Uzbekistan’s BIT and Foreign Investment Law Disputes

1.

Uzbekistan’s BIT and Foreign Investment Law
Disputes
Tashkent State University of Law
November 17-18, 2022
Carolyn Lamm, Hansel Pham
White & Case LLP

2.

Overview of Uzbekistan’s BITs, Model BIT,
and FIL

3.

FDI in Uzbekistan
2022
Investment
Climate
Statements:
Uzbekistan,
https://www.state.gov/reports/2022-investment-climate-statements/uzbekistan/
U.S.
Department
of
State,
available
at:
Uzbekistan has the potential to become a strong regional
economy:
–
A dynamic and entrepreneurial population, the largest in Central
Asia;
–
Good infrastructure;
–
Large potential consumer market.
In the past, most FDI was directed into the oil, gas, and
mining sectors.
–
In recent years, there has been trend towards increasing FDI in
manufacturing, production and distribution of electricity, tourism
and banking.
3

4.

FDI in Uzbekistan (cont’d)
2022
Investment
Climate
Statements:
Uzbekistan,
https://www.state.gov/reports/2022-investment-climate-statements/uzbekistan/
U.S.
Department
of
State,
available
at:
Over the past five years, the GoU has made efforts to
improve the investment attractiveness of the Republic.
–
The GoU has modernized its legislation through the adoption of
the Law on Investments and Investment Activities and other acts
that streamlined interactions of investors with the state, reduced
the tax load, and liberalized access to certain commodities.
–
As a result, the inflow of FDI has grown from about US$ 2 billion in
2017 to over US$ 8 billion in 2021.
–
With the removal of major pandemic restrictions in 2021, GDP
grew 7.4 percent.
4

5.

President Shavkat Mirziyoyev on
Investment Policy in the Republic
Address
by
the
President
of
the
Republic
of
Uzbekistan
Shavkat
Mirziyoyev
www.un.int/uzbekistan/news/address-president-republic-uzbekistan-shavkat-mirziyoyev-oliy-majlis
to
Oliy
Majlis,
available
at:
https://
“It will not be an exaggeration to say that investments are driving engine of
country’s economy, or ‘it’s the heart of economy.’”
“The international experience demonstrates that those countries, which
pursue active investment policy, succeed in steady growth of their
economies.
–
In this view, we need to adjust allocation of business entities in free
economic zones and small industrial zones, improve organizationally and
legally providing them with incentives and preferences.
–
For the investors to feel themselves as comfortable as possible, it is
required to further liberalize the currency market.”
5

6.

BITs and TIPs of Uzbekistan
Uzbekistan’s first BIT was signed in March 1992 (ChinaUzbekistan BIT), but has since been terminated
Currently, Uzbekistan is a party to 54 BITs, including the
most recent one with Belarus, signed on 1 August 2019
Uzbekistan is also a party to 5 treaties with investment
provisions (TIPs), including the 2004 US-Central Asia
TIFA
6

7.

[
List of Uzbekistan’s BITs
1990s
China (1992; replaced)
Turkey (1992; replaced)
Republic of Korea (1992)
Pakistan (1992)
Finland (1992)
Egypt (1992)
Ukraine (1993)
Switzerland (1993)
Germany (1993)
France (1993)
United Kingdom (1993)
Israel (1994)
United States (1994; not in
force)
Poland (1995)
Slovakia (1995)
Georgia (1995)
Moldova (1995)
Netherlands (1996)
Viet Nam (1996)
Latvia (1996)
Azerbaijan (1996)
Romania (1996)
Indonesia (1996)
Kyrgyzstan (1996)
Czech Republic (1997)
Greece (1997)
Kazakhstan (1997)
Malaysia (1997)
Italy (1997; terminated)
Russia (1997; not in force)
Belgium-Luxembourg
Economic Union (1998)
Bulgaria (1998)
India (1999; terminated)
Early 2000s
Recent
Austria (2000)
Iran (2000)
Bangladesh (2000)
Sweden (2001)
Portugal (2001)
Lithuania (2002)
Hungary (2002)
Spain (2003)
Singapore (2003)
Slovenia (2003)
Kuwait (2004)
United Arab Emirates
(2007)
Oman (2009)
Bahrain (2009)
China (2011)
Saudi Arabia (2011)
Russia (2013)
Turkey (2017)
Republic of Korea (2019;
not in force)
Belarus (2019; not in force)
7

8.

