By Lee Mei Yong Debbie, Wong Qiao Ling Sharon – ECYT Law LLC
I. INTRODUCTION
1. In an earlier decision in the first instance, the High Court allowed the Kingdom of Lesotho to set aside an investor-state arbitral award. Investors Swissbourgh Diamond Mines (Pty) Ltd (the “Appellants”) appealed.
2. The appeal was dismissed by the Court of Appeal, which upheld the High Court decision and conducted a review of the investor-state arbitral award in its decision.
II. BACKGROUND
3. The Appellants were investors who had leases to mine in various areas of the Kingdom of Lesotho (the “Kingdom”). The Appellants claimed that the leases had been unlawfully expropriated and commenced proceedings against the Kingdom before the Southern African Development Community (“SADC”) Tribunal in 2009.
4. The SADC Tribunal was established without an alternative forum to determine disputes referred to the SADC Tribunal. Before the SADC Tribunal could determine the Appellants’ claim, it was shuttered. The Appellants did not have an alternative forum to bring their claims.
5. The Appellants commenced international arbitration proceedings before an ad hoc international arbitration tribunal constituted under the Permanent Court of Arbitration (“PCA Tribunal”), claiming that the Kingdom had breached its obligations under the SADC Treaty by contributing to the shuttering of the SADC Tribunal, hence leaving the Appellants with no alternative recourse for their claims.
6. The PCA arbitration was seated in Singapore and the PCA Tribunal issued an award in favour of the Appellants (the “Award”).
7. The Kingdom applied to the Singapore courts to set aside the Award on the basis that the PCA Tribunal lacked jurisdiction. The High Court relied on its power to set aside an award under Article 34(2)(a)(iii) (“Article 34(2)(a)(iii)”) of the UNCITRAL Model Law (“Model Law”).
8. The Appellants appealed against the High Court decision, submitting that:
(a) The Court did not have jurisdiction to set aside the award under Article 34(2)(a)(iii) of the Model Law;
(b) The Kingdom was estopped from denying the PCA Tribunal’s jurisdiction and/or bound by a formal unilateral declaration;
(c) The PCA Tribunal did have jurisdiction to hear and determine the Appellants’ claim; and
(d) The Appellants had exhausted all local remedies before turning to arbitration.
III. ISSUES BEFORE THE COURT OF APPEAL
9. The High Court Decision was upheld in the Court of Appeal. The issues before the Court of Appeal were:
(a) Whether the Court has jurisdiction to hear the application to set aside the Award;
(b) Is the Kingdom bound to accept the PCA Tribunal’s jurisdiction due to unilateral declarations and estoppel;
(c) Did the PCA Tribunal have jurisdiction to determine the disputes between the parties; and
(d) Whether the Appellant exhausted all local remedies.
A. JURISDICTION OF THE COURT TO SET ASIDE THE AWARD
10. The jurisdiction of the Court is governed by Article 34(2) of Model Law, except chapter VIII, by virtue of Section 3(1) of the IAA.
11. Article 34(2)(a)(iii) allows the Court to set aside an award if it “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration”.
12. The Appellants contend that the Court has jurisdiction to set aside the Award, since Article 34(2)(a)(iii) applies only when the tribunal has improperly decided matters that were beyond the scope of submission to the tribunal.
13. The Court views an arbitration clause in an investment treaty as a unilateral offer to arbitrate any claim brought in accordance with the terms of the arbitration clause. It is for the investor to accept once an investor initiates arbitration proceedings in accordance with the arbitration clause.
14. However, if the dispute referred to arbitration by the investor under the arbitration clause falls outside the scope of the same, then there is no agreement to arbitrate such a dispute.
B. WHETHER KINGDOM IS BOUND UNDER PCA TRIBUNAL’S JURISDICTION DUE TO UNILATERAL DECLARATIONS AND ESTOPPEL
15. The Appellants submitted that there was various representations made by the Kingdom that showed that the Kingdom accepted the PCA Tribunal’s jurisdiction.
16. The Court drew guidance from CEMEX Caracas Investments BV and CEMEX Caracas II Investments BV v Bolivarian Republic of Venezuela, ICSID Case No ARB/08/15, Decision on Jurisdiction, 30 December 2010:
(a) It is recognised that there are two types of declarations – the first type is declarations formulated in the framework and on the basis of a treaty, the second is declarations made by States when exercising their freedom to act on the international plane;
(b) The court cautioned that when considering declarations not made within the framework and on the basis of a treaty, a restrictive interpretation should be used when deciding whether those declarations create such obligations.
17. The Court of Appeal decided that the Kingdom’s representations and/or the free-standing offer to arbitration did not evince any intention by the Kingdom to be bound to accept the PCA Tribunal’s jurisdiction.
18. Adopting the restrictive interpretation on the Kingdom’s various representations, there was no intention by the Kingdom to make a formal unilateral declaration in favour of the Appellants.
19. On the grounds of estoppel, the Court did not find any unambiguous statement of fact made by the Kingdom to unconditionally accept the PCA Tribunal’s jurisdiction, such that the Appellants suffered detriment or prejudice in reliance of the said representations.
C. JURISDICTION OF THE PCA TRIBUNAL
20. Under Article 28(1) of Annex 1, there are three key jurisdictional requirements that must be satisfied for the PCA Tribunal to assume jurisdiction:
(a) There must be an “investment” as defined under Article 1(2) and must have a territorial nexus with the host State;
(b) The “investment” must be “admitted”; and
(c) There must be a dispute that concerns the obligation of the Kingdom in relation to the admitted investment.
21. The Court found that the relevant “investment” in this case was the mining leases and that they fulfil the territorial requirement. However, the claim in the PCA Arbitration was brought about with respect to the dispute over the shuttering of the SADC Tribunal.
22. Since the dispute is characterised as a shuttering dispute and not over the expropriation of mining leases, the “investment” fails the territoriality requirement.
23. The Appellants’ right to refer the dispute to the SADC Tribunal exists only on an international law plane and its assurance was not within the control of the Kingdom, but dependent on the SADC Member States.
24. The Court also had doubts whether the SADC Tribunal had jurisdiction to determine the dispute at the relevant time, as the SADC Treaty and Tribunal Protocol did not confer upon investors any enforceable right to refer an investment dispute to the SADC Tribunal.
25. The Court held that the SADC claim did not constitute a stand-alone investment or a “continuation or transformation” of the mining leases. The SADC claim also failed the territorial nexus requirement as the asserted right to pursue the SADC Claim depends entirely on the continued existence of the SADC Tribunal mechanism under international law and the continuing consent of the SADC Member States to keep the SADC Tribunal operative.
26. The shuttering dispute did not concern any obligation of the Kingdom in relation to the mining leases because even assuming that the SADC Tribunal had jurisdiction to hear the dispute over investment, the domestic laws of the Kingdom do not provide for the competence of the SADC Tribunal to do so.
D. LOCAL REMEDIES
27. The Court found that the Appellants did not exhaust all domestic remedies before turning to arbitration.
28. The Appellants could have pursued an Aquilian claim for economic loss resulting from the wrongful conduct of the State in the Kingdom’s domestic courts.
29. The Court also rejected the Appellants’ contention that there was no reasonable possibility of effective redress due to case backlog and lack of judicial independence in the Kingdom’s courts, as there was no evidential basis for this contention.
IV. CONCLUSION
30. While the Court of Appeal decision largely depended on the factual matrix on the case, this decision demonstrated the amenability of Singapore Courts in reviewing investor-state arbitral awards where the seat of arbitration is in Singapore.