Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Ltd and others

• Jurisdiction: Singapore
• Judge: Kannan Ramesh J
• Judgment Date: 14 August 2017
• Neutral Citation: [2017] SGHC 195
• Plaintiff Counsel: Samuel Sherratt Wordsworth, QC (instructed counsel, Essex Court Chambers, London), Paul Tan Beng Hwee and Alessa Pang Yi Ching (Rajah & Tann Singapore LLP)
• Date: 14 August 2017
• Docket Number: Originating Summons No 492 of 2016
• Hearing Date: 04 April 2017,06 January 2017,06 March 2017,28 March 2017,15 March 2017,05 January 2017,04 January 2017
• Subject Matter: Setting aside,Arbitral tribunal,Arbitration,Award,Investor-State arbitration,Recourse against award,Jurisdiction,Bilateral investment treaty,International law,International investment law
• Year: 2017
• Defendant Counsel: Alvin Yeo Khirn Hai, SC, Koh Swee Yen, Smitha Rajan Menon, Oh Sheng Loong, Mak Shin Yi and Tara Radakrishnan (WongPartnership LLP)
• Court: High Court (Singapore)
• Citation: [2017] SGHC 195
• Published date: 12 December 2018

Kannan Ramesh J: Introduction

This is the first case in Singapore in which an investor-State arbitral award on the merits is sought to be set aside. It engages intriguing questions of arbitral and international investment law which have yet to be considered by a Singapore court.

The Kingdom of Lesotho (“the Kingdom”) is a member of the Southern African Development Community (“the SADC”), an inter-governmental socio-economic organisation comprising 15 Southern African States. The SADC was established by the Treaty of the Southern African Development Community (17 August 1992) 32 ILM 116 (entered into force 30 September 1993) (“the SADC Treaty”) on 17 August 1992. The SADC Treaty also established a tribunal (“the SADC Tribunal”) to ensure adherence to and to interpret the Treaty, with the jurisdiction to adjudicate disputes and issue advisory opinions. One of the SADC’s objectives is to promote the economic growth of the region, to which end the SADC signed a Protocol on Finance and Investment (“the Investment Protocol”) on 18 August 2006 (entered into force 16 April 2010). Importantly, amongst the various protections that the Investment Protocol conferred on investors was the option of referring certain investor-State disputes to international arbitration, under Annex 1 to the Investment Protocol (“Annex 1”). Various fora were provided therein, one of which was the SADC Tribunal. This complemented the existing procedural protection of referring disputes to the SADC Tribunal under the provisions of the SADC Treaty.

The defendants in this application claimed that their investments, namely leases to mine certain territories in the Kingdom, were unlawfully expropriated by the Kingdom between 1991 and 1995. Having unsuccessfully pursued actions in the Kingdom’s domestic courts, the defendants commenced proceedings in the SADC Tribunal in 2009, alleging that the Kingdom had breached its obligations under the SADC Treaty by wrongfully expropriating the mining leases. Unfortunately for the defendants, the SADC Tribunal was dissolved by resolution of the SADC Summit before it had an opportunity to determine the defendants’ claim. Undeterred, the defendants then commenced international arbitration proceedings against the Kingdom in 2012 pursuant to Annex 1, on the basis that the Kingdom, by contributing to or facilitating the shutting down (or “shuttering”, the term adopted in the arbitration and by the parties) of the SADC Tribunal without providing alternative means by which the defendants’ expropriation claim might be heard, again breached its obligations under the SADC Treaty. This arbitration was administered by an ad hoc tribunal constituted under the auspices of the Permanent Court of Arbitration (“the PCA Tribunal” and “the PCA” respectively), and the PCA Tribunal elected Singapore as the seat of arbitration. The PCA Tribunal rendered two awards in the defendants’ favour: a partial final award on jurisdiction and merits on 18 April 2016 (“the Award”) and a final award on costs on 20 October 2016 (“the Costs Award”). The Award determined that the Kingdom had breached various obligations under the SADC Treaty and granted relief by directing the parties to constitute a new tribunal to hear the defendants’ expropriation claim. It also determined that the Kingdom was liable to pay the defendants’ costs in the arbitration, for which the quantum was subsequently fixed by the Costs Award.

By Originating Summons No 492 of 2016 (“OS 492”), the Kingdom applies for the court to set aside the Award in its entirety, on the basis that the PCA Tribunal lacked jurisdiction and/or that the Award exceeded the terms or scope of the submission to arbitration. In the alternative, it applies for that part of the Award concerning the Kingdom’s liability to pay the defendants’ costs of the arbitration to be set aside for breach of the rules of natural justice, and/or for the Kingdom having been unable to present its case, and/or on the basis that that part of the Award exceeded the terms or scope of the submission to arbitration.

