[Update(s): see further Myanmar’s accession to the New York Convention and the draft Arbitration Bill for international arbitration before the Myanmar Parliament]

The self liberalisation of Myanmar’s political and economic regime has been reciprocated by the lifting or suspension of economic sanctions imposed on Myanmar. This has led to a surge of interest from foreign parties looking to do business in or invest in Myanmar. This note examines three important questions that will be foremost in the minds of foreign investors interested in Myanmar:

1. Is international or foreign arbitration available in Myanmar to foreign investors or commercial parties?
2. What protections are available to foreign investors?
3. What rights do foreign parties have against counterparties who are either the Myanmese state or state-owned enterprises?

We should stress our observations as expressed in this note are based on our reading of publically available information and should not be taken as legal advice, much less Myanmar law advice.

Executive Summary

1. There are currently no domestic laws which permit foreign commercial parties to have their disputes with Myanmese parties submitted to foreign or international arbitration. However, the Foreign Investment Law 2012 (“FIL“), does stipulate that a foreign investor is entitled to have its dispute settled by foreign arbitration.Having said that, there are two problems with this. First, there are no domestic laws in place to govern the conduct of foreign or international arbitration. Second, Myanmar is not currently a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention“). There is thus a very limited basis for a foreign arbitral award to be enforced in Myanmar.

2. Foreign investors now have the benefit, at least on paper, of the FIL which guarantees certain investment protections to the foreign investor. This is in addition to the investment protections guaranteed under the ASEAN Comprehensive Investment Agreement (“ACIA“).However, foreign investors should be aware that the FIL has only been recently promulgated. It is therefore too early to determine how and whether the protections guaranteed under the FIL will be effective. Similarly, the ACIA only came into force in 2009 and its dispute resolution mechanism does not appear to have been tested to date. Furthermore, the scope of the ACIA is limited to 5 sectors (manufacturing, agriculture, fishery, forestry, mining and quarrying) and would thus only apply to a small pool of foreign investors.

3. The Myanmese courts seem to have adopted, at least in respect of civil matters, the absolute theory of sovereign immunity to jurisdiction and execution against property. It is unclear to what extent a state-owned enterprise (“SOE“) may rely on state immunity. It is also unclear to what extent which the state may waive its immunity in respect of arbitral and court proceedings.

Is International or Foreign Arbitration Available in Myanmar?

Relevant Legislation and Treaties

The following treaties and domestic legislations are relevant in respect of arbitration in Myanmar and as between a Singapore and Myanmese party.

1. The Arbitration Act of 1944 (“Arbitration Act 1944“).

2. Geneva Convention on the Execution of Foreign Arbitral Awards 1927 (as enacted through the Arbitration (Protocol and Conventions) Act of 1939) (“Geneva Convention 1927“).

3. The Foreign Investment Law (Law No. 21/2012) (“FIL“).

4. The Myanmar Investment Commission (“MIC“) Notification No. 1/2013.

5. ASEAN Comprehensive Investment Agreement (“ACIA“).

Note that Myanmar is not a state party to the New York Convention or the International Convention for the Settlement of Investment Disputes.

Enforceability of foreign arbitration clause uncertain

Parties seeking to avoid the vagaries of the domestic courts would be inclined to have their disputes resolved by international arbitration instead. However, the enforceability of such clauses and awards rendered is uncertain.

The Arbitration Act 1944 only deals with domestic arbitration. Furthermore, where both parties are Myanmese parties, disputes may only be submitted to arbitration pursuant to the Arbitration Act 1944 i.e. domestic arbitration.

It is not altogether clear if a Myanmese party may submit its disputes to foreign arbitration even where the counterparty is a foreign party. On one view, a foreign party is only permitted to have a foreign (non-Myanmese/international) arbitration with a Myanmese party where the commercial relationship between the parties is not a trading relationship. Where parties are in a trading relationship, the Myanmese Export Import Law 2012 mandates that Myanmese parties involved in a trade dispute with foreign companies shall resolve that dispute in accordance with the Arbitration Act 1944.

On another view, it appears that a Myanmese company may only submit disputes to arbitration pursuant to the Arbitration Act 1944. The dearth of case law makes it very difficult to determine whether a foreign arbitration with a Myanmese company will be upheld by the Myanmese courts, whether by way of a reference to arbitration and/or at the enforcement stage of the foreign arbitral award.