Changes in the Definition of “Investment” in
Uzbek BITs over Time
https://investmentpolicy.unctad.org/international-investment-agreements/countries/226/uzbekistan
Pakistan - Uzbekistan BIT,
Art. I (1992)
Spain - Uzbekistan BIT, Art. I
(2003)
Republic of Korea Uzbekistan BIT, Art. I (2019)
“Investment” defined to include the following
specific categories:
“Investment” defined to include the following
specific categories:
“Investment” defined to include the following
specific categories:
a)
(i)
invested property, whether movable or
immovable and any property rights;
monetary values as well as shares, stocks
and other forms of participation in companies;
rights of pledging for money invested to
operate economic values or for services
having economic value;
movable property including patent rights,
trademarks, industrial samples, as well as
technology and know-how;
copyrights;
rights for business activities rendered
according to legislation or contracts, including
in particular the rights for exploration,
elaboration and exploitation of natural
resources.
b)
c)
d)
e)
movable and immovable property and any
other property rights such as mortgages,
liens, pledges and similar rights;
shares in, stocks and debentures of a
company or any other form of participation in
a company or business enterprise;
claims to money or to any performance
under contract having economic value and
associated with an investment;
intellectual and industrial property rights;
technical processes, know-how and goodwill;
rights
to
undertake
economic
and
commercial activities conferred by law or by
virtue of a contract, including concessions to
search for, cultivate, extract or exploit natural
resources.
an enterprise (being a juridical person or
any other entity constituted or organized
under the applicable law of the host
Contracting Party, and whether private or
government-owned or controlled, and
includes a corporation, trust, partnership,
sole proprietorship, branch, joint venture,
association or organization);
(ii) shares, stock, and other forms of equity
participation in an enterprise;
(iii) bonds, debentures, other debt instruments
and loans;
(iv) turnkey,
construction,
management,
concession, revenue sharing, and other
similar contracts;
(v) intellectual property rights, including
copyright, trademark, patents, industrial
designs, technical processes, know-how,
trade secrets and trade names, and good
will;
(vi) licenses, authorizations, permits, and
similar rights conferred pursuant to
domestic law;
(vii) reinvested returns; and
(viii) other tangible or intangible, movable or
immovable property, and related property
rights, such as leases, mortgages, liens,
and pledges.
8

9.

Foreign Investment Law of Uzbekistan
Law of the Republic of Uzbekistan “On Investments and Investment Activity” No. ZRU-598 dated 25 Dec. 2019, Preamble, Article 3
The new Uzbekistan’s Foreign Investment Law (FIL) was enacted in 2019
and entered into force in January 2020
The purpose of the FIL is to “regulate the relations in the areas of investment
and investment activities carried out by foreign and domestic investors.”
The term “investments” is defined as “tangible and intangible assets and
rights thereof, including the intellectual property rights, as well as
reinvestments by the investor bearing certain risks into the objects of social
sphere, entrepreneurial, scientific and other types of activities for profit.”
9

10.

Foreign Investment Law of Uzbekistan
Law of the Republic of Uzbekistan “On Investments and Investment Activity” No. ZRU-598 dated 25 Dec. 2019, Art. 5
There are three types of investments under the FIL,
divided by their object:
–
Capital investments, including investments into creation and
recreation of fixed assets, e.g., new construction, modernization,
reconstruction, and technical retooling.
–
Financial investments, including investments in shares, corporate,
infrastructure, and state bonds and other securities; and
–
Social investments, including investment in human resources,
skills and industry experience, as all as other intangible benefits.
10

11.

Foreign Investment Law of Uzbekistan
Law of the Republic of Uzbekistan “On Investments and Investment Activity” No. ZRU-598 dated 25 Dec. 2019, Art. 6
The FIL recognizes the following forms of investments:
–
Establishment of, and acquisition of shares or assets of legal entities;
–
Acquisition of securities;
–
Acquisition of concessions;
–
Acquisition of IP rights; and
–
Acquisition of the rights to land or the rights to use and possess other
natural resources
11

12.

Uzbek Model BIT
Prof. Islambek Rustambekov, Bilateral Investment Treaties: Model BIT of Uzbekistan, Presentation for Bishkek Arbitration Days (5 June 2020)
In 2019, Uzbekistan began the process of preparing the
Model BIT, relying on its investor-state dispute settlement
experience and best practices
In developing its Model BIT, Uzbekistan relied on the
following key documents:
–
South African Development Community (SADC) Model Bilateral
Investment Treaty
–
India’s Model Text for Bilateral Investment Treaty
–
2015 UNCTAD Investment Policy Framework
–
2017 UNCTAD Global Action Menu for Investments Facilitation
12

13.

Main Goals of the Uzbek Model BIT
Prof. Islambek Rustambekov, Bilateral Investment Treaties: Model BIT of Uzbekistan, Presentation for Bishkek Arbitration Days (5 June 2020); Draft
Model BIT of Uzbekistan, Preamble
To promote and facilitate sustainable economic development
To protect foreign investors from illegal expropriation and
nationalization, as well as to provide minimal and national standards
of treatment
To eradicate corruption and bribery in the process of establishing
and maintaining investments
To uphold human rights, labor laws and environmental protection
13

14.

Uzbek Model BIT: Definition of
Investment and Investor
Draft Model BIT of Uzbekistan, Art. 1
Investment:
Investor:
“Any individual who is a natural person or a
“[A]n enterprise established, acquired,
permanent resident of a Party, according to
or expanded and subsequently
maintained and operated, in good faith, its laws, who has made an investment as
defined infra in the territory of the other
within the territory of one State by an
Party in accordance with that Party’s laws
investor of the other State, in
[…]
accordance with the law of the Host
Any legal entity, including companies,
Party in whose territory the
corporations, commercial associations
investment is made, which taken
provided that such legal entity is:
together with the assets directly owned
established or constituted or organized in
by the enterprise, contributes to the
sustainable development of the Host accordance with the laws of a Party;
having its headquarters and the center of its
Party and has the characteristics of
economic activity or principal place of
an investment such as the
commitment of capital or other similar business in the territory of that Party;
resources, the expectation of gain or that has made an investment as defined
infra in the territory of the other Party in
profit, the assumption of risk, and
accordance with that Parties’ laws.”
certain duration.”
14

15.

