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Global Arbitration Review reports on CIS Economic Court case in which Satarov, Askarov& Partners act for Kyrgyz Government

Moscow Convention claim goes against Kyrgyzstan
KyriakiKaradelis Friday, 4 July 2014

Canadian miner Stans Energy has won US$118 million in a Moscow-seated arbitration against Kyrgyzstan, as the state asks a CIS judicial body to advise on whether the treaty under which the claim was brought includes a consent to arbitrate.

The Kutessay II project in Kyrgyzstan

A panel at the Arbitration Court of the Moscow Chamber of Commerce and Industry (MCCI) granted Stans and its Kyrgyz subsidiary Kutisay Mining almost the entirety of their damages claim, plus legal fees and arbitration costs. The award, announced by Stans on 2 July, follows an oral ruling in April in the claimants’ favour.

Stans lodged the claim for US$118 million last October under the Moscow Convention for the Protection of Investors’ Rights – a 1997 treaty between six CIS states that also protects investors from non-signatory states. The case concerned the alleged expropriation of Stans’s investment in a rare earth project, Kutessay II, for which it acquired a 20-year mining licence in 2009.

An all-Russian tribunal heard the case, chaired by Marina Zinoveva Pak, the chair of the MCCI Arbitration Court. Her co-arbitrators were Nina Vilkova of the Russian Academy of Foreign Trade, appointed by the claimants, and Leonid Balayan, chairman of another arbitration commission in Moscow, appointed by Kyrgyzstan.

Stans’s claim was one of at least three MCCI cases filed against Kyrgyzstytan under the Moscow Convention last year. A claim by Korean investor John Lee Beck and his company over the termination of a contract to run a theme park in the Kyrgyz capital, Bishkek, ended in a US$23 million award in his favour last November. An entity called OKKV also won a US$2 million award in November in a claim over the nationalisation of a tourism complex.

Kyrgyzstan raised the same jurisdictional objections in all three cases, arguing that the Moscow Convention did not contain a consent to arbitrate at the MCCI. Article 11 of the convention says that investment disputes shall be considered by courts or arbitration but does not specify an arbitral institution or applicable arbitration rules. Kyrgyzstan argued that it had not designated the MCCI as a forum in any agreement with the investors or in its domestic law. The Kyrgyz national investment law provides for arbitration under the UNCITRAL rules or at ICSID.

However, the Stans tribunal dismissed the state’s arguments in an interim award in late March, holding that the Moscow Convention allowed investors to pursue arbitration at any institution of their choosing. The Beck and OKKVtribunals reached similar conclusions in their final awards.

In April, Kyrgyzstan requested an interpretation of article 11 from the Economic Court of the Commonwealth of Independent States, a judicial body established in Belarus in 1992 that is designated to resolve disputes over the meaning of the Moscow Convention’s provisions. A hearing on the matter is scheduled for 19 September.

According to Stans, the Economic Court has opted to render an advisory opinion. The company says the opinion will not be enforceable as a legal ruling within the CIS or binding on the MCCI tribunal or courts outside the CIS.

Meanwhile, Kyrgyzstan has also applied to the Moscow Commercial Court to set aside all three awards rendered in the MCCI cases. The court summarily dismissed Kyrgyzstan’s challenge against the interim award on jurisdiction in the Stans case in an oral opinion on 1 July. A written ruling is expected in the next few days.

The same court also dismissed the state’s challenge to the final award in the Beck case on 24 June. The court found that Beck’s claim automatically fell within the jurisdiction of article 11 because it was an investment dispute. The judge also found that Kyrgyzstan’s ratification of the Moscow Convention meant it had waived its right to claim sovereign immunity.

A different judge in the commercial court hearing the challenge to the OKKV award issued a one-page decision on 23 June, staying the set-aside proceedings until the Economic Court of the CIS has issued its advisory opinion.

SatarovAskarov& Partners in Bishkek has been advising the state on its applications before the Moscow Commercial Court and the CIS Economic Court, with Winston & Strawn also acting as co-counsel in the latter proceeding.

Winston partner Andrei Yakovlev says that, if the investors’ interpretation of article 11 were correct, it would render meaningless “all prior and subsequent legislative and treaty practice of member states”, which allows investors to file claims only with a very limited number of arbitral institutions. “The CIS Economic Court was designated by the Moscow Convention as the sole judicial body competent to rule on interpretation of the convention, so whether [its advisory opinion is] technically enforceable or not, such an interpretation is likely to be persuasive in the CIS and beyond,” he adds. Yakovlev also notes that the Moscow Convention allows member states to agree on the interpretion of the convention in a separate instrument, which would surpass any interpretation that might be issued by the CIS Economic Court.

“It would be extraordinary if member states intended to allow investors to file a claim before any tribunal they choose, including, say, one set up by Madonna, Julia Roberts and David Beckham a week ago, with procedural rules which they invented over a cocktail – but that is what the investors’ interpretation of article 11 essentially means,” he says.

