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    11:02 PM Rachel Tan Xi’en, LLB (Hons), Practice Fellow, Centre for International Law, National University of Singapore

    Case Comment: Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho [2018] SGCA 81

        

    Introduction

    On 27 November 2018, the Singapore Court of Appeal (“SGCA”) released a 116-page written judgment in Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho (“Swissbourgh v Lesotho”), just six months after a five-judge bench comprising Sundaresh Menon CJ, Andrew Phang JA, Judith Prakash JA, Tay Yong Kwang JA, and Steven Chong JA heard the appeal over two days in May 2018.  This is the second time an investment treaty arbitration award has been brought to the SGCA for review, following Sanum Investments Limited v the Government of the Lao People’s Democratic Republic [2016] SGCA 57 (“Sanum v Laos”).

    In its judgment, the SGCA affirmed the decision of the Singapore High Court setting aside the award rendered by the arbitral tribunal.  The SGCA found that the tribunal had no jurisdiction to hear the case.  This stands in contrast to its decision in Sanum v Laos, where it overturned the Singapore High Court in affirming the positive jurisdictional decision of the arbitral tribunal in that investor-state arbitration.  

    Background

    The appeal arose out of an international arbitration brought by the investors against Lesotho, a member of the South African Development Community (“SADC”).  In 1988, the investors obtained five mining leases in Lesotho.  Lesotho subsequently claimed to discover non-compliance with the application for the leases.  After failing to obtain diplomatic protection from South Africa regarding their investments, the investors commenced an action before a regional tribunal (“SADC Tribunal”) established to hear disputes on the adherence to and interpretation of the SADC Treaty in 2009.

    The SADC Tribunal did not hear the claim because it was subsequently dissolved in 2010.  In response, the investors commenced arbitration against Lesotho in 2012 (the “PCA arbitration”) pursuant to Art 28(1) of Annex 1 to the Protocol on Finance and Investment of the Southern African Development Community (“Investment Protocol”).  The investors’ core complaint in the PCA arbitration was that Lesotho had “shuttered” the SADC Tribunal without providing an alternative forum to determine claims.  This was in breach of their right to refer disputes concerning the alleged failures of SADC member states in relation to investments.  As to relief, the investors asked the PCA tribunal to establish a forum to hear the SADC claim concerning expropriation. 

    The PCA tribunal found that a new tribunal should be established to hear the SADC claim.  The seat was to be Mauritius unless otherwise agreed, and the arbitral tribunal to comprise three independent and impartial persons who were nationals of the SADC member states.  Lesotho then sought the review of the PCA award in the Singapore High Court (“SGHC”) and argued that it should be set aside.  It prevailed in the SGHC and the investors thereafter appealed to the SGCA.        

    SGCA’s Decision

    The SGCA first dealt with two preliminary issues concerning its jurisdiction.  First, it found that it had jurisdiction to set aside the Award pursuant to Art 34(2)(a)(iii) of the UNCITRAL Model Law ([59] of judgment).  Second, it rejected the investors’ argument that Lesotho was bound to accept the PCA Tribunal’s jurisdiction by virtue of its representations, finding that the doctrines of estoppel and unilateral declarations did not apply ([88] to [91] of judgment).

    The SGCA then directed its attention to the “heart of the appeal”, which was whether the investors fulfilled the requirements in Art 28(1) of Annex 1 to the Investment Protocol.  Art 28(1) reads:

    Disputes between an investor and a State Party concerning an obligation of the latter in relation to an admitted investment of the former, which have not been amicably settled, and after exhausting local remedies shall, after a period of six (6) months from written notification of a claim, be submitted to international arbitration if either party to the dispute so wishes.

    The SGCA found that there were at least three jurisdictional requirements to be satisfied for the PCA Tribunal to affirm jurisdiction, namely:

    1. There must be an “investment” satisfying the definition of an “investment” in the relevant treaty, which has a territorial nexus with the host state;
    2. The investment must be “admitted”; and
    3. There must be a dispute concerning an “obligation” of Lesotho in relation to the admitted investment.

    Whether a qualifying investment was made

    The SGCA accepted the argument that an investment is generally not limited to a single right, but may encompass a bundle of rights including a secondary right to seek remedies to vindicate a primary right. ([120] of judgment).  Therefore, the mining leases, which were the primary investment, could in principle comprise a multitude of rights. 

    However, the SGCA rejected the argument that the investors’ right to refer a dispute to the SADC Tribunal fell within this bundle of rights.  The difficulty with the investors’ case was that the right to refer a dispute arose out of provisions in multilateral treaty instruments entered into by SADC member states to create the SADC Tribunal.  The source of the right to refer a claim existed on the international law plane and its assurance was not a matter within the control of Lesotho as it was “entirely dependent on the existence and maintenance of a mechanism established under international law by the consent of the SADC member states”.  On its reading of the treaty, the SGCA found that the SADC and any institution constituted under the SADC Treaty could have been dissolved at any time as long as three-quarters of the heads of state at the SADC Summit, or three-quarters of all member states were to adopt a resolution implementing such a decision.  In short, Lesotho could not have unilaterally guaranteed the right to refer the dispute to an SADC Tribunal.  Therefore, this fell outside Lesotho’s enforcement jurisdiction and did not have a requisite territorial nexus with Lesotho to trigger investment protection obligations under the relevant treaties.

