Zeph, Sundance and Australia’s retreat from investment arbitration
I was in Singapore when the award in Zeph Investments v Australia became public. Strangely, most of my Singaporean colleagues did not know that an arbitration had been underway between a Singaporean investor and Australia, nor had they heard of Zeph Investments. This was perplexing for a Singaporean company whose stated investments in Australia (AUD 300 billion) are comparable to Temasek’s investments globally.
Of course, as the Tribunal confirmed, Zeph was not in reality a foreign investor – at least not within the meaning of the relevant treaty.
This week the Swiss Federal Supreme Court agreed, rejecting Zeph’s challenge to the Tribunal’s award on jurisdiction, and ordering costs in favour of Australia. (The judgment has not yet been published.) This brings to an end the second investment treaty claim against Australia. The Australian Attorney-General, Michelle Rowland, was understandably pleased about the judgment. Even so, I do not expect that she or her fellow ministers will be praising ISDS as system that delivers justice to the righteous, as I explain below.
The case in brief
As briefly as possible, Zeph’s claims arose from Western Australian legislation passed in 2020, which purported to render void two arbitral awards rendered in favor of Mineralogy Pty Ltd, a company controlled by Clive Palmer, an Australian businessman (and more recently a politician). Subsequently, ownership of Mineralogy was restructured to interpose Zeph Investments Pte Ltd, a Singaporean shell company, between Mineralogy and Mr Palmer.
Zeph then claimed approximately USD 198 billion against Australia under the ASEAN-Australia-New Zealand Free Trade Agreement. The Tribunal’s award of 26 September 2025 dismissed the claim for want of jurisdiction. An “investor” under AANZFTA must “make” an investment, and making an investment requires a commitment of resources. Zeph had committed nothing: the shares it issued in the restructure were valueless, its activities as a shareholder were not a contribution, and no dividend had ever reached it.
A record worth noticing
Zeph Investments is by no means the first occasion on which Australia has seen success in investor-state arbitration.
As respondent, Australia has now faced three significant treaty claims, none of which proceeded beyond the jurisdiction stage. In the first, much like in Zeph, Philip Morris Asia’s challenge to tobacco plain packaging was dismissed in 2015 as an abuse of rights, since the claimant restructured itself as a Hong Kong entity after the dispute was foreseeable. The second claim, brought by APR Energy LLC in 2017, does not appear to have progressed beyond an exchange of notices of dispute. In both cases, the system did precisely what its critics say it cannot do: it identified opportunistic claims and disposed of them without ever reaching the merits.
As claimant, Australian investors have done rather well, commencing at least 14 investment treaty cases and securing favourable awards more often than not. Only last week, Perth-based Sundance Resources announced that an ICC tribunal had awarded it approximately USD 616 million in damages, interest and costs against Cameroon over the expropriation of its rights in the Mbalam-Nabeba iron ore project – one of Africa’s largest undeveloped iron ore deposits. (The system’s rigour cuts both ways: Sundance’s separate USD 8.8 billion claim against the Republic of Congo was dismissed in January.)
Case statistics alone give an incomplete picture of the success ISDS has brought to Australia. Australia is a capital-exporting country, with a mining industry operating in some of the world’s more challenging jurisdictions. ISDS is a crucial enabler for Australia’s outbound mining investment. For some projects, the risk mitigation afforded by treaty protections may be what tips the scales in favour of project viability.
The bewildering part
Against that record, the direction of Australian treaty policy is difficult to rationalise. Since November 2022, the Government’s stated position has been that it will not include ISDS in any new trade agreement, and that it will take opportunities to remove or reform ISDS in existing ones. Six bilateral investment treaties have been terminated. The 2024 treaty with the UAE was concluded without ISDS. Consultations are now under way to strip ISDS from the treaties with Argentina, Pakistan and Türkiye – the Pakistan treaty being the very instrument under which Tethyan Copper secured one of the largest awards in ICSID history.
The Australian Government will point to the AUD 13 million spent over three years defending the Zeph claim. The better reading of Zeph is the opposite one. A claim of AUD 300 billion was dismissed at the jurisdictional threshold, costs were awarded against the claimant, and the supervisory court at the seat upheld the award. The safeguards worked.
The Government might also point to the Philip Morris case as evidence that investment treaties, and ISDS in particular, impose unacceptable constraints upon the Government’s ability to achieve legitimate regulatory objectives. To its credit, the Australian Government has expended considerable effort in substantive investment treaty reform, with a view to clarifying states’ room for regulatory manoeuvre without abandoning investment protection on a wholesale basis. Unfortunately, the Government appears to see these reforms as necessarily including a substantial narrowing of procedural rights afforded by ISDS.
Meanwhile, Australian companies continue to rely on precisely these mechanisms to recover real losses from real expropriations abroad, and each treaty that is terminated or stripped of ISDS removes that recourse for the next Sundance.
There is a debate to be had about the design of investor-state arbitration; there always has been. In these victorious times for Australia, a policy of unilateral disarmament seems a curious way to serve the national interest.
