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    02:20 PM Debby Lim (Partner, Shook Lin & Bok LLP)

    Case Comment: Government of the Lao People's Democratic Republic v Sanum Investments Ltd [2015] SGHC 15

        

    Introduction 

    In a seminal decision of the Singapore High Court on the jurisdiction of an arbitral tribunal under a bilateral investment treaty between the People’s Republic of China and Laos (“PRC-Laos BIT”), the Court in Government of the Lao People's Democratic Republic ("Laos") v Sanum Investments Ltd ("Sanum") [2015] SGHC 15 held that the arbitral tribunal had no jurisdiction under the PRC-Laos BIT. This is the first decision in which the Singapore High Court had to consider the interpretation of the scope of a bilateral investment treaty in deciding on an investment tribunal’s jurisdictional ruling. This commentary focuses on the issue of whether Sanum's expropriation claims fell within Article 8(3) of the BIT, which provides that disputes "involving the amount of compensation for expropriation" can be submitted to arbitration. 

    Facts

    In 1993, the PRC and Laos entered into the PRC-Laos BIT, which did not mention whether it was applicable to Macau.

    Prior to 1999, Macau was considered a “Chinese territory” over which Portugal exercised administrative power. After the handover of Macau by Portugal in 1999, the PRC resumed sovereignty over Macau and established it as a special administrative region. 

    The defendant, Sanum, is incorporated under the laws of Macau. In 2007, Sanum began investing in the operation and development of two casinos and five slot clubs in Laos. Disputes subsequently arose between Sanum and Laos over taxes and penalties imposed by the Laos Government. In August 2013, Sanum commenced arbitration proceedings against Laos pursuant to the PRC-Laos BIT.

    Findings of the arbitral tribunal 

    The arbitral tribunal, presided by Dr. Andrés Rigo Sureda with co-arbitrators Professor Bernard Hanotiau and Professor Brigitte Stern (“Tribunal”), designated (a) Singapore as the place (or seat) of arbitration; (b) the Permanent Court of Arbitration (“PCA”) as Registry; and (c) the 2010 UNCITRAL Arbitration Rules as the applicable procedural rules. By way of background, there was a separate arbitration between Sanum’s parent company, Lao Holdings NV and the Laos Government administered by the International Centre for the Settlement of Investment Disputes, an independent arm of the World Bank (“ICSID”).

    Laos disputed the jurisdiction of the Tribunal on the basis that the PRC-Laos BIT did not apply to Macau. The Tribunal held that the BIT applied to Macau and found that the Tribunal had jurisdiction. Laos appealed to the Singapore High Court in respect of the Tribunal’s jurisdictional ruling pursuant to s 10(3)(a) of the International Arbitration Act (Cap. 143A) (“IAA”). In addition, Laos sought to adduce fresh evidence in the form of two diplomatic letters dated on 7 and 14 January 2014 respectively that were exchanged between the Laotian Ministry of Foreign Affairs and the PRC Embassy in Vientiane, Laos (“Letters”). The two Letters were only obtained after the Tribunal rendered the Award on Jurisdiction dated 13 December 2013. 

    Issues before the High Court

    The two substantive issues arising in this application are as follows:

    (a)     Whether the PRC-Laos BIT applies to Macau.

    (b)     Whether Sanum’s expropriation claims fall outside the scope of Art 8(3) of the PRC-Laos BIT.

    The Court’s Decision 

    Before deciding on the merits of the appeal on jurisdiction, Judicial Commissioner Edmund Leow considered:

    • whether this application under s 10 of the IAA raises only issues of pure international law which are non-justiciable by the Singapore Court; and 
    • whether the two Letters should be admitted as evidence in this application.

    On the first preliminary issue, Leow JC applied the English Court of Appeal’s decision of Republic of Ecuador v Occidental Exploration and Production Co [2006] 2 WLR 70 and found that the application did not raise questions of international law that are non-justiciable. The Court considered that it had the jurisdiction to interpret the PRC-Laos BIT to determine the parties’ rights and duties under Singapore law.

    On the second preliminary issue, the Court admitted the two Letters on the basis that the two Letters fell within the three conditions of Ladd v Marshall as set out in the Court of Appeal’s decision in Lassiter Ann Masters v To Keng Lam (alias Toh Jeanette) [2004] 2 SLR(R) 392.  

    Whether the PRC-Laos BIT applies to Macau

    The Tribunal relied on Article 29 of the Vienna Convention on the Law of Treaties 1969 (the “VCLT”) which provides that a treaty is binding on the entire territory of a contracting state. It also relied on Article 15 of the Vienna Convention on the Succession of States in respect of Treaties 1978 (the “VCSST”) which provides that, in the event of a territory's succession to another state, the treaties of the successor state become binding on the territory.

