UNCITRAL Tribunal Upholds Ghana’s Jurisdictional Objections Against Chinese Investor
Beijing Everyway Traffic & Lighting Tech. Co., Ltd v. The Republic of Ghana (I), PCA Case No. 2021-15
Summary
This award on jurisdiction concerns claims brought by Beijing Everyway Traffic and Lighting Co. Ltd. (claimant), a Chinese contractor, against the Government of the Republic of Ghana (Ghana or Respondent) under the Agreement on Encouragement and Reciprocal Protection of Investments (China–Ghana treaty) signed by the governments of Ghana and China in 1989—China’s first bilateral investment treaty with an African nation. The claimant alleged that the Ghanaian parliament’s arbitrary cancellation of their contract with the government had breached Ghana’s treaty obligations on expropriation, equitable treatment, and the umbrella clause.
The ad hoc tribunal constituted under the treaty bifurcated the proceedings as to its jurisdiction and merits of the claim. Upon interpretation of the China–Ghana Treaty, the tribunal found that it did not have jurisdiction over the dispute. The tribunal analyzed the dispute settlement clause and found that it limited jurisdiction to claims concerning the amount of the compensation for expropriation and did not extend it to the question of whether expropriation took place and its lawfulness. The tribunal also rejected the claimant’s other argument that the MFN clause of the treaty could be used to import broader dispute settlement clauses from the treaties Ghana had concluded with the United Kingdom and Denmark. Finally, the tribunal found that the parallel proceeding instituted by the claimant under the contract does not affect the question of its jurisdiction under the China–Ghana treaty.
The Factual and Procedural Background
Behind the dispute is a traffic management system project for which Ghana and the claimant entered into an engineering, procurement, installation, and commissioning (EPIC) contract in 2012. The EPIC contract was approved by a resolution of the Ghanaian parliament in December 2019. However, in November 2020, the parliament informed the claimant that the approval had been rescinded in the interest of Ghana’s national security. Due to these actions, the claimant commenced proceedings against Ghana, alleging that it had violated its treaty obligations on expropriation and equitable treatment. The claimant also alleged that these actions violated Ghana’s obligation to observe its contractual obligations, i.e., the umbrella clause, that the claimant sought to import through the MFN clause of the China–Ghana treaty. In response, Ghana argued that the claimant’s claims were not covered within the scope of the China–Ghana treaty, thus raising a jurisdictional objection, and requested that the proceedings be bifurcated to address the jurisdictional objection as a preliminary matter. This request was granted by a tribunal majority. The final award was issued on January 30, 2023.
Arguments on Jurisdiction
The claimant argued that the claim was maintainable due to two reasons. First, the China–Ghana treaty’s dispute settlement clause relating to the quantum of compensation concerned “any dispute […] concerning the amount of compensation for expropriation” (Article 10(1)). Per the claimant’s interpretation based on rules of treaty interpretation contained in the VCLT, the scope of Article 10(1) was best understood to include not only the question of the quantum of compensation for expropriation but also the determination of the lawfulness of expropriation.
Second, the claimant relied on the MFN clause (Article 3(2)) of the China–Ghana treaty to import “broader dispute resolution clauses contained in Ghana’s treaties with” the United Kingdom and Denmark that, in the view of the claimant, were applicable in the present dispute and entitled the claimant to pursue a number of treaty breaches, including those about expropriation, equitable treatment, MFN treatment, and the umbrella clause.
Countering these arguments, Ghana argued that Article 10(1) limited the tribunal’s jurisdiction to only the determination of the quantum of expropriation and therefore the tribunal did not have jurisdiction over the claims raised as they fell beyond its scope. According to Ghana, this interpretation was supported by the VCLT rules and that provisions of the China–Ghana treaty allocated jurisdiction over question of lawfulness of expropriation to the domestic courts of Ghana (Article 4(3)). As for the claimant’s argument concerning the MFN clause of the China–Ghana treaty, Ghana claimed that it did not extend in its application to dispute settlement under the treaty, noting that it had not been provided for in an express manner.
As far as the parallel proceedings initiated under the London Court of International Arbitration (LCIA) Rules were concerned, the claimant argued that those proceedings did not have influence over the tribunal’s jurisdiction under the China–Ghana treaty, as it was independent of the dispute initiated under the EPIC contract. In Ghana’s view, by initiating parallel proceedings, the claimant had engaged in forum shopping, and claims related to the EPIC contract should necessarily be dealt with in the LCIA arbitration.
