In a recent challenge to an arbitral award under section 67 of the Arbitration Act 1996 (the Act), the High Court in Ruby Roz Agricol LLP v Republic of Kazakhstan, confirmed that the tribunal had correctly declined jurisdiction. The court interpreted the underlying contract literally and found that Ruby Roz Agricol LLP (Ruby Roz) did not fall within the arbitration agreement as it was not a “foreign investor”. The court also rejected arguments by Ruby Roz for a wider definition of “investor” based on other contractual documentation and an investment law.
The parties entered into an investment contract under which Ruby Roz agreed to purchase land and agricultural equipment in return for certain land and income tax reductions. Under this contract, the parties agreed to refer disputes to arbitration if the interests of a “foreign investor” were affected and that investor objected to the dispute being heard in the Kazakhstani courts.
A dispute arose and in 2010 Ruby Roz commenced an UNCITRAL arbitration against Kazakhstan. The tribunal declined jurisdiction over the dispute on the basis that there was no valid arbitration agreement. Ruby Roz challenged the award in the English High Court under section 67 of the Act asking the court to rule on jurisdiction.
Decision – The tribunal was correct to conclude that it did not have jurisdiction.
- Contract: The court found that the parties had not agreed to arbitration in the contract. Although the contract defined Ruby Roz as an “Investor”, disputes could only be referred to arbitration if the interests of a “foreign Investor” were affected. Ruby Roz was not “foreign”, since it was established under the laws of Kazakhstan as an LLP with foreign participation. This literal approach was consistent with the laws of Kazakhstan dealing with the interpretation of contracts.
- Framework Agreement: Ruby Roz argued that the court should interpret the contract more expansively in light of a framework agreement on which the contract was based. The court noted that it was “reluctant” to look beyond the plain meaning of the contract, but also found, in any event, that the framework agreement did not assist Ruby Roz in its argument, because it applied to both national and foreign investors.
- 1994 Foreign Investments Law: Ruby Roz also argued, in the alternative, that it could pursue arbitration under the Foreign Investments Law since it contained a wider definition of “foreign investor”. The court took a literal approach to this law and noted that, although Ruby Roz arguably satisfied this wider definition of “foreign investor”, its investment did not satisfy the narrower definition of “foreign investment” also contained in the Foreign Investments Law, which included participation in the authorised capital of legal entities of Kazakhstan, provision of loans and leased assets.
This case demonstrates the necessity for investors to structure their investments carefully in light of the relevant contractual documentation as well as investment laws and agreements. Ruby Roz fell at the jurisdictional hurdle because it was incorporated under the laws of the host State and therefore failed to qualify as an investor. A claim over this investment may have been possible had it been structured in a different way, so as to benefit from international treaty protection.