A billion-dollar question: Canada wants Kazakhstan to settle its Soviet-time debt

Prague, June 30, Caucasus Times.  Those of us in the legal profession are no strangers to courtroom drama. However, every so often exceptionally preposterous lawsuits make international headlines and call into question basic common sense and reason.

 

Take, for example, a case where a thief couldn’t leave the house he had just burglarized. He was forced to sit inside for several days depleting the owners’ food stocks. When the supplies ran out, the burglar switched to dry pet food, which naturally gave him stomach ache. Upon the owners’ return and his subsequent release, the thief sued them for health damages. Amazingly, the jury ruled in his favor, and the criminal received compensation for his anguish. Although, he did have to spend several months in jail on burglary charges.

 

Regrettably, nonsensical legal cases are a popular game across international court rooms. Many people get overly creative with their claims in hopes of cashing out, while a few charlatans even make a living out of frivolous suits. Often, claim amounts run into millions of dollars. The plight for businesses is even more dire – case values stand at billions.

 

One of such absurd cases is a litigation process between Kazakhstan and Canada over the development and management of the uranium-processing facilities in the former USSR – a contract signed between Ottowa and then-Soviet Union 30 some years ago. To follow and make sense of the current case, the account needs to start from the beginning.

 

In 1996, after the breakup of the Soviet Union, Canadian company “World Wide Minerals, Ltd.” (WWM) signed an agreement with the government of independent Kazakhstan for uranium production and expansion as well as modernization the country’s uranium processing factory. Canadians pledged to invest at least 100 million dollars to renovate uranium mining infrastructure and facilities. The company assured that the investments would support social infrastructure around the facilities in its entirety, including kindergartens and heating systems in the neighboring town. WWM managers committed to renovating and restructuring the formerly state-run facilities as the first order of business, while promising to keep all the workers on the payroll and even provide professional exchange opportunities for local personnel in Canada.

 

Kazakhstan, still recovering from the economic ramifications of the USSR collapse and lacking internal capacity to develop this strategic industry, jumped on the investment opportunity. The government signed the agreement granting Canadian WWM priority investment status, handsome tax breaks, and quotas to hire international experts.

 

Six months into the agreement it became clear that the Canadian investors are falling short of their promises – production volumes of the uranium processing facility fell 60% and the factory incurred heavy losses amounting to 9 million dollars, an astronomical amount for that time. Miners and factory employees had not been compensated for months and all social infrastructure had been dilapidated. It is important to point out that prior to the privatization and the takeover of the facilities by Canadian investors, the factory generated profits. Granted, the profits were moderate considering the deteriorating capacities. Nevertheless, in the shortest timeframe the facilities turned into a loss-making machine. Evidently, Canadians had no intentions of developing and modernizing Kazakh uranