The Singapore Court Of Appeal Affirms Singapore’s Role As A Hub For Investment Arbitration.

Legal News & Analysis - Asia Pacific - Singapore - Dispute Resolution

Asia Pacific Legal Updates

 

7 February, 2019

 

 

Introduction

 

The Singapore Court of Appeal decision in Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho [2018] SGCA 81 marks a reaffirmation of Singapore’s willingness and capability to be a center for international investment arbitration.

 

The case involved an application by the Kingdom of Lesotho to set aside an award rendered by the Permanent Court of Arbitration (PCA), with the tribunal being seated in Singapore. At first instance, the High Court granted the application and set aside the award. The claimant investors appealed the decision. The complexity of the issues in the case were such that the appeal was heard by a full bench of the Court of Appeal, was argued by two QCs admitted specifically for the dispute, and involved submissions by two amici curiae from the Centre for International Law, National University of Singapore.

 

Of particular note in this case was the court’s decision to recognize its own jurisdiction to review, and even rehear, jurisdictional objections raised before arbitral tribunals.

 

The Investment Arbitration Regime

 

For those unfamiliar with international investment law in general, the decision in Swissbourgh also serves an excellent primer. Put generally, the international investment arbitration regime is a form of dispute resolution concerning disputes between foreign private investors and the governments of states in which their investments are made. These disputes involve a mix of domestic law, private international law and public international law.

 

The basis of this regime is found in investment treaties entered into between two or more states, wherein the contracting parties agree to extend certain protections to each other’s nationals when they make an investment within their territory. The general idea behind these treaties is to promote cross-border investment by guaranteeing certain minimum standards of protection to foreign investors. The treaties provide a mechanism for investors to bring a claim for a breach of these protections in international arbitration, which would remove them from the jurisdiction of the host states themselves.

 

The international investment regime is unique in that the investors are not party to the relevant investment treaties, which are entered into at the state-to-state level. Instead, these treaties provide a mechanism by which private investors may bring a claim under a treaty entered into by their home state, subject to the terms agreed between their home state and the host state. Notably, in order to have standing to bring such a claim, the investors must satisfy certain important jurisdictional requirements as agreed by the parties to the relevant treaty.

 

This includes falling within the applicable definition of “investment” under the treaty. Whether these requirements are met is often a central issue in investment arbitration proceedings, and this issue was in fact at the heart of the decision in Swissbourgh. 

 

The Dispute

 

The facts of the dispute in Swissbourgh were complex. The investors in question, an individual and two trusts, were South African. The investors had incorporated (or, in the case of the trusts, subsequently acquired an interest in) Swissbourgh Diamond Mines, which was then awarded a series of mining leases within Lesotho. Lesotho was undertaking a large-scale joint venture project with South Africa (the Lesotho Highlands Water Project) in areas that overlapped with the territories for which the mining leases were granted. After a change in government and certain disputes between Swissbourgh and Lesotho, the government of Lesotho purported to cancel the mining leases on the basis that Swissbourgh had breached its obligations thereunder.

 

The dispute was litigated and arbitrated in Lesotho for over 10 years, and the mining leases were either (allegedly) repudiated by the government or declared void by its courts.

South Africa and Lesotho were parties to the Treaty of the South African Development Community (SADC), which, together with other protocols between SADC states, purportedly created a tribunal for the resolution of disputes between foreign investors and the SADC states. The investors brought an investment claim against Lesotho before the SADC tribunal, which had heard investment disputes involving other SADC states. This claim was pending when, by a decision of the SADC’s member states, the SADC tribunal was shut down.

 

The investors then brought a claim against Lesotho before a PCA tribunal, on the grounds that the closing of the SADC tribunal itself was a breach of Lesotho’s obligations under the SADC treaty read with various other protocols. The PCA tribunal, seated in Singapore, found in favour of the investors in this claim and ordered that a new tribunal be put in place to hear the claim which was pending before the SADC tribunal at the time it was closed down.

