International investment arbitration – also known as investment treaty arbitration or investorState arbitration – is a procedure whereby foreign investors may seek a binding adjudication of claims against host States that have either violated investment protection treaty obligations or, in some circumstances, breached their contractual commitments or their national foreign investment law. The countries of the Commonwealth of Independent States are party to numerous bilateral and multilateral investment treaties which are intended to promote investment by ensuring fair treatment of foreign investors and which permit arbitration of investor claims before the International Centre for Settlement of Investment Disputes (ICSID) or similar fora. As a result of the Russia/Ukraine crisis, growth in the Commonwealth of Independent States (CIS) slowed sharply in 2014. Heightened tensions increased the risk of awakening longstanding territorial conflicts within the region, as well as the risk that other CIS countries will end up in direct conflict with Russia. Economic challenges faced by Russia, together with lower oil prices globally, caused further difficulties in the region. Russia continued to suffer the effects of international sanctions imposed due to its actions in Ukraine. Other CIS countries’ strong economic ties with Russia meant that the whole region has been negatively affected. The number of new investment arbitrations involving parties from the region decreased in 2014 compared with 2013. Disputes have been concentrated in the oil, gas and mining industry, although the construction and information and communication industries also have given rise to multiple disputes. CIS countries have concluded at least 536 investment treaties (including bilateral investment treaties, free trade agreements and other treaties containing investment-related provisions), eight of which were signed in 2014 and two of which entered into force during the year. For purposes of this review, the CIS region includes participating, associate and former member countries of the CIS: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Elevator Speeches International Investment Arbitration in the Commonwealth of Independent States: Year in Review 2014 INTERNATIONAL ARBITRATION TEAM For questions about international investment arbitration, please contact a member of our International Arbitration Team, or the authors of this review: Authors: Emma Lindsay Counsel, New York +1 212 541 2121 [email protected] Nabeel Osman Associate, London +44 (0)20 3207 1236 [email protected] PAGE 2 bryancave.com | A Global Law Firm BRYAN CAVE INTERNATIONAL ARBITRATION TEAM Investment Arbitration in the Region 1 A total of 49 ICSID cases have involved parties from the CIS as claimant investors, respondent States or both, with the first arbitration brought against a country in the region – by an investor from the United States against Ukraine – filed in 1998, and the first arbitration brought by an investor in the region – by investors from Kazakhstan and the United States against Kazakhstan – filed in 2001. Of those 49 cases, 12 were pending in 2014. Historically, claims against CIS countries have been made most frequently by investors from the United States, Turkey and the Netherlands. Of the investment arbitrations pending in 2014, the top three home countries of claimants were Turkey, Kazakhstan and the United Kingdom. Top Nationalities of Investors with ICSID Arbitrations in the CIS 1 This review considers only investment arbitrations brought under the auspices of ICSID, which constitute the majority of investment arbitrations in the region. Ukraine has faced the most investment claims in the CIS, followed by Ukraine, Kazakhstan, Georgia and Uzbekistan. Uzbekistan and Turkmenistan had the most claims pending against them in 2014. CIS Countries Facing Investment Claims PAGE 3 bryancave.com | A Global Law Firm BRYAN CAVE INTERNATIONAL ARBITRATION TEAM Nearly 80 percent of CIS cases have been brought by investors from outside the region against CIS countries. The remaining cases have been brought by CIS investors against CIS countries. As of the end of 2014, no claims have been brought by CIS investors against countries outside the region. The number of new cases initiated by CIS investors in 2014 returned to 2012 levels, after a spike in 2013. The number of cases brought against CIS countries also decreased from 2013 levels. Historically, investment disputes against CIS countries have arisen most frequently in the oil, gas and mining industry, followed by the construction and information and communication industries. Of the disputes pending in 2014, nearly half involved the construction industry. Investment Cases by Industry 14 3 4 7 1 1 1 2 1 6 4 4 3 3 Instrument Invoked to Establish ICSID Jurisdiction Inner Circle = Pending Cases Outer Circle = Total Cases Inner Circle = Pending Cases Outer Circle = Total Cases 4 3 2 1 0 2012 2013 2014 Total number of new cases filed Non-CIS claimant v. CIS respondent Cases Initiated Per Year CIS claimant* v. CIS respondent 4 3 2 1 0 2012 2013 2014 Total number of new cases filed * at least one CIS claimant The basis for arbitral jurisdiction in most cases against CIS countries has been an investment treaty (the majority of cases are brought pursuant to a bilateral investment treaty), although claims also have been made pursuant to national investment laws and, less frequently, contracts. PAGE 4 bryancave.com | A Global Law Firm BRYAN CAVE INTERNATIONAL ARBITRATION TEAM Of the 37 concluded arbitrations, 6 cases (16 percent) have involved further proceedings seeking to annul the arbitral award. A far greater proportion (41 percent) were either settled or discontinued. Investment Treaties Involving CIS Countries Almost 16 percent of the nearly 3,300 investment treaties currently in existence involve CIS countries. Ukraine and Russia have signed the most investment treaties and have the greatest number currently