30 August 2019

KWM secures dismissal of over 94% of US$304 million investment arbitration claim against the Kyrgyz Republic

In 2009, Stans Energy Corp obtained mining licences to develop the Kutessay II and Kalesay rare earth elements deposits in the Kyrgyz Republic. The licences were cancelled by the authorities on the basis of irregularities in the grant of the licences.

In 2014, Stans Energy secured a US$128 million default award from the Arbitration Court of the Moscow Chamber of Commerce and Industry, which assumed jurisdiction on the basis of a regional investment treaty, the Moscow Convention on the Protection of Investor Rights. However, the Russian courts set aside that arbitral award following a landmark ruling by the CIS Economic Court, the inter-state court with the powers to interpret the Moscow Convention, which held that in and of themselves the Moscow Convention’s dispute resolution provisions did not constitute a standing offer to investors to arbitrate disputes. Stans Energy’s appeals (including to the Russian Supreme Court) were dismissed.

In 2014, Stans Energy also secured a freezing injunction over 47,000,000 shares in Centerra Gold Inc, a Canadian miner, which belonged to Kyrgyzaltyn JSC, a Kyrgyz mining company wholly state-owned by the Kyrgyz Republic. Stans Energy argued that the Kyrgyz state had a beneficial interest in the shares by virtue of its 100% ownership of Kyrgyzaltyn JSC. The Ontario courts sided with the Republic on the issue up to the Supreme Court of Canada. The Ontario courts also set aside the freezing injunction, finding that Stans Energy failed to make full and frank disclosure.

In the meantime, in May 2015 Stans Energy commenced the second arbitration in relation to the same facts, this time before an UNCITRAL tribunal. As at the hearing in Paris in April 2018, it claimed US$304.23 million including US$128.23 million in damages and US$176 million in interest. On 20 August 2019, the UNCITRAL tribunal held that it had jurisdiction and that the Kyrgyz Republic “expropriated” Stans Energy’s investment by virtue of canceling of the licences, but it awarded Stans Energy just US$15,027,081.89 to compensate some of Stans Energy’s costs in developing the deposits, interest at the rate of 5% and two-thirds of Stans Energy’s legal costs. All of Stans Energy’s other claims were dismissed.

Stans Energy announced it was “disappointed” with the amount awarded. Its share price on the TSX fell by around 70% following announcement of the award.

The King & Wood Mallesons team included partner Andrei Yakovlev, counsel Wilson Antoon, associates Dina Suliman, Viktoriya Krasyuk and Marco Toracca, and foreign qualified lawyer Pavel Kuryan in London, and associate Vladislav Zinovyev in Beijing.

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