ICSID Review, Vol. 33, No. 1 (2018), pp. 67–73
doi:10.1093/icsidreview/six011 Published Advance Access December 14, 2017
CASE COMMENT
Sanum Investments Ltd v The
Government of the Lao People’s
Democratic Republic1
Circumstantial Indicia in Treaty
Interpretation
Jean Ho2
In Sanum Investments Ltd v Government of the Lao People’s Democratic Republic, a
five-Judge panel of the Singapore Court of Appeal was specially constituted to
address a foundational topic of international law—the territorial application of
treaties.3
Sundaresh Menon CJ delivered a meticulous and discursive judgment on
behalf of the apex court, holding that the China–Laos investment treaty,4
concluded when Macau was still under Portuguese sovereignty, applies to Macau
on her reversion to Chinese sovereignty. A bilateral investment treaty obliges a
Contracting State to maintain certain standards of protection, such as fair and
equitable treatment, towards investors who are nationals of the other Contracting
State investing in its territory. It also empowers a protected investor to claim relief,
in accordance with the stipulated dispute resolution procedure, from the host
Contracting State for conduct that violates treaty obligations. If the China–Laos
investment treaty applies to the Special Administrative Region of Macau, then a
Macanese investor who has made an investment in Laos will be able to bring a
claim against Laos for treaty violations. There are notable detractors to this
landmark decision of the Court of Appeal. Laos, a Contracting State and the
respondent to a treaty claim brought by a Macanese investor, maintains that the
China–Laos investment treaty does not apply to Macau. China, the other
Contracting State, openly rejects the ruling of the Court of Appeal.5
The clash
1
Sanum Investments Ltd v Government of the Lao People’s Democratic Republic, [2016] SGCA 57 (Sanum v Lao
PDR).
2
Assistant Professor, Faculty of Law, National University of Singapore. Email: lawjeanho@nus.edu.sg. The
opinions expressed herein are those of the author and do not represent the views of the University.
3
Sanum v Lao PDR (n 1).
4
Agreement between the Government of the People’s Republic of China and the Government of the Lao People’s
Democratic Republic Concerning the Encouragement and Reciprocal Protection of Investments (signed 31 January
1993, entered into force 1 June 1993).
5
Ministry of Foreign Affairs of the People’s Republic of China Press Release, ‘Foreign Ministry Spokesperson
Hua Chunying’s Regular Press Conference on 21 October 2016’ <http://www.fmprc.gov.cn/mfa_eng/xwfw_665399/
s2510_665401/2511_665403/t1407743.shtml> accessed 7 May 2017.
ß The Author(s) 2017. Published by Oxford University Press on behalf of ICSID. All rights reserved.
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between the Court of Appeal and the Contracting States over the China–Laos
investment treaty is, at its core, a clash over treaty interpretation. It stems from the
fact that neither the text nor the context of the China–Laos investment treaty
evinces its applicability or non-applicability to Macau. Consequently, the task
facing the Court of Appeal, and the focus of this note, is the extrapolation of State
intent from indicia located outside the text and the context of the treaty being
interpreted. I call these circumstantial indicia in treaty interpretation.
On 12 August 2012, Sanum, a Macanese investor, filed a Notice of Arbitration
against Laos, claiming violations of the China–Laos investment treaty.
Notwithstanding Laos’ objection, the Arbitral Tribunal held in its Award on
Jurisdiction that the China–Laos investment treaty is applicable to Macau.6
The Arbitral Tribunal established personal jurisdiction over Sanum via the international
law rule of ‘moving treaty frontiers’ (MTF). The MTF rule automatically
transfers a territory (Macau) from the treaty regime of its predecessor sovereign
(Portugal) to that of its successor sovereign (China).7
Dissatisfied with the Award,
Laos requested and received written confirmation from the Chinese Embassy in
Vientiane that the China–Laos investment treaty does not apply to Macau.8
Armed
with these two diplomatic letters, Laos applied to the Singapore High Court to review
the Award pursuant to Section 10(3)(a) of the International Arbitration Act.9
Should
the High Court, or the Court of Appeal on appeal, both exercising a supervisory role
as courts at the seat of arbitration, find that the arbitral tribunal has no jurisdiction,
the arbitration between Sanum and Laos will be discontinued.10
The High Court
upheld Laos’ objection to jurisdiction. In its view, the diplomatic letters displaced the
MTF rule. This excludes Macau from the territorial application of the China–Laos
investment treaty, and deprives the arbitral tribunal of personal jurisdiction over
Sanum.11
With the leave of the High Court, Sanum appealed to the Court of Appeal.
