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

JurisdictionSingapore
JudgeSundaresh Menon CJ
Judgment Date27 November 2018
Neutral Citation[2018] SGCA 81
Citation[2018] SGCA 81
Defendant CounselSamuel Sherratt Wordsworth QC (instructed counsel, Essex Court Chambers, London), Tan Beng Hwee Paul, Pang Yi Ching Alessa and David Isidore Tan (Rajah & Tann Singapore LLP),J Christopher Thomas QC and Prof N Jansen Calamita (Centre
Published date07 December 2018
Hearing Date17 May 2018,21 May 2018
Plaintiff CounselStephen Richard Jagusch QC (instructed counsel, Quinn Emanuel Urquhart & Sullivan LLP), Yeo Khirn Hai Alvin SC, Koh Swee Yen, Rajan Menon Smitha, Oh Sheng Loong and Mehaerun Simaa d/o Ravichandra (WongPartnership LLP)
Date27 November 2018
CourtCourt of Appeal (Singapore)
Docket NumberCivil Appeal No 149 of 2017
Subject MatterAward,Recourse against award,Jurisdiction,Investor-State arbitration,Arbitral tribunal,Arbitration,International investment law,International Law,Setting aside
Sundaresh Menon CJ (delivering the judgment of the court): Introduction

International investment law is a hybrid legal construct uniquely placed at the crossroads of domestic and international law and of private and public law. It has, over the years, become a reliable avenue to which aggrieved investors turn when host States fail to honour obligations owed to them. The dispute resolution mechanisms and substantive rules of investment protection provided for in the growing body of investment treaties enable such investors to bring proceedings against host States for alleged breaches of investment treaty obligations. While these treaties are unusual in the sense that States party to them undertake obligations that may be enforced by private individuals, this is generally subject to the qualification that an investor would not be permitted to bring a claim against the State unless certain jurisdictional requirements provided for either under the treaty or as a matter of customary international law are first satisfied. As a result, an investment arbitration claim brought by an investor may, not infrequently, encounter jurisdictional objections raised by the host State. The present proceedings are no different. Their complexity, as will be seen in the course of this judgment, is compounded by the fact that the investors, in a bid to surmount the jurisdictional objections raised by the host State, have sought to characterise their investment in a number of ways, not all of which bear a territorial nexus with the host State.

In this appeal, the first to ninth appellants (collectively, “the Appellants”) seek to reverse the decision of the High Court judge (“the Judge”) to set aside a partial final award on jurisdiction and merits issued on 18 April 2016 (“the Award”). The Judge’s decision was made upon the application of the Kingdom of Lesotho (“the Kingdom”) in Originating Summons No 492 of 2016 (“the Setting Aside Application”). The Award was made by an ad hoc international arbitration tribunal constituted under the auspices of the Permanent Court of Arbitration (“the PCA”) and seated in Singapore (“the PCA Tribunal”). The Appellants had commenced the arbitration proceedings (“the PCA Arbitration”), pursuant to Art 28 of Annex 1 to the Protocol on Finance and Investment of the Southern African Development Community (18 August 2006) (entered into force 16 April 2010) (“the Investment Protocol”), against the Kingdom, which is a member of an intergovernmental socio-economic organisation known as the Southern African Development Community (“the SADC”).

The Appellants’ complaint in the PCA Arbitration, briefly put, centred on their assertion that the Kingdom had contributed to or facilitated the shutting down (or “shuttering”) of another tribunal (“the SADC Tribunal”), which is a dispute resolution body that was established pursuant to Art 9(1)(g) of the Treaty of the Southern African Development Community (17 August 1992) 32 ILM 116 (entered into force 30 September 1993) (“the SADC Treaty”). The operation of the SADC Tribunal – including its composition, powers, functions, jurisdiction and procedures – was subsequently clarified by the Protocol on Tribunal in the Southern African Development Community (7 August 2000) (entered into force 14 August 2001) (“the Tribunal Protocol”). According to the Appellants, the SADC Treaty read with the Tribunal Protocol enabled aggrieved investors to refer disputes concerning the alleged failures of member States of the SADC (“the SADC Member States”) to comply with their obligations in relation to investments made in the SADC Member States, to the SADC Tribunal for resolution. The Appellants maintained that following the shuttering of the SADC Tribunal, the Kingdom was obliged, but failed, to provide for an alternative forum to determine such claims – in particular, a claim that had already been brought by the Appellants against the Kingdom and which was pending before the SADC Tribunal (“the SADC Claim”) at the time the SADC Tribunal was shuttered.

The SADC Claim involved allegations that the Kingdom had breached its obligations under the SADC Treaty by wrongfully expropriating the Appellants’ leases to mine certain territories located in the Kingdom. For reasons that will become evident later, it is important to note that the Appellants maintain that the relevant dispute that was before the PCA Tribunal was not in respect of the allegedly wrongful expropriation. Rather, it was the separate allegedly wrongful act of interfering with and displacing the means provided and existing at that time for vindicating grievances before the SADC Tribunal by shuttering that avenue. The relief sought by the Appellants in the PCA Arbitration was the establishment of a forum before which it could pursue the part-heard SADC Claim.

