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The Supreme Court ruled against Korea Deposit Insurance Corporation in a liquidation case against U.S. buyout fund Lone Star, marking a shift in the court’s attitude toward the lawsuit, worth around $35 million.
South Korea’s top court on Sunday quashed the second appeal ruling on the liquidation of LSF-KDIC, an investment firm jointly established by Lone Star and KDIC’s subsidiary Korea Resolution & Collection Corporation, and returned the case to the high court.
The top court said that the high court should have recognized a 2011 decision on the case by an international court that ordered KR&C to pay $33.7 million and 2.15 billion won ($1.8 million) to cover 50 percent of the liquidation expenses, arbitration costs and Lone Star’s legal costs.
The legal fight came after LSF-KDIC tried to sell a logistics terminal located in Busan.
Prior to the Korean trial, the case was handled in 2011 by the International Chamber of Commerce International Court of Arbitration, which found in favor of LSF-KDIC. The ICA tribunal was composed of Klaus Sachs of Germany, Neil Kaplan QC of Hong Kong and VV Veeder QC of the U.K.
LSF-KDIC then asked the Seoul court to implement the ICC’s arbitration decision.
However, Korea’s court rulings went against the ICC’s decision.
In August 2013, the Seoul High Court ruled in favor of the KR&C, citing that there was no recognizable “agreement” in the arbitration of KSF-KDIC and KR&C. The ruling had a different basis compared to the previous court decision, which decided that LSF-KDIC’s claim went against public policy, and was incompatible with local regulations on asset-backed securitization.
In Korea, Lone Star has a negative public image after it bought out Korea Exchange Bank for 1.4 trillion won in 2003. The fund claimed large annual dividends and sold KEB to Hana Bank nine years later for 4.7 trillion won, and left the country.
The Financial Services Commission, the country’s highest financial decision-maker, has been trying to cut the flow of national wealth abroad to foreign investors.
Lone Star is also known for initiating the first ever claim against the country to the International Center for Settlement of Investment Disputes in November 2012.
The ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes, a multilateral treaty formulated by the executive directors of the World Bank, to promote international investment globally.
By Chung Joo-won (joowonc@heraldcorp.com)
