1. Session 2 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

2. 1. GLOBAL SOUTH ‘SHORT CHANGED’?
States & Investors: Mutually Compatible?

3. EUROPE’S ‘ECONOMIC DIPLOMACY’
In the 1970s and 1980s, ‘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)

4. 2. ‘BOUNDED RATIONALITY’
CAUSE FOR CURRENT DISCONTENT?

5. 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).
From the 1960s until the mid-1990s, he suggests that these countries did so in ‘bounded rational’ ways – i.e. on the basis of incomplete, inaccurate, and even misguided – information, policy and analysis.
I disagree. Difficult to say that with confidence about several Asian counties, and in any case is not the situation with Singapore's investment policy apropos the EUSFTA.

6. SINGAPORE
Even where Singapore queried a BIT provision during negotiations with the UK in 1975, it was ill- informed:
‘[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’.

7. BITs in South Asia BITs Other IIAs Total Afghanistan 3 (3 in force)
Source: UNCTAD
BITs
Other IIAs
Total
Afghanistan
3 (3 in force)
4 (3 in force) 7
Bangladesh
29 (23 in force) 33
Bhutan
2 (2 in force) 2
India
84 (69 in force)
13 (9 in force) 97
Maldives 3
Nepal
6 (4 in force) 9
Pakistan
46 (25 in force)
7 (6 in force) 53
Sri Lanka
28 (24 in force)
5 (4 in force)
196 (188 in force)
41 (33 in force)
237

8. 3. ‘BACKLASH’
Empire strikes back

9. Trends in known treaty-based ISDS cases, 1987–2016
Bilateral Investment Treaties
Total: Total in force: 2107
Other International Investment Agreements
Total: Total in force: 273

10. IN FACT - Results of Decisions on the Merits(%), 1987-2016

11. 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).

12. 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).
Vodafone

13. 4. New Realities– ‘Asian Century’

14. 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’.

15. TPP, RCEP & ACIA
1. that claims based on an ‘investment agreement’ are dealt with separately from those based on a breach of treaty provisions;
2. detailed provisions on the transparency of arbitral proceedings;
3. references to amicus curiae submissions; and
4. omission of the GATT/GATS type general exception clauses

16. 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$ 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)

17. BRI – ‘Project of the Century’
Sri Lanka is a key point in the Maritime Silk Road and is at the doorstep of the Indian market

18. China as a Key Player Signs of change to ‘closed door’ policy
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

19. Capital Exporter & Importer

20. Sri Lanka Regional Agreements with Investment ProvisionsNo
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

21. 5. INFRASTRUCTURE & DISPUTE RESOLUTION

22. 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.

23. Yet…

24. Sri Lanka as a Respondent State in ICSID ProceedingsNo
Year
Case
Summary
Status
Home state of investor 1
2016
Eyre and Montrose Developments v Sri Lanka
 No information available
Pending
U.K 2
2009
Deutsche Bank 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.
Decided in favour of investor
Germany 3
2000
Mihaly v. Sri Lanka
Investment: Expenditures of money upon the execution of certain letter of intent entered into with the government in preparation for an investment project.  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.
Decided in favour of state
U.S 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 investment during a military operation conducted by Sri Lanka security forces.
As Sri Lanka embarks upon IIAs with Asian countries like China and India, it should be cognisant of different perspectives; e.g. Indian Model BIT and brace for intra-Asian disputes.

25. New (Intra-Asian) Investment Disputes?

26. 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.
A Tribunal is constituted by the SIAC. After the exchange of the Notice of Arbitration and Response to the Notice of Arbitration, the arbitration proceedings are stayed pending the outcome of mediation at SIMC. If a settlement is reached within 8 weeks, the parties may request for the terms of the settlement to be recorded by the SIAC Tribunal in the form of a consent award. Such consent award is accepted as an arbitral award and is therefore enforceable as an arbitration award. In the event that the dispute has not been settled, the arbitration proceedings resume.

27. 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

28. 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
Balance between public interest of open justice, private interest of confidentiality, and party autonomy

29. 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

30. Colombo International Financial City
And Court?

31. Thank you for your attention