Paris Court of Appeal, No. 16/16502 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 1 - First Chamber, 14 May 2019, No. 16/16502

OXUS GOLD PLC
vs. THE REPUBLIC OF UZBEKISTAN

Oxus Gold plc (Oxus) was incorporated in 2000 in the United Kingdom to explore, acquire and operate precious and base metal properties in Central Asia.

On 31 August 2011, under the Agreement between the Government of the United Kingdom and the Government of the Republic of Uzbekistan for the Promotion and Protection of Investments dated 24 November 1993 (the Bilateral Investment Treaty or BIT), Oxus has initiated arbitration proceedings against the Republic of Uzbekistan, the State Committee on Geology and Mineral Resources (Goskomgeology), and the Navoi Mining and Metallurgical Combine (NMMC), a company owned by the Uzbek government, regarding its investments in two projects:

the exploration of a polymetallic deposit in Khandiza,
the 50% of the Amantaytau Goldfields JV (AGF)’s shares, a company incorporated under Uzbek law with Goskomgeology and NMMC for the exploitation of the Amantaytau gold deposits, shares owned via Oxus Resources Corporation, a sub-subsidiary of Oxus Gold registered in the British Virgin Islands.

Oxus alleged the expropriation of its investments in violation of Article 5 of the BIT, as well as Uzbekistan’s violation of various obligations under Article 2 (fair and equitable treatment, protection against unreasonable and discriminatory measures, full protection and security).

In a final award issued in Paris on 17 December 2015, the arbitral tribunal composed of Ms. X and Mr. Y, arbitrators, and Mr. Z, chairman, acting in accordance with the 2010 version of the Arbitration Rules of the United Nations Commission on International Trade Law (2010 UNCITRAL Arbitration Rules), ruled as follows:

dismissed all claims relating to the Khandiza Project,
issued that the tax regime changes implemented in 2006 and 2009 violated Article 2 (2) of the BIT and ordered Uzbekistan to pay Oxus US$10,299,572 for its investment in AGF,
rejected Oxus' other claims, and in particular, its claims based on expropriation of its investment in AGF as a result of an audit carried out in February-March 2011, and on a creeping expropriation resulting from acts and omissions committed between 2004 and March 2011,
declared that it had no jurisdiction over Uzbekistan’s counterclaims,
shared the costs and fees of the arbitrators in half and left each party to bear its own expenses.

On 26 July 2016, Oxus filed an application to set aside the award in part.

The claims of inadmissibility filed by Uzbekistan were rejected by an order of the Pre-trial judge of 19 January 2017, confirmed by a judgment of this court of 31 October 2017.

In submissions notified on 12 March 2019, Oxus requested the court to set aside the final award in so far as it rejected its claims relating to the expropriation of its investment in AGF (Section B. V. 2 (2) and provision No. 7), to dismiss Uzbekistan’s claims and to order it to pay the sum of 200,000 euros pursuant to Article 700 of the Code of Civil Procedure. It alleges failure to comply with the principle of due process (in French: Principe de contradiction) and the principle of equality of arms (Articles 1520-4 and 1520-5 of the Code of Civil Procedure).

In submissions notified on 7 March 2019, Uzbekistan requested the Court, principally, to dismiss the appeal and all the adverse claims, and, in the alternative, assuming that there were grounds for setting aside the award, to state that the annulment would relate to all aspects of decision concerning the AGF project and, in any event, to order Oxus to pay it the sum of €425,000 pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the ground based on the failure to comply with due process (in French: Principe de contradiction) (article 1520-4 of the code of civil procedure):

Oxus argues that, in deciding that it failed to prove the essential elements of an indirect expropriation between 2007 and 2010, the arbitrators relied on a letter from its Executive Chairman, Mr. M B, dated 10 December 2010, which had not been cited by the parties in the context of the debates concerning the expropriation of its rights in AGF, and that they had thus disregarded due process (in French: Principe de contradiction). To begin with, due process (in French: Principe de contradiction) only requires that the parties should be able to state their claims in fact and in law and comment those of the opposing party in such a way that anything which influenced the decision of arbitrators was subject to adversarial debate.

In addition, the arbitrators do not have to submit their reasoning in advance to an adversarial discussion between the parties.