Innovative Provisions in the Uzbek Model
BIT
Draft Model BIT of Uzbekistan, Arts. 4, 19
The Model BIT of Uzbekistan contains several innovative provisions that
investors are expected to adhere to:
International human rights
International labor rights
International environmental standards
“Investors and investments shall not manage or operate the investments in a
manner that circumvents international environmental, labor and human rights . . .
Investors and Investments shall uphold human rights in the host State.”
“Investors and investments shall act in accordance with core labor standards as
required by the ILO Declaration on Fundamental Principles and Rights of Work,
1998.”
“Investors shall maintain an environmental management system.”
15

16.

Investment Arbitration
Against Uzbekistan
Cases
Brought

17.

Investment Arbitration Cases Brought
Against Uzbekistan
Investment Policy Hub: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/226/uzbekistan; ICSID website: https://icsid.worldbank.org/en/
Initiate
d
Claimant(s)/Nationalities
Forum
Claims
Jurisdictional Basis
Outcome
2006
Newmont USA Ltd. and Newmont (Uzbekistan)
Ltd./USA, Uzbekistan
ICSID
N/A
Uzbek Investment Law
Discontinued
2006
Romak S.A./Switzerland
UNCITRAL,
PCA
US$ 10 mln.
Switzerland - Uzbekistan BIT (1993)
Award in favor of Uzbekistan
2010
Metal-Tech Ltd./Israel
ICSID
US$ 173.90 mln.
Israel-Uzbekistan BIT
Uzbek Investment Law
Award in favor of Uzbekistan
2011
Oxus Gold plc./United Kingdom
UNCITRAL
US$ 1250.5 mln.
United Kingdom-Uzbekistan BIT
Award - 99% of damages dismissed; National
Court enforcement proceedings dismissed further
to settlement.
2012
Mobile TeleSystems OJSC/Russia
ICSID
N/A
Uzbek Investment Law
Discontinued
2013
Vladislav Kim and others/Kazakhstan
ICSID
US$ 500 mln.
Kazakhstan-Uzbekistan BIT
Settled
2013
Federal Elektrik Yatirim ve Ticaret A.Ş. and
others/Turkey
ICSID
N/A
Turkey-Uzbekistan BIT,
Energy Charter Treaty,
Uzbek Investment Law
Discontinued - Settlement
2013
Güneş Tekstil Konfeksiyon Sanayi ve Ticaret
Ltd. Şirketi and others/Turkey
ICSID
US$ 246 mln.
Turkey-Uzbekistan BIT,
Uzbek Investment Law
Award ~ 90% of damages dismissed
2013
Spentex Netherlands B.V./Netherlands
ICSID
US$ 100 mln.
Netherlands-Uzbekistan BIT,
Uzbek Investment Law, Contract
Award in favor of Uzbekistan
2017
Bursel Tekstil Sanayi Ve Diş Ticaret and
others/Turkey
ICSID
N/A
Turkey-Uzbekistan BIT,
Uzbek Investment Law
Pending
2021
Obuz and others/Turkey
ICSID
N/A
Turkey-Uzbekistan BIT
Pending
17

18.

Sectors Involved In Investment Treaty Cases
Against Uzbekistan
Investment Policy Hub: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/226/uzbekistan; ICSID website: https://icsid.worldbank.org/en/
Electricity / Gas
Federal Elektrik Yatirim ve
Ticaret A.Ş. and others
Shopping Centers
Güneş Tekstil and others
Mining
Oxus Gold; Newmont USA
Ltd. and Newmont
(Uzbekistan) Ltd.
Manufacturing
Metal-Tech Ltd.
Cotton / Textiles
Bursel Textil and Others;
Spentex Netherlands B.V.
Agriculture / Grain
Trading
Romak S.A.
Telecommunication
Mobile TeleSystems
OJSC
Cement
Vladislav Kim and others
18

19.

Metal-Tech Ltd. v. Uzbekistan
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award dated 4 October 2013, available at https://www.italaw.com/cases/2272
Nationality of Claimant: Israel
Legal Claims:
Israel-Uzbekistan BIT (1994): Violations of Fair and
Equitable Treatment and Full Protection and Security
standards, as well as Expropriation
Law of the Republic of Uzbekistan No. 609-I “On Foreign
Investments” of 30 April 1998: Article 9 - Legal regime for
foreign investments on the territory of the Republic of
Uzbekistan, and Article 19 - Foreign Investment
Obligations of the State
Subject of the Dispute: Joint venture to build and operate
a molybdenum processing plant
19

20.