However, for foreign investors, the recently promulgated FIL allows for settlement of disputes in accordance with the dispute settlement mechanism as stipulated in the relevant agreement (see section 43(b)(ii)). Accordingly, one possible method to obtain the benefit of foreign arbitration would be to structure the commercial relationship as an investment, obtain the necessary permits for the purposes of the FIL and insert a foreign arbitration clause into the agreement.

Alternatively, the ACIA has its own multi-tiered dispute resolution mechanism set out in Articles 30 to 33, which provides that a disputing investor must first submit a written result for consultation to the dispute member state (Article 31). Should consultation fail, the disputing investor may then submit a proper claim (Article 32 and Article 33) to its choice of dispute resolution bodies including but not limited to the member state’s court or to the Regional Centre for Arbitration Kuala Lumpur or any other regional centre for arbitration in ASEAN.

Nonetheless, as we note below, enforcing such clauses is not without its problems. There are currently no domestic laws in place to govern the conduct of foreign or international arbitration. Without relevant legislation, it is uncertain if the Myanmese courts will do the necessary to compel a Myanmese party (or the Myanmese state) to submit to a foreign arbitration.

Enforceability of foreign arbitral awards questionable

Critically, there is currently no judicial mechanism to enforce a foreign arbitral award save through the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 (“Geneva Convention 1927“). However, as Singapore is not a state party to the Geneva Convention 1927, a Singapore arbitral award cannot be enforced in Myanmar pursuant to the convention. While it is theoretically possible to obtain a foreign arbitral award in a state party to the Geneva Convention 1927 and then enforce that award in Myanmar, we are unaware of any such application (successful or otherwise) before the Myanmese courts.

However, with Myanmar recently confirming its intention to sign up to the New York Convention, we may soon either see Myanmar update its Arbitration Act 1944 with provisions to take into account foreign arbitration and foreign awards or adopt the equivalent of Singapore’s International Arbitration Act so as to create a framework for international arbitrations and the recognition and enforcement of foreign awards. Assuming that Myanmar adopts the UNCITRAL Model Law to govern international arbitrations and foreign awards, then it would provide a clear framework for when parties may submit to foreign arbitration.

We should also highlight that Myanmese parties are also disadvantaged so long as Myanmar is not a state party to the New York Convention. A Myanmese arbitral award might not be readily enforced outside of Myanmar, especially in those states which require that the state in which the award was made is also a state party to the New York Convention (see here for a list of the countries which have made the reciprocity reservation).

Assistance of the Myanmese Court in aid of arbitration

A valid arbitration clause entitles a party to apply to the court to stay its proceedings in the event that court proceedings are commenced (s. 34 of the Arbitration Act 1944).

In this respect, there are a number of protective/preservation interim measures that the Myanmese courts can issue in respect of domestic arbitration under the Arbitration Act 1944 (see Second Schedule to Arbitration Act 1944). The court has powers to grant conservatory relief, which includes:

(i)                   preservation, interim custody or sale of any goods which are the subject-matter of the reference;

(ii)                 securing the amount in difference in the reference;

(iii)                detention, preservation or inspection of any property or thing which is the subject of the reference or as to which any question may arise therein;

(iv)               authorizing for any of the aforesaid purposes any person to enter upon or into any land or building in the possession of any party to the reference;

(v)                 authorizing any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(vi)               interim injunctions or the appointment of a receiver; and

(vii)              appointment of a guardian for a minor or person of unsound mind for the purposes of arbitration proceedings.

However, it is very uncertain if the Myanmese courts will lend assistance against Myanmese parties in aid of foreign arbitral proceedings in the absence of an international arbitration act and specific provisions granting such powers to the courts. We say this because the courts in Singapore, India and Malaysia have all taken the view that interim measures in aid of foreign arbitral proceedings is a power that must be expressly granted to the courts by way of legislation before the courts would so intervene.

Enforcement of foreign arbitral awards

Myanmar has only just confirmed its intention to sign up to the New York Convention. So long as Myanmar is not a party to the New York Convention, a foreign investor or commercial party is not guaranteed the usual benefits of (foreign) arbitration i.e. that a foreign arbitral award is final and binding and will be recognised and enforced by the enforcement state save on very limited grounds.

So far, there has been no official report as to when Myanmar would accede to the New York Convention. Even then, in order to give effect to the New York Convention, Myanmar would have to pass domestic enabling legislation. This would require amendments to the Arbitration Act 1944 or a new international arbitration act as well as subsidiary amendments to the Code of Civil Procedure and the rules of courts.

All of these developments will take time.

What Protections are available to Foreign Investors?

