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Myanmar takes an important step by agreeing to sign up to the New York Convention

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19 March 2019

On 5 March 2013 the Parliament of the Republic of the Union of Myanmar agreed to sign up to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. This bulletin explains why this commitment to sign up to the New York Convention could change the landscape of dispute resolution in Myanmar. It considers how investors can draft dispute resolution clauses and structure investments to both benefit from the changing legal regime, and to protect their investments in the interim.

On 5 March 2013 the Parliament of the Republic of the Union of Myanmar (Myanmar) made an important commitment to the modernisation of the regime for foreign investment; it agreed to sign up to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention).

The New York Convention is the foundation for the modern international arbitration regime. It obliges its signatory states, which now include close to 150 states, to recognise arbitration agreements and arbitral awards made in other signatory states. It is hard to overemphasise the importance of the New York Convention, if properly implemented, to improving the means available to foreign investors in Myanmar for the protection and enforcement of their legal rights.

This bulletin explains why Myanmar's commitment to sign up to the New York Convention could change the landscape of dispute resolution in Myanmar. It also considers how investors can draft their dispute resolution clauses and structure their investments to not only take the benefit of the changing legal regime, but to protect their investments in the interim.

The shape of the current dispute resolution landscape in Myanmar

The legal regime in Myanmar, which is descended from the English common law system, has seen little material development since independence in the late 1940s. Whilst the government in Myanmar has indicated that change is on the way, foreign investors still harbour concerns about an antiquated court system and a judiciary with little or no prior exposure to complex commercial financial transactions.

Foreign investors may harbour concerns about the potential for corruption. The statistics do little to disabuse this: Transparency International ranked Myanmar 172 out of 176 in its 2012 Corruption Perceptions Index.

For these reasons, foreign investors are cautious of relying on the local courts in Myanmar to protect their investments and are looking for an alternative.

Domestic arbitration in Myanmar offers little in the way of further comfort. The Myanmar Arbitration Act of 1944 (the 1944 Act) sets out the arbitration regime which applies to domestic arbitrations seated in Myanmar and arbitration agreements which are governed by Myanmar law. The 1944 Act is outdated and requires modernisation in order to provide even minimal reassurance for investors that their investments can be protected. By way of example, the courts have the power to rule that an arbitration agreement ceases to have effect where a court has removed all of the arbitrators (effectively placing the ability to continue arbitration in the hands of the courts) and the 1944 Act imposes short time limits for the conduct of proceedings that are unlikely to be workable for complex disputes.

Under the 1944 Act, the courts in Myanmar have a role in supporting arbitral proceedings and are entitled to intervene in certain circumstances. However, the Myanmar courts have previously shown a worrying attitude towards arbitration and have even refused to acknowledge an arbitration agreement on the basis that it attempted to eliminate recourse to the courts1. Foreign investors will not, therefore, find domestic arbitration in Myanmar under the 1944 Act an appealing prospect.

Litigating offshore and enforcing onshore in Myanmar

Given the outdated court system and domestic arbitration regime in Myanmar, it would be unsurprising if foreign investors would look to offshore alternatives such as: (1) an exclusive jurisdiction clause for a court with a strong judicial reputation, such as London or Singapore; or (2) international commercial arbitration. However, both options come with a significant health warning. While a foreign investor may secure a well reasoned court judgment or arbitral award against a Myanmar counterparty, they could very well struggle to enforce it in Myanmar.

Foreign court judgments

Usually a state would have some agreements with other states for the reciprocal enforcement of foreign judgments of that other state. This would create a favourable regime for the enforcement of judgments from one state in the other. One could seek to take advantage of this by agreeing to litigate in one state (where there is greater comfort with their court system) and enforce in the courts of the other. However, Myanmar is currently not a party to any such reciprocal enforcement agreements.

Nevertheless, it is in theory possible to enforce a foreign court judgment in the Myanmar courts provided it is final and binding. However recent authority is unavailable to show this occurring in practice and so what approach the courts would take is unknown. Investors cannot be reasonably confident that any foreign court judgment will be enforced in the Myanmar courts.

International arbitral awards

Unlike foreign court judgments, there is at least a regime for the enforcement of international arbitral awards in Myanmar. The difficulty is that it is very outdated, and consequently unreliable.

Myanmar's Arbitration (Protocol and Convention) Act 1937 gives effect to the now largely obsolete Geneva Convention on the Execution of Foreign Arbitral Awards 1927 (the Geneva Convention). The Geneva Convention was the precursor to the New York Convention, and was replaced by the New York Convention in 1958 precisely because the Geneva Convention was in need of modernising. That of course was over 50 years ago.

While the Geneva Convention remains in force, and awards can be enforced under it, the enforcement regime is rarely used because parties prefer to rely on the New York Convention. The Geneva Convention has two main disadvantages.

