Category: Dispute resolution

Guest Blog – Long-Term LNG Sales to Japan and Beyond

Guest blog by Paul Davis (Baker & McKenzie, Sydney/Tokyo) – “IMPORT OF US SHALE GAS INTO ASIA: THE EFFECT ON EXISTING LONG-TERM CONTRACTS FOR THE SALE OF LNG”
[A footnoted version of the following note is forthcoming on the Baker & McKenzie website. The firm supports ANJeL’s ‘Team Australia’ law students in the INC negotiation and arbitration moot competition in Tokyo (held over 1-2 December this year), and Mr Davis is a guest lecturer in Sydney Law School’s LLM courses in “Global Energy and Resources Law” and “Law and Investment in Asia”. The law and practice of long-term contracts is not only of immediate practical significance for bilateral and regional trade and investment (including Australia-Japan FTA negotiations), but also more broadly for contract law reform projects now underway in both Australia and Japan.]
Current Top Concern to Asia’s LNG Buyers and Sellers
The main issue exercising the minds of Asia’s LNG sellers and buyers is what will happen to their current LNG sale and purchase agreements (SPAs), which are priced based upon the Japan Crude Cocktail (JCC), as cheaper (Henry Hub linked) shale gas imports start to flow into the region from North America.
Buyers will be under pressure to “close the gap.” At the same time the sellers are concerned to maintain the prices based on which they made the decision to develop their LNG projects.
SPAs differ, depending upon the LNG SPA model preferred by the seller – in effect the operator of the project. However most SPAs contain two provisions of relevance to the current issue.

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Australia-Japan Business Cooperation: The Last 50 Years and a New FTA?

[A version of the second half of this Comment, on the potential impact of Australia’s new policy against treaty-based Investor-State Arbitration provisions on the pending FTA negotiations with Japan, appears also on the East Asia Forum – cited by Rowan Callick ‘Arbitration Hitch Holds Up FTAs’ The Australian (2 November 2012, p10).]
The remarkably well-attended and interactive 50th Anniversary Australia Japan Joint Business Conference took place in Sydney over 8-9 October. It was hosted by the Australian Committee, established in 1962 and comprising Australia-based firms involved with Japan. But the conference program was developed with its counterpart in Japan, which hosts there a Joint Conference in alternate years. This cooperative arrangement has become unusually close, and provides an inspiration for other bilateral business community centred relationships. (By contrast, for example, the Australia China Business Council hosts its own main events quite independently of those organised by its Chinese counterpart, comprising firms interested in doing business in Australia.) The Australia-Japan Committees’ arrangement is also very longstanding: the first joint conference took place in 1963 at the Tokyo Chamber of Commerce, with the second in 1964 at the Australian National University.
As ANU Emeritus Professor Peter Drysdale reminisced in his keynote address at this year’s conference in Sydney, this cooperative arrangement – and indeed the entire bilateral relationship between Australia and Japan – proved to be an unexpected success. After all, both countries were bitter foes during World War II. For several ensuing decades Australia maintained concerns about engaging with Asia, as well as trade liberalisation and inbound foreign investment more broadly, with Japan also habouring mercantilist tendencies.

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Abandoning all Investor-State Dispute Settlement Mechanisms Also Not Supported by the Facts (updated 17 August)

I am glad the High Court of Australia rejected today the argument by major tobacco companies that Australia’s plain packaging legislation is an unconstitutional “acquisition” of their rights. I dislike those companies’ products, their marketing and their litigation strategies, and I support the plain packaging legislation. I’ve also made numerous submissions to the Australian government since 2005 seeking to improve safety regulation for general consumer goods – partially achieved in the 2010 “Australian Consumer Law”.
But I hope that the ongoing arbitration claim of “expropriation”, initiated by Philip Morris Asia under the 1993 Hong Kong – Australia bilateral investment treaty, does not feed into blanket rejection of any forms of investor-state dispute settlement (ISDS) in investment treaties. Although that system has flaws, it also has benefits, and there is ample scope to draft treaties to provide clear and appropriate mechanisms to balancing private and public interests. With others familiar with international investment law, I provide further examples of the most promising substantive and procedural law reforms in an Open Letter dated 28 July 2012, in response to a recent OECD Public Consultation on ISDS.
My comment will therefore address points made recently on The Conversation blog by Dr Kyla Tienhaara, who remains completely opposed to any form of ISDS. In fact, she urges the Gillard Government to try to excise ISDS from all Australia’s existing FTAs and investment treaties (dating back to 1988), in addition to eschewing them for future treaties – as the Government seems to be attempting, pursuant to its policy shift on ISDS announced in the 2011 Trade Policy Statement (TPS). An alternative is for the Government to approach Hong Kong authorities to seek agreement on amending the 1993 treaty to suspend PMA’s pending claim. More generally, Australia should consider including ISDS provisions in future treaties but expressly reserve its right to agree with the treaty partner to suspend particular types of claims, for example regarding public health issues. This compromise approach is already essentially found in investment treaty practice where the claim involves allegations of “expropriatory taxation”.