In the present case, the arbitrators took the disputed document into account in their reasoning on the expropriation allegation as follows:

“The claimant, in general, failed to demonstrate two essential components of an indirect expropriation: (i) the effective loss in value of the investment; and/or (ii) the causal link between the loss in value and an act imputable to the host State.
None of the events that occurred prior to 2007, whether taken individually or collectively, reached the significant degree of deprivation of the Claimant’s investment.
[…]
Similarly, none of the events that occurred between 2007 and the end of 2010 suggest this. The letter of 10 December 2010 (Exhibit C-18) from Mr. A [in fact, Mr. B, Executive Chairman of Oxus] is to a large extent evidence of this, in which he tried to convince the Uzbek Parties not to liquidate the joint venture and expressed the view that AGF is ahead of its 2010 goals and is ‘profitably’ operating. It can continue to operate profitably in case that the necessary permits are granted, AGF’s tax regime are stabilised' and that Oxus intends ‘to invest a significant amount of additional capital and to clear its debt to the Ministry of Finance’. In the letter, Mr. A also offered, on behalf of Oxus, to buy the shares of the Uzbek Parties or to sell the Oxus shares to the Uzbek Parties at ‘50% of the value of AGF’s existing balance sheet’ plus a royalty on production. These statements are not consistent with [Oxus]’s position that it had already, at that time, been dispossessed of the value of its investment'. (Award, § 748-750)."

The letter of 10 December 2010 (Oxus Exhibit 17) was produced at the arbitration by Oxus itself, which expressly referred to it in several of its statements (statement of 27 February 2012: Uzbekistan Exhibit No. 69, first post-hearing statement of 21 July 2014, § 74 Uzbekistan Exhibit No. 52 bis) and implicitly in its opening pleadings (regarding the special dividend: “Assuming that the levy was again justified in terms of form, in terms of substance, once again, where is the compensation? ‘We know that it is of great value. There was even some discussion. We offered to buy the shares of our joint venture partners. They offered to buy ours and actually took the opportunity to carry out an audit that kicked us out. So it has a value and it is impossible to contest it” (Transcript of the hearing of 28 April 2014, p. 37: Exhibit Uzbekistan No. 50 bis).

The reference to the letter of 10 December 2010 in Oxus’ submissions still supports the claim that the investment was not worthless. Oxus cannot therefore complain to the arbitrators that they drew the same conclusion from this exhibit in their reasoning on the evidence of expropriation.

The ground based on the failure to comply with due process (in French: Principe de contradiction) principle can only be dismissed.

On the ground relating to the violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

Oxus explains that on 24 May 2012, 11 months after the start of the arbitration, Uzbekistan chose a new counsel in these proceedings, Mr N O of the law firm White & Case, which had previously, since November 2006, represented Zeromax, one of its main shareholders, and had thus directly or indirectly obtained confidential information about itself and about the dispute with Uzbekistan; that the Arbitral Tribunal found in its Procedural Order No. 5 there was no sufficient evidence that the involvement of White & Case was such as to give an unfair advantage to Uzbekistan in the arbitration; however, Oxus was free to request the refusal of documents improperly obtained by Uzbekistan; on 21 February 2014, White & Case submitted four witness statements - three former Zeromax employees and the former Oxus accountant - whose sole purpose was to allow the admission of some 50 documents attached and to conceal their origin; by Procedural Order No. 13 of 9 April 2014, the Arbitral Tribunal, on the basis of equality of arms, excluded the testimonies of the former Zeromax employees and the attachments, and that, at the request of Uzbekistan to reconsider its decision, the Arbitral Tribunal accepted the production of four of the disputed documents; that this decision, which was not reasoned, was taken on the same day as the hearing and that it had not been possible to discuss the admission of the documents but only their content, and that the arbitral tribunal relied precisely on facts disclosed by these documents - namely the unlawful use by Oxus of an offshore bank account with Barclays Bank - to decide that the events between the end of 2010 and 2012 had not led to an expropriation of its investment.

