Korea secures final win in 264 billion won Chinese investor dispute

Korea has secured a final victory in a long-running investor-state dispute with a Chinese investor who sought hundreds of millions of dollars in damages over the seizure and sale of shares he had pledged as collateral for unpaid loans

The ruling not only upheld Korea’s earlier win but also blocked the investor from pursuing a second arbitration over the same dispute and ordered the investor to cover Korea’s legal costs.

The International Centre for Settlement of Investment Disputes (ICSID) dismissed in full an application by Chinese investor Min Fengzhen to annul an earlier investor-state dispute settlement (ISDS) ruling, according to the Ministry of Justice on Sunday. Korea received the decision at around 5:25 a.m. on Saturday.

The ICSID is a World Bank-affiliated institution that handles international investment disputes between governments and foreign investors. The center also ordered Min to reimburse Korea for legal costs incurred during the annulment proceedings.

Min established an investment company, Pi Korea, in Korea in 2007 and borrowed about 380 billion won ($283 million) in project financing from Woori Bank. He said the funds were intended to purchase a building in Beijing valued at around 1.5 trillion won and pledged his shares in Pi Korea as collateral.

Min failed to repay the loans despite several extensions. Woori Bank exercised its security rights in 2011 and sold its Pi Korea shares between 2014 and 2015.

Min filed a lawsuit in 2013 challenging the bank’s actions but ultimately lost at the Korean Supreme Court in July 2017. Min was also convicted in March 2017 of violating the Act on the Aggravated Punishment of Specific Economic Crimes after they were found to have promised or provided money and other benefits to Woori Bank employees while securing the loans.

Min launched ISDS proceedings against Korea in 2020. Min argued that the sale of their pledged shares and the civil and criminal proceedings against them violated the Korea-China investment treaty. Min initially sought around 2 trillion won in damages before reducing their final claim to approximately 264.1 billion won.

The Justice Ministry argued that Min’s investment was not protected under the treaty. The ministry claimed that Min set up Pi Korea as part of an illegal scheme to obtain loans by offering money and other benefits to Woori Bank employees.

The ministry also argued that the bank’s exercise of its security rights was not an act of the Korean government and that the civil and criminal proceedings against Min were lawful.

An arbitral tribunal administered by the Permanent Court of Arbitration accepted Korea’s arguments and rejected Min’s claims in 2024. Min subsequently sought to have the award annulled through ICSID.

The ICSID has now rejected that application in full. The center also found that Min’s unlawful financing scheme was objectively established through investigative records and that Min had been given sufficient opportunity to present their case.

Min must pay Korea about 4.9 billion won plus interest for legal and arbitration costs from the earlier proceedings, as well as another 1.5 billion won in costs from the annulment proceedings.

“This complete victory in the annulment proceedings has also eliminated the possibility of Min pursuing a second arbitration,” said Kang Jun-ha, the deputy minister of the International Legal Affairs Department at the Justice Ministry. “It has reaffirmed the principle that investments made in violation of domestic law are not protected under ISDS, and we will make every effort to recover the litigation costs.”

BY KIM SEONG-JIN [[email protected]]