China sued by South Korean property developer at ICSID

This week, a South Korean property developer ("Ansung")  became the second ever investor to request ICSID arbitration against the People's Republic of China ("PRC") (Ansung Housing Co., Ltd. v. People's Republic of China (ICSID Case No. ARB/14/25)).  Little is known about the claims, which are reported to arise from the alleged actions of the provincial government in relation to Ansung’s investment in the construction of a golf and country club.  Ansung's counsel has told the publication Global Arbitration Review that:

"The case is about a development project for a golf country club and condominiums in Sheyang-Xian, Jiangsu province.  Ansung made investments in late 2006.  Due to the various arbitrary and illegal actions and omissions of the Sheyang-Xian government, Ansung has been deprived of the use and enjoyment of its investment as its investment plan has been frustrated.  As a consequence, in October 2011, Ansung was forced to dispose of its entire investment to a Chinese purchaser at a price significantly lower than the amount Ansung had invested toward the project.  Ansung suffered more than CNY100 million and is seeking an award of damages."

The claims were registered by the Secretary-General of ICSID on 4 November 2014. The Tribunal has not yet been constituted.

Although the PRC is signatory to 132 bilateral investment treaties and 17 other investment and free trade agreements, there is only one prior publicly-known investment claim against the PRC, by a Malaysian construction and development company in May 2011 (Ekran Berhad v. People's Republic of China (ICSID Case No. ARB/11/15)).  That arbitration reportedly concerned the revocation of Ekran Berhad's Chinese subsidiary's 70 year lease of 900 hectares of land in China's Hainan province.  The arbitration was suspended by agreement a month after being registered and discontinued on unknown terms just under two years later.

PRC investors have been more active in taking advantage of the PRC's extensive network of investment treaties:

• The first ICSID arbitration under a China BIT concerned Mr Tza – a Hong Kong resident and PRC national (Tza Yap Shum v Republic of Peru (ICSID Case No. ARB/07/6)). The dispute arose out of taxes imposed by the Peruvian authorities on a fish flour manufacturing and export company owned by Mr Tza.  In July 2011, Mr Tza was awarded US$ 786,000 compensation.  A hearing on Peru's application for annulment of the award was held in March 2014 and the Committee's decision is pending.
• The second ICSID arbitration under a China BIT could have far reaching consequences in the financial services sector. Ping An, a major Chinese insurance and financial services company, is seeking compensation in relation to a US$ 2.3 billion write off on its investment in Fortis, a Belgian-Dutch financial institution that was bailed out by Belgium in 2008 (Ping An Life Insurance Company of China v. Kingdom of Belgium (ICSID Case No. ARB/12/29)).  The Tribunal was constituted in February 2013 and the dispute is still at the jurisdictional phase.
• PRC investors are also known to have brought investment claims in ad-hoc proceedings, which are generally confidential. For example, the Permanent Court of Arbitration is administering a case arising out of the cancellation of licenses held by PRC investors in the Tumurtei iron ore mine in 2012 (China Heilongjiang International Economic & Technical Cooperative Corp. v. Mongolia).
• Most recently, an ad hoc UNCITRAL tribunal held that it had jurisdiction to hear claims by a Macau entity under a bilateral investment treaty between Laos and the PRC (Sanum Investments Limited v. Lao People’s Democratic Republic UNCITRAL, PCA Case No. 2013-13). The award is currently the subject of set-aside proceedings in Singapore.

With China recently named the world's largest economy by the IMF (adjusted for purchasing power of currencies), and both Asian investors as well as investors into the region becoming increasingly aware of the protection potentially available under investment treaties, investment claims are likely to become more frequent.  The increasing number of claims by PRC investors is unsurprising given the expanding amount of Chinese investment offshore; it remains to be seen how frequently the PRC will be on the receiving end of those claims.

For further information, please contact Jessica Fei, Partner, Brenda Horrigan, Partner, Tomas Furlong, Associate, or your usual Herbert Smith Freehills contact.