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
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
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
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.
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The Government of India ("GOI") has allowed for 100% Foreign Direct Investment ("FDI") in the education sector under the automatic route.
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