Russian Courts Reject Overly Broad Interpretation of Investment Treaty Arbitration Clause

CIS court

Arbitral tribunals in Moscow interpreted surprisingly broadly the dispute resolution provision in an investment treaty, allowing the investors to apply at unlimited number of fora at their choice.

However, the Minsk-based CIS Economic Court in its decision on 23 September clarified that such provision establishes only a potential possibility of investor-state dispute resolution by international arbitration provided that the arbitration agreement is concluded in due order.

Relying on this decision a state commercial court in Moscow on 18 November set the award aside.

A “blank” dispute resolution clause in the investment treaty?

Several member states of the Commonwealth of Independent States (CIS) concluded the Convention for the Protection of Investors’ Rights dated 28 March 1997. It entered into force for Belarus, Tajikistan, Armenia, Kazakhstan, Kyrgyzstan and Moldova. Russia is not party to this Convention.

This Convention contains a dispute resolution clause in Article 11 which provides that The disputes on carrying out investments within this Convention shall be heard by courts or arbitral tribunals of states-parties to the disputes, by the Economic Court of the Commonwealth of Independent States and/or by other international courts or international arbitration courts”.

In 2013 a number of foreign investors including a Canadian company Stans Energy applied to Arbitration at the Moscow Chamber of Commerce and Industry with a claim against Kyrgyzstan on the basis of this dispute resolution clause. The claimants alleged that the clause endows any international arbitral institution upon the claimant’s choice with competence to hear disputes against the member states.

Kyrgyzstan objected to jurisdiction of the tribunal and argued that the Convention did not contain a consent to arbitrate. The arbitral tribunal found itself competent to hear the disputes and rendered awards in favour of the claimants.

CIS Economic Court clarifies the dispute resolution clause in the investment treaty

In spring 2014 Kyrgyzstan applied at the Moscow state commercial court to challenge interim awards on the competence of the arbitral tribunal. In one case the court stayed the proceedings upon the application of Kyrgyzstan waiting for the interpretation of Article 11 by the Economic Court of the Commonwealth of Independent States (“CIS Economic Court”). Under Article 28 of the Convention any controversies with regard to the interpretation of the Convention shall be decided, in particular, by application at such Court.

In particular, Kyrgyzstan filed a request to the CIS Economic Court to clarify whether the above Article 11 of the Convention shall be understood as providing a consent to arbitrate at any arbitration court upon the claimant’s choice. On 23 September 2014, the CIS Economic Court rendered a Decision on interpretation of Article 11 of the Convention upon such request. In particular, the court found that:

3. The disputes … under Article 11 may be heard by a specific international arbitration court if the competence of such court is specified in domestic legislation of the state-party to such dispute, in an international treaty to which such state is a party, and/or in a separate agreement between the investor and the state party to such dispute.

4. The provisions of Article 11 … that the disputes on carrying out investments shall be heard by international arbitration courts, establish only a potential possibility of their resolution by international arbitration provided that the arbitration agreements are concluded in due order. The provisions of Article 11 … shall not be considered as an arbitration agreement to hear a dispute on carrying out investments.

The decision also provides that it is final and not subject to any appeal and shall be officially published.

Thus, the competent CIS court found that the treaty provision constitutes only a precondition of arbitrating investor-state disputes but does not substitute a separate arbitration agreement. In other words, the CIS Economic Court excluded a “broad” interpretation of the dispute resolution clause in the Convention.

On 18 November 2014 Commercial court of Moscow set aside the award in re No А-2013-10 (O.K.K.B. et al vs Kyrgyzstan). The court relied on the above decision of the CIS Economic Court and held that the investors and Kyrgyzstan did not enter into an arbitration agreement to resolve disputes by Arbitration at the Moscow Chamber of Commerce and Industry.

Such developments are important for investment arbitration affecting CIS states parties to the Convention. Its primary implication consists in denial of competence of an unlimited number of international arbitral bodies or tribunals to consider claims against states based merely on the Convention. That is, an arbitral tribunal shall be competent to hear disputes against a Member State only with its consent to jurisdiction of a specific arbitral institution or to dispute resolution under specific arbitration rules.

The decision of the CIS Economic Court favourises proper development of investment arbitration in CIS region. It complies with internationally accepted principles of arbitration law: arbitration agreements must be sufficiently specific, that is, must refer to a particular arbitral institution or arbitration rules.  A general treaty provision on the arbitrability of certain disputes does not endow arbitral tribunals with competence to hear a dispute under such treaty.

About the Author:

Dr Davydenko is the Director and co-editor of the CIS Arbitration Forum. He is Chief expert of Arbitration and Mediation Center at the Russian Chamber of Commerce and Industry. He also provides expert opinions on Russia-related international business law matters. He took part as co-arbitrator in the ICC arbitral proceedings and is listed as a recommended arbitrator of International Commercial Arbitration Court and Maritime Arbitration Commission at Russian Chamber of Commerce and Industry, as well as some other arbitral institutions. Included in the list of best practitioners in international arbitration in Russia as of the years 2017 and 2018 by Who's Who Legal and Global Arbitration Review (GAR).

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