22 December 2014

Enforcement of ICSID award

Gold Reserve v Venezuela and the enforcement of ICSID awards

In recent years, Latin American states have increasingly resisted The International Centre for Settlement of Investment Disputes (ICSID) state-investor dispute mechanism, which they claim favours investors. One of the key criticisms leveled against ICSID arbitration is the lack of an appeals process and limited annulment procedure for awards rendered under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).

It is worth noting, however, that the ICSID Convention will not apply to all proceedings administered by ICSID. The steps taken by Venezuela and Canadian mining company Gold Reserve since a Paris-seated tribunal issued an award in favour of Gold Reserve in September 2014 provide a useful illustration in this regard.

Gold Reserve's US$740 million ICSID award against Venezuela (the Award)

A Paris-seated tribunal found that Venezuela had breached the fair and equitable treatment standard of the Canada-Venezuela bilateral investment treaty when it terminated Gold Reserve's Las Brisas gold and copper concession.

The tribunal awarded Gold Reserve US$740.3 million, being US$713 million for the fair market value of the Brisas project, $22.3 million for interest since April 2008 and $5 million for reimbursement of the company's legal and technical costs.

The Award was issued under the ICSID Additional Facility Rules as Canada had not yet ratified the ICSID Convention at the time the claim was filed in 2009.

Developments in Paris and Washington, DC

After the Award was issued, Venezuela sought to have it set aside by the Paris Court of Appeal. Gold Reserve then made a cross petition for recognition of the Award by the Paris Court. Two days prior to the hearing scheduled for 27 November 2014, Venezuela filed submissions opposing the company's request for exequatur and, in the alternative, requesting a stay of execution pending the determination of its application for annulment of the Award.

On 26 November 2014, Gold Reserve filed a further petition for recognition of the Award, in Washington, DC. The following day, the Paris Court approved Gold Reserve's request to postpone the hearing until 8 January 2015 to allow the company to respond to Venezuela's request for a stay of execution.

Venezuela was only able to seek the set-aside of the award in the Paris Court because the award was rendered under the ICSID Additional Facility Rules, and not under the ICSID Convention. The Award was therefore subject to the regime of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Although the New York Convention presumes the validity of international arbitration awards and facilitates their recognition and enforcement in the territory of any Contracting States, the national courts of Contracting States retain power to set aside awards on narrowly circumscribed procedural and public policy grounds.

Enforcement under the ICSID Convention

Under Article 54(1) of the ICSID Convention, each contracting state must recognise an award rendered under the ICSID Convention as binding and enforce a monetary award within its territory as though it were a final award of a court in that state. This makes recognition and enforcement easier for an award rendered under the ICSID Convention than for an award governed by the New York Convention.

Awards rendered under the ICSID Convention are not subject to national law. They may only be contested out of court, under the limited review mechanisms in the ICSID Convention.

An application for an annulment of an award under Article 52 (1) of the ICSID Convention is put to a three-member ad hoc committee constituted for that purpose. A party may request an annulment of an award on one or more of the following grounds:

  • That the Tribunal was not properly constituted.
  • That the Tribunal has manifestly exceeded its powers.
  • That there was corruption on the part of a member of the Tribunal.
  • That there has been a serious departure from a fundamental rule of procedure.
  • That the award has failed to state the reasons on which it is based.

An annulment review is therefore a limited exercise, designed to safeguard the integrity of the tribunal, procedure and award, not the outcome of the proceedings. It does not provide for an appeal or retrial of an initial award.

The need to satisfy a high threshold in securing annulments is borne out by ICSID statistics. Those demonstrate that, from 2011 to the end of June 2014, only one ICSID award was successfully annulled in part or in full, while 20 further annulment applications were rejected or discontinued.

Comment

The shorthand term "ICSID arbitration" is generally used to refer to proceedings that fall within the scope of the ICSID Convention. It is important to note, however, that ICSID also administers proceedings under the ICSID Additional Facility Rules and the UNCITRAL Rules. As illustrated by the recent developments in the dispute between Gold Reserve and Venezuela, ICSID awards which are rendered under those Rules rather than under the ICSID Convention will not benefit from the ICSID Convention recognition and enforcement regime; instead, they will be governed by the New York Convention, as implemented in the Contracting State jurisdictions where they are issued or where their recognition and enforcement is ultimately sought. Investors are thus reminded once more of the importance of seeking specialist advice on the investment protections available to them, whether at the stage of deciding how best to structure their investment or before starting formal proceedings.

Please see here for our recent post on the future of investor-state arbitration, or here for a link to a short podcast in which we consider in further detail some of the key issues being debated in relation to investment protection and investor-state dispute settlement (ISDS) and the implications of the outcome for investors investing from one market into the other

For further information, please contact Matthew Weiniger QC, Partner, Naomi Lisney, Associate, London or your usual Herbert Smith Freehills contact.

9 December 2014

Australia and China conclude free trade agreement

On 17 November 2014, Chinese President Xi Jinping and Australian Prime Minister Tony Abbott announced that Australia and China had concluded a free trade agreement that has been under negotiation since April 2005. The ChAFTA is the latest of a series of FTAs concluded by the Australian Coalition Government since coming into power in September 2013,1 reflecting the Government’s policy of promoting 'freer trade, economic infrastructure and private-sector-led growth'.2

Key benefits of the ChAFTA for Australian businesses include:3

  • the removal of tariffs on all resources and energy products, including the immediate removal of the current 3% tariff on Australian coking coal, and the removal of the current 6% tariff on non-coking coal within two years, and
  • Australian law firms will be able to establish commercial operations in cooperation with Chinese law firms in the Shanghai free-trade zone that will be allowed to service the whole of China.

Key benefits of the ChAFTA for Chinese businesses and investors include:

  • increasing the screening threshold for investments in Australia by Chinese private sector entities from A$248 million to A$1.078 billion (though all investment proposals by Chinese State Owned Entities (SOE) remain subject to scrutiny by the Australian Foreign Investment Review Board (FIRB) regardless of transaction size), 
  • the reduction of barriers to labour mobility which will grant skilled Chinese workers temporary entry into Australia for the purpose of providing labour on large infrastructure projects above A$150 million, and 
  • the addition of 5,000 working holiday visas provided for Chinese for entry to Australia on an annual basis.

Further features of the ChAFTA include:

  • a built-in review mechanism of the FTA after 3 years that will allow for further liberalisation, including expansion of market access over time, 
  • an Investor State Dispute Resolution (ISDS) mechanism that will enable foreign investors to invest with greater confidence and will also include safeguards to protect each Government’s ability to regulate in the public interest, 
  • Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation, and 
  • in addition to the conclusion of the ChAFTA, China and Australia signed a Memorandum of Understanding (MOU) on 17 November 2014 designating an official RMB clearing bank in Sydney.  This will allow overseas trading of up to RMB 50 billion in Australia for the first time improving the efficiency of cross-border transactions.

The full article was written by Donald Robertson, Partner, Leon Chung, Partner, Edwina Kwan, Senior Associate, Kate Lindeman, Solicitor, Sydney and Qingqing Bu, Trainee Solicitor, Beijing.

Endnotes
  1. See our articles on the Korea-Australia FTA, Text of Korea-Australia FTA released – ISDS provisions revealed and the Japan-Australia Economic Partnership Agreement.
  2. Tony Abbott, Address to the Business Council of Australia 30th Anniversary Dinner, Sydney, 4 December 2013.
  3. For further details, see Key Outcomes.

11 November 2014

Extension of time for the Queensland Rail 2008 undertaking

On 5 November 2014 Queensland Rail requested an extension to the termination date of QR Network’s (2008) June 2010 Access Undertaking (2008 Access Undertaking), which is currently set to expire on 31 December 2014. QR requested this extension following submission of Queensland Rail’s Draft Access Undertaking 1 (AU1) which is proposed to replace the 2008 Access Undertaking. As AU1 is currently still in the process of being approved by QCA, QR has requested that the 2008 Access Undertaking be extended until the earlier of:
  • 30 June 2015, or
  • approval of the replacement access undertaking.

QCA has commenced its investigation into QR’s extension request, and stakeholders of the 2008 Access Undertaking are invited to make submissions by 5pm 11 November 2014. If no objections are raised, QCA has said they will proceed directly to a final decision on the question of the extension.

