Indonesia indicates intention to terminate all of its Bilateral Investment Treaties?

According to the Netherlands Embassy in Jakarta, Indonesia has informed the Netherlands that it has decided to terminate the Bilateral Investment Treaty between the two nations from 1 July 2015. The Embassy also states that “the Indonesian Government has mentioned it intends to terminate all of its 67 bilateral investment treaties“.

Nearly all Bilateral Investment Treaties expressly stipulate a period of time during which the agreement is in force; most commonly, 10 years. Either Contracting State is then allowed to terminate the treaty after that initial period. If notice of termination is not given then, the treaty will provide for the agreement to remain in force for a further period. In the case of the Netherlands, its BITs usually provide for a further 10 year extension and require notice of termination to be given at least twelve months before the expiry of the current period of validity. However, under what is known as a 'sunset clause', existing investors are then still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period after the BIT’s termination. In the case of the Netherlands-Indonesia BIT the ‘sunset’ will last for a 15 year period.

It is not clear whether this move to terminate the Indonesia-Netherlands BIT is the first in a programme of terminations as the Netherlands Embassy suggests. The Indonesia-Netherlands BIT is the oldest of Indonesia’s BITs and the intention may simply be for Indonesia to negotiate a more “modern” Investment Treaty, providing for more clearly defined protections and dispute resolution provisions.

However, it would not be surprising if the Churchill Mining Plc v Indonesia cases (ICSID Cases ARB/12/14 and 12/40) have prompted more sweeping action by the Indonesian Government. Churchill and Planet Mining Pty began arbitration against the Indonesian government in May 2012 at ICSID in Washington. On 24 February 2014 the ICSID Tribunal rejected Indonesia’s jurisdictional challenges leaving Churchill free to proceed with a claim for damages of not less than US$1.05bn, excluding interest. This decision has caused outrage in Indonesia.

If the Indonesian government has decided to begin a programme of terminating its BITs, this would be a bold move. However, it would not be without precedent. South Africa has begun a similar programme of termination, terminating its BIT with Belgium-Luxembourg in 2012 and issuing cancellation notices for its BITs with Germany and Switzerland. Nor are these countries alone in expressing concern about the availability of investor-state dispute settlement. Australia has previously indicated its reluctance to agree to such mechanisms. Just last week, Germany announced that it did not want investor-state dispute settlement provisions included in a trade agreement between the United States and the European Union.

Termination of its BITs does not, however, indicate that Indonesia is withdrawing from all investment protection obligations and mechanisms. Even if all its BITs were terminated, Indonesia would still be subject to its obligations under ASEAN. Furthermore, Indonesia has also expressed interest in joining the Trans Pacific Partnership (or TPP), should that proceed.

In its 2013 report, UNCTAD noted the possible future trend away from bilateral arrangements and towards wider, regional, multilateral agreements involving greater economic integration and free trade obligations. It will be interesting to see whether Indonesia’s move prompts yet more nations to follow suit. If they do, we may well be looking at a dramatically different investment protection picture in future.

For further information, please contact Craig Tevendale, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

How to navigate dispute resolution in Africa

As investment continues to flow into the continent, the number of disputes is also rising
Over the last decade investment into Africa from foreign companies, financial institutions and private equity groups has soared, while investment between African countries is also increasing. For those willing and able to seek out its opportunities, Africa represents the world's largest emerging market, but there are several factors that are particular to doing business in the continent that mean the scope for dispute resolution will inevitably increase.

For instance:

• Governments may seek to revisit past legislation or renegotiate agreements with a view to obtaining higher revenues
• As the 'soft law' obligations of companies are increasingly on the radar of governments and civil rights organisations, disputes could arise where companies are alleged to have made investments without due care for the rights and concerns of local communities
• Disputes may also be caused by dealings with governments that are under international censure or sanctions regimes, or with unethical officials in legitimate governments

Commercial issues

Before resorting to litigation or arbitration in Africa, there are several commercial issues that should be considered. First, it is important for companies to assess their framework of operations, as there could be existing or potential projects in the country that militate against getting into a full-blown dispute.

Second, the publicity of litigation may play into the hands of competitors, as there could be plenty of other investors ready to step into disputing parties' shoes.

Third, the majority of disputes in Africa are resolved through commercial settlement, with companies and states alike preferring negotiation over the uncertainties of litigation or arbitration.

Finally, legal technicalities often carry greater weight in African jurisdictions than in Western proceedings, so the relative strengths of parties' legal positions need to be factored in with care.

Litigation

It is not always possible for international companies to confine the conduct of litigation to their own shores. African state entities that enter into contracts may require that any disputes are resolved before their local courts applying local law, or by domestic arbitration.

While many jurisdictions have well-developed legal systems with commercially minded and experienced judges, local courts in some countries suffer from delays, protracted appeal and enforcement processes, and judiciaries that are less well-equipped or used to dealing with complex international transactions.

The civil court structures across all African jurisdictions generally have a predictable hierarchy. Local courts typically derive jurisdiction from the sum in dispute, with higher courts being reserved for larger disputes. Almost all jurisdictions have a Court of Appeal and Supreme Court (or equivalent).