Having carefully reviewed the Award, the parties’ submissions and other relevant material, I have come to the view that the PCA Tribunal did not have jurisdiction over the parties’ dispute and I set aside the Award in entirety. In the premises, I do not need to address the Kingdom’s alternative argument that the portion of the Award dealing with the Kingdom’s liability to pay the defendants’ costs of the arbitration should be set aside for, inter alia, breach of the rules of natural justice. It follows, as a matter of logic, that the Costs Award must also fall away because it was made pursuant to the determination in the Award that the Kingdom was liable to pay the defendants’ costs of the arbitration and reasonable legal costs (Award at [11.1(g)] and Costs Award at [1.2]–[1.4]). The Costs Award is therefore without basis. However, there are two residual but important issues: (a) the court’s jurisdiction to make an order as to the costs of the arbitral proceedings; and (b) the appropriate costs order I should make as regards those proceedings. I consider these issues towards the end of this judgment.

As this is a judgment of some length, I set out a brief roadmap of its contents:

Heading	Pincites
Background to the dispute	[7]–[52]
Parties’ cases	[53]–[55]
Preliminary objection: jurisdiction of this court	[56]–[87]
Applicable law and principles of treaty interpretation	[88]–[104]
Objections to the PCA Tribunal’s jurisdiction
	1) No jurisdiction ratione temporis	[105]–[180]
	2) The defendants had no “investment”	[181]–[228]
	3) The defendants’ investment was not “admitted”	[229]–[252]
	4) The dispute did not concern an “obligation in relation to” an admitted investment	[253]–[277]
	5) The defendants did not exhaust local remedies	[278]–[319]
	6) The defendants were not “investors”	[320]–[339]
Conclusion on setting aside	[340]–[343]
Costs of the arbitral proceedings	[344]–[348]

Background to the dispute The defendants

The first defendant, Swissbourgh Diamond Mines (Pty) Limited (“Swissbourgh”), is a company registered under the laws of the Kingdom and was incorporated by the second defendant, Mr Josias Van Zyl (“Mr Van Zyl”), a national of the Republic of South Africa (“South Africa”), on 12 November 1986. The third and fourth defendants are the representatives of the Burmilla Trust and the Josias Van Zyl Family Trust (“the JVZF Trust”) respectively. Both trusts were established under the laws of South Africa.

When Swissbourgh was first incorporated, 5% of its shares were held by Mr Van Zyl, 85% were held by a nominee of Mr Van Zyl and the remaining 10% were halved between two other persons. In March 1989, all the shareholders other than Mr Van Zyl divested their shareholding to the JVZF Trust, which thus acquired 95% of the shares in Swissbourgh. In June 1997, the JVZF Trust transferred 90% of the shares in Swissbourgh to the Burmilla Trust. The ownership of Swissbourgh has remained unchanged to date and is divided between Mr Van Zyl (5%), the JVZF Trust (5%) and the Burmilla Trust (90%).

The Mining Leases and the Tributing Agreements

By 1987, Swissbourgh had submitted applications first for prospecting leases and then for five mining leases in five regions of the Kingdom, namely the Matsoku, Motete, Rampai, Orange, and Patiseng/Khubelu regions (“the Mining Leases”).

In brief, the review of such applications involved the following stages. First, negotiations between the applicant and a committee of senior government officials who would advise the Ministry for Water, Energy and Mining. Secondly, approval by the Ministry for Water, Energy and Mining. Thirdly, approval by the Kingdom’s Mining Board. Fourthly, recommendation by the Kingdom’s Mining Board to the Kingdom’s Military Council following consultations with the local chiefs responsible for the land which was the subject of the applications. Fifthly, approval by the Kingdom’s Military Council. Finally, approval by the King of Lesotho.

In June 1988, at the conclusion of the above-mentioned process, the King of Lesotho granted Swissbourgh’s applications for the Mining Leases. On 26 October 1988, the Kingdom’s Registrar of Deeds in Maseru registered the Mining Leases. However, the Kingdom subsequently claimed to discover, after the Mining Leases had been registered, that there was no evidence that the local chiefs in the Rampai area had been consulted or had agreed to the grant of a lease. This sparked the issues between the parties.

The fifth to ninth defendants – Matsoku Diamonds (Pty) Limited, Motete Diamonds (Pty) Limited, Orange Diamonds (Pty) Limited, Patiseng Diamonds (Pty) Limited and Rampai Diamonds (Pty) Limited (collectively “the Tributees”) – were incorporated in 1988 under the laws of the Kingdom, apparently by Swissbourgh and/or Mr Van Zyl, and named after the regions in which they were to carry out diamond mining operations. Between 15 December 1989 and 10 January 1990, the Tributees sub-leased the Mining Leases from Swissbourgh under agreements which I refer to hereinafter as “the Tributing Agreements”. Under the Tributing Agreements, the Tributees would hold and exercise the mining rights under the relevant Mining Leases. The Tributing Agreements were registered at the Maseru Deeds Registry during the same period.

In September 1994, ownership of the Tributees was transferred to the Burmilla Trust (which acquired 99% of the shares) and the JVZF Trust (which acquired the remaining 1%).

On 16 September 1994, Swissbourgh and the Tributees signed an “Agreement of Sale and Cession of Claims”, by which they agreed to assign to the Burmilla Trust their rights relating to any claims against the Kingdom due to...