As we previously reported, the Singapore High Court had ruled in favour of the Government of Laos in a challenge to the jurisdiction of a Singapore-seated arbitral tribunal hearing a claim under the PRC-Laos bilateral treaty (the "PRC-Laos BIT" or "Treaty") brought by Sanum Investments, a Macanese investor who had made investments in Laos.
Notably, the Judge heavily relied on correspondence between the PRC and Laotian Governments on the issue of the Treaty's application to Macao as a territory of the PRC (the "2014 Letters"), notwithstanding that the correspondence was not produced to the tribunal and came into existence only after the action was commenced in the High Court. Based on the correspondence, the Judge found that the PRC-Laos BIT did not extend to Macao, with the result that the tribunal had no jurisdiction to hear the claim. Further, even if the Treaty did apply to Macao, the Judge found that the expropriation claim brought by Sanum fell outside the ambit of the Treaty, which (on his interpretation) allowed only issues of quantum to be referred directly to the tribunal.
The Singapore Court of Appeal in Sanum Investments Ltd v. Government of the Lao People's Democratic Republic [2016] SGCA 57 overturned the Judge's decision. It found that the PRC-Laos BIT does apply to Macao, notwithstanding the position taken by the PRC and Laotian Governments in the 2014 Letters. The Court of Appeal also found that the PRC-Laos BIT does not preclude issues of liability being referred to arbitration in the context of a claim for expropriation. Consequently, the tribunal had subject-matter jurisdiction to hear Sanum's claim.
In the following paragraphs we explain the reasoning of the Court of Appeal and the impact of the decision has on (1) future claims under the PRC-Laos BIT, and (2) Singapore's aspirations as a hub and go-to seat for investment treaty arbitrations.
- Preliminary issues
As preliminary points, the Court of Appeal affirmed the High Court's findings that:
- the issues raised by the action were justiciable. The parties to the arbitration had designated Singapore as the seat of arbitration and consequently Singapore municipal law, i.e. the International Arbitration Act, applied to the governance of the arbitration. Since the Act designated the High Court as the supervisory court over such arbitration, the High Court was competent and indeed required under s 10(3)(a) of the Act to consider Sanum's challenge to the tribunal's determination on its own jurisdiction.
- the Court was entitled to conduct a de novo review of the tribunal's decision. Sanum had argued that even though the Judge was entitled to apply de novo review, the Judge should have adopted a restrained approach and accorded deference to the tribunal's findings. This was said to be appropriate due to the unique nature and circumstances of the case, namely that that the matter concerned an investment treaty arbitration, and a treaty to which Singapore is not a party. However, the Court of Appeal considered such an approach to be inconsistent with the standard of review to be applied.
- Issue 1: application of the PRC-Laos BIT to Macao
The Court of Appeal then went on to consider the central issue of whether the PRC-Laos BIT extends to Macao, which at the time of the BIT's execution was not part of the PRC. Central to this inquiry was the application, if at all, of the "moving treaty frontier" rule ("MTF Rule") of customary international law codified in Articles 15 and 29 of the Vienna Convention on the Law of Treaties ("VCLT"), which provides for the automatic extension of a treaty to a new territory as and when it becomes part of a contracting state.
The Court of Appeal found that the MTF Rule presumptively applies unless one of the exceptions under Article 15 or Article 29 is applicable. In the present case the only possible exceptions available were under Article 29, where it had to be established that either:
- the PRC-Laos BIT manifests the parties' intention that it is not meant to apply to Macao; or
- there exists evidence that "otherwise establish" the parties' intention not to apply the PRC-Laos BIT to Macao.
On the first exception, the Court of Appeal concurred with the Judge that there was nothing pointing to an intention to displace the MTF Rule in the express provisions of the treaty itself; nor was such an intention evinced in the objects and the purposes of the treaty or the circumstances leading to the Treaty's conclusion.
The Court of Appeal however disagreed with the Judge that the second exception had been established; the available evidence did not "otherwise establish" the parties' intention not to apply the BIT to Macao. Of crucial importance is the Court of Appeal's treatment of the "critical date doctrine" as a rule of evidence under international law and its effect on the 2014 Letters, which purported to evidence such an intention.
The critical date doctrine provides that evidence that comes into existence after the "critical date", which is the date on which the dispute between the parties has crystallised, cannot be used to improve a party's position in relation to the dispute. In this case, the critical date, when arbitration was commenced was 14 August 2012, which was about two years prior to the 2014 Letters. The Court of Appeal decided, departing from the decision of the High Court, that the critical date doctrine remained relevant to investment treaty arbitration and would apply to evidence that was generated after the dispute had arisen. It noted however that such evidence would not be automatically deemed inadmissible, but "special care would have to be taken" in assessing the weight or relevance of such evidence.
