Survival clause under Aus-Indo bit will not survive the implementation of IA-CEPA

Lexology | 9 June 2020

Survival clause under Aus-Indo bit will not survive the implementation of IA-CEPA

by Mitchell Dearness and Antony Crockett - Herbert Smith Freehills LLP

The Indonesia-Australia Comprehensive Economic Partnership Agreement (“IA-CEPA”) will enter into force on 5 July 2020.

We have previously discussed the IA-CEPA’s provisions in detail (see here) and the progress of its implementation (see here).

Since our last post, the IA-CEPA has been ratified by the Indonesia and Australian parliaments and steps have been taken to terminate the existing bilateral investment treaty (“Aus-Indo BIT”).

We summarise the latest developments in this post.

Ratification of the IA-CEPA

In October 2019, the Australian Joint Standing Committee on Treaties (“JSCOT”) determined that the IA-CEPA was in Australia’s national interest.

Since then, the IA-CEPA has been ratified by both countries:

  • On 26 November 2019, the IA-CEPA was passed (as part of the Customs Amendment Growing Australian Export Opportunities Across the Asia-Pacific Bill 2019). The bill received royal assent on 3 December 2019.
  • On 4 February 2020, Commission VI in the Indonesian House of Representatives approved the bill to ratify the IA-CEPA agreeing that it should be passed into law. On 10 February 2020, having received the ‘green light’ from Commission VI, the bill was passed by the Indonesian parliament.

Termination of the Aus-Indo BIT

The JSCOT, and others, had previously expressed concern that there was no proposal to terminate the Aus-Indo BIT (signed in 1992) and its ‘sunset clause’ (also known as a ‘survival clause’).

The sunset clause permits investors to bring claims for 15 years under the Aus-Indo BIT following termination.

On 5 February 2020, Australia and Indonesia signed an Exchange of Letters agreeing to the termination of the Aus-Indo BIT and its sunset clause.

As regards investor-state dispute settlement under the Aus-Indo BIT, the Exchange of Letters provides that it shall not “in any way affect” pre-existing disputes that have been commenced under the Aus-Indo BIT, including claims brought by investors (under Art XI of the Aus-Indo BIT) and state-to-state disputes (under Article XIII of the Aus-Indo BIT).

This has important implications for investors with potential claims under the Aus-Indo BIT: if steps are not taken immediately to initiate those claims the right to do so is likely to be lost.

The Exchange of Letters must be approved by the Indonesian and Australian parliaments in order to take effect. For Australia, this means that the JSCOT will review the Exchange of Letters to determine whether the agreement is in Australia’s national interest. Given that the Exchange of Letters accords with JSCOT’s prior recommendations it seems inevitable that the Exchange of Letters will be approved by JSCOT in the near future.

source: Lexology