Recent International Commercial Arbitration and Investor-State Arbitration Developments Impacting on Australia's Investments in the Resources Sector

Abstract

This paper highlights two sets of significant developments for businesspeople, legal advisors and policy-makers relating to international arbitration in the resources sector, particularly from an Australian perspective.

Part 2 deals with international commercial arbitration (ICA), primarily between private firms, pointing out that a ‘legislative black hole’ arises for certain ICA agreements with the seat in Australia which were concluded before amendments to the International Arbitration Act (Cth) (IAA) commenced on 6 July 2010. Such ICA clauses are commonly included in long-term contracts, characteristic of the resources sector, so the IAA must be promptly amended to provide support for ICA and these business relationships.

Part 3 turns to treaty-based investor-state arbitration (ISA), especially as it impacts on outbound investors from Australia. It reiterates opposition to the ‘Gillard Government Trade Policy Statement’, applied from April 2011 until the Abbott Goverment took power from 7 September 2013 and reverted to a case-by-case approach to including ISA protections in investment treaties.This Statement changed over two decades of treaty practice by insisting that Australia would no longer countenance any form of ISA (or even investor-state mediation) in future treaties – even with developing countries, with local laws and court systems that may not meet minimum international standards. We highlight problems that arise from such a stance, also proposed in a 2014 Bill in the Australian Senate from a minority Greens Party senator, by discussing two major developments in Indonesian law in 2012, both relevant to the resources sector. They suggest how international investment treaties (including two between Australia and Indonesia – both with ISA protections, which remain in effect, albeit perhaps limited in the earlier 1992 treaty) can help mitigate adverse effects on foreign investors. Part 3.1 discusses regulations issued to implement provisions of the Mining Law requiring eventual divestment of majority ownership to locals. Part 3.2 analyses a subsequent Constitutional Court decision to disband Indonesia’s regulator for upstream oil and gas exploration. Both examples highlight the need for Australia to retain ISA in addition to substantive law protections in any renegotiated or new investment treaty with Indonesia, including the bilateral free trade agreement under negotiation since September 2012. However, this may become difficult given Indonesia's announcement in March 2013 that it would be terminating its 67 bilateral investment treaties.

Keywords: dispute resolution, arbitration, investment law, international law, constitutional law, comparative law, Asian law, Commonwealth law, resources

JEL Classification: K10, K30, K33