Evidence in existence before the critical date
The Court of Appeal first considered the following evidence that existed prior to the critical date.
The 1987 PRC-Portugal Joint Declaration: this states, that (1) the application to Macao of international agreements to which the PRC is a party shall be decided by the PRC in accordance with Macao's specific needs, and that (2) Macao would be able to conclude international agreements in specific areas including trade, finance and the economy. The Judge considered this to be evidence that the PRC did not intend to extend the application of all its then-existing international agreements to Macao and would decide at a future date which of those agreements would be so extended. This therefore displaced the MTF Rule, and since no decision was ever made by the PRC to extend the PRC-Laos BIT to Macao, it does not apply to Macao.
The Court of Appeal disagreed with the Judge and found that the Joint Declaration did not displace the MTF Rule vis-à-vis the PRC-Laos BIT. Firstly, it was a declaration made by the PRC to Portugal and binding only on these two states. Secondly, to the extent that it evinces the PRC's general intention not to extend its international agreements to Macao automatically, it was not an intention that was communicated to Laosin relation to the PRC-Laos BIT. Therefore the Joint Declaration is not evidence that otherwise establish the intention of the PRC and Laos not to apply the Treaty to Macao.
The Hong Kong analogy: the Court of Appeal also disagreed with the Judge's finding that the experience of the PRC and the UK in relation to Hong Kong was analogous to the situation to Macao.
The 1999 note by the PRC to the UN Secretary-General: this states that the PRC would notify the UN whether international instruments not otherwise listed on the note would apply to Macao. The Court of Appeal found that the Judge should not have placed any weight on this note as it included only multilateral treaties and was therefore irrelevant to the treaty in question, which is bilateral.
The 2001 WTO Trade Policy Report: this was issued by the WTO and notes that other than agreements entered into with Portugal, "Macao has no other bilateral investment treaties or bilateral tax treaties". The Judge found that whilst the report was by no means conclusive, it did provide clear support for the argument that the treaty does not apply to Macao.
The Court of Appeal held that the Judge should have placed no weight on this report because the report itself, and other dispute resolution tribunals, including those established under the auspices of the WTO, have stated that statements made in such reports should not be relied upon.
Evidence after the critical date (the 2014 Letters)
In deciding that the tribunal had no jurisdiction, the Judge had relied primarily on the 2014 Letters to conclude that PRC-Laos BIT was not applicable to Macao. As set out in our earlier note, the letters had recorded Laos' and the PRC's views that the PRC-Laos BIT did not extend to Macao.
The Court of Appeal disagreed with the Judge. Starting on the premise that the critical date doctrine applied (as discussed above), it held that the 2014 Letters should not be given any evidentiary weight as they (i) had only come about after the dispute between the parties had "crystallised", and (ii) sought to contradict the position prior to that "critical date", which the Court of Appeal had earlier established did not support the contention that the PRC-Laos BIT was not intended to apply to Macao. The Court of Appeal however accepted that the 2014 Letters could have been persuasive if the question of Macao’s coverage under the treaty was unclear, or if they reinforced an already-established position that the territory was not covered, based on evidence that was in existence prior to the critical date.
Conclusion on Issue 1
The Court of Appeal therefore concluded that it had not been "otherwise established" that the PRC-Laos BIT was not intended to apply to Macao, and accordingly reversed the High Court's ruling on this issue.
- Issue 2: whether the tribunal had subject matter jurisdiction over Sanum's expropriation claims
The key issue was whether the word "involving the amount of compensation for expropriation" in Article 8(3) should be interpreted broadly (as the tribunal had), or narrowly (as the Judge had), to include or exclude Sanum's expropriation claim (which raised issues of liability as well as compensation). In deciding that the tribunal had the necessary jurisdiction (and thereby disagreeing with the High Court), the Court of Appeal focused on the context as well as the object and purpose of the PRC-Laos BIT.
Context of the PRC-Laos BIT
The PRC-Laos BIT includes a fork in the road provision in Article 8(3) whereby, if a dispute is referred to the national court under Article 8(2), recourse to arbitration is no longer available. Further, under Article 4(1) of the PRC-Laos BIT, whether "effective and appropriate compensation" had been accorded by the contracting state is one of the criteria to determine whether an expropriation had occurred.
