Introduction

The Singapore Court of Appeal’s recent decision in Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho1 (‘Swissbourgh v Lesotho’) represents but the second time that Singapore courts have dealt with proceedings related to an investment arbitration.2

The dispute underlying Swissbourgh v Lesotho spanned over three decades, against the backdrop of rapid change and reform in the Southern African Development Community (‘SADC’), the intergovernmental socio-economic organisation which included (among others) the Kingdom of Lesotho (‘Lesotho’) and the Republic of South Africa (‘South Africa’).

1. Background to Swissbourgh v Lesotho

In June 1988, Swissbourgh Diamond Mines (Pty) Ltd (‘Swissbourgh’) was granted prospecting and mining leases in five regions in Lesotho.3 Swissbourgh was owned by South African Josias Van Zyl, representatives of the Josias Van Zyl Family Trust and (after 1997) the Burmilla Trust.4 The mining leases were sub-leased to a company in each region.5 These five companies (the Tributees) were incorporated to carry out the diamond mining operations.6 Two years prior, Lesotho had begun implementing a joint venture with South Africa which required the diversion of the Orange-Senqu River in Lesotho to South Africa.7 Swissbourgh, Mr. Van Zyl, trustees of the Trusts and the Tributees were the appellants in the appeal8 (‘the Appellants’) while Lesotho was the respondent.

Between 1991 and 1995, Lesotho implemented various measures which the Appellants alleged hindered their rights under the mining leases.9 The Appellants repeatedly requested the South African government to exercise diplomatic protection over their rights as against Lesotho between 2000 and 2007, but it declined to do so.10

The SADC Treaty and its Protocols

The brewing dispute coincided with developments surrounding the SADC Treaty,11 the convention establishing the SADC.

Article 9(1)(g) of the SADC Treaty provided for dispute resolution through a specialised tribunal (‘SADC Tribunal’). The Protocol on Tribunal in the SADC12 (‘Tribunal Protocol’), which clarified the jurisdiction, procedure and functions of the SADC Tribunal, entered into force in August 2001. The Protocol on Finance and Investment of the SADC13 (‘Investment Protocol’), which provided for the referral of disputes to international arbitration,14 entered into force in April 2010.

The SADC Tribunal: proceedings and eventual shuttering

In June 2009, the Appellants commenced proceedings under Article 15 of the Tribunal Protocol before the SADC Tribunal against Lesotho for expropriation of the mining leases.15 Specifically, the Appellants alleged that Lesotho’s measures violated Articles 4(c) and 6 of the SADC Treaty.

Shortly after, the continued operation of the SADC Tribunal was impeded by resolutions of the Summit of the Heads of State or Government of the SADC. The ‘Summit’ resolved not to renew the terms of offices of five SADC Tribunal judges (depriving the SADC Tribunal of its requisite quorum)16 pending review of the SADC Tribunal’s functions and for the SADC Tribunal not to hear new cases.17

The Appellants nonetheless applied for a continuation of proceedings before the SADC Tribunal on 25 January 2011.18 Lesotho also refused to submit to the jurisdiction of the Permanent Court of Arbitration (‘PCA’).19

The PCA proceedings

The Appellants commenced arbitration in the PCA on 20 June 2012, relying on Article 28 of Annex 1 to the Investment Protocol (‘Annex 1’).20 Crucially, the Investment Protocol only entered into force in 2010; the dispute concerning the expropriation of the mining leases itself thus did not fall within the temporal jurisdiction of the PCA, and the Appellants instead framed their claim against Lesotho for various breaches of its international law obligations as a result of the shuttering of the SADC Tribunal.21 Lesotho challenged the PCA Tribunal’s jurisdiction, but maintained that the provision of an alternative forum would be ‘the right thing to do’.22

The PCA Tribunal found in favour of the Appellants in its award of 18 April 2016 (‘PCA Award’).23 On jurisdiction, it held that the investment comprised not only the mining leases and resources expended in exploiting the leases, but also the right to claim compensation before the SADC Tribunal.24 On merits, the PCA Tribunal found that Lesotho had breached its obligations by unilaterally withdrawing its consent to the SADC Tribunal’s jurisdiction, failing to accord fair and equitable treatment to the Appellants, failing to protect the Appellants’ right of access to the SADC Tribunal and failing to uphold the rule of law.25

The PCA Tribunal thus ordered the establishment of a new Mauritius-seated Tribunal (‘the Mauritius Tribunal’), to hear the Appellants’ original claim before the SADC Tribunal.26

2. The Court of Appeal’s decision

On 17 May 2016, Lesotho applied to set aside the PCA Award in Singapore.27 The Singapore High Court allowed the application on the grounds that the Appellants (i) did not have a protected investment and (ii) had not exhausted local remedies.28

On appeal, the Singapore Court of Appeal ultimately found that the PCA Award should be set aside under Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration.29

It is crucial to note that the Court did not stop at rejecting the arguments in the context of the PCA Tribunal; it also considered whether the doctrines of Unilateral Declaration and Estoppel could be relied on to establish the Mauritius Tribunal’s jurisdiction, which it rejected.30

What was the investment?

