Kyrgyzstan wins key ruling in case against Stans Energy

By bne IntelliNews June 2, 2015

Jacopo Dettoni in Almaty -


A Moscow court has ordered that a $118mn arbitration award granted to Canadian mining company Stans Energy against Kyrgyzstan should be set aside on the grounds of lack of jurisdiction. Two previous arbitration verdicts in separate cases were also set aside on the same grounds, in a decision that raises questions about procedures at the Moscow Chamber of Commerce and Industry's arbitration court.

The ruling, published on May 25, is now expected to unfreeze some 47mn shares owned by Kyrgyz state miner Kyrgyzaltyn in Centerra Gold, a Canadian company that operates the country’s flagship gold mine Kumtor. Centerra Gold had previously been the subject of a preliminary injunction issued by a Canadian court as Stans Energy tried to enforce the arbitration award at home.

The legal battle between Stans Energy and the Kyrgyz government stems from a disputed mining licence for the development of rare earth mine Kutessay II. Kyrgyz State Agency for Geology and Mineral Resources (SGA) awarded Stans Energy the licence back in December 2009, but Kyrgyz courts disputed its validity as the mine’s previous developer, Chinese company Baotau Hongbo, claimed it was the rightful owner of the licence.

Stans Energy eventually halted any mine development activity in 2012 and filed an arbitration claim against the Kyrgyz government  “for its expropriatory and unlawful treatment of the company” before the arbitration court of the Moscow Chamber of Commerce and Industry (MCCI).

The court ruled in favour of the Canadian company in April 2014, awarding the company the right to recover $118.2mn as compensation for losses and damage.

As the Kyrgyz government did not recognize the award, claiming that the MCCI arbitration court had no jurisdiction over the case, Stans Energy sought its enforcement in Canada, where Kyrgyzaltyn officially holds its shares in Centerra Gold. It obtained a preliminary injunction by the Ontario Superior Court of Justice in October 2014 that prohibits the Kyrgyz Republic and Kyrgyzaltyn from selling, disposing, exchanging, assigning, transferring, pledging or encumbering 47,000,000 shares in the capital of Centerra Gold”.

The Moscow Arbitrazh Court, a public court entitled to overturn decisions by the MCCI arbitration court on procedural grounds only, has now ruled that the court had no jurisdiction to decide the case.

“No arbitration agreement existed between claimants of the arbitration dispute [Stans Energy] and the Kyrgyz Republic allowing the arbitration of the dispute by the MCCI arbitration court, which therefore was not competent to adjudicate the dispute and make a decision on it,” reads the ruling.

The ruling definitely brushes away any doubt surrounding the application of a disputed clause of the 1997 Convention for the Protection of Investors’ Right signed by several CIS countries, including Kyrgyzstan, by making it clear that an arbitration tribunal shall be competent to hear disputes against a member state only with its consent to jurisdiction of a specific arbitral institution or to dispute resolution under specific arbitration rules. Kyrgyzstan had never agreed to sort out the Kutessay II dispute before the MCCI arbitration court in Moscow.

The ruling raises “serious doubts about to the impartiality of the arbitrators”, argues Dmitry Davydenko, a Moscow-based senior laywer at the Muranov, Chernyakov & Partners law firm. According to official documents seen by bne IntelliNews, the case seems to endorse the reservations raised by representatives of the Kyrgyz government over the way the MCCI court handled two previous arbitration cases against the country.

The MCCI court had initially granted a $22.5mn award to Korean citizen John Beck in 2013 as compensation for the termination of a contract to run a theme park in the Kyrgyz capital city, Bishkek. It awarded another $2mn award to Kazakh-Kyrgyz building company OKKV as compensation for the expropriation in 2010 of a project to build a cultural centre and accommodation on the shores of Issyk Kul lake. Both awards, alongside Stans Energy’s, have now been set aside for lack of jurisdiction.

“Given such grounds, it is highly likely that Canadian court should lift the injunction [over Kyrgyzstan’s Centerra Gold shares] and refuse to enforce the award, and that the award will be unenforceable elsewhere. There is no doubt that this judgment will be upheld by higher Russian courts,” Davydenko added.

A final decision by the Ontario Superior Court over the award enforcement is still pending, David Vinokurov, Stans Energy’s Vice President of Corporate Development, told bne Intellinews, adding that the company has not received a copy of the Moscow Arbitrazh Court’s ruling yet.

Stans Energy’s shares have lost over 60% of their value in Toronto trading since May 2014, and today the company’s market capitalisation does not exceed CAD10.9mn (€7.3mn). 

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