English Commercial Court upholds challenge to a finding of no jurisdiction under s.67 of the Arbitration Act 1996 and remits the dispute back to the Tribunal

In an interesting and unusual case, the English Commercial Court has upheld a challenge under s.67 of the Arbitration Act 1996 (“AA”) To a decision by an arbitral tribunal that it did not have jurisdiction to decide a dispute under the 1989 Agreement for the Promotion and Reciprocal Protection for Investments (“FIPA”) Between Canada and the former USSR, as it held that FIPA applied to an investment treaty claim by a Canadian investor against Kazakhstan.

The decision in Gold Pool JV Limited v The Republic of Kazakhstan [2021] EWHC 3422 (Comm) provides an example of the court’s approach to examining questions of jurisdiction and its willingness to support the arbitral process.

The arbitration

In March 2016, Gold Pool commenced arbitral proceedings against the Republic of Kazakhstan seeking compensation based on a claim that it had been deprived of an asset valued at over USD $ 900 million. Gold Pool’s claim was brought under the FIPA concluded between Canada and the USSR on 20 November 1989, a few years before the USSR was dissolved. The FIPA contained an arbitration clause providing for investor-state disputes to be resolved by arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”).

The dissolution of the USSR created uncertainty as to whether Kazakhstan was still bound by the FIPA in 1997 at the time when Gold Pool says it was deprived of its Kazakhstan based investment. Gold Pool alleged that there had been an implied succession agreement between Canada and Kazakhstan in respect of the FIPA. The jurisdictional issue for the arbitral tribunal was whether Kazakhstan could be seen as continuing the pre-existing relationship between Canada and the USSR to create an implicit agreement on FIPA between Canada and Kazakhstan, despite no formal succession treaty having been signed between the two nations.

Gold Pool presented to the arbitrators three alternative cases for Kazakhstan’s implicit succession:

  1. a ‘Declaration of Economic Co-operation’ signed by Canada and Kazakhstan on 10 July 1992;
  2. a note from the Canadian Embassy to the Kazakhstan foreign minister in April 1994 that was stamped (not signed) by the embassy, ​​and the foreign minister’s response; and
  3. a recital referring to FIPA in a Trade Agreement between the two nations, signed by the respective governments on 29 March 1995.

Kazakhstan contended that no implicit succession had been made and argued that a treaty benefitting private investors would normally be made public and that the parties could easily have formed such an agreement of succession if desired.

On 30 June 2020, according to the court judgment, the arbitrators “Declared that Kazakhstan did not succeed to the FIPA and that the FIPA was not in force between Canada and Kazakhstan at the date of the award, [and in doing so] upheld Kazakhstan’s objection to jurisdiction ratione voluntatis and declared that they had no jurisdiction to entertain Gold Pool’s claim, ordered costs (and interest on costs) against Gold Pool, and formally rejected all other claims ” (paragraph 5).

Gold Pool’s challenge under s.67 Arbitration Act 1996

Gold Pool brought an application under s.67 AA 1996 seeking to set-aside, in whole or in part, the Tribunal’s award.

S.67 AA permits a party to arbitration proceedings to apply to the English court to (a) challenge any award of the arbitral tribunal as to its substantive jurisdiction, or (b) seek an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction. The court may confirm, vary, or set-aside the award.

Notably, the approach of the court in s.67 applications requires a rehearing ‘de novo’ in which the arbitrators’ conclusions have no legal or evidential weight. It is not a review of the tribunal’s decision on jurisdiction.

It was common ground that the Tribunal had correctly set out the applicable legal rule in its award:

“… States may agree to continue a pre-existing treaty relationship following the emergence of one of them as a new State and such agreement may be either explicit or tacit and may lack the ordinary formalities associated with the conclusion of a new treaty. … whether this represents the formation of a new legal agreement between the States concerned, or constitutes an agreement confirming succession to an earlier agreement representing[s] fine shades of nuance, but in either view the existence of an agreement is paramount. “

The question for the Court, as for the Tribunal, was therefore whether the FIPA continued to be in force between Canada and Kazakhstan through an implied succession agreement, thereby also confirming the existence of a valid arbitration agreement.

High Court Judgment

The Court conducted a detailed analysis of each of the 1992 Declaration, the 1994 Exchange and the 1995 Recital referred to above. The judge held that the 1992 Declaration was an implied succession agreement to the FIPA which had not been disappointed at any material time thereafter. Further, that the 1994 Exchange, had this not previously been the case, also amounted to agreement by implication upon the succession of Kazakhstan to the FIPA. Even the 1995 Recital was held to be reasonably capable of having conveyed the message that the FIPA was agreed to be in force and effective between Kazakhstan and Canada.

Accordingly, the Court held that there was an implicit agreement as to the succession of the FIPA on all three grounds. The claim was therefore remitted back to the Tribunal on the basis that it does have jurisdiction ratione voluntatis to consider the substantive claims.

Conclusion

Successful challenges in the English courts to arbitral awards based on substantive jurisdiction are rare. In 2019-2020 only 11% of applications under s.67 AA were successful (The Commercial Court Report 2020-2021). This case is particularly noteworthy not only because of its unique facts (and historical interest), but also as an instance of the Court disagreeing with the Tribunal’s conclusion that it did not have jurisdiction to hear the claim. In doing so, the Court remits the dispute back to the Tribunal to determine Gold Pool’s substantive claims, and to consider all issues of costs anew, by and through a fresh award.

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