A New Path to Bring Investment Cases in Arbitration against CIS States?

On the 8th of June CIS states: Republic of Belarus, Republic of Armenia, Republic of Kazakhstan, Kyrgyz Republic, Russian Federation, Republic of Tajikistan, Republic of Uzbekistan (hereinafter - Parties) have signed an Agreement on Free Trade in Services, Establishment, Activities and Investments (hereinafter - Agreement). The agreement regulates investments by investors of one Party in the territory of the other Party.

Article 36 of the Agreement introduced dispute settlement mechanism between investors and a Party.

A dispute between a Party and an investor of the other Party regarding its investments in the territory of that Party shall be resolved through negotiations. Request for negotiation shall be submitted to the specially authorized bodies, designated by each Party. It appears that ministries or other governmental bodies responsible for attracting investments will play the role of such authorized bodies.

If the negotiations do not commence or do not lead to a mutually beneficial settlement within six months from the date of sending a request for negotiations the dispute shall be considered within the framework of dispute resolution procedures agreed upon by the parties to the dispute.

If such procedures are not agreed upon within the six-month period, the investor may refer the dispute to the court of the Party in whose territory the investment was made or to one of the following arbitration bodies (institutions):

“a) the arbitration court of the Party (where applicable) in whose territory the investments were made;

b) ad hoc arbitration established in accordance with the UNCITRAL Arbitration Rules, in force on the date of commencement of the arbitration proceedings, unless the parties to the dispute have agreed to apply a specific version of the said rules;

c) another permanent international arbitration body (institution), agreed upon by the parties to the dispute.

When an investor submits a dispute to a court of a Party that is a party to the dispute, an arbitration tribunal of a Party, ad hoc arbitration, or another arbitration body (institution) agreed upon by the parties to the dispute, the choice of one of the four procedures is final” (Article 36.5 of the Agreement).

At first glance the provisions of Article 36.5 a) looks like a state’s offer to arbitrate, which can be accepted by an investor.

There are some grounds in favour of such interpretation:

Firstly, Article 36.5 c) states that dispute may be referred to another permanent international arbitration institution, agreed upon by the parties to the dispute. Since Article 36.5 a) does not prescribe a necessity of any prior agreement between disputing parties it can be invoked without additional agreement.

Secondly, according to Article 36.5 “when an investor submits a dispute to an arbitral tribunal of a Party… the choice … is final”. Thus, it can be presumed that the choice is on the investors side.

Finally, it is noteworthy that the Republic of Kazakhstan made a reservation to Article 36.5 of the Agreement, according to that “Resolution of disputes between a Party and an investor of the other Party" of this Agreement, instead of an arbitration court, the dispute shall be considered by the Court of the International Financial Center " Astana" (AIFC Court)”.

The expression “(where applicable)” in the text of Article 36.5. a) appears to refer to the national legislation of states on arbitration courts, suggesting that not in all participating states investment disputes can be attributed to the competence of arbitration courts.

To submit a dispute to one of the arbitration bodies (institutions) specified in Article 36.5 of the Agreement an investor shall submit to the authorized body written notification of a request to submit a dispute to an arbitration body (institution). This request shall indicate whether negotiations have been held between the parties to the dispute.

Measures or situations not addressed in the request for negotiations cannot be submitted to arbitration. The request to submit a dispute to the arbitration body (institution) cannot supplement or alter the claims set out in the prior written request for negotiations. Consequently, the arbitration body (institution) does not have the right to accept disputes and make an award on the compliance of the Party’s measure with the provisions of the Agreement, if such measure or provisions were not specified in the written request for negotiations.

The Agreement proposed a special mechanism for interpretation of its provisions. Thus, the Parties may at any time agree on a joint interpretation of the provisions of this Agreement. At any stage of a dispute, including during negotiations or arbitration, a Party to the dispute may send a written request to another Party to conduct joint consultations regarding the interpretation of the Agreement's provisions in dispute. A copy of the request for such consultations is simultaneously sent by the first Party to the investor who is a party to the dispute, and to the arbitration body (institution).

A dispute cannot be submitted to an arbitration body (institution) from the date of receipt of a request for consultations. If a dispute is sent for consideration to one of the arbitration bodies (institutions) specified in the Article 36.5 of the Agreement arbitration procedures are suspended.

The joint interpretation by the Parties of the provisions of the Agreement is mandatory for the Parties, investors of the Parties and arbitration bodies (institutions) to which disputes between an investor of the Party and the other Party are submitted.

Thus, the Agreement has established a new complex mechanism for resolution of investor-state disputes in the CIS region with a potential for investors to bring claims in arbitration court without separately signed arbitration agreement. Only time will tell how it will function.

It should be noted that on the CIS territory the Convention on the Protection of Investor Rights[1], (hereinafter – the Convention) is still in force.

The Convention contains another framework for resolution of investment disputes. In accordance with Article 11 of the Convention:

?Procedure for resolving disputes arising in connection with investment Disputes regarding the implementation of investments within the framework of this Convention are considered by the courts or arbitration courts of the countries participating in the disputes, the Economic Court of the Commonwealth of Independent States and / or other international courts or international arbitration courts?.

In the 23th of September 2014 the Economic Court of the Commonwealth of Independent States issued a decision № 01-1/1-14 that officially interpreting Article 11 of the Convention, in connection with multiple disputes between investors and Kyrgyz Republic.

In this decision the Economic Court of the Commonwealth of Independent States prescribes that:

?The provisions of Art. 11 of the Convention shall not be construed as an arbitration agreement setting out the rules for the consideration of investment disputes (or as an irrevocable offer to enter into such), as Art. 11 does not indicate any specific international arbitration court of jurisdiction competent to consider such disputes, or any procedure to identify such a court.

Today, a great number of international courts of arbitration exists, whose dispute resolution procedures differ in time, cost, arbitrators' competence, option to choose the seat of arbitration, language of arbitration, etc. Given the above, the interpretation of the provisions of Art. 11 of the Convention to mean that such provisions are an arbitration agreement (or an irrevocable offer to enter into such) that provides for the option to refer investment disputes to any international court of arbitration, would create a situation that would not comply with the provisions of the international legal acts or the laws of the states party to the Convention setting out the procedures for investment dispute resolution, and that would conflict with the position of the states party which, when the Convention was concluded, expressed concern as to the choice of an international court of arbitration and the procedure for the consideration of their disputes?.

It is noteworthy that, unlike the Agreement, the Convention establishes a special investment regime for a wide range of investors, including from states that are not parties to the Convention.

P.S. The Agreement has not yet entered into force. According to its Article 44 the Agreement shall enter into force upon the expiration of 30 days from the date of receipt by the depositary of the third notification that the signatory Parties have completed the internal procedures necessary for its entry into force. Currently two notifications from the Republic of Belarus and Kyrgyz Republic have already received.

[1] was signed in Moscow on the 28th of March 1997 by Republic of Belarus, Georgia, Republic of Kazakhstan, Kyrgyz Republic, Republic of Moldova, Russian Federation, Republic of Tajikistan, Republic of Azerbaijan and Republic of Armenia