Tribunal’s Analysis
Prior to addressing the parties’ arguments on jurisdiction, the tribunal recalled that the basic rule on the legal burden of proof in international law was that the party who asserts the claim must prove it (actori incumbit probatio). Accordingly, in the tribunal’s view, the burden of proof for establishing jurisdiction was on the claimant.
The Scope of Dispute Settlement Clause (Article 10(1))
As mentioned earlier, Article 10 of the China–Ghana treaty delineates the tribunal’s jurisdiction. Its paragraph 1 read as follows:
Article 10
SETTLEMENT OF DISPUTTE [sic] ON QUANTUM OF COMPENSATION
- Any dispute between either Contracting State and the investor of the other Contracting State concerning the amount of compensation for expropriation may be submitted to an arbitral tribunal.
Noting the diverging interpretations of Article 10(1) that had been put forward by the claimant and respondent, the tribunal opted to interpret the treaty by applying the general rules of treaty interpretation set out in Article 31 of the VCLT. The tribunal began its analysis by considering the “ordinary meaning” of Article 10(1), focusing particularly on how the terms “concerning” and “amount of compensation for expropriation” limited the scope of the tribunal’s jurisdiction. After considering broad and narrow approaches adopted by investment tribunals in other cases, the tribunal rejected the claimant’s argument that Article 10(1) must be read broadly to include not only the question of the quantum of the compensation but also the question of the investor’s entitlement to it. This was so because the term “concerning” did not broaden or limit the scope of the tribunal’s jurisdiction, as the claimant had argued. Instead, the tribunal explained, it was the phrase “amount of” which qualified and occurred prior to “compensation of expropriation” in Article 10(1) that placed a clear limitation on the scope of questions that could be referred to arbitration by the parties.
Further, the tribunal noted that consideration had to be given to the heading of Article 10, which supported the interpretation that the scope of Article 10(1) does not extend beyond disputes on the quantum of compensation. In this regard, the tribunal remarked that relevant awards and treaty provisions relied upon by the claimant either had no headings at all or were general in nature. The heading to Article 10 in the China–Ghana treaty was “an important point of distinction” and suggested that the ordinary meaning of Article 10(1) could not be interpreted broadly.
The tribunal next focused its interpretation of Article 10(1) on its “context” by examining its meaning by reference to other provisions of the China–Ghana treaty. Accordingly, the tribunal first referred to its Article 4(3), which vested the domestic courts of the expropriating state with the exclusive jurisdiction to review the lawfulness of the expropriation or its legality under that state’s domestic law. The tribunal rejected the claimant’s assertion that the use of “may” and not “shall” in the English translation of the Chinese text meant that jurisdiction under Article 4(3) was permissive and not exclusive in nature. While there were certain inconsistencies between the English and Chinese versions of the treaty’s texts, the tribunal found it not affect the nature of jurisdiction under Article 4(3) on the basis that the English version used the term “shall.” In this regard, the tribunal also noted that Article 4(3) did not contain a reference to arbitration.
Secondly, as part of its analysis of “context,” the tribunal noted that in investment treaty awards that had adopted a broader approach to interpreting a tribunal’s jurisdiction to determine the “compensation” or “the amount of compensation,” the provision vesting that jurisdiction itself had been linked to the treaty’s provision entitling investors to compensation for expropriation. This was not the case in the China–Ghana treaty, the tribunal noted, and therefore the question of entitlement for expropriation cannot be brought within the scope of jurisdiction to decide the issue of quantum of compensation.
Building on this analysis, the tribunal concluded that nothing in Articles 10(1) and 4(3) of the China–Ghana treaty prevented an investor from submitting claims concerning the quantum of compensation after it has initiated proceedings before the domestic courts of the expropriating state on the question of lawfulness of the expropriation. This further distinguished the China–Ghana treaty from situations encountered in previous investment treaty awards that adopted a broad approach to the interpretation of jurisdiction as the provision equivalent to Article 10(1) in those awards prohibited investors from submitting to arbitration any dispute, including one on the quantum of compensation, when they had initiated proceedings before the domestic courts of the host state. Put otherwise, the China–Ghana treaty did not contain an explicit fork-in-the-road clause.
Even so, the claimant alleged that an “invisible fork-in-the-road clause” will come to operate since by referring the question of entitlement for expropriation to the domestic courts, it would necessarily require the domestic courts to address the question of quantum of expropriation as it was one of the grounds of lawfulness under Article 4(1) of the treaty. And determination of the quantum of expropriation by domestic courts would preclude the reference of the issue to arbitration due to the legal principle of issue preclusion. The tribunal rejected this argument on two counts. First, the tribunal stated that the claimant had failed to show that Ghanaian courts would address the question of the quantum of expropriation if an investor were to submit a claim under the treaty. Second, the tribunal noted that for a court’s decision to be binding on a subsequent court or arbitration, the court must have jurisdiction over the issue. As for the quantum of expropriation, the jurisdiction under the treaty lies exclusively with arbitral tribunals and not domestic courts of the host state.
