Last month the International Centre for the Settlement of Investment Disputes ("ICSID") registered what is believed to be the first claim at the Centre by mainland Chinese investors.
The claim by Chinese insurance giant, Ping An, is believed to relate to its shareholding in Fortis, a bank which was nationalised and sold off by the Belgian government in the aftermath of the 2008 global financial crisis, resulting in a loss to Ping An of most of its RMB 24 billion investment in the bank.
The claim marks an important development in the 46 year history of ICSID and progress of the claim will be watched with great interest by Chinese companies whose investments abroad face an increased risk of interference by host governments operating in challenging economic conditions and frequently resorting to populist and nationalistic policies.
ICSID is an autonomous international institution which was established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States in 1966. It operates under the auspices of the World Bank to facilitate arbitrations between governments and foreign private investors and is the leading arbitration institution through which international investors from Convention member states may bring claims against other member states in the event that their investments suffer at the hand of the host state. China ratified the Convention in 1993 and although there remain important exceptions, the Convention has been ratified by 147 other countries worldwide. ICSID arbitration is therefore a potential option in relation to Chinese investments in a great number of countries.
Access to ICSID arbitration, however, can be achieved only with the consent of the state parties. Such consent may be created by contract between an investor and the host state but also can often be found in investment treaties between states, most commonly bilateral investment treaties ("BITs"). Over several decades, BITs have been entered into by nations in order to de-politicise trade disputes, while the investor protection offered has been regarded as a stimulus to inward investment. There are now several thousand such treaties currently in force. BITs will normally specify the dispute resolution options available to an investor wishing to bring a claim against a state in respect of an "investment", and commonly specify that such disputes may be resolved by arbitrating at ICSID.
China is notable in that it has signed more BITs than almost any other country, with the consequence that Chinese investors can take advantage of a very wide range of protections for their investments abroad. China has also revised and updated some of the treaties it previously signed. Indeed Ping An may be able to benefit from just such a revision by bringing its claim against Belgium under an updated 2009 treaty which provides greater investor protection than was available under the 1984 treaty.
The basis for an investor's claim will usually be made by reference to the specific provisions of the BIT, but these terms vary and can have very different practical consequences. A central feature is normally that states agree to provide a stable investment climate and not to discriminate against foreign investors. The interpretation of the host state's obligations in any particular case can be complex and certainly the scope of investor protection offered under different BITs covers a broad spectrum. It follows that BIT planning, involving investing via a state that benefits from the most favourable BIT arrangements with the intended host state, will enhance the security and value of those investments.
Investments in natural resources, power plants and other heavy industry have contributed significantly to ICSID's case load since governments usually have a significant role in licensing or regulating such activities yet, in straightened economic circumstances, may not always treat investors fairly. However, claims are made across all sectors and industries and in respect of a wide range of investments. Even bond-holders, in circumstances of sovereign debt default, have been able to call on the protection offered under some BITs. Ping An's 5% shareholding in Fortis is, therefore, not an unusual example of the type of investment that qualifies for protection.
Resolution of claims is by arbitration, with hearings taking place in a third country. Washington DC, Paris and London are popular choices and are locations where lawyers and arbitrators with specialist investment arbitration experience are concentrated.
In uncertain economic times, investors are looking for additional protection. We can advise you on optimal planning for and/or enforcement of BIT protection, whether at the time of making an investment, after the investment has been made, or subsequently in the event of a dispute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
