The Republic of Kazakhstan -v- World Wide Minerals & Paul A Carroll QC

Judgment

Case No: [2020] EWHC 3068

In the High Court of Justice

Between:

The Republic of Kazakhstan

-v-

World Wide Minerals

Paul A Carroll QC

 

1. The Republic of Kazakhstan (‘TRK’) brought a rare successful challenge to an arbitration award under s.68 of the Arbitration Act 1996. TRK said that the Tribunal awarded damages by reference to an argument not advanced during the hearing or prior written procedure and in respect of which they had no real opportunity to respond.

2. The first defendant is a Canadian corporation whose primary business was to identify viable natural resource deposits (‘WWM’) and the second defendant its director. Following the collapse of the USSR, the newly independent TRK sought to privatise a number of state industries, including the mining industry, in order to attract foreign investors. In June 1996, WWM submitted a Tender Proposal to acquire a large and run-down complex of uranium mining and processing facilities (TGK) which was accepted by the Kazakh state. As a result, WWM entered into a Management Agreement over TGK however, as the arbitral tribunal noted:

“… several key points were not agreed and instead were listed in Schedule 2 of the Management Agreement as matters “to be addressed in good faith negotiations.” Included in these deferred issues were the rights to the Southern Mines and the right to market and export uranium globally”.

3. TRK terminated the Management Agreement on 1 August 1997 and WWM commenced the arbitration claiming damages for breach of the BIT between Canada and the USSR and of the Management Agreement. They claimed that TRK had failed to accord it access to production from the Southern Mines, failed to issue export licences, and failed to ensure it had proper notice of TGK’s bankruptcy. The Tribunal rejected the claim as to the Southern Mines but considered that the failure to issue export licences and provide timely notice of bankruptcy proceedings violated WWM’s right to fair and equitable treatment under the BIT. It was found to have breached the Management Agreement and TRK was entitled to terminate the agreement, though it had not followed the contractually mandated procedure.

4. This presented issues as to quantum. WWM presented its claim on the assumption that all its allegations would succeed and the effect of them together amounted to an expropriation of its assets. They therefore claimed the value of the whole investment on a number of alternative calculations. No attempt had been made to identify what losses were caused by each of the breaches alleged where there had not, in fact, been an expropriation. Nonetheless, it proceeded with an analysis of quantum which seemed to have no regard to this point. The Tribunal concluded that the breaches amounted to the loss of a chance and on that basis entitled WWM to recover the whole of its investment as sunk costs. Accordingly, it made an award of US$13.7 million.

5. TRK’s case was that at no stage did WWM (a) allege that any particular loss or other consequence was caused by any specific breach and (b) at all times advanced a single case that the overall effect of all the breaches alleged by the defendants together resulted in the expropriation of and the total loss of WWM’s investment. TRK submitted that by “… formulating its claim in that way, WWM made its entire claim dependent on the correctness of its case as to what the investment consisted of (because its Southern Mines rights case created value in the investment) and dependent on establishing all of the breaches and causation on a collective basis”. By failing to hear TRK’s submissions on the proper alternative basis for quantum, it was submitted that there had been a serious irregularity within the meaning of s68(2).

6. HHJ Pelling QC revied the applicable principles, in particular the summary by Popplewell J in Terna Bahrain Holding Company WLL v Al Shamsi [2012] EWHC 3283 (Comm) [85]; Obrascon Huarte Lain SA (t/a OHL International) v Qatar Foundation for Education, Science and Community Development [2019] EWHC 2539 [44]; Reliance Industries Ltd & Anor v The Union of India [2018] EWHC 822; [2018] 1 Lloyd’s Rep. 562 [32]. He concluded that there had been a serious irregularity and that it had caused substantial injustice to TRK.

7. On serious irregularity: WWM had suggested the Tribunal come back to the parties on damages; that suggestion was ignored. No attempt had been made to spell out a damages claim for the individual breaches. The sunk costs argument was not one submitted by WWM. In short, there were only two real options open to the Tribunal in light of its findings: (a) accede to TRK’s submission that WWM’s damages’ claim failed (applying Rompetrol Group NV v. Romania, ICSID Case No. ARB/06/03, Award, 6 May 2013); (b) publish an Interim Award on breach and receive submissions on damages. By proceeding as it did, the Tribunal decided the case on the basis of a point that TRK had not had a fair opportunity to deal with.

8. On substantial injustice: had TRK had the opportunity of addressing this issue, it would have first submitted that it would be necessary for WWM to prove (a) what loss was caused by each of the breaches found proved and (b) what compensation was appropriate for the loss and damage found to have been caused by the breaches that the Tribunal had found proved. Had TRK been able to make submissions, the Tribunal might well have reached a different result.

9. Accordingly, the appropriate course was to remit the issues of quantification of loss and the causation issues to the Tribunal.