First, the grounds on which a court can refuse to enforce an arbitral award are significantly broader; i.e. not just the public policy of the country in which it is being enforced (a ground of objection which also exists in the New York Convention), but also "the principles of the law of the country in which it is sought to be relied upon". The difficulty with this is that it gives greater scope to the enforcing court to re-consider the findings of the arbitral tribunal. As parties will generally agree that the decision of the arbitral tribunal will be final and binding, this is a significant disadvantage.

Secondly, it provides that an arbitral award will be recognised where it is made pursuant to an arbitration agreement which is covered by the Geneva Protocol on Arbitration Clauses 1923 (the Protocol). In order for the arbitration agreement to be covered by the Protocol, it must be entered into by parties subject to the jurisdiction of different signatory states to the Geneva Convention. This means that if an investor is entering into an arbitration agreement with a Myanmar counterparty and wants to be able to take advantage of the Geneva Convention regime, it should ensure that it does so through an entity which is subject to the jurisdiction of the Geneva Convention. In Asia, Thailand is a signatory to the Geneva Convention and Protocol, as is India but with certain limitations. Signatory states outside Asia include the United Kingdom, the Netherlands and Switzerland.

Therefore, while if an investor is seeking to take advantage of the New York Convention it should ensure that the arbitration is seated in a New York Convention state, whereas if it is seeking to take advantage of the Geneva Convention regime, it should ensure that it enters into the relevant agreement through an entity which is subject to the jurisdiction of the Geneva Convention.

The New York Convention: opening the door to a modern dispute resolution regime

The recent step taken by the Myanmar Parliament to commit to the signing of the New York Convention is crucial to giving foreign investors an effective remedy for the enforcement of their rights against a Myanmar counterparty. It means that there are two viable options: (1) international commercial arbitration between private parties; and (2) international arbitration under investment treaties against Myanmar.

International commercial arbitration

The significance of the New York Convention for private parties is that if an arbitral award is obtained in one signatory state, it can be enforced in another subject to limited exceptions. As there are close to 150 signatories to the New York Convention, this creates a lot of options as to where parties may resolve their disputes and bring it back to be enforced in Myanmar. It will also mean that Myanmar is bound to recognise and respect agreements to refer disputes to international arbitration which should mean that there is less scope for counterparties to cause the court of Myanmar to interfere with the arbitral process.

As already noted, a party can ensure that it will have a New York Convention award by providing that the seat (the judicial place of the arbitration) is in a signatory state to the New York Convention.

For sophisticated parties, the seat should not only be situated in a signatory state to the New York Convention, but also in a jurisdiction where the courts have a proven record of being arbitration-friendly and experienced in dealing with arbitration-related matters. Commonly agreed seats include Singapore, Hong Kong and London.

Investment treaty protection

The Myanmar commitment to sign up to the New York Convention also opens the door to the possibility of investment treaty protection to foreign investors.

Investors are increasingly looking to structure their investments to take advantage of the protections found in Bilateral Investment Treaties (BITs) and Multilateral Investment Treaties (MITs). These treaties aim to encourage investment flows through the creation of a stable and favourable investment environment. They do this by guaranteeing certain remedies where an investor suffers harm due to state interference with their investment. This avenue is very relevant to those investing in Myanmar as the investment environment is historically unstable and a commitment to long-standing reform is not yet proven.

While each treaty is unique, BITs and MITs typically include the following investor protections:

* protection from expropriation or nationalisation of investments without compensation;
* fair and equitable treatment of investors by the state;
* full protection and security of investments;
* national treatment and most favoured nation treatment (requiring the state to treat investors no worse than its own nationals or investors from third states); and
* the right of investors to repatriate the investment and returns.

Myanmar is currently a signatory to six BITs, of which three (with China, India and the Philippines) are in force2. In order to take advantage of these BITs investments need to be structured so that they are made by investors from the counterparty state; so in this case investors from China, India and the Philippines3.

Myanmar is also a signatory to an important regional MIT with its neighbours in the Association of Southeast Asian Nations (ASEAN); the ASEAN Comprehensive Investment Agreement (the ACIA). The aim of the ACIA is to create a free and open investment regime to increase the economic integration of the members of ASEAN. It contains the key investor protections normally found in investment treaties. Investors from the ASEAN states are able to take advantage of the protections given under the ACIA; namely Brunei, Cambodia, Indonesia, Lao, Malaysia, Philippines, Singapore, Thailand and Vietnam.

Currently the ACIA applies to the manufacturing, agriculture, fishery, forestry, mining and quarrying sectors, although it may have a broader scope in the future as the member states can agree to give the same protections in relation to other sectors.

For those who are able to structure their investments to take advantage of the Myanmar BITs in force and the ACIA, these protections could be particularly helpful given the minimal investor protections and lack of dispute resolution mechanism in the recently adopted Foreign Investment Law (2012, Union Parliament Law No. 21). This only provides protection against nationalisation without sufficient cause (see our client bulletin 'Myanmar enacts new foreign investment law' dated 14 November 2012). It is also worth noting that many investment treaties provide that an investment can be made indirectly as well as directly. This can be very helpful in structuring the transaction. Specialist advice should be sought on structuring an investment to ensure that protection is available under a BIT.

