Two-Trillion-Won Investor-State Dispute Ends After Six Years; Government Wins Final Victory

[Financial News] The South Korean government has prevailed in both the original arbitration and the annulment proceedings in a roughly 2 trillion-won investor-state dispute settlement (ISDS) case brought by Chinese national Peng Zhen Min. The International Centre for Settlement of Investment Disputes (ICSID) Annulment Committee rejected all applications to annul the original arbitration award, finally confirming the original tribunal’s ruling that unlawful investments are not protected under the China–Korea investment agreement.
According to the Ministry of Justice on the 13th, the ICSID Annulment Committee on the 12th rejected all of Peng Zhen Min’s applications to annul the original arbitration award. The committee ordered Peng Zhen Min, the claimant, to pay approximately 1.51283 billion won in legal costs incurred by the government during the annulment proceedings, plus interest.
With this decision, the government won the annulment proceedings following its victory in the original arbitration in 2024, effectively bringing to a close the roughly 2 trillion-won ISDS dispute that had continued for six years.
Peng Zhen Min had earlier established Pi Korea in South Korea to raise funds to purchase Huafu Building in Beijing. He borrowed approximately 380 billion won through loans arranged and guaranteed by domestic financial institutions. After he failed to repay the loans, the financial institutions sold the Pi Korea shares they had secured as collateral. Peng filed a civil lawsuit over the sale but ultimately lost.
During this process, it was also revealed that he had provided money and benefits to employees of the financial institutions. Peng Zhen Min was indicted on related charges, and his conviction became final in 2017. He later filed an ISDS case against the South Korean government in 2020, claiming that the enforcement of the security interest and the domestic civil and criminal proceedings violated the China–Korea investment agreement. His initial damages claim amounted to approximately 2 trillion won.
The original arbitral tribunal rejected all of Peng Zhen Min’s claims in May 2024. It determined that the establishment of Pi Korea and the acquisition of its shares constituted an investment made to carry out an unlawful plan to obtain financing by providing money and benefits to employees of financial institutions. The tribunal therefore found that the investment was not protected under the China–Korea investment agreement and concluded that it lacked jurisdiction over the case.
In September of the same year, Peng Zhen Min applied to annul the award, arguing that the original tribunal had misinterpreted the investment agreement and domestic law, exceeded its authority, and failed to provide him with a sufficient opportunity to present his case.
However, the ICSID Annulment Committee found that the original tribunal’s interpretation of the investment agreement was reasonable, that the claimant had been given sufficient opportunity to present his case, and that the award had provided adequate reasons. None of the grounds for annulment alleged by Peng Zhen Min—including manifest excess of powers, violations of procedural rules, and failure to state reasons—was accepted.
The Annulment Committee stated in its decision, "The original tribunal identified the matters necessary to determine whether the Act on the Aggravated Punishment of Specific Economic Crimes had been violated and then examined the credibility, relevance, and probative value of the evidence, including investigation records," adding, "It cannot be said that the tribunal disregarded the applicable evidentiary standards when determining the unlawfulness of the investment, and the claimant was also guaranteed sufficient opportunity to present his case."
Accordingly, the 2024 original arbitration award was confirmed in full. In addition to the approximately 4.9126 billion won in government legal costs that the original arbitral tribunal ordered Peng Zhen Min to pay, he must also bear approximately 1.51283 billion won in legal costs from the annulment proceedings. The total legal costs the government will recover have therefore risen to approximately 6.4 billion won.
Meanwhile, the government said it would make every effort to recover the legal costs and, after consulting with the claimant’s side, disclose as much as possible of the annulment decision and other related materials.
[email protected] Lee Dong-hyuk Reporter