Uzbekistan replied that Oxus did not challenge the admission of the disputed documents in the arbitration and that it was no longer admissible to raise this claim before the annulment judge. On the merits, the defendant submits that those documents were obtained not by White & Case on the occasion of previous advisory missions, but by Mr C, a member of AGF’s supervisory board, and that, in any event, those documents were included in its request for production and should therefore have been communicated by Oxus.

Under Article 1466 of the Code of Civil Procedure: “A party which, knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity.”

The principle of equality of arms is a matter of international public policy of protection, so that a party is free to waive its benefit.

In the present case, following the dissolution of the law firm Dewey & LeBoeuf LLP, which had represented Uzbekistan until then (Award, § 72), Uzbekistan chose the law firm White & Case to represent it in the arbitral proceedings, which had assisted it since 1992 in various proceedings in the United States (Response to the challenge, Uzbekistan Exhibit No. 33 bis). Oxus filed a request for disqualification, claiming inequality between the parties due to the choice of counsel that had previously been that of one of its partners. By Procedural Order No. 5 of 14 September 2012, the arbitral tribunal dismissed this request, considering that the facts alleged by Oxus relating to the assistance provided by White & Case, on the one hand, in the agreement for Zeromax to subscribe for 16% of the shares of Oxus and, on the other hand, in obtaining financing for Oxus, finally for the provision of legal advice on a possible investment arbitration against Uzbekistan, were not sufficient to support a restriction by Uzbekistan on its right to choose counsel, which White & Case had never represented Oxus and had no duty of confidentiality towards it, that Oxus was listed on the alternative investment market of the London Stock Exchange and as such had an obligation to disclose any changes in its financial position, area of activity, performance and performance forecasts which, if issued, would be likely to result in a substantial change in its share price, and that the information that White & Case had been able to obtain in the course of the assignments entrusted by Zeromax was in the public domain or was otherwise accessible to Uzbekistan. However, the arbitral tribunal reiterated that Uzbekistan should refrain from producing any confidential information it might have obtained directly or indirectly about Oxus.

Before the Court, it is not claimed that the choice of White & Case to assist Uzbekistan in the arbitration proceedings would, of itself, violate the principle of equality of arms, but only that the admission to the proceedings of certain documents would violate that principle (Oxus concl., § 90).

On 21 February 2014, Uzbekistan submitted, together with its rejoinder, the evidence of Mr P D, Mr Q R, Mr S C and Mr Ikrom Yokubov, to which some 50 new documents were annexed.

Oxus requested that these witnesses statements and certain exhibits be excluded from the proceedings on the grounds that Mr D was the former financial controller of Oxus Gold plc, who was bound by a duty of confidentiality, that the other three witnesses were former employees of Zeromax, who were also bound by a duty of confidentiality, and that the vast majority of the attachments could not have come from the witnesses and were presumably from the firm White & Case.

By Procedural Order No. 13 of 9 April 2014, the Arbitral Tribunal accepted the witness statement of Mr. D and the exhibits attached thereto and rejected the remainder of the witness statements and documents submitted on 21 February 2014. The arbitral tribunal held that the use of information by a law firm, which were received from a former client, without the latter’s consent, for the benefit of a new client and to the detriment of a third party in which the former client had invested and which it partly managed, entailed a risk of substantial imbalance between the parties, that, as a result, the burden of proof was reversed and that the burden of proof was on Uzbekistan to show that its counsel’s relationship with a former client had played no role in the collection of the disputed materials; that Uzbekistan did not sufficiently adduce this evidence and in particular did not specify how it knew who to contact within Zeromax, how to contact them and what questions to ask them, that there was therefore justifiable doubt as to the impact of White & Case’s past involvement with Zeromax in the collection of the disputed documents.

On 20 April 2014, Uzbekistan requested the arbitral tribunal to reconsider its decision by a thirteen-page note setting out the circumstances in which it contacted the witnesses, arguing that White & Case’s past relationship with Zeromax was unrelated to the witnesses' willingness to cooperate (one of them was in detention), and claiming that if former Zeromax employees breached their obligation of confidentiality vis-à-vis Zeromax, this circumstance did not make their witness statements inadmissible in the Oxus trial. In the alternative, Uzbekistan claimed that four of the excluded exhibits should be admitted to the proceedings as they should have been provided by Oxus in response to its requests for production. These were Exhibits R-698 (exchange of emails of 7 November 2007 between Oxus representatives and Goskomgeology concerning the renewal of AGF’s exploration licence), R-1046 (questions from Mr. C and answers from Mr. B), R-1047 (questions from Mr. C and answers from Mr. C) and R-1048 (questions from Mr. C and answers from Mr. B). E regarding Oxus' rights and obligations in relation to the Khandiza project), R-1054 (email from AGF’s managing director regarding offshore account operations) and R. 1055 (email from Oxus representative Mr. F with ‘list of AGF’s problems at the end of October 2007 that could potentially escalate’).

