Qld: Extension of termination date for the Queensland Rail 2008 undertaking

On 9 April 2015, Queensland Rail (QR) requested an extension to the termination date of the QR Network Access Undertaking (2008) June 2010 (2008 Access Undertaking) from the Queensland Competition Authority (QCA).

QR has requested that the 2008 Access Undertaking be extended until the earlier of:

• 30 June 2016, or
• the date on which the QCA approves a replacement access undertaking.

The QCA has already approved a number of extensions to the termination date of the 2008 Access Undertaking pending the approval of a replacement undertaking.

On 12 December 2014, QR withdrew its Draft Access Undertaking 1 (AU1) which was proposed to replace the 2008 Access Undertaking. QR are expected to submit a revised draft access undertaking this month.

QCA has commenced its investigation into QR’s most recent extension request and invites stakeholders of the 2008 Access Undertaking to make submissions by 5pm 4 May 2015.

To upload a submission, please click here.

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

Update on – Reporting by extractive companies on government payments - UK regime is now in force

In September 2014 we posted an update commenting on Reporting by Extracted Companies. Stating that Companies with debt or equity securities listed in the UK and large, unlisted companies incorporated in the UK (including subsidiaries of non-UK parent companies) operating in extractives or logging are required to produce annual reports on payments to governments for financial periods starting on or after 1 January 2015. The UK regime is now in force.

We have produced detailed briefings on the EU Directives and on early UK implementation. If you would like a copy of either or both, please contact Sarah Hawes, Professional Support Consultant, London.

Enforcement of ICSID award

Gold Reserve v Venezuela and the enforcement of ICSID awards

In recent years, Latin American states have increasingly resisted The International Centre for Settlement of Investment Disputes (ICSID) state-investor dispute mechanism, which they claim favours investors. One of the key criticisms leveled against ICSID arbitration is the lack of an appeals process and limited annulment procedure for awards rendered under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).

It is worth noting, however, that the ICSID Convention will not apply to all proceedings administered by ICSID. The steps taken by Venezuela and Canadian mining company Gold Reserve since a Paris-seated tribunal issued an award in favour of Gold Reserve in September 2014 provide a useful illustration in this regard.

Gold Reserve's US$740 million ICSID award against Venezuela (the Award)

A Paris-seated tribunal found that Venezuela had breached the fair and equitable treatment standard of the Canada-Venezuela bilateral investment treaty when it terminated Gold Reserve's Las Brisas gold and copper concession.

The tribunal awarded Gold Reserve US$740.3 million, being US$713 million for the fair market value of the Brisas project, $22.3 million for interest since April 2008 and $5 million for reimbursement of the company's legal and technical costs.

The Award was issued under the ICSID Additional Facility Rules as Canada had not yet ratified the ICSID Convention at the time the claim was filed in 2009.

Developments in Paris and Washington, DC

After the Award was issued, Venezuela sought to have it set aside by the Paris Court of Appeal. Gold Reserve then made a cross petition for recognition of the Award by the Paris Court. Two days prior to the hearing scheduled for 27 November 2014, Venezuela filed submissions opposing the company's request for exequatur and, in the alternative, requesting a stay of execution pending the determination of its application for annulment of the Award.

On 26 November 2014, Gold Reserve filed a further petition for recognition of the Award, in Washington, DC. The following day, the Paris Court approved Gold Reserve's request to postpone the hearing until 8 January 2015 to allow the company to respond to Venezuela's request for a stay of execution.

Venezuela was only able to seek the set-aside of the award in the Paris Court because the award was rendered under the ICSID Additional Facility Rules, and not under the ICSID Convention. The Award was therefore subject to the regime of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Although the New York Convention presumes the validity of international arbitration awards and facilitates their recognition and enforcement in the territory of any Contracting States, the national courts of Contracting States retain power to set aside awards on narrowly circumscribed procedural and public policy grounds.

Enforcement under the ICSID Convention

Under Article 54(1) of the ICSID Convention, each contracting state must recognise an award rendered under the ICSID Convention as binding and enforce a monetary award within its territory as though it were a final award of a court in that state. This makes recognition and enforcement easier for an award rendered under the ICSID Convention than for an award governed by the New York Convention.

Awards rendered under the ICSID Convention are not subject to national law. They may only be contested out of court, under the limited review mechanisms in the ICSID Convention.