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Open Letter – Assessing Treaty-based Investor-State Dispute Settlement

Some are concerned about treaty-based Investor-State Dispute Settlement (ISDS), especially binding Investor-State Arbitration procedures in investment treaties and Free Trade Agreements. One response includes public calls for states to eschew such procedures completely in future treaties, for example in the expanded Trans-Pacific Partnership Agreement presently under negotiation. This approach would essentially leave foreign investors to approach local courts if host states illegally interfere with their investments, or to encourage their home states to activate an inter-state dispute resolution process, or to try to negotiate individualised arbitration agreements with host states.
An alternative approach is to identify and address more specific concerns with treaty-based ISDS. An example is the scoping paper and Public Consultation on ISDS generated by the Organisation for Economic Cooperation and Development, over 16 May – 23 July.
As a constructive contribution to this debate, we created an online form asking for views on whether ISDS should be left as is, abandoned completely, or adapted in various listed ways. As explained below, no respondents favoured eschewing ISDS completely. Yet that position represents the policy shift announced by Australia in the “Gillard Government Trade Policy Statement” (April 2011), resulting in ISDS being omitted from the Australia-Malaysia FTA (May 2012) but difficulties in negotiating other bilateral treaties (with Korea, and Japan) and the TPPA. Implications and other topics related to the TPPA negotiations will be discussed at a Roundtable in Canberra on 8 August, hosted by the Crawford School of Public Policy (ANU College of Asia and the Pacific).

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International Commercial Arbitration in Japan and Australia: Addressing Australia’s “Legislative Black Hole” and Comparing Caselaw

Profs Tatsuya Nakamura, J Romesh Weeramantry and myself will present a public seminar at JCAA in Tokyo on 20 July to compare recent developments in jurisdictions that have based their arbitration legislation on the UNCITRAL Model Law (respectively: Japan, Hong Kong and Australia). Below are details of a follow-up seminar on 13 September in Sydney organised by Sydney Law School and hosted by Clifford Chance, where Prof Nakamura will be the main speaker.
Prof Nakamura and I will also participate on 12 September in Brisbane in an interactive AFIA (Australasian Forum for International Arbitration) symposium hosted by Corrs Chambers Westgarth.
These events are part of our joint research project, “Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific“, supported by the Commonwealth through the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade.
Background materials for these three events include:
1. Nakamura, Tatsuya and Nottage, Luke R., Arbitration in Japan (May, 30 2012). ARBITRATION IN ASIA, T. Ginsburg & S. Ali, eds., Juris: NY, Fothcoming; Sydney Law School Research Paper No. 12/39. Available at SSRN: http://ssrn.com/abstract=2070447
2. Garnett, Richard and Nottage, Luke R., What Law (If Any) Now Applies to International Commercial Arbitration in Australia? (May 2012). Sydney Law School Research Paper No. 12/36. Available at SSRN: http://ssrn.com/abstract=2063271
The latter identifies the following serious and growing legislative lacuna that has emerged since Australia revised its framework for international arbitration from 2010:

The amendments to the International Arbitration Act 1974 (Cth) (‘IAA’) enacted on 6 July 2010 aimed to reposition Australia as a leading Asia-Pacific venue for international commercial arbitration. They also aimed to streamline and revitalise domestic arbitration by providing the new template for reforms to the uniform Commercial Arbitration Act (‘CAA’) regime, originally enacted in the mid-1980s based on a more interventionist English law tradition.
Yet the IAA amendments did not clearly indicate whether some were intended to apply to (a) international arbitration agreements, (b) specifying the seat of the arbitration to be in Australia, (c) concluded before 6 July 2010, especially if (d) the parties had expressly or impliedly excluded the UNCITRAL Model Law on International Commercial Arbitration pursuant to the original s21 of the IAA. The present authors had suggested that these amendments, especially s 21 which no longer allows such an exclusion, were not intended or presumed to have retrospective effect. The Western Australian Court of Appeal recently agreed, unlike a Federal Court Judge at first instance, although in obiter dicta in both cases.
This article restates the problems created by the IAA amendments (Part II), analyses Australian case law decided since 6 July 2010 (Part III), and then proposes a way forward – including comparisons with other Asia-Pacific jurisdictions that have recently enacted arbitration law reforms, especially Singapore and Hong Kong (Part IV). It recommends prompt further IAA amendments that: (i) clarify that at least the new s 21 does not have retrospective effect, (ii) limit a persistent tendency among some Australian courts to infer that a selection of arbitration rules amounts to an implied exclusion of the Model Law under the old s 21, and (iii) consider several other reforms addressing other issues left unclear or not covered in the IAA as amended in 2010.
The article also urges reforms to the new uniform CAA regime (including CAA legislation already enacted in NSW, Victoria and South Australia) that ‘save’ old international arbitration agreements satisfying conditions (a)-(d) above. The old CAA legislation, or at least the new CAA regime, should clearly apply to such agreements – otherwise they will fall into a ‘legislative black hole’. That problem arises because states are enacting the new CAAs to apply only to ‘domestic’ arbitration agreements, while simply repealing the old CAAs (which applied also to international arbitration agreements, especially if the parties had agreed to exclude the Model Law as permitted by the old s 21 of the IAA).

