Bilateral Investment Treaties often provide the most favourable recourse to an investor whose foreign investment has been effected by the actions of a host State. Historically, however, Australian investors have been slow to utilise the protections afforded by these treaties. That appears to be changing: following the recent success of White Industries in its claim under the Australia-India Bilateral Investment Treaty against India, it has been reported that two further cases have been commenced by Australian companies under investment treaties against foreign States. In this Alert, we look at each of these cases, one of which is particularly interesting for the position adopted in the case by the Australian government.
The Importance of BITs
Bilateral Investment Treaties (or “BITs”) generally provide broad guarantees to investors in foreign States. These often include guarantees that the host State will: pay compensation if it “expropriates” (or takes) the foreign investment; accord “fair and equitable” treatment to the investment; provide “full protection and security”; and ensure that it does not impair the investment by taking unreasonable or discriminatory measures. The protections offered by investment treaties are critical to investors considering investing internationally. This is because a foreign investor’s only recourse where a State has taken action which has harmed its investment may be to commence an action under a BIT. In addition, unlike claims commenced against a State in the State’s local court, disputes under BITs are invariably determined by way of international arbitration by an independent panel appointed by the parties or by an impartial arbitral institution.
The types of guarantees offered by BITs are particularly important in today’s economic climate. With government debt at historic levels, and electorates demanding change, States are now, more than ever, looking to increase revenues and protect local businesses and interests. There are a range of measures which governments may consider taking to achieve this, such as increasing or imposing new taxes or royalties; nationalising assets or transferring them to local companies; introducing tariffs on exports or domestic sales; or imposing restrictions on the grant of permits or licences to foreign companies to operate in certain industries. While such measures may achieve the government’s aim, these measures may also have the effect of harming a foreign investment, such that a profitable investment may become marginal and a marginal investment unsustainable. In these types of cases, an investor may be able to seek compensation under an applicable BIT.
It may be no surprise, then, that claims commenced against States under BITs are on the rise. One centre which administers claims between States and foreign investors, the International Centre for the Settlement of Investment Disputes (“ICSID”), has reported that in 2008 it registered 21 new cases. By 2011, ICSID had registered 38 new cases and, by 30 June 2012, a further 21 new cases had been commenced (see ICSID Caseload – Statistics, Issue 2012-2, available on the ICSID website here). The types of industries in which BIT claims arise is extensive: according to ICSID Caseload Statistics, ICSID has registered cases in industries including: oil and gas, mining, power, energy, water and sanitation, construction, tourism, agriculture and fisheries, and finance and services. ICSID also reports that cases have been registered from investors from many regions, including from America, Europe, Africa, the Middle East, and Asia. Like many other countries, Australia has an extensive network of BITs - Australia currently has BITs in place with countries in South America (such as Argentina and Chile), Asia (such as China, Philippines, Indonesia and Vietnam), Europe (such as Czech Republic and Poland) and Africa (such as Egypt). Despite this, it appears that up until recently, Australian investors have not utilized the protections offered by BITs. This, however, appears to be changing.
In March last year, we reported on White Industries v India (“India held liable to King & Wood Mallesons’ Australian client as a result of the failure of the Indian courts’ to promptly enforce an arbitration award” See the link to the article here. In that case, White Industries successfully took action against India under the Australia-India Bilateral Investment Treaty, as a result of the failure of India’s courts to promptly enforce White Industries’ ICC Award. At the time, the case represented the first known investment treaty claim by an Australian investor. Since the success of the investor in White Industries, at least two other Australian companies have commenced claims against host states, alleging that the conduct of the host state has affected the investor’s investment in breach of an Australian investment treaty. Each of these cases is considered below.
Recent BIT claims by Australian Investors
Tethyan Copper Company v The Islamic Republic of Pakistan
On 28 November 2011, Tethyan Copper Company (an Australian company jointly owned by a UK company and a Canadian company) (“TCC”) commenced a claim against the Islamic Republic of Pakistan, pursuant to the Australia-Pakistan Bilateral Investment Treaty. The facts are considered below.
In 2006, TCC became a party to an Agreement with the Government of Balochistan (Balochistan is a province of Pakistan). The Agreement established a joint venture to explore for deposits of gold, copper and other minerals in Balochistan. The JV (which was held 75% by TCC and 25% by Balochistan) held an exploration licence from the Pakistan Licensing Authority for the Reko Diq area. TCC subsequently transferred its interest to its wholly owned Pakistani subsidiary (“TCCP”).
In accordance with the Agreement, TCC and its local subsidiary commenced an exploration program in the Reko Diq area, in particular in areas known as “H4”, “H13”, “H14” and “H15.” In late 2010, TCC submitted its feasibility study to the Government of Balochistan and notified the Government of Balochistan, in accordance with the Agreement, that it elected to participate in the development of Reko Diq. Following this, in early 2011, TCCP applied to the Licensing Authority for a mining lease for a portion of the Reko Diq area. The application was subsequently denied and TCCP’s administrative appeal of the denial was also unsuccessful. TCC now estimates that the resource could produce approximately 10 million tons of copper and 13 million ounces of gold.