In this context, if Article 8(3) was interpreted narrowly, an investor would be compelled first go to a national court to determine whether its expropriation claim was permissible under Article 8(3). The issue of appropriate compensation would need to be addressed as part of that determination by the national court under Article 4(1). In turn, this would result in the investor not being able to subsequently bring any dispute on the amount of compensation to an arbitral tribunal under Article 8(3), because such matters would already have been brought before the national courts, thereby falling foul of the fork in the road provision.
The Court of Appeal found that a narrow interpretation of Article 8(3) preferred by the Judge would “render illusory the availability of access to arbitration”. Accordingly, the Court agreed with Sanum and the tribunal that Article 8(3) should instead be read broadly to incorporate any expropriation claim in which the amount of compensation was in dispute. Such an interpretation would be consistent with the broad aim of the PRC-Laos BIT as a whole to promote investor protection.
- Observations
This case shows once again that the Singapore courts will not shy away from tackling complex matters. In its desire to leave no stone unturned in arriving at an informed and considered decision, a five-judge panel was constituted (only the fourth time in the Court of Appeal's history). The Court also appointed two amicus curiae, J Christopher Thomas QC and Professor Locknie Hsu, both of whom are considered to be experts in the field of investment arbitration and public international law.
Two observations are worth making. First, it is curious that there appears to have been no evidence produced (and perhaps there is none) on the position taken internally by the Government of Laos and/or PRC prior to the 2014 Letters, with respect to the question of whether or not their treaties should extend to territories of the PRC gained after the conclusion of the PRC-Laos BIT. If indeed the position taken in the 2014 Letters had been their position all along, one wonders if there were exchanges to this effect following the return of Hong Kong and Macau in 1997 and 1999 respectively, and whether the Government of Laos (as a party to the arbitration and the Singapore litigation) could have produced evidence from its own files evidencing internal and inter-Governmental thinking at earlier stages of treaty negotiation and implementation.
Second, the Court's careful and thorough analysis of the issues, and its familiarity with and expertise on issues of international law, should bolstered confidence in Singapore as a serious and viable seat for investor-state arbitrations involving Southeast Asian states (or any other states for that matter), which is something that Singapore is keen to promote. For example, on the issue of justiciability, the Court of Appeal is correct to say that by selecting Singapore as seat, the Act as well as the supervisory jurisdiction of the Singapore courts is engaged. The Court is therefore required to consider issues brought before it pursuant to the provisions of the Act. This is in line with the position taken by the English Court of Appeal in Republic of Ecuador v Occidental Exploration and Production Company [2005] EWCA Civ 1116 where it rejected Ecuador's arguments on non-justiciability; the English Court of Appeal held that by selecting London as the seat, the application of the Arbitration Act 1996 (including the court's supervisory jurisdiction) is engaged. Similar conclusions have been reached in Switzerland, Germany and other countries. The position taken by the English court – and now the Singapore courts – of course does not apply to ICSID arbitrations which exclude the jurisdiction of domestic courts and render issues arising therefrom non-justiciable before domestic courts.
This rigorous and internationally-minded approach will provide comfort to investors and states, as well as tribunals, who are keen to have a robust and competent judicial supervision on ad hoc / non-ICSID investment arbitration proceedings and encourage them to seat those cases in Singapore.
On the question of the standard of review to be applied, it is interesting that the Court of Appeal declined to apply a restrained approach as suggested by Sanum, and preferred to conduct a full re-examination. The Court referred to and followed its own earlier decision in PT First Media TBK v Astro Nusantara International BV and others [2014] 1 SLR 372, thus finding no relevant distinction between treaty arbitration and commercial arbitration in this context, and reaffirming its earlier decision in First Media that a review on jurisdiction should be undertaken de novo. The Court of Appeal essentially equated a de novo review with a complete re-hearing, and stated that the tribunal's findings and decision on jurisdiction had no legal or evidential value in that context. Other courts internationally have taken the same approach, though some remain more deferential in certain respects to the findings of treaty-based tribunals (see, for example, Kateryna Bondar, "Annulment of ICSID and Non-ICSID Investment Awards: Differences in the Extent of Review", J.Int.Arb (2015), 32:6 at 3.1(b)). But in any event, the Court of Appeal's decision has set the standard for future jurisdictional reviews of investment-state arbitrations seated in Singapore.
For further information, please contact Alastair Henderson, Partner, Senior Associates Gitta Satryani, Emmanuel Chua, and Yosuke Homma, or your usual Herbert Smith Freehills contact.