    The SGCA was careful to distinguish the present case from arbitration clauses in bilateral investment treaties and claims brought under the ICSID Convention.  It clarified that an arbitration clause in a BIT is a right within the enforcement jurisdiction of a host State, which could be unilaterally guaranteed by that particular State.  This fulfils the territorial nexus requirement.  The provisions of the ICSID Convention are also distinguishable for three reasons: (1) unlike the SADC Treaty which only requires a three-quarters majority to pass an amendment, amendments to the ICSID Convention can only enter into force upon ratification by all contracting states, (2) the Convention does not contain a provision on termination, which means that consent of all contracting states is required to terminate the Convention, and (3) the Convention contains a saving clause protecting the right of a contracting state upon any amendment.

    Further, the SGCA cast doubt on whether the right to refer existed in the first instance. It accepted Lesotho’s argument that the SADC Treaty and Tribunal Protocol were not investment protection instruments.  It further found that the entry into force of the Investment Protocol in April 2010, after the alleged expropriation, did not confer the SADC Tribunal with jurisdiction to determine the SADC claim ([158] of judgment).  The investors were out of time.  The court concluded that as the investors did not possess the right to refer the dispute to the SADC Tribunal, the asserted right to refer was non-existent and could not have formed part of the bundle of rights constituting the mining leases.

    Whether there was an admitted investment and a dispute concerning an obligation in relation to the mining leases

    The SGCA was clear that the relevant investment was the mining leases, and not the right to bring the SADC claim.  There was accordingly no dispute that Lesotho had admitted the investment. However, the court found that there was no dispute concerning an obligation of Lesotho in relation to an admitted investment.  This was because the shuttering dispute could not be a qualifying dispute since the right to refer did not fall within the bundle of rights comprising a protected investment.  In the same vein, the investment did not give rise to a corresponding obligation to guarantee that the SADC claim would be heard.  As the shuttering dispute was not a qualifying dispute and the expropriation dispute fell outside the PCA Tribunal’s jurisdiction ratione temporis, there was no qualifying dispute that could have fallen within Art 28(1) of Annex 1.

    Exhaustion of Local Remedies

    Finally, the SGCA dealt with the requirement to exhaust local remedies stipulated in Art 28(1) of Annex 1.  It clarified that the requirement to exhaust local remedies was a matter of jurisdiction in this instance because it was a pre-condition for consent to arbitration.  This was so even if such a doctrine was traditionally regarded by international courts as a matter of admissibility.  Of note, CJ Menon underscored that the distinction between jurisdiction and admissibility has practical importance and is not simply an “exercise in linguistic hygiene pursuant to a hair-splitting endeavour”.  This is because a tribunal’s decision in respect of jurisdiction is reviewable by the courts at the seat while decisions on admissibility are not.

    On the facts, the SGCA found that the investors had not discharged their positive obligation to exhaust all local remedies. Critically, the investors could have pursued an “Aquilian action” in Lesotho’s domestic courts, which was a claim in the law of delict for pure economic loss resulting from the wrongful conduct of the state.

    Further, the SGCA also rejected the investors’ arguments on ineffective redress in the domestic courts.  It found the allegations on the lack of judicial independence to be “spurious” given that the domestic courts in Lesotho had not hesitated to be critical and dismissive of the actions of their own government during proceedings related to the expropriation dispute. 

    Accordingly, the SGCA found that a reasonable, available, and effective remedy was possible in the Lesotho courts that would foreclose the present claim, and serve as a bar to the PCA tribunal’s jurisdiction.

    Observations

    This was a case dealing with “novel and challenging issues of public international law and international investment law”, which involved submissions from local counsel, instructed Queen’s Counsels, and amici curiae.  In dealing with the arguments that were advanced, the SGCA has provided conceptual clarity on a number of legal arguments that may be advanced by counsel in future review proceedings in the Singapore courts. 

    First, the SGCA has accepted the proposition that an investment may encompass secondary rights, such as a right to bring a claim, if the requirement of a territorial nexus is met.  Second, the SGCA has, in its analysis on the law on exhaustion of local remedies, clarified and distinguished between the doctrines of jurisdiction and admissibility in relation to the review powers of a supervisory court.  This is useful for both counsel and arbitral tribunals, particularly for arbitrations with a Singapore seat.

    Lastly, the SGCA has demonstrated that it is again willing to undertake a critical review of investor-state awards, and is able to do so efficiently. While the eventual dispositif of the SGCA may differ in Swissbourgh and Lesotho and Sanum v Laos, both judgments evidence a careful treatment and analysis of principles of public international law and international investment law.  This will only increase Singapore’s profile as a seat for investment arbitration. 

    .   .   .   .   .   

    The opinions contained in this case comment reflect the author’s own views and are not to be understood as reflecting the views of the author’s employers or colleagues.  The author is grateful to Professor Lucy Reed (Director, Centre for International Law) for her review of the initial draft.

    * This blog entry may be cited as Rachel Tan Xi’en, “Case Comment: Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho [2018] SGCA 81” (19 January 2019) (http://www.singaporelawblog.sg/blog/article/228)

    ** A PDF of this entry may be downloaded here

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