Singapore court upheld the arbitration tribunal's jurisdiction over Sanum v Laos

Author
Dr Shu Zhang (Post-Doctoral Fellow, UNSW Law)

On 29 September 2016, the Court of Appeal (the ‘CA’) of Singapore published its final judgment on Sanum Investment Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 157, overturning the Court of First Instance’s decision and confirming the jurisdiction of the tribunal in dealing with an investor-state disputes on the basis of the China-Laos BIT (1993).

In 2012, Sanum, an investor from Macau, brought claims against the Lao Government in accordance with the China-Laos BIT (1993) and requested an arbitration under UNCITRAL Rules and administered by the Permanent Court of Arbitration, alleging deprivation of its benefits through unfair and discriminatory taxes. The Lao Government raised two major objections against the jurisdiction of the tribunal: (1) that the China-Lao BIT would not extend to investors from Macau; and (2) even if the China-Lao BIT applied, its arbitration clause, which applied only to “a dispute involving the amount of compensation for expropriation”, would not cover Sunam’s claim. It also informed the tribunal that it was “reaching out to the PRC through diplomatic channels” concerning the applicability of the China-Lao BIT. In the absence of any further reported progress from the diplomatic communications, in December 2013 the tribunal rejected both arguments and confirmed its jurisdiction on the basis of the applicability of the China-Laos BIT and the expansive reading of the investor-state arbitration clause in that BIT.

The Lao Government in Jan 2014 requested the High Court of Singapore, the court of the place of arbitration, to review the jurisdictional decision of the tribunal in accordance with the International Arbitration Act (Singapore). It also submitted two letters between the Laotian Ministry of Foreign Affairs and the Chinese Embassy in Laos (2014 Letters), which suggested that the Embassy agreed with Laos that the China-Laos BIT would not apply to Macau. The admissibility of these diplomatic communications were confirmed by the judge. The judge in Jan 2015 held that the challenged towards the tribunal’s jurisdiction were allowed on the basis of these diplomatic letters, as well as the restrictive interpretation of the investor-state arbitration clause.

Sanum appealed against this ruling. Prior to the appeal, the Lao Government also submitted its diplomatic communications with the Chinese Ministry of Foreign Affairs, confirming that the letter from the Chinese Embassy in Laos was authentic and made with the authorisation of the Chinese Ministry of Foreign Affairs (2015 Letters).

In making the final decision, the CA dealt with the following issues:

1. Whether the 2015 Letters are admissible
The CA ruled that it should be admissible on the basis that the 2015 Letters were made after the High Court hearing, and their existence depended on the willingness of PRC, a non-party of the proceeding, in providing such evidence; it was also agreed that these letters could have an important influence on the resolution of the case, and were creditable prima facie.

2. Whether the interpretation and application of China-Laos BIT are matters that could be dealt with by the Singapore Courts
The CA ruled that the High Court was competent and obliged to deal with these matters under the International Arbitration Act (Singapore) as the court of the place of arbitration.

3. Should the judicial review be de novo on the jurisdictional matter
Sanum argued that, although the judicial review on the tribunal’s decision on jurisdiction should be de novo, the court should adopt a restricted approach and accord deference in the context of investor-state arbitration. The CA, following its decision in PT First Media[1],
rejected this argument, and held that there should be no basis for deference in a review de novo.

4. Should the China-Laos BIT extend to Macau
The CA opined that, under the “Moving Treaty Frontier” (MTF) rule accorded by the VCST and VCLT, on 20 December 1999 the China-Laos BIT should automatically apply to Macau unless exceptions under Art 15 of the VCST or Art 29 of VCLT existed. Since the application of China-Laos BIT to Macau would neither fail the purpose of the BIT, nor would it radically change the condition of its operation, the Lao Government must establish that an intention “appears” from the BIT that it was not meant to apply to Macau, or evidences must “otherwise establish” that the BIT was not meant to apply to Macau.

The CA held that no such meaning could be found. After reviewing the texts of the China-Laos BIT, it found that no intention was expressed in the BIT in excluding its applicability to Macau, but found two facts that might support the applicability: one is that the China-Portugal Joint Declaration (1987) was made before the China-Laos BIT, which meant that both parties should have been aware the likeliness of the handover; the second being that no review of the BIT was taken place shortly after the handover. Thus, mere silence of both parties would not support any implied intention to exclude its applicability to Macau.

In applying the Critical Date Doctrine in this case, the CA reviewed the following pieces of evidences, and ruled that:
(1) in the absence of any specific steps taken by China and Laos, the China-Portugal Joint Declaration could not override the default position provided by the MTF rule; the internal constitutional arrangements provided by the Joint Declaration would not have the effect of displace the MTF rule.
(2) The experience of China and UK’s negotiations and arrangements regarding Hong Kong lacked sufficient weight as a true analogy, and the materials referred to by Laos government from the Hong Kong experience failed to establish an intention to exclude the application of China’s BIT to Hong Kong, and failed to displace the functioning of the MTF rule.
(3) The UNSG Note (1999) only applied to multilateral treaties and the omission of the China-Laos BIT from that Note would not affect its applicability to Macau.
(4) The WTO Report (2001) should not be given any weight in dispute settlement, because such statement was not made as an outcome of analysing the legal nature of the treaty succession matter.
(5) the 2014 Letters should be given no weight under the Critical Date Doctrine because they intended to contradict the position illustrated by the pre-critical date materials, or, even if they were admissible because of the inconclusiveness of the pre-critical date position, they should be given no weight because the domestic legislation of China (the Basic Law), as the foundation of the 2014 Letters, was irrelevant and inadmissible; nor the 2014 Letters, as a “subsequent agreement” or “subsequent practice” argued by the Lao Government, should have a retroactive effect; and no evidence had been found as to the parties agreed, prior to the commencement of this dispute, that there was an intention that the China-Laos BIT should not extend to Macau.
(6) Similarly, the 2015 Letters should be given no weight.

5. The Expansive Interpretation of the ISA Clause in China-Laos BIT
Rather than focusing on the interpretation of the word “involving”, the CA focused on the meaning of the “folk in the road” provision. It held that, the provision meant that any dispute brought to national court would no longer be entitled to refer any aspect of that dispute to arbitration. Thus, a separation of the disputes on the existence of an expropriation (to be dealt with by the national court) and the amount of compensation caused by such expropriation (to be arbitrated), as suggested by the Lao Government, would not be possible. Requiring a party to refer to the national court to decide the existence of the expropriation would actually bar it from accessing the arbitration procedure. On the basis of this “folk in the road” clause the CA distinguished the China-Laos BIT and the Russian BITs in Berschader[2] and RosInvest[3]. It is further concluded that the expansive interpretation would be consistent with the objectives of the China-Laos BIT of promoting and protecting investments.

This decision is meaningful in different aspects. It follows the Case of Tza Yap Shum v Republic of Peru[4], confirming the applicability of China’s BITs to the investors Hong Kong and Macau, therefore providing a dispute resolution tool of these investors. It also accepts an expansive interpretation of the restrictive investor-state arbitration clauses, which would impact the practices in relation to the massive numbers of China’s first generation BITs in the future.

________________________________________
[1] [2014] SLR 372.
[2] Vladimir Berschader and Moise Berschader v The Russian Federation
(SCC Case No 080/2004, Award, 21 April 2006)
[3] RosInvest Co UK Ltd v The Russian Federation (SCC Case No
V079/2005, Award on Jurisdiction, 1 October 2007)
[4] ICSID Case No ARB/07/06.