Government Wins Case Against Chinese Investor in ISDS Dispute

The South Korean government has won a ruling in an international investment dispute (ISDS) with a Chinese investor, following a previous victory regarding the initial claim amounting to 20 trillion won.

According to the Ministry of Justice, on September 12, the government received a favorable decision in the cancellation procedure of the ISDS case filed by Chinese national Peng Jianmin against the South Korean government, based on the Korea-China Investment Agreement. Peng had initiated the case on August 3, 2020.

Peng Jianmin established Baekik Investment Co. (Pye Korea) to secure a project financing loan for the purchase of Huafu Building in China. After defaulting on the loan, the financial institution disposed of the shares of the company that served as collateral, leading Peng to file a civil lawsuit, which he lost.

Separately, after a criminal investigation and trial resulted in a guilty verdict for bribery involving employees of the financial institution during the loan process, Peng raised issues regarding the execution of collateral and the civil lawsuit, filing for ISDS. The initial claim was approximately 20 trillion won, ultimately reduced to about 2.641 trillion won.

The arbitration tribunal ruled in May 2024 that "Pye Korea was established to obtain an unjust project financing loan through bribery, and thus the establishment of the claimant's company and acquisition of shares are considered illegal investments not protected under the agreement," rejecting all of Peng's claims. The tribunal also ordered Peng to pay the government approximately 4.9 billion won in legal costs and interest.

In response, Peng filed a request for cancellation with the International Centre for Settlement of Investment Disputes (ICSID) in September of that year.

The Ministry of Justice has been collaborating with domestic and international law firms, including Yulchon, and external experts as part of a task force composed of relevant government agencies to address the ISDS case.

On September 12, nearly two years later, the ICSID Cancellation Committee ruled to "reject all claims by the claimant" and ordered Peng to pay approximately 1.5 billion won in legal costs and interest to the government.

A Ministry of Justice official stated, "This cancellation decision reaffirms the principle that illegal investments under domestic law are not protected under ISDS. Furthermore, we successfully defended against attempts to overturn a case already adjudicated in South Korea's civil and criminal judicial processes through ISDS."

The official added, "The original arbitration ruling marked the first time our government won an ISDS case through a full hearing, and with this complete victory in the cancellation procedure, we have effectively blocked any possibility of a second arbitration by the claimant."