QR’s request can be found here.

To upload a submission, please click here.

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.

30 October 2014

Cth: High Court clarifies builders’ duty of care to developers and owners for economic loss

In brief

Earlier this month, the High Court of Australia delivered its judgement, unanimously overturning the NSW Court of Appeal, in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The High Court held that the builder of an apartment complex did not owe a common law duty of care to the Owners Corporation to avoid causing it economic loss resulting from latent defects in the building’s common property.

Background

Brookfield Multiplex Ltd (Builder) was engaged by a developer to design and construct an apartment complex on land in Chatswood, NSW, which the developer owned. The developer sold the lots in the building to various purchasers who, upon registration of the relevant strata plan, collectively became the Owners Corporation. Following formation of the Owners Corporation and sometime after the building was completed, latent defects were discovered in the common property.

The Owners Corporation brought a claim against the Builder in an effort to recover the losses it had incurred rectifying the various latent defects. Despite detailed provisions relating to quality and defects liability in the design and construct contract, the Builder’s liability for latent defects was excluded (following Final Completion). As such, the Owners Corporation confined its claim to common law negligence alleging that the Builder owed the Owners Corporation a duty to avoid causing it economic loss. 

Almost a year ago, the NSW Court of Appeal found in favour of the Owners Corporation on the basis that the Builder owed a duty of care to avoid causing loss resulting from latent defects in the common property which were structural or constituted a danger to persons or property in the vicinity or made the apartments uninhabitable. 

Decision

Earlier this month, the High Court overturned that decision. After highlighting the distinction between claims for economic loss (as in this case) and claims for damage to persons or property, French CJ noted that the relevant test for economic loss claims involves an assessment of whether the suing party was vulnerable to suffering the loss the subject of the claim. 

French CJ held that the complex contractual arrangements (that clearly considered the risk of defects) between the Builder and developer as well as the developer and the purchasers (for whom the Owners Corporation acted) evinced a lack of vulnerability on the part of the developer and, consequently, the Owners Corporation. Hayne and Kiefel JJ reached a similar conclusion and further added that it was open to the purchasers (and, by extension, the Owners Corporation) to have bargained for contractual protections against loss caused by latent defects. The High Court held that the lack of vulnerability on the part of the Owners Corporation’s was fatal to its case and that the Builder did not owe the claimed duty of care.

Implications

While this decision is an important step towards clarifying this area of law, whether or not a particular relationship will give rise to a duty of care will depend on the salient features of the parties’ relationship, and in particular any contracts between the parties and any statutory overlay.

A fundamental reason for the High Court’s decision in this case was the fact that neither the developer nor the subsequent purchasers were vulnerable. They were able to protect their interests via their contractual arrangements and a failure to take that chance was not something to be repaired by the common law. 

For further information, please contact Jay Leary, Partner, Roger Allingham, Solicitor, Brisbane, or your usual Herbert Smith Freehills contact.

8 October 2014

The Liberian mining law reform and the impact of the Ebola crisis

Despite its relatively small size (approximately 110,000km with a population of four million people), Liberia, the oldest republic in Africa, is a resource-rich country with significant deposits of iron ore, gold and diamonds.

The West African mining industry is facing significant headwinds from the combined effect of:

  • the Ebola virus outbreak, which has caused the death of 3,439 people, including 2,069 in Liberia, as of 30 September 2014 according to the World Health Organization,
  • the depressed iron ore price, which has decreased by more than 30% over the last year, and 
  • the increased pressure on the financing and refinancing of greenfield projects in developing countries.

This has caused:

  • a reduction of growth projections for the region: the Liberian government and the World Bank have halved growth estimates for the mining sector and the overall economy for this year and medium term prospects are likely to be worse if the crisis is not quickly contained, and
  • various challenges for a number of iron ore and gold companies and contractors operating in the region, which has led a number of them to declare force majeure.

Despite these difficulties, Liberia's mining potential is considered to be very promising given that:

  • Liberian soil is yet to be fully explored,
  • the country is still recovering from a 14-year long civil war that ended in 2003 (before the civil war, Liberia was the number one iron producer in Africa and the fifth largest exporter of iron ore in the world), and
  • its mining industry is still transitioning from artisanal to industrial mining. 

In line with a number of resource-rich West African countries, Liberia has been planning to revise its 24-section long 2000 Minerals and Mining Law (2000 Mining Law) since 2012 in order to boost the state's share of resource profits, as well as transparency and accountability.

The 2000 Mining Law was enacted during the presidency of Charles Taylor and replaced the Natural Resources Law of 1956. Although it was amended in 2004 to include a new chapter on the 2003 United Nations' Kimberley Process Certification Scheme and was supplemented by comprehensive Exploration Regulations in 2010, it has often been described as out-dated, unclear and not very detailed in certain respects (e.g. the differences between class A, B and C mining licenses).

Despite the Ebola crisis, which has hit Liberia the hardest because it has spread to the densely populated zones of Monrovia, this mining reform appears to remain on the Government's agenda.

The main objectives of this reform are to:

  • harmonise the 2000 Mining Law with a number of laws, including the 2010 Public Procurement and Concession Act Law and the 2000 Revenue Code (as amended in 2011) and the 2009 Liberia Extractive Industries Transparency Initiative (LEITI) Law,
  • switch from a concession-based system to a license-based system and reduce carve outs from the prevailing legislation that are currently available under the 2000 Mining Law on the basis of negotiated mineral development agreements for major projects,
  • increase local content requirements, and
  • improve cooperation between the various governmental departments and agencies involved in the mining sector.

This reform is supported by the German International Cooperation agency (GIZ) and the World Bank and is based, inter alia, on the following policies and documents:

  • the 2013 LEITI post award process audit,
  • the 2010 Mineral Policy guidelines,
  • the 2009 African Union's Africa Mining Vision guidelines, and 
  • various recommendations from the World Bank's Extractive Industries Technical Advisory Facility.

This reform is driven by an Inter-Ministerial Steering Committee chaired by the Ministry of Lands, Mines and Energy, and largely managed by Deputy Minister Sam Russ, and includes representatives from the Ministries of Justice, Finance, Planning and Economic Affairs, Labour and Internal Affairs and of the Environmental Protection Agency, the Public Procurement and Concession Commission, the National Bureau of Concessions, the Law Reform Commission and the National Investment Commission.

Pre-drafting consultations were conducted in 2013 in order to seek the views of various stakeholders including local authorities, local communities, political parties, the private sector, donors and development partners.

The first draft of the proposed new mining law was produced by two external experts (Philip James Kelly, lawyer, and Patrick William Gorman, mining engineer) together with a team of local experts and was circulated to operators for comments in late 2013.

Further consultations are likely following the production of the second draft.

This extensive consultation process is a positive step in the implementation of the reform.

One of the key issues that the new mining law will need to cover is the transitional and, possibly, grandfathering regime that will apply upon the new law entering into force – companies currently operating in Liberia will be particularly interested in any guarantee that mining rights granted prior to the new law will be maintained, especially if a mineral development agreement was entered into with the state.

The timeframe for the next steps and, possibly, the content of the new law itself, may be impacted by the development of the Ebola crisis. It will be interesting to compare the final version of this new law with the mining laws recently enacted by Liberia's three neighbouring countries over the past five years (Sierra Leone in 2009, Guinea in 2011 and 2013 and Ivory Coast in 2014).

For further information please contact Yann Alix, Senior Associate, London or your usual Herbert Smith Freehills contact.

19 September 2014

Korea-Australia Free Trade Agreement Update

On 4 September 2014, the Australian Joint Standing Committee on Treaties (Committee) submitted its report and recommendation on the adoption of the Korea-Australia Free Trade Agreement (KAFTA) as Australian law.

The majority of the Committee supported the adoption of KAFTA as Australian law, and recommended that binding treaty action be taken by the Australian Government. The Committee was satisfied that the implementation of KAFTA would provide substantial economic benefit to Australian businesses, industry and the broader community. In particular, the report states that:

“KAFTA is expected to be worth $5 billion in additional income to Australia between 2015 and 2030 and to provide an annual boost to the Australian economy of approximately $650 million after 15 years of operation. In its first year of operation, it is expected to create 1,700 jobs. 84 per cent of Australia’s current exports (by value) will enter Korea duty free. In addition to substantial tariff reductions, KAFTA is expected to significantly increase market access and improve Australia’s competitive advantage for a range of Australian exporters.”


