Legal Wise by MdME | Implications of the Singapore court ruling on foreign investors in Macau

Fatima Dermawan*

Fatima Dermawan*

In a recent judgment, the Singapore Court of Appeal concluded that the China-Laos Bilateral Investment Treaty extends to Macau, meaning that the bilateral investment treaties to which China is a party could be potentially applicable in our jurisdiction, both in terms of the protection of foreign investment in Macau and the protection of outbound foreign investment by Macanese companies. However, a spokesperson for China’s Ministry of Foreign Affairs said that the ruling made by the Singapore court is “incorrect”.

In a nutshell, bilateral investment treaties (often referred to by the acronym BITs) are international treaties establishing mandatory standards of treatment that apply to one state in its treatment of investors from another state. These standards include, among others, fair and equitable treatment, protection from expropriation and full protection and security. Typically, BITs also permit protected investors to submit claims directly to an arbitral tribunal against the home state of the investment, and, under some circumstances, this applies even if the investment contract between the investor and the host state provides for exclusive jurisdiction to local courts.

The Singapore Court of Appeal overturned a High Court ruling that an UNCITRAL tribunal seated in Singapore had improperly applied the China-Laos BIT to a dispute between a Macanese investor, Sanum Investments Limited, and the Lao Government.

According to the Court of Appeal, since a treaty binds a state in respect of its entire territory, under the “moving treaty frontiers” rule, a treaty automatically extends to a new territory as and when it becomes a part of that state, unless a different intention appears from the treaty or is otherwise established.

The Singaporean court took into account the 1987 China-Portugal joint declaration and found that it was an agreement between China and Portugal that did not create rights or duties for other states, such as Laos. The Court also dismissed as irrelevant the diplomatic letters exchanged between Laos and the Chinese embassy in Vientiane, which contained Laos’ and China’s views that the BIT at issue did not extend to Macau. Having found that no exception or contrary intention applied, the Court concluded that the China-Laos BIT indeed applied to Macau upon restoration of Chinese sovereignty in 20 December 1999.

However, during a press conference on 21 October 2016, the Chinese Foreign Ministry official Hua Chunying rejected the Singapore Court of Appeal’s ruling. Ms. Hua commented that “as a principle, the investment agreements between the central government and foreign countries do not apply to SARs, unless otherwise decided by the central government after seeking the views of the SAR governments and consulting with the other contracting parties of the agreement.”

It remains to be seen whether China will take any positive steps towards concluding agreements with its BIT counterparties that its treaties do not apply to the SARs.

While the Singapore Court of Appeal may have put a full stop to the jurisdictional issues raised in the Sanum case, its interpretation on the issue of whether the Chinese investment treaties do or do not apply to Macau raises a whole new set of issues in the legal system of Macau.

Indeed, in this closely watched case, both the UNCITRAL tribunal and the Singapore Court of Appeal set out that, in principle, under international law, treaties to which China is a party do apply to Macau. This means that, on the one hand, Macau may be under international obligations that it had never envisaged, and, on the other, foreign investors may not be aware of the total extent of their rights.

Considering that, according to the information provided by United Nations Conference of Trade and Development, China is now party to 129 BITs (with 110 in force) and the fact that Macau has been host to a large number of foreign investors in recent years (especially in its gaming industry and financial and real estate sectors), the question at stake is of major relevance and interest to the Macau Government, foreign investors and local companies with overseas investments.

With regard to foreign investors in particular, when deciding on the procedural means for the protection of their rights, investment treaty arbitration may now be a clearer option to be taken into account in addition (or as an alternative) to the usual recourse to local courts. This means that investors should now structure their investments even more carefully in order to be able to benefit from the provisions of applicable BITs.

*Associate, MdME Lawyers

Categories Opinion