CMS Cameron McKenna’s Igor
Sidelnikov looks at the crucial importance to
Uzbekistan’s foreign investors of providing for an effective
mechanism for resolving potential disputes between business
partners and elucidates on the preferred variant.
How exactly a dispute may be settled is of
particular importance in countries like Uzbekistan where, despite
the tireless work of the country’s legislators, a basic legal
framework is very much in the developmental stage. Many a misguided
foreign investor has come to grief by assuming that the legal norms
existing elsewhere in the world also exist here.
Therefore, the wise investor, seeking to avoid the
reefs upon which grand designs may falter, sails warily into the
uncharted waters of Uzbekistan’s investment law. This is done
by continuously plumbing the depths in an effort to locate unlikely
positioned rocks; and in practice, by the laborious business of
seeking official clarifications on all points conceivably open to
more than one interpretation (of which there are many) and only
proceeding once official clearance has been granted from one or
another of the organs of state power.
Nevertheless, even the most cautious foreign
investor can still run into troubled waters, where a commercial
dispute with a local partner may arise. To protect against this
eventuality, the parties to any investment project need to ensure
that they have taken this possibility into account, and have
envisaged how such a dispute shall be settled in the event that
they are unable to settle it among themselves. Disputes may be
resolved in various ways.
Dispute resolution variants
Generally, disputes involving foreign investors may
be considered either within the country that is receiving the
investment, or outside that country. In either case, it is possible
to apply to the relevant country’s courts, and/or to have a
case considered through arbitration. The preferable course depends
upon the circumstances of each investment.
In Uzbekistan, commercial disputes involving a
foreign element can be considered at international arbitration, in
the event that the parties have agreed to this effect, or by the
country’s commercial courts, in the event that the parties
have not.
Various reasons drive the type of mechanism chosen
for settling potential disputes. For example, an investor may
distrust the national courts of the host country; while, host
parties may not believe that consideration of disputes abroad will
be a reliable way to protect their interests, perhaps, due to a
lack of relevant experience in such proceedings or a lack of
skilled staff. Host parties may also deem such procedures to be
extremely expensive; although, in Uzbekistan, claims to the
commercial courts must be accompanied by an application fee
equivalent to 10 per cent of the claim, which is not particularly
cheap either.
International arbitration
In recent times, international arbitration has
become recognised as the favoured means for resolving dispute
situations; Uzbekistan’s legislation allows for the same;
and, notwithstanding the different approaches of local and foreign
parties, the vast majority of investment contracts in Uzbekistan
include provisions envisaging international arbitration as the
means for resolving investment disputes.
Where a dispute is to be heard overseas,
arbitration is almost always the better choice, because, while
foreign arbitral awards can be enforced in Uzbekistan under the New
York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, [see article headlined: “Positive
precedent established as Uzbekistan’s legal system upholds
foreign arbitration award”], no such bi-lateral treaties
exist with western countries in relation to foreign court
judgements.
Uzbekistan signed the New York Convention on 20
December 1995. Since, it has been obliged to recognise arbitral
awards as binding, and to enforce them in accordance with domestic
procedural legislation. Such procedural legislation, may not impose
substantially more onerous conditions or higher fees or charges
when recognising or enforcing international arbitral awards than
exist for the recognition and enforcement of domestic arbitral
awards.
Recognition of an arbitral award
At present, in the absence of other legislation, a
resolution of the Presidium of the Uzbekistan’s Supreme
Commercial Court, dated 28 March 1998, governs the procedure for
the recognition of arbitral awards. This legislation provides for
the party seeking to have an arbitral award enforced making an
application to the commercial court in the region where the
respondent resides, or where his or her property is located. The
resolution also sets out the limited grounds upon which the
commercial court can refuse to enforce a foreign arbitral
award.
So far, the practice of recognising and enforcing
foreign arbitral awards made under the New York Convention is
undeveloped, and this, itself, hinders the growth of international
investment in Uzbekistan. Negotiations with state authorities or
state-owned companies of Uzbekistan, in practice, are always very
difficult. This is because local parties invariably seek to
envisage the competence of the local commercial courts in respect
of the consideration of potential disputes, as well as seeking to
envisage that local legislation be applied in all cases.
Another obstacle is the approach of the Ministry of
Justice when it is registering founding agreements and charters of
joint ventures. The ministry is very reluctant to give its consent
to the possibility of arbitration proceedings being held. The same
is true of other empowered state authorities. However, given that
no relevant practice is present, even when an understanding has
been attained, of how a dispute shall be settled, a foreign
investor cannot be absolutely confident that a legitimate arbitral
award shall be enforced within Uzbekistan without delay. Inertia in
the apparatus of the state and court, a lack of the relevant
experience, and simple bureaucratic procrastination may make the
actual recognition and enforcement of the relevant award extremely
difficult.
Positive precedent
Nevertheless, I believe that a positive development
within the framework of the Uzbek court system is present. Uzbek
legislators are known to regard positively the idea of developing
commercial arbitration in Uzbekistan; and, naturally, foreign
entrepreneurs in Uzbekistan hope that concrete development is
possible in this direction. But more importantly, it is impossible
to overvalue the positive meaning of the precedent set by the
recent upholding by Uzbekistan’s courts, on the basis of the
New York Convention, of an award made by a foreign arbitration
proceedings. [See article alluded to above.] Until recently, as far
as we are aware, such precedents existed in Uzbekistan only with
respect to the court and arbitration authorities of CIS
countries.
Therefore, while an enormous amount remains to be
achieved, it is possible to say that another crucial stage has been
passed on the road to establishing Uzbekistan’s legal
system.