An arbitral tribunal constituted under the China\u00ad\u2013Yemen bilateral investment treaty (BIT<\/span>) has issued its decision on jurisdiction, accepting that the claimant state-owned enterprise (SOE) could pursue arbitration at the International Centre for Settlement of Investment Disputes (ICSID<\/span>).<\/p>\n The claimant, Beijing Urban Construction Group Co. Ltd. (BUCG), is a wholly state-owned enterprise established under Chinese laws.<\/p>\n Yemen, together with international donors, has been engaged in improving facilities at the Sana\u2019a International Airport for several decades. In 2006 BUCG entered into a contract with the Yemen Civil Aviation and Meteorology Authority (CAMA) to build a new terminal for the airport in the Yemeni capital.<\/p>\n BUCG alleges that, in July 2009, Yemen employed its military forces and security apparatus to assault and detain BUCG\u2019s employees and forcibly deny BUCG access to the construction site. Subsequently, again according to BUCG, Yemen used this incident as an excuse for CAMA to terminate BUCG\u2019s contract.<\/p>\n In its 2014 request for arbitration and subsequent submissions before the tribunal, BUCG claims that it was expropriated in violation of Article 4 of the BIT.<\/p>\n The ICSID Convention<\/span> provides a forum for the settlement of investment disputes brought by foreign investors against host states but excludes state-to-state disputes. The Convention, however, does not specifically address the standing of state-owned enterprises (SOEs), such as BUCG.<\/p>\n Yemen submitted that Article 25(1) of the ICSID Convention providing for \u201ca national of another Contracting State\u201d excluded BUCG for two primary reasons: BUCG was under the direction and control of the Chinese government in carrying out its activities, and BUCG was empowered to exercise elements of governmental authority in China.<\/p>\n Yemen further argued that, under Chinese law, SOEs act effectively under the direction and control of the Chinese government and the Chinese Communist Party (CCP), and that this meant that the Chinese government was the ultimate decision maker for BUCG\u2019s operational, management and strategic decisions. In support of its position, Yemen invoked certain features of Chinese law applicable to SOEs generally and BUCG specifically.<\/p>\n BUCG contended that the question of whether or not it qualified under Article 25(1) must be considered in the specific context of the investment that had given rise to the dispute. It argued that its investment in Yemen was made while acting as a commercial enterprise, after participating in a competitive tender, and did not involve the exercise of governmental or public powers. According to BUCG, structural links to the Chinese government and public functions inside China were irrelevant to its standing as an investor at ICSID.<\/p>\n The tribunal agreed with BUCG that the relevant legal question was whether BUCG \u201cfunctions as an agent of the State in the fact-specific context\u201d (para. 39). For the tribunal, the evidence in the current case did not establish that, \u201cin building an airport terminal in Yemen, BUCG was acting as an agent of the Chinese State in any relevant sense of the word \u2018agent\u2019\u201d (para. 39).<\/p>\n In this regard, the tribunal found it particularly noteworthy that \u201cBUCG participated in the airport project as a general contractor following an open tender in competition with other contractors. Its bid was selected on its commercial merits. Its contract was terminated, Yemen contends, not for any reason associated with the PRC\u2019s decisions or policies but because of BUCG\u2019s failure to perform its commercial services on the airport site to a commercially acceptable standard\u201d (para. 40).<\/p>\n The tribunal further found that \u201cthe assertion that \u2018the Chinese State is the ultimate decision maker\u2019 for BUCG is too remote from the facts of the Sana\u2019a International Airport project to be relevant\u201d (para. 43).<\/p>\n Similar to other treaties negotiated by China prior to 1998<\/a>, the BIT in its Article 10 contemplates ICSID arbitration for \u201cany dispute relating to the amount of compensation for expropriation.\u201d<\/p>\n Yemen argued that the tribunal\u2019s jurisdiction was limited to disputes concerning the calculation of \u201cthe amount of compensation\u201d where there is admitted liability by the host state. In contrast, BUCG advocated for a broad interpretation to include assessment of both liability and compensation. BUCG argued that without determining the issue of liability there could be no consideration of quantum.<\/p>\n The tribunal accepted BUCG\u2019s position and found that Article 10 allows an investor to bring expropriation claims relating to issues of both liability and quantum. In this regard, the tribunal found that the ordinary meaning of the words \u201camount of compensation\u201d was not conclusively in favour of either party\u2019s position. As the ordinary meaning of the BIT was not conclusive, the tribunal\u2019s interpretation moved to consider the context, object and purpose of the BIT.<\/p>\n As a final matter, the tribunal considered Yemen\u2019s objection that BUCG\u2019s claim was purely contractual and thus subject to the exclusive jurisdiction of its contract with CAMA. Consequently, Yemen argued that the tribunal lacked jurisdiction.<\/p>\n BUCG responded that its claims arose under the BIT and were not merely contractual. According to the claimant, the tribunal should apply a prima facie<\/em> test to the facts presented in the claimant\u2019s memorial and that these facts demonstrated that its claims were capable of constituting BIT breaches.<\/p>\n The tribunal found that it indeed had no jurisdiction to resolve claims and counterclaims alleged by the parties on the basis of contractual obligations. It was limited to considering the relief to which the claimant may or may not be entitled under the BIT. The tribunal then found that it had jurisdiction to hear BUCG\u2019s claims to the extent that they arose under the BIT, which was to be considered in the course of the merits phase of arbitration.<\/p>\n Notes<\/em>: The tribunal was composed of Ian Binnie (President appointed by the parties, Canadian national), John Townsend (claimant\u2019s appointee, U.S. national) and Zachary Douglas (respondent\u2019s appointee, Australian national). The Decision on Jurisdiction of May 31, 2017 is available at http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw8968.pdf<\/a>.<\/p>\n Matthew Levine<\/strong> is a Canadian lawyer and a contributor to IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\nBackground and claims<\/h3>\n
Parties disagree over an SOE qualifies as investor<\/h3>\n
Tribunal affirms jurisdiction over Chinese SOE<\/h3>\n
Tribunal accepts jurisdiction over expropriation claims regarding both liability and compensation<\/h3>\n
Yemen\u2019s objection that claims are purely contractual is dismissed<\/h3>\n