KAFTA aims to facilitate increased bilateral investment between both countries by, among other things, increasing the monetary threshold before which Korean investments (in non-sensitive sectors) are reviewed by Australia’s Foreign Investments Review Board (FIRB). KAFTA also provides an investor-state dispute settlement (ISDS) framework. ISDS provisions generally provide protections against political risks such as expropriation of investment assets or profits and discrimination as between cross-border and national investors.

The Senate Standing Committee on Foreign Affairs, Defence and Trade is reviewing KAFTA and is expected to table its report by 4 October 2014.

The full text of the Committee’s report is available here. Further articles on KAFTA can be found here.

For further information, please contact Lewis McDonald, Partner, Seoul, Shane Kyriakou, Partner, Melbourne or Robert de Boer, Partner, Sydney or your usual Herbert Smith Freehills contact.

10 September 2014

Reporting by extractive companies on government payments – early UK implementation from 1 January 2015

Two EU Directives were passed in 2013 which mandate annual reports on payments to governments by companies in the extractive industries which are incorporated or listed in the European Union.

The UK government has issued its response paper following its consultation on implementing the provisions of the Accounting Directive. It sets out how those aspects of the law over which EU Member States have some control, including timing of implementation of the requirements, format and timing of publication of reports, and the penalty regime, will be addressed in the UK.  The UK Financial Conduct Authority has also now issued its corresponding consultation paper (CP14/17) on amendments to the Transparency Rules to implement the equivalent provisions in the Transparency Directive and apply them to companies listed in the UK.

In the UK, the requirements will be implemented earlier than required and will apply to listed and other large extractive companies for financial years beginning on or after 1 January 2015.

We have produced detailed briefings on the EU Directives and on early UK implementation. If you would like a copy of either or both, please contact Sarah Hawes, Professional Support Consultant, London.

1 September 2014

A new mining law for Mozambique

The Mining Law 20/2014 of 18 August 2014 (the New Mining Law) came into force in Mozambique on 22 August 2014 replacing the previous mining regime under Mining Law 14/2002 of 26 June 2002 (except in relation to mining contracts that were in force prior to 22 August 2014).1

The New Mining Law was precipitated by the broad political consensus that Mozambique and its citizens have not benefitted sufficiently from the increase in mining activity and investment in Mozambique. It was developed based on the Government's 2013 Policy and Strategy for Mineral Resources (Resolução No 89/2013 de 31 de Dezembro) which, although continuing to identify foreign investment as a key factor, makes it clear that creating benefits for Mozambican nationals is the primary goal of legislative reform. It is also designed to bring mining legislation in Mozambique in line with international best practice.

The New Mining Law is expected to have far reaching consequences for investors in the mining sector in Mozambique. Key changes to the mining regime made by the New Mining Law include:
  • the provision that new mining contracts must provide for State participation in the mining operations (no minimum of maximum percentage participation is specified),
  • the introduction of local content requirements; non-nationals must "associate" themselves with a Mozambican national in order to provide goods and services to mining operators,
  • the introduction of domestic supply obligations that give the Government the right to buy minerals at market price for use in the local industry if Mozambique's commercial interests so require,
  • a broad provision that all transfers of mining rights, whether direct or indirect, are subject to approval by the Ministry of Mineral Resources (MIREM),
  • the introduction of signing bonuses for mining concessions awarded through public tender;
  • the requirement that the details of new mining contracts (except for strategic and competitive information) must be published in Mozambique's Official Gazette (Boletim da República),
  • the discontinuation of the tax stabilisation provision which featured in the previous mining law. The New Mining Law explicitly excludes matters relating to tax from mining contracts. This may mean the Government will no longer be able to provide tax stability or deductibility undertakings in mining contracts,
  • the reduction of the maximum period for exploration licences from 10 to 8 years. and
  • the introduction of a requirement for concession holders to start production within 48 months of the issuance of a mining concession. Under the previous law, production had to be started within 36 month of the issuance of a DUAT (right to use and enjoy land) and an environmental permit. 
The New Mining Law will apply in tandem with other relevant legislation; for example, a new tax regime for Mining Production Tax is due to be approved in the near future. In addition, the law on Public Private Partnerships, Large Scale Projects and Company Concessions 15/2011 of 10 August 2011 (the Mega Projects Law), although not specific to mining, will still apply to mining projects.

Herbert Smith Freehills is not qualified to advise on Mozambique law. This article is based on our literal reading of the new law, and our practical experience of working on mining projects in Mozambique.

Endnote
  1. A mining operator may opt for its pre-existing mining contract to be governed by the new law or if a pre-existing contract and the previous law are silent on aspects that are dealt with in the New Mining Law, then the New Mining Law shall apply to those parts of the relevant contract.
For further information, please contact Adekanmi Lawson, Solicitor and Kemi Adekoya, Trainee Solicitor, Paris or your usual Herbert Smith Freehills contact.

15 August 2014

Infrastructure charges reform: An update on changes and commencement

The provisions of the Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Act 2014 (Qld) (Amendment Act) which amended the Sustainable Planning Act 2009 (Qld) (SPA) and the South-East Queensland (Distribution and Retail Restructuring) Act 2009 (SEQ Water Act) commenced on 4 July 2014 implementing amendments to the infrastructure charging provisions in the SPA and the SEQ Water Act.

The Amendment Act is a part of the Queensland Government’s long-term reforms to the Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Bill 2014 (Qld) (Bill).

The Amendment Act contains various amendments to the Bill. The key amendments include the following:

  • Where a refund applies for an infrastructure offset, the infrastructure charges notice must state when the refund will be given. An applicant’s appeal rights are also extended to the timing for giving the refund.
  • Making it clear that cross crediting is mandatory. For example, an infrastructure offset which accrues for the delivery of road infrastructure can be claimed against the whole infrastructure charge (not just the portion of the infrastructure charge which a local government allocates to road infrastructure).
  • Requiring a charges resolution or a board decision to include criteria for deciding a conversion application which must be consistent with parameters under a guideline made by the Minister and prescribed by regulation.

A full article about the Amendment Act has been prepared by John Ware, Partner, Brisbane and Matthew Soden-Taylor, Senior Associate, Brisbane, and can be read here.

1 August 2014

Women in Resources Victoria Event – Panel discussion examining the competitiveness of the Australian resources industry

On 17 July 2014, Women in Resources Victoria held a panel discussion examining the competitiveness of the Australian resources industry.  The event was very well attended and topical in light of recent industry and media discussion of the current challenges facing the resources industry and the Government’s focus on the regulatory environment.

The panel discussion was chaired by Mr Michael Catchpole, Chief Executive of The AusIMM and featured the following eminent speakers (listed in order of speaking): Kate Vidgen, Executive Director at Macquarie Capital, Brooke Miller, CFO of BP and Karen Stoffels, General Manager Finance at MMG.  Each speaker examined the topic from a different perspective.
  1. Key factors affecting resource investment choices in Australia against overseas locations (Kate Vidgen, Macquarie Capital) - Ms Vidgen spoke about the key factors affecting resource investment choices in Australia against overseas locations.  Ms Vidgen observed that there is currently ‘a wall’ of new capital seeking investment in the resources sector and therefore the challenge for Australia was to capitalise on its competitive advantages.  In considering the attractiveness of Australia as a location for investment, Ms Vidgen examined a number of commonly cited perceptions (i.e. increased sovereign risk, lack of cost competitiveness and lack of infrastructure) and critically assessed the extent to which they were in fact grounded in reality. In short, Ms Vidgen concluded that many of these common perceptions were not accurate and opportunities existed for Australia to further leverage its competitive strengths, particularly in the area of innovation.
  2. The Three C's of Competitiveness: Cost, Capability and Curiosity (Brooke Miller, BP) - Ms Miller also observed that there is currently an enormous opportunity in the market provided the right resources and conditions can be brought to bear.  In relation to the creation of the right conditions, Ms Miller identified the following three factors:
    • Creation of a ‘cost culture’ – this is not about focusing on always being the cheapest; instead, it requires an intelligent and strategic examination of the nature of the costs being incurred (aided by good tracking and a constant awareness of changes in the environment) and the extent to which they are linked to a company’s value proposition. However, equally, in the resources industry a focus on safety is essential.
    • Increased capabilities – in particular, the advent of new technology and ‘big data’ which is now driving analytics will continue to change the way business is done and provide opportunities for innovation.
    • Curiosity – Ms Miller observed that in comparison with other countries, Australia has a real competitive advantage in terms of being prepared to challenge the status quo which often results in innovation.
  3. Choosing the right skills base and diversity mix within the work force to maximise productivity (Karen Stoffels, MMG) - Ms Stoffels discussed the challenges of creating a collaborative and productive work environment in circumstances where team members are from diverse backgrounds.  Ms Stoffels identified a number of strategies that she has successfully used in the past to bridge cross-cultural issues when managing a team located in a different country including: establishing a common purpose or goal by face-to-face meetings and agreeing on a long-term strategy up-front, adopting an inclusive approach that allows all team members to feel that they have had an opportunity to contribute, and identifying a ‘trusted adviser’ with local knowledge who is able to explain the unique differences of doing business in a particular country.  
Following the debate, Mr Catchpole moderated a question and answer session from the audience that prompted further interesting discussion of a variety of issues including the likely impact of the current Government’s new policies and how best to institutionalise a culture of innovation.

