Recent Developments in Political Risk Insurance in the Asia Pacific Region: An Antipodean Perspective
THE ASIA PACIFIC REGION: AN INTRODUCTION
The nature of political risk in the Asia Pacific region is fundamentally influenced by the variety and diversity of the countries in the region. That, in turn, results in considerable diversity, firstly in the types of political risks faced by foreign investors in the region, and secondly in the nature of the legal issues such risks give rise to when they crystallize. A brief look at some of the countries in the region should suffice to illustrate this diversity. The region includes:
* members of the G8, the United States and Japan;
* smaller though relatively wealthy industrialized countries such as Australia, and New Zealand;
* newly industrialized countries (”NICs”) such as Singapore, Taiwan, Korea, and Hong Kong;
* major rapidly emerging economies, such as China and India;
* emerging, though often troubled economies, such as Indonesia, Malaysia and Thailand; and
* many low income countries including many pacific island states.1
The region is generally regarded to have recovered from the financial crises that plagued it in the late 1990s. Rapid but uneven growth, and continued economic integration once again characterize the business environment in the region.2 Against this background, political instability in some of the low income countries of the region has led to a number of instances of armed violence, and in some cases, insurrection. That, in turn, has resulted in a number of insurance coverage disputes of a traditional nature, which are examined in more detail in the second and third sections of this article, where we draw directly on our recent successful experience in defending political risk insurance (”PRI’) litigation in Fiji. The international nature of such litigation often raises private international law issues, which may be a fertile area for dispute in a PRI context, and which we examine in the fourth section of this article. By contrast, economic growth has, in recent years, resulted in a complex interplay of commercial law and public international law in the area of foreign direct investment (”FDI”), which is examined in the final section of this article.
Recent media attention has focused on Asia Pacific regional instability and the increasing incidence of political violence in certain countries. Many people around the world are aware of the turmoil that engulfed the region after the Asian financial crisis in the late 1990s. That turmoil gave rise to a number of insurance and reinsurance disputes; for example, the riots in Indonesia in 1998 formed the background to the decision in Mann v. Lexington Insurance Co.
Recent instances of political and ethnic violence in the region have included:
* the attempted coup led by George Speight in Fiji in 2000;
* the near collapse of the government in the Solomon Islands in 2000, resulting in (a continuing) military and police intervention led by Australia; and
* most recently, in 2006 rebel “militia” activity in East Timor, also resulting in military intervention by Australia.
These events often impact insurers. They often give rise to the kinds of coverage disputes under property and ISR policies with which insurers and their lawyers will be familiar. In addition, more sophisticated foreign investors may have arranged PRI cover dealing specifically with those risks. The risks are most often insured into the major insurance markets such as London.
As a result, many such disputes will be determined in either judicial or arbitration proceedings in England, but that is not always the case. Insurance contracts, particularly property and ISR policies protecting local interests, may often provide for local law and jurisdiction. European and North American insurers may have sufficient experience before Australian and New Zealand courts to enable them to take a view on the desirability of underwriting insurance contracts that may be subject to Australian and New Zealand law, but if these issues are before a local court or tribunal in a smaller country, can they rely upon the court to reach the right result? Happily, the recent Fijian case Tappoo Holdings Ltd. v. Stuchbery4 serves to illustrate that in some countries they can.