Overview: Metal-Tech Ltd. v. Uzbekistan
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award dated 4 October 2013, available at https://www.italaw.com/cases/2272
Core allegation: Uzbekistan expropriated Claimant’s interests in its joint venture and
treated Claimant unfairly and inequitably by canceling the JV’s rights to purchase raw
molybdenum materials and export refined product, and by initiating bankruptcy
proceedings of the JV
Core jurisdictional defenses: Claimant engaged in corruption and made fraudulent
and material misrepresentations to gain approval for its investment.
It also
implemented its investment unlawfully by enriching itself and defrauding the JV, its
Uzbek partners and the State
Decision: Award dated 4 October 2013, dismissing all claims for lack of jurisdiction
20

21.

Metal-Tech Award’s Dismissal Was GroundBreaking
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award dated 4 October 2013, available at https://www.italaw.com/cases/2272
The Tribunal found that Metal-Tech paid bribes to facilitate the establishment of its
investment in Uzbekistan, and therefore dismissed all claims
Metal-Tech was the first ever investment treaty arbitration to be dismissed on the
grounds of corruption
The Award was nominated by GAR as the “Most Important Published Decision of
2013 in Jurisprudential Terms”
21

22.

Finding of Numerous Red Flags of Corruption
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award dated 4 October 2013, available at: https://www.italaw.com/cases/2272
Strikingly large amount of payments (USD 4 million) to consultants;
No proof of legitimate services provided by the consultants;
Consultants lacking in professional qualification to perform services for
which they were allegedly retained;
Sham consulting contracts designed to conceal true nature of relationship
among the parties to said contracts;
Lack of transparency of payee; and
Close connection of consultants with public officials in charge of claimant’s
investment.
22

23.

Oxus Gold v. Republic of Uzbekistan
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at: https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
Nationality of Claimant: United Kingdom
Legal Claims:
United Kingdom-Uzbekistan BIT (1993): Expropriation;
violation of the Fair and Equitable Treatment Standard;
breach of an obligation to refrain from arbitrary or
unreasonable measures; breach of the Full Security and
Protection Standard; breach of the Umbrella Clause
Subject of the Dispute: (1) Alleged rights in the Khandiza
mining deposit in southeastern Uzbekistan, and (2) a joint
venture with the Government to develop the Amantaytau
Goldfields site (“AGF”)
23

24.

Overview: Oxus Gold v. Uzbekistan
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at: https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
Core allegation:
Uzbekistan expropriated and failed to accord fair and equitable
treatment with respect to both the Khandiza Project and Phases I and II of the AGF project
Core defenses: With respect to Khandiza, the Claimant had no rights and no expectation
of obtaining any rights in the project. With respect to AGF, the State acted lawfully and in
accordance with its obligations under Uzbek and international law, including under the BIT
Decision: Award dated 17 December 2015, in which Uzbekistan successfully defeated
more than 99% of the Claimant’s US$ 1.34 billion claim
Attempted enforcement: Oxus Gold sought to enforce the arbitral award in multiple
jurisdictions, including in France and the United States
24

25.

Oxus Gold: The Khandiza Project
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at: https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
The Tribunal found that Oxus did not have an unconditional right to develop the
Khandiza deposit
Rather, Oxus only had the right to enter into good faith negotiations with the
Government for the project, and had no expectation to any particular right from such
negotiations
The Tribunal thus rejected the Claimant’s claim of expropriation and breach of fair
and equitable treatment with respect to the Khandiza project
The Tribunal also rejected claims for breaches of the BIT’s full protection and security
clause and its umbrella clause
25

26.

Oxus Gold: Allegations on Phase I of the AGF Project
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at: https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
Oxus alleged that the State had violated the BIT because, among other reasons,
The State required Oxus to pay additional funds through a Special Dividend
Agreement
The State refused to grant licenses to Oxus
The State conducted unjust audits and criminal investigations
The State unlawfully modified the tax regime
26

27.

Oxus Gold: Findings on Phase I of the AGF Project
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
The Tribunal rejected nearly all of Oxus’s claims for Phase I, finding that:
Oxus never previously complained about the Special Dividend Agreement
The State had justifiable reasons for refusing to grant licenses
The audits and criminal investigations were conducted lawfully
The Tribunal found only that the revocation of a VAT exemption in 2006 and 2009
violated the stabilization clause, and therefore breached the fair and equitable
treatment standard of the BIT
The Tribunal thus awarded US$ 10.3 million to Oxus
27

28.

Oxus Gold: Phase II of the AGF Project
Oxus Gold v. Uzbekistan, UNCITRAL, Final Award dated 17 Dec. 2015, available at: https://www.italaw.com/sites/default/files/case-documents/italaw7238_2.pdf
Oxus alleged that it had failed to obtain financing for Phase II of the AGF project due to the State’s
interference on two occasions:
First, in 2008, due to the State’s allegedly unjustified refusal to approve the Phase II feasibility
study
Second, in 2011, due to the audits, criminal investigations, and liquidation proceedings initiated
by the State
The Tribunal found that the State’s rationale for rejecting the feasibility study in 2008 was legitimate
The majority of the Tribunal found that the audits, criminal investigations, and liquidation
proceedings in 2011 were legitimate, and thus did not breach the fair and equitable treatment
standard
28

29.

