23 March 2021
Since Indonesia announced its intention to terminate and replace “all of its 67 bilateral investment treaties” (BITs) in 2014, the State has actively re-negotiated several BITs. Starting with some of its largest trading partners in the region, Indonesia signed new BITs with Singapore in 2018 and Australia in 2019.
On 9 March 2021, the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia on the Promotion and Protection of Investments (Indonesia-Singapore BIT) came into force after being ratified by both States.
The treaty provides broad protections for investments, balanced with targeted carve-outs to protect the State’s right to regulate, for example in relation to public health, environmental matters, privacy and data protection. Provisions on corporate social responsibility and anti-bribery and corruption also feature in the new treaty. For deeper analysis of other aspects of the Indonesia-Singapore BIT, see our blog post here on our Public International Law Notes blog.
Summary of Procedural Features
The Indonesia-Singapore BIT introduces a number of novel features, and investors operating in Singapore and Indonesia should carefully consider their options as early as possible and certainly before any dispute arises.
In summary, the Indonesia-Singapore BIT provides complex mechanisms that would apply in the event of a dispute, including:
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Exclusion of dual nationals and permanent residents in certain contexts;
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Denial of benefits to mere holding companies or companies controlled by investors from third States;
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Jurisdictional limits for investments that do not satisfy the characteristics of an investment under international law;
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Limited invocation of most-favoured nation treatment and rights under Indonesia and Singapore’s future investment treaties;
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Impact of joint statements issued by tax authorities of Indonesia and Singapore on disputed taxation measures;
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Notice requirements in a serious financial crisis;
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Compulsory consultations and mandatory waiting period before submitting the dispute to arbitration;
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Request for a factual report in a voluntary mediation;
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An investor’s right to request to review an arbitral tribunal’s draft award; and
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Mechanisms applicable to costs of the arbitration and third party funding of claims.
Dispute resolution
The Indonesia-Singapore BIT provides a sophisticated, multi-tiered dispute resolution mechanism comprising: (i) mediation; (ii) consultations; and (iii) international arbitration.
Voluntary mediation
Mediation is voluntary and the parties would have to bear their own expenses. Interestingly, a mediator may issue a written factual report upon request, but the “factual report shall not include any interpretation of this Agreement”. Thus, a mediator may face the creative challenge of assisting the parties to narrow down their dispute by reaching agreement on certain facts, even if they are unable to agree on legal issues.
Compulsory consultations and international arbitration proceedings
Investors must initially seek to resolve their dispute through consultations. The investor is then obligated to wait one year from the date of their request for consultation before the claim can be submitted to an international arbitral tribunal pursuant to the ICSID, ICSID Additional Facility or UNCITRAL Arbitration Rules. The arbitrators must have “experience or expertise in public international law”.
Investors have a new, interventionist right to comment on the arbitral tribunal’s award. A disputing investor has the right to request to review the arbitral tribunal’s draft award, and to submit comments to the tribunal. In the Indonesia-Singapore BIT, this right is limited to the “disputing investor”, in contrast to the 2019 Myanmar-Singapore BIT which provides this right to any “disputing party”. In addition to the chosen arbitration rules, Article 24(4) of the Indonesia-Singapore BIT provides as follows:
“In any arbitration conducted under this Section, at the request of a disputing investor, a tribunal shall, before issuing a decision or award on liability, transmit its proposed decision or award to the disputing parties. Within 60 days after the tribunal transmits its proposed decision or award, the disputing parties may submit written comments to the tribunal concerning any aspect of the proposed decision or award. The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period.” [Emphasis added.]
The arbitral tribunal is obligated to consider the comments within 45 days of receipt. It is uncertain how such comments would feature into considerations of due process at the stage of enforcement of the award before domestic courts.
Article 25 states that the arbitral tribunal “shall order that the costs of the proceedings be borne by the unsuccessful disputing party”. This robust cost-shifting presumption would also apply against a losing State. Conversely, to discourage speculative claims and the risk of the State being unable to claim an award of its legal costs against an unsuccessful investor, Article 18 requires disclosure of third-party funding, and Article 26 provides the arbitral tribunal with express jurisdiction to order security for costs against an investor “if there are reasonable grounds to believe that the disputing investor risks not being able to honour a possible decision on costs issued against it”.
Comment
The ratification of the new Indonesia-Singapore BIT brings into force long-awaited protection for investors and new procedural rights, which may both give an important boost to the economic recovery of the two countries.
For further information, please contact:
David Dawborn, Partner, Herbert Smith Freehills
david.dawborn@hbtlaw.com
