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Singapore High Court rules on the application of the PRC-Laos bilateral investment treaty to Macau

In Government of the Lao People’s Democratic Republic (“Laos”) v Sanum Investments Ltd (“Sanum”) [2015] SGHC 15, the Singapore High Court allowed an appeal under section 10 of the Singapore International Arbitration Act (the “IAA”) to an UNCITRAL arbitral tribunal’s ruling on jurisdiction, finding that the bilateral investment treaty between the People’s Republic of China (“PRC”) and the Laos (the “BIT”) did not extend to the Macau Special Administrative Region of China (“Macau”).

Sanum, a Macau-based entity, had invested in Laos’ gaming and hospitality industry through a joint venture with a Laotian entity in 2007.  In August 2012, following a dispute with its joint venture partner, Sanum initiated UNCITRAL arbitration proceedings against Laos under the BIT, claiming that Laos had levied unfair and discriminatory taxes.

In the arbitration, Laos challenged the tribunal’s jurisdiction on the basis that the investment protection offered under the BIT did not extend to Macau as the PRC did not exercise sovereignty over Macau until the territory was handed back to the PRC by the Portuguese in December 1999, some six years after the BIT was signed.  The tribunal ruled, however, that the BIT did apply to Macau and that it therefore had jurisdiction.  In reaching this decision, the tribunal relied on Article 29 of the Vienna Convention on the Law of Treaties 1969 (“VCLT”), which provides that a treaty is binding on the entire territory of a contracting state, and Article 15 of the Vienna Convention on the Succession of States in respect of Treaties 1978 (“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.

Laos made an appeal of the tribunal’s jurisdiction ruling to the Singapore High Court under section 10(3)(a) IAA, which provides that any party may make such an application within 30 days of receiving the tribunal’s ruling.  It was not disputed by the parties that the Singapore courts had jurisdiction to hear the appeal.

In considering whether the BIT applied to Macau, the court held that the articles of the VCLT and VCSST relied on by the tribunal only gave rise to a presumption that the BIT applied to Macau.  Those articles provided two possible exceptions to this general rule where:  i) a contrary intention appeared in the treaty, or ii) it could be otherwise established that the treaty should not apply to the territory.

The court found that the evidence submitted by Laos established an intention that the BIT did not extend to Macau and exception (ii) had therefore been met.  The court was influenced in particular by two pieces of evidence which had not been presented to the tribunal, but which the court held admissible for the purposes of determining the application:

  • an exchange of letters between Laotian Ministry of Foreign Affairs and the PRC Embassy in Laos in January 2014 (after the tribunal’s ruling on jurisdiction) regarding the intention of the BIT, which the court accepted affirmed the common understanding between the two states at the time the treaty was signed that the treaty did not apply to Macau; and
  • a World Trade Organisation Trade Policy Report in 2001, which stated that Macau was signatory to only one bilateral investment treaty (with Portugal).

The court was of the view that there had been sufficient evidence before the tribunal for it to have reached the same conclusion, including a provision in a 1987 PRC-Portugal Joint Declaration which required that the PRC government decide at a future date whether treaties concluded by it should apply to Macau.  The court also considered that Macau’s ability to enter its own bilateral investment treaties suggested it was not bound by the PRC’s treaties.

Having found that the BIT did not extend to Macau, and that no claim could therefore be made under the BIT, the court nonetheless went on to opine that Article 8(3) of the BIT, which provides that disputes “involving the amount of compensation for expropriation” could be submitted to arbitration, should be interpreted restrictively such that the arbitral tribunal in any event lacked subject-matter jurisdiction over Sanum’s expropriation claims.

*A version of this article was originally published by Practical Law Arbitration http://uk.practicallaw.com/country/arbitration