In Swissbourgh Diamond Mines v Kingdom of Lesotho, the Singapore Court of Appeal upheld the setting-aside of a final investment arbitration award. The award had held Lesotho liable for participating in the shuttering of a Tribunal that was hearing an expropriation claim by the investor. This case is only the second time the Singapore Court of Appeal has decided on the challenge of an investment arbitration award (the first being Sanum Investment Ltd v Government of the Lao People’s Democratic Republic), and the first time it has set aside a final award in an investment arbitration.
This case is significant for at least four reasons.
- First, the case underscores Singapore’s growing profile as a seat for investment arbitration, a form of arbitration involving investment disputes between foreign investors and a host State. Singapore’s status as a leading forum for international commercial arbitration is firmly established. In recent years, Singapore has also been gaining a stronger foothold in investment arbitration. For example, in January 2018, the Permanent Court of Arbitration (the PCA)—the oldest global institution administering investment arbitrations—opened an office in Singapore. In an effort to make the Singapore International Arbitration Centre (SIAC) an attractive option for investment arbitrations, SIAC introduced the SIAC Investment Arbitration Rules last year, becoming the first major commercial arbitration institution to offer specialized rules for investment arbitration.
- Second, the Court of Appeal’s sensitivity to the importance of the international law issues before it should continue to give foreign investors and States confidence in choosing Singapore as the seat for investment arbitrations. The Court of Appeal heard this case as a five-judge bench. It issued a unanimous decision—delivered by Chief Justice Menon—dealing with novel and challenging issues of public international law, carefully analysing principles of treaty-interpretation and reviewing an extensive array of investment arbitration authorities, including a treatise by Freshfields’ partner Nigel Blackaby. The Court of Appeal also appointed two international law experts—Mr J Christopher Thomas, QC of the Canadian bar and Professor N Jansen Calamite of the National University of Singapore—as amici curiae to make submissions on issues of international law.
- Third, the Court of Appeal clarified the supervisory role of Singapore courts over Singapore-seated arbitral tribunals. It confirmed that its power to set aside an investment arbitration award under a provision in the Model Law (ie, the rules providing grounds for setting aside an award) is not limited to situations where an award decides issues outside the scope of arguments made by the parties in their submissions in the arbitration; rather, it also includes situations where the award deals with issues falling wholly outside the applicable arbitration agreement.
- Fourth, the judgment provides analysis of the definition of an “investment”, which—as a hotly-debated issue and threshold for investment treaty protection—will be of interest to parties to investment arbitrations. Specifically, the Court of Appeal held that there are two general principles that may be applicable in ascertaining the nature of the qualifying investment: (a) an “investment” comprises a “bundle of rights” that may include the secondary (procedural) right to vindicate the primary (substantive) right (ie, the investment itself); and (b) to qualify as an “investment”, the asset must have a “territorial nexus” with the host State.
The Court of Appeal delivered its decision in the context of a dispute between the Kingdom of Lesotho (Lesotho) and South African mining investors.
In June 2009, the investors brought an expropriation claim before the South African Development Community Tribunal (SADC Claim), a dispute resolution body set up under the South African Development Community Treaty (SADC Treaty). In the SADC Claim, the investors contended that Lesotho expropriated their rights under several mining leases. Between August 2010 and August 2015, the SADC in effect dissolved the SADC Tribunal. In June 2012, the investors commenced an arbitration administered by the PCA (the PCA Arbitration) against Lesotho, alleging that Lesotho’s participation in the dissolution of the SADC Tribunal without providing an alternative means for the pending SADC Claim to be determined resulted in a violation of its obligations under the SADC Treaty.
The PCA Claim was brought under the Investment Protocol to the SADC Treaty that entered into force on 16 April 2010. The Investment Protocol made clear that the investors could not bring their underlying expropriation claim in the PCA Arbitration because the expropriation claim arose before the Investment Protocol entered into force.
By majority, the PCA Tribunal seated in Singapore found in favour of the investors, holding that it had jurisdiction to hear and determine the claim (the PCA Award). By way of the appropriate remedy, the PCA Tribunal directed the parties to constitute a new tribunal to hear the expropriation claim.
