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CIArb Features

UNCITRAL tribunal award on jurisdiction upheld by High Court

31 March 2017 Features
By Sabina Adascalitei LLB, LLM, MCIArb Research and Academic Affairs Coordinator

UNCITRAL tribunal award on jurisdiction upheld by High Court: set-aside proceedings defeated 

Introduction

The case arises out of the commencement of UNCITRAL arbitral proceedings in 2010 by Ruby Roz Agricol LLB (Ruby Roz), a Kazakh poultry company, against the Republic of Kazakhstan (Republic).

The arbitral tribunal had ruled that it had no jurisdiction to hear the dispute and suggested that the parties should agree to London as their seat of arbitration. Following the arbitral tribunal’s award, Ruby Roz brought a challenge under Section 67 of the English Arbitration Act 1996 asking the High Court for a ruling on jurisdiction.

The Contract

Ruby Roz and the Republic were parties to a written contract, which was referred to as a “contract on the provision of investment incentives and government support of investment activities in the Republic”.  The contract contained the following dispute resolution clause:

14. Arbitration

14.1. The Parties shall make every effort to resolve all disputes and differences connected with investment activities or arising out of the performance or interpretation of any of the provisions of this Contract by means of negotiations.

14.2. In case the Parties do not reach an agreement within two months from the date of a written request by one Party to another Party, the dispute shall be referred:

a) to the judicial bodies of the Republic of Kazakhstan authorised by the laws of the Republic of Kazakhstan to hear such disputesÍž

b) or to various foreign arbitral bodies, if the interests of a foreign Investor are affected and there is a written objection by such foreign Investor to the dispute being heard in Kazakhstani courts.

The procedure for the consideration of disputes with the Investor arising out of the Contract shall be determined in accordance with the laws of the Republic of Kazakhstan.

14.3. The Parties shall not be released from performing their obligations under the Contract until the disputes and differences that have arisen have been resolved in full.

Ruby Roz argued that, for the purposes of the dispute resolution clause, it had the status of a foreign investor and that the Contract should be read in light of the draft framework agreement on which the contract was based as well as foreign investment law. However, the Court did not seem to embrace this approach, but rather considered that support was offered under a Kazakh law on “State Support of Direct Investment”, underlining that this law would apply to both national and foreign investors. The court noted that even though the framework agreement applied to both foreign and national investors it did not provide a special meaning to the word “foreign” to potentially include Ruby Roz. The Framework Agreement provided that for a foreign investor, a contract would be drafted in both English and Kazakh or Russian. However, in this case, the contract was drafted only in Russian, which suggested that Ruby Roz was not in fact a foreign investor.

Invoking the Foreign Investment Law

Ruby Roz submitted an alternative argument, based on the Foreign Investment Law alone, claiming that this would provide “a mechanism to engage arbitration in the event of a dispute”. Ruby Roz supported its argument by referring to the Foreign Investment Law, after it had undergone amendments.

In essence, Ruby Roz relied on the final iteration of Article 27 of the Foreign Investment Law, which provided that a foreign investor could refer any disputes to arbitration. This law contained a 10-year stabilisation clause with regard to foreign investments. However, the main question on which the Court focused was whether the investments of Ruby Roz can be considered “foreign investments” and whether they could, therefore, fall under the stabilisation clause. The court came to the conclusion that Ruby Roz could be considered a foreign investor, but the definition given to “foreign investments” did not cover the investments provided in the Contract, as it was quite narrow in nature.

Conclusion

The High Court confirmed the UNCITRAL Tribunal’s award on jurisdiction, highlighting that the Tribunal lacked jurisdiction both under the Contract as well as the Foreign Investment Law. Although the High Court’s decision was largely the same, it was based on slightly different considerations. The Court focused on the narrow definition given to “foreign investments” in the stabilisation clause and found that the reconstruction of buildings and purchase of land and equipment were not covered by the definition.