Kyrgyzstan did not retain external counsel for the three MCCI arbitrations, and is understood not to have participated in the merits portions of the three cases. Austrian firm Schönherr won a public tender in January to defend the state, with Berwin Leighton Paisner selected as a “reserve”. However, the state ultimately failed to enter a contract with either firm.

At the jurisdictional stage, the government’s defence in the Stans case was initially handled by the Kyrgyz State Geology Agency, a party to the contract with Stans’s subsidiary. The state’s legal defence in all the Moscow Convention cases is now being coordinated by the Centre for Legal Representation, a division of the Kyrgyz government established in February this year. The claimants in all three MCCI cases used the same legal team: Igor Zenkin of Moscow firm Interlex and Temirbek Kenenbaev of Partner Law Firm in Bishkek.

The Moscow Convention was the subject of debate at the recent Russian Arbitration Day in Moscow, where Russian practitioner Sergey Usoskinof Ivanyan& Partners said he agreed with Kyrgyzstan that article 11 did not contain a consent to arbitrate but was a mere confirmation that investment disputes are arbitrable.

Roman Khodykin, a partner at Berwin Leighton Paisner in London who chaired the panel discussion, says he too has “a fundamental difficulty with seeing article 11 as an arbitration clause” and that he was surprised by the Stans award.

Khodykin also says the Moscow Commercial Court’s 24 June decision declining to set aside the Beck award contains surprisingly little reasoning for such an important judgment. He says the court does not appear to have spent any time considering the language of the convention to decide whether there was an arbitration clause or not, or whether it included a waiver of sovereign immunity. Instead, it ruled that Beck’s operations in Bishkek were an investment, which had never been in dispute in the proceedings before the commercial court. In a press release in April, the Kyrgyz State Geology Agency mentioned the state’s lack of external legal counsel among several other concerns about the Stans arbitration proceedings. The agency said it was denied the opportunity to participate in the selection of arbitrators; accused the MCCI of lacking objectivity; and argued that the “unreasonably tight” procedural schedule gave it too little time to prepare its case. Stans has rejected those allegations.

With only eight months between the filing of Stans’s claim and a final award, the MCCI proceedings have been notable for their speed compared with that of investment treaty cases at more established arbitral institutions. Recent statistics show ICSID cases take nearly five years on average to reach a final award.

However, Khodykin says it is “normal” for Russian arbitral institutions to deliver an award fast, since they rely only on written witness statements, there are no oral cross-examinations and hearings are much shorter. He says statistics show that 70 per cent of cases before Russian institutions are concluded in six to nine months. Stans says it is now considering its enforcement options in Canada and the US. The company suggests it will rely on a recent ruling in an unrelated dispute in the Ontario Court of Appeal. That court ruled in April that Kyrgyz-held shares in another Canadian mining company, Centerra Gold, could be seized to satisfy an US$8.5 million ICSID award rendered in 2009 in favour of Turkish investor SistemMuhendislikSanayiVeTicaret.

StansEnergy v Kyrgyzstan (MCCI arbitration)

  • Tribunal
    Marina Zinovyeva Pak (Russia) (chair)
    Nina Vilkova (Russia) (appointed by Stans Energy)
    Leonid Balayan (Russia) (appointed by MCCI on behalf of Kyrgyzstan)

  • Counsel to Stans Energy
    Partner Igor Zenkin and Natalya Yakubova in Moscow
    Partner Law Firm
    Partner Temirbek Kenenbaevin Bishkek

  • Counsel to Kyrgyzstan
    State Agency for Geology and Mineral Resources
    Kyrgyzstan did not retain outside counsel. Before the Economic Court of the CIS

  • Counsel to Kyrgyzstan
    Satarov Askarov & Partners
    Anvar Askarov in Bishkek
    Winston & Strawn
    Andrei Yakovlev in Moscow
    John Lee Beck v Kyrgyzstan (MCCI arbitration)

  • Tribunal
    Nina Vilkova (Russia) (chair)
    Alexey Stanislavovich Avtonomov(Russia)
    Alexander Moiseevich Shafir (Russia)

  • Counsel to John Lee Beck
    Partner Igor Zenkin in Moscow
    Partner Law Firm
    Partner Temirbek Kenenbaev in Bishkek

  • Counsel to Kyrgyzstan
    The state did not participate in the arbitration

    OKKVv Kyrgyzstan (MCCI arbitration)
    Nina Vilkova (Russian) (Chair)
    Alexey Stanislavovich Avtonomov (Russia)
    Mikhail YurievichSavranskiy (Russia)

  • Counsel to OKKV
    Partner Igor Zenkin in Moscow
    Partner Law Firm
    Partner in Bishkek

  • Counsel to OKKV
    Partner Igor Zenkin in Moscow
    Partner Law Firm
    Partner in Bishkek