On 23 April 2014, Oxus dismissed the request, arguing that Uzbekistan did not provide any new information justifying a reversal of Procedural Order No. 13 and that it was not correct that exhibits R-698, R-1046, R-1054 and R-1055 were replies to requests for disclosure of documents accepted by the Court. Oxus also objected to the process of disclosing in the application the essential content of the disputed documents.

On 28 April 2014, the first day of hearings, following Oxus’ opening statement of claim, the arbitral tribunal informed the parties that it would not reverse its decision of 9 April 2014, but that it accepted the alternative solution of producing four documents proposed by Uzbekistan (Transcript of the proceedings 28.04.2014, p. 141, Oxus Exhibit No. 34). During the debates that followed the disputed exhibits were discussed on the merits without the conditions for their admission being challenged again, Uzbekistan argues that Oxus implicitly waived this claim. It further argues that the arbitral tribunal expressly gave the parties the opportunity to express their views on the issue of equality of arms at the end of the proceedings and in the post-hearing submissions (Transcript, of the proceedings 3 May 2014, p. 1323, Uzbekistan Exhibit No. 51 bis) without any further objections from Oxus, and finally, that, at the end of the proceedings, counsel for Oxus stated that it had no objection to the manner in which the hearing had been conducted (Transcript of the proceedings, 3 May 2014, p. 1531, Uzbekistan Exhibit No. 51 bis).

However, it follows from the transcript of the proceedings that at the hearing on 3 May 2014, Oxus' counsel, invited to speak on the issue of equality of arms, replied, before commenting on the relevance of the impugned materials: “I will set out our position on the issue of the correspondence, Exhibit 1054.1, which was issued after our opening statement, as well as on the associated correspondence and on the issue of Barclays Bank in general. Perhaps one day, Professor Z, you will be able to explain to us the reasons for your reconsideration, so that we may or may not consider asking you to reconsider your reconsideration.”

It appears, therefore, that Oxus, which contested the production of the disputed documents when they were first submitted in February 2014 and again in April 2014 when Uzbekistan submitted its request for reconsideration of Procedural Order No. 13, in no way waived its objections but considered that it was prevented from developing them by the lack of reasons for the new decision of the arbitral tribunal. The general satisfaction of the parties with the proper conduct of the hearings could not be analysed any more as a waiver of a complaint about the admission of evidence.

The ground alleging violation of the principle of equality of arms is therefore admissible.

Equality of arms, which is an element of a fair trial protected by international public policy, entails the obligation to afford each party a reasonable opportunity to present its case, including its evidence, in conditions which do not place it at a distinct disadvantage vis-à-vis the other party.

To reject the expropriation claim, Oxus Gold argues that the arbitral tribunal relied on Exhibits R-1054 and R-1055 (Oxus Gold’s submissions, pp. 43-45). It cites the following excerpts from the award in this regard:

“Since 2009, the Claimant had already ceased gold processing operations and the Uzbek Parties had been requesting liquidation for some time, in particular due to operational problems and the low amount of dividends that had been distributed until then. Indeed, the financial difficulties were not new, and while the Claimant continued to make profits through the AGF Management and Services Agreement and the AGF General Administration Agreement and retained control over significant amounts of foreign currency through the Barclays account, the Uzbek parties did not receive the money they were entitled to expect under the terms of the Phase 2 Preliminary Feasibility Study and had reason to be dissatisfied' (Award, § 751);