in force. Of the 536 investment treaties signed by CIS countries, 59 are treaties signed between or among only CIS countries. The United States has signed 13 investment treaties with CIS countries, 10 of which are bilateral investment treaties that permit investor-State arbitration (the treaties between the United States and each of Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Ukraine and Uzbekistan). Eight investment treaties involving the region were signed in 2014. Association agreements were signed with the European Union by each of Georgia, Moldova and Ukraine. Bilateral investment treaties were signed between Azerbaijan and Russia, Georgia and Switzerland, Kazakhstan and Japan, and Kyrgyzstan and Qatar. The Treaty on the Eurasian Economic Union was signed by Armenia, Belarus, Kazakhstan and Russia, establishing an international organization for economic integration among the four countries. PAGE 5 bryancave.com | A Global Law Firm BRYAN CAVE INTERNATIONAL ARBITRATION TEAM u On July 18, 2014, an arbitral tribunal sitting in The Hague under the auspices of the Permanent Court of Arbitration issued the largest arbitral award ever rendered, unanimously holding Russia responsible for the destruction of Yukos Oil Company and the unlawful expropriation of its assets in breach of the Energy Charter Treaty. The tribunal awarded damages in excess of US$50 billion together with US$60 million in legal fees and €4.2 million in arbitration costs. Russia has challenged the award in the District Court of The Hague. Other Developments in 2014 u The bilateral investment treaty between Kazakhstan and Vietnam entered into force on April 7, 2014, following its signature in September 2009. The treaty permits investor-State arbitration. u The bilateral investment treaty between Kazakhstan and Estonia entered into force on August 26, 2014, following its signature in April 2011. The treaty permits investor-State arbitration. Critical Times to Consult Counsel INVESTORS: u At the outset – when structuring an investment and negotiating project contracts u As soon as difficulties arise – when facing operational, regulatory or other issues in the host country u In discussions with the host country – when trying to resolve difficulties amicably u Before commencing a claim – when deciding whether and how to make a claim against the host country u In post-award proceedings – when seeking to collect on an award or reach a settlement with the host country u In getting the business relationship back on track – when moving forward in the wake of a dispute STATES: u At the outset – when negotiating and drafting investment treaties and national investment laws u In the pre-investment process – when inviting and accepting foreign investment u In the investment phase – when negotiating project contracts u As soon as notice of a dispute is given – when consulting with an investor about a potential investment arbitration claim u Upon receipt of a claim – when formulating an arbitral strategy in the initial stages of a dispute u In implementing or challenging an award – when considering next steps after the arbitration concludes PAGE 6 bryancave.com | A Global Law Firm BRYAN CAVE INTERNATIONAL ARBITRATION TEAM Authors Emma Lindsay Counsel, New York +1 212 541 2121 [email protected] Nabeel Osman Associate, London +44 (0)20 3207 1236 [email protected] Research support and data collection assistance provided by Hannah Coker, Trainee Solicitor, London Additional Contacts Pedro Martinez-Fraga Partner, Miami +1 786 322 7373 [email protected] Co-Leader of the International Arbitration Team Rodney Page Partner, Washington, D.C. +1 202 508 6002 [email protected] Co-Leader of the International Arbitration Team Constantin Achillas Partner, Paris +33 1 44 17 77 34 [email protected] Nigel Binnersley Partner, Hong Kong +852 3588 9110 [email protected] Mathew Rea Partner, London +44 (0)20 3207 1203 [email protected] Irina Tymczyszyn Partner, London + 44 (0)20 3207 1210 [email protected] Leader of the CIS Team About Our Team Bryan Cave’s International Arbitration Team provides a comprehensive service to clients around the world embracing all aspects of international dispute resolution. We handle a broad range of matters, including international commercial and investment arbitration, public international law and complex commercial litigation, for a wide variety of business, financial, institutional and individual clients, including publicly-held multinational corporations, large and mid-sized privately-held companies, partnerships and emerging enterprises. We also advise sovereign clients with regard to their particular complex legal, regulatory and commercial challenges. Our team features many practitioners who serve as both counsel and arbitrator and draws on the full range of subject-matter and industry experience across the firm, including in construction, energy, finance, manufacturing, mining and natural resources, pharmaceuticals, technology, telecommunications, tourism, transportation and many other sectors. Combining the common law and civil law traditions, members of our team are admitted to practice in many jurisdictions across the globe and speak a variety of languages. In addition, we work with an established network of law firm “friends” and colleagues in places where we do not have a direct presence, ensuring our strong market knowledge and quality of service on matters worldwide. This review is published for the clients and friends of Bryan Cave LLP. The statements made in this publication are for general educational purposes only. Information contained herein is not to be considered as legal advice or a legal opinion on any specific facts or circumstances. You are urged to seek the advice of your legal counsel if you have any specific questions as to the application of the law. The receipt of this publication does not create an attorney-client relationship between you and Bryan Cave LLP. © 2015 Bryan Cave LLP. All Rights Reserved.