The PCA Tribunal found that the Kingdom had indeed breached various obligations under the SADC Treaty, the Tribunal Protocol and the Investment Protocol. These pertained specifically to what the PCA Tribunal considered was the obligation of the Kingdom to afford the Appellants an effective means of pursuing the SADC Claim. It accordingly granted relief by directing the parties to constitute a new tribunal to hear the SADC Claim. The PCA Tribunal also found that the Kingdom was liable to pay the Appellants’ costs in the arbitration. The Kingdom then commenced the Setting Aside Application. The Judge allowed the application, and set aside the Award in its entirety on the ground that the PCA Tribunal lacked jurisdiction over the parties’ dispute: see Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Limited and others [2017] SGHC 195 (“the Judgment”). The Appellants now appeal against the Judgment.

Having reserved judgment after hearing the submissions of counsel and the amici curiae whom we appointed to assist us in these proceedings, we now set out our decision and the accompanying reasons.

Background

We begin by setting out the facts relevant to this appeal.

The parties

The first appellant, Swissbourgh Diamond Mines (Pty) Limited (“Swissbourgh”), is a company that was incorporated on 12 November 1986 under the laws of the Kingdom by the second appellant, Mr Josias Van Zyl (“Mr Van Zyl”), a South African national. The third and fourth appellants are, respectively, the representatives of the Josias Van Zyl Family Trust (“the JVZF Trust”) and the Burmilla Trust, which are trusts constituted under the laws of the Republic of South Africa. In March 1989, the ownership of Swissbourgh was structured such that the JVZF Trust owned 95% of its shares and Mr Van Zyl held the remaining 5%. In June 1997, the JVZF Trust transferred 90% of the shares in Swissbourgh to the Burmilla Trust. Mr Van Zyl now owns 5% of the Swissbourgh shares, the JVZF Trust owns 5%, and the Burmilla Trust owns the remaining 90%.

Following its incorporation, sometime in or about 1987, Swissbourgh submitted applications for prospecting and mining leases (“the Mining Leases”) in five regions in the Kingdom, namely, the Matsoku, Motete, Orange, Patiseng/Khubelu and Rampai regions. In June 1988, the Kingdom formally approved Swissbourgh’s applications for the Mining Leases.

The fifth to ninth appellants – Matsoku Diamonds (Pty) Limited, Motete Diamonds (Pty) Limited, Orange Diamonds (Pty) Limited, Patiseng Diamonds (Pty) Limited and Rampai Diamonds (Pty) Limited (“Rampai Diamonds”) (collectively, “the Tributees”) – were incorporated in 1988 under the laws of the Kingdom, and served as operating companies responsible for the diamond mining operations in the areas of the Kingdom that they were respectively named after. Between 15 December 1989 and 10 January 1990, the Tributees entered into and registered licensing agreements with Swissbourgh for the sub-lease of the Mining Leases (“the Tributing Agreements”). Under the Tributing Agreements, the Tributees undertook to hold and exercise the mining rights under each of the Mining Leases for each of the eponymous mining areas.

In September 1994, ownership of the Tributees was transferred to the Burmilla Trust (which acquired 99% of the shares in the Tributees) and the JVZF Family Trust (which acquired the remaining 1%). At various times from 1994 to 1997, Swissbourgh and the Tributees assigned to the Burmilla Trust their rights relating to any claims against the Kingdom arising out of the latter’s purported interference with the Mining Leases. The PCA Tribunal found that it lacked jurisdiction ratione personae over Swissbourgh and the Tributees in the arbitration proceedings on this basis (see [42] below), and the Judge did not disagree with this finding (Judgment at [320]); however, he additionally found (at [338]) that the PCA Tribunal lacked jurisdiction ratione personae over Swissbourgh and the Tributees on the grounds that they were domestic investors (see [52(f)] below). Although this point was not taken on appeal, for convenience, we will refer not only to Mr Van Zyl and the representatives of the JVZF Trust and the Burmilla Trust, but also to Swissbourgh and the Tributees as “the Appellants” collectively.

The disputes

The disputes that led to the PCA Arbitration and the subsequent setting-aside proceedings arise out of a protracted saga stretching over two decades. The disagreement between the parties revolves around two distinct matters: first, the Kingdom’s alleged expropriation of the Appellants’ Mining Leases (“the Expropriation Dispute”), and second, the shuttering of the SADC Tribunal without the provision of an alternative forum to determine the pending SADC Claim (“the Shuttering Dispute”).

The expropriation of the Mining Leases

In 1986, the Kingdom embarked on the Lesotho Highlands Water Project (“the LHWP”), a large-scale commercial joint venture with South Africa. The LHWP required the Kingdom to divert water from the Orange-Senqu River in the Kingdom to South Africa. In exchange, the...

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