An UNCITRAL tribunal has found Kazakhstan to be a legal successor to the 1989 bilateral investment treaty between the Union of Soviet Socialist Republics (“USSR”) and Canada (the “Treaty”). In a confidential award on jurisdiction, the Tribunal dismissed all of Kazakhstan’s objections to jurisdiction, finding that the Treaty is in force between Canada and Kazakhstan and that the Canadian investor had made a protected investment for the purposes of the Treaty.
Canadian investors World Wide Minerals and CEO Paul Carroll (the “Claimants”) allege that Kazakh authorities adopted a series of arbitrary and discriminatory measures resulting in the loss of their investment in one of Kazakhstan’s largest uranium-processing facilities.
Prior to commencing UNCITRAL arbitration proceedings pursuant to the Treaty, the Claimants had been unsuccessful before a Federal Court of the United States and a previous UNCITRAL arbitration pursuant to a Kazakh domestic foreign investment statute.
Although the award on jurisdiction is confidential, Kazakhstan presumably opposed jurisdiction to this most recent claim on the basis that Kazakhstan never succeeded to bilateral investment treaties signed by the USSR.
State succession to bilateral investment treaties
The law relating to State succession is a controversial area of contemporary international law. This is particularly so with respect to the Central and Eastern European region in relation to the disintegration of the USSR, the Czech and Slovak Federal Republic and the Socialist Federal Republic of Yugoslavia.
State succession is the definitive replacement of one State by another in respect of sovereignty over a given territory; that is, a replacement in conformity with international law. State succession can take the form of cession or annexation of territory, decolonisation, secession or separation of part or parts of the territory of a State to form one or more States, the complete dismemberment of a State, the incorporation of one State into another or the merger of two or more States leading to the creation of a new State.
State succession issues have recently arisen in a number of investor-State arbitration claims where investors have sought to use the law on State succession as a sword to establish the tribunal’s jurisdiction, whilst the respondent States have used the same law as a shield to prevent such claims.
The 1978 Vienna Convention on Succession of States in Respect of Treaties (“1978 Vienna Convention”) is a product of the International Law Commission and regulates treaty succession obligations by successor States. The 1978 Vienna Convention distinguishes between two different types of State succession; one that applies to “newly independent States” succeeding after decolonisation (Articles 16-30) and one that applies to new States not emerging from decolonisation (Article 31).
According to Article 16 of the 1978 Vienna Convention, “newly independent States” are not automatically bound by the bilateral or multilateral treaties entered into by their predecessor State. This is known as the “clean slate rule”.
However, as regards new States created outside of the decolonisation context (as a result of dissolution of States or secession), Article 34 of the 1978 Vienna Convention provides for the principle of automatic continuity to treaties.
The 1978 Vienna Convention entered into force on 6 November 1996 and presently has 19 signatories. However, neither Canada nor Kazakhstan has signed the Convention and given its low number of signatories, it is debatable whether the Convention can be said to represent customary international law in this area. In any event, commentators have suggested that the approach in the 1978 Vienna Convention is unsuitable in the case of bilateral investment treaties given the particular nature of these instruments, with a strong focus on the voluntary consent of both States concerned. There also appears to be limited practice supporting the principle of automatic continuity with respect to bilateral treaties.
The door has now arguably been opened for Canadian investors to seek redress against Kazakhstan for alleged breaches of the Treaty. More broadly, this jurisdictional award potentially opens the door for numerous claims by foreign investors against former Soviet Republics which could, pursuant to the law on State succession, be considered legal successors to treaties signed by the former USSR.