Gunes Tekstil v. Republic of Uzbekistan
Gunes
Tekstil,
et
al
v.
Uzbekistan,
ICSID
Case
No.
ARB/13/19;
MOJ
Press
Release
https://www.minjust.uz/ru/press-center/news/98501/;
GAR
Article
available
https://globalarbitrationreview.com/article/1209406/uzbekistan-liable-for-seizure-of-shopping-mall;
ICSID
Website
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/19
Nationality of Claimants: Turkey
Legal Claims:
Turkey-Uzbekistan BIT (1992)
Energy Charter Treaty (1994)
Law of the Republic of Uzbekistan No. 609-I “On
Foreign Investments” of 30 April 1998
available
available
at:
at:
at:
Subject of the Dispute: Retail shopping centers
in Uzbekistan, including the Turkuaz Shopping
Center in Tashkent
29

30.

Overview: Gunes Tekstil v. Uzbekistan
Gunes
Tekstil,
et
al
v.
Uzbekistan,
ICSID
Case
No.
ARB/13/19;
MOJ
Press
Release
https://www.minjust.uz/ru/press-center/news/98501/;
GAR
Article
available
https://globalarbitrationreview.com/article/1209406/uzbekistan-liable-for-seizure-of-shopping-mall;
ICSID
Website
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/19
available
available
at:
at:
at
Core allegation: Uzbekistan expropriated Claimants’ investments in the Turkuaz
Shopping Center in Tashkent and other retail shopping centers, and failed to accord
fair and equitable treatment or full protection and security to the individual Claimants
and their employees during their arrest and detention during criminal investigations
and court proceedings
Core defenses: The Government complied with all international obligations,
including under the BIT and the Uzbek Investment Law
Decision: Award dated 4 October 2019 (not publically available), in which Uzbekistan
successfully reduced damages by 90% of the Claimants’ claimed value
30

31.

Key Findings: Gunes Tekstil v. Uzbekistan
Gunes
Tekstil,
et
al
v.
Uzbekistan,
ICSID
Case
No.
ARB/13/19;
MOJ
Press
Release
https://www.minjust.uz/ru/press-center/news/98501/;
GAR
Article
available
https://globalarbitrationreview.com/article/1209406/uzbekistan-liable-for-seizure-of-shopping-mall;
ICSID
Website
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/19
available
available
Rejected jurisdiction under the Foreign Investment Law
Rejected jurisdiction over three of the six Claimants who were not legitimate
at:
at:
at
“investors” in the country
Refused to consider any of Claimants’ claims with respect to physical rights
violations, including allegations of physical mistreatment
Dismissed, in their totality, Claimants’ request for US$ 180 million in moral damages
Awarded only US$ 26 million (excluding interest and costs), which was based almost
exclusively on the valuation calculated by the Tashkent Criminal Court in the
underlying criminal case in 2011
31

32.

Spentex Netherlands B.V. v. Uzbekistan
Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26; ICSID Website available at
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/26; IA Reporter Article available at
https://www.iareporter.com/articles/in-newly-unearthed-uzbekistan-ruling-exorbitant-fees-promised-to-consultants-on-eve-of-tender-process-are-viewed-by-trib
unal-as-evidence-of-corruption-leading-to-dismissal-of-all-claims-under-dutch/
Nationality of Claimant:
owned by Indian investors)
Legal Claims:
Netherlands (ultimately
Netherlands-Uzbekistan BIT (1996)
Law of the Republic of Uzbekistan No. 609-I “On
Foreign Investments” of 30 April 1998
Investment Agreement
Subject of the Dispute:
processing plant
Cotton spinning and
32

33.

Overview: Spentex Netherlands B.V. v. Uzbekistan
Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26; ICSID Website, available at:
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/26; IA Reporter Article, available at:
https://www.iareporter.com/articles/in-newly-unearthed-uzbekistan-ruling-exorbitant-fees-promised-to-consultants-on-eve-of-tender-process-are-viewed-by-tri
bunal-as-evidence-of-corruption-leading-to-dismissal-of-all-claims-under-dutch/
Core allegation: Uzbekistan expropriated Claimant’s interests in its cotton spinning
and processing plant, and treated Claimant unfairly and inequitably by revoking
various incentives and ultimately causing Claimant’s Uzbek entity to enter into
bankruptcy
Core defenses: Claimant engaged in corruption to gain approval for its investment.
With respect to the merits, the Government complied with all contractual and
international obligations, including under the BIT, the Foreign Investment Law, and the
Investment Agreement.
Decision: Award dated 27 December 2016 (not publically available), dismissing all
claims on the grounds of corruption in the making of the investment
33

34.

