Arbitration

Published date01 December 2016
Publication year2016
Date01 December 2016
AuthorLawrence BOO LLB (University of Singapore), LLM (National University of Singapore); FSIArb; FCIArb; FAMINZ; Chartered Arbitrator; Solicitor (England and Wales), Advocate and Solicitor (Singapore); Adjunct Professor, Faculty of Law, National University of Singapore; Adjunct Professor, Faculty of Law, Bond University (Australia). Earl J Rivera-DOLERA BSc (Phils), LLB (Phils), LLM (National University of Singapore); FSIArb; MCIArb; MPIArb; Attorney-at-law, Philippines.

4.1 In 2016, Singapore courts continued to see a flow of arbitration cases seeking judicial assistance albeit by a significantly lesser number than those filed in 2015. These cases involve the enforcement of the arbitration agreement by way of stay of court, injunction, and setting-aside applications. Based on the decisions reported, Singapore courts had on six occasions been asked to stay their own court proceedings in favour of arbitration.1 There were only four cases (down from 2015's staggering nine cases) which were brought to set aside arbitral awards. The decrease in number is quite telling of Singapore court's reputation of following a strict, narrow, and rather “high threshold” approach when requested to set aside what ought to be unimpeachable arbitral awards. There was also the occasional application for interim measures such as sealing orders.

Enforcement of arbitration agreements
Applicability of the dispute resolution mechanism in a bilateral investment treaty

4.2 The High Court had in Government of the Lao People's Democratic Republic v Sanum Investments Ltd2 determined that the bilateral investment treaty (“BIT”) between the People's Republic of China (“PRC”) and the Lao People's Democratic Republic (“Laos”) (“PRC–Laos BIT”) does not extend to the Macao Special Administrative Region of China

(“Macao”) and, therefore, the arbitration agreement contained therein was not applicable to disputes arising from investments made by a Macanese investor in Laos.

4.3 Sanum Investments Limited (“Sanum”) was a company incorporated in Macao. In 2007, it began investing in the gaming and hospitality industry in Laos through a joint venture with a Laotian company. Alleging that the Government of Laos (“Lao Government”) deprived it of the benefits to be derived from its capital investment through the imposition of unfair and discriminatory taxes and, thus, had effectively “expropriated” Sanum's investments, Sanum then commenced arbitration against the Lao Government pursuant to the dispute resolution mechanism in the PRC–Laos BIT which was entered into in 1993.

4.4 The Lao Government challenged the jurisdiction of the tribunal on the basis of its submission that the PRC–Laos BIT does not extend to Macao. The tribunal decided on the challenge holding that the BIT extends to Macao and upheld its own jurisdiction. The Lao Government appealed against the tribunal's decision to the High Court under s 10 of the International Arbitration Act3 (“IAA”), the amended version of Art 16 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (“MAL”). In the course of the appeal, the Lao Government sought and obtained the admission of two diplomatic letters: a letter from the Laotian Ministry of Foreign Affairs to the PRC Embassy in Vientiane, Laos; and the reply from the PRC Embassy in Vientiane, Laos (collectively “the Two Letters”), both of which confirmed the intention of the PRC and Laos on the non-applicability of the PRC–Laos BIT to Macao. The High Court's decision was arrived at primarily based on the Two Letters, in that they are evidence of subsequent agreements allowed as evidence of intention of the contracting parties to treaties such as the PRC–Laos BIT, as contemplated in the Vienna Convention on the Law of Treaties 1969 (“VCLT”).

4.5 In allowing the appeal and reinstating the tribunal's decision upholding jurisdiction, the Court of Appeal in Sanum Investments Ltd v Government of the Lao People's Democratic Republic4 referred to Art 29 (regarding territorial scope of treaties) of the VCLT read together with Art 15 (regarding succession in respect of part of a territory) of the Vienna Convention on Succession of States in respect of Treaties 1978 (“VCST”) and accepted the joint experts' view that these provisions reflect the principle in “customary international law” known as the

“moving treaty frontier rule” (“MTF Rule”). In the court's view, the MTF Rule is “implicitly embedded” in Art 29 (which provides for the application of a treaty to the entire territory of a signatory state) to the extent that the MTF Rule suggests the automatic extension of a treaty to a new territory as and when it becomes a part of that signatory state. The Court of Appeal observed that both states had the opportunity after the initial ten-year term of the PRC–Laos BIT to review the applicability of the BIT but they did not do so. While the Court of Appeal accepts that the MTF Rule is a “presumptive rule” that can be displaced by proof of any intention to the contrary, it held that there is no evidence that the MTF Rule has been so displaced, ruling that the silence or inaction of Laos and the PRC in this connection cannot displace the presumptive position that the PRC–Laos BIT extends to Macao as from 1999.

