THE AUTHORS: Guillermina Huber, Associate at LALIVE
On 15 December 2021, the High Court of England and Wales (the “EWHC”) issued its judgment in Gold Pool JV LTD v. Republic of Kazakhstan reviving the debate on the so-called standard of “correctness” for the review of jurisdictional questions arising under international investment treaties. The judgment followed an application, filed under section 67 of the 1996 English Arbitration Act (the “AA 1996”), which allows a party to challenge an award as to the tribunal’s substantive jurisdiction providing for a de novo rehearing of the issues.
Though set-asides of treaty-based awards declining jurisdiction are still unusual, consensus is emerging among leading jurisdictions that jurisdictional questions should be explored free from any binding force of the arbitral decision (e.g., Clorox v. Venezuela, PCA Case No. 2015-30, Decision of the Swiss Federal Tribunal 4A_306/2019, 25 March 2020). From a procedural standpoint, Gold Pool refutes some objections that have been raised against such broad review powers. Additionally, from a substantive standpoint, the decision raises the question of whether such powers expose complex matters of investment treaty law and public international law to domestic court judges who may not be experts in those fields.
In March 1996, Gold Pool JV Limited (“Gold Pool”), a joint venture between two Canadian mining companies, signed a contract under Kazakh law to manage state-owned entity Kazakhaltyn and improve its business performance. However, when Gold Pool failed to overcome the negative trend in its operations, Kazakhstan terminated the contract in August 1997.
Despite the seventeen years’ gap since the original events, in February 2014, Gold Pool sent a notice of dispute, and two years later, in March 2016, it finally triggered arbitration proceedings before the Permanent Court of Arbitration under the Canada-USSR Agreement for the Promotion and Reciprocal Protection of Investments of 1989 (the “FIPA”) which it argued to be applicable to Kazakhstan. Kazakhstan, as the Respondent State, raised a jurisdictional objection arguing that the FIPA was inapplicable, invoking treaty succession issues, drafting history, and the recorded bilateral relations between the parties.
In a 30 July 2020 award, the arbitral tribunal denied jurisdiction over the claims, dismissing Gold Pool’s case that Kazakhstan and Canada had reached a “tacit
agreement” on the continuity of the FIPA between them. The decision gained visibility as it was completely at odds with the jurisdictional decision reached in WWM v. Kazakhstan (II) (“WWM (II)”) where the arbitrators asserted jurisdiction over the dispute brought under the FIPA.
Dissatisfied with the London-seated tribunal’s decision, Gold Pool challenged the award under Section 67 of AA 1996 on the grounds that it erred in finding it lacked substantive jurisdiction. Subsequently, the EWHC ruled that the arbitral tribunal did in fact have jurisdiction over Gold Pool’s claims under the FIPA. The judge, Mr. Justice Andrew Baker, found that Canada and Kazakhstan had “impliedly agreed” in three different instruments that the FIPA applied as between them. Consequently, the July 2020 award rendered in Kazakhstan’s favour was set aside in its entirety and was remanded to the arbitral tribunal, with directions to rule on the merits in a new award.
The Standard of Correctness: Proper Standard of Review for Excess of Jurisdiction?
Standards of review vary significantly in non-ICSID set-aside proceedings depending on the law of the seat of arbitration. The Gold Pool judgment displays a standard of review that exemplifies a trend of the English courts to perform a full-fledged de novo review. According to this standard, the English courts may examine whether the tribunal was right in assuming or refusing jurisdiction (i.e., a “standard of correctness”) whenever a party files an application under section 67 of the AA 1996.
Under English law, section 67 of the AA 1996 embodies the “standard of correctness” providing for a means of recourse against an arbitral award where the tribunal’s “substantive jurisdiction” is questioned. Accordingly, section 30 defines the term “substantive jurisdiction” to signify (i) whether there is a valid arbitration agreement, (ii) whether the tribunal is properly constituted and (iii) what matters have been submitted to arbitration in accordance with the parties’ arbitration agreement.
Section 67 vests upon the English courts broad powers to confirm, vary, or set aside the award in whole or in part, providing for a de novo rehearing of the issues as to the tribunal’s substantive jurisdiction. Relevant case law confirms that the courts will conduct a full analysis of the materials before it (including new evidence), and substitute its own views for those of the arbitral tribunal, giving no “automatic legal or evidential weight” to the award (See, e.g., Occidental v. Ecuador [EWCA Civ 1116]; Griffin Group v. Poland [EWHC 409]; South Korea v. Dayyani [EWHC 3580]).