Like the High Court, the Court of Appeal found that the MTF rule governs the
territorial application of the China–Laos investment treaty, unless an exception to
the rule is made out. But unlike the High Court, the latter was doubtful that the
diplomatic letters establish an exception. The Court of Appeal located the MTF
rule in Article 29 of the Vienna Convention on the Law of Treaties (VCLT),12
and
6
Sanum Investments Limited v The Government of the Lao People’s Democratic Republic, UNCITRAL, PCA Case No
2013-13, Award on Jurisdiction (Andre´s Rigo Sureda, President; Bernard Hanotiau, Brigitte Stern) (13 December
2013) paras 232–300.
7
ILC, ‘Second Report of the Special Rapporteur Sir Humphrey Waldock on Succession in Respect of Treaties’,
Doc No A/CN.4/214, ILC YB 1969 vol II, 52.
8
Letter from the Laotian Ministry of Foreign Affairs to the PRC Embassy in Vientiane, Laos (7 January 2014);
Letter from the PRC Embassy in Vientiane, Laos, to the Laotian Ministry of Foreign Affairs (9 January 2014),
reproduced at Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15, paras 39–
40.
9
International Arbitration Act, Cap 143A (Rev Edn 2002)(IAA). Section 10(3)(a) provides:
‘If the arbitral tribunal rules—
(a) on a plea as a preliminary question that it has jurisdiction; or
(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,
any party may, within 30 days after having received notice of that ruling, apply to the High Court to decide the
matter.’
10
IAA s 10(7) provides: ‘In making a ruling or decision under this section that the arbitral tribunal has no
jurisdiction, the arbitral tribunal, the High Court or the Court of Appeal (as the case may be) may make an award or
order of costs of the proceedings, including the arbitral proceedings (as the case may be), against any party.’
11
Lao PDR v Sanum (n 8) para 111.
12
Vienna Convention on the Law of Treaties (opened for signature 23 May 1969, entered into force 27 January
1980) 1155 UNTS 331 (VCLT). Article 29 provides: ‘Unless a different intention appears from the treaty or is
otherwise established, a treaty is binding upon each party in respect of its entire territory.’
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in Article 15 of the Vienna Convention on Succession of States (VCST) in respect
of Treaties.13
Pursuant to Article 29 VCLT, a treaty applies to the entire territory
of a Contracting State ‘unless a different intention appears from the treaty or is
otherwise established’. As Laos did not rely on the exceptions in Article 15(b)
VCST, the Court of Appeal devoted its analysis to the two exceptions in Article 29
VCLT.14
The first exception was unmet by the silence in the text and context of
the China–Laos investment treaty.15
The second exception and the linchpin of
Laos’ case, calls for the production of any other evidence which points to China’s
and Laos’ intent that their treaty does not apply to Macau. Official statements
from China and/or Laos that directly address China’s treaty regime vis-a`-vis
Macau constitute expressions of State intent. In this regard, the Court of Appeal
received two pieces of evidence. The first is the China-Portugal Joint Declaration
on the question of Macau, which provides in Clause VII that ‘[t]he application to
the Macau Special Administrative Region of international agreements to which the
People’s Republic of China is a party shall be decided by the Central People’s
Government in accordance with the circumstances and needs of the Macau
Special Administrative Region and after seeking the views of the Macau Special
Administrative Region Government’.16
The second is the diplomatic letters.
The Court of Appeal endorsed Sanum’s argument that submitted evidence
should be analysed in accordance with the ‘critical date’ doctrine, which deems
post-‘critical-date’ evidence that is ‘self-serving and intended by the party putting
it forward to improve its position in the arbitration, as being of little, if any,
weight’.17
The Court of Appeal also agreed with Sanum that the ‘critical date’ is
12 August 2012—the date of the Notice of Arbitration—since this is ‘the date on
which the dispute had crystallised’.18
Accordingly, the 1987 Joint Declaration is
pre-‘critical date’ evidence, while the 2014 diplomatic letters are post-‘critical date’
evidence. The Court of Appeal assigned a low probative value to the Joint
Declaration because the wording of Clause VII at best suggests China deferring
the question of Chinese treaties applying to Macau, rather than announcing ‘a
general intention . . . for its treaties not to extend by operation of the MTF Rule to
Macau’.19
And as none of the other pre-‘critical date’ evidence on the record
establish an exception to Article 29,20
the position as of 12 August 2012 is the
13
Vienna Convention on the Succession of States in Respect of Treaties (opened for signature 23 August 1978,
entered into force 6 November 1996) 1946 UNTS 3 (VCST). Article 15 provides:
‘When part of the territory of a State, or when any territory for the international relations of which a State is
responsible, not being part of the territory of that State, becomes part of the territory of another State:
(a) treaties of the predecessor State cease to be in force in respect of the territory to which the succession of
States relates from the date of the succession of States; and
(b) treaties of the successor State are in force in respect of the territory to which the succession of States relates
from the date of the succession of States, unless it appears from the treaty or is otherwise established that the
application of the treaty to that territory would be incompatible with the object and purpose of the treaty or
would radically change the conditions for its operation.’
