korea Exchange Bank (KEB); tax
Outcome: Award of 30 August 2022: most claims dismissed, but by majority Korea breached fair and equitable treatment by forcing a price cut in the sale of KEB to Hana; damages halved for Lone Star's contributory fault. Brigitte Stern dissented; Charles Brower concurred. Korea's press release of 19 November 2025 reports that the ad hoc Committee annulled the part of the Award finding Korea liable and dismissed Lone Star's application.
Amount: Claimed: about USD 4,679,500,000 plus interest, and a tax gross-up of USD 257.4 million. Awarded: USD 216.5 million plus interest from 3 December 2011, compounded annually at the average one-month U.S. Treasury rate. Each side bore its own legal costs; arbitration costs of USD 3,250,448.18 were shared equally. According to Korea's press release, the principal was reduced to USD 216.01 million on rectification, and the annulment committee ordered Lone Star to pay about KRW 7.3 billion of Korea's annulment costs.

The dispute

The claimants are Belgian and Luxembourg holding companies affiliated with the Texas private equity group Lone Star. In 2003 LSF-KEB acquired a controlling interest in Korea Exchange Bank (KEB); other claimants invested in Korean real estate and construction from 1998. Lone Star alleged that Korea's Financial Services Commission (FSC) blocked its 2007–2008 sale of KEB to HSBC. It also alleged that, after LSF-KEB was convicted on 6 October 2011 of stock manipulation of KEB's credit card subsidiary, the FSC delayed approval of the sale to Hana until Lone Star accepted a net USD 433 million price cut. It further claimed that the National Tax Service taxed its investments unlawfully. The claims were brought for breach of fair and equitable treatment, full protection and security, MFN and national treatment, expropriation and free transfers. Korea objected to jurisdiction, argued that the price reduction was negotiated by Hana in its own interest, and argued that Lone Star's losses were caused by its own crimes.

Key holdings

No jurisdiction under the 1976 BIT, and no jurisdiction under the Tax Treaty. Under the 2011 BIT the Tribunal has jurisdiction only over acts on or after 27 March 2011. The HSBC claims were therefore dismissed ratione temporis. Award ¶¶ 17, 947
The tax claims fail on the merits. Korea's tax treatment was a routine application of a tax system consistent with international standards, including the OECD Guidelines, and there was no claim of denial of justice. There was also no expropriation, because the loss of part of the control premium left the investment and most of the premium intact. Award ¶¶ 758, 772–774
By majority, Korea breached fair and equitable treatment, including good faith, under Article 2(2) of the 2011 BIT. The FSC's controlling rationale for withholding approval of Hana in autumn 2011 was political pressure, not prudential concern. It orchestrated a price reduction outside its mandate and in its own institutional self-interest. Award ¶¶ 736–741, 781–791
Lone Star did not act under duress, but its acceptance of the reduced price under protest, in order to mitigate its losses, did not break the chain of causation. By majority, both the FSC's misconduct and LSF-KEB's criminal conviction caused a single indivisible loss of USD 433 million. Award ¶¶ 799, 804–805, 839
Contributory fault (ILC Articles, Article 39): the loss is shared equally, so LSF-KEB recovers USD 216.5 million with compound interest from 3 December 2011. The tax gross-up claim was rejected for lack of evidence. Each side bears its own legal costs, and the costs of the arbitration are split equally. Award ¶¶ 895–896, 904–910, 922, 925–927
Brigitte Stern dissented. In her view no pressure was attributable to the FSC; any pressure would in any event have been a reasonable regulatory response; and the loss was caused by Lone Star's conviction and by its own agreement with Hana to reduce the price. Charles Brower joined the 50% split only to form a majority; on the precedents he considered that a smaller share for the claimants might have been appropriate. Dissent ¶¶ 9, 121–122; Concurrence ¶ 9
Stay of enforcement continued without security. Both parties had sought annulment, including of the damages, so enforcement before the annulment decision would be premature. The Committee also saw no reasonable basis to assume that Korea would not comply with the Award. Decision on Stay ¶¶ 79–89, 96, 100

Procedural history

21 November 2012Request for Arbitration filed. ICSID registers it on 10 December 2012.
10 May 2013Tribunal constituted with V.V. Veeder as President. On 23 December 2013 bifurcation is denied and the jurisdictional objections are joined to the merits.
May 2015 – June 2016Four hearing phases are held in Washington, D.C. and The Hague.
5 March – 22 June 2020Proceeding suspended after V.V. Veeder's resignation. Ian Binnie is appointed President and the Tribunal is reconstituted on 22 June 2020. A further hearing is held by videoconference on 14–15 October 2020.
30 August 2022Award: Korea is liable by majority and USD 216.5 million is awarded. It is issued with Brigitte Stern's dissenting opinion (dated 22 August 2022) and Charles Brower's concurring opinion.
8 May 2023Decision on rectification of the Award. According to Korea's press release, the principal is reduced to USD 216.01 million.
27 July – 1 September 2023Lone Star (27 July) and Korea (1 September) apply for partial annulment; Korea also requests a stay of enforcement. LSF-KEB's enforcement action in the U.S. District Court for the District of Columbia is stayed by order of 13 November 2023.
15 December 2023The ad hoc Committee continues the stay of enforcement without security or conditions.
18 November 2025According to Korea's press release, the ad hoc Committee annuls the Award's findings of liability and damages, dismisses Lone Star's application, and orders Lone Star to pay about KRW 7.3 billion in costs. The decision itself is not among the published documents.

Tribunal, counsel and experts

Decided by: Ian Binnie President (replaced V.V. Veeder on 22 June 2020)
Charles N. Brower Co-arbitrator — appointed by the claimant (concurring opinion)
Brigitte Stern Co-arbitrator — appointed by the respondent (dissented)
V.V. Veeder President — appointed by the parties jointly (resigned; vacancy notified 5 March 2020)
Lawrence Boo Committee president — appointed by the institution
Doug Jones Committee member — appointed by the institution
Eva Kalnina Committee member — appointed by the institution
For the claimant: Stanimir A. Alexandrov PLLC · Sidley Austin LLP · KL Partners · Shin & Kim
For the respondent: Ministry of Justice of the Republic of Korea, International Dispute Settlement Division · Arnold & Porter LLP · Peter & Kim · Bae, Kim & Lee LLC
Experts: Yong-Jae Kim (respondent)