Article 28(1) of Annex 1 provides for disputes ‘in relation to an admitted investment’ to be submitted to international arbitration.31 The Court of Appeal held that in order for an alleged investment to be protected, it must fulfil two main requirements:32

  1. fall within the definition of an investment under Article 1(2) of Annex 1; and
  2. bear a territorial nexus with the host State.

The Appellants contended that the protected investment included the mining leases, the shares in Swissbourgh and the Tributees, the resources expended in pursuing the exploitation of the mining leases and the right to bring a claim before the SADC Tribunal.33

On the first requirement, the Court held that an investment can comprise the primary right to exploit the investment and among others, the secondary right to seek remedies and to vindicate the primary right – in essence a bundle of rights.34

The Court also observed that rights associated with an investment need not be in existence at the time the investment was originally made (save where the treaty requires it to be),35 because the protection afforded by investment treaties is dynamic, and not static.36

The need for a territorial nexus

On the second requirement, the Court of Appeal held that each right within the bundle of rights must satisfy the territorial nexus requirement, as ‘it is generally not sufficient for a right to exist only extraterritorially or on the international law plane unless that right is within the State’s sole control or the State has expressly undertaken to guarantee that specific right’.37 The rationale for this, as propounded by the Court, was two-fold:

  1. A State cannot reasonably be expected to protect investments outside its territory because it generally has no extraterritorial enforcement jurisdiction and cannot protect rights or property located outside its borders.38
  2. The existence and scope of property rights are governed by domestic law.39

The Court found that the Appellants’ investment failed territoriality because the secondary right to bring a claim only existed on the international law plane, and its protection was not within Lesotho’s control as it was ‘entirely dependent on the existence and maintenance of a mechanism established under international law by the consent of the SADC Member States’.40

In holding as such, the Court took a strict view of the territorial nexus requirement.41 The Court did observe that the territorial nexus requirement could be fulfilled for a dispute resolution right in the context of a bilateral investment treaty (where one State could unilaterally prevent realisation of the right) or where amendment of the investment treaty requires the consent of all states.42 Beyond those two contexts, it does not appear dispute resolution rights will be protected.

The right to refer and the SADC Tribunal’s temporal jurisdiction

Another issue that arose was whether the Appellants had a right to refer the expropriation dispute to the SADC Tribunal in 2009, pursuant to the Tribunal Protocol.

Lesotho argued that the SADC Treaty and the Tribunal Protocol were not investment protection instruments which accorded investors a substantive right to refer investment disputes to the SADC Tribunal.43

  • On the SADC Treaty, the Court agreed it was not itself an investment protection instrument after embarking on an exercise in interpretation of its provisions.44 In light of this and the context of other provisions delineating the jurisdiction of the SADC Tribunal, the Court was satisfied that the mechanism prior to the Investment Protocol only catered for inter-State disputes, not investor-state disputes.45
  • On the Tribunal Protocol, the Court held that those provisions on the jurisdiction of the SADC Tribunal46 did not create an independent basis of jurisdiction over investment disputes.47

Accordingly, the Court held that the subsequent entry into force of the Investment Protocol did not cure the jurisdictional defect of the Appellants’ claim before the SADC.48

The exhaustion of local remedies rule

Under Article 28(1) of Annex 1, parties to an investment dispute may submit their disputes to arbitration after ‘exhausting local remedies’.49 The Court of Appeal interpreted the well-established exhaustion requirement to have been expressly incorporated as a pre-condition of SADC Member States’ offer of consent to arbitration, and thus a pre-requisite to jurisdiction.50 Accordingly, the next question for the Court to consider was whether the Appellants had exhausted local remedies.

In discussing the relevant legal principles, the Court placed heavy reliance on the International Law Commission’s Draft Articles on Diplomatic Protection51 from which the Court discerned a two-limb test: 52 (i) whether there was ‘reasonable availability’ of redress; and (ii) the ‘reasonable possibility of providing effective redress’.

The Appellants attempted to argue that that the Court should take a ‘less formalistic’ approach to the exhaustion rule for investment claims.53 They argued that in limb (ii) of the test, the Court should consider whether local remedies gave any ‘reasonable prospect of success’, borrowing from human rights jurisprudence in the European Commission of Human Rights.54 The Court rejected this, pointing out the lack of authority in support of application of the human rights standard of exhaustion in the context of investment arbitration.55

Accordingly, the Appellants were found to have not satisfied the exhaustion requirement.

