Challenge to investment treaty arbitration award upheld - for the second time
The Republic of Kazakhstan -v- World Wide Minerals Ltd & others [2025] EWHC 452 (Comm)
The claimant, the Republic of Kazakhstan (Kazakhstan), has succeeded in challenging operative parts of a UNCITRAL arbitration award that dealt with causation and loss. The Court found that the tribunal had failed to comply with the due process of the arbitral proceedings by failing to deal with a central issue that was put to it. Significantly, Kazakhstan had previously successfully challenged an earlier award, the Final Award on Merits that was issued by the full tribunal in 2019, on the ground of serious irregularity leading to substantial injustice and the Court had remitted issues of causation and loss to the full tribunal.
This challenge, therefore, concerned the tribunal's second attempt to analyse and address the issues of loss and causation.
Both challenges were brought under s.68 Arbitration Act 1996 (Act 1996). S.68 reflects the internationally accepted view that the Court should be able to correct serious failures to comply with the due process of arbitral proceedings of the UNCITRAL Model Law on International Commercial Arbitration. However, relief under s.68 will only be appropriate where the tribunal has gone so wrong in the conduct of the arbitration that justice calls out for it to be corrected.
TGK, a Kazakhstani state-owned company, held several uranium deposits in Kazakhstan, as well as a uranium processing facility. World Wide Minerals (WWM) won a tender to manage and acquire the uranium processing facility.
In 1996, TGK entered into a management agreement with WWM and related individuals (WWM parties), pursuant to which WWM had various financial obligations, as well as rights to certain uranium deposits in Kazakhstan.
In 1997, Kazakhstan terminated the management agreement due to WWM's repeated, and continuing, failure to make payments required of it under the agreement. WWM argued, among other things, that the Kazakh authorities had not been fair and equitable in their treatment of WWM's application for an export license to sell the uranium on the international market and that this breached Kazakhstan's obligations under the relevant bilateral investment treaty between the Governments of Canada and the USSR (Bilateral Treaty). The license sought by WWM to fulfil a contract with a utilities company in the USA had not been granted.
In 2013, the WWM parties commenced a London-seated Investor-State arbitration, making a single monolithic claim for damages in the amount of US$1.914 billion. That claim was governed by international law, not English law. WWM alleged multiple breaches of the management agreement against Kazakhstan, including the export license breach.
Kazakhstan failed in its attempt to challenge the tribunal's jurisdiction. In October 2019, the tribunal rendered the Final Award on Merits, in which it held that Kazakhstan had breached the Bilateral Treaty in two respects: (i) export license breach; and (ii) failing to give WWM timely notice of TGK's bankruptcy (bankruptcy breach).
The tribunal further constructed a theory of causation and loss with respect to the export license breach and the bankruptcy breach, not argued by the parties, and awarded compensation to the WWM parties on this basis in the principal sum of US$13.7 million as at the date of breach (which, together with interest, stood at approximately US$54.5 million by September 2020).
Earlier challenge
Kazakhstan challenged the 2019 Award, submitting that the WWM parties had never identified what loss flowed from each of the specific breaches they alleged and instead had only advanced a single case on the overall effect of all the breaches taken together. Since only the export license and bankruptcy breaches were established, and the rest were rejected, Kazakhstan had not had the chance to address the losses, if any, which those specific breaches had caused.
The Court upheld the challenge, finding that that irregularity had caused Kazakhstan substantial injustice because had Kazakhstan had the opportunity, the full tribunal might have reached a different conclusion on causation and damages. In particular, the Court observed that Kazakhstan had not had the opportunity of persuading the full tribunal that the WWM parties' loss would have been suffered in any event (the Counterfactual Case).
The Court set aside the relevant paragraphs of the 2019 Award which related to the quantification of loss and remitted the determination of all issues concerning causation and quantification to the full tribunal.
During the course of the remitted proceedings, the Presiding Arbitrator retired due to ill-health. The parties agreed that the proceedings would continue with the two remaining arbitrators.
In March 2024, the tribunal rendered its award, determining that the export license breach constituted a decisive factor that caused the eventual demise of WWM's investment in Kazakhstan and that this breach was reasonably compensated in the award of US$13.7 million damages. Further, that this finding made claims in respect of the bankruptcy breach irrelevant.
Kazakhstan contended that the tribunal had failed to deal with a key issue put to it, namely that the export license breach was not a cause of the demise of WWM's investment at all, since even but for the export license breach, the management agreement would still have been terminated and the WWM parties' investment in TGK lost in any event.
An attempt to have the matter remitted to the tribunal for further reconsideration by consent of the parties failed. The tribunal declined to be further involved. Therefore, Kazakhstan appealed to the Court once again.
The Commercial Court decision
In considering whether there was a serious irregularity within s.68(2)(d) Act 1996, the Court had to deal with three specific questions:
If all three questions were answered in the affirmative, a further issue was whether the failure of the tribunal to deal with the Counterfactual Case caused or would cause Kazakhstan substantial injustice.
As to (1), it was accepted that the Counterfactual Case was an "issue" for these purposes. A matter would constitute an "issue" where the whole of the applicant's claim could have depended on how it was resolved, such that fairness demanded that the question be dealt with. Here, the Counterfactual Case was the centrepiece of Kazakhstan's argument and was a crucial matter upon which Kazakhstan's defence depended.
As to (2), there was no doubt that the issue was put to the tribunal and this was accepted by WWM.
As to (3), it was necessary to undertake a fair, commercial and commonsense reading of the award as a whole in the factual context of what was argued before the tribunal. The Court concluded that the tribunal had clearly failed to deal with the Counterfactual Case. This was not a case of ambiguity or of "interpretation" of the award. The Court also rejected an argument that Kazakhstan could or should have applied to the tribunal to provide an interpretation of the award pursuant to Article 35 of the UNCITRAL Rules 1976 before seeking relief from the
Court. Where there was no ambiguity, there was no scope for the operation of Article 35. Interpretation under Article 35 was not a mechanism for revisiting an issue that the tribunal should have decided but did not.
The challenge, therefore, succeeded and was upheld.
Comment
In challenges of this nature, the tricky part is usually deciding whether in fact the tribunal did deal with the issue in question.
It is up to a tribunal how to structure its award and how to address the essential issues. For example, a tribunal may deal with an issue by deciding a logically anterior point such that the other issue does not arise. If the tribunal decides all those issues put to it that were essential to be dealt with for the tribunal to come fairly to its decision on the dispute between the parties, then it will have dealt with all the issues.
In this case, despite two attempts, the tribunal was found not to have done so.