Legal Research And Study Of Indirect Expropriation During International Investment

In 2007, Ping An Insurance(Group) Company of China Limited(hereinafter referred to as “Ping An”) purchased nearly 5% of equity interests of Fortis Group(hereinafter referred to as “Fortis Group”), a Joint Bank Insurance Company contributed by Netherlands, Luxemburg and Belgium, at the cost of 23.8 billion RMB, which made Ping An’s move the biggest overseas investment in Chinese insurance industry. However, the worldwide economic crisis took place in 2008 which cause great trouble for the Fortis Group to continue its business. For this reason, the Belgian government carried out governmental plan to save Fortis Group, according to which the Fortis Group would be divided into several parts and sold out separately. Belgian government made that plan, bought 75% equity interest of Belgian Bank of Fortis Group which is the most valuable and rewarding department of the Fortis Group, and then sold it to the Paris Bank at 11.4 billion Euros, leaving only little cash for selling the Fortis Group and the International Insurance business department to the Fortis Group. After this deal, the Fortis Group had been separated into several parts with the most valuable and rewarding department gone, therefore the share price of Fortis Group went down to 1 US Dollars once, which brought Ping An great loss.Pursuant to relevant provisions of agreements entered into when Ping An joined the Fortis Group, Fortis Group cannot sell its equity shares to others unless reaching agreement of doing so during the shareholder meeting. However, Fortis Group did not follow this procedure and sell its Belgian Bank business to the Belgian government at a price lower than the market price at that time, while Belgian government earned almost 1.6 billion Euros for selling the Belgian Bank business to the Paris Bank without sharing any profit to other shareholders. Belgian government arranged some reorganization plan for Fortis Group and even decided to compensate some European shareholders but cut Ping An out of its plan.After four-year negotiation without any satisfactory result, in September 2012, Ping An submitted the case to the International Center for Settlement of Investment Dispute(hereinafter referred to as “ICSID”), arguing for compensation for two reasons. Firstly, Belgian government violated reasonable anticipate to be treated fairly under transparent conditions of Ping An and compensation of should be made for Belgian government’s improper profits. And secondly, Belgian government getting profit from selling Belgian Bank of Fortis Group without distributing to Ping An constituted discrimination in accordance with the bilateral agreement between China and Belgium.ICSID made the award of this case in April last year that it rejected the case for lack of jurisdiction. Pursuant to the regulations of the ICSID Convention, both parties must agree to be bound by the award of ICSID as the final award before bringing the case before ICSID. In other words, after the award in connection with Ping An and the Belgian government has been awarded, Ping An cannot appeal to ICSID or any domestic court to set aside the award made by ICSID. Although we know that Articles 50 to 52 of ICSID Convention states that under specific circumstances appeal to ICSID for annulment of the award is possible, while in practice, it is way of difficulty to carry out the appeal. Unfortunately, Ping An could not find any other appeal solution afterwards but to take this unpleasant result.Ping An’s case is the first one that Chinese enterprise submitting the case before ICSID, which leaves great impact for Chinese enterprises though the final award was not that satisfactory for Ping An. Taken into consideration with the increasing exchanges among countries and relevant international investment disputes, it is of great importance to study and research on how to define the indirect expropriation and relevant standard, on analysis of the cause and reasons and on practical cases, so that results of all of these research and study could provide us with relevant suggestions to tackle the problems.Disputes in connection with the definition of indirect expropriation underwent a long period, during which the confusions about its definition, standards for recognition, and practices all deserve diligent study. Now at the time when Ping An’s case has come to an end, it brings us the new meaning to look at all the study issues. The author studies the development regarding indirect expropriation and other legal documents of previous scholars and wishes to find out some rewarding suggestions for Chinese enterprises to avoid potential risks in overseas investment.The essay is composed of five different chapters. Chapter 1 consists of 3 further sections, among which Section 1 will illustrate several legal issues regarding the legal idea of indirect expropriation, including the concept, the recognition standards and the characters of the indirect expropriation; Section 2 will further illustrate the causes of the indirect expropriation and principle topics regarding this issue; Section 3 will first simply introduce the measures to be carried out for tackling the problems and targets and meanings of solving the problem. As to Chapter 2, it will tell the difference on definitions given by different international regulations regarding the indirect expropriation, including bilateral treaties, regional treat agreements and multilateral treaties. Chapter 3 will analyze three relevant cases to further study the problem. At last, Chapter 4 will focus on the existing situations of China and suggest legislative guidance for reference.