High Court confirms UNCITRAL Tribunal Award on jurisdiction

The High Court has confirmed an UNCITRAL Tribunal's Award on Jurisdiction, which rejected jurisdiction under an investment contract (Contract) and the 1994 Kazakh Law on Foreign Investment (FIL).

The Court placed particular emphasis on expert evidence of the principles of contractual interpretation under the Civil Code of the Republic of Kazakhstan.  It was not prepared to depart from these principles, which required a literal interpretation of the Contract and FIL.

Whilst the Court's reasoning differed in some respects from that of the Tribunal, it was broadly consistent with the Award on Jurisdiction. 

Background

In 2010 Ruby Roz Agricol LLP (Ruby Roz) commenced UNCITRAL arbitration proceedings against the Republic of Kazakhstan. The Tribunal found that it did not have jurisdiction to determine the parties’ substantive dispute because there was no valid arbitration agreement between the parties, either under the Contract or the FIL (see our blog post on this Award here). As the parties had agreed to treat London as the seat of the arbitration, in Ruby Roz Agricol LLP v The Republic of Kazakhstan [2017] EWHC 439, Ruby Roz brought a challenge under section 67 of the Arbitration Act 1996 asking the High Court for a ruling on jurisdiction.

The Court's decision was consistent with that of the Tribunal: the Court held that the Tribunal did not have jurisdiction. That decision was based on similar grounds to the Tribunal in relation to the Contract but on different grounds in relation to the FIL.

The Contract

Clause 14.2 of the Contract states that any dispute should be referred to arbitration "if the interests of a foreign Investor are affected."  Ruby Roz submitted that it was a "foreign investor" for the purposes of this clause, and that this was particularly clear when the Contract was read in the context of i) the draft Framework Agreement on which the Contract was based and ii) the FIL.

The Court was reluctant to situate the Contract in the context of the Framework Agreement or the FIL: the applicable law required a literal interpretation of the Contract. Since Ruby Roz was established under the laws of the Republic, it was not "foreign". Nonetheless, the Court went on to consider in more detail Ruby Roz’s arguments regarding the Framework Agreement and FIL.

The Court dismissed the significance of the Framework Agreement.  The Framework Agreement was not derived from the FIL, but rather was offered under a Kazakh law on "State Support of Direct Investment."  The Court noted that this law applied to both national and foreign investors and did not assist with the meaning of the word "foreign".  Indeed, the Framework Agreement contemplated that for a "foreign investor", a contract would be drawn up in English and Kazakh or Russian. The Contract was in Russian only, suggesting Ruby Roz was not "foreign".

Nor did the FIL assist.  Ruby Roz would have fallen within the definition of an "enterprise with foreign participation" under the FIL.  Whilst those enterprises were offered some of the guarantees enjoyed by "foreign investors", under 4.5 of the FIL, this served only to demonstrate that there was a clear distinction between an "enterprise with foreign participation" and a "foreign investor". It did not assist Ruby Roz in its argument that it was a "foreign investor."

The fact that the owner of Ruby Roz may have been a foreign investor in Ruby Roz was also irrelevant: the Court highlighted the importance of distinguishing investment by Ruby Roz and in Ruby Roz.

The Foreign Investment Law 

Ruby Roz submitted that the FIL also provided an independent submission to arbitration. 

The FIL came into effect in 1994, underwent various alterations, and was finally repealed in 2003. 

In its final iteration, Article 27 of the FIL provided that a foreign investor could refer any disputes to arbitration.  The FIL also contained a 10 year stabilisation clause in relation to "foreign investments". 

Much of the discussion in the UNCITRAL Award focused on when this stabilisation period would commence and whether Ruby Roz's investments fell within the stabilisation period. However, the Court's analysis focused on the initial question of whether Ruby Roz's investments were "foreign investments" and could therefore benefit from the stabilisation clause. 

The Court accepted that Ruby Roz arguably fell within the definition of "foreign investor". However, the definition of "foreign investments" was narrow and did not cover the investments outlined in the Contract, namely the reconstruction of buildings and purchase of land and equipment. 

Again, the applicable law required a literal interpretation of the FIL. The Court considered the language of the FIL to be clear, but briefly considered Ruby Roz's arguments as to the relevance of historical circumstances in interpreting the provision.

However, the Court found that the fact that the legislative's object of protection may have been "the foreign investor's position" (as Ruby Roz argued) could not tenably impact the interpretation of "foreign investment" where that definition clearly lists the forms of investment to which it extends.  The commercial aim to protect investments could not supplant the clear words of the FIL. The Court also rejected Ruby Roz's other contextual arguments.

Conclusion

The Court reached the same conclusion as the Tribunal, namely that the Tribunal did not have jurisdiction under the Contract or the FIL.  Whilst they agreed that, on a plain reading of the Contract, Ruby Roz was not a "foreign" investor, the reasoning of the Court and the Tribunal differed in respect of the FIL. The Tribunal found that the stabilisation period had expired and that Ruby Roz could no longer rely on the arbitration agreement in the FIL. The Court did not consider this issue as it found that Ruby Roz's claim failed on a prior issue: its investments did not qualify as "foreign investments" under the clear language of the stabilisation clause.

This case underlines that the Court will be likely to closely apply the principles of contractual interpretation required under an applicable foreign law when construing contracts and foreign legislation. It will usually be difficult to persuade the Court to adopt a more expansive approach, or one that draws upon principles more familiar in English law.

For further information, please contact Craig Tevendale, Partner, Susan Field, Senior Associate, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
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+44 20 7466 2445
Susan Field
Susan Field
Senior Associate
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+44 20 7466 2818

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Filed under Arbitrability, Arbitration Act 1996, Arbitration clauses, Investment Arbitration, Jurisdiction

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