Swissbourgh Diamond Mines (Pty) Limited and others v. Kingdom of Lesotho

Case summary

At a glance

Parties: Swissbourgh Diamond Mines (Pty) Limited, Josias Van Zyl, the Trustees of the Josias Van Zyl Family Trust, the Trustees of the Burmilla Trust, and Matsoku, Motete, Orange, Patiseng and Rampai Diamonds (Pty) Limited v. the Kingdom of Lesotho
Case no.: PCA Case No. 2013-29; Singapore High Court OS No 492 of 2016 ([2017] SGHC 195) and OS No 95 of 2017 ([2017] SGHCR 02, [2017] SGHC 104); Court of Appeal Civil Appeal No 149 of 2017 ([2018] SGCA 81)
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules 2010, administered by the PCA; seat Singapore
Treaty: Annex 1 (Art 28) to the SADC Protocol on Finance and Investment (in force 16 April 2010); SADC Treaty and Tribunal Protocol
Tribunal: Prof David A R Williams (Presiding Arbitrator), R Doak Bishop, Justice Petrus Millar Nienaber (dissenting)
Court: Singapore High Court (Kannan Ramesh J; Assistant Registrar Shaun Pereira); Singapore Court of Appeal (Sundaresh Menon CJ, Andrew Phang Boon Leong JA, Judith Prakash JA, Tay Yong Kwang JA, Steven Chong JA)
Underlying award(s): Partial Final Award on Jurisdiction and Merits (18 April 2016); Interpretation (27 June 2016); Final Award on Costs (20 October 2016)
Sector: Diamond mining
Outcome: The Singapore High Court set aside the Partial Final Award in full for lack of jurisdiction (14 August 2017), and the Court of Appeal dismissed the investors' appeal (27 November 2018).
Amount: Costs Award: US$2,137,061.28, €265,703.04, £10,350.49 and ZAR775,517.71 in favour of the investors, less an offset of ZAR1,826,299.07 plus interest for Lesotho's domestic litigation costs. The Costs Award fell away when the Partial Final Award was set aside. Costs of OS 492 went to Lesotho, and the appeal was dismissed with costs.

The dispute

Swissbourgh, a Lesotho company set up by South African national Josias Van Zyl, held five diamond mining leases granted in 1988. Swissbourgh and five locally incorporated tributee companies alleged that Lesotho expropriated these leases between 1991 and 1995, in connection with the Lesotho Highlands Water Project. After litigation in Lesotho failed, they brought a claim before the SADC Tribunal in 2009. The SADC Summit, with Lesotho taking part, then suspended the Tribunal and in 2012 dissolved it, so the claim was left unheard. The investors started a PCA arbitration under Article 28 of Annex 1 to the SADC Investment Protocol. They claimed that the "shuttering" of the SADC Tribunal without an alternative forum breached the Tribunal Protocol, the fair and equitable treatment and access-to-courts provisions of Annex 1, and the rule-of-law undertakings in the SADC Treaty. Lesotho objected that the true dispute was the pre-2010 expropriation; that a right to bring a claim before the SADC Tribunal was not an admitted investment; that no obligation "in relation to" an investment was engaged; that local remedies (an Aquilian action) had not been exhausted; and that locally incorporated companies were not investors.

Key holdings

Section 10(3) of the International Arbitration Act did not allow review, because the Award decided the merits as well as jurisdiction. The court could still review jurisdiction under Art 34(2)(a)(iii) of the Model Law, because Lesotho's objections were that the dispute fell outside the terms of the agreement to arbitrate. The Court of Appeal affirmed that Art 34(2)(a)(iii) applies even where the State contests the tribunal's jurisdiction over the whole claim. HC Judgment ¶¶ 67–74; CA Judgment ¶ 59
The Court of Appeal held that the right to refer a dispute to the SADC Tribunal, and the part-heard SADC Claim, were not protected investments. Both existed only in international law. They also lay outside Lesotho's enforcement jurisdiction, because the Tribunal could be dissolved by a three-quarters majority that Lesotho could not block. The Tribunal Protocol's Arts 14 and 15 did not in any case give investors a free-standing right to refer disputes. CA Judgment ¶¶ 136–175
The Mining Leases were an investment and had been admitted by Lesotho. But the shuttering dispute did not concern any obligation that had a legally significant connection to the Leases. The expropriation dispute fell outside Art 28(4) ratione temporis, so no qualifying dispute existed and the PCA Tribunal lacked jurisdiction. CA Judgment ¶¶ 179, 183–184, 189–195
The SADC Treaty's Arts 4(c) and 6(1) and the Tribunal Protocol's Arts 14 and 15 create no obligations owed to investors. Annex 1's Arts 6 (fair and equitable treatment) and 27 (access to courts) do relate to the Leases. But the shuttering did not take place in Lesotho's territory, and Lesotho law does not recognise the SADC Tribunal's competence, so the dispute did not concern those obligations either. CA Judgment ¶¶ 198–203
Exhausting local remedies is a precondition of Lesotho's consent under Art 28(1), so it is a question of jurisdiction, not admissibility. An Aquilian delictual action for pure economic loss may have been reasonably available and effective in Lesotho, and the investors had not shown otherwise. The High Court had held that local remedies were not exhausted. CA Judgment ¶¶ 209, 217–224; HC Judgment ¶¶ 306–318
The High Court also held that Annex 1 protects only foreign investors, so Swissbourgh and the tributees were not investors. This reached the same result as the PCA Tribunal by a different route; the Tribunal had relied on the assignment of their claims to the Burmilla Trust. Because the Award was set aside, the Costs Award fell away. The court reserved the question of the arbitration costs. HC Judgment ¶¶ 5, 330–347
In the separate proceedings to enforce the Costs Award, the courts held that an order granting leave to enforce an award against a State institutes proceedings. It must therefore be served through diplomatic channels under s 14(1) of the State Immunity Act. Substituted service on Lesotho's Singapore solicitors was refused, and the appeal against that refusal was dismissed. [2017] SGHC 104 ¶¶ 44, 74; [2017] SGHCR 02 ¶ 26

Procedural history

12 June 2009The investors file the SADC Claim before the SADC Tribunal. The Tribunal is suspended from 2010 and dissolved by the SADC Summit in August 2012.
20 June 2012Notice of Arbitration filed under Art 28 of Annex 1 to the SADC Investment Protocol.
18 April 2016Partial Final Award on Jurisdiction and Merits, with Justice Nienaber dissenting. The Tribunal finds breaches and orders the parties to set up a new tribunal, seated in Mauritius, to hear the SADC Claim. An Interpretation of the Award follows on 27 June 2016.
17 May 2016Lesotho applies to the Singapore High Court to set the Award aside (OS 492 of 2016).
20 October 2016Final Award on Costs in favour of the investors.
14 March 2017The Assistant Registrar dismisses the investors' application for substituted service of the order granting leave to enforce the Costs Award.
8 May 2017The High Court gives written grounds for dismissing Registrar's Appeal 91 of 2017 (dismissed on 24 April 2017): service must follow s 14 of the State Immunity Act.
14 August 2017The High Court sets the Partial Final Award aside in full for lack of jurisdiction.
27 November 2018The Court of Appeal dismisses the investors' appeal with costs.