Next, the tribunal addressed the question of whether an investor is precluded from referring the question of quantum to arbitration under the treaty due to a unilateral declaration from the host state denying the existence of expropriation. The tribunal disagreed with this view. In its view, despite a unilateral declaration denying expropriation, the investor can refer the question of whether expropriation occurred to the competent courts of that state by relying on Article 4 (3) of the treaty. If the domestic courts find that no expropriation has occurred, there will still be question of the quantum to be referred for arbitration, the tribunal reasoned. If otherwise, then the investor may refer the question on quantum to arbitration. Accordingly, while a state may unilaterally deny expropriation, in the tribunal’s view, it cannot preclude an investor from referring the question of entitlement to its domestic courts pursuant to Article 4(3), and then, subsequently to arbitration under Article 10(1) on the question of quantum.
The tribunal then chose to address the claimant’s implicit suggestion that the tribunal should have incidental jurisdiction to decide the question of entitlement as a necessary preliminary matter to the question of quantum. The tribunal rejected this suggestion, noting that incidental jurisdiction principle only engages when the antecedent matter is not otherwise excluded from the jurisdiction of the tribunal. This was the case in the present situation as Article 4(3) of the China–Ghana treaty excluded by implication the jurisdiction of an arbitral tribunal over the question of entitlement for expropriation.
Concluding its interpretative analysis of the context of Article 10(1), the tribunal concluded that it cannot be understood to accord jurisdiction to an arbitral tribunal to decide the question of lawfulness of expropriation. Further, analyzing the “object and purpose” of the China–Ghana treaty, the tribunal rejected the claimant’s claim that, based on the preamble of the treaty, the investor’s right to arbitration was part of the treaty’s object and purpose. This was supported by Article 9 of the treaty, under which the primary means of settling disputes about the interpretation or application of the treaty is through consultations through diplomatic channels and, failing that, state-to-state arbitration. Finally, finding that its analysis based on Article 31 of the VCLT provided a “sufficiently clear” interpretation of Article 10(1), the tribunal did not find the need to have recourse to Article 32 of the VCLT.
MFN Treatment Clause and Dispute Settlement (Article 3(2))
The tribunal rejected the claimant’s reliance on the MFN clause, Article 3(2) of the treaty, to import broader dispute settlement provisions from Ghana’s treaties with the United Kingdom and Denmark. The tribunal noted that the MFN clause in Article 3(2) is limited to “the treatment and protection referred to paragraph 1.” Noting that Article 3(1) sets out substantive standards of equitable treatment and protection that are to be accorded to investments, the tribunal noted that there is nothing to suggest that the scope of the MFN clause should be broad. Accordingly, the tribunal found that the MFN clause cannot be relied upon to extend the tribunal’s jurisdiction to claims raised by the claimant.
With Regard to Parallel Proceedings Under LCIA Rules
As for the effect of the parallel arbitration proceedings instituted by the claimant under the LCIA on the tribunal’s jurisdiction, the tribunal found that while the facts of both disputes are similar, the LCIA arbitration is distinct and concerns the respondent’s obligations under the EPIC contract. In contrast, the treaty-based arbitration concerned the respondent’s obligations under the China–Ghana treaty.
Conclusion
This award on jurisdiction adds to other recent awards concerning China’s first-generation BITs that limit the jurisdiction of international arbitration to the amount of compensation. While the tribunal addressed a number of interesting issues like the “invisible fork-in-the-road” and incidental jurisdiction as raised by the claimant, the peculiarly drafted provisions of the China–Ghana treaty required the tribunal to adopt a narrow approach and render a principled award. As one commentator on the award recently noted, restrictive ISDS clauses in first-generation have become a double-edged sword for China: while they protect the Chinese government from scrutiny in claims brought by foreign investors, they have also prevented Chinese investors from accessing ISDS.
Note
The tribunal was composed of Stavros L. Brekoulakis (president), Richard Frimpong Oppong (appointed by the respondent), and Vijaya Kumar Rajah (appointed by the claimant).
Author
Shantanu Singh is a recent LL.M. graduate from the Geneva Graduate Institute and Fellow at the IISD Economic Law & Policy program.