Finding of Numerous Red Flags of Corruption
Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award dated 27 Dec. 2016 (not public); ICSID Website available at
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/26; IA Reporter Article available at
https://www.iareporter.com/articles/in-newly-unearthed-uzbekistan-ruling-exorbitant-fees-promised-to-consultants-on-eve-of-tender-process-are-viewed-by-tri
bunal-as-evidence-of-corruption-leading-to-dismissal-of-all-claims-under-dutch/
“Strikingly high” payments to a Consultant;
Claimant’s failure to disclose the existence of consulting contracts to the
Tribunal;
The Consultant’s lack of qualifications in the sector in which they had
provided advice;
Lack of clarity over the services provided, coupled with Claimant’s failure to
provide supporting documentation; and
Lack of transparency in the payment of the funds to accounts in
Luxembourg and the British Virgin Islands, which are known for providing
“discreet banking services.”
34

35.

Federal Elektrik v. Uzbekistan
Federal Elektrik, et al. v. Republic of Uzbekistan, ICSID Case No. ARB/13/9; ICSID Website available at
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/9; GAR Article available at
https://globalarbitrationreview.com/article/1227084/turkish-investor-discontinues-uzbekistan-claim
Nationality of Claimants: Turkey
Legal Claims:
Turkey-Uzbekistan BIT (1992)
Energy Charter Treaty (1994)
Law of the Republic of Uzbekistan No. 609-I “On
Foreign Investments” of 30 April 1998
Subject of the Dispute: Investment in Uzbekistan’s
domestic gas and electricity market, including to
provide an updated gas meter system
35

36.

Overview: Federal Elektrik v. Uzbekistan
Federal Elektrik, et al. v. Republic of Uzbekistan, ICSID Case No. ARB/13/9; ICSID Website available at
https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/13/9; GAR Article available at
https://globalarbitrationreview.com/article/1227084/turkish-investor-discontinues-uzbekistan-claim
Core allegation: Uzbekistan expropriated Claimants’ interests in a joint venture and
in cancelled several contracts to provide an upgraded electric and gas metering
system, and violated Uzbek and international law through the arrest and detention of
the joint venture’s Director
Core defenses: The Government complied with all contractual and international
obligations, including under the BIT, the ECT, and the Uzbek Investment Law
Decision: Decision on Jurisdiction and Liability dated 29 October 2018 (not publically
available); proceedings discontinued on 18 May 2020
36

37.

Main Advantages of Participation by the Republic
of Uzbekistan in Dispute Settlement Procedures
Economic:
Positive investment climate attracts new foreign investments
ISDS in most cases allowed the Republic of Uzbekistan to minimize or even to
nullify financial losses in disputes
Reputational:
Openness to international and transparent methods of dispute settlement
successfully adds to Uzbekistan’s image as a part of global community
Uzbekistan is not seen as a “pariah” State
Political:
ISDS helps to depoliticize investment disputes and avoid negative effect on other
areas of communication and cooperation between the affected states
37

38.

Arbitral Proceedings

39.

The Life of an International Arbitration
Proceeding
Dispute Between
the Parties Arises
Request for
Arbitration
Negotiation /
Mediation
Dispute
Resolved
Constitution of
the Tribunal
Arbitral
Proceeding
Award
Jurisdictional
Phase
Merits Phase
Damages
Phase
Enforce /
Challenge
39

40.

Starting Point: Pre-Commencement of
Proceedings
Early considerations for Respondent State include:
–
Who are the key representatives and relevant official State bodies
with knowledge of the Investor and involvement in the dispute?
–
Conduct jurisdictional enquiry and early assessment of claim
–
Choice of counsel / Importance of retaining counsel early
–
Any willingness to settle?
40

41.

Why Settle?
Reasons for settling a case:
–
Maintain the commercial relationship with the other side
–
Confidential settlement (depending on the jurisdiction/forum)
–
Avoid costs/time of litigation/arbitration
–
Consider the case’s weaknesses
–
Avoid disclosure/discovery of documents or similar
41

42.

The Simple Life of an Arbitration
Notice of
Dispute
Statement
Request for Statement of Defense/
CounterArbitration/ of Claim/
Answer
Memorial Memorial Reply Rejoinder
Hearing
PostHearing
Briefs
Award
Settlement possible at any stage
42

43.

Notice of Dispute
The investor formally informs the State of the dispute
–
This may be the first time the central Government hears about the
dispute
Notice is commonly given in a formal letter referring to the
dispute resolution clause of the BIT (“trigger letter”)
–
Treaty may contain specific requirements
Other ways of giving notice of the dispute may also be effective
–
Paushok v. Mongolia: Claimants orally mentioned issues on multiple
occasions to government officials
43

44.

Request for Arbitration
Allows Respondent to make an early case assessment
and consider early disposition/jurisdictional challenges
ICSID Convention, Article 36(2):
–
“The request shall contain information concerning the issues in
dispute, the identity of the parties and their consent to arbitration
….”
Supporting documentation must be attached
44

45.

Significance of Selection of Arbitrators
Selected early in the process
–
Depends on institutional rules, but generally 90 days or as soon as
possible after the initiating submission (Request for Arbitration)
Choice of arbitrators is one of the key strategic decisions
in an arbitration
–
“An arbitration is only as good as the arbitrator”
One or three arbitrators (depending on size and
complexity of dispute)

46.

