Moscow Chamber of Commerce and Industry Arbitration Court and Economic Court of CIS rule on consent to arbitrate under Moscow Convention

29.10.2014

PLC Arbitration

In OKKV v Kyrgyzstan [Case No A-2013/10], Lee Jong Baek v Kyrgyzstan [Case No A-2013/10] and Stans Energy Inc. v Kyrgyzstan [Case No A-2013/29], the MCCI Arbitration Court and later the Economic Court of the Commonwealth of Independent States (CIS), at the request of Kyrgyzstan, gave their interpretation as to whether Article 11 of the Moscow Convention constituted actual consent of the state to arbitrate in any international arbitration institution in an investment dispute.

Speedread

The Moscow Chamber of Commerce and Industry Arbitration Court (MCCI Arbitration Court), and the Economic Court of the Commonwealth of Independent States (CIS) have made contrasting rulings on the meaning of Article 11 of the Moscow Convention. Article 11 is a broad provision that includes "international arbitration courts" as a forum for resolution of investment disputes.

The MCCI Arbitration Court accepted jurisdiction in three investment disputes against Kyrgyzstan under the Moscow Convention. It found that, although the contracts did not specify an arbitration institution, the reference to Article 11 of the Moscow Convention was sufficient to constitute Kyrgyzstan's consent to arbitrate.

Subsequently, in set aside proceedings, the Moscow Commercial Court supported the tribunals' position. However, on appeal, the Commercial Court of Moscow District remitted the cases to the Moscow Commercial Court for re-consideration, on the basis that the Moscow Commercial Court supported the tribunal's position without waiting for the Economic Court of the CIS to give its interpretation of Article 11 of the Moscow Convention, for which Kyrgyzstan had applied. When it did subsequently give its interpretation, the Economic Court of the CIS decided that Article 11 did not contain the consent of the participant states to resolve investment disputes in any international arbitration court chosen by an investor.

The cases will be of interest to those interested in investment arbitration and investors in the contracting states in the Moscow Convention, such as Belorussia, Tajikistan, Armenia, Kazakhstan, Kyrgyzstan and Moldavia.

In a related development, it has been reported that the Ontario Superior Court of Justice has granted an injunction restraining Kyrgyzstan from dealing with Centerra Gold, a Toronto company, pending the court's decision on enforcement of the award in Stans
Energy's favour. (OKKV v Kyrgyzstan [Case No A-2013/10], Lee Jong Baek v Kyrgyzstan [Case No A-2013/10] and Stans Energy Inc. v
Kyrgyzstan [Case No A-2013/29].)

Background

Article 11 of the Moscow Convention (1997) provides that:

"[d]isputes in respect to making investments under this Convention are considered by the courts or commercial (arbitrazh) courts of the state parties to the disputes, the Economic court of the Commonwealth of the Independent States and/or other
international courts or international arbitration courts ."

Russia has not joined the Moscow Convention. However, one possible interpretation of its dispute resolution provisions, is that the Convention constitutes actual consent of the state to arbitrate in any international arbitration institution, anywhere in the world, by any
investor, subject to the host state signing the Convention.

The Economic Court of the Commonwealth of Independent States (CIS) is entitled to give interpretations in respect of the application of CIS documents and, according to Article 28 of the Moscow Convention, disputes under the Convention can be settled by applying to the Economic Court of the CIS.

Facts

In November 2013, the Moscow Chamber of Commerce and Industry Arbitration Court (MCCI Arbitration Court) issued two awards against Kyrgyzstan relating to claims by an investor, OKKV, and others in the sum of US$ 2.3 million and by a Korean citizen, Lee Jong Baek and his affiliated company in the sum of US$ 22.5 million, holding that it had jurisdiction under the Moscow Convention. In 2014, athird case against Kyrgyzstan based on the Moscow Convention was also decided in favour of the investor. In that case, a Canadiancompany, Stans Energy Corp, won US$ 118 million in a dispute related to an alleged unlawful expropriation of the claimant's investments.

The arbitrations were fast tracked and the respondent state abstained from participating. Afterwards, Kyrgyzstan filed motions for setting aside all three awards with the Moscow Commercial Court.

On 24 June 2014, the motion to set aside the award in Lee Jong Baek case was declined by the Moscow Commercial Court. The Moscow Commercial Court also terminated the proceedings initiated by Kyrgyzstan to set aside the ruling on jurisdiction in the Stans Energy case.

Kyrgyzstan appealed both rulings to the Commercial Court of Moscow District. The OKKV case was suspended pending the interpretation of article 11 of the Convention by the Economic Court of the CIS. The proceedings have now been reopened and the next
hearing is scheduled for 18 November 2014. The judgment in the proceedings to set aside the award in Stans Energy case has not been rendered yet.

Decision

On 26 September 2014, the Commercial Court of Moscow District upheld the appeals and remitted the cases for re-consideration to the Moscow Commercial Court. Its reasoning mostly dealt with the fact that the MCCI Arbitration Court had ruled on the motions without waiting for an interpretation of Article 11 by the Economic Court of the CIS, for which Kyrgyzstan had applied. The Economic Court of the CIS gave that interpretation on 23 September 2014, declaring that Article 11 did not contain the consent of the participant states to resolve investment disputes in any international arbitration court chosen by an investor. The court directly stated that consent of the state in its national legislation, international treaties and/or a special agreement with the investor is required for a dispute to be settledby arbitration.

Comment

The case demonstrates two very different interpretations of the same article of the Moscow Convention by the arbitral tribunal, on the one hand, and the Economic Court of the CIS, on the other.

The arbitral tribunal interpreted Article 11 very broadly, construing it as being mandatory. Furthermore, absent such further specifications as "agreed by the parties to a dispute" or "by agreement of the parties", the Moscow Convention, in the tribunal's opinion, provides for the possibility of an investor having recourse to any international arbitration institution in the world, at its discretion.

By contrast, the interpretation offered by the Economic Court of the CIS denied that Article 11 contains consent to arbitrate in any international arbitration institution at the investor's choice. This interpretation is very close to the opinion that Article 11 was more likely to constitute mere confirmation that investment disputes were arbitrable, a view recently discussed at the Russian Arbitration Day 2014.

Under Article 28 of the Moscow Convention and the Economic Court of the CIS Regulations, the interpretation of the Economic Court bears more weight than that of the tribunal.

In a related development, it has been reported that the Ontario Superior Court of Justice has granted an injunction restraining Kyrgystan from dealing with Centerra Gold, a Toronto company, pending the court's decision on enforcement of the award in Stans Energy's favour.

http://uk.practicallaw.com/cs/Satellite/resource/9-586-1527

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