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Commercial Context & Dispute Resolution in the Indian Ocean MAHDEV MOHAN, N. M. P AST/PROF, SMU OF COUNSEL, PROVIDENCE Law Asia Session 2 June 2017
1. GLOBAL SOUTH ‘SHORT CHANGED’? States & Investors: Mutually Compatible?
EUROPE’S ‘ECONOMIC DIPLOMACY’ In the 1970 s and 1980 s, ‘OECD-style’ bilateral investment treaties (‘BITs’) were commonly used by Western European countries as a tool for ‘economic diplomacy’ with countries from the Global South. These BITs often promised to ‘create favourable conditions for greater economic co-operation … and (to) increase prosperity in both States’. See: Preamble of the Agreement between the Government of the Republic of Singapore and the Government of the United Kingdom of Great Britain and Northern Ireland for Promotion and Protection of Investments, 22 July 1975, 1018 U. N. T. S. 175 (UK-Singapore BIT)
2. ‘BOUNDED RATIONALITY’ CAUSE FOR CURRENT DISCONTENT?
Poulsen’s View “while most developing countries competed for capital when adopting (most) BITs, they were not as rational as often assumed”. - Lauge N S Poulsen, Bounded Rationality and Economic Diplomacy: The Politics of Investment Treaties in Developing Countries (CUP, 2015).
SINGAPORE Even where Singapore queried a BIT provision during negotiations with the UK in 1975, it was illinformed: ‘[i]n Singapore, British negotiators had to remind their counterparts that (a proposal) would have taken away Singapore’s ability to block undesirable investment – the opposite of what the Singaporean team had asked for’.
BITs in South Asia BITs Other IIAs Afghanistan 3 (3 in force) 4 (3 in force) Bangladesh 29 (23 in force) 4 (3 in force) Bhutan 0 2 (2 in force) India 84 (69 in force) 13 (9 in force) Maldives 3 (3 in force) Nepal 6 (4 in force) 3 (3 in force) Pakistan 46 (25 in force) 7 (6 in force) Sri Lanka 28 (24 in force) 5 (4 in force) Total 196 (188 in force) 41 (33 in force) Source: UNCTAD Total 7 33 2 97 3 9 53 33 237
3. ‘BACKLASH’ Empire strikes back
Trends in known treaty-based ISDS cases, 1987– 2016
IN FACT - Results of Decisions on the Merits(%), 1987 -2016
A. FAVORS INVESTOR? Statistics show an even split in awards for and against States. Nonetheless, States are wary of large investment claims. e. g. Yukos v Russia cases: awards against Russia in excess of USD $50 billion; legal fees of USD $60 million; and arbitration costs of EUR$4. 2 million (‘ 2014).
B. LIMITS REGULATORS? Arbitrators find themselves having an unexpectedly weighty hand in shaping economic and monetary policy, tax incentives, and perhaps even public health”. Indian tax authorities have deemed that hefty dollar capital gains tax was owed on the transaction but was not paid by Cairn, or withheld by Vedanta (2 ongoing UNCITRAL cases).
4. New Realities– ‘Asian Century’
Prof. Schill – ‘Shift in Geography’ ‘The past years have witnessed a marked shift in the geography of international investment law. …. there is little doubt that Asian countries, and particularly the economic powerhouses in the Far East, are becoming focal points in rule-making in international investment law’.