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Book Review – Mark D West, “Lovesick Japan: Sex, Marriage, Romance, Law”

Mark D West, Lovesick Japan: Sex, Marriage, Romance, Law (Cornell University Press, Ithaca/London, 2011, viii + 259pp, hardcover US$29, e-version $18.44 via http://www.amazon.com/Lovesick-Japan-Sex-Marriage-Romance/dp/0801449472
[Published in 33 Journal of Japanese Law 253-8 (2012), with a shorter version also in 32(2) Japanese Studies 299-301 (2012).]
This is the third book with “sex” in the title that has been written since 2005 by the Nippon Life Professor of Law at the University of Michigan Law School. Although it is beautifully written in a conversational style, opens up some intriguing insights, and reflects very extensive research, this work is probably the least successful of the three. This reviewer, at least, hopes that Mark West will now divert his formidable talents to examining other areas of Japanese law and society, including further research in the field that initially established his career – namely, “Economic Organizations and Corporate Governance in Japan” (Oxford University, 2004, co-edited with Curtis Milhaupt).
West’s book on “Law in Everyday Japan: Sex, Sumo, Suicide, and Statutes” (University of Chicago Press, 2005) actually did not focus much on sex. But it showed convincingly how law has played important roles in the development of the “love hotel” industry, as in many other areas of everyday life in Japan. His book on “Secrets, Sex and Spectacle: The Rules of Scandal in Japan and the United States” (University of Chicago Press, 2005) contained more sex. But this arose as part of detailed analysis of important differences – and some similarities – in the two countries’ societies and legal systems relevant to scandals, including corporate fraud, baseball cheaters and political corruption. By contrast, West’s latest book on “Lovesick Japan” is full of sex – caveat emptor (buyer beware)!
In this book West pursues the argument that “law matters” in Japan, but in unusual as well as more mundane life situations. Indeed, he argues that “Japanese judges, who have significant discretion, play a surprisingly direct role of arbiters of emotions in intimate relationships” (p9). Further, unlike his earlier works, West focuses predominantly on how Japanese judges write and reason about sex, marriage and “love” more generally, in their publically-available judgments covering a broad array of legal and social topics. He argues that a “state-endorsed judicial view” (p9) emerges not just from the way the legally relevant facts (and sometimes seemingly irrelevant facts) are presented, but also from the legal analysis – with the combination often suggesting broad problems: a “lovesick Japan”. Specifically (p8):

Love, for instance, is highly valued in Japan, but in judges’ opinions, it usually appears as a tragic, overwhelming emotion associated with jealousy, suffering, heartache, and death. Other less debilitating emotions and conditions, including “feelings”, “earnestness” and “mutual affection” appear in unexpected areas of the law such as cases of underage sex and adultery. Sex in the opinions presents a choice among (a) private “normal” sex, which is male-dominated, conservative, dispassionate, or nonexistent; (b) commercial sex, which caters to every fetish but is said to lead to rape, murder, and general social depravity; and (c) a hybrid of the two in which courts commodify private sexual relationships. Marriage usually has neither love nor sex; judges raise the ideal of love in marriage and proclaim its importance, but virtually no one in the cases achieves it. Instead, married life is best conceptualized as the fulfillment of a contract.

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TPP negotiations and the IBA’s Draft Rules on Investor-State Mediation

As NZ lawyer Daniel Kalderimis points out recently, concerns about treaty-based investor-state arbitration (ISA) have been:

stirred up by the release of an “Open Letter from Lawyers to the Negotiators of the Trans-Pacific Partnership Urging the Rejection of Investor-State Dispute Settlement” on 8 May 2012. The letter is backed by well-meaning, and several well-known, signatories; most of whom are not especially well-informed about investor-state arbitration. The fact of the letter is welcome, as the issues are important. But the letter itself contains several overstatements and does not make a balanced contribution to the debate.

