China wins its first-ever investment treaty arbitration

Ansung filed its case against the Chinese government in 2014. The dispute revolved around a golf course development in eastern China's Jiangsu Province. The company claimed that in 2006, local government Sheyang County agreed to sell 200 hectares of land, in two phases, for Ansung to build a 27-hole golf course and club, and promised that no additional license would be granted to a competitor in the same area. But after Ansung built an 18-hole golf course on the first 100 hectares of land, the Sheyang government declined to sell the second half of the land and wasn't able to stop another company from building a similar golf course nearby without a license.

Ansung said the company eventually had to sell the golf course it had already built for a below-market price of $1.2 million due to unprofitability. The company alleged this cost it more than $14.5 million in total losses.

According to the 2007 bilateral investment treaty between China and Korea, parties can only file an arbitration request within three years of noticing a loss or damage. Ansung filed the application with the ICSID on October 7, 2014, three years after it agreed to sell the golf course in October 2011. The company argued that it only noticed the loss in December 2011 after the deal was closed, so it was still within the three-year period when the case was filed in October 2014.

But the tribunal agreed with the Chinese government that Ansung had known of the loss before the sale in October 2011; in fact, selling the golf course was meant to avoid further losses. Thus, in October 2014, the three-year limitation had already expired.

The three-arbitrator tribunal, led by former Freshfields Bruckhaus Deringer global head of international arbitration Lucy Reed, dismissed Ansung's claims and ordered it to pay the Chinese government $69,760 in administration costs and $493,600 to cover 75 percent of its legal fees.

The Chinese Ministry of Commerce was represented by both Dentons and Zhong Lun. Paris partner Bart Legum and counsel Anna Crevon led the Dentons team with support from Beijing partner Sarah Zeng. Zhong Lun Beijing partners Sun Huawei and Cao Lijun led the team with support from partner Pu Lingchen.

Dentons submitted €356,590.8 or $384,422.7 in total legal fees in expenses, while Zhong Lun invoiced Rmb 3.3 million but capped the fees at Rmb 1.85 million, or $267,786.

Ansung was represented by Bae, Kim & Lee partners Kevin Kim and Junu Kim.

By Anna Zhang, The Asian Lawyer

Dentons and Zhong Lun Law Firm have successfully represented the Chinese government in the nation's first-ever investment treaty arbitration. The case was decided by a three-person tribunal at the International Centre for Settlement of Investment Disputes, or ICSID, in Washington, D.C.

In the March decision, the tribunal sided with the Chinese government and dismissed a claim filed by Seoul-based property developer Ansung Housing Co. Ltd., saying the South Korean company failed to sue within a three-year statute of limitations.

This is the first-ever investment treaty dispute involving the Chinese government that entered arbitration proceedings. Based on publicly known information, China was sued only once before—by Malaysian construction company Ekran Bhd. That 2011 dispute involved a land lease, but the case was discontinued after two years and never entered arbitration.

Ansung filed its case against the Chinese government in 2014. The dispute revolved around a golf course development in eastern China's Jiangsu Province. The company claimed that in 2006, local government Sheyang County agreed to sell 200 hectares of land, in two phases, for Ansung to build a 27-hole golf course and club, and promised that no additional license would be granted to a competitor in the same area. But after Ansung built an 18-hole golf course on the first 100 hectares of land, the Sheyang government declined to sell the second half of the land and wasn't able to stop another company from building a similar golf course nearby without a license.

Ansung said the company eventually had to sell the golf course it had already built for a below-market price of $1.2 million due to unprofitability. The company alleged this cost it more than $14.5 million in total losses.

According to the 2007 bilateral investment treaty between China and Korea, parties can only file an arbitration request within three years of noticing a loss or damage. Ansung filed the application with the ICSID on October 7, 2014, three years after it agreed to sell the golf course in October 2011. The company argued that it only noticed the loss in December 2011 after the deal was closed, so it was still within the three-year period when the case was filed in October 2014.

But the tribunal agreed with the Chinese government that Ansung had known of the loss before the sale in October 2011; in fact, selling the golf course was meant to avoid further losses. Thus, in October 2014, the three-year limitation had already expired.

The three-arbitrator tribunal, led by former Freshfields Bruckhaus Deringer global head of international arbitration Lucy Reed, dismissed Ansung's claims and ordered it to pay the Chinese government $69,760 in administration costs and $493,600 to cover 75 percent of its legal fees.

The Chinese Ministry of Commerce was represented by both Dentons and Zhong Lun. Paris partner Bart Legum and counsel Anna Crevon led the Dentons team with support from Beijing partner Sarah Zeng. Zhong Lun Beijing partners Sun Huawei and Cao Lijun led the team with support from partner Pu Lingchen.

Dentons submitted €356,590.8 or $384,422.7 in total legal fees in expenses, while Zhong Lun invoiced Rmb 3.3 million but capped the fees at Rmb 1.85 million, or $267,786.

Ansung was represented by Bae, Kim & Lee partners Kevin Kim and Junu Kim.