On Taking Back Land for Pandas 🐼

Readers of this post will fall into two groups. The first and largest don’t pay much attention to investment arbitration. They will wonder why I write this. The second and much smaller group lives and breathes investment arbitration. I will rejoice if they read this.

Once upon a time, around 1985 if you must know, Singapore and China thought it would be nice to have a bilateral investment treaty. They exchanged drafts. This BIT only had two Articles that lawyers really cared about, ##6 and 13. They concerned expropriation in all its forms. And they concerned where – in what forum, that is – you would maybe litigate or maybe arbitrate about it. The two key Articles of the BIT, for our discussion, are these:

Article 6. EXPROPRIATION

1. Neither Contracting Party shall take any measure of expropriation, nationalization or other measures having effect equivalent to nationalization or expropriation against the investment of nationals or companies of the other Contracting Party unless the measures are taken for any purpose authorised by law, on a non-discriminatory basis, in accordance with its laws and against compensation which shall be effectively realisable and shall be made without unreasonable delay. Such compensation shall, subject to the laws of each Contracting Party, be the value immediately before the expropriation, nationalization or measure having effect equivalent to nationalization or expropriation. The compensation shall be freely convertible and transferable.

2. The legality of any measure of expropriation, nationalization or other measures having effect equivalent to nationalization or expropriation may at the request of the national or company affected, be reviewed by the competent court of the Contracting Party taking the measures in the manner prescribed by its laws.

ARTICLE 13

1. Any dispute between a national or company of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute.

2. If the dispute cannot be settled through negotiations within six months, either party to the dispute shall be entitled to submit the dispute to the competent court of the Contracting Party accepting the investment.

3. If a dispute involving the amount of compensation resulting from expropriation, nationalization, or other measures having effect equivalent to nationalization or expropriation mentioned in Article 6 cannot be settled within six months after resort to negotiation as specified in paragraph (1) of this Article by the national or company concerned, it may be submitted to an international arbitral tribunal established by both parties.

The provisions of this paragraph shall not apply if the national or company concerned has resorted to the procedure specified in the paragraph (2) of this Article

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As you suspect, a dispute arose. It was resolved in February 2023 by an Arbitral Tribunal in the ICSID case AsiaPhos v People’s Republic of China. To find and read the Award dismissing the claim for lack of jurisdiction, go to www.italaw.com. I needed to tell you that. Now on with the story!

The Singapore investor is stopped from mining because Szechuan Province wants the area for parkland and a panda 🐼 zoo. The Investor starts an arbitration under the ICSID Convention. The PRC raises an objection to jurisdiction. “Hold on,” says PRC, “you can arbitrate damages, but first you must litigate liability in a PRC court. We didn’t agree to arbitrate expropriation liability, that is to say, the legality of the measures.”

Common law lawyers who read more contracts than treaties, at least for a living, probably would not find this problem too hard to solve in favor of the Investor. Most dictionary definitions of “involve” or “involving” would tell us that that the subject following the verb must be included in a universe, but need not be the only element of that universe. To connote the only element in the universe – here, the “amount of compensation” as supposedly the only arbitrable issue – you would expect to see a limiting modifier (“involving only”) or a different phrase entirely, chosen to connote exclusivity (“confined to” perhaps?). And while the common law lawyer would probably concede (as I do) that the Parties’ mutual intent to mean “involving only” could come from words and phrases elsewhere in the BIT, phrases like “involving only” or “confined to” were so readily at hand to express exclusivity in Article 13(3) that there is a strong presumption against construing language elsewhere in the BIT to solve the conundrum in favor of exclusivity.

“Mentioned in Article 6”

Neither the Majority nor the Dissenter saw special significance in the phrase “mentioned in Article 6” found at the end of the first sentence in Article 13(3). Was more attention to the “ordinary meaning” of this phrase in order? I believe so (as an inveterate “all the words count” kind of guy).

