LSF-KEB Holdings v Korea - ICSID Case No. ARB/12/37 - Award, Concurring Opinion of Judge Charles N. Brower - Redacted - 30 August 2022
Members of the Tribunal
The Honourable Ian Binnic CC, QC, President
The Honourable Charles N. Brown, Co-Arbitrator
Professor Brigitte Stern. Co-Arbitrator
I. The Claimants' seek a total award of compensation of about USD 4.7 billion plus compound interest at the one-month U.S. Treasury rate from 30 September 20132 based on several alleged violations of their rights in respect of investments in Korea made between 1998 and 2003 under:
(a) the Agreement Between the Republic of Korea and the Belgium-Luxembourg Economic Union on the Encouragement and Reciprocal Protection of Investments, signed on 20 December 1974, entered into force 3 September 1976 (the "1976 BIT"):1 and
(b) the Agreement Between the Government of the Republic of Korea and the Belgium-Luxembourg Economic Union for the Reciprocal Promotion and Protection of Investments, entered into force 27 March 2011 (the "2011 BIT").'
The alleged misconduct by the Respondent, the Republic of Korea. and its various Government agencies continued, the Claimants say, between 2005 and 2012.
2. The Claimants also invoke alleged breaches of the Convention between the Republic of Korea and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed 29 August 1977 and entered into force on 19 September 1979 (the "Korea-Belgium Tax Treaty" or "Tax LSF-KEB Holdings SCA, LSE SLF Holdings SCA, HL Holdings SCA, Kukdong Holdings 1 SCA, Kukdong Holdings II SCA, Star Holdings SCA, lane Star Capital Management SPRL, and Lone Star Capital Investments (collectively, the Claimants").
3. At the threshold of the case stand the Respondent's jurisdictional objections which, as will be explained, are to a considerable extent (but not entirely) justified.
4. The first named Claimant, LSF-KEB Holdings SCA ("LSF-KEB"), is a Belgian corporation that made a major investment in 2003 to acquire a controlling interest in Korea's third largest commercial bank (and sixth largest bank overall), the Korean Exchange Bank ("KEB"). Other Claimants, incorporated in Belgium (except for Lone Star Capital Investments Sir]., which is incorporated in Luxembourg) acquired investments in real estate and construction from 1998 onwards.
5. All of the Claimants arc affiliated with a Texas investment fund. sometimes collectively referred to as "Lone Star"6 (except where differentiation becomes necessary with respect to various claims including wrongful taxation).
6. While Lone Star does not accept the pejorative title of an "Eat and Run" investor. as tanned by the Respondent. Lone Star makes no secret of its global investment policy of buying low and selling high as soon as reasonably practicable. It is not a long-term investor.' When it purchased KEB shares in 2003 as a "stressed" asset of the Korean State, it agreed to a two-year lock up, not more. It looked to the protection of the investment treaty to facilitate its exit from Korea with the proceeds of its investment without, in its words, being "harassed" by the Korean regulatory and tax authorities. The Claimants state that at the time they purchased the KEB shares in 2003, it was a risky investment that other investors were not prepared to make. Shortly after the Claimants purchased a controlling share in KEB, they also acquired KEB's credit card company, KEB Credit Services 'KEBCS").
946. In closing, the Tribunal acknowledges with appreciation the quality of the extensive written and oral submissions of both Parties in respect to the many factual and legal questions that were raised in the course of these lengthy and complex arbitral proceedings.
947. For the reasons set forth above, the Tribunal therefore declares and orders as follows:
(a) the Tribunal lacks jurisdiction under the 1976 BIT for all alleged acts or omissions of the Respondent;
(b) the Claimants' HSBC case and all its related damages claims are dismissed for lack of jurisdiction ration temporis of the Tribunal;
(c) under the 2011 BIT. the Tribunal has jurisdiction over the alleged acts or omissions of the Respondent that occurred on or after 27 March 2011;
(d) the Tribunal has jurisdiction in respect of the allegations regarding the sale of KEB shares to liana and related issues including the 2011 KEB dividends; and
(e) the allegations of misconduct by the Respondent unrelated to the liana transaction am dismissed; and
(1) the Claimants' lax claims arc dismissed.
948. For the reasons set forth above, the Tribunal majority hereby holds, declares. and orders that:
(a) the Respondent breached the 2011 BIT in regards to LSF-KEB's sale of KEB shares to Hone in respect of the imposition of a price reduction of USD 433 million in violation of its treaty obligation to provide the Claimants with Fair and Equitable Treatment;
(b) it is unnecessary for the Tribunal to dispose of the other breaches of the 2011 BIT alleged by the Claimants in relation to the sale of KEB to Hana because the violation of Fair and Equitable Treatment is a sufficient ground for a finding of liability and, on the evidence, a finding of liability on those other grounds would not affect the quantum of compensation;
(c) LSF-KEB contributed to its loss equally with the Respondent in respect of the price reduction of USD 433 million in the sale of shares carrying majority control of KEEP.
(d) the loss is therefore apportioned equally between LSF-KEB and the Respondent;
(e) the Respondent shall pay Claimant ISF-KEB Holdings SCA:
(i) the sum of USD 216.5 million;
(ii) plus interest, compounded annually at the average one-month U.S. Treasury rate, from 3 December 2011 to the date of payment;
(1) as to the representation costs and expenses, in light of the divided success each side to bear its own costs; and
(g) the costs of arbitration will be divided equally.
CONCURRING OPINION OF JUDGE CHARLES N. BROWER
30 August 2022
I. I join the distinguished President of the Tribunal in declaring that the Respondent has breached the 2011 BIT by failing to provide Claimants Fair and Equitable Treatment, including not upholding its obligation to act in good faith. I also join in the decision that Respondent's breach caused Claimants' loss of USD 433 million, and that Lone Star materially and significantly contributed to that loss by putting itself in jeopardy of a sale order. Therefore, apportionment of the damage is warranted.' In order to form the required majority, I have joined as well in the decision that 50 percent of the damage be apportioned to Claimants.2 In commenting below, however, on the Award's reasoning for that apportionment of the loss I echo the first paragraph of Sir Gerald Fitnnaurice's Separate Opinion in The American Independent Oil Company v. The Government of the State of Kuwait:
I am in entire agreement with the Operational Part (Dispositil) of the Award, which is unanimous, - and except on one cardinal question, I am in substantial agreement with much of the reasoning on which the Award is based. Moreover my difference of view on this particular question, though involving some important points of principle, does not affect my concurrence in the Award as such.3
9. In light of the precedents, and considering that Korea's FSC, in clearly breaching the Fair and Equitable Treatment provision of the applicable BIT, did so intentionally in order to avoid purely political criticism rather than act in accordance with its statutory mandate, an apportionment to the Claimants of less than 50 percent of its lows might have been appropriate. In closing I reemphasize that this view has not prevented me from forming the majority with the Tribunal's distinguished President to issue this Award and thereby to concur in it, to sign it and to declare that "I am in entire agreement with the Operational Part (Dispositit)" of it.
Footnotes omitted, OCR errors may be present