A leading US business lobby group has warned the federal government that Australia risks being wrongly perceived as “a banana republic” because of an ICAC-driven expropriation of American assets.
This assessment, by the American Chamber of Commerce in Australia, has been triggered by the NSW government’s refusal to compensate US investors when it stripped them of assets worth about $100 million two years ago. The chamber has told the Department of Foreign Affairs and Trade that the refusal to compensate US investors “could cause great damage to the unparalleled bilateral economic relationship between the US and Australia”.
“Australia is most definitely not a banana republic, and must not be allowed to be viewed as one, as could be the result if this dispute is not resolved through full restitution of the aggrieved parties,” said AmCham chief executive and former US consul general Niels Marquardt.
“This extraordinary and blessedly unique event, in our view, has the potential to sully Australia’s reputation as a place to do business far out of proportion to the size of the investment,” he said.
This warning is outlined in the chamber’s submission to DFAT ahead of talks on May 4 with the US government about the operation of the Australia-US Free Trade Agreement. One of the main agenda items will be claims for compensation by US investors who own 30 per cent of the Australian company NuCoal Resources.
NuCoal’s main asset — a coal exploration licence the company believes was worth about $360m — was cancelled in 2014 by the NSW government led by former premier Barry O’Farrell. While no accusation of wrongdoing had been made against NuCoal, Mr O’Farrell cancelled the licence on the recommendation of the Independent Commission Against Corruption after an inquiry into the way the licence had originally been issued in 2008 to Doyle’s Creek Mining, a company bought by NuCoal in 2010.
Mr O’Farrell rejected ICAC’s recommendation that innocent parties should be compensated.
NuCoal’s submission to DFAT shows the company wants both governments to enter into consultations about subjecting the claims of US investors to international arbitration. AUSFTA provisions mean US investors who are stripped of assets require agreement by the Australian government before their grievances can go to arbitration.
NuCoal chairman Gordon Galt said he believed the federal government had nothing to fear from independent arbitration.
“If Australia is confident it is not liable, it should not be afraid to run the case; and if it is liable then it should examine the evidence as quickly as possible and seek to come to some sort of understanding before suffering international embarrassment,” Mr Galt said. He expected the arbitration proceedings to cost $US4m to $US6m, well short of the $100m in dispute. “It’s well worth it,” he said.
If the federal government agreed to arbitration, Mr Galt said the proceedings could take place in Washington, New York, London or Singapore. Regardless of the outcome of next month’s talks, the dispute has already prompted the AmCham to change its mind about the strength of the rule of law in this country.
The chamber’s submission to DFAT says that when the AUSFTA was being drafted it was decided not to include a provision known as an investor-state dispute settlement provision. These provisions give foreign companies the right to initiate dispute settlement procedures against host governments without involving their home governments.
AmCham’s submission says an investor-state provision was not considered necessary with Australia because each country was considered to have “such a strong rule of law that investors from either country, in the case of a dispute, would find fully adequate redress in the legal system of the other country”.
“The NuCoal expropriation reveals that premise to have been faulty, as concerns Australia,” the AmCham submission says. The NSW legislation that stripped NuCoal of its licence also prevents US and other investors from challenging the state government’s actions in the courts.
US law firm Quinn Emanuel Urquhart & Sullivan, which has been advising the US investors, said NuCoal’s experience reflected a real and growing sovereign risk for domestic and foreign investors in Australia. “The very least the Australian government can do to calm the fears of international investors is to assure them that they will at least have access to an independent forum to adjudicate their claims — just as we would expect Australian companies could enjoy in foreign jurisdictions,” said Quinn Emanuel Sydney partner Michael Mills.
Chris Merritt- The Australian- 15 April 2016.
(WTF- by permission)