Caspian Business Journal

Legal Developments in the Caspian Region

This month, we review of some of the new legal analysis available online and a brief tour of arbitration cases at ICSID, or the International Center for the Settlement of Investment Disputes, a branch of the World Bank where alleged violations of bilateral investment treaties (BITs) are often settled.

Kazakhstan: Bracewell & Giuliani’s analysis of new amendments to legislation

Gregory Vojack and Botagoz Zhakipbayeva, of Bracewell & Giuliani in Almaty, have published a new article available online here, discussing recent important changes to financial laws in Kazakhstan.  The article covers legislative changes in the areas of banking, pension funds, broker-dealers, and additional financial areas, including the following specific legislative amendments:

• Amendments to the Law on Banks and Banking Activity and to the Law on Securities Market, effective 8 March 2010.

• Amendments to the prudential norms of banks, effective 14 September/1 October 2009.

• Amendments to the Rules relating to the purchase of the assets underlying derivatives used in broker-dealer activities of banks on the securities market, effective 16 November 2009.

• New Rules regulating investment operations of the pension funds and IMPAs, effective 29 September 2009.

• Amendments to certain FMSA regulations setting out the prudential norms and their calculation methodology for pension funds and IMPAs, effective 1 January 2010.[1]

The authors are careful to note that, of course, “the content of this article is intended to provide a general guide to the subject matter,” and that one should seek legal advice on navigating these changes in one’s specific context.

Arbitration: American Investor denied joinder of claims in arbitration against Georgia

In a case pending before ICSID, Itera International Energy LLC and Itera Group NV v. Georgia, ICSID Case No. ARB/08/7, the arbitration tribunal recently denied an American investor’s attempt to join additional claims to an arbitration involving breach of a BIT. See Decision on Admissibility of Ancillary Claims, Dec. 4, 2009.  The case involves Georgia’s alleged nonpayment for gas and, then, alleged expropriation of Itera’s 90% stake in a State-owned company that supplies gas.

Itera argued that under ICSID Arbitration Rules and the rules of the ICSID Convention (Articles 46 and 40, respectively), it could add additional claims “arising directly out of the subject matter of the dispute.”  In this particular case, Itera wanted to add an alleged breach of a second contractual arrangement between it and Georgia, again over gas. The arbitral panel, in a split decision, disagreed.

As Marc J. Goldstein explains in online article in “Arbitration Commentaries”, the arbitral panel took “a restrictive view” of the Rule

to the effect that the claims must be so related that resolution of the claim first asserted would necessarily require resolution of the claim proposed to be added. Under this standard, the majority reasoned, the two claims were unrelated, even if they arose from the same “subject matter” of natural gas debt payment by Georgia to Claimant [Itera], and even if some procedural efficiencies would be achieved by joinder of the claims. [2]

For more, see Goldstein’s brief, excellent synopsis and analysis at his “Arbitration Commentaries” blog.

Arbitration: Cases before ICSID

For those following arbitration, here are cases filed involving countries of Central Asia or the Caucasus in the past 6 months:

In Metal-Tech Ltd. v. Republic of Uzbekistan, (ICSID Case No. ARB/10/3), Israeli company Metal-Tech filed a request for arbitration.  Metal-Tech claims that Uzbekistan violated the Israel-Uzbekistan bilateral investment treaty (BIT) and “various standards of treatment under international and Uzbek law,” according to Metal-Tech’s press release.[3] The claim alleges that Uzbekistan denied to Metal-Tech’s joint venture Uzmetal Technology needed molybdenum concentrate.  Without the raw materials, the joint venture became idle.

Metal-Tech also claims that Uzbekistan later forced Uzmetal Technology into bankruptcy and liquidation.  According to Trend Daily Economic News: “In December 2007, the property complex of the joint venture was put up for auction starting price of $10 million, but then the assets were withdrawn from the auction due to lack of buyers.”[4]

Turkmenistan has two recent cases pending, both of them Turkish companies.  In Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan (ICSID Case No. ARB/10/1).   Also, Adem Dogan v. Turkmenistan (ICSID Case No. ARB/09/9).  The former, filed in January, involves construction projects and no tribunal has yet to be constituted.  The latter concerns a poultry farm, and an arbitral tribunal has been chosen.

Itera is again looking for arbitral relief in its case Itera International Energy LLC and Itera Group NV v. Georgia (ICSID Case No. ARB/09/22), involving, broadly speaking, payments for deliveries of natural gas.  (See above for more on cases filed by Itera in ICSID).  Finally, KT Asia Investment Group B.V. v. Kazakhstan (ICSID Case No. ARB/09/8), a case which needs no introduction.  KT Asia’s case, of course, involves the takeover of BTA bank by Kazakhstan in February 2009. KT Asia is seeking no less than about $3 billion from Kazakhstan.  As reported by Bloomberg:

KT Asia Investment Group BV, based in Amsterdam, and Vienna-based GEM Equity Management AG allege the acquisition of 75 percent of BTA by the government’s sovereign wealth fund constituted nationalization, violating investment treaties that Kazakhstan has with the Netherlands and Austria, the Kazakh Agency for Financial Supervision said today.[5]

For more on BTA Bank and its repercussions, the arbitration suits, see here.

Kyrgyzstan: What risk to foreigners buying real property?

Gulnara Akhmatova, a lawyer at the International Business Council (IBC), said at a meeting in Bishkek devoted to protecting property rights that “Foreign businessmen are not protected from corporate raid,” according to news site 24.kg.[6] In suggesting changes to the Kyrgyz Republic’s Land Code, Akhmatova explained:

So, if a foreigner buys a building, the land where the building is located does not belong to him according to the law. Some citizens use such position in their own purposes. They apply to the authorities in order to withdraw the land from foreign citizen. The foreigner cannot carry away or disassemble the building; therefore he is compelled to agree with conditions of raiders.[7]

Rule of law provides the foundation upon which all successful, viz long-term investment, foreign or domestic, rests.  The CBJ will look in-depth into this issue in its April column.

[1] http://www.mondaq.com/article.asp?articleid=92668

[2] http://arbblog.lexmarc.us/2009/12/joinder-of-bit-claims-in-icsid-arbitration-what-is-the-same-subject-matter/

[3] http://metalsplace.com/news/articles/32713/metal-tech-files-international-arbitration-against-uzbekistan/

[4] http://www.allbusiness.com/company-activities-management/company-strategy/13809096-1.html

[5] http://www.bloomberg.com/apps/news?pid=20601013&sid=aGXnkYSdljFI

[6] http://eng.24.kg/community/2010/02/25/10468.html

[7] Id.