In summary, the arbitral tribunal concludes that the loss of control over and impairment of the Claimant’s investment did not occur until 2011 and that, at that point, a number of diverse and varied issues were affecting AGF’s operations. As is apparent from the underlying facts and evidence, the deterioration of Claimant’s investment was the result of a process over several years during which Defendant took certain steps towards AGF and/or Oxus and no one can say that the deterioration of Claimant’s investment is a direct result of Defendant’s actions. In fact, AGF faced internal management problems and major operational delays for which AGF, and hence the Claimant, bears some responsibility. These problems included (1) AGF’s delivery of gold bars with inadequate levels of impurities, which resulted in problems with the refining of the gold silver bars, (2) AGF’s failure to fully comply with tax, currency and customs regulations, in particular with respect to the manner in which AGF managed foreign currency through its account at Barclays Bank and (3) with respect to the Cyanide Permit, the fact that the Applicant did not carry out the exploration work provided for in its first Exploration Permit, which was the reason for the refusal of a new Exploration Permit. ' (Final sentence, § 752).

Since the Arbitral Tribunal accepted the documents in dispute without any special reasons, it infers that it endorsed the reasons put forward by Uzbekistan for their admission, namely that they should have been included in the proceedings pursuant to the request for the production of documents.

It follows from the award (§ 88) that on 26 and 31 June 2013 the arbitral tribunal issued its Procedural Orders 8 and 9, in which it ruled on the respective requests for the production of documents of the parties and on objections to such applications.

According to Annex 2 to Procedural Order No. 8, Uzbekistan requested, inter alia, that some documents should be included in the proceedings:
A.3 AGF’s missing corporate documents, including, but not limited to, all agendas, minutes or resolutions of any General Meeting of Shareholders, all agendas, minutes or resolutions of the Supervisory Board, all management reports, all business plans, all reports of the Audit Committee, all data relating to employees and salaries, and any other documents reflecting analyses, recommendations or decisions of AGF’s management or of its General Meeting of Shareholders, Supervisory Board or Audit Committee'.
[…]
J.4 All documents, including but not limited to accounting documents, invoices, tax returns, internal communications, reports, memoranda and minutes of Board meetings relating to all payments made by the Applicant from AGF’s Barclays Bank account to suppliers, including payments made to the Applicant, such as the payment of USD 3.6 million made by the Applicant to itself in early 2011.

On these two points, Oxus replied that it would ‘seek further conclusive evidence’ and would produce the relevant documents ‘when available, as appropriate’.

Exhibits R-1054 and R-1055 seem to satisfy the above-mentioned request J.4. The first contains e-mails exchanged in September 2007 from business addresses between Mr. G, AGF’s General Manager, but also an Oxus employee and witness, and Messrs. A and H, Oxus employees, relating to difficulties in using a bank account abroad (Oxus Exhibit No. 36). The second is an email sent on 30 October by Mr. F, Oxus’ representative at the general meetings of shareholders and the supervisory board of AGF, to the business addresses of several persons, including Messrs. G, A and H, relating, inter alia, to payments made through Barclays Bank for import contracts (Oxus Exhibit No. 37). Contrary to what Oxus claims, these two documents correspond to item J.4: ‘internal communications concerning payments made from the Barclays Bank account’.

By refraining from objecting in principle to requests for the production of documents relating to payments made by Barclays Bank - objections on which the arbitral tribunal would have had to decide - Oxus agreed to satisfy them in full. While Oxus could later challenge the inclusion of documents submitted by Uzbekistan in the claims, it could no longer claim that the very wording of the claims disclosed that Uzbekistan had information of suspicious origin.

As the disputed documents were among those which it should have produced in the arbitration proceedings, Oxus cannot claim that their admission to the proceedings infringed the principle of equality of arms.

The ground alleging a violation of international public policy was unfounded.

It follows from the foregoing that the action for annulment must be dismissed.

On Article 700 of the Code of Civil Procedure:

Oxus Gold cannot benefit from the provisions of Article 700 of the Code of Civil Procedure and will be ordered on this basis to pay Uzbekistan the sum of 300,000 euros.

FOR THESE REASONS:

Dismisses the action for annulment of the award issued in Paris on 17 December 2015.

Orders Oxus Gold Plc to pay the costs which may be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure and to pay the Republic of Uzbekistan the sum of EUR 300,000 pursuant to Article 700 of the Code of Civil Procedure.