Additional Potential Arbitrator
Considerations
Detailed consideration of the claims and/or defenses, and the types of
damages sought;
Discuss and identify a shortlist of potential candidates
Research past decisions, publications, and qualities of potential candidates
– Personal interaction/knowledge
– Public information on experience, capacities
– Publically available prior positions on key issues (prior awards, presentations,
articles, commentary, etc.)
– Artificial Intelligence assisted research (deep connection analysis)
Initial clearing of conflicts
Final appointment decision

47.

Procedure for Appointment of
Arbitrators
Sole arbitrator: Nomination by party agreement; or appointment by
institution, appointing authority or state court (in ad hoc proceedings);
sometimes appointed through a list of experts provided by the institution
Party
A
Party
B
Three-person tribunal: 3 basic models:
1.
Party arbitrators nominated by the parties,
respectively; chairperson nominated by agreement
of the parties
2.
Party arbitrators nominated by the parties,
respectively; chairperson appointed by the
institution
3.
Party arbitrators nominated by the parties,
respectively; chairperson nominated by the party
arbitrators

48.

Appointment of Arbitrators by ICSID
ICSID Arbitration Rule 18(1) (2022):
–
“If the Tribunal has not been constituted within 90 days after the
date of registration, or such other period as the parties may agree,
either party may request that the Chair appoint the arbitrator(s)
who have not yet been appointed pursuant to Article 38 of the
Convention.”
48

49.

Duties of the Arbitral Tribunal
Basis for the duties of the arbitral tribunal:
Party agreement
Applicable law
including arbitration rules
with respect to powers
Certain ethical duties
Key duties:
– Duty to be independent and impartial
– Duty to ensure due process
– Duty to carry out the proceedings with due care and with reasonable
speed

50.

First Session of the Arbitral Tribunal
Purpose to establish procedural details, including the schedule
–
Expect a generous timetable, especially for Respondent States
–
Tribunal usually circulates a draft in advance, asking the Parties to attempt agreement
Written phase of the proceedings:
–
Memorial-style submissions, including all evidence
Think about fact and expert witnesses early
–
Usually two rounds of written submissions (if no bifurcation)
–
Document production phase typically between the two rounds of written submissions
Decision on bifurcation of proceeding into jurisdiction/merits/quantum phases
50

51.

Consider Bifurcation
Consider bifurcation of proceeding into phases:
–
Jurisdiction
–
Merits
–
Quantum
Bifurcation will require additional written and oral submissions
stages for each phase of bi-/trifurcated proceedings
Potentially cost-saving, if claims are dismissed in an early
phase
51

52.

Example of a Briefing Schedule
(Excerpt from Minutes of the First Session of an ICSID case)
52

53.

Facts are Key
More often than not, arbitrations are lost or won on the
facts
–
In investment treaty disputes, treaty-related issues may cause
legal issues to be somewhat more important than in commercial
arbitration
–
Nonetheless, facts often are decisive in ISDS as well
More often than not, documents are the key form of
evidence for establishing the facts
53

54.

Documentary Evidence is Filed with the
Parties’ Submissions as Exhibits
Typically documents will be submitted with the written submissions (first and
second written submissions; expert reports and witness statements)
Cut-off date for submitting any further exhibits into the record, but out-oforder submission of exhibits generally allowed “for exceptional
circumstances”
54

55.

Identifying Relevant Documents to
Support Case
Identify all relevant documents and obtain them from
various Ministries and other Government agencies
Contemporaneous vs. created for the arbitration
Helpful and unhelpful documents
Authenticity
Document Management
Document Retention Policies
55

56.

Importance of Document Production
Allows each party to obtain relevant and material evidence from the other
Because document requests must be relatively specific and targeted, it is
important to have a full understanding of the documentary evidence we
already have before making requests
Important to preserve and produce documents to avoid adverse inferences
or worse
56

57.

Adverse Inferences from NonProduction
A party may ask the tribunal to draw adverse inferences from another party’s
failure to provide documents (see IBA Rules, Art. 9.6)
Tribunals infer that a document that is not produced is adverse to the
interests of the non-producing party when:
–
Without satisfactory explanation, that party fails to voluntarily produce the
requested document;
–
The party has not objected the production in due time; or
–
The party fails to produce a document ordered to be produced by the
tribunal
57

58.

Aspects of Government Evidence
Governments have unique access and authority over documents and other evidence
–
Can invoke special privileges to avoid disclosure of politically sensitive information
Executive and deliberative privilege
State secrets and national security
Parallel criminal investigations and proceedings
Challenges of coordination and evidence production
–
Need to locate the government agencies and/or officers that have custody of such
documents
Documents may be located in various agencies across all levels of government
–
Importance of central record-keeping system
–
Governments need to consider implications for domestic freedom of information
legislation when producing documents
58

59.

Privileges for Government Evidence:
Politically Sensitive Information
Considerations in play when determining whether privilege applies
–
Balance between keeping the information secret and disclosing the information for
the limited purpose of the arbitration
–
Documents related to core national security or military secrets are generally
privileged
Redaction may allow disclosure of some information
Where sensitive information is “so inextricably intertwined” with benign
information, redaction may not be feasible
–
Deliberative documents (e.g., cabinet deliberations) are more likely to be sensitive
and therefore privileged
–
Greater passage of time since the document was prepared generally weighs in
favour of disclosure
59

60.