Another oddity about the “Open Letter” is that it refers generically to “Investor-State Dispute Settlement” (ISDS) and ends by calling on “all governments engaged in the TPP [Trans-Pacific Partnership FTA] negotiations to follow Australia’s example by rejecting the Investor-State dispute mechanism and reasserting the integrity of our domestic legal processes”. ISDS incorporates both ISA (where the parties agree to be bound by the arbitrators’ decision) and investor-state mediation (“ISM”) or conciliation procedures (where the parties agree to negotiate a settlement but are not obliged to accept any proposals made by the third-party neutral mediator). At least the rest of the “Open Letter” indicates that the primary objection is to binding ISA.
By contrast, the “Gillard Government Trade Policy Statement” (April 2011) simply eschews ISDS in Australia’s future treaties, including the TPP. Perhaps the Statement meant only ISA, which allows greater inroads into host state sovereignty, given that overall it draws on the Productivity Commission’s recommendations from a 2010 Trade Policy Review report. But, by seemingly eschewing all forms of ISA, the Statement seems to go beyond the Commission’s recommendation on ISA itself.
Hopefully the Australian government, other states involved in FTA negotiations (such as the TPP) and those who wish to improve the ISA system (such as myself) or abandon it altogether (as do some signatories to the Open Letter) will not simply transpose their objections over to ISM too. There is significant scope for mediating investor-state disputes, and indeed the Draft Rules on ISM published recently by the International Bar Association (IBA) are a valuable guide to conducting mediation more effectively. Below I set out some preliminary analysis of those Draft Rules, prepared for the Law Council of Australia but representing my own personal views – particularly regarding the scope for arbitrators to adopt them as a means of settling ISA claims earlier and more effectively (ie ‘Arb-Med‘). A fully-footnoted version of my views is available on request, and I encourage feedback.

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Renegotiating Indonesian Investments in the Shadow of International Treaty Law

Written by: Simon Butt, Luke Nottage and Brett Williams
with special thanks (but no responsibility attributed) to Vivienne Bath and Chester Brown (University of Sydney Law School)
[Updated 18 April, with a shorter version at http://www.eastasiaforum.org/]
Indonesia’s new Mining Law regulation requiring divestment of majority foreign investments is unlikely to generate many formal investor-state arbitration (ISA) claims against Indonesia, based on existing bilateral or regional free trade agreements (FTAs) or investment treaties. But that assessment is based primarily on immediate pragmatic considerations. This situation leaves considerable scope for the international investment law framework to begin unraveling, risking complex adverse effects on cross-border investment particularly in the rapidly evolving Asia-Pacific region.

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Divestment of foreign mining interests in Indonesia meets the ‘Gillard Government Trade Policy Statement’

By: Simon Butt and Luke Nottage (University of Sydney Law School)
[with a shorter version at http://www.eastasiaforum.org/]
Professor Chris Findlay recently wrote on the East Asia Forum about ‘Australia’s FDI challenges in the Asian Century’, highlighting problems reported recently by ANZ Bank and Qantas in the region. His proposals including ‘innovation in negotiating modalities’, including a possible new plurilateral agreement in the WTO that would cover all investments (not just in some services sectors). That’s a nice idea, but it’s proving hard enough to complete the current round of Doha Round negotiations. In light also of recent problems in Indonesia, the Australian government should meanwhile reconsider its abrupt policy shift last April regarding an important protection found in most of its bilateral and regional Free Trade Agreements (FTAs) and bilateral investment agreements (BITs): investor-state arbitration (ISA).

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Government lawyers in Korea, Japan and Australia

[Updated 18 April, with a shorter version also on the East Asia Forum blog.]
A few years ago I began a research project into how the Japanese government manages its public and private law cases, working with a former LLM student from Kyushu University and experienced Australian government lawyer, Associate Professor Stephen Green (now at Doshisha University Law Faculty in Tokyo). Our paper was published last year in the Asia Pacific Law and Policy Journal. The second half of the paper is also under review for a special issue of the International Journal of the Legal Profession, focusing on the remarkably under-researched field of government lawyering.
On 6 February this year I stopped over in Seoul to visit prosecutors in Korea’s Ministry of Justice (MoJ), partly to begin comparing how Korea manages similar litigation. Information kindly provided in interviews and follow-up correspondence reveals considerable similarities, but also some significant differences compared to Japan. The backdrop and issues in Australia regarding government litigation services diverge even further, but there is much scope for mutual learning.

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