14
Sanum v Lao PDR (n 1) paras 47–53.
15
Sanum v Lao PDR (n 1) paras 54–60.
16
China-Portugal Joint Declaration on the question of Macau (signed 13 April 1987) 1498 UNTS 229.
17
Sanum v Lao PDR (n 1) paras 64–65, 69, and 104.
18
Sanum v Lao PDR (n 1) para 67.
19
Sanum v Lao PDR (n 1) paras 77 and 81.
20
These include ‘the [analogous] experience of the PRC and the UK in relation to [the applicability of Chinese
treaties to] HK’, a list of Chinese treaties applicable to Macau in a 1999 UN document entitled ‘Multilateral Treaties
deposited with the Secretary-General’, and a 2001 World Trade Organisation Report which states that other than two
agreements concluded with Portugal, ‘Macau has no other bilateral investment treaties’, Sanum v Lao PDR (n 1)
paras 83–91, 93–99.
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application of the China–Laos investment treaty to Macau. The diplomatic letters,
which record the non-application of the China–Laos investment treaty to Macau,
appear to override the general rule in Article 29 VCLT. However, this does not
make them a valid Article 29 exception. The Court of Appeal held that the
diplomatic letters are inadmissible ‘because they are post-Critical Date evidence
adduced to contradict the pre-Critical Date position’.21
At the end of the Court of Appeal’s treaty interpretation exercise, the default
position in international law trumped the declared intention of the Contracting
States on the territorial application of the China–Laos investment treaty. This
‘counter-intuitive’ outcome,22
offers a rare opportunity to examine the correlation
between three discrete circumstantial indicia in treaty interpretation which are
encapsulated in Article 31(3) VCLT. Article 31 articulates the canonical general
rule of interpretation of treaties in three sections. Articles 31(1) and 31(2) identify
the considerations that guide the interpretation of a treaty’s text and context
respectively.23
Additionally, and especially where a treaty’s text and context are silent
on a contested issue, Article 31(3) directs treaty interpreters to take into account:
(a) any subsequent agreement between the parties regarding the interpretation
of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the
agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the
parties.
Article 31(3)(a) VCLT does not impose temporal limits on when Contracting
States can agree on the territorial application of their treaty. The Court of Appeal
rejected Laos’ characterization of the diplomatic letters as a ‘subsequent
agreement’ because such an agreement ‘cannot have retroactive effect’.24
However, when Contracting States agree in the present on what they intended
in the past, a ‘subsequent agreement’ that imparts meaning to the antecedent
treaty is necessarily retroactive in operation. The real complaint about the
diplomatic letters is their creation at the behest of Laos in response to a specific
treaty claim. It led the Court of Appeal to introduce the ‘critical date’ doctrine to
exclude timely evidence from the record. The ‘critical date’ doctrine in international
law emerged in territorial disputes to pinpoint the moment of passing of
sovereignty.25
It has been adapted to identify the moment after which evidence
generated to improve the legal position of a State in international proceedings is
21
Sanum v Lao PDR (n 1) para 112 (original emphasis).
22
Sanum v Lao PDR (n 1) para 116.
23
VCLT art 31(1) provides:
‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the
treaty in their context and in the light of its object and purpose.’
VCLT art 31(2) provides:
‘The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its
preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the
conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and
accepted by the other parties as an instrument related to the treaty.’
24
Sanum v Lao PDR (n 1) para 116.
25
Island of Palmas Case (Netherlands v USA) (1928) II RIAA 829, 843.
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inadmissible.26
Applying this doctrine to exclude evidence is rare among
international tribunals hearing disputes involving States, most of whom admit all
evidence.27
It does not accommodate the possibility that Sanum caught Laos by
surprise. If Laos was unaware of a brewing treaty claim before 12 August 2012,
and there is no indication on the facts that it was, there was no impetus for Laos
to seek written confirmation from China that their treaty does not apply to Macau.