For further information, please contact Jennifer Galatas, Senior Associate, Melbourne, or your usual Herbert Smith Freehills contact.

24 July 2014

English High Court judgment in ongoing Zambian dispute

On 15 July 2014, the High Court in London handed down a further judgment in the ongoing dispute between Konkola Copper Mines (KCM) and U&M Mining Zambia Ltd (U&M).

KCM owns a number of mines on the Zambian copper belt.  It is a Zambian company majority owned by Vendanta Resources Plc, which is listed on the London Stock Exchange.  The remaining stake in KCM is held by a company which is in turn majority owned by the Government of the Republic of Zambia.

The Government also holds a Golden Share.  U&M, which is a Zambian subsidiary of a Brazilian mining conglomerate, was contracted from around 2007 to operate one of KCM's mines.  From 2012, a number of disputes arose between the parties in relation to their various contractual arrangements, including in relation to invoices allegedly unpaid by KCM.

In common with other disputes between locally incorporated mining companies with parents in the UK or elsewhere, action has been taken in more than one jurisdiction.  The parties' disputes were referred to arbitration at the London Court of International Arbitration and there have been related court proceedings in Zambia, Brazil and London.

It appears from the English High Court judgments that there are currently several outstanding arbitral awards against KCM, totalling in excess of USD56 million, but that KCM is resisting enforcement of the first award in Zambia and brought proceedings in the English court seeking to challenge the second award on various grounds.  

It was the dismissal of KCM's challenge to that second award that was the subject of the latest English High Court judgment.  In another decision some two weeks prior, KCM had been directed to pay security for U&M's costs of defending that challenge. Of interest was the Court's reasoning that KCM, which was found itself to have insufficient liquid funds to pay U&M's costs and no assets in the jurisdiction, could not rely on the significant financial strength of its LSE listed parent to defeat the application as there were no undertakings in place from that parent company.

This is an engaging though apparently bitterly fought dispute and we will await any further developments with interest.

This article was written by Joanne Keillor, Senior Associate, London.  For further information please contact Joanne Keillor or your usual Herbert Smith Freehills contact.

11 July 2014

Japan-Australia Economic Partnership Agreement signed, text released

On Wednesday, 9 July, Japanese Prime Minister, Shinzo Abe, and Australian Prime Minister, Tony Abbott, signed the Japan-Australia Economic Partnership Agreement (JAEPA).

Following domestic approval processes in Australia and Japan, the JAEPA will come into force and 99.7% of Australia’s exports of resource, energy and manufacturing products will benefit from duty-free enter into Japan. All of Australia’s current resources, energy and manufactured goods exports with benefit from duty-free entry into Japan on full implementation of the JAEPA.

The JAEPA does not include investor-state dispute settlement (ISDS) provisions, offering cross-border investors protection against political risks such as expropriation of investment assets or profits and discrimination between cross-border investors and national investors.

The original article was prepared by Leon Chung, Partner, and Kate Lindeman, Solicitor, Sydney, and can be read here.

7 July 2014

ICSID claim filed against Indonesian Government

On 1 July, PT Newmont Nusa Tenggara and its majority Dutch shareholder Nusa Tenggara Partnership BV, announced that they have filed international investment arbitration proceedings against the Indonesian Government to seek relief from export restrictions that have halted production at the Batu Hijau mine and are said to have inflicted hardship and economic loss on PT Newmont Nusa Tenggara’s employees, contractors, and other stakeholders.

The claimants allege that the government’s imposition of new export conditions, a new export duty and a ban on the export of copper concentrate breach PT Newmont Nusa Tenggara’s Contract of Work with the Indonesian Government, and the bilateral investment treaty between Indonesia and the Netherlands. The claimants have indicated that they will seek interim injunctive relief, so that work at the mine can resume.

This claim follows an announcement earlier this year that Indonesia intended to cancel all of its 67 bilateral investment treaties, and draw up new treaties. The bilateral investment treaty between Indonesia and the Netherlands was among the first to be cancelled, with effect from July 2015 (though a sunset clause in the treaty means it will continue to apply for a period after that).

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.

4 July 2014

Baosteel and Aurizon in control of Aquila Resources

On Thursday, 3 July, Aurizon announced that Baosteel Resources Australia and Aurizon Operations (the Bidders) entered into a Takeover Implementation Agreement (TIA) with Aquila Resources (Aquila) to facilitate the change in control and management of Aquila to the Bidders.

Tony Poli (chairman and largest shareholder of Aquila) has agreed to sell his 28.9% stake in Aquila (a condition of the TIA), increasing the Bidders’ stake to 69.3%.  Mineral Resources also agreed to sell its $12.8% stake after failing to secure a merger deal with Aquila.

Under the TIA, Tony Poli and two directors of Aquila, Gordon Galt and Denise Goldsworthy, will resign from the Aquila board on or before 11 July and four of the Bidders’ nominees will be appointed.

The remaining 30% of Aquila shareholders have until 25 July to accept the $1.4b ($3.40 per share) bid.

Read the announcement and TIA here.

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.

26 June 2014

Clive Palmer and Al Gore team up in a remarkable day for carbon in Australia

Yesterday was a remarkable day here for carbon-related issues.

Clive Palmer has substantially changed position. He won’t support Direct Action - he says that it ‘is a waste of money’. Nor will he support the abolition of various key existing carbon-related statutory agencies or the Renewable Energy Target. What he now advocates is the implementation of an emissions trading scheme (ETS), but one which will be ‘zero-rated’ until Australia’s major trading partners (5  named countries including the US and China) have ‘equivalent’ schemes. He says that he will ‘move amendments’ to the Government’s Bills to do these things. He announced all of this to journalists gathered in the Great Hall of Parliament in the company of no less than Al Gore, both of whom left without taking or answering any questions. There will be plenty of them today.
 
It appears that he is now advocating a variation on what Rudd announced in July 2013 – an early move to the ‘flexible’ phase of carbon pricing, only a ‘zero-rated’ one. Milne of the Greens has picked up on this saying that she and her party will support moving to the market-based ‘flexible’ phase of carbon pricing under the Clean Energy Act in FY2014-2015 rather than FY2015-2016 as currently proposed.        

Labor has said this morning, through shadow environment Minister Mark Butler, that Labor went to the last election promising to get rid of the fixed carbon price and to move straight to the emissions trading scheme, and that it therefore has no trouble with the repeal of the fixed price but that it does have a problem with the repeal of a meaningful ETS.

Recently, Xenophon and others have made noises that the issues raised by the Government’s Bills are too complex and important to be decided in haste in the first weeks of a new Senate. Palmer’s actions yesterday will add weight to these calls.

Palmer’s position, if maintained, means that it’s likely that the Government’s Bills will be defeated in the Senate, a prospect which was unimaginable until yesterday.

Meanwhile, the Clean Energy Act remains in force unamended.

Stay tuned!

This article was written by John Taberner, Consultant, and Michael Voros, Special Counsel.

For further information, please contact John Taberner, Michael Voros, or your usual Herbert Smith Freehills contact.

