Kazakhstan Succession to Soviet Bilateral Investment Treaty

20 December, 2021

Following a failed coup in August 1991, the process commenced which led to the dissolution of the U.S.S.R. in the weeks that followed. In the U.S.S.R.’s place, the pre-existing “Soviet Republics” declared their independence as new States (apart from the three Baltic States which resumed their earlier sovereignty), and Russia, which constituted as the “continuator State”. Kazakhstan formally seceded from the U.S.S.R. on 16 December 1991, upon its declaration of independence.

In conjunction with this process, the new States and Russia entered into the Agreement Establishing the Commonwealth of Independent States. That Agreement (as extended by a Protocol) and the Alma Ata Declaration were both signed on 21 December 1991. Article 12 of the Agreement stated: “The High Contracting Parties undertake to discharge the international obligations incumbent on them under treaties and agreements entered into by the former Union of Soviet Socialist Republics.”  The Alma Ata Declaration declared: “The States participating in the Commonwealth guarantee in accordance with their constitutional procedures the discharge of the international obligations deriving from treaties and agreements concluded by the former Union of Soviet Socialist Republics. The States participating in the Commonwealth undertake to comply strictly with the principles of the present Declaration.”

In such situations, the question of succession by the newly independent States (such as Kazakhstan) to treaties of the predecessor State (U.S.S.R) arose. That question was recently posed and answered by the Commercial Court in the specific context of a bilateral investment treaty which had been made between U.S.S.R. and Canada and had come into force shortly before the dramatic events of August 1991: namely the Agreement between the Government of Canada and the Government of the Union of Soviet Socialist Republics for the Promotion and Reciprocal Protection of Investments of 20 November 1989. An arbitral tribunal appointed under the treaty on the hypothesis that Kazakhstan had succeeded to the BIT had found that there had been no such succession. The matter was capable of being brought before the Commercial Court in London because the seat of the arbitration was London and there is a right to a complete re-hearing of jurisdictional matters such as this in Court under s.67 of the Arbitration Act 1996.

The argument of an automatic succession or presumption of such succession was for various reasons not pursued. However, it was argued that there had been a succession based on the existence of either an express or tacit (or implied) agreement of the relevant States to the continuation of the BIT. If there had been an express agreement it is likely that there would have been no dispute. In this instance everything turned on whether there had been a “tacit agreement”. It was common ground between the parties that succession by tacit agreement is a recognised form of succession in public international law. The Court hearing was concerned, therefore, specifically with the issue of whether Kazakhstan had indeed tacitly agreed to succeed to the BIT and Canada had tacitly accepted this, in the light of the principles of customary public international law.

After receiving extensive written submissions and nearly two days of oral argument, Mr Justice Andrew Baker handed down his public, reserved, oral judgment on Wednesday 15 December 2021, just 6 days before the 30th Anniversary of the Alma Ata Declaration. He held that, against the background of the public statements quoted above contained in (inter alia) the Alma Ata Declaration, there had been a tacit, or implied, agreement on succession in bilateral instruments or exchanges between Kazakhstan and Canada. Such agreement was concluded either on 10 July 1992 in the formal “Declaration of Economic Cooperation between Canada and Kazakhstan”, which expressly recorded that Canada and Kazakhstan were “…resolved to facilitate sustained efforts to consolidate, develop and diversify their economic cooperation in accordance with the Foreign Investment Protection Agreement of 20 November 1989; or, alternatively, it was concluded in April 1994, by diplomatic notes which were exchanged between Canada and Kazakhstan in the course of negotiating a “Declaration on the Principles of Mutual Relations”; or, alternatively, it was concluded on 29 March 1995 when the “Trade Agreement between the Government of Canada and the Government of the Republic of Kazakhstan” was concluded referring in its Preambular recitals to the Soviet era BIT, as it if it were force between the two States.

Graham Dunning QC and Prof Malcolm Shaw QC of Essex Court Chambers represented the investor (which is now able to pursue its investment treaty claim against Kazakhstan), leading Edward Ho of Brick Court Chambers. They were instructed by Lee Coffey at Jones Day LLP. Permission to appeal was refused.

The final revised judgment can be read here.