In November 2011, and “in order to protect its legal rights”, TCC commenced a claim against Pakistan pursuant to the Australia-Pakistan Bilateral Investment Treaty, alleging that it had done everything necessary to earn a legal entitlement to a mining lease. TCC contends that Balochistan has denied it the mining lease and is, instead, moving to develop Reko Diq on its own or to transfer some or all of it to third parties, in breach of the obligations owed to TCC pursuant to the Australia-Pakistan BIT.
After commencing the arbitration, TCC became concerned that the status quo between the parties ought to be preserved and, in particular, TCC wished to ensure that any subsequent Award in TCC’s favor (which requires Pakistan to provide the mining lease) would still be of use to TCC. Consequently, in July 2012, TCC applied to the Tribunal for various “provisional measures”, including for orders that Pakistan refrain from developing, selling, leasing or transferring the Reko Diq mining area or sharing the contents of the feasibility study with third parties.
At the hearing, Pakistan confirmed that Pakistan: intended to commence mining operations at “H4”; had no present intention of commencing operations at “H14” or “H15” or of giving any rights over the area to any third parties; and that Pakistan would notify the Tribunal and TCC if its plans changed. Given these assurances, the Tribunal made a number of orders, including that Pakistan immediately inform the Tribunal and TCC of any changes to Pakistan’s plans.
Interestingly, one of the arguments raised by Pakistan in attempting to resist the grant of provisional measures to TCC was that: “the terms of the Australia-Pakistan Treaty are under review by the Governments of Australia and Pakistan, in particular the issue of whether the BIT should apply to Claimant as a company owned and controlled by non-Australian companies”. It is reported that, after the arbitration was commenced, Pakistan requested the Australian government to deny TCC the benefits of the treaty, including the right to arbitration. Subsequently, the Australian government rejected Pakistan’s request. The Tribunal noted that: “Australia had advised the Pakistani Government that it has no intention of denying Claimant the benefits of the Australia-Pakistan Treaty.”
It appears that Pakistan’s request to the Australian government was based on Article 2(2) of the Australia-Pakistan BIT, which provides that: “where a company of a Party is owned or controlled by a citizen or a company of any third country, the Parties may decide jointly in consultation not to extend the rights and benefits of this Agreement to such company.” It appears that the Australian government rejected this request – it will be interesting to see whether this reflects a shift in the Australian government’s stance toward investment treaties to a more pro-arbitration approach (it has been noted recently that the Australian government has said that, in the future, the government will not enter into BIT’s which contain international dispute resolution clauses).
Since publication of the Tribunal’s Award, the Pakistani Supreme Court has declared the Agreement void, as being in conflict with the laws of Pakistan. The Supreme Court stated that the Agreement does not confer any rights on TCC or TCCP. TCC has stated that the proceedings before the Supreme Court are separate to the proceedings under the Australia-Pakistan BIT, and the proceeding under the BIT will continue.
Planet Mining v Indonesia
In the second case, on 26 December 2012, Planet Mining, an Australian subsidiary of a UK company, commenced a claim against Indonesia pursuant to the Australia-Indonesia Bilateral Investment Treaty.
It is reported that Planet Mining holds a 5% interest in a local Indonesian company, PT Indonesia Coal Development (“ICD”), with the remaining 95% of ICD being held by Planet Mining’s parent company, Churchill Mining plc. Although Planet Mining’s claim has not yet been made public, Churchill Mining has also commenced a BIT claim against Indonesia. Churchill Mining has written to the Indonesian President in relation to the dispute, and the letter has been made public. That letter sets out the alleged factual background to the dispute between Churchill Mining and Indonesia.
According to Churchill Mining’s letter, in 2007 and 2008 a number of Indonesian companies, which had various agreements in place with ICD, were granted mining and exploration licences in the East Kutai region by the East Kutai Regent. It is said that the concession areas have huge coal deposits of approximately 2.7 billion metric tons. Churchill Mining alleges that, subsequently, the East Kutai Regent granted licences for a portion of the same area to another company and revoked the licences granted to the companies with which ICD had an agreement. Churchill Mining contends that the revocation of the licences was wrongful.
Although it is not currently clear, it may be that Planet Mining’s claim relates to the same issues as Churchill Mining’s claim and is based on Planet Mining’s 5% holding in ICD. A press release on Churchill Mining’s website notes that Planet Mining wrote to the President of Indonesia stating that the expropriation of its interest in the East Kutai Coal Project breached Planet Mining’s rights under the Australia-Indonesia Bilateral Investment Treaty and invited Indonesia to enter into consultations in order to resolve the dispute, failing which Planet Mining intended to commence arbitration before ICSID.
BITs provide investors with significant protections from political risk. Further, as was confirmed in the TCC case, Tribunals considering cases under BITs often have broad powers, including to issue orders for provisional measures such as to maintain the status quo between the parties. While Australian investors have been slow to use BITs, it appears that in the current economic climate, investors are now more prepared to take direct action against States for breaches of investment treaty law.