The Republic of Kazakhstan v World Wide Minerals Ltd
| Jurisdiction | England & Wales |
| Judge | Pelling |
| Judgment Date | 23 November 2020 |
| Neutral Citation | [2020] EWHC 3068 (Comm) |
| Date | 23 November 2020 |
| Docket Number | Case No: CL-2019-000732 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 3068 (Comm)
HIS HONOUR JUDGE Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CL-2019-000732
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Joe Smouha QC, Mr Christopher Harris QC and Mr Paul Choon Kiat Wee (instructed by Reed Smith LLP) for the Claimant
Mr Vernon Flynn QC and Mr Edward Ho (instructed by Jones Day) for the Defendants
Hearing dates: 14–15 September 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HIS HONOUR JUDGE Pelling QC SITTING AS A JUDGE OF THE HIGH COURT
HH Judge Pelling QC:
Introduction
This is the hearing of a challenge by the claimant (“TRK”) under s.68 of the Arbitration Act 1996 (“AA”) to an award entitled “ Final Award on Merits” (“Award”) founded on an assertion by TRK that the Tribunal awarded damages to the defendants by reference to an argument that the defendants had not advanced during the hearing or prior written procedure leading to the Award and in respect of which it did not have any or any fair opportunity to respond. TRK maintains that by acting in this manner the Tribunal breached its duty under AA, s.33 resulting in a serious irregularity within the meaning of AA, s.68(2)(a).
Background
Most of the relevant background is not in dispute. The first defendant is a publicly traded Canadian corporation whose primary business was to identify and demonstrate the viability of natural resource deposits, and the second defendant was at all material times a director of the first defendant and its President and Chief Executive Officer (together, “WWM” or “the defendants”). The arbitration with which this claim is concerned (“Arbitration”) was a London arbitration instituted by a reference by WWM made pursuant to a bilateral investment treaty concluded between Canada and the USSR in 1989 (“BIT”).
The Tribunal summarised the context in which the dispute arose at paragraphs 92–96 in these terms:
“The principal events at issue in this case occurred between the summer of 1996 and autumn of 1997. At that time, Kazakhstan had recently regained independence following the December 1991 dissolution of the Soviet Union. Kazakhstan had been an important supplier of uranium to the Soviet Union prior to 1991, and by 1996 it was selling uranium on world markets, although sometimes at less than world market prices. It faced challenges both in developing its mineral resources and in gaining access to world markets on favourable terms.
…
In a series of Decrees between 1994 and 1996, President Nazarbayev announced Kazakhstan's intention to privatize many State industries with the goal of attracting domestic and foreign investors. Included among the industries to be privatized were the metallurgical and mining industries. Mining industries were particularly significant to the Kazakh economy because of large uranium deposits, previously under the control of the Soviet Union and now under control of the new Kazakh state. These were offered to potential investors through tenders for bids administered by GKI, a government agency …
…
The uranium deposits were divided into two main areas: the Northern Mines and the Southern Mines and other deposits in the southern region. Of these two areas, the southern region was believed to hold greater potential. Exploiting its deposits also used a more productive and cost-effective method of mining known as in-situ recovery (ISR), which made them significantly more economically valuable. The Southern Mines and other deposits in the region have in subsequent years turned out to be very productive and were described at the hearing as “ some of the most lucrative uranium mines in the world.” The assets made available for privatization included the Southern Mines …
Kazakhstan wished to attract foreign investors to increase production from the Southern Mines.
…
Other assets offered for privatization included TGK, a large, run-down, and inefficient mining and processing facility in the north-central part of the country. TGK included mines in the Akmola and Kokshetau oblasts, as well as a refinery and other large industrial facilities. The industrial facilities were located near the city of Stepnogorsk, a city whose very existence was a state secret during Soviet times. Respondent's expert described the complex in the mid-1990s as “ an absolute basket case. Claimants agreed: “ In the summer of 1996, TGK was effectively bankrupt. Its debt included overdue wages for over 10,000 workers and pensions for thousands of retired employees. It was shut down, which … meant that 65,000 residents in the nearby town of Stepnogorsk were in danger.”
