Investor wins Singapore Court of Appeal reversal in investor-state arbitration case

In a much-anticipated decision regarding an international investment dispute, Singapore’s Court of Appeal has restored the UN Commission on International Trade Law (UNCITRAL)’s ruling in a case which had been overturned by the Singapore High Court in January 2015. For only the fourth time in its history, a five-judge bench delivered the decision, which is being seen as a boost to Singapore as a location for international arbitration. 

The case, Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57, began in August 2012 when Sanum, a Macau company, launched UNCITRAL arbitration proceedings alleging that Laos had wrongfully expropriated Sanum’s gaming investments in that country and that unfair and discriminatory taxes meant the government had deprived it of the benefits to be gained from capital investments. The claims were brought under Article 8(3) of a bilateral investment treaty (BIT) signed by the People’s Republic of China (PRC) and the Laos government in 1993. In December 2013, the UNCITRAL tribunal dismissed the Laos government’s argument that the treaty did not apply to Macau since the Portuguese colony was returned to PRC in 1999, after the BIT was signed. The Laos government also failed with its argument that the expropriation claims were not arbitrable, which held that only the amount of compensation for expropriation could be a subject for arbitration. The Singapore High Court overturned the tribunal’s ruling in January 2015, but the UNCITRAL verdict has now been restored in this landmark decision.

This was the first ruling on the territorial scope of a pre-handover Chinese BIT on Macau, and the first judicial interpretation on the width of Article 8(3) of the PRC-Laos BIT which refers to disputes “involving the amount of compensation”, wording which is found in a number of Chinese BITs.

“Given the high regard generally accorded to Singapore jurisprudence on international arbitration and the novelty of the issues involved in Sanum, one can expect Sanum to be cited and relied upon in future cases engaging similar issues,” says Alvin Yeo, senior counsel at WongPartnership which acted for Sanum.

Alvin Yeo

The decision not to place any weight to the evidence of the note verbales (an unsigned note prepared in the third person) exchanged between the Laos Ministry of Foreign Affairs, the PRC Embassy in Vientiane, the capital of Laos, and PRC Ministry of Foreign Affairs, is one that warrants the attention of parties involved in BITs. Other principles applied in the case, including the critical date doctrine and the moving treaty frontier rule are also of interest. The moving treaty frontier rule provides for the automatic extension of a treaty to a new territory when it becomes a part of that State.

Koh Swee Yen

 “The decision is likely to also boost the attractiveness of Singapore as a chosen seat in international arbitration, in particular in investment arbitration cases,” says Koh Swee Yen, partner at WongPartnership. It confirmed that the Singapore courts will review jurisdictional rulings of international arbitral tribunals based on a uniform standard of review that applies across the board, whether in the international commercial or investment arbitration context-a certainty that disputing parties would likely welcome.

“Sanum may also generate further caseload, as investors, in particular, those who have dealings with Macau, and possibly even Hong Kong, seek to access the benefits and protections accorded under the PRC’s extensive web of BITs,” says Yeo. “The increasing number of investor claims has also led some Asian States, such as India and Indonesia, to review and renegotiate their BITs to better calibrate and manage their potential exposure. Others, such as Singapore, have moved away from broadly worded investment protections to carefully defined investment protections, thereby removing some of the uncertainties that might result from a tribunal’s interpretation of a broadly worded investment protection.”

With the uptick in the relatively new area of investor-state arbitration, fuelled by landmark cases such as Sanum, in-house counsel should be on the lookout for new developments in BITs interpretation and examining the crafting of BITs, especially in Asia.