UK Court sets aside investment treaty award declining jurisdiction over claims against Kazakhstan, finding Kazakhstan is bound by the Canada-USSR BIT

The Commercial Court in London has ruled that an UNCITRAL tribunal wrongly declined jurisdiction over a Canadian mining company’s claims under the Canada-USSR bilateral investment treaty; in a rare occurrence, the High Court set aside the investment treaty arbitration award and remanded the matter to the tribunal to determine the investor’s substantive claims through a fresh award.

Background

In a judgment dated 15 December 2021 in Gold Pool JV Limited v The Republic of Kazakhstan [2021] EWHC 3422 (Comm), the Commercial Court upheld a challenge by a Canadian investor to an UNCITRAL arbitral award filed under section 67 of the 1996 Arbitration Act (the “Act”). The award was made under the Agreement for the Promotion and Reciprocal Protection of Investments (the “FIPA”) concluded between Canada and the USSR in 1989. The FIPA entered into force in 1991, shortly before Kazakhstan proclaimed itself a sovereign state and formally seceded from the USSR. It was common ground that Russia declared itself to be, and was accepted by the international community as, the continuation of the USSR for public international law purposes and that Kazakhstan was (and is) a successor to, but not the continuation of, the USSR.

In 2016, Gold Pool commenced arbitration proceedings under the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”) against Kazakhstan claiming that, in or around August 1997, it was deprived of its investment in Kazakhstan. The Canadian mining company claimed compensation of over US$900 million under the FIPA. Gold Pool maintained that the FIPA remained binding between Canada and Kazakhstan at the material time by virtue of an implied succession agreement between the two countries. Gold Pool argued that a 1992 Declaration on Economic Co-operation between Canada and Kazakhstan (the “1992 Declaration”) evidenced the parties’ agreement to be bound by the FIPA, and that such agreement was reconfirmed in a written exchange between Canada and Kazakhstan in 1994 (the “1994 Exchange”) and in the recital of a bilateral trade agreement concluded in 1995 (the “1995 Trade Agreement”).

The UNCITRAL tribunal, comprised of Prof. Albert-Jan van den Berg (Chair, The Netherlands), Sir David Williams (New Zealand) and Dr. Gabriel Bottini (Argentina), ruled that it lacked jurisdiction ratione voluntatis on the basis that Kazakhstan did not succeed to the FIPA and that the FIPA was not in force between Canada and Kazakhstan at the date of the award (PCA Case No. 2016-23).

The Commercial Court Judgment

Baker J recalled that a section 67 challenge of an arbitral award involves a de novo review of the jurisdictional issues in which “the arbitrators' conclusions have no legal or evidential weight.”

The judge accepted the applicable legal rule formulated by the tribunal that “States may agree to continue a pre-existing treaty relationship following the emergence of one of them as a new State and such agreement may be either explicit or tacit and may lack the ordinary formalities associated with the conclusion of a new treaty.“ Baker J noted that the dispute was confined to the question of whether, applying that rule to the facts, there was an implied succession agreement.

The judge noted that, upon the collapse of the USSR, Kazakhstan, along with a number of other USSR successor states, agreed to be bound by an Agreement establishing the Commonwealth of Independent States dated 8 December 1991 (the "CIS Agreement"). In the CIS Agreement, the contracting parties undertook to discharge the international obligations deriving from treaties and agreements concluded by the former USSR. Similarly, in the so-called Alma-Ata Declaration, the CIS states guaranteed, in accordance with their constitutional procedures, to discharge the international law obligations of the former USSR.

Baker J considered the three legal instruments invoked by Gold Pool. The 1992 Declaration was signed on an inter-ministerial level. Paragraph 3 of the Declaration stated, inter alia, that: “The two countries are resolved to facilitate sustained efforts to consolidate, develop and diversify their economic co-operation in accordance with [the FIPA] and [the 1985 Double Tax Agreement].” The two countries then started to negotiate what became the 1995 Trade Agreement. In the context of those negotiations, a Kazakh official expressed preference to negotiate a new bilateral investment treaty rather than referring to the FIPA. Kazakhstan adduced the negotiating official’s witness testimony in the arbitration to the effect that Kazakhstan considered at that time that the FIPA had become outdated. Baker J stated that “it is highly improbable, to the point of fanciful, to suppose that [the witness] might be able to recollect so many years after the fact so precisely what she said during the conversation, and Canada's contemporary note of it is far more likely to be an accurate record of the gist of what she said during the conversation.” The 1994 Exchange was an exchange of diplomatic notes, which Baker J deemed to be a joint political declaration, rather than the formal, express treaty-making mechanism recognised by public international law. That exchange also occurred in the context of the negotiations of the 1995 Trade Agreement. Canada asked, and Kazakhstan confirmed, that the following draft text of a declaration on principles of mutual relations between the two countries was still valid: “international treaties which had been concluded between the USSR and Canada remain in force until the sides make different provisions.” Finally, the recital of 1995 Trade Agreement referred to the FIPA.