Yet, it is equally possible that the diplomatic letters reflect modified intent on the
territorial application of the China–Laos investment treaty, timeously portrayed as
original intent to foreclose Sanum’s claim against Laos. In light of these competing
possibilities, conventional international practice is more likely to admit the
diplomatic letters as evidence of a ‘subsequent agreement’, but accord them a
lower probative value.
Article 31(3)(b) VCLT lists the conduct of Contracting States subsequent to the
conclusion of a treaty as circumstantial indicia in treaty interpretation. Conduct
encompasses both action and inaction. This means that ‘evidence of the inaction of
a party, although not conclusive, may be of considerable probative value’.28
Although neither Sanum nor Laos tendered submissions on Article 31(3)(b) VCLT
to the Court of Appeal, the facts point to the existence of the circumstantial indicia
of ‘subsequent practice’. Had Sanum invoked Article 31(3)(b), it could have argued
for the application of the China–Laos investment treaty to Macau through
acquiescence. In the 1987 Joint Declaration, China pledged in Clause VII to
decide the applicability of Chinese treaties to Macau upon the handover. Then in
1993, the China–Laos investment treaty, which does not mention Macau, entered
into force. Finally, just before Macau’s handover in 1999, both China and Laos
ratified the VCLT. Neither State made a reservation to Article 29 which regards a
treaty as binding on a Contracting State’s entire territory, unless otherwise
established. The combined effect of Clause VII, ambiguity in the territorial
application of the China–Laos investment treaty after Macau’s handover, as well as
China’s and Laos’ unconditional acceptance of the general rule in Article 29 VCLT,
called for positive action by the Contracting States to exclude Macau from treaty
coverage. By remaining silent for more than two decades when they could have
spoken out, China and Laos arguably acquiesced in the likelihood of Macanese
investors invoking the treaty after Macau’s handover. Furthermore, acquiescence
may create an estoppel, precluding China and Laos from objecting to an
interpretation of the treaty in which they had acquiesced.29
In the event that
Sanum suffers prejudice, in the form of frustration of its expectation to receive
treaty protection, China and Laos are estopped from taking the stance they did in
the diplomatic letters.30
When looked at as a whole, it is plausible that the conduct
of China and Laos establish, by acquiescence, an agreement that the China–Laos
investment treaty applies to Macau. Had Sanum invoked Article 31(3)(b) VCLT,
the Court of Appeal’s decision might have swung even more firmly in its favour.
26
The Minquiers and Ecrehos Case (France v UK) (Judgment) [1953] ICJ Rep 47, 59.
27
Durward V Sandifer, Evidence before International Tribunals (rev edn, University Press of Virginia 1975) 121–23.
28
IC MacGibbon, ‘The Scope of Acquiescence in International Law’ (1954) 31 BYBIL 143, 146.
29
IC MacGibbon, ‘Estoppel in International Law’ (1958) 7 ICLQ 468, 501–502.
30
Dissenting Opinion of Judge Spender, Case Concerning the Temple of Preah Vihear (Cambodia v Thailand) [1962]
ICJ Rep 6, 143–44, cited with approval in Chevron Corporation (USA) & Anor v Republic of Ecuador, UNCITRAL,
PCA Case No AA 227, Partial Award on the Merits (30 March 2010) para 350.
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Article 31(3)(c) VCLT is the gateway through which rules of international law
feature in treaty interpretation. There are two rules of international law that are
directly relevant to the territorial reach of the China–Laos investment treaty.
The first is the general rule in Article 29 VCLT that a treaty is binding on the
entire territory of the Contracting States, and the second is the MTF rule in
Article 15 VCST. Article 29 does not, as some writers posit, incorporate the MTF
rule. The date from which treaty coverage for Macau takes effect differs depending
on which rule is applied. An Article 29 VCLT determination can be made on any
date regardless of State succession, whereas the MTF rule is only triggered on the
date when State succession causes territorial frontiers to change. Notably, the
International Law Commission deliberately left out questions of State succession,
which the MTF rule concerns, when drafting the identical, forerunner provision to
Article 29.31
The separation between the Article 29 VCLT rule and the MTF rule
is reinforced by Article 73 VCLT, which provides that no provision in the VCLT
shall ‘prejudge any question that may arise in regard to a treaty from a succession
of States’. In addition to relevancy, the rules must also be applicable in the
relations between China and Laos. The Article 29 rule is applicable through
agreement as both China and Laos have ratified the VCLT. In contrast, the
applicability of the MTF rule is equivocal. Neither China nor Laos have signed the
VCST. Moreover, the International Law Commission was uncertain that its
codification project, which will culminate in the VCST, merely assembled rules of
customary international law binding on all States.32
Laos’ agreement to be bound
by the MTF rule in the arbitral and judicial proceedings, when paired with
China’s unknown attitude, prioritises the Article 29 VCLT rule over the MTF rule
when interpreting the China–Laos investment treaty.