13 June 2014

Bright future – the key factors driving economic growth in sub-Saharan Africa

The African market will continue to thrive thanks to increased availability of capital and investment in natural resources, power and infrastructure.

Since 2008 the world economy has undergone significant strain, which has had an effect on growth across all regions. However, in the face of these global headwinds, domestic supply shocks and civil conflict, Africa has been resilient. Of the 10 fastest-growing global economies in 2012, seven are in sub-Saharan Africa (SSA).

Natural resources
Persistently high commodity prices elsewhere in the world in recent years have resulted in renewed demand for Africa's abundant natural resources. This demand is evidenced by the increased foreign investment in the oil and gas sector in several SSA countries such as Kenya, Uganda and Mozambique, with relative success thus far.

Tullow drilling wells onshore in Turkana, Kenya have exhibited good results and declared commerciality with a circa 5,200 barrels-per-day flow rate; Mozambique has been the subject of a natural gas discovery of 100 trillion cubic feet (mainly in the offshore Rovuma Basin); and oil and gas exploration activities in Uganda have had an unprecedented 90% drilling success rate, with 58 of the 64 exploration and appraisal wells drilled in the country to date encountering oil and/or gas.

Accessibility to funding
The increased availability of capital for small and medium-sized enterprises has contributed to economic development in SSA by stimulating sectors that have traditionally been the backbone of growth in countries that do not rely on natural resources. For example, historically SSA's agricultural sector has struggled to access the financing required to sustain growth, with the cost of extending traditional banking infrastructures in rural areas deterring many banks and financial institutions from providing financing for the sector.
However, this gap has been filled, to a large extent, in recent years through private equity funding. This has become more available in SSA as governments move to relax or suspend laws that restrict repatriation of funds or impose currency controls. According to the Emerging Markets Private Equity Association, total private equity capital raised for SSA in 2012 was $1.4bn (£830.3m), with agribusiness proving one of the primary draws.

Infrastructure and power
Power and infrastructure has also become a key investment sector, and is both an opportunity for foreign investors and an essential ingredient in the continued development of many African countries. Interest in infrastructure investments seems only likely to grow, with recent figures from the Commonwealth Business Council showing an average 15%-20% return on investments in SSA infrastructure projects across all sectors.

Successful implementation of the Nigerian power sector privatisation – seen by many as one of the boldest privatisation initiatives in the global power industry over the last decade – may create further investment opportunities in SSA. Other countries may follow the lead of Nigeria and accept that, under certain circumstances, there is no continuing case for retention of infrastructure in public hands and that the constant need for state-owned enterprises to take into account non-commercial and political considerations will ultimately hinder the efficient provision of much-needed power and infrastructure, with consequential long-term detrimental impacts to the interests of consumers and taxpayers.

If continuous efforts to tackle poverty, corruption, inadequate infrastructures and political instability are successful in SSA, the region can expect to see continued economic growth.

This article was written by Gavin Davies, Partner, London and Aleem Tharani, Senior Associate, Kenya.

For further information, please contact Gavin Davies, Aleem Tharani or your usual Herbert Smith Freehills contact.

2 June 2014

The possible consequences of the termination of Indonesia’s Bilateral Investment Treaties

The Government of Indonesia recently indicated to the Dutch embassy in Jakarta that it intends on terminating all of its existing bilateral investment treaties starting with its treaty with the Netherlands. Indonesia has entered into bilateral investment treaties with over sixty counties including Australia, China, Singapore and the United Kingdom.

The outright removal of any future treaty protection for investments in Indonesia is of considerable concern to existing and prospective investors. In the absence of this treaty protection, the only remaining recourse for many investors are the Indonesian courts or diplomatic channels.

Some commentators have suggested that Indonesia instead intends to use the termination as a means of renegotiating the terms of all the bilateral investment treaties. However this appears unlikely as it would involve separate discussions with over sixty nations regarding investment protections.

If Indonesia did terminate all of its bilateral investment treaties without substituting them for alternative arrangements, the consequences for investors would not be immediate. Many of the bilateral investment treaties will still not expire for a number of years and Indonesia is not able to terminate them until their expiry. Further, many bilateral investment treaties have 'sunset periods' during which investors can continue to rely on the protections in the treaty.

Indonesia continues to be a signatory to a number of multilateral investment treaties. These will continue to afford protection to investors through international tribunals. The protections and dispute resolution mechanisms under Indonesian investment law also continue to apply.

Despite there being a number of alternative protections for investors, this recent news changes the investment landscape in Indonesia. Investors are advised to carefully consider how their investments are structured in order to ensure that they remain protected in the future.

The full article, written by Haydn Dare is available here.

For further information, please contact Haydn Dare, Senior International Counsel, Jakarta or your usual Herbert Smith Freehills and Hiswara Bunjamin & Tandjung contact.

30 May 2014

Building and Construction Industry Payments Amendment Bill 2014 (Qld)

On Wednesday, 21 May, the Queensland Government introduced the Building and Construction Industry Payments Amendment Bill 2014 (Qld) (Bill) to amend the Building and Construction Industry Payments Act 2004 (Qld) (Act) and referred it to an undisclosed Parliamentary Committee for review.

The Bill seeks to amend the Act to address the significant issues raised by stakeholders and align with the three key areas of reform, being:
  • Appointment of adjudicators and the adjudication process,
  • Amendments of the timeframes for claimants and respondents, and
  • Provision of additional information in the adjudication response.
The proposed amendments to the Act are:
  • The Queensland Building and Construction Commission will keep a central registry of claims to monitor performance and refer to adjudicators (resulting in a reduction of fees),
  • The time to make a claim will be reduced to 6 months from the date of the work being carried out,
  • For complex claims (i.e. more than $750,000 or claims for a latent condition or time related cost), a respondent will now have 15 days (currently 10 days) to provide a payment schedule. The time to respond will be increased to 30 days if the payment claim for a progress payment is served more than 90 days after the date for which a progress payment claim can be made,
  • A respondent will now have 10 days (currently 5 days) to provide an adjudication response and will be extended to 15 days for complex claims,
  • The definition of ‘business days’ will exclude the three days before Christmas up to 10 days after New Year’s Day, and
  • For complex claims, the respondent can include reasons for withholding payment (however, this can be taken into consideration by the adjudicator when apportioning the adjudication fees).

The Bill can be read here.
The Explanatory Notes can be read here.

For further information, please contact Jay Leary, Partner, Brisbane or your usual Herbert Smith Freehills contact.

21 May 2014

Insurers raising the bar on flood insurance claims

The Queensland 2010/11 wet season was even wetter than 2008, with insurers raising the bar on making insurance claims for flooded pits by increasing the policy excess, re-defining an ‘event’ to mean any single 72 hour period of rainfall, and placing commodity price caps on the coal prices on which the profit margin is calculated.  This meant that our client needed to identify production impacts off more than a million tonnes of lost coal and substantiate very low true variable costs of production in order to substantiate an insurance claim above the excess. After a considerable amount of work with mining engineers and forensic accounts, we were able to prepare a substantiated claim submission for submission to the insurers. Although insurers initially assessed the losses at below deductible, a reasonable approach was taken on both sides and a ‘settlement summit’ with the 3 lead insurers was arranged in Singapore in May 2014.

Why Singapore? As a half-way point between our Australian based client and the European based lead insurers, Singapore was chosen as a neutral venue where executives from both sides could come to meet with a singular focus on negotiating a resolution without the distractions of their home office. After several days of negotiations, the claim was settled for a gross value in the hundreds of millions before application of the excess.

Mark Darwin, the HSF partner who handled several flood coal mine claims, is now involved with the ‘Mining Insurance Group’ recently formed on the initiative of a number of London based insurers, brokers, adjusters and lawyers to seek to reach consensus on a re-draft of the standard ISR policy into a form more suitable to the mining industry. We will keep HSF Blog readers updated on developments.

If you would like to know more about this initiative please contact Mark directly on +61 7 3258 6632.

19 May 2014

Women in Mining

On 1 May 2014, with over 120 attendees, Herbert Smith Freehills (London office) hosted the inaugural "Copper: Bears vs Bulls" debate, organised by Women in Mining (WIM) in collaboration with the Association of Mining Analysts (AMA).