In interpreting the 1992 Declaration, Baker J noted that the doctrine of implied agreement “recognises as a reality that parties will say things together that realistically make sense only if something is agreed between them that they do not think to spell out in terms precisely because they both regard it as a given between them such that it does not need spelling out.” Baker J found that the 1992 Declaration evidenced an implied consensus between Canada and Kazakhstan that the latter was to be treated as having succeeded to the FIPA and this alone was sufficient for the section 67 challenge to succeed. Nonetheless, the judge analysed the 1994 Exchange and the recital of the 1995 Trade Agreement and concluded that they confirmed that Canada and Kazakhstan had agreed on the continued applicability of the FIPA after the USSR’s dissolution.

Kazakhstan submitted a range of after-the-fact evidence, including an opinion given in 1998 to Gold Pool by Canada’s then Minister for International Trade, to the effect that there was no implied succession into the FIPA. The judge considered that such materials, being mostly internal only to Canada or Kazakhstan, did not alter his interpretation of the three bilateral instruments. Whilst Baker J, being entrusted with a section 67 challenge, did not comment on the reasoning of the arbitrators, he noted 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.”

The judge set aside the award and remitted the case to the arbitrators to declare they do have jurisdiction ratione voluntatis and to determine Gold Pool’s substantive claims by a fresh award.

Commentary

The setting aside of investment treaty awards that decline jurisdiction is a rare occurrence, in the UK and elsewhere. Without taking a view on the Gold Pool award declining jurisdiction, and assuming the UK Commercial Court was correct, the Court’s reversal of that arbitral decision can provide parties with London-seated arbitrations with a sense of comfort that the English courts will intervene with a de novo review, thereby providing a corrective safeguard.

The Commercial Court’s finding of jurisdiction ratione voluntatis is consistent with another tribunal’s decision in an investment treaty case brought by World Wide Minerals Limited, another Canadian mining company, against Kazakhstan pursuant to the FIPA alleging, as did Gold Pool, an implied succession agreement by reference to the 1992 Declaration, the 1994 Exchange and the recital of the 1995 Trade Agreement (the “WWM Decision”). While the WWM Decision did not have legal or evidential weight in the challenge, it reinforces the Commercial Court’s jurisdictional finding based on the same instruments.

The judgment is a rare admission of a section 67 challenge by the Commercial Court. The judgment does not expressly address treaty application or interpretation issues from a public international law perspective. There is a 1978 Vienna Convention on Succession of States in respect of treaties, but neither Canada nor Kazakhstan is a signatory to it. The two countries are signatories to the 1969 Vienna Convention on the Law of Treaties (the “VCLT”), which contains rules of treaty interpretation that refer, inter alia, to taking account, in appropriate cases, of (i) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions, and (ii) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation. As the FIPA was concluded in 1989 and Kazakhstan acceded to the VCLT only in 1994, the pertinent provisions of the VCLT may have been invoked in the arbitration and/or court proceedings only as being reflective of customary international law on the subject. Its Article 73 expressly stipulates, in any event, that the VCLT “shall not prejudge any question that may arise in regard to a treaty from a succession of a State.”

The judgment showcases the scope and utility of the jurisdictional review procedure in English law and underscores the fact that even an eminent tribunal might find itself caught in the Commercial Court’s exercise of its wide jurisdictional review powers under the Act. The Law Commission of England and Wales has included the procedure for challenging a jurisdiction award among the possible areas that it will consider as part of its current review of the Act. It is unlikely that the English supervisory court’s jurisdictional review powers will be amended. Investment treaty claims often generate complex jurisdictional issues. Therefore, it can be expected that the de novo jurisdictional review powers of the English courts will continue to be tested in investment arbitration proceedings seated in London and conducted outside the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.