Kyrgyz Republic’s Mixed Fortunes in Investment Arbitration

The Kyrgyz Republic found itself on the receiving end of a flurry of investment arbitration claims a couple of years ago. While it has since successfully resolved a number of cases, it has also lost several times.

This post looks at two important recent developments. The first one is three awards rendered against the Kyrgyz Republic under the Convention on the Protection of Investors’ Rights (the “Moscow Convention”) and the Kyrgyz Republic’s actions to set these awards aside. The second is the recent decision of the Ontario Superior Court that opened the way to the enforcement of arbitral awards against the Kyrgyz Republic against an interest in a Canadian gold mining company Centerra held by the state-owned JSC KyrgyzAltyn.

Moscow Convention-based Awards against Kyrgyz Republic

According to publicly available information a total of three awards have been rendered against the Kyrgyz Republic under the Moscow Convention.

In Lee John Beck and Central Asian Development Corporation v Kyrgyz Republic the tribunal awarded USD 23 mln. It found that the respondent had expropriated the claimant’s investment by terminating the lease agreements with respect to various land plots in Bishkek (the capital of the Kyrgyz Republic).

In OKVV et al. v. Kyrgyz Republic the tribunal awarded c. USD 2.4 mln to the claimants. It found that the respondent had expropriated the claimants’ interests in the Avrora Green resort and residential complex.

Most recently in Stans Energy v. Kyrgyz Republic the tribunal apparently ruled in favour of the claimant though the award itself has not yet been finalised. In that case the claimant seeks more than USD 117 mln in compensation for the alleged expropriation of its interest in a rare earth minerals mining project.
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In all three cases the claimants relied on the Moscow Convention as both the substantive basis for their claims and the basis for the tribunal’s jurisdiction.
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In particular they relied on Article 11 of the Convention, which provides that:

“disputes concerning implementation of investments within the framework of the present Convention are to be resolved by courts or arbitration courts of the state-parties, the Economic Court of the Commonwealth of Independent States and/or other international courts or international arbitration courts” (translation – the Convention’s only authentic text is in Russian).

In all three cases the tribunals agreed that this provision constituted the Kyrgyz Republic’s consent to submit any investment disputes to international arbitration of the investor’s choice.

The Kyrgyz Republic apparently disagrees with this finding and it implemented a two-tier strategy to counter it.

First, it applied to the Moscow Commercial Court to have the awards set aside (all arbitrations had been seated in Moscow).  Two of these cases will be heard separately at the end of May with each one coming before a different judge. It has been reported that in all three cases the Kyrgyz Republic relies on the tribunal’s lack of jurisdiction (and in Stans Energy it applied to set aside the tribunal’s decision on jurisdiction).

Second, the Kyrgyz Republic requested an advisory opinion from the Economic Court of the Commonwealth of Independent States on the interpretation of Article 11 of the Moscow Convention and specifically on whether this provision on its own constitutes consent to jurisdiction of an international arbitral tribunal. On 7 April 2014 the Economic Court opened a case file, but no hearing has yet been scheduled.

Enforcement of Arbitral Awards against Kyrgyz Republic in Canada

Since 2009 Turkish company Sistem Muhendislik Insaat Sanayi ve Ticaret A.S (“Sistem”) has been trying to enforce an investment arbitration award against the Kyrgyz Republic. One of Sistem’s targets was the shares held by the state-owned JSC KyrgyzAltyn in the Canadian gold mining company Centerra Gold.

On 15 April 2014 the Ontario Superior Court decided that the Kyrgyz Republic had an interest in these shares that may be subject to arbitral award’s enforcement. The court found that while JSC KyrgyzAltyn held these shares they were owned by the Kyrgyz Republic. To reach this conclusion it relied on the terms and conditions of the agreement under which the shares had been acquired, the Kyrgyz Republic’s regulations relating to these shares and various public statements made by Kyrgyz officials.

The court specifically stressed that it did not need to “pierce the corporate veil” as on the facts it had found that the Kyrgyz Republic owned the shares.

The decision is a huge boost to those seeking enforcement of arbitral awards against the Kyrgyz Republic.
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According to the judgment the shares will not need to be sold to settle Sistem’s claim as sufficient funds that were due as dividends on these shares had been blocked pursuant to the court’s earlier order.