Oral Proceedings
Opening Statements
Examination of Fact Witnesses
Examination of Experts
Tribunal’s Questions
Closing Arguments
60

61.

Post-Hearing Submissions
Post-Hearing Briefs
–
Tribunals often request them (1 or 2 rounds)
–
Summary of the most important arguments
–
Address any new evidence and arguments resulting from the
hearing testimony
–
Answer any tribunal questions
Costs submissions
61

62.

Post-Award Remedies

63.

Post-Award Remedies
ICSID Convention, Art. 52; ICSID Arbitration Rules, Rules 50, 52-55
ISDS awards are final and binding on the parties to the dispute
ICSID awards are subject to the limited post-award remedies
provided for in the ICSID Convention
–
No appeal
–
No challenge before local courts based on domestic law or other treaties
–
Annulment is an exceptional recourse to safeguard against the violation of
fundamental legal principles relating to the process
Non-ICSID awards are subject to set-aside in the courts of the
jurisdiction in which the arbitral seat is located
–
Grounds for set-aside are provided by the domestic law of that jurisdiction
Many jurisdictions have adopted the UNCITRAL Model Law on International Commercial Arbitration
63

64.

ICSID Annulment
A party may apply for full or partial annulment of an ICSID award on the
basis of one or more of the following five grounds:
–
The Tribunal was not properly constituted;
–
The Tribunal has manifestly exceeded its powers;
–
There was corruption on the part of a member of the Tribunal;
–
There has been a serious departure from a fundamental rule of procedure; or
–
The award has failed to state the reasons on which it is based
64

65.

ICSID Annulment Procedure
ICSID Convention, Art. 52(5); ICSID Arbitration Rules, Rules 53-54
As soon as possible after the application for annulment is registered, the
Chairman of the Administrative Council appoints three persons from the
Panel of Arbitrators to form an ad hoc Committee which will decide the
application for annulment
The Arbitration Rules apply, mutatis mutandis, to an annulment proceeding
(Arbitration Rule 53)
–
This means that the conduct of an annulment proceeding is similar to the conduct of an
arbitration, including a first session of the ad hoc Committee and a written and oral process
A party may request the stay of enforcement of the award pending the ad
hoc Committee’s annulment decision
65

66.

Outcome of the ICSID Annulment
Proceeding
ICSID Convention, Art. 53(2)
The ad hoc Committee’s decision on annulment may:
–
Reject the application for annulment, meaning that the award remains intact;
–
Uphold the application in respect of a part of the award, leading to a partial
annulment of the award; or
–
Uphold the application in respect to the entire award, meaning that the whole of the
award is annulled
The ad hoc Committee’s decision is not an award and is not subject
to any further annulment proceeding, although it is equated to an
award for purposes of its binding force, recognition and enforcement
66

67.

Recognition and Enforcement of ICSID
Awards
ICSID Convention, Arts. 53-54; Eiser et al. v. Spain, ICSID Case No. ARB/13/36, Judgment of the Federal Court of Australia [2020] FCA 157 dated 24
Feb. 2020
The ICSID Convention obliges the parties to an arbitration to “abide by and
comply with” awards rendered by ICSID tribunals
–
Article 54 of the ICSID Convention requires Contracting States to recognize ICSID awards as
binding
–
This requires a domestic court to confirm the legally binding nature of the award, that it has res
judicata effect, and to take the steps necessary under domestic law to give legal effect to the
award within the State’s domestic legal system
Contracting States are obliged to enforce the pecuniary obligations set out in
each ICSID award as though it were a final judgment of a court in that State
Appeal or review of ICSID awards other than through the mechanisms
provided for within the ICSID Convention is expressly excluded by Article
53(1)
–
This means that domestic courts are not permitted to scrutinize ICSID awards in the same
manner as is allowed under Article V of the New York Convention
67

68.

Enforcement of Non-ICSID Awards
If Place of Arbitration and Enforcement Forum are located
within 170 States parties to the New York Convention
Courts have compulsory power to enforce the award
under the New York Convention, Article III:
–
“Each Contracting State shall recognize arbitral awards as binding
and enforce them in accordance with the rules of procedure of the
territory where the award is relied upon”
68

69.

Defenses Against Enforcement of NonICSID Awards
New York Convention, Art. V:
–
Invalidity of the arbitration agreement or incapacity of the parties thereto;
–
Lack of notice to a party of the appointment of the arbitrator or of the arbitration
proceedings or other inability to present the case;
–
Inclusion in the award of matters outside the scope of submission to arbitration;
–
Impropriety in the composition of the arbitral authority or the arbitral procedure;
–
Set-aside or suspension of the award in the country, in which, or under the law of
which, the award was made;
–
Non-arbitrability of the subject matter;
–
Violation of the public policy of the State in which recognition and enforcement of the
award are sought.
69

70.

Thank you