The reason that the New York Convention makes the prospect of relying on investment treaty protection more realistic is that an investor s rights under a BIT or MIT are typically enforced against a state through international arbitration.

The Myanmar/China BIT, the Myanmar/India BIT and the ACIA provide that claims made by investors against Myanmar can be brought through international arbitration. The Myanmar/Philippines BIT makes no provision for international arbitration making it difficult for investors to enforce their rights under this BIT, although protection may be available to investors from the Philippines under the ACIA.

The China/Myanmar BIT and the ACIA provide that disputes may be referred to arbitration at the International Centre for Settlement of Investment Disputes (ICSID). ICSID arbitration is regarded as advantageous because ICSID arbitral awards are enforceable in signatory states in the same way as a judgment of a court of that signatory state: an enforcement regime which is even more favourable than the New York Convention regime. However, Myanmar is not a party to the ICSID Convention4.

Therefore investors will probably wish to rely on provisions in the applicable BITs and the ACIA for ad hoc arbitration (in some cases under the UNCITRAL Rules), or in the case of the ACIA, international arbitration at a regional arbitration centre, which could include the Singapore International Arbitration Centre or the Kula Lumpur Regional Centre for Arbitration Centre for example.

Any arbitral award issued as a result of one of these non-ICSID international arbitrations could be enforced in Myanmar under the New York Convention (when it comes into force) provided the arbitration is seated in a signatory state to the New York Convention. It is for this reason that the commitment of Myanmar to sign up to the New York Convention paves the way for enforcement of an investors rights under the BITs and the ACIA5.

Planning for the present as well as the future

For the reasons explored above, entering into the New York Convention will be an important step for Myanmar in shoring up the trust of foreign investors into the country. However, this is still only the first step. The Myanmar arbitration legislation will need to be reformed to give effect to the New York Convention in domestic law. Crucially the judiciary will also need to reassure foreign investors that it will interpret the guarantees enshrined in the New York Convention in keeping with international best practice.

Until the New York Convention is signed and ratified by Myanmar and given full effect to domestically, investors in Myanmar still face considerable risks. The question is therefore how should foreign investors best structure any investments made now in order to take advantage of the proposed changes while protecting them in the interim.

While specialist advice should be sought for individual transactions, investors entering into transactions with Myanmar counterparties where assets are likely to be in Myanmar may take into account the following recommendations:

* International arbitration is the best option for the resolution of private contractual disputes both in the short and the long term. It is to be preferred to either the Myanmar courts or domestic arbitration in Myanmar.
* In the short term, while not ideal, investors may need to enforce an international arbitral award in Myanmar under the Geneva Convention. Consequently the counterparty to the arbitration agreement should be subject to the jurisdiction of a signatory state to the Geneva Convention and Protocol; for example Thailand, England, the Netherlands or Switzerland.
* Investors should look to take advantage of the New York Convention when it comes into force by providing that the seat of the arbitration is in a signatory state to the New York Convention which has a pro-international arbitration reputation such as Hong Kong, Singapore or London.
* Investors would also be advised to select well recognised and established institutional rules for arbitration (such as LCIA, ICC, SIAC or HKIAC) and advised to include specific provision for governing law of the arbitration agreement (such as London, Singapore or Hong Kong).
* Investors should consider structuring their transactions so as to take protection of the BITs in force between Myanmar and China and India or one of the ACIA signatory states; although note that investor protection under the ACIA is currently restricted to the following sectors: manufacturing, agriculture, fishery, forestry, mining and quarrying.

New era?

When the motion to enter into the New York Convention was debated by the Myanmar House of Representatives on 5 March 2013, Aung San Suu Kyi was reported to have said:

To make the economy a success, it all depends on trust. No matter what legislation is enacted and no matter what agreement is signed, no potential investor would make investment unless they have confidence in the (political) landscape of the country.

Few investors would disagree with this statement, but if Myanmar becomes a signatory state to the New York Convention, and its regime is embraced by the domestic legal system, this will be an important building block in winning over the trust of would be foreign investors in Myanmar.

Key words in this bulletin: New York Convention, Geneva Convention, Bilateral Investment Treaty, ASEAN Comprehensive Investment Agreement

Allen & Overy acknowledges the assistance of Myanmar Legal Services Limited, Yangon in preparing this bulletin.

1 See Isamolansa Kajar v Ebrahim Ram Co. Ltd. 1962, B.L.R. (C.C.) 152.

2 It has been reported that negotiations have commenced for a BIT between Japan and Myanmar.

3 Although as noted elsewhere in this bulletin, it is likely to be difficult for an investor to enforce its rights under the Myanmar/Philippines BIT as it does not provide for international arbitration.

4 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

5 The ACIA also provides that signatory states shall make provision for the enforcement of arbitral awards rendered under the ACIA but Myanmar has yet to make any statutory provision for this.