 

Lesotho applied to the High Court of Singapore to set aside the PCA tribunal’s award on the grounds that it lacked jurisdiction over the dispute, and was successful. The investors then appealed the setting aside order. 

 

The Issue of the Court’s Jurisdiction

 

One of the main issues dealt with by the Court of Appeal regarded the scope of its jurisdiction under the UNCITRAL Model Law on International Commercial Arbitration, which has the force of law in Singapore pursuant to Article 3(1) of the International Arbitration Act of Singapore.

 

The court found that there were two grounds open to Lesotho for invoking the court’s jurisdiction to set aside the PCA tribunal’s award: (i) where the dispute in question falls outside the terms of the submission to arbitration, or (ii) where the arbitration agreement was invalid.

 

In order to address these issues, the court undertook an in-depth analysis of the nature of consent and/or submission to arbitration in the context of international investment treaties.

 

Unlike general commercial arbitration, where the agreement to arbitrate is contained in a contract between the two parties, in the context of an investment treaty there is often no such contract between the host state and the claimant investor.

 

Instead, the court, citing previous investment arbitration decisions, held that the agreement to arbitrate contained within a treaty is generally seen as a unilateral offer to arbitrate, which is open for acceptance by any investor who has standing to bring a claim under said treaty. In this regard, the court held that a state’s consent to arbitration under a treaty is in fact two-tiered:

 

  • Vis-à-vis the other state parties to the treaty, the state manifests its consent to arbitration in general terms, by agreeing to use arbitration as a mechanism for dispute resolution.
  • Vis-à-vis the investor, the state manifests its consent to arbitration by way of its standing offer to arbitrate any dispute, but only regarding investments which are considered protected investments according to the terms of the treaty.

 

In light of the above, the court concurred with the generally held understanding that a state’s agreement to arbitrate is limited to disputes which satisfy the requirements of the investment treaty, including that the dispute arise from an investment protected under the treaty. Similarly, a state’s consent to arbitration is invalid in a situation where the jurisdictional requirements for arbitration under the treaty are not met.

 

The significance of this analysis is twofold. First, the court showcased a nuanced grasp of the complex issues regarding investment treaty arbitration, which are often the purview of specialist arbitrators in the field. Second, and perhaps more importantly, the court affirmed that it may revive issues regarding the jurisdictional requirements of investment treaties, under the umbrella of assessing whether there was a valid consent to arbitrate. These arguments may include not only the scope of these jurisdictional requirements, but also whether or not they have been satisfied.

 

Given that these jurisdictional hurdles are often some of the most hotly contested points before international investment tribunals, the court’s willingness to address these issues in a setting-aside application will no doubt be of interest to parties to investment disputes, and in particular to host states whose jurisdictional objections had failed before arbitral tribunals. Of note in Swissbourgh, the Court of Appeal ultimately disagreed with the PCA tribunal and held that the investors did not have an investment that satisfied the requirements of the relevant arbitration clause. Therefore, the Kingdom of Lesotho could not be said to have consented to arbitrate the dispute.

 

Implications

 

The case of Swissbourgh brought to the fore several salient issues of international investment arbitration. The Court of Appeal’s willingness to read its jurisdiction broadly, and importantly, in consonance with the generally accepted principles of international investment arbitration, shows that the courts of Singapore grasp the nuances of the field and are capable of dealing with the complex and unique issues arising from the public-private dynamic of international investment arbitration.

 

Furthermore, the investment arbitration regime, as it currently stands, lacks a substantive appeals process. While awards rendered by tribunals constituted under the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) are generally subject to annulment proceedings within that body, ad hoc arbitrations, such as the PCA arbitration in Swissbourgh, do not generally have access to such an established review process. In such cases, an unsuccessful party to an investment arbitration dispute must turn to domestic courts for recourse against any award. Singapore, by signaling its ability to provide such recourse where necessary, continues to build its reputation as a leading center for the settlement of international disputes.

 

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For further information, please contact:

 

Luis Duhart, Duane Morris & Selvam LLP

lduhart@selvam.com.sg