Despite such wide-ranging powers of review of investment treaty tribunals, English courts have, until recently, mostly agreed with tribunals’ jurisdictional findings and have favored a relatively expansive interpretation of jurisdictional provisions in investment treaties (see, rejections of section 67 applications in Czech Republic v. EMV [EWHC 2851]; The Kyrgyz Republic v. Stans Energy Corporation [EWHC 2539]; and South Korea v. Dayyani [EWHC 3580]).
The Gold Pool judgment represents the first successful challenge under section 67, within the context of investment treaty arbitrations, where an award is remitted in full to a functus officio tribunal. The only precedent on a successful section 67 application was the controversial Griffin Group v. Poland decision, where the EWHC overturned parts of an award on jurisdiction, broadening the scope of the arbitration agreement under the BIT and thus including claims of breach of fair and equitable treatment. However, this case did not involve a functus officio scenario.
It is interesting how, in the flip scenario of WWM(II), where the tribunal did find jurisdiction under the FIPA, Kazakhstan managed to successfully challenge the award on the ground of serious irregularity affecting the final award under section 68 of the AA 1996. The EWHC found that the tribunal awarding damages based on an ultra petita argument (i.e., a theory of damages not been advanced by the claimant) amounted to a serious procedural irregularity, set aside the damages part of the award, and remitted it to the tribunal for further consideration.
Despite their overall pro-arbitration stance to the review of investment treaty awards, both the Gold Pool and WWM(II) judgments seem to illustrate a recent trend by which English courts are becoming less deferential to investment tribunals. As a general overview, out of the seven applications to set aside investment arbitration awards in England, five have triggered a de novo rehearing of the issues under Section 67 (See, EWHC 2851; EWHC 2539; EWHC 409; EWHC 3580; and EWHC 3422) and only one has been filed arguing a serious irregularity in the proceedings under Section 68 (See, EWHC 3068). The outstanding case failed to reach the required standard under both Sections 67 and 68 (EWHC 774 and EWCA Civ 1116). What is notable is that out of those seven total applications, the only three which succeeded in remitting the award back to the arbitral tribunal were issued in the last four years: two under Section 67 (EWHC 409 and EWHC 3068) and one under Section 68 (EWHC 3422).
The Gold Pool decision has further stoked the debate around the standard of correctness. While it is true that, in principle, the adoption of the standard of correctness to jurisdictional questions in investment treaty arbitrations may expose the challenge process to potential abuse, the EWHC’s prudent approach seems to be aligned with its traditional pro-arbitration stance.
With the reaffirmation of the standard of correctness, two main considerations remain. First, a de novo standard of review, with potentially new evidence and lengthy hearings, would entail significant costs for the parties and delay the definitive resolution of the dispute. Second, not all judges in all jurisdictions possess the relative knowledge and experience of the international tribunals, often composed of international law experts, whose decisions they substantively review. Unlike Griffin Group v. Poland, where the EWHC referred to customary rules enshrined in Articles 31 and 32 of the 1969 Vienna Convention on the Law of Treaties, Justice Baker avoided mentioning relevant public international law rules considered to reflect international custom in treaty succession matters (e.g., Arts. 16 and 24 of the 1978 Vienna Convention on Succession of States in respect of Treaties).
Therefore, it is crucial for the parties to ponder from a legal perspective the strengths and weaknesses of their case for them to determine whether a seat with a more deferential standard of review would be preferable in the interest of finality and saving costs. In short, the most popular seats of arbitration may not always provide the most predictable legal environment and it is only up to the parties to decide whether the advantages offered by such jurisdictions can offset the risks of a heightened standard of review.
Finally, the parties may also consider bifurcation as a procedural tactic, thus ensuring that the jurisdictional issues be treated separately to the merit’s claims. The parties would then not only shield the final award from any future jurisdictional challenges but would also avoid engaging in the proceedings just for the award to be set aside in the end.
ABOUT THE AUTHOR
Guillermina Huber is an Associate at LALIVE. Her main areas of practice are public international law and international arbitration, with particular focus in commercial and investment treaty arbitration across the energy, construction, banking and mining sectors in the Latin-American, African and Middle East regions. She has experience in international disputes conducted under the major arbitral institutional rules, including ICSID, ICC and UNCITRAL.