An application for an annulment of an award under Article 52 (1) of the ICSID Convention is put to a three-member ad hoc committee constituted for that purpose. A party may request an annulment of an award on one or more of the following grounds:

• That the Tribunal was not properly constituted.
• That the Tribunal has manifestly exceeded its powers.
• That there was corruption on the part of a member of the Tribunal.
• That there has been a serious departure from a fundamental rule of procedure.
• That the award has failed to state the reasons on which it is based.

An annulment review is therefore a limited exercise, designed to safeguard the integrity of the tribunal, procedure and award, not the outcome of the proceedings. It does not provide for an appeal or retrial of an initial award.

The need to satisfy a high threshold in securing annulments is borne out by ICSID statistics. Those demonstrate that, from 2011 to the end of June 2014, only one ICSID award was successfully annulled in part or in full, while 20 further annulment applications were rejected or discontinued.

Comment

The shorthand term "ICSID arbitration" is generally used to refer to proceedings that fall within the scope of the ICSID Convention. It is important to note, however, that ICSID also administers proceedings under the ICSID Additional Facility Rules and the UNCITRAL Rules. As illustrated by the recent developments in the dispute between Gold Reserve and Venezuela, ICSID awards which are rendered under those Rules rather than under the ICSID Convention will not benefit from the ICSID Convention recognition and enforcement regime; instead, they will be governed by the New York Convention, as implemented in the Contracting State jurisdictions where they are issued or where their recognition and enforcement is ultimately sought. Investors are thus reminded once more of the importance of seeking specialist advice on the investment protections available to them, whether at the stage of deciding how best to structure their investment or before starting formal proceedings.

Please see here for our recent post on the future of investor-state arbitration, or here for a link to a short podcast in which we consider in further detail some of the key issues being debated in relation to investment protection and investor-state dispute settlement (ISDS) and the implications of the outcome for investors investing from one market into the other

For further information, please contact Matthew Weiniger QC, Partner, Naomi Lisney, Associate, London or your usual Herbert Smith Freehills contact.

Australia and China conclude free trade agreement

On 17 November 2014, Chinese President Xi Jinping and Australian Prime Minister Tony Abbott announced that Australia and China had concluded a free trade agreement that has been under negotiation since April 2005. The ChAFTA is the latest of a series of FTAs concluded by the Australian Coalition Government since coming into power in September 2013,¹ reflecting the Government’s policy of promoting 'freer trade, economic infrastructure and private-sector-led growth'.²

Key benefits of the ChAFTA for Australian businesses include:³

• the removal of tariffs on all resources and energy products, including the immediate removal of the current 3% tariff on Australian coking coal, and the removal of the current 6% tariff on non-coking coal within two years, and
• Australian law firms will be able to establish commercial operations in cooperation with Chinese law firms in the Shanghai free-trade zone that will be allowed to service the whole of China.

Key benefits of the ChAFTA for Chinese businesses and investors include:

• increasing the screening threshold for investments in Australia by Chinese private sector entities from A$248 million to A$1.078 billion (though all investment proposals by Chinese State Owned Entities (SOE) remain subject to scrutiny by the Australian Foreign Investment Review Board (FIRB) regardless of transaction size), 
• the reduction of barriers to labour mobility which will grant skilled Chinese workers temporary entry into Australia for the purpose of providing labour on large infrastructure projects above A$150 million, and 
• the addition of 5,000 working holiday visas provided for Chinese for entry to Australia on an annual basis.

Further features of the ChAFTA include:

• a built-in review mechanism of the FTA after 3 years that will allow for further liberalisation, including expansion of market access over time, 
• an Investor State Dispute Resolution (ISDS) mechanism that will enable foreign investors to invest with greater confidence and will also include safeguards to protect each Government’s ability to regulate in the public interest, 
• Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation, and 
• in addition to the conclusion of the ChAFTA, China and Australia signed a Memorandum of Understanding (MOU) on 17 November 2014 designating an official RMB clearing bank in Sydney.  This will allow overseas trading of up to RMB 50 billion in Australia for the first time improving the efficiency of cross-border transactions.

The full article was written by Donald Robertson, Partner, Leon Chung, Partner, Edwina Kwan, Senior Associate, Kate Lindeman, Solicitor, Sydney and Qingqing Bu, Trainee Solicitor, Beijing.

