REUTERS | Arnd Wiegmann

Challenges to treaty awards on jurisdiction in the national courts: what is the appropriate standard of review?

What standard of review is appropriate when a court is seised with a challenge to an award on jurisdiction? Should the answer be any different when the court is addressing an investment treaty award rather than a commercial award? This blog post addresses two recent decisions by the courts in Singapore and Switzerland, which have brought these questions to the fore.

In considering whether or not a tribunal has correctly determined the scope of its jurisdiction, different national courts adopt different standards of review. Some courts will consider the arbitrators’ jurisdiction de novo, even allowing the admission of new evidence. Other courts, however, will pay the arbitrators’ decision a substantial degree of deference. The difference in approaches is exemplified by two recent cases before the Singaporean and Swiss courts respectively, both of which concerned challenges to awards on jurisdiction rendered by tribunals in investment treaty cases. This post summarises the courts’ reasoning and analyses which standard of review is to be preferred, particularly in the investment treaty context.

Government of the Lao People’s Democratic Republic v Sanum Investments

The underlying arbitral dispute was brought by Sanum Investments Ltd pursuant to the China-Laos bilateral investment treaty (BIT) and the UNCITRAL Rules. Laos’ primary jurisdictional objection was that the BIT’s protections did not extend to entity’s registered in Macau (a “Special Administrative Region” of China), which was the claimant’s place of incorporation. The tribunal dismissed the objection, finding that the intention of the parties to the BIT had been that entities incorporated in Macau should benefit from the BIT. Singapore being the designated seat of the arbitration, Laos subsequently initiated proceedings in High Court of Singapore challenging the jurisdictional award (the challenge was brought pursuant to section 10 of Singapore’s International Arbitration Act 2002 (IAA)). The challenge marked the first time a Singaporean court has reviewed an arbitral tribunal’s jurisdiction under an investment treaty.

In a judgment dated 20 January 2015, the High Court of Singapore explained that the standard of review in such cases is “generally regarded as de novo“, which “entail[s] a fresh examination of the issue” (paragraph 32) (relying on PT First Media TBK v Astro Nusantara International BV, where the Singapore Court of Appeal held that the Court will apply a de novo standard of review when reviewing an arbitral award on the grounds of lack of jurisdiction). With that in mind, the court considered whether the claimant could adduce new evidence to the record which had not been put before the arbitral tribunal. The evidence at issue was in the form of two diplomatic letters obtained by Laos after the tribunal issued its jurisdictional award and which provided internal governmental interpretations of the scope of the application of the BIT. The  judge approved the admission of the letters and, moreover, relied heavily on their content to determine, contrary to the tribunal’s finding, that the China-Laos BIT was not applicable to investors incorporated in Macao. Therefore, the High Court of Singapore determined that the award on jurisdiction of the tribunal should be overturned (paragraph 110).

Upon appeal by Sanum Investments Ltd, the Court of Appeal of Singapore affirmed that the court was entitled to conduct a de novo review of the tribunal’s decision (in a judgment dated 29 September 2016). Indeed, it then embarked on a complete re-hearing of the issues and evidence heard by the tribunal (even though the High Court of Singapore had already reconsidered key factual exhibits, academic writings and expert testimonies submitted by the parties). In doing so, it rejected Sanum Investment Ltd’s argument that “a restrained approach [should be adopted] by according deference and regard to the Tribunal’s findings, especially when those findings arose in an investor-state arbitration concerning the application of principles of public international law” (paragraph 40). Rather, the Court of Appeal of Singapore accepted Laos’ position that once it was accepted that the court’s task in reviewing a ruling on jurisdiction was to conduct a de novo review, then, it followed that there was no basis for deference to be accorded to the tribunal’s findings. Ultimately, however, the Court of Appeal of Singapore concluded that the BIT did extend to Macau and reversed the High Court of Singapore’s ruling.

Recofi SA v Vietnam

In contrast with the approach adopted by the Singaporean courts, the Federal Supreme Court of Switzerland took a deferential approach to the tribunal’s decision on jurisdiction in Recofi v Vietnam. The arbitration had been commenced by Recofi under the France-Vietnam BIT and the UNCITRAL Rules. Vietnam argued that the tribunal had no jurisdiction because Recofi had failed to establish the existence of an “investment” within the meaning of that term under article 1(1) of the BIT. In an award dated 28 September 2015, the tribunal upheld Vietnam’s position and found that it had no jurisdiction. Recofi subsequently commenced challenge proceedings before the courts of arbitral seat, which was Geneva (article 190(2)(b) of the Swiss Law on Private International Law provides for judicial review in an annulment action where “the arbitral tribunal has wrongly declared itself to have or not to have jurisdiction”).

In its judgment, the Federal Supreme Court noted that, when seised with a claim concerning the incompetence of an arbitral tribunal, it could freely examine any question of law (para. 3.1.1). However, it would not act as a court of appeal and it would not consider any legal issues proprio muto (paragraph 3.1.1). It would also only review findings of fact of the arbitrators in very limited circumstances, and would not correct or complete factual determinations on its own motion even if the facts were “established in an obviously inaccurate manner or in violation of the law” (paragraph 3.1.2, authors’ translation). Only in exceptional circumstances would new facts or evidence be taken into consideration (paragraph 3.1.2).

In light of these parameters, the Federal Supreme Court limited its review of the Recofi v Vietnam award to whether or not the tribunal had taken the correct legal approach to determining the meaning of “investment” under the France-Vietnam BIT. Finding that it had, the court did not go on to analyse the facts of the case since they fell outside the scope of the court’s review (paragraph 3.4.3).

Comment

In our view, when faced with a challenge to an award on jurisdiction, the approach of the Swiss courts is to be preferred to the approach of the Singaporean courts. By agreeing to arbitration (whether in a treaty or otherwise), parties agree to the arbitral tribunal determining the scope of its own jurisdiction. Accordingly, the arbitral tribunal’s decision on that issue should be afforded substantial deference. Adopting a de novo review approach exposes the challenge process to potential abuse. Absent any evidence of procedural irregularity, it is also manifestly inefficient for courts to conduct an in depth review of the parties’ evidence when such evidence has already been analysed by a tribunal (and even more so to carry out such a review at both first and second instance, as was the case in Sanum).

No difference of approach should be adopted in respect of treaty and commercial jurisdiction awards. There is no reason that a national court cannot analyse and apply principles of public international law. Assuming that states are signatories of the International Convention for the Settlement of Investment Disputes (ICSID), they are free to provide in their investment treaties for ICSID arbitration and thus ensure that their disputes fall outside the purview of any national court’s supervisory jurisdiction. To the extent that any other institutional rules are chosen, however, the involvement of national courts is a risk that cannot be avoided.

 

Allen & Overy Naomi Briercliffe Stephanie Grace Hawes

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