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$4.7 bln Lone Star case will begin next week

May 5, 2015

(Korea Times file)

Briton to handle $4.7 billion litigation against Korea

By Jung Min-ho

V.V. Veeder, a British national, has been appointed as the presiding arbitrator for a 5-trillion-won international litigation between the Korean government and Lone Star Funds, sources said Tuesday.

He was one of the three arbitrators who ruled in favor of the U.S. buyout firm in 2011 in its dispute with a Korean government owned company.

According to industry sources, Veeder will arbitrate Lone Star’s Investor-State Dispute Settlement (ISDS) case against the government, whose first hearing will be held on May 15 at the International Center for Settlement of Investment Disputes in Washington D.C.

In most cases, investment tribunals are composed of three arbitrators; one is appointed by the investor, one by the state, and the third is usually chosen in agreement between the parties. The presiding arbitrator holds the casting vote when the other two fail to agree.

The Dallas-based firm filed an ISDS suit in 2012 for 5.13 trillion won ($4.7 billion), arguing that the Korean government had caused it serious financial damage by delaying its approval for the firm to sell the Korea Exchange Bank from 2007 to 2012.

Veeder, a visiting professor at the University of London, is a well-regarded arbitrator who has participated in settling a number of international disputes.

However, some people have expressed concern over his involvement due to his ruling in favor of Lone Star against the state-owned Korea Resolution & Collection Corporation (KRNC) in April of 2011.

The relationship between the two firms goes back to 2000 when the KRNC, a subsidiary of the state-run Korea Deposit Insurance Corporation, received an offer from Lone Star to build apartments on the site of a Busan cargo terminal and share the profits from selling apartments on the site.

The project went smoothly in the beginning because the Busan Metropolitan Government was in the middle of drafting a new urban development plan including an alteration of the use of the terminal site.

Controversy then emerged as some local groups began to complain that only a small number of entities such as Lone Star would profit from the project.

Lone Star eventually dumped its assets purchased in Korea in 2007 and argued that the KRNC was responsible for half of the loss as it had a 50 percent stake in the project.

The case was brought to the International Court of Arbitration (ICC), where Veeder was one of the three arbitrators, along with K.M. Sachs, the presiding arbitrator.

The ICC ruled in favor of Lone Star. It is not clear how Veeder judged the case because the details of each arbitrator’s opinions were not disclosed.

But the KRNC did not follow the arbitrated award as the Seoul Central District Court ruled in its favor. The Seoul High Court confirmed the original verdict in August of 2013, but the case is still pending at the Supreme Court.

Speaking to Yonhap News Agency, Jeon Sung-in, an economics professor at Hongik University, said the Korean government needs to study what opinions Veeder has on the Lone Star case ahead of the important hearing next week.

When asked if the Korean government has secured any information, an official refused to comment.