Endnotes

1. See our articles on the Korea-Australia FTA, Text of Korea-Australia FTA released – ISDS provisions revealed and the Japan-Australia Economic Partnership Agreement.
2. Tony Abbott, Address to the Business Council of Australia 30th Anniversary Dinner, Sydney, 4 December 2013.
3. For further details, see Key Outcomes.

Extension of time for the Queensland Rail 2008 undertaking

On 5 November 2014 Queensland Rail requested an extension to the termination date of QR Network’s (2008) June 2010 Access Undertaking (2008 Access Undertaking), which is currently set to expire on 31 December 2014. QR requested this extension following submission of Queensland Rail’s Draft Access Undertaking 1 (AU1) which is proposed to replace the 2008 Access Undertaking. As AU1 is currently still in the process of being approved by QCA, QR has requested that the 2008 Access Undertaking be extended until the earlier of:

• 30 June 2015, or
• approval of the replacement access undertaking.

QCA has commenced its investigation into QR’s extension request, and stakeholders of the 2008 Access Undertaking are invited to make submissions by 5pm 11 November 2014. If no objections are raised, QCA has said they will proceed directly to a final decision on the question of the extension.

QR’s request can be found here.

To upload a submission, please click here.

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

Cth: High Court clarifies builders’ duty of care to developers and owners for economic loss

In brief

Earlier this month, the High Court of Australia delivered its judgement, unanimously overturning the NSW Court of Appeal, in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The High Court held that the builder of an apartment complex did not owe a common law duty of care to the Owners Corporation to avoid causing it economic loss resulting from latent defects in the building’s common property.

Background

Brookfield Multiplex Ltd (Builder) was engaged by a developer to design and construct an apartment complex on land in Chatswood, NSW, which the developer owned. The developer sold the lots in the building to various purchasers who, upon registration of the relevant strata plan, collectively became the Owners Corporation. Following formation of the Owners Corporation and sometime after the building was completed, latent defects were discovered in the common property.

The Owners Corporation brought a claim against the Builder in an effort to recover the losses it had incurred rectifying the various latent defects. Despite detailed provisions relating to quality and defects liability in the design and construct contract, the Builder’s liability for latent defects was excluded (following Final Completion). As such, the Owners Corporation confined its claim to common law negligence alleging that the Builder owed the Owners Corporation a duty to avoid causing it economic loss. 

Almost a year ago, the NSW Court of Appeal found in favour of the Owners Corporation on the basis that the Builder owed a duty of care to avoid causing loss resulting from latent defects in the common property which were structural or constituted a danger to persons or property in the vicinity or made the apartments uninhabitable. 

Decision

Earlier this month, the High Court overturned that decision. After highlighting the distinction between claims for economic loss (as in this case) and claims for damage to persons or property, French CJ noted that the relevant test for economic loss claims involves an assessment of whether the suing party was vulnerable to suffering the loss the subject of the claim. 

French CJ held that the complex contractual arrangements (that clearly considered the risk of defects) between the Builder and developer as well as the developer and the purchasers (for whom the Owners Corporation acted) evinced a lack of vulnerability on the part of the developer and, consequently, the Owners Corporation. Hayne and Kiefel JJ reached a similar conclusion and further added that it was open to the purchasers (and, by extension, the Owners Corporation) to have bargained for contractual protections against loss caused by latent defects. The High Court held that the lack of vulnerability on the part of the Owners Corporation’s was fatal to its case and that the Builder did not owe the claimed duty of care.

Implications

While this decision is an important step towards clarifying this area of law, whether or not a particular relationship will give rise to a duty of care will depend on the salient features of the parties’ relationship, and in particular any contracts between the parties and any statutory overlay.

A fundamental reason for the High Court’s decision in this case was the fact that neither the developer nor the subsequent purchasers were vulnerable. They were able to protect their interests via their contractual arrangements and a failure to take that chance was not something to be repaired by the common law. 

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

The Liberian mining law reform and the impact of the Ebola crisis

Despite its relatively small size (approximately 110,000km with a population of four million people), Liberia, the oldest republic in Africa, is a resource-rich country with significant deposits of iron ore, gold and diamonds.

