A Macanese investor, Sanum Investments Ltd (“Sanum“), has successfully appealed a Singapore High Court decision on a tribunal’s jurisdiction to determine Sanum’s claims under the bilateral investment treaty (“BIT“) between the People’s Republic of China (“China“) and the Lao People’s Democratic Republic (“Laos“).
The Court of Appeal’s decision in Sanum Investments Ltd v Government of the Lao People’s Democratic Republic  SGCA 57, which was handed down on 29 September 2016, is discussed below.
While Macau was under Portuguese rule, the China-Portugal Joint Declaration (“Declaration“) was signed in 1987, which provided that Macau would be handed over to China in 1999.
China and Laos signed the BIT in 1993 but the parties did not expressly deal with the BIT’s applicability to Macau after the handover.
In 2007, Sanum formed a joint venture with a Laotian entity for investment in the gaming and hospitality industry in Laos. Disputes between Sanum and the Laotian government subsequently arose.
Sanum commenced arbitration against Laos on 14 August 2012 under the BIT, alleging, amongst other things, that the Laotian government imposed “unfair and discriminatory taxes” on Sanum.
An eminent tribunal with extensive experience of investor state cases was constituted under the UNCITRAL Rules and Singapore was designated as the seat of arbitration. Laos disputed the Tribunal’s jurisdiction on two main grounds:
- The BIT did not extend to protect a Macanese investor; and
- In the alternative, Sanum’s claims are not arbitrable under the BIT as they are not a “dispute involving the amount of compensation for expropriation [which] cannot be settled through negotiation“.
The Tribunal dismissed Laos’ jurisdictional challenges on 13 December 2013. Laos appealed to the Singapore High Court under section 10(3) of the International Arbitration Act (Cap 143A) which allows for appeals on points of jurisdiction. On 20 January 2015, the High Court overruled the Tribunal. Sanum then appealed to the Court of Appeal on 20 July 2015.
Court of Appeal’s decision
A five-member Court of Appeal overturned the decision of the High Court and upheld the Tribunal’s finding that it had jurisdiction to hear Sanum’s claims. In doing so it applied the customary international law rule known as the “moving treaty frontier” rule (“MTF Rule“) which “presumptively provides for the automatic extension of a treaty to a new territory as and when it becomes a part of that State“. The Court ruled, inter alia, that this presumption was not displaced because the handover of Macau was a foreseeable event at the creation of the BIT given that the Declaration predated the entry into the BIT.
Applying the public international law principle of the critical date doctrine, the Court of Appeal also did not accord any evidentiary weight to diplomatic notes exchanged between China and Laos in 2014, in which the Chinese embassy in Laos agreed that the BIT did not extend to Macau. The Court considered that no weight should be put on those notes as they came into existence after the critical date, being the date on which the arbitration proceedings were initiated, and they were adduced to contradict a position which was established by the pre-critical date evidence – namely that the BIT did apply to Macau.
The Court of Appeal also rejected the Laotian government’s narrow interpretation of the BIT by which Laos contended that the sole type of dispute which may be resolved by arbitration was the amount of compensation for expropriation. Taking a broader and more investor-friendly construction of the BIT, the Court ruled that any claim which includes a dispute over the amount of compensation for expropriation may be submitted to arbitration.
The Court also considered the issue of de novo review of the Tribunal’s award on jurisdiction. Notwithstanding the Tribunal’s expertise on this issue, the Court of Appeal considered that the High Court was not required to defer to the findings of the Tribunal. It concluded that it was “not bound to accept or take into account the arbitral tribunal’s findings on the matter”, irrespective of the arbitrators’ “eminence”, and that the “cogency and quality of their reasoning” should instead inform the lower court’s evaluation of the matter. The Court of Appeal further held that as Singapore was the seat of the arbitration, the Singapore courts were “not only competent to consider these issues, but… obliged to do so“.
The Court of Appeal’s decision may be seen as pro-investor.
Although Singapore is not a party to the relevant BIT, its courts were prepared to reject the views of one of the signatories (expressed in the diplomatic notes) as to its construction in favour of applying public international law norms by way of the MTF Rule and the critical date doctrine. The same observation holds to its broad and inclusive construction of the BIT.
Its ruling on the de novo standard of review is a welcome confirmation of the Singapore courts’ role as the competent court in not only commercial arbitrations, but also investor-state arbitration. It is a welcome sign that the Court adopted its own path to jurisdiction and did not defer to the eminent international arbitration names in the Tribunal (though it did ultimately reach the same conclusion on jurisdiction).
Singapore is undoubtedly keen to welcome more investor-state cases. The Singapore International Arbitration Centre is poised to release its first set of investment arbitration rules in due course. The Court’s appointment of J Christopher Thomas QC of the National University of Singapore and Locknie Hsu of Singapore Management University to make amicus curiae submissions reflects a desire to maintain the highest standards of jurisprudence.
It is reflective of the potential difficulties with investor-state arbitration that this matter – filed in 2012 in one of the world’s most arbitration friendly seats – has only reached the jurisdiction stage. Those seeking recourse in investor state arbitration need to be prepared for what may be a long game.