Copper is the highest value base metals product and offers the greatest diversity of use, and so has often been considered the 'bellwether' of the commodity market.  In comparison to other metals, copper offers the widest divergence of opinion as to its current status and future, and so the debate canvassed views on the outlook for copper demand and price in the short to medium term.

Chris Welch (Chairman of the AMA) moderated the debate, with panellists Paul Dewison (SNL Financial), Robin Bhar (Societe Generale) Olivia Ker (BlackRock) and Bruce Always (Thomson Reuters).

Some key discussion points emerged during the debate and Q&A from the floor:

  • There was a debate about whether copper consumption will increase or decrease in the future. Various factors such as a growing electronics market, general growth in building works in emerging markets and the potential uses of anti-bacterial copper for medical purposes were raised. 
  • This needs to be weighed against future available supplies of copper, both in the form of scrap/existing stock and in the form of new production.  
  • There was also a lot of discussion about the ability to bring new projects on line. Factors such as the decrease in exploration by mining companies, access to financing, availability of road/rail, power and water for projects, increased regulatory restrictions and political risks were discussed.

Jennifer Bell, a partner in the HSF London mining practice, who arranged hosting of the event with WIM together with Rebecca Major (partner in the HSF Paris office), commented "We were delighted to host this informative and lively debate, with so many industry participants, for WIM and AMA.  The panellists distilled complex issues to provide a real insight into the tensions in the copper market, both currently and in the mid-term".

For further information, please contact Jennifer Bell, Partner, London or Rebecca Major, Partner, Paris or your usual Herbert Smith Freehills contact.

12 May 2014

Warkworth Extension Project – Court of Appeal upholds LEC’s decision to overturn Part 3A approval

The NSW Court of Appeal has recently delivered a judgment upholding a decision by the NSW Land and Environment Court to overturn the Part 3A approval granted for the Warkworth Extension Project.

The judgment contains important lessons about objector merits appeals against mining projects and other major projects.

It raises the question:
‘What should you be doing to protect your projects?’

The full article, written by Peter Briggs is available here.

For further information, please contact Peter Briggs, Partner, Sydney or your usual Herbert Smith Freehills contact.

To view a full list of Environment and Planning Insights click here.

9 May 2014

Aurizon and Baosteel join forces in a bid for Aquila Resources

On Monday, 5 May, Aurizon announced a $1.4 billion joint off-market bid with Baosteel to acquire 100% of the share capital of Aquila Resources Limited.

Baosteel is one of China’s leading iron and steel producers and currently has a 19.7% stake in Aquila Resources. According to mining analyst, Adrian Prendergast, this move would give Baosteel a solid foothold in the Pilbara alongside Rio Tinto, BHP Billiton and Fortescue who are currently dominating the Pilbara.

Aurizon’s CEO, Lance Hockridge, and Baosteel’s Chairman, Dai Zhihao, said they believe the offer is compelling for Aquila’s shareholders because it provides them with certainty of value at an attractive cash premium.

Aurizon and Baosteel are confident that there will not be a counter bidder with a higher offer.

The deal is subject to approval from the Foreign Investment Review Board.

The announcement and investor presentation can be viewed here.

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.

5 May 2014

Paraguay set to re-enter Mercosur

On 29 June 2012, Argentina, Brazil and Uruguay elected to suspend Paraguay’s participation in the South American trade bloc, Mercosur, following removal of Paraguayan President, Fernando Lugo. Simultaneously, Argentina, Brazil and Uruguay admitted Venezuela as a full member of Mercosur, knowing that if Paraguay’s consent were to have been sought, it would have been rejected.

Paraguay is now set to re-enter Mercosur after President Cartes assumed office on 15 August 2013 and made the reintegration of Paraguay a top priority. President Cartes has had a policy of upholding the international rule of law and proceeded with a far-reaching campaign of diplomatic shuttling between capitals, resulting in a political solution at the end of 2013.

Paraguay’s adherence to democratic principles has not changed since 2012. Since the appointment of President Cartes, Argentina, Brazil and Uruguay have expressed their desire to reinstate the Paraguay to the Mercosur, which highlights the arbitrary nature of the decision to suspend Paraguay in the first place.

The treatment of Paraguay also illustrates a lack of harmony in what is intended to be a regional integration institution, lack of international support, and Mercosur’s dubious interpretation of a “democratic breakdown”. The issue of what can result in a country being suspended from Mercosur has not been resolved.

There are a number of questions over the institutional integrity of Mercosur. Mercosur will (like all countries) naturally encounter further domestic challenges; however, the international standards that Mercosur should endorse are yet to be defined.

The full article, written by Christian Leathley is available here.

For further information, please contact Christian Leathley, Partner, London or your usual Herbert Smith Freehills contact

16 April 2014

BCIPA Amendments

On 9 April Tim Mander, the Minister for Housing and Public Works, released a media statement on the proposed amendments to the Building and Construction Industry Payment Act 2004 (Qld) (Amendments). The Amendments are intended to improve the process of resolving disputes by making it fairer and more transparent.

The Amendments have been approved by the Cabinet and are being debated by parliament mid-year. It is intended that the Amendments will apply to construction contracts entered into after midnight 1 September 2014.

The Amendments are:

  • The Queensland Building and Construction Commission will keep a central registry of claims to refer to adjudicators,
  • The time to make a claim will be reduced to 6 months from the date of the work being carried out,
  • Different timeframes to respond will be offered for larger or more complex claims (e.g. there will be extra time to respond for claims of more than $750,000 or claims involving latent conditions or time costs),
  • The payment schedule for large or complex claims will be due in 15 business days (not 10),
  • The definition of ‘business days’ will exclude the three days before Christmas up to 10 days after New Year’s Day, and
  • There will no longer be a requirement that a respondent’s Adjudication Response be confined to matters raised in its payment schedule.

View the media statement here.

View the Amendments fact sheet here.

For further information, please contact Jay Leary, Partner, Brisbane or your usual Herbert Smith Freehills contact.



11 April 2014

EU Reporting by mining (and other extractive) companies on government payments - Early UK implementation

Two EU Directives were passed in 2013 which require annual reports on payments to governments by companies in the extractive industries (mining, oil and gas and logging).

The UK government has now published a consultation paper on the early adoption of the EU requirements under one of the two Directives: the Accounting Directive.

The UK implementation will apply not only to large UK incorporated companies (large is defined by meeting 2 of 3 minimum criteria) and all UK incorporated listed companies, but also UK companies which are subsidiaries of overseas registered companies.

Once (and if) rules are implemented under the Dodd-Frank Act in the USA, for example, the European Commission has the capacity to designate it as an equivalent regime (which could exempt companies from the reporting requirement), although it is not clear in any event whether this recognition would be reciprocated.

Here is a link to our briefing summarising the main features of the proposals for UK implementation.

Responses to the UK consultation are due in a short timeframe - by 16 May 2014.

For further information, please contact Jennifer Bell, Partner, London, or your usual Herbert Smith Freehills contact

31 March 2014

Indonesia indicates intention to terminate all of its Bilateral Investment Treaties?

According to the Netherlands Embassy in Jakarta, Indonesia has informed the Netherlands that it has decided to terminate the Bilateral Investment Treaty between the two nations from 1 July 2015. The Embassy also states that “the Indonesian Government has mentioned it intends to terminate all of its 67 bilateral investment treaties“.

Nearly all Bilateral Investment Treaties expressly stipulate a period of time during which the agreement is in force; most commonly, 10 years. Either Contracting State is then allowed to terminate the treaty after that initial period. If notice of termination is not given then, the treaty will provide for the agreement to remain in force for a further period. In the case of the Netherlands, its BITs usually provide for a further 10 year extension and require notice of termination to be given at least twelve months before the expiry of the current period of validity. However, under what is known as a 'sunset clause', existing investors are then still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period after the BIT’s termination. In the case of the Netherlands-Indonesia BIT the ‘sunset’ will last for a 15 year period.

It is not clear whether this move to terminate the Indonesia-Netherlands BIT is the first in a programme of terminations as the Netherlands Embassy suggests. The Indonesia-Netherlands BIT is the oldest of Indonesia’s BITs and the intention may simply be for Indonesia to negotiate a more “modern” Investment Treaty, providing for more clearly defined protections and dispute resolution provisions.

