New York — China claimed Friday that Singapore’s highest court was wrong to conclude last month that Macanese companies are protected by China’s bilateral investment treaty with Laos, a decision reviving an arbitration brought by a casino investor from the Chinese territory of Macao against the Laotian government.

Speaking to reporters during a Friday press conference, a spokeswoman for China’s foreign ministry said that the ruling made by the Singapore Court of Appeal was incorrect, since the geographical scope of application of the China-Laos investment agreement is a question of fact that is up to the contracting parties to decide.

“China has confirmed twice in diplomatic notes that the China-Laos investment agreement does not apply to Macao [special administrative region],” Hua Chunying said, according to a transcript of her speech provided by the Chinese government.

The Singapore court had reached its decision in an appeal lodged by Sanum Investments Ltd., a Macanese entity with a Dutch parent company, which had struck a special tax deal with the Laotian government in 2007 as part of the process of building a gambling resort near the country’s border with Thailand.

The company had demanded arbitration after disputes over taxes and ownership came up, and a Singaporean tribunal found in 2013 that it had the authority to hear the dispute because the once-Portuguese territory of Macao had become part of China in 1999.

Laos challenged the arbitrators’ decision, however, saying letters it exchanged with China in 2014 proved that neither country meant for their treaty to cover Macao when they signed in 1993. A judge of Singapore’s high court accepted the letters and ruled in favor of Laos, but five judges of the Court of Appeal reversed that decision last month, saying the letters didn’t outweigh a bedrock principle of international law known as the moving treaty frontier rule.

Macao is located in China’s southern Guangdong Province, and, like Hong Kong, it is a so-called special administrative region, or SAR. SARs have separate political systems from that of China and their own basic law, and exercise a high degree of autonomy.

According to Chunying, the Chinese government decides whether the international treaties signed by China apply to the SARs based on discussions with their respective governments on the regions’ needs. Otherwise, SARs can sign agreements with foreign countries on their own.

“Therefore, as a principle, the investment agreements between the central government and foreign countries do not apply to SARs, unless otherwise decided by the central government after seeking the views of the SAR governments and consulting with the other contracting parties of the agreement,” she said during the Friday press conference.

In the underlying arbitration, the Laotian government argued that documents including a 1987 declaration by China and Portugal and a 2001 report by the World Trade Organization supported the view that its BIT with China didn’t suddenly extend to Macao. The 2014 exchange of diplomatic letters, which it said took place after informal communications, simply confirmed what had been the case all along, Laos argued.

The Singapore court found otherwise, however. Both parties accepted that customary international law holds that a state’s treaty obligations stretch as far as its sovereignty does, even when its borders change, the judgment said. But the judges said the text of the China-Laos BIT didn’t purport to change that, nor did Laos “otherwise establish” that the rule didn’t apply as it normally would.

Although a lower court saw the 2014 letters as simply confirming what had been clear, the Court of Appeal said the older evidence had supported Sanum’s stance. Accordingly, the judges said, the 2014 letters should be granted “no weight.”

This is not the first time that China has disputed interpretations of treaties it’s signed with other nations. Earlier this year, an international tribunal sided with the Philippines in an arbitration against China over the role of historic rights and the source of maritime entitlements in the South China Sea. In that proceeding, the tribunal was interpreting China’s obligations under the United Nations Convention On the Law of the Sea.

China boycotted the proceedings and refused to accept the ruling when it was issued, saying that it wouldn’t submit to any third party dispute settlement imposed on it regarding territorial issues and maritime delimitation disputes.

Sanum is represented in the Singapore litigation by Alvin Yeo SC, Koh Swee Yen, Monica Chong Wan Yee and Mak Shin Yi of WongPartnership LLP.

Laos is represented in the Singapore litigation by Cavinder Bull SC, Lim Gerui, Darryl Ho Ping and Eunice Chan Swee En of Drew & Napier LLC. The country was represented in arbitration by David J. Branson.

The case is Sanum Investments Ltd. v. Government of the Lao People’s Democratic Republic, civil appeal numbers 139/2015 and 167/2015 and judgment number [2016] SGCA 57, in the Singapore Court of Appeal.

Written by: Caroline Simson

Additional Reporting by: Jack Newsham

Editing by Emily Kokoll

Source: Law360