The West African mining industry is facing significant headwinds from the combined effect of:

• the Ebola virus outbreak, which has caused the death of 3,439 people, including 2,069 in Liberia, as of 30 September 2014 according to the World Health Organization,
• the depressed iron ore price, which has decreased by more than 30% over the last year, and 
• the increased pressure on the financing and refinancing of greenfield projects in developing countries.

This has caused:

• a reduction of growth projections for the region: the Liberian government and the World Bank have halved growth estimates for the mining sector and the overall economy for this year and medium term prospects are likely to be worse if the crisis is not quickly contained, and
• various challenges for a number of iron ore and gold companies and contractors operating in the region, which has led a number of them to declare force majeure.

Despite these difficulties, Liberia's mining potential is considered to be very promising given that:

• Liberian soil is yet to be fully explored,
• the country is still recovering from a 14-year long civil war that ended in 2003 (before the civil war, Liberia was the number one iron producer in Africa and the fifth largest exporter of iron ore in the world), and
• its mining industry is still transitioning from artisanal to industrial mining. 

In line with a number of resource-rich West African countries, Liberia has been planning to revise its 24-section long 2000 Minerals and Mining Law (2000 Mining Law) since 2012 in order to boost the state's share of resource profits, as well as transparency and accountability.

The 2000 Mining Law was enacted during the presidency of Charles Taylor and replaced the Natural Resources Law of 1956. Although it was amended in 2004 to include a new chapter on the 2003 United Nations' Kimberley Process Certification Scheme and was supplemented by comprehensive Exploration Regulations in 2010, it has often been described as out-dated, unclear and not very detailed in certain respects (e.g. the differences between class A, B and C mining licenses).

Despite the Ebola crisis, which has hit Liberia the hardest because it has spread to the densely populated zones of Monrovia, this mining reform appears to remain on the Government's agenda.

The main objectives of this reform are to:

• harmonise the 2000 Mining Law with a number of laws, including the 2010 Public Procurement and Concession Act Law and the 2000 Revenue Code (as amended in 2011) and the 2009 Liberia Extractive Industries Transparency Initiative (LEITI) Law,
• switch from a concession-based system to a license-based system and reduce carve outs from the prevailing legislation that are currently available under the 2000 Mining Law on the basis of negotiated mineral development agreements for major projects,
• increase local content requirements, and
• improve cooperation between the various governmental departments and agencies involved in the mining sector.

This reform is supported by the German International Cooperation agency (GIZ) and the World Bank and is based, inter alia, on the following policies and documents:

• the 2013 LEITI post award process audit,
• the 2010 Mineral Policy guidelines,
• the 2009 African Union's Africa Mining Vision guidelines, and 
• various recommendations from the World Bank's Extractive Industries Technical Advisory Facility.

This reform is driven by an Inter-Ministerial Steering Committee chaired by the Ministry of Lands, Mines and Energy, and largely managed by Deputy Minister Sam Russ, and includes representatives from the Ministries of Justice, Finance, Planning and Economic Affairs, Labour and Internal Affairs and of the Environmental Protection Agency, the Public Procurement and Concession Commission, the National Bureau of Concessions, the Law Reform Commission and the National Investment Commission.

Pre-drafting consultations were conducted in 2013 in order to seek the views of various stakeholders including local authorities, local communities, political parties, the private sector, donors and development partners.

The first draft of the proposed new mining law was produced by two external experts (Philip James Kelly, lawyer, and Patrick William Gorman, mining engineer) together with a team of local experts and was circulated to operators for comments in late 2013.

Further consultations are likely following the production of the second draft.

This extensive consultation process is a positive step in the implementation of the reform.

One of the key issues that the new mining law will need to cover is the transitional and, possibly, grandfathering regime that will apply upon the new law entering into force – companies currently operating in Liberia will be particularly interested in any guarantee that mining rights granted prior to the new law will be maintained, especially if a mineral development agreement was entered into with the state.

The timeframe for the next steps and, possibly, the content of the new law itself, may be impacted by the development of the Ebola crisis. It will be interesting to compare the final version of this new law with the mining laws recently enacted by Liberia's three neighbouring countries over the past five years (Sierra Leone in 2009, Guinea in 2011 and 2013 and Ivory Coast in 2014).

For further information please contact Yann Alix, Senior Associate, London or your usual Herbert Smith Freehills contact.