Suppose we began by ignoring, for a moment, the antecedent phrase “involving the amount of compensation …” Then 13(3) would read “If a dispute … mentioned in Article 6” isn’t resolved amicably in the six-month period, it may be submitted to arbitration. Then we would go back to Article 6 to find out what disputes are mentioned there. The only type of dispute mentioned in Article 6 is this: “[t]he legality of any measure of expropriation, nationalization or other measures having effect equivalent to nationalization or expropriation.”

Now let us go back to the actual text of Article 13(3) and ask: What disputes “involving the amount of compensation” for expropriation are mentioned in Article 6 ? Article 6(2) mentions a dispute about “the legality of any measure” of expropriation, direct or indirect. And Article 6(1) states that an element of legality is “compensation” defined in the next sentence as “the value [of the property] immediately before the expropriation….” That would seem to make a dispute over the legality of expropriation arbitrable unless (1) compensation is not sought, or the amount is stipulated, or (2) the Investor has opted to submit the dispute to a domestic court of the Host State (more below about this “Fork in the Road”). Article 6 only mentions disputes about the ”legality of any measure” and so a conclusion – the one reached by the Majority – that disputes over the legality of expropriation are never arbitrable and must be litigated in the Host State’s courts seems to fail to ascribe any meaning to the phrase “mentioned in Article 6.”

“Fork in the Road”

For the commercial arbitrators who have read this far – brave souls – let’s just review what this term of art in investment arbitration seems to mean. For me, it is helpful to remember Robert Frost’s 1915 poem “The Road Not Taken” and its last stanza: “Two roads diverged in a wood, and I – I took the one less traveled by, And that has made all the difference.” For something from the Internet more focused on investment arbitration, try this: “Fork in the road clauses … provide that the investor must choose between the litigation of its claims in the Host State’s domestic courts or through international arbitration and that the choice, once made, is final. It is also expressed by the Latin maxim of una via electa non datur recursus ad alteram (“once one road is chosen, there is no recourse to the other”).”

The final sentence of Article 13(3) above is such a clause, and for this Post let us just call it the Fork. To quote the Fork: “The provisions of this paragraph shall not apply if the national or company concerned has resorted to the procedure specified in the paragraph (2) of this Article.”

Then back we go to Article 13(2):” If the dispute cannot be settled through negotiations within six months, either party to the dispute shall be entitled to submit to dispute to the competent court of the Contracting Party accepting the investment.”

But what “dispute” does 13(2) refer to? Whereas 13(2) follows 13(1), and the Fork is phrased in terms of ANY “resort” to domestic courts by the Investor, it seems that we should look to 13(1): “Any dispute between a national or company of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute.”

It seems that the plain meaning of the 13(3) Fork, in the text-directed context of 13(2) and the logical context of 13(1), is that if the Investor has resorted to Host State courts for ANY dispute, she loses the right to arbitrate a dispute involving the amount of compensation for expropriation. That would seem to mean that if the Investor MUST litigate the legality of a measure in a Host State court, the right to arbitrate the amount of compensation is illusory. That right would only exist, very theoretically, if the Host State stipulates illegality, and thus makes resort to the Host State court unnecessary. But why would it ever do so? Why would the Treaty drafters have envisioned that this would ever occur?

Obviously some exercise in interpretation is necessary to stop the Fork from being deployed to administer a mortal stab wound to the option to arbitrate. One interpretation choice is to construe the Fork to have some implicit limits, i.e. if the Investor went to Court to litigate legality of the measure because the BIT requires that she do so, the Investor’s “resort” to the court was not “according to the procedure” in 13(2) because that procedure involves a choice, not the fulfillment of a Treaty-mandated litigation prerequisite to arbitration. The Majority takes this “implicit limits” interpretive option, but it reaches a different result. It says the choice offered by 13(2) is to litigate legality of the measure, or to forego the expropriation claim. “Not much of a choice!, says the Dissent. “Why would the Treaty Parties intend that?” And this Commentator agrees. A choice between making millions from mining and taking the family to see the pandas 🐼 frolicking in their Eminent Domain is not, for an Investor, very meaningful.