As the Award states at paragraph 12:
“The relationship between the Parties began in June 1996, … WWM … submitted to the Kazakh State Committee on Management of State Property (“GKI”) a Tender Proposal for Management and Acquisition of a large and run-down complex of uranium mining and processing facilities known as Tselinny Gorno-Khimicheskii Kombinat (“TGK” or “TGK Complex”). The Tender Proposal set out WWM's proposals to manage, develop, operate, and ultimately acquire TGK. Inter alia, the Tender Proposal called for WWM to enter into a Management Agreement pursuant to which it would determine a program for development, upgrading, and promotion of TGK's operations. On 12 June 1996, the Tender Commission of the Republic of Kazakhstan's accepted the Tender Proposal.
13. WWM subsequently concluded a Management Agreement with GKI … which gave WWM substantial rights and financial and other responsibilities for managing the TGK complex, including an option to purchase the complex in the future. Over the following months WWM, acting through its local subsidiary Kazuran, took steps to restore production at TGK, including providing loans of several millions of dollars. Claimants engaged in discussions with KATEP, a state-owned entity charged with managing Kazakhstan's uranium resources, regarding their ambitions to secure access to the production of the Southern Mines.”
WWM entered into the Management Agreement referred to above in October 1996. As is noted in Paragraph 116 of the Award, “… 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”. TRK (or the entity through which it contracted with WWM) terminated the Management Agreement on 1 August 1997 and WWM commenced the Arbitration claiming damages for alleged breach of various provisions in the BIT and Management Agreement. In substance, WWM alleged expropriation of its investment by breaches of both the BIT and the Management Agreement including alleged breaches arising out of the failure by TRK to agree to accord it access to the production of the Southern Mines, by failing or refusing to issue export licences in its favour in respect of a uranium sales contract and in relation to the conduct of TGK's bankruptcy.
Turning first to the Southern Mines issue, it was common ground before the Tribunal that the investment obligations imposed on WWM by the Management Agreement were such that WWM could afford to make them only if it could secure access to the production of the Southern Mines. As the Tribunal recorded in paragraph 225 of the Award, WWM “… vigorously maintained throughout that access to the resources of the Southern Mines was critical to the profitability of their venture, and that they would never have invested without a sufficient guarantee of that access”. On the Tribunal's analysis, whether WWM had secured access to the production of the Southern Mines depended on the true meaning and effect of a document executed on 28 February 1997 entitled the “ Strategic Alliance Agreement” (“SAA”). The Tribunal considered the SAA to be “… an agreement to agree, opening an exclusive opportunity to negotiate a joint venture with Kazatomprom over aspects of the uranium production at the Southern Mines and New Deposits along the broad lines sketched out in the clauses of the Agreement; but a time-limited exclusive opportunity which would lapse after 90 days …” and in consequence that it “… could not have created vested property rights for the benefit of Claimants of a kind that could serve as the foundation for a claim (as here) for expropriation or the loss of future profits”. The Tribunal therefore rejected WWM's case that it had secured access to the production of the Southern Mines and its case based on expropriation by reference to that allegation. This was a and, perhaps the, major part of WWM's claim.
The other main event which it was alleged gave rise to a claim for breach concerned the refusal by TRK of an export licence to WWM or its local subsidiary for the export of uranium to a customer in the United States of America. The factual basis for this allegation was summarised at paragraph 16 of the Award in these terms:
“In the early months of 1997, WWM … sought to export from Kazakhstan a quantity of uranium oxide refined from TGK's stockpile in order both to generate cash to meet their continuing payment obligations under the Management Agreement and to gain entry into and visibility in international uranium markets. A sales contract was concluded with a prospective purchaser in the USA. WWM contends that the Management Agreement and other documents provided for its own and its subsidiaries' right to export and sell freely in international...
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