Republic of Kazakhstan v Istil Group Inc

An arbitral tribunal may reconsider an earlier jurisdictional ruling where the parties treat that ruling as open to review and do not challenge the tribunal’s procedural power to do so. A party which fails to challenge that procedural irregularity under section 68 of the Arbitration Act 1996 cannot later rely on it to defeat a jurisdictional challenge.

Universal succession on a corporate merger does not necessarily terminate pending arbitration proceedings. Under English law, notice of the succession must be given to the other party and the tribunal. Once notice is given, the arbitration may continue and earlier orders or awards may be reinstituted. An issue expressly or impliedly determined by a foreign court may create an issue estoppel where the later proceedings concern the same claim.

The Republic of Kazakhstan applied under section 67 of the Arbitration Act 1996 to set aside a final LCIA award dated 1 June 2004 for want of substantive jurisdiction. The award required payment of approximately US$6 million to Istil Group Inc under three rolled-steel sale contracts.

Istil was the successor, through mergers, to Metalsrussia Corp Ltd, the original claimant in the arbitration. Kazakhstan contended that it was not party to the contracts or arbitration agreements and that the French courts had already determined the relevant jurisdictional issues. The central questions were whether the tribunal could revisit its earlier jurisdictional ruling and whether Kazakhstan was bound by the arbitration agreements.

1. Challenge to the final award. Kazakhstan had not lost its right to challenge the final award merely because it had not challenged the partial award under section 67. Section 73(2) did not apply because the tribunal itself treated the partial award as open to review in light of the change in claimant and the alleged non-existence of the original claimant.
2. However, the tribunal’s decision to reconsider and treat the partial award as a nullity was, at most, an irregularity in the conduct of the proceedings. If Istil considered that the tribunal had exceeded its powers, it should have challenged that irregularity under section 68 of the Arbitration Act 1996. The time for doing so had expired. Istil therefore could not use the tribunal’s procedural ruling to prevent Kazakhstan’s jurisdictional challenge.
3. Provisional view on the merger. Section 78 of the British Virgin Island International Business Companies Act provided for universal succession, including in arbitration proceedings. Under English law, notice of the merger was required, but once notice had been given the arbitration could continue and orders or awards already made could be reinstituted. The partial award was therefore not, on the judge’s provisional view, a nullity.
4. There was no ad hoc agreement conferring final jurisdiction on the tribunal. Kazakhstan’s reservation of rights did not waive its right to challenge jurisdiction. Nor did Kazakhstan’s reliance on the arbitration clause in the French proceedings amount to an offer which Istil accepted by commencing the arbitration.
5. Karmet and Kazakhstan were separate juridical entities. State control, the power to appoint directors and requirements for governmental approval did not justify piercing the corporate veil. The contracts were not concluded by Sauda or Oltex as agents for Kazakhstan. Clause 9.1 of the privatisation agreements and the subsequent decrees did not constitute a legally binding undertaking making Kazakhstan liable for Karmet’s debts or party to the arbitration agreements.
6. The French proceedings concerned materially the same claims. The French court’s decision, confirmed in scope by the French Court of Appeal, impliedly determined that Kazakhstan was not bound by the arbitration clauses. That determination was an issue estoppel. Kazakhstan was entitled to have the final award set aside for want of substantive jurisdiction.