3. Reflections on Singapore’s approach to reviewing investment arbitration awards

The Court has shown through its judgment that it is more than ready to grapple with difficult issues concerning treaty interpretation and general international law to come to its own conclusion on the correctness of investment arbitration tribunals assuming jurisdiction over disputes. This certainly is consistent with the Court’s previous finding in Sanum, where it affirmed that a review of tribunal jurisdiction is de novo whether in the commercial or investment arbitration context.56

Swissbourgh v Lesotho represents a momentous step in the Singapore courts’ development of its investment arbitration jurisprudence. Singapore’s Parliament has made clear its aim ‘to steer Singapore’s overall development and growth as a hub for international dispute resolution, including in the area of investment arbitration’.57 Other developments within the jurisdiction have also fortified Singapore’s move towards being a viable seat for investment arbitration. The Singapore International Arbitration Centre (‘SIAC’) in 2017 promulgated its Investment Arbitration Rules58 - a move aimed at producing an ‘alternative, bespoke set of procedures’ for investment arbitration and to ‘provide an efficient and neutral set of procedural rules tailored to the needs of both states and investors’.59

Whether Singapore can replicate its success as a seat for international commercial arbitration in the investment arbitration context remains to be seen; what is clear is that the legal infrastructure, at present, certainly exists to make its aim a reality.


1
[2019] 1 SLR 263.

2
Prior to Swissbourgh v Lesotho, the first and (thus far) only other investment arbitration award proceeding in Singapore courts was Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] 5 SLR 536.

3
Swissbourgh v Lesotho at [8]–[9].

4
Id, at [8].

5
Id, at [10].

6
Ibid.

7
Id, at [13].

8
Id, at [10].

9
d, at [15]–[23].

10
Id, at [24].

11
Treaty of the Southern African Development Community (17 Aug. 1992) 32 ILM 116.

12
Protocol on Tribunal in the Southern African Development Community (7 Aug. 2000).

13
Protocol on Finance and Investment of the Southern African Development Community (18 Aug. 2006).

14
Annex 1, Art. 28.

15
Swissbourgh v Lesotho at [25].

16
Tribunal Protocol, Art. 3(1).

17
Id, at [26].

18
Swissbourgh v Lesotho at [27].

19
Ibid.

20
Id, at [34].

21
Id, at [35] and [37].

22
Id, at [37] and [39].

23
Id, at [41].

24
Id, at [42].

25
Id, at [43].

26
Id, at [44]–[45].

27
Id, at [48].

28
Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Ltd and others [2019] 3 SLR 12.

29
Swissbourgh v Lesotho at [80] and [225].

30
Id, at [89].

31
Annex 1, Art. 28.

32
Swissbourgh v Lesotho at [98]–[99].

33
Id, at [110].

34
Id, at [120] and [124]. In coming to this conclusion to the court relied on the decision of ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award, 18 May 2010 at [96] and Hochtief AG v Argentine Republic, Decision on Jurisdiction (24 October 2011) at [66] – [67].

35
Swissbourgh v Lesotho at [128].

36
Ibid.

37
Id, at [137].

38
Id, at [102].

39
Id, at [103]–[108].

40
Id, at [163], [112]–[113], and [138]–[139].

41
This is in contrast to the broader view which is consistent with the practice of international investment tribunals in assessing ‘investments’ holistically: SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 Jan. 2004 at [110]–[112]; Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 Oct. 2012 at [288]–[292]; Frontier Petroleum Services Ltd. v The Czech Republic, Final Award, 12 Nov. 2010 at [230]–[231].

42
Swissbourgh v Lesotho at [144]–[145].

43
Id, at [146].

44
SADC Treaty, Art. 32.

45
Swissbourgh v Lesotho at [151].

46
Tribunal Protocol, Art. 14 and 15.

47
Swissbourgh v Lesotho at [153]–[156].

48
Id. at [158].

49
Swissbourgh v Lesotho at [206].

50
Id. at [206]–[209].

51
United Nations Draft Articles on Diplomatic Protection, 2006, http://legal.un.org/ilc/texts/instruments/english/draft_articles/9_8_2006.pdf

52
Ibid.

53
Id, at [212].

54
Ibid.

55
Ibid.

56
Sanum, supra note 2, at [40]–[44].

57
Ministry of Law ‘Written Answer by Minister for Law, K Shanmugam, to Parliamentary Question on Proposed Reforms to Investor-state Arbitration Regime’.

58
SIAC Investment Arbitration Rules (1 January 2017), available at http://www.siac.org.sg/our-rules/rules/siac-investment-arbitration-rules.

59
SIAC Press release (1 Feb 2016), ‘Public Consultation on Draft SIAC Investment Arbitration Rules’. http://www.siac.org.sg/2013-09-18-01-57-20/2015-03-05-02-23-37/2019/113-resources/press-releases/press-release-2016/469-public-consultation-on-draft-siac-investment-arbitration-rules.