In a decision published in December 2021 the Commercial Court has overturned a decision of an arbitral tribunal that had determined that it did not have jurisdiction to hear the claim brought by Canadian mining company Gold Pool JV Ltd against the Republic of Kazakhstan.
It is relatively unusual for a tribunal to find it has no jurisdiction – often the challenges through Court are where the tribunal considers it has jurisdiction which makes this case of particular interest.
Appeals brought under s. 67 of the Arbitration Act are unusual and when they do arise, particularly in investment treaty arbitrations, they commonly generate interesting judgments of a geo-political nature. In this decision, Mr Justice Andrew Baker treats the reader to an analysis of the events leading to the end of the cold war, the dissolution of the USSR and the emergence of new sovereign states.
It is precisely how the Republic of Kazakhstan seceded from the USSR, and whether in doing so it cut all legislative ties with the USSR, that was the subject matter of the arbitration and the appeal.
On 25 October 1991 Kazakhstan proclaimed itself a sovereign state following months of political turmoil: President Gorbachev had successfully resisted an attempted coup to oust him from power in August 1991, but, weakened by the revolt from within his own party, the events signified the beginning of the end of the Soviet Union. On 16 December of that year Kazakhstan formally declared its own independence. Two weeks later the Soviet Union officially ceased to exist.
In March 2016 the claimant (Gold Pool) commenced an arbitration against the Republic of Kazakhstan asserting that it had been deprived of a valuable investment in Kazakhstan causing it losses which it quantified at over USD900m.
Gold Pool’s claim for damages was founded upon an agreement for the promotion and reciprocal protection of investments that was concluded between Canada and the USSR on 20 November 1989 (the FIPA). The FIPA contained an arbitration agreement providing investors of either contracting state with a right to refer to arbitration any dispute with the other contracting state relating to the effects of a measure taken by that state on the management, use, enjoyment or disposal of qualifying investments. Any such arbitration would be in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law.
Admitting that there was no formal succession treaty between Canada and Kazakhstan following its independence in 1991, Gold Pool asserted that a succession agreement could be implied such that the Republic remained bound by the terms of the FIPA. Challenging this position, the Republic argued at the arbitration that, although Kazakhstan could have succeeded to the FIPA impliedly through words or conduct (so-called tacit agreement), no such implied agreement existed. It asserted that, upon gaining independence, the Republic of Kazakhstan was free from the terms of the FIPA and other agreements ratified by the former USSR and therefore there was no jurisdictional basis for Gold Pool’s claim.
The tribunal’s decision
In an award dated 30 July 2020, following a full hearing of all issues as to jurisdiction, the panel of three international arbitrators found that the tribunal lacked jurisdiction. It therefore rejected all of Gold Pool’s other substantive claims.
Gold Pool’s appeal
Under s. 67 1(a) and (b) of the Arbitration Act 1996 a party to arbitral proceedings may apply to the English court:
(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction, or
(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
Gold Pool sought to take advantage of these provisions to ask the court for a re-hearing of the evidence relating to the existence, or otherwise, of an implied succession agreement.
In his judgment Mr Andrew Baker provides his analysis of a number of formal documents generated in the first half of the 1990s by the newly formed Kazakh Republic which were in evidence in the arbitration, to determine whether these showed an intention by Kazakhstan to discharge all prior treaties and agreements concluded by the former USSR or, conversely, an intention to honour them.
He reached a different conclusion to that of the arbitral tribunal, stating that the arbitrators were:
“distracted by a substantial body of irrelevant material, in particular evidence of uncommunicated views internal to Canada or Kazakhstan, or evidence of subsequent events not capable of bearing upon the meaning and effect assessed objectively of the consensuses set out in writing inter partes in 1992 to 1995”.
In relation to one document, a 1992 declaration of intent received by the Canadian government from ministers in Kazakhstan providing assurances that the latter would honour commitments inherited from the former USSR, he commented:
“the arbitrators regarded it as ambiguous and fairly open to multiple meanings, although without identifying the other meanings they thought it reasonably capable of conveying, whereas I regard its material tenor as clear and unambiguous”.
Mr Justice Baker therefore disagreed with the conclusions reached by the arbitral tribunal on jurisdiction, remitting the claim back to the tribunal to re-consider Gold Pool’s substantive claims.
It is difficult to draw any practical points from this interesting case as it is unique to its particular facts. Certainly for any parties who have contracted with states that have gained independence from the former USSR, there is some encouragement that they may be able to rely on investment treaties their home nation may have entered into with the Soviet Union. However this case is unique to Canada and Kazakhstan, and is not a precedent that all similar challenges to a tribunal’s decision on jurisdiction relating to claims against independent states will succeed.
In the author’s view the significance of the decision is wider. Again, the successful appeal has shown the English court is willing to intervene, scrutinise, and openly challenge decisions of arbitral tribunals where it considers a tribunal has reached the wrong conclusion. While such challenges are rare, the case should therefore be seen as a positive advertisement (were one necessary) for arbitrations seated in the UK, and for the English court, and ought to provide confidence to commercial parties looking for a forum for resolution of their disputes.