Both the FIL and ACIA provide for the usual investor protections and guarantees e.g. against expropriation and for the free repatriation of profits in a free convertible currency. Expropriation in this context refers to direct expropriation, where the state nationalises the investment or physically seizes it or simply transfers the title of the investor’s interest in the investment to another party.

However, it is questionable if lesser established concepts under international law such as indirect expropriation, regulatory expropriation and “creeping” expropriation would be acknowledged and sanctioned by the Myanmese courts. These concepts are important to the protection of investor’s rights insofar as they are measures which do not result in outright expropriation but which have the effect of interfering with the use of the investment or the enjoyment of such investment. Such acts, even if they do not affect the legal title to the investment, nevertheless have the effect of diminishing the value of the investment and can be used as a tactic to pressure investors into selling their investment at a discount.

In this respect, it is worth noting that the scope of the ACIA is more limited than the FIL and thus would only apply to a very limited pool of foreign investors. The ACIA only covers investments in 5 sectors and services incidental to those 5 sectors. The relevant sectors are manufacturing, agriculture, fishery, forestry, mining and quarrying. Parties should also be aware of the ACIA’s required characteristics of investments, which include the commitment of capital, the expectation of gain or profit, or the assumption of risk. These requirements have the effect of limiting and potentially disqualifying foreign investments from being eligible for protections under the treaty.

Furthermore, The Economist has warned that even with the FIL, the regulatory structure and regime “remains as murky as ever” and points to criticism that the MIC would have too much discretion to determine whether investments conform with “hazily worded guidelines“. With government appointees and little oversight, the MIC “could be a recipe for corruption and arbitrary decision-making“. This is a particular issue given that one of the duties of the MIC is to take “prompt action as necessary if the investors complain that they do not enjoy the rights fully which are entitled under the law” (see Article 12(b) of the FIL).

As the FIL was only promulgated in November 2012, there has been insufficient time to determine how the FIL will be implemented in practice and how the Myanmese courts will interpret the provisions of the FIL to determine investment disputes.

Note also that the US and EU economic sanctions against Myanmese have only been relaxed and have not been lifted. This is an important distinction as it raises the possibility that there might be no further extension to the suspension of these sanctions such that the effects of the sanctions will revert once the time limit has expired. While the US suspension has no stated time limit, it could simply decide to put a halt to the suspension of the sanctions.

What rights do foreign parties have against counterparties who are either the Myanmese state or state-owned enterprises?

It appears that the Myanmese courts still adopt the so-called absolutist approach to sovereign immunity in respect of civil proceedings (see See Mariar Maw, State Immunity concerning Commercial Activities in Myanmar (2007)). In other words, it appears that the so-called commercial activities exception to state immunity does not apply. The commercial activities exception acts to prevent a state which enters into a contract for commercial purposes from asserting state/sovereign immunity from court proceedings.

It is worth noting that there is no domestic legislation which sets out the extent of state or sovereign immunity in Myanmar and whether or not a state-owned enterprise is entitled to assert state or sovereign immunity. Furthermore, there is no provision providing for the waiver of sovereign immunity in the FIL.

The absolute theory of state immunity matters even where the state has agreed to submit any dispute to arbitration. In the event that the state refuses to participate in the arbitration, the foreign party may not be able to go to the Myanmese court to seek an order to compel the Myanmese state to submit to arbitration. Similarly, where the foreign party has obtained an arbitral award in its favour, there is a serious question as to whether that award will be recognised and enforced by the Myanmese courts or whether the state can assert immunity. This is because an arbitration clause is not necessarily a waiver of sovereign immunity for the purposes of execution.

Conclusion

It appears to be a matter of time before Myanmar accedes to the New York Convention and puts in place an international arbitration framework. This would be a boon for both domestic and foreign commercial parties as well as foreign investors. However, no timeline has been set for such developments as yet.

Be that as it may, it would still be prudent to secure a foreign arbitration clause in any commercial agreement, not least because the foreign arbitral award can be enforced against the Myanmese party’s assets in any of the 148 party states to the New York Convention.

We consider that Myanmar’s statement of intent to sign up to the New York Convention is a positive step. However, Myanmar will still need to enact relevant legislation to support the adoption of international arbitration in Myanmar. This will inevitably take time. Until then foreign investors will seek to rely on the FIL and the ACIA where appropriate. However, the protections and dispute resolution mechanisms offered by the FIL and the ACIA have not yet been tested. Foreign investors and commercial parties should therefore proceed with caution.