Lesotho filed a setting-aside application before the Singapore High Court based on lack of jurisdiction of the PCA Tribunal and excess of scope of the submission to arbitration. The High Court set aside the PCA Award in its entirety. The investors appealed. The Court of Appeal upheld the High Court’s decision.
The power of the Court of Appeal to set aside an investment arbitration award
The Court of Appeal first had to consider whether it had the power to set aside the PCA Award under Article 34(2)(a)(iii) of the Model Law (that has the force of law under Singapore’s International Arbitration Act), which provides for setting-aside of an award that “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration”.
The investors argued that the Court of Appeal does not have jurisdiction to set aside an award under this Article because the Article is applicable only where the Tribunal (a) improperly decided matters that were not submitted to it, or (b) failed to decide matters that were submitted to it. According to the investors, the Article is not applicable where the applicant contests the very existence of the Tribunal’s jurisdiction to deal with the dispute, as in the present case.
The Court of Appeal rejected this argument and in doing so relied on a number of authorities, including a treatise by Freshfields’ partner Nigel Blackaby, Redfern and Hunter on International Arbitration, which describes Article 34(2)(a)(iii) as covering situations where “the award deals with matters not contemplated by, or falling within, the arbitration clause or submission agreement, or goes beyond the scope of what was submitted”. The Court of Appeal observed that Article 34(2)(a)(iii) is intended to prescribe an “exhaustive mechanism” applicable in relation to the setting aside of all types of awards and it should be read flexibly.
The Court concluded that it had jurisdiction to set aside the PCA Award under Article 34(2)(a)(iii) of the Model Law.
The PCA Tribunal’s jurisdiction to hear the dispute
The Court of Appeal then addressed the question of whether the PCA Tribunal had jurisdiction to hear the dispute. The Court of Appeal found that, under the applicable Investment Protocol, at least three conditions had to be satisfied for the PCA Tribunal’s jurisdiction: (a) there must be an investment; (b) the investment must be admitted; and (c) there must be a dispute that concerns the obligation of the State in relation to that admitted investment.
The Court of Appeal’s findings on the first of these conditions—the existence of an investment—is of most significance as the definition of an “investment” is a hotly-debated issue in investment arbitrations. In its analysis, the Court of Appeal found that generally: (a) an “investment” is not limited to a single right but encompasses a “bundle of rights”; and (b) an investment must have a “territorial nexus” with the host State to qualify for protection.
First, the Court of Appeal held that an investment is not limited to a single right such as the primary right to exploit the investment. Rather, an investment comprises a bundle of rights which may in principle include the secondary (procedural) right to bring a claim in order to vindicate the primary (substantive) right to enjoy and exploit the commercial benefit of the investment, but “provided the secondary right is found to be part of the investment that the host State has undertaken to protect and has the requisite territorial nexus with the host state”. In this finding, the Court of Appeal disagreed and overruled the judgment of the High Court below.
Second, the Court of Appeal also held that, although the definition of “investment” in the applicable Investment Protocol did not set out an express requirement for a territorial nexus, such a requirement is a generally accepted principle in international investment law and is supported by the broader textual context of the Investment Protocol. Specifically, the Court of Appeal held that investors can only expect protection in relation to investments that are made within that State because States generally have no extraterritorial enforcement jurisdiction and cannot purport to protect rights or property located outside their borders. In addition, the Court of Appeal held that the existence and scope of rights or property purportedly comprising an investment are issues that are governed by domestic law, and not international law.
Applying these two principles, the Court of Appeal found that the right claimed by the investors—namely, the right to refer disputes to the SADC Tribunal—was a right that exists only on the international law plane which lay outside Lesotho’s enforcement jurisdiction and control, which it could not therefore protect. On this basis, the Court of Appeal held that the right claimed by the investors did not have the requisite territorial nexus with Lesotho to implicate its investment protection obligation; in other words, the right to refer disputes to the SADC Tribunal did not fall within the bundle of rights constituting the investment.
Thus, although the Court of Appeal overruled the High Court judgment on the classification of the “investment” as a separate right, preferring instead a “bundle of rights” analysis, it confirmed the setting aside of the PCA Award by applying the “territorial nexus” requirement.