Aside from the civil court system, traditional courts often play a major role in rural areas. Village elders or specialist lower courts may determine property disputes under customary law, and in some jurisdictions the application of customary law permeates throughout the entire court system.

Arbitration

Many investors are reluctant to expose themselves to proceedings in local courts with which they are unfamiliar, and hence the neutrality, choice of rules and venue and confidentiality of arbitration are attractive.

There are several jurisdictions where local laws provide the necessary legislative and judicial support for onshore arbitration, but in other jurisdictions less experienced judiciaries and untested legislation point to offshore arbitration being the better choice.

Regardless of whether offshore or onshore arbitration is chosen, its chief advantage is the ability to enforce an award.

This article was written by Stéphane Brabant, Partner, John Ogilvie, Partner and Paula Hodges, Partner, at Herbert Smith Freehills.

Spotlight on the EPBC Act

Late-2013 saw plenty of activity around environmental assessment under the Environment Protection and Biodiversity Act 1999 (Cth) (EPBC Act).

On 16 October 2013, the Minister for the Environment announced a three-step framework for the implementation of the Federal Government’s ‘one-stop-shop’ policy. Meanwhile, on 20 December 2013, the Department of the Environment released new Significant Impact Guidelines, relating to the recently introduced ‘water trigger’ amendments.

These new developments are most relevant to proponents of developments requiring both State and Commonwealth environmental assessment and approval in Australia. In particular, the new Guidelines will be relevant for proponents of Coal Seam Gas (CSG) developments or large coal mining developments.

This alert provides an overview of the EPBC Act.

New NSW Case on Duty to Report a Pollution Incident

A recent decision of the NSW land and Environment Court sheds new light on the duty to report a pollution incident under section 148 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act). In Environment Protection Authority v Bulga Coal Management Pty Limited [2014] NSWLEC 5 Justice Pain held that the duty to report does not arise until the defendant is actually aware that the incident is of a type which should be reported. While section 148 has recently been amended to require ‘immediate’ notification, it is likely to be interpreted in the same way. In practice, this means that:

• if a pollution incident occurs during the carrying on of an activity by a company, the company’s internal processes can be followed to assess whether or not the pollution incident caused or threatened to cause material harm to the environment, and
• the duty to notify the pollution incident to the EPA will only be triggered once the company (by its employees) is in fact aware that the pollution incident caused or threatened to cause material harm to the environment.

Click here to read more.

The National Access Regime - Productivity Commission Final Report released

On 11 February 2014, the Federal Government released the Productivity Commission’s (PC) Final Report into the National Access Regime (Regime).

In large part, the Final Report adopted the PC’s key recommendations set out in its Draft Report released in May 2013.

While the PC concluded that the current Regime should be retained, it did recommend that amendments be made to four of the five declaration criteria in order to reflect its view that the Regime should only apply in exceptional circumstances.

This Alert provides an overview of the Final Report.

Abbott Government announces a Royal Commission into Trade Union Governance and Corruption

On Monday 10 February 2014 a Royal Commission into Trade Union Governance and Corruption was announced.

The terms of reference for the Royal Commission into Trade Union Governance and Corruption are expressed very broadly. The Prime Minister Tony Abbott has said the inquiry will be able to go wherever the evidence leads it.

Companies and employers who have had dealings with unions are potentially within the scope of the inquiry, and should familiarise themselves with the terms of the inquiry and how they might become involved.

This update provides an overview of the inquiry, including the powers of the Commissioner.

Qld: GBRMPA approves dumping of dredge spoil from Abbot Point capital dredging program

On 31 January 2014, the Great Barrier Reef Marine Part Authority (GBRMPA) approved North Queensland Bulk Ports Corporation’s (NQBP) application to dispose of dredge spoil within the Great Barrier Marine Park.

The Abbot Point capital dredging program (Project) which was approved by the Environmental Minister, Greg Hunt, on 11 October 2013 (see blog post of 13 December 2013), involves the removal of 3 million cubic meters of spoil in respect of Terminals 0, 2 and 3.

In reaching the decision to approve the proposed dumping, GBRMPA noted that:

• allowing the Project to proceed as planned would help contain development to existing ports,
•  the strict environmental conditions imposed on the Project by the federal government would help to protect the reef, and
•  it would support the use of an alternative site if one is found to be equal to, or better, in terms of environmental or heritage outcomes.

The approved disposal site is located approximately 25 kilometres east-north-east of the Port of Abbot Point, while the investigation zone being assessed for alternative locations is located 20 to 30 kilometres from the area being dredged.

Nevertheless, all dredge spoil is required to be tested by accredited laboratories to ensure that there are no contaminants in the dredge spoil prior to the commencement of dumping. No contaminants have yet been identified.

NQBP has welcomed the approval and has committed to abiding by the strict environmental conditions.

For further information, please contact Jay Leary, Partner, Roger Allingham, Solicitor, Brisbane or your usual Herbert Smith Freehills contact.