To the extent that the circumstantial indicia in Article 31(3) VCLT are present,
they assume the same importance as the text and the context in treaty
interpretation.33
The absence of a substantive hierarchy among Articles 31(1),
(2) and (3), strongly suggests the corresponding absence of a hierarchy within
Article 31(3). The diplomatic letters as a ‘subsequent agreement’, China’s and
Laos’ prolonged inaction as ‘subsequent practice’, and the relevant and applicable
rules of international law, ‘would be thrown into the crucible and their interaction
would then give the legally relevant interpretation’.34
Applying the China–Laos
investment treaty to Macau poses no difficulty when all, most, or the only
available circumstantial indicia in Article 31(3) VCLT mandate this outcome. The
difficulty arises when two out of the three circumstantial indicia are present or
pleaded, each pointing to a different outcome. The diplomatic letters as an Article
31(3)(a) indicia, when taken at face value, place Macau outside the territorial
application of the China–Laos investment treaty. Conversely, the confluence of the
principal Article 29 VCLT and MTF rules, and the supplementary acquiescence
and estoppel rules of good faith as Article 31(3)(c) indicia, place Macau inside the
treaty’s territorial application. As noted above, neither party addressed Article
31(3)(b) indicia, so there was no convenient tie-breaker. Deciding whether a
31
ILC, ‘Draft Articles on the Law of Treaties with commentaries 1966’ ILC YB 1966 vol II, 187, 213.
32
ILC, ‘First Report of the Special Rapporteur Sir Humphrey Waldock on Succession in Respect of Treaties’, Doc
No A/CN.4/202, ILC YB 1968, vol II, 89; on the MTF rule cf Sanum v Lao PDR (n 1) paras 75–78, 80, 116(a).
33
ILC, ‘Sixth Report of the Special Rapporteur Sir Humphrey Waldock on the Law of Treaties’, Doc No A/CN.4/
186, ILC YB 1966, vol II, 85.
34
ibid 85.
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‘subsequent agreement’ or relevant and applicable rules of international law
prevails, involves a delicate choice between consent or certainty. While every
investment treaty is created with State consent, letting a State withdraw treaty
protection after an investor files a claim defeats the purpose of offering investors
legal stability and security through investment treaties. ‘[A] State cannot blow hot
and cold’.35
When the relevant and applicable rules of international law unite to
lift an investor from the territorial application limbo in which the Contracting
States left their investment treaty, these rules have to prevail. Whether the
diplomatic letters are framed, as the Court of Appeal has done, as a potential
exception to the Article 29 VCLT rule, or as a ‘subsequent agreement’ that
conflicts with Article 31(3)(c) VCLT rules, they should not, on their own,
disqualify Sanum from treaty protection. In this regard, one cannot but agree with
the Court of Appeal that the clarification to the territorial application of the
China–Laos investment treaty in the diplomatic letters only has prospective
effect.36
With Sanum Investments Ltd v Government of the Lao People’s Democratic Republic,
the Singapore Court of Appeal joins the growing ranks of national courts that have
analysed and applied international law. Decisions of national courts, once confined
to local or regional significance, now take on global significance as a source of
international law. Enhanced significance entails enhanced scrutiny. The decision of
the Court of Appeal applying the China–Laos investment treaty to Macau is less
controversial than what its denial by China might imply. The decision finds ample
support in Article 31(3) VCLT. It is also infused with the keen appreciation of the
Court of Appeal that while deciphering the intent of the Contracting States is
cardinal to treaty interpretation, there is something amiss with giving Contracting
States the last word in an extremely belated assertion of mutual intent. Ruling
against mutual intent may seem ‘counter-intuitive’. In the present case though, the
instinctive caution exhibited by the Court of Appeal laid the foundation for a
credible decision.
35
Lord McNair, ‘The Legality of the Occupation of the Ruhr’ (1924) 5 BYBIL 15, 35.
36
Sanum v Lao PDR (n 1) para 116(e).
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