LSF-KEB Holdings SCA and others v. Republic of Korea
ICSID · Investment (ICSID and treaty) · Korea · 30 Aug 2022
Why it matters
This award is significant for its detailed analysis of fair and equitable treatment in the context of a host state's financial regulation, particularly where the investor had been convicted of stock manipulation. The tribunal's apportionment of liability equally between the state and the investor for contributory fault sets a notable precedent in investor-state arbitration, illustrating how criminal misconduct by the investor can reduce but not eliminate state responsibility.
Summary
The case arises from investments made by Lone Star affiliates in Korea, including the acquisition of a controlling stake in Korea Exchange Bank (KEB). The claimants alleged that Korea's Financial Services Commission (FSC) engaged in misconduct by delaying approval of the sale of KEB shares to HSBC and later to Hana, ultimately forcing a USD 433 million price reduction. They also challenged tax assessments by the National Tax Service. The tribunal dismissed claims under the 1976 BIT for lack of temporal jurisdiction and dismissed the HSBC-related claims as time-barred. Under the 2011 BIT, the tribunal found jurisdiction over the Hana transaction and related issues. On the merits, the majority held that the FSC's interference in the private sale to Hana, including pressuring for a price reduction to appease political critics, violated the fair and equitable treatment standard. However, the tribunal found that LSF-KEB's criminal conviction for stock manipulation contributed equally to its loss, reducing the award by 50%. The tax claims were dismissed. The tribunal awarded USD 216.5 million plus interest from 3 December 2011. Each party bore its own costs, and arbitration costs were split equally.
The detail
Parties: LSF-KEB Holdings SCA and others v. Republic of Korea
Case number: ICSID Case No. ARB/12/37
Outcome: The Tribunal found that Korea breached the Fair and Equitable Treatment standard under the 2011 BIT in relation to the sale of KEB shares to Hana, awarding LSF-KEB USD 216.5 million plus interest, after apportioning 50% contributory fault to the claimant.
Quantum: USD 216.5 million
Applicable law: Agreement Between the Government of the Republic of Korea and the Belgium-Luxembourg Economic Union for the Reciprocal Promotion and Protection of Investments (2011 BIT); ICSID Convention; Korea-Belgium Tax Treaty
Issues in play: The case involved the collision between Korea's regulatory authority over financial institutions and the investor's right to fair and equitable treatment under the BIT. The tribunal weighed the state's legitimate regulatory objectives against the investor's legitimate expectations and the prohibition of arbitrary or discriminatory measures.
Read the full decision at italaw ↗
Locus Standi links to the source decision and publishes its own plain-language summary. It does not reproduce the text of the award.