First ICSID case brought by Chinese mainland investors dismissed on jurisdictional grounds

Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium, ICSID Case No. ARB/12/29

In an award dated April 30, 2015, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed what is believed to be the first claim at ICSID initiated by investors from mainland China.

Background

In 2007, the claimants—two insurance giants from mainland China—jointly became the largest shareholder of the Fortis group, a global banking and insurance group, regulated by Belgian, Dutch and Luxembourg authorities. In the aftermath of the 2008 financial crisis, Fortis was faced with a critical liquidity challenge. In order to rescue Fortis, the Belgian government implemented a series of measures that in effect nationalized the Belgian subsidiary of the group. Such restructuring resulted in a dilution of then-existing shareholders’ (including the claimants’) interest in Fortis. As the measures did not bring Fortis out of trouble, in early 2009 Belgium sold the Belgian subsidiary to BNP Paribas, which allegedly resulted in a significant loss to claimants of most of their investment in the Fortis group.

Two BITs

The claim relied on two bilateral investment treaties (BITs): the 1986 BIT between the Belgium–Luxembourg Economic Union (BLEU) and China, and the 2009 BLEU­–China BIT that replaced the earlier one. Both BITs contain substantive obligations of protection and equitable treatment, and conditions for expropriation and nationalization. However, the dispute settlement provision of the 1986 BIT was much more restrictive than that of the 2009 BIT. In particular, the 1986 BIT granted exclusive domestic jurisdiction to “all disputes”; international arbitration could only be invoked to determine the amount of compensation for expropriation. By comparison, the 2009 BIT has a much broader dispute settlement clause, which provides that the investor may choose to submit any legal dispute between and investor of one state and the other state to ICSID for international arbitration.

In October 2009, two months before the entry into force of the 2009 BIT, the claimants sent a notice of dispute to the Belgian government citing the 1986 BIT. In 2012, the claimants communicated with the Belgian government to confirm that the October 2009 letter constituted a notice of dispute under the 2009 BIT and subsequently filed a formal request for arbitration with ICSID relying on the 2009 BIT’s arbitration clause. The merits of the claim, however, were entirely based on the substantive obligations under the 1986 BIT and general principles of international law.

Discussions

Belgium raised a total of five jurisdictional objections. The tribunal did not address the remaining four objections once it decided the case in favour of Belgium on its first objection—ratione temporis.

Belgium argued that the dispute arose before the entry into force of the 2009 BIT, which only covered breaches of that treaty or other existing treaties, and did not include the obligations under the 1986 BIT and general principles of international law on which claimants relied in formulating their claims.

After canvassing the previous ruling and awards rendered by international tribunals on the principle of non-retroactivity in international law, the tribunal noted that the issue of non-retroactivity is not relevant in this case as “the temporal application of jurisdictional provisions is a question separate from the retroactivity of substantive provisions” (para. 186); and “the application of a new dispute settlement mechanism to acts which may have been unlawful when they were committed is not in itself the retroactive application of law” (para. 218).

The tribunal then focused on the interpretation of the arbitration clause of the 2009 BIT, in particular, whether it covers disputes previously notified but not submitted to a formal judicial or arbitral process before it came into force. Relying on the following six indicators, the tribunal ultimately found the parties to the treaty did not intend for the 2009 BIT to cover these disputes.

First, the tribunal looked at the “plain meaning” of the arbitration provisions of the 2009 BIT and found it referred to future disputes rather than disputes that had already arisen, as the 2009 BIT used the language of “[w]hen a legal dispute arises […] either party to the disputes shall notify […]” instead of “has arisen” or “shall have notified” (para. 224).

Second, the tribunal found that nothing in the preamble of the 2009 BIT that could assist the claimants’ position, and refused to fill such gap by “creative interpretation.”

Third, the tribunal noted that the 2009 BIT expressly covered prior investments but not disputes arising before its entry into force.

Fourth, although the 2009 BIT made it clear that it does not apply to disputes already under judicial or arbitral process before its entry into force, the tribunal rejected the claimants’ argument that this supports the inference that those prior disputes already notified but not yet under judicial or arbitral process would be covered.

Fifth, the fact that the 2009 BIT substituted and replaced the 1986 BIT does not justify the inference that these “notified but not matured” disputes would survive under the 2009 BIT.

Finally, the tribunal looked at the potential impact if the claim were allowed to proceed, and expressed its concern that claimants would be awarded access to a significantly broader dispute settlement mechanism simply by the coming into force of the 2009 BIT without any express consent by the contracting parties.

Final decisions

Regrettably acknowledging the risk that certain disputes, including the one at question, “might fall into some ‘black hole’ or ‘arbitration gap’ between the two BITs” (para. 207), the tribunal nevertheless found there was nothing in the 2009 BIT that could justify the extension of its coverage to settle these disputes. However, the tribunal did not rule out the possibility that the claimant could still seek other remedies, including initiating a new claim (either investor–state or state–state) under the 1986 BIT by the operation of its survival clause, or initiating a proceeding in Belgium’s domestic courts.

The tribunal ordered the parties to share the expenses of the tribunal and ICSID, and each of the parties to bear its own legal fees and expenses.

Notes: The tribunal was composed of Lord (Lawrence) Collins of Mapesburty (President appointed by agreement of the co-arbitrators, British national), David A.R. Williams (claimants’ appointee, New Zealand national), and Philippe Sands (respondent’s appointee, British and French national). The award is available at http://www.italaw.com/sites/default/files/case-documents/italaw4285.pdf

Joe Zhang is a Law Advisor to IISD’s Investment for Sustainable Development Program.