    The High Court held that the articles of the VCLT and VCSST relied on by the Tribunal only gave rise to a presumption that the PRC-Laos BIT applied to Macau. There were two possible exceptions to this general rule where either (i) a contrary intention appeared in the PRC-Laos BIT; or (ii) it could be otherwise established that the PRC-Laos BIT should not apply to the territory, being Macau.

    The Court found that the evidence submitted by Laos established an intention that the PRC-Laos BIT did not extend to Macau and the second exception had therefore been met. The Court was particularly persuaded by two pieces of evidence that were not placed before the Tribunal:

    • the two Letters which the Court admitted as new evidence, which the Court found constituted an affirmation of the common understanding between the two states that the PRC-Laos BIT did not apply to Macau from its inception; and
    • A World Trade Organisation Trade Policy Report in 2001, which stated that Macau was a party to only one BIT (with Portugal).

    The Court opined that there had been sufficient evidence before the Tribunal for it to have reached the same conclusion. This included a provision in a 1987 PRC-Portugal Joint Declaration, which required that the PRC decide at a future date whether treaties concluded by it should apply to Macau. The Court also considered (at [31]) that Macau's ability to enter into its own BITs with other states suggested to a limited extent that it was not bound by the PRC's treaties.

    Sanum’s expropriation claims fell outside the scope of Art 8(3) of the PRC-Laos BIT

    Having decided that the PRC-Laos BIT did not apply to Macau, the Court nevertheless proceeded to interpret Article 8(3) of this BIT. The Court adopted a restrictive interpretation holding that the agreement to arbitrate under the PRC-Laos BIT applies only to disputes involving the monetary amount of compensation payable to investors. In this regard, Article 8(3) did not apply to Sanum’s expropriation claims. 

    The High Court declined to follow Tza Yap Shum v Peru, ICSID Case No ARB/07/6, Decision on Jurisdiction and Competence, 19 June 2009, where the tribunal had concluded that the words “involving the amount of compensation for expropriation” encapsulated not just the determination of the amount but also any other issues normally inherent to an expropriation. This included whether the property was actually expropriated in accordance with the BIT provisions and requirements, as well as the determination of the amount of compensation due, if any.

    The Tza Yap Shum decision may be contrasted with previous decisions which placed importance on the ordinary meaning of the treaty text when interpreting the scope of a provision referring to disputes ”involving” or ”concerning” the amount of compensation. For instance, the Tribunal in RosInvestCo UK Ltd. v The Russian Federation, Award on Jurisdiction 2007, SCC Case No Arb V079/2005 referred to the ”ordinary meaning” of the limiting qualification ”concerning the amount or payment of compensation” to find that it excluded the possibility of arbitrating whether an expropriation had taken place. The Tribunals in Vladimir and Moise Berschader v The Russian Federation, SCC Case No 080/2004, Award 21 April 2006 and Austrian Airlines AG v The Slovak Republic, UNCITRAL Final Award, 9 October 2009 came to similar conclusions.

    It should be noted that the Tza Yap Shum decision is not without its detractors, especially amongst Chinese scholars (see Chen An, “Queries to the Recent ICSID Decision,” Journal of World Investment and Trade Vol 10 No 6 (Dec 2009).; Wang Nan, “The Problem of Using China’s Foreign Bilateral Investment Treaties Toward Hong Kong (Zhongwai shuangbian touzi xieding dui xianggang de shiyong wenti),” 20 Apr 2010 CNKI Database). The learned Judicial Commissioner had his own doubts about the decision as well. Indeed, the High Court was keenly aware of the political nuances in the two communist states’ intentions in entering into the PRC-Laos BIT (see [123]-[125]). 

    As can be seen, there are two conflicting approaches in respect of “amount of compensation” dispute resolution clauses in BITs. Academics have commented that Tza Yap Shum is not binding on any other investment tribunal, each case turns on the specific wording of the BIT at issue, and each treaty must be interpreted separately on its own merits (see Brown, Chester and Miles, Kate eds, “Evolution in Investment Treaty Law and Arbitration”, Cambridge University Press (January 2, 2012), p428). The law on the interpretation of these types of clauses is still in flux. The cases discussed here raise the further issue of whether it is the proper role of investment tribunals to construe the meaning of dispute resolution clauses or whether it should be the treaty-makers who determine the proper scope of arbitration. The High Court in Laos v Sanum took the view that it was the latter. 

    Conclusion

    As mentioned in its latest Annual Report, four investor-state cases were referred to the Singapore International Arbitration Centre in 2014. In this regard, the Sanum decision is a testament to Singapore’s growing importance as a seat for investor-state disputes. 

    * This blog entry may be cited as Debby Lim, "Case Comment: Government of the Lao People's Democratic Republic v Sanum Investments Ltd [2015] SGHC 15", Singapore Law Blog (10 March 2015) (http://www.singaporelawblog.sg/blog/article/95)

    ** A PDF version of this entry may be downloaded here

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