UK: First Award Made Under ASEAN Agreement

Last Updated: 17 July 2003

The Award of 31 March 2003 in the case of Yaung Chi Oo Trading Pte Ltd. v Government of the Union of Myanmar (ASEAN I.D. Case No. ARB/01/1) was the first to be rendered under the 1987 ASEAN Agreement on the Promotion and Protection of Investment (the 1987 Agreement).

Having joined Myanmar’s objections to jurisdiction to the merits of the dispute, the Tribunal dismissed the claim on the ground that the claimant’s investment was not covered by the terms of the 1987 Agreement.

The Tribunal was composed of Professor Sompong Sucharitkul (President), Professor James Crawford and Judge Francis Delon, each appointed by the President of the International Court of Justice in accordance with the 1987 Agreement. Whilst the proceeding was purely ad hoc, the Tribunal adopted the ICSID Additional Facility Rules, mutatis mutandi.

In November 1993, the claimant, YCO, a company established in Singapore, concluded a Joint Venture Agreement with two State agencies of Myanmar, under which it would enjoy the control and management of the Mandalay Brewery for a renewable term of 5 years. The necessary permits and approvals having been obtained under local law, operations began in October 1994. In July 1997, Myanmar became a member of ASEAN and acceded to the 1987

Agreement. Myanmar subsequently became a party to the 1998 Framework Agreement for the ASEAN Investment Area (the 1998 Framework Agreement), which came into force in June 1999.

YCO alleged that the brewery was subject to armed seizures by Myanmar agents between December 1997 and January 1998 and again in November 1998; and that certain of YCO’s and its managing director’s bank accounts had been frozen by Myanmar. YCO argued that these measures, together with Myanmar’s steps in 1999 to wind up the joint venture after Myanmar had declined to extend its initial term, amounted to an expropriation of its investment under the 1987 Agreement. YCO commenced arbitration against Myanmar under the 1987 Agreement and sought to establish jurisdiction on the basis of the 1998 Framework Agreement.

Myanmar first objected that there was no privity of consent between YCO and Myanmar, as the Union of Myanmar was not a party to the Joint Venture Agreement. The Tribunal held that the dispute was under the 1987 Agreement, not under the Joint Venture Agreement, so that no general objection of lack of privity could be sustained. Secondly, Myanmar objected that YCO had not exhausted local remedies. The Tribunal held that there was no requirement to do so under the 1987 Agreement.

Myanmar’s third and principal objection to jurisdiction was that YCO had not made an "investment" that was covered by Articles I and II of the 1987 Agreement. This objection consisted in turn of three arguments. Myanmar’s first argument was that YCO had not made an investment because it had not "brought into" Myanmar the assets required under the Joint Venture Agreement. The Tribunal held that it was undeniable that YCO had indeed brought some assets into Myanmar and that, for the purpose of jurisdiction, is was not necessary to quantify them. Myanmar’s second argument was that YCO was not an "investor" under the 1987 Agreement because it has ceased to be "effectively managed" from Singapore, its managing director having relocated to Myanmar. The Tribunal held that YCO’s compliance with the minimum residence requirements for directors under Singapore company law was sufficient in the circumstances to establish effective management in Singapore. Myanmar’s third argument, which proved critical, was that YCO’s investment had not been specifically approved and registered subsequent to the entry into force of the 1987 Agreement, as required by its Article II(3). The Tribunal held that Article II(3) of the 1987 Agreement did not require a special approval procedure, as opposed to general approvals for foreign investment. Myanmar should have made clear any distinctions in this respect to potential investors. On the other hand, the language of Article II(3) required an express subsequent written approval (and thus went beyond the general rule that a foreign investment must be lawful under the law of the host State). The subsistence of the original approval was not enough for this purpose. The renewal of the joint venture agreement or an approval of its amendment would have satisfied the requirement of Article II(3), but this had never happened.

As regards YCO’s attempt to rely on the 1998 Framework Agreement, the Tribunal held that this was a distinct and separate instrument and operated independently from the 1987 Agreement. While holding that the 1998 Framework Agreement imposed obligations on the State parties as regards investments already existing at the time of its entry into force, the Tribunal found that its provisions did not incorporate either the substantive (i.e., expropriation) or the procedural (i.e., investor-State arbitration) provisions of the 1987 Agreement.

Finally, YCO attempted to rely on the provisions of the Myanmar-Philippines bilateral investment treaty by way of the 1987 Agreement’s most-favoured-nation clause. The Tribunal held simply that, on the facts, there was "no indication that there would be arbitral jurisdiction" under any such treaty concluded by Myanmar. In addition, the Tribunal expressed reservations about the use of a most-favoured-nation clause for jurisdictional purposes where the treaties concerned provided for different investor-State procedural rules. 

Article by Robert Volterra, Adam Johnson and Larry Shore

© Herbert Smith 2003

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