In a recent decision published on 11 January 2023, the Swiss Federal Supreme Court (“SFSC”) confirmed the International Centre for Settlement of Investment Disputes’ (“ICSID”) decision upholding China’s objection regarding the arbitral tribunals’ jurisdiction (case no. 4A_172/2023 [in German], intended for official publication).
Factual background
The dispute at stake originated from ICSID arbitration proceedings seated in Geneva, Switzerland (case no. ADM/21/1), and was based on the Bilateral Investment Treaty between China and Singapore (“China-Singapore BIT“).
The claimants’ (and subsequently the appellants’ before the SFSC proceedings) were two companies incorporated under the laws of Singapore which operated phosphate mines in China’s Sichuan province. During recent years, China (the respondent and defendant before the SFSC proceedings) adopted a new policy that banned phosphate exploration and exploitation both in and around certain nature reserves and national parks. As a consequence, the latter Singaporean phosphate mines were directly affected by this new policy and had to cease their operations.
In the sequel, the claimants initiated ICSID arbitration proceedings against China, claiming that the respondent violated the China-Singapore BIT with the alleged expropriation, resulting in damages in their mining operations located in China’s province. The respondent argued that the arbitral tribunal lacked jurisdiction as the dispute at hand was not in the scope of the relevant arbitration clause. In its award, the arbitral tribunal (or at least the majority) consequently denied its jurisdiction to hear the claimants’ expropriation claims. Conversely, one of the arbitrators submitted a dissenting opinion (find the relevant ICSID document[s] with the above-mentioned link or case reference).
The claimants then challenged this award before the SFSC, arguing that the arbitral tribunal had erred in interpreting the dispute settlement provisions of the China-Singapore BIT.
The arbitral tribunal’s jurisdiction has to be predicated upon clear and unambiguous consent
Jurisdictional issues in investment arbitration are common. Chapter 12 of the Swiss Private International Law Act (“PILA”) serves as the basis for the judicial review for the SFSC. Pursuant to art. 190(2)(b) PILA, an award may be set aside, inter alia, if the arbitral tribunal wrongly declined jurisdiction. Investment treaties shall further be interpreted in accordance with the Vienna Convention on the Law of Treaties (“VCLT”). In the appeal at hand, the appellants claimed that the arbitral tribunal failed to apply art. 31 et seq. VCLT.
The dispute settlement clause in art. 13(3) of the China-Singapore BIT provides as follows: ‘If a dispute involving the amount of compensation resulting from expropriation […] or other measures having effect equivalent to […] 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 […] [emphasis added].’ This is a narrow dispute resolution clause. Proper interpretation of such narrow clauses may often (and also in the case at hand) give rise to controversial views and thus, jurisdiction is naturally at least questionable.
The SFSC dismissed the appellants’ arguments and upheld the arbitral tribunals interpretation and restrictive approach to the dispute settlement clause. In essence, the SFSC confirmed that the arbitral tribunal’s jurisdiction has to be predicated upon clear and unambiguous consent. The scope of the arbitration clause in the China-Singapore BIT is limited to disputes involving the amount of compensation, whereas disputes on the occurrence and legality of an expropriation can only be brought before domestic courts (cf. art. 13[3] and 6[2] China-Singapore BIT).
The mere fact that the dispute resolution clause may be associated with delimitation difficulties does not lead to a comprehensive jurisdiction of the arbitral tribunal as argued by the appellants’. According to the reasoning of the SFSC, the contracting states of the China-Singapore BIT would have been at liberty to opt for a comprehensive arbitration clause, which they deliberately did not. Contrary to the appellants’ view, the SFSC states that the relevant dispute resolution clause cannot be interpreted in their favour by invoking the general purpose of protection against expropriation without compensation or the effet utile.
Concluding remarks regarding jurisdictional challenges in (investment) arbitration
When it comes to the interpretation of (narrow) dispute resolution clauses, both a restrictive and an expansive approach may be observed in international jurisprudence and doctrine. Although it may be the tendency of (investment) arbitral tribunals to suggest a restrictive approach regarding narrow dispute resolution clauses, this cannot be applied as a general rule. This is well illustrated, e.g., in ICSID arbitration proceedings commenced from a Chinese national against Peru, based on the Bilateral Investment Treaty between China and Peru (cf. case no. ARB/07/6). Therein, the tribunal applied a expansive approach for the interpretation of its narrow dispute resolution clause.
According to national jurisprudence, the SFSC repeatedly applies a restrictive approach when examining the formation and the conclusion of an arbitration clause (cf. decisions of the SFSC 116 IA 56[58], 128 III 50[57] or 116 IA 56[58]). However, once a valid arbitration clause is established, the content and scope is interpreted rather broadly by the SFSC (so-called ‘pro-arbitration’ approach). Nonetheless, this shall not be used to justify extending the scope of the arbitration clause to claims that are not part of it and deliberately subject to domestic courts. This latest ruling shows that the SFSC has (particularly in cases of doubt of the scope) still a rather restrictive approach when it comes to extending the arbitration clause to other claims and arbitration may not be assumed lightly.