4.6 With regard to the Two Letters, the Court of Appeal expressed the view that the question of their admissibility and weight must be considered within the framework of any other applicable principles of international law, such as the critical date doctrine which, in essence, requires the court to treat evidence which comes into being after a “critical date” and which is “self-serving and intended by the party putting it forward to improve its position in the arbitration, as being of little, if any, weight” [emphasis in original].5 It rejected the Lao Government's submission that the Two Letters should be considered as confirming the legal position between the two state parties to the BIT reasoning that the Two Letters in fact contradicted its finding that “the evidence … does not establish that the MTF Rule had been displaced”.6 In its view, “giving effect to the [Two Letters] as a subsequent agreement in relation to the interpretation of the PRC–Laos BIT would amount to effecting a retroactive amendment of the BIT”.7 On that basis, it concluded that the default position is for the PRC's treaties to apply to Macao automatically upon Macao's reversion to the PRC in 1999.8 The PRC–Laos BIT, therefore, applies to Macao and the tribunal appointed pursuant to the arbitration agreement contained therein has jurisdiction to hear disputes between Sanum as investor and Laos as the host-state.

4.7 In reaching its decision, the court conceded that its conclusion is “counter-intuitive” as the state parties, Laos and the PRC, have taken the view that the BIT does not extend to Macao. Indeed, the conclusion

reached generated wide differences of opinion. While some practitioners welcome the decision as being “correct to say that by selecting Singapore as seat, the [IAA] as well as the supervisory jurisdiction of the Singapore courts is engaged” and will bolster “confidence in Singapore as a serious and viable seat for investor–state arbitrations involving Southeast Asian states”,9 others accepted the court's decision more cautiously as being “explicable on the particular facts” of the case in that it involved a BIT which, by its nature, creates rights for third parties to the treaty.10

4.8 Chinese scholars in the main could not accept that a Singapore court could ignore and interfere with the PRC and Laos' common position on the extent of their treaty coverage.11 The PRC Ministry of Foreign Affairs had expressed in no uncertain terms its disagreement with the court's conclusion, asserting that “the geographical scope of application of the PRC–Laos investment agreement is a question of fact

concerning acts of state, which is up to the contracting parties to decide”.12

4.9 The decision of the court raises some other issues concerning the Singapore courts' role in investor–state arbitrations arising out of BITs. The present authors had earlier observed13 that in seeking the court's supervisory jurisdiction under s 10 of the IAA, no consideration was in fact given as to whether a Singapore court could be seized with such jurisdiction given that the IAA is a legislation based on and intended to give effect to the MAL, whose scope includes contracts or “relationships of a commercial nature”. While the term “investment” appears in the footnote to Art 1 of the MAL, the term is proscribed by the term “relationships of a commercial nature”, viz, that whatever the nature of the transaction, the relationship between the parties to the dispute must necessarily be of a commercial nature, for instance, a sale of a car by a father to his son at a discounted price which, while a valid sale transaction, is not a “relationship of a commercial nature”. Similarly, while an investor who has contracted to build a highway for the host-state on a build–operate–transfer scheme will be considered “in a relationship of a commercial nature” with the host-state, for an investor who has no direct contractual relationship with the host-state, save for the fact that it has made investments in the host-state, making claims for breach under a BIT is not making any claim arising out of a “relationship of a commercial nature”. As the issue was not raised by Sanum at the High Court and before the Court of Appeal, the court had assumed that the fact that the place of arbitration was Singapore, the IAA automatically applied and, accordingly, the court could assume jurisdiction. While some may see the court's decision as another manifestation of the Singapore court's strong support for arbitration, it should be borne in mind that BITs are entered into by state parties and not by investors. As such, the court's readiness to declare that the choice of Singapore seat subject the parties (both the investor and state parties) to the court's supervisory jurisdiction, coupled with the court's readiness to displace state parties' joint expressed intentions, could well work against Singapore's intention to poise itself as a place of choice for investor-state arbitration.

Stay of court proceedings
The court's inherent case management power

4.10 The judgment of the Court of Appeal in Tomolugen Holdings Ltd v...

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