Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
This month we return to Crystallex for a quick summary of the sale order being approved and examine a recent ICSID annulment decision in Lone Star Funds ("Lone Star") v. Republic of Korea ("South Korea") (ICSID Case No. ARB/12/37), a rare outcome that raises important questions about due process in investor-state arbitration.
Crystallex Sale Order Approved
On November 29, 2025, Judge Stark entered an order approving a stock purchase agreement for Amber Energy (an affiliate of Elliot Investment Management) to purchase PDVSA' stock in PDVH for $7.286 billion and authorizing the sale to take place free and clear of liens, claims, encumbrances, and other interests. The price includes a settlement with the majority of the holders of the PDVSA 2020 bonds, who will extinguish the bonds, and cease the SDNY litigation, once they are paid (although individual bondholders who did not settle may continue to pursue their rights). This sale is subject to obtaining an OFAC license and to a series of Third Circuit appeals, filed on December 1, 2025. Moreover, given the current uncertainties surrounding Venezuela, no one can predict what OFAC will do, or when, but this order otherwise concludes the sale process and is a significant step. If the sale closes, it will be sometime in 2026.
An ICSID Full Annulment
On November 18, 2025, the ICSID ad hoc committee in Lone Star Funds v. Republic of Korea issued a full annulment of the prior ICSID award issued in favor of South Korea—only the eighth such case in ICSID’s history, where annulment rates remain below 2%. After more than 13 years of proceedings, the Lone Star dispute concluded with a significant turn. The case dates to 2003, when Lone Star, a US private equity firm, acquired a controlling stake in Korea Exchange Bank (KEB) and later sought to sell it.
Over time, the matter became emblematic of how investor-state arbitration, despite its reputation as one of the most enforceable regimes in international law, can involve significant complexity and prolonged delays.
Key Timeline
August 2003:
Lone Star acquires a 51% stake in Korea Exchange Bank (KEB) for $1.4 billion.
January - March 2006:
Criminal Proceedings took place in Korea. Korean prosecutors indict Lone Star for alleged stock price manipulation of KEB Card and also indict Korean Financial Services Committee (KFSC) officials who approved the acquisition. Korean courts later acquit the officials, citing policy judgment but convict Lone Star on manipulation charges.
September 2007:
Lone Star's attempted sale to HSBC collapses amid global financial turmoil.
November 2010:
Hana Financial Group agrees to buy Lone Star’s 51% stake in KEB for KRW (Korean won) 4.69 trillion (about $4.1 billion). The deal was finalized later at a lower price of KRW 3.92 trillion (about $3.46 billion) in 2012 due to regulatory delays and market conditions.
November 2012:
Lone Star files ICSID claim against South Korea seeking $4.68 billion in damages.
August 2022:
The ICSID tribunal, composed of Ian Binnie CC, QC (Chair), Charles Brower, and Brigitte Stern, held the hearing in Washington, DC, orders South Korea to pay $216.5 million plus interest, a fraction of the original claim.
Tribunal Award
Lone Star filed its ICSID claim in 2012 under the Korea–Belgium/Luxembourg Bilateral Investment Treaty (BIT), alleging unfair treatment during the sale of KEB.
Interestingly, despite Lone Star’s business presence in the US, Lone Star did not invoke ISDS provision under the US-Korea Free Trade Agreement (FTA). That clause was only introduced in the 2012 treaty revision and did not apply to disputes arising before the amendment. Instead, Lone Star relied on the Korea-Belgium/Luxembourg BIT, filing its claim through its Belgian subsidiary. South Korea currently has 22 FTAs covering 59 countries and 81 BITs, many of which provide a basis for ISDS claims—a network that has raised concerns about so-called "treaty shopping."
The case centered on three main issues:
- Delays in approving Lone Star’s planned sale of KEB to HSBC
- Delays in approving the subsequent sale to Hana Financial Group, and
- Korea’s denial of tax benefits to Lone Star’s Belgian subsidiary on the grounds that it was a "paper company."
The tribunal dismissed claims related to the HSBC transaction, finding they fell outside its jurisdiction under the 1976 Korea–Belgium BIT. It also rejected the tax-related claims, ruling that Korea’s tax measures were consistent with international standards. However, a majority held Korea liable for delaying approval of the Hana sale, concluding that the KFSC had "succumbed to political pressure" to reduce the price. This was deemed a breach of the Fair and Equitable Treatment (FET) standard.
The award granted Lone Star $216.5 million plus interest—far less than the $4.68 billion sought—and noted Lone Star’s contributory fault arising from its criminal wrongdoing.
Annulment Proceedings
Both Lone Star and the South Korean government sought annulment. After close to two-and-a-half years, the ICSID ad hoc committee, chaired by Lawrence Boo and including Doug Jones and Eva Kalnina, held the hearing in London and issued its decision on November 18, 2025, fully annulling the award. The committee found a serious departure from a fundamental rule of procedure—one of the grounds for annulment under Article 52 of the ICSID Convention.
The committee concluded that the tribunal had relied heavily on an ICC arbitration award between Lone Star and Hana Financial as key evidence of Korea’s conduct. Because Korea was not a party to that arbitration and had no opportunity to contest its findings, this reliance violated due process. In that ICC case, Lone Star had initiated arbitration against Hana Financial for alleged breach of contract. While the ICC tribunal found Hana Financial not liable, it concluded that the FSC had exerted pressure to reduce the price, attributing Lone Star’s loss to the government actions.
According to the annulment committee, this reliance on the ICC award breached the principles of equal treatment and the right to be heard, amounting to a departure from a fundamental rule of procedure under the ICSID Convention. As a result, Korea’s liability was extinguished, and Lone Star was ordered to pay $5 million (KRW 7.3 billion) toward Korea’s legal costs.
Implications
Several ICSID cases have addressed serious departures from fundamental rules of procedure under Article 52 of the ICSID Convention. In Amco Asia Corporation v. Republic of Indonesia, the award was annulled because the tribunal failed to adhere to ICSID procedural rules and provided contradictory reasoning on key jurisdictional and liability issues. In Eiser Infrastructure Limited and Energia Solar Luxembourg S.à r.l. v. Kingdom of Spain, annulment was based on the improper constitution of the tribunal, as an arbitrator failed to disclose a relationship with an expert, undermining procedural integrity.
The right to be heard was also affirmed in Fraport v. Philippines (ICSID Case No. ARB/03/25), where the annulment committee set aside a decision in which the tribunal denied jurisdiction without giving the claimant a fair opportunity to present its case regarding the legality of its investment under Philippine law. The committee emphasized, "[t]he requirement that the parties be heard is undoubtedly accepted as a fundamental rule of procedure, a serious failure of which could merit annulment."
The Lone Star decision reinforces a core principle: evidence obtained in violation of due process cannot be used to establish state responsibility under international law. Notably, this principle now extends beyond conventional evidence to include prior judicial decisions or arbitral awards. The decision reinforces the importance of procedural integrity and fairness in investor-state dispute settlement. It also demonstrates that ICSID’s annulment mechanism, though rarely successful, can serve as an effective remedy.
End of the Dispute?
As expected, Lone Star has said it intends to resubmit an ICSID claim against South Korea, emphasizing that the annulment was based on procedural grounds. ICSID rules permit re-arbitration after annulment, and the Korea–Belgium BIT does not prohibit Lone Star from doing so.