However, it would not be surprising if the Churchill Mining Plc v Indonesia cases (ICSID Cases ARB/12/14 and 12/40) have prompted more sweeping action by the Indonesian Government. Churchill and Planet Mining Pty began arbitration against the Indonesian government in May 2012 at ICSID in Washington. On 24 February 2014 the ICSID Tribunal rejected Indonesia’s jurisdictional challenges leaving Churchill free to proceed with a claim for damages of not less than US$1.05bn, excluding interest. This decision has caused outrage in Indonesia.

If the Indonesian government has decided to begin a programme of terminating its BITs, this would be a bold move. However, it would not be without precedent. South Africa has begun a similar programme of termination, terminating its BIT with Belgium-Luxembourg in 2012 and issuing cancellation notices for its BITs with Germany and Switzerland. Nor are these countries alone in expressing concern about the availability of investor-state dispute settlement. Australia has previously indicated its reluctance to agree to such mechanisms. Just last week, Germany announced that it did not want investor-state dispute settlement provisions included in a trade agreement between the United States and the European Union.

Termination of its BITs does not, however, indicate that Indonesia is withdrawing from all investment protection obligations and mechanisms. Even if all its BITs were terminated, Indonesia would still be subject to its obligations under ASEAN. Furthermore, Indonesia has also expressed interest in joining the Trans Pacific Partnership (or TPP), should that proceed.

In its 2013 report, UNCTAD noted the possible future trend away from bilateral arrangements and towards wider, regional, multilateral agreements involving greater economic integration and free trade obligations. It will be interesting to see whether Indonesia’s move prompts yet more nations to follow suit. If they do, we may well be looking at a dramatically different investment protection picture in future.

For further information, please contact Craig Tevendale, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

6 March 2014

How to navigate dispute resolution in Africa

As investment continues to flow into the continent, the number of disputes is also rising
Over the last decade investment into Africa from foreign companies, financial institutions and private equity groups has soared, while investment between African countries is also increasing. For those willing and able to seek out its opportunities, Africa represents the world's largest emerging market, but there are several factors that are particular to doing business in the continent that mean the scope for dispute resolution will inevitably increase.

For instance:

  • Governments may seek to revisit past legislation or renegotiate agreements with a view to obtaining higher revenues
  • As the 'soft law' obligations of companies are increasingly on the radar of governments and civil rights organisations, disputes could arise where companies are alleged to have made investments without due care for the rights and concerns of local communities
  • Disputes may also be caused by dealings with governments that are under international censure or sanctions regimes, or with unethical officials in legitimate governments

Commercial issues

Before resorting to litigation or arbitration in Africa, there are several commercial issues that should be considered. First, it is important for companies to assess their framework of operations, as there could be existing or potential projects in the country that militate against getting into a full-blown dispute.

Second, the publicity of litigation may play into the hands of competitors, as there could be plenty of other investors ready to step into disputing parties' shoes.

Third, the majority of disputes in Africa are resolved through commercial settlement, with companies and states alike preferring negotiation over the uncertainties of litigation or arbitration.

Finally, legal technicalities often carry greater weight in African jurisdictions than in Western proceedings, so the relative strengths of parties' legal positions need to be factored in with care.

Litigation

It is not always possible for international companies to confine the conduct of litigation to their own shores. African state entities that enter into contracts may require that any disputes are resolved before their local courts applying local law, or by domestic arbitration.

While many jurisdictions have well-developed legal systems with commercially minded and experienced judges, local courts in some countries suffer from delays, protracted appeal and enforcement processes, and judiciaries that are less well-equipped or used to dealing with complex international transactions.

The civil court structures across all African jurisdictions generally have a predictable hierarchy. Local courts typically derive jurisdiction from the sum in dispute, with higher courts being reserved for larger disputes. Almost all jurisdictions have a Court of Appeal and Supreme Court (or equivalent).

Aside from the civil court system, traditional courts often play a major role in rural areas. Village elders or specialist lower courts may determine property disputes under customary law, and in some jurisdictions the application of customary law permeates throughout the entire court system.

Arbitration

Many investors are reluctant to expose themselves to proceedings in local courts with which they are unfamiliar, and hence the neutrality, choice of rules and venue and confidentiality of arbitration are attractive.

There are several jurisdictions where local laws provide the necessary legislative and judicial support for onshore arbitration, but in other jurisdictions less experienced judiciaries and untested legislation point to offshore arbitration being the better choice.

Regardless of whether offshore or onshore arbitration is chosen, its chief advantage is the ability to enforce an award.

This article was written by Stéphane Brabant, Partner, John Ogilvie, Partner and Paula Hodges, Partner, at Herbert Smith Freehills.

3 March 2014

Spotlight on the EPBC Act

Late-2013 saw plenty of activity around environmental assessment under the Environment Protection and Biodiversity Act 1999 (Cth) (EPBC Act).

On 16 October 2013, the Minister for the Environment announced a three-step framework for the implementation of the Federal Government’s ‘one-stop-shop’ policy. Meanwhile, on 20 December 2013, the Department of the Environment released new Significant Impact Guidelines, relating to the recently introduced ‘water trigger’ amendments.

These new developments are most relevant to proponents of developments requiring both State and Commonwealth environmental assessment and approval in Australia. In particular, the new Guidelines will be relevant for proponents of Coal Seam Gas (CSG) developments or large coal mining developments.


This alert provides an overview of the EPBC Act.

24 February 2014

New NSW Case on Duty to Report a Pollution Incident

A recent decision of the NSW land and Environment Court sheds new light on the duty to report a pollution incident under section 148 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act). In Environment Protection Authority v Bulga Coal Management Pty Limited [2014] NSWLEC 5 Justice Pain held that the duty to report does not arise until the defendant is actually aware that the incident is of a type which should be reported. While section 148 has recently been amended to require ‘immediate’ notification, it is likely to be interpreted in the same way. In practice, this means that:

  • if a pollution incident occurs during the carrying on of an activity by a company, the company’s internal processes can be followed to assess whether or not the pollution incident caused or threatened to cause material harm to the environment, and
  • the duty to notify the pollution incident to the EPA will only be triggered once the company (by its employees) is in fact aware that the pollution incident caused or threatened to cause material harm to the environment.

Click here to read more.

18 February 2014

The National Access Regime - Productivity Commission Final Report released

On 11 February 2014, the Federal Government released the Productivity Commission’s (PC) Final Report into the National Access Regime (Regime).

In large part, the Final Report adopted the PC’s key recommendations set out in its Draft Report released in May 2013.

While the PC concluded that the current Regime should be retained, it did recommend that amendments be made to four of the five declaration criteria in order to reflect its view that the Regime should only apply in exceptional circumstances.

This Alert provides an overview of the Final Report.

14 February 2014

Abbott Government announces a Royal Commission into Trade Union Governance and Corruption

On Monday 10 February 2014 a Royal Commission into Trade Union Governance and Corruption was announced.

The terms of reference for the Royal Commission into Trade Union Governance and Corruption are expressed very broadly. The Prime Minister Tony Abbott has said the inquiry will be able to go wherever the evidence leads it.

Companies and employers who have had dealings with unions are potentially within the scope of the inquiry, and should familiarise themselves with the terms of the inquiry and how they might become involved.

This update provides an overview of the inquiry, including the powers of the Commissioner.

6 February 2014

Qld: GBRMPA approves dumping of dredge spoil from Abbot Point capital dredging program

On 31 January 2014, the Great Barrier Reef Marine Part Authority (GBRMPA) approved North Queensland Bulk Ports Corporation’s (NQBP) application to dispose of dredge spoil within the Great Barrier Marine Park.

The Abbot Point capital dredging program (Project) which was approved by the Environmental Minister, Greg Hunt, on 11 October 2013 (see blog post of 13 December 2013), involves the removal of 3 million cubic meters of spoil in respect of Terminals 0, 2 and 3.

In reaching the decision to approve the proposed dumping, GBRMPA noted that:
  • allowing the Project to proceed as planned would help contain development to existing ports,
  •  the strict environmental conditions imposed on the Project by the federal government would help to protect the reef, and
  •  it would support the use of an alternative site if one is found to be equal to, or better, in terms of environmental or heritage outcomes.

The approved disposal site is located approximately 25 kilometres east-north-east of the Port of Abbot Point, while the investigation zone being assessed for alternative locations is located 20 to 30 kilometres from the area being dredged.