But why make an interpretation choice that requires the Tribunal to tinker with the plain meaning of the Fork? Isn’t it more logical – and more in keeping with the contextual interpretation principle of the Vienna Convention of the Law of Treaties (VCLT) – to construe a related clause (the non-Fork substance of 13(3)) according to a plausible construction of that clause that sensibly fits with the evident plain meaning of the Fork? In other words, if “dispute involving the amount of compensation” COULD mean “dispute over legality of the measures AND quantum,” and that meaning allows the Fork to be given its “ordinary” meaning without obliterating the right to arbitrate any aspect of expropriation, then that should be the adopted interpretation of “dispute involving the amount of compensation” – unless there is some decisive contradictory language elsewhere in the Treaty. (And I do not think there is).

One could spin out, and argue against, other iterations of implicit limitations in the Fork. But you have other reading to do. And each of those bends of the tines eventually take us back to the same point: Why bend a straight Fork to bolster a debatable construction of 13(3) that limits and possibly eliminates any scope for expropriation arbitration?

But let’s approach “mentioned in Article 6” from just two more angles. Is it possible that “mentioned in Article 6” only refers to the recitation of expropriatory measures that preceded it and not to the dispute involving the amount of compensation? I would say it is easy to reject that. Because 13(3) fully restates the measures language of Article 6(2). If that interpretation prevailed, “mentioned in Article 6” is redundant.

Finally, suppose 13(3) had been written with the two key phrases in reverse order: “If a dispute mentioned in Article 6 involving the amount of compensation…” isn’t settled in the six-month period, it may be arbitrated. Does this phrase-shuffle seem to make a choice of the inclusive meaning of “involving…” attractive? I think so. In fact it rules out the exclusive meaning of “involving” because disputes over “the legality of any measure” (Art 6(2)) must be let through the arbitration door.

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Bear 🐼 with me just a few more moments general readers, as a small contingent of your fellow Commentarians actually gets excited about the BIT jurisprudence of “involving the amount of compensation.”

Before there was this AsiaPhos case, there was once upon a time a decade ago a case called Sanus v Laos 🇱🇦 and that one was under a younger PRC BIT (circa 1993) with Laos, and in that one a PRC investor was on the Claimant side and argued for the inclusive interpretation of “involving the amount of compensation.”

Sanus v Laos was important in AsiaPhos because the Majority, in defense of their “exclusive” interpretation of basically the same “involving …” phrase, point to the fact that the Singapore Court of Appeal bought into the “exclusive” view.

On that point I will say this (which is much less than the Dissent in AsiaPhos had to say on the same point!):

1. The Majority sedulously bypasses the fact that (i) the Sanus Tribunal was unanimous in the view that the “inclusive” understanding of “involving…” was a more attractive candidate for “ordinary meaning”, and (ii) Laos as Respondent there did not advocate that an “exclusive” spin on “involving…” was ordinary meaning, but only that a more “neutral” take (“entail[ing]”) might get you, by contextual analysis, to find that what was really meant was “concerning ONLY…”

2. The Singapore Court of Appeal, if you read them (italaw.com will get you there), scarcely gave a resounding “ordinary meaning” endorsement to the “exclusive” view of “involving…” It is more along the lines of “well even if I grant you that the phrasing might arguably be consistent with the ‘exclusive’ view that Laos advocates, the context proves that position to be untenable.”

And essentially the position of the Singapore Appeal Court in Sanus v Laos was that (i) if the investor MUST litigate expropriation liability in domestic courts, the Fork would block the investor’s recourse to arbitration, making the Arbitral option for compensation quantum unattainable, and therefore (ii) the only way to make harmonious sense of the Treaty’s provisions about expropriation was to adopt the inclusive take on “involving the amount of compensation…” and allow the investor to opt for arbitration all aspects of an expropriation claim so long as compensation is one element.

This conclusion of the Singapore Court of Appeal seems to be quite in synch with the conclusions drawn in this Post from analysis of the text.

There are numerous other provocative dimensions of this excruciating exercise in Treaty interpretation that emerge in the Majority and Dissenting Opinions in the AsiaPhos case. But as much as is written here already will probably satisfy most appetites! For a more disciplined and descriptive take on the Award, interested readers might head for the website of Singapore’s Wong Partnership law firm, where a quite thorough summary may be found.