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Tajikistan breaches Energy Charter treaty; claimant asks tribunal to order state to issue energy exploration license
publication date: Feb 9, 2010
By Luke Eric Peterson
In a still-unpublished ruling, an arbitral tribunal at the Stockholm Chamber of Commerce has ruled that the Republic of Tajikistan breached its obligations under the Energy Charter Treaty (ECT) in relation to its treatment of an Austrian investor. The claim by Mr. Mohammad Ammar Al-Bahloul arose out of investments in the Tajik energy sector, and was initiated in May of 2008 amidst allegations that the Tajik Republic was frustrating a series of parallel oil and gas exploration activities. In a September, 2009 Partial Award, arbitrators rejected most claims advanced by the claimant, but ruled that Tajikistan had failed to live up to commitments in four contracts to issue licenses for exploration in four designated areas of the country. This failure on the part of the authorities was deemed to breach the so-called “umbrella clause” of the ECT – a provision which serves to import a range of obligations and give rise to a breach of the international treaty in case of non-performance. In their Partial Award, arbitrators reserved judgment as to the relief to be granted to the claimant, and it is notable that Mr. Al-Bahloul has sought orders of specific performance – which, if granted, would purport to order the Tajik Republic to issue licenses which have not been forthcoming. (In this regard, arbitrators find themselves in the vanguard of investment treaty arbitration; as noted in earlier editions of IAReporter, another arbitral tribunal has lately alluded to its capacity to order performance, rather than provide compensation, even if it remains to be seen whether that tribunal would order such a politically-contentious remedy in the event that it finds any treaty-breaches*). Government did not participate, making life difficult for claimant Not for the first time in investment treaty arbitration, the respondent state did not choose to defend the case; although a letter by the state was sent at the outset of the arbitration to the Stockholm Arbitration Institute, denying that body’s jurisdiction over the Tajik Republic. (In another recent treaty-based arbitration at the Stockholm forum, the Republic of Moldova declined to represent itself in a claim brought by a Russian national, Mr. Iuri Bogdanov. In that case, the sole arbitrator signaled that she would subject factual and legal assertions of the claimant to independent analysis, rather than accept them as automatically “well-founded”; Prof. Giuditta Cordero Moss also ordered Moldova to bear the costs of the arbitration proceeding – a strikingly modest 25,000 EUR - due to its “uncooperative attitude”.**) Notably, the failure of the Tajik government to appear seemed to make matters more difficult for the claimant, insofar as the documentary record supporting his case was extremely fragmentary. Thanks to the non-participation of Tajikistan, arbitrators were not in a position to secure access to documents in the possession of the government. Indeed, arbitrators would rule that Mr. Al-Bahloul failed to present sufficient factual evidence to make out many of his legal claims – a burden which he bore in the arbitration, notwithstanding the Tajik Republic’s non-participation. At one juncture, arbitrators ruled that Tajikistan’s failure to award certain licenses appeared, on its face to be inconsistent and lacking in transparency, however the dearth of evidence as to Tajikistan’s reasons for not issuing these particular licenses led arbitrators to reject a claim that the government breached its fair and equitable treatment obligations; instead, arbitrators opted to address the non-issuance of the licenses as a strict non-performance of contract obligations, which (as was noted above) could be deemed to breach the so-called umbrella clause of the ECT. Expectations not met, but no evidence of detrimental reliance In their analysis of the fair and equitable treatment obligation, arbitrators held that the claimant had certain legitimate expectations to the issuance of certain exploration licenses. However, it was not shown that the claimant expended any resources in anticipation of the grant of these licenses. As such, the tribunal ruled that there was no evidence of the claimant having relied on his expectation of these licenses to his own financial detriment. Of potential interest to certain pending arbitrations arising out of the failure of state authorities to issue licenses in a timely fashion, arbitrators did not address whether the failure of a state to issue a license could be deemed to be a “measure” capable of giving rise to an expropriation under a treaty.*** Stockholm Chamber appointed Tajikistan’s arbitrator Arbitrators in the case are Richard Happ, Ivan Zykin, and Jeffrey Hertzfeld (Chair). Dr. Happ, the claimant’s nominee, is a Partner of the Luther law firm, and currently serves as co-counsel for the Swedish energy company Vattenfall, in a separate ECT arbitration with Germany. He also represents Inmaris Perestroika Sailing Services in a pending BIT claim against Ukraine being arbitrated at ICSID. He was an expert-witness for Latvia in one of the earliest-known ECT arbitrations, Nykomb v. Latvia. Dr. Zykin, a Partner at the Russian law firm Andrey Gorodissky, was appointed by the Stockholm Chamber following Tajikistan’s failure to nominate an arbitrator. Dr. Zykin has sat as arbitrator in several prior BIT arbitrations, including Link Trading v. Moldova and Franz Sedelmayer v. Russian Federation. Mr. Hertzfeld, a Retired Partner at the law firm Salans, has sat as arbitrator in the Link Trading v. Moldova arbitration under the US-Moldova BIT. He also serves as part of the legal team for Rompetrol in its pending ICSID arbitration with Romania. In addition, he has served as counsel in certain now-concluded investment treaty arbitrations, including for Poland in the Eureko case under the Netherlands-Poland BIT.
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