Nevertheless, all dredge spoil is required to be tested by accredited laboratories to ensure that there are no contaminants in the dredge spoil prior to the commencement of dumping. No contaminants have yet been identified.

NQBP has welcomed the approval and has committed to abiding by the strict environmental conditions.


For further information, please contact Jay Leary, Partner, Roger Allingham, Solicitor, Brisbane or your usual Herbert Smith Freehills contact.

22 January 2014

Calls for the EU to help prevent conflict funded by exploitation and trade of minerals in Democratic Republic of Congo (DRC)

In 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (Dodd-Frank). Section 1052 of the Dodd-Frank, which relates to ‘conflict minerals’, aims to prevent violence and violation of human rights that are funded by exploitation and trade of certain minerals (such as gold, columbine-tantalite, cassarite and wolframite – referred to as the ‘3TG’) in the DRC and surrounding countries. Section 1052 of the Dodd-Frank is seen by some as being flawed as (in their view) it unfairly stigmatises Central African states and requires companies to declare minerals as ‘not conflict free’ resulting in companies withdrawing from business.

Global Witness, an international organisation which investigates and campaigns to prevent natural resource related conflict, is now pushing the EU to implement legislation that builds on section 1052 of the Dodd-Frank. The proposed legislation would require companies doing business in the DRC and surrounding countries to conduct supply chain due diligence and meet the Organisation for Economic Co-operation and Development’s guidelines for Multinational Enterprises. This will ensure that companies only stop sourcing minerals from mines where human rights abuse is taking place, rather than excluding entire regions.

Herbert Smith Freehills Partner and Co-Chair of the International Bar Association CSR Committee, Stéphane Brabant, agrees it is time for change. ‘No company wants to be faced with allegations that its use of minerals has funded conflict and contributed to human rights violations,’ he says. ‘Such allegations would damage the reputation of the company and ultimately the success of the business […]. By being proactive, companies are better able to anticipate human rights issues and defend against allegations of complicity in abuses.’

To read the full article on the International Bar Association website, click here to be redirected.

For further information, please contact Stéphane Brabant, Partner, or Jay Leary, Partner, or your usual Herbert Smith Freehills contact.

17 January 2014

Red tape reforms to assist mining industry in Victoria

The Victorian Government have announced a number of “red tape reforms” designed to reduce regulatory burdens on business in Victoria.

The mining industry will be impacted by four of these reforms:


  • Native vegetation offsetting on public land: Currently native vegetation offsets for private land clearing can be sourced only on private land. The government reform will allow native vegetation offsetting on public land, making it cheaper and easier for businesses to meet their native vegetation offsetting obligations.
  • Reduced rehabilitation bonds: Currently, rehabilitation bond requirements for mining licence or extractive industry work authority holders require the provision of 100% bonds upfront. Under the government’s reform, where the risk of default is low and additional liability to the Government is minimal, reduced rehabilitation bonds of up to 50% will be allowed during the start-up phase of new mining and quarrying projects. Further, as an alternative to bank guarantees, the government will accept a cash bond for individual bonds up to $10,000, reducing costs and barriers to entry.
  • Streamlining of the return of bonds for land rehabilitation: Currently, the process for the return of rehabilitation bonds in the mining sector is protracted. The government reform will simplify the bond return process to ensure that bonds are returned as soon as possible following the successful conclusion of landowner consultation.
  • Transition from paper-based to online administration of mining exploration licences: Currently, the administration of mining exploration licences is paper-based. The government reform will move mining application and reporting systems online. It will also enable online searches for existing licences and online applications for new licences.


While relatively limited in scope, these four regulatory reforms are likely to be welcomed by those involved in the energy and resources sectors in Victoria.

For further information, please contact Myra Stirling, Senior Associate or Liam Hickey, Solicitor, Melbourne, or your usual Herbert Smith Freehills contact.

10 January 2014

Hong Kong: The new Hong Kong Companies Ordinance

Hong Kong’s new Companies Ordinance (Ordinance) will come into effect on 3 March 2014. The new Ordinance introduces a number of changes that impact, among other things, company meetings, resolutions, the execution of documents and communications with shareholders.

Key changes that will be introduced include:

  • time periods for holding AGM’s will be required to be set by reference to the company’s accounting reference date,
  • a company will be able to dispense with AGMs with unanimous consent;
  • the threshold for demanding a poll will be reduced from 10% to 5% of members having the right to vote,
  • general meetings will be able to be held at multiple locations,
  • there will be clearer rights and obligations regarding proxies (including that all members will be allowed to appoint a proxy),
  • a new statutory procedure for proposing, passing and recording written resolutions will be established;
  • directors’ conduct that amounts to negligence, default, breach of duty or breach of trust will have to be approved by disinterested shareholders,
  • the requirement for a mandatory company seal will be abolished;
  • the indoor management rule will be codified, and
  • new provisions governing communication to and from companies in electronic and hard copy form will be introduced (including provisions that set out deemed receipt).

In preparation, Hong Kong companies should:

  • plan ahead for the next AGM to ensure that it is held in accordance with the Ordinance requirements;
  • review their Articles of Association to assess whether any changes are desirable to take account of the new provisions in the Ordinance, and
  • consider whether to continue to use the company seal and review internal controls and policies on execution of documents.

Please click here for the full report.

For further information, please contact Austin Sweeney, Partner, or your usual Herbert Smith Freehills contact.

7 January 2014

Qld: Court of Appeal considers the meaning of ‘construction work’ under the BCIP Act

On 20 December 2013, the Queensland Court of Appeal delivered its judgement, finding for the appellant, in J & D Rigging Pty Ltd v Agripower Australia Ltd & Ors [2013] QCA 406.

The dispute arose out of a contract between the parties to dismantle a number of large treatment and storage tanks (Plant) on land subject to a mining lease near Cape York. The appellant, who was engaged to dismantle the Plant, claimed $3.1 million for the work it had performed. When the respondent did not pay the claimed amount, the matter was adjudicated pursuant to the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act). The adjudicator awarded the appellant an amount just over $2.5 million.

The respondent brought proceedings in the Supreme Court seeking to have the adjudicator’s decision declared void on the basis that the dismantling of the plant was not ‘construction work’ as defined in the BCIP Act and, therefore, that the adjudicator did not have jurisdiction to determine the dispute.
The Supreme Court held that the dismantling of the Plant was not ‘construction work’ under a ‘construction contract’ and consequently the adjudicator’s decision was void. In coming to that finding the Supreme Court noted:
  •  the meaning of ‘construction work’ in section 10 of the BCIP Act includes ‘dismantling of buildings or structures, whether permanent or not, forming, or to form, part of the land’,
  • ‘land’ in section 10 of the BCIP Act (which defines ‘construction work’) does not include mining leases,
  • the Plant may have formed part of the mining lease, and
  •  the Plant did not ‘form part of the land’ within the meaning of section 10 of the BCIP Act and therefore the BCIP Act did not apply.

The Court of Appeal unanimously overturned the Supreme Court’s decision which, in effect, resulted in the reinstatement of the adjudicator’s decision. Their Honours held that:
  • the phrase ‘forming, or to form, part of the land’ in section 10 of the BCIP Act should be interpreted in accordance with its ordinary meaning which does not import the requirements of the law of real property (in respect of the ownership of things affixed to the land),
  • while a mining lease may not be legally characterised as ‘land’, the actual land on which the building, structure or plant is affixed does not change its character by reason of the existence of a mining lease,
  • section 10 simply requires consideration of the physical characteristics of the thing that has been (de)constructed or is to be (de)constructed and the thing’s relationship to the land which will determine whether it forms part of that land for the purposes of the BCIP Act, and
  • the Plant formed part of the land and the contract between the parties was to carry out ‘construction work’ within the meaning of the BCIP Act.

The decision clarifies that work undertaken on mining tenements or petroleum and gas tenements (by analogy) will not be excluded from the operation of the BCIP Act on the basis that the tenement holder has no estate or interest in the land. Principals engaged in construction contracts will be subject to the BCIP Act adjudication regime (regardless of their interest in the land) if the building, structure or plant the subject of the contract forms part of the physical land upon which it is (or will be) situated.


For further information, please contact Jay Leary, Partner, Roger Allingham, Graduate, or your usual Herbert Smith Freehills contact.