TPP, RCEP & ACIA
RCEP Potential to transform the region into an integrated market of more than three billion people (over 45% of the world’s population), with a combined GDP of about US$ 17. 23 trillion, which is about a third of the world’s current annual GDP Will build on the RCEP participating countries’ commitments under the General Agreement on Trade in Services (GATS) Bilateral agreements are a necessary step for a smaller economies to get to the negotiating table where multi-lateral agreements are negotiated A possible pathway to a Free Trade Area of the Asia Pacific (FTAAP)
BRI – ‘Project of the Century’
China as a Key Player Signs of change to ‘closed door’ policy (a) (b) (c) (d) Free Trade Zones (FTZs) in Shanghai, Fujian, Guangdong and Tianjin Interim Measures for the Administration of Establishment and Change Filings of Foreign-invested Enterprises – applicable outside the FTZs 2015 Guiding Catalogue on Industries for Foreign Investment (Catalogue) / Draft 2016 version Negotiations of the US-China BIT
Capital Exporter & Importer
Sri Lanka Regional Agreements with Investment Provisions No Agreement Other Parties Date of Signature Entry into force 1 China - Sri Lanka Framework Agreement on Investment and Economic Cooperation (2017) China 16/05/2017 2 APTA Investment Agreement (2009) Bangladesh, China, Korea, Republic of, Lao People's Democratic Republic 15/12/2009 3 BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) Framework Agreement Bhutan, India, Myanmar, Nepal, Thailand 08/02/2004 30/06/2004 4 Agreement on South Asia Free Trade Area (SAFTA) India, Pakistan, Sri Lanka, Nepal, Bangladesh, Bhutan, Afghanistan and the Maldives 06/01/2004 01/01/2006 5 US-Sri Lanka TIFA United States 25/07/2002 6 EC-Sri Lanka Cooperation Agreement European Union 18/07/1994 01/04/1995
5. INFRASTRUCTURE & DISPUTE RESOLUTION
Sri Lanka’s Pivot to Asia Belt and Road funding for port development -E. g. State-owned China Merchants to buy 80% stake in Hambantota port for more than $1 Billion with an additional $13 billion expected from subsequent real estate development in the area (“Silk Road Project”) Mega Project Investments in various port facilities - E. g. China focusing on Hambantota, India and Japan on Trincomalee, and the US in Jaffna Concessional Loans financed by the Export-Import Bank of China. Offer discounted financing in return for negotiated benefits.
Sri Lanka as a Respondent State in ICSID Proceedings No Year Case Summary 1 2016 Eyre and Montrose Developments v Sri Lanka No information available 2 2009 Deutsche Bank v Sri Lanka 3 2000 Mihaly v. Sri Lanka Investment: Rights under an oil hedging agreement concluded between Deutsche Bank and Sri Lanka’s national petroleum corporation. Summary: Claims arising out of Deutsche Bank's termination of an oil hedging agreement concluded with Ceylon Petroleum Corporation, Sri Lanka’s national petroleum company, and close-out amounts payable under such contract. Investment: Expenditures of money upon the execution of certain letter of intent entered into with the government in preparation for an investment project. Status Home state of investor Pending U. K Decided in favour of investor Germany Decided in favour of state U. S Decided in favour of investor U. K Summary: Claims arising out of the unsuccessful conclusion of a contract between the Republic of Sri Lanka and the investor for the building, ownership and operation of a power generation facility. 4 1987 AAPL v. Sri Lanka Investment: Shareholding in a Sri Lankan shrimp farming enterprise. Summary: Claims arising out of the alleged destruction of claimant's
New (Intra-Asian) Investment Disputes?
Response 1: Arb-Med-Arb Clause All disputes, controversies or differences (“Dispute”) arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”) for the time being in force. The seat of the arbitration shall be [Singapore]. * The Tribunal shall consist of _________** arbitrator(s). The language of the arbitration shall be ________. The parties further agree that following the commencement of arbitration, they will attempt in good faith to resolve the Dispute through mediation at the Singapore International Mediation Centre (“SIMC”), in accordance with the SIAC-SIMC Arb-Med-Arb Protocol for the time being in force. Any settlement reached in the course of the mediation shall be referred to the arbitral tribunal appointed by SIAC and may be made a consent award on agreed terms.
Response 2 - Dubai International Financial Centre Court (DIFCC) Initially created to support the economic activities within the Dubai International Financial Centre; a purpose-built financial centre strategically located between the East and West Is a common law court that applies either the law governing the contract in question, 50 or the DIFC’s common law system, which is “based substantially on English law in codified form but with civil law influence Expansion of jurisdiction in 2011 allowed the DIFCC to hear disputes that were not connected to its physical jurisdiction
SICC Alongside Singapore judges, the SICC’s panel of judges features 12 international judges hailing from various jurisdictions, each possessing commercial expertise, and representing a good mix of both the civil and common law traditions. Features emulating arbitration, and the need for party autonomy: Application for confidentiality safeguards: e. g. non-publication of documents Parties can exclude, limit or vary the right and scope of appeal by prior agreement Can apply to have five judges hear the appeal
SICC Jurisdiction – International Focus “From its inception, the SICC was envisaged as a forum dedicated to handling only international commercial disputes. As such, unlike the DIFCC [Dubai International Financial Centre Courts], the SICC's jurisdiction does not have a significant domestic component, if at all” - Chief Justice Menon, January 2015 29
Colombo International Financial City And Court?
Thank you for your attention