New Features on Offshore Indirect Expropriation from “Ping An - Fortis Case”
Chen Heyuan

In September 2012, Ping An announced that the company had applied arbitration to International Centre for Settlement of Investment Disputes (hereinafter referred to as “ICSID”), alleging that the Belgian government had improperly disposed the properties of Fortis Group during the financial crisis in 2008 and claimed against Belgian government. This is the largest case that any offshore properties were expropriated since the founding of People’s Republic of China and became a focus in international investment study due to its outstanding feature of indirect expropriation.

I. Case Overview

In November 2007, Ping An acquired 4.99% shares of Fortis Group by investing 24 billion RMB in total twice, becoming the largest sole shareholder of Fortis Group. However, after the outbreak of financial crisis, Belgian government began work on nationalization of local Fortis institutions. After acquiring all the equities of Fortis Bank, Belgian government decided to resell 75% shares of Fortis Bank to BNP Paribas. After being forcefully split, the shares value of Fortis Group depreciated by over 80%. As a result, Ping An lost the impairment reserve of 23.79 billion RMB counted for equity investment of Fortis Group.

Belgian government believed that as the acquisition and resale of equities of Fortis Group was the public management of host government with public interest orientation, the government would not compensate the losses of Ping An. As no settlement had reached after continuous negotiation with the Belgian government, Ping An referred the case to ICSID for arbitration.

II. Indirect Expropriation in the Case

With analysis, it can be seen that the measures taken by the Belgian government were no longer pure government regulatory measures.

According to the author, the Belgian government was expected to introduce the participation of private investment, enhance and support the credit of the financial institutions with the national credit so as to save and increase the viability of these institutions in danger. However, the actual equity value of Fortis Group, after being forcefully split, was less than 20% before, and such substantial value impairment shall be considered as the integral, fundamental and substantial intervention on investors’ property rights. Despite of by virtue of impure public law acts, its nature of disguised expropriation has not been changed with a large amount of private law contracts. In addition, Belgian government, during the malfunction of the market, took the market equity that failed to reflect the true value of the assets as the standard to acquire the shares of Fortis Bank, which has obviously brought severe losses to Ping An.

In a word, as its intervention to the investor’s property right has exceeded the limit of general regulatory measures of the government, it shall be maintained as indirect expropriation.

III. New Model of Indirect Expropriation

With the spread of international financial crisis since 2008, the bailouts adopted by states around the world have shown the new features of indirect expropriation. The case, as the typical one of indirect expropriation, shows the following features: ① its purpose is to carry out the effective financial system management, rather than acquiring the ownership or control of the financial institutions; ② it is completed by introducing the participation of private capital, rather than limited to the public law acts; ③ upon valuation, it chooses to protect the interests of creditor’s interests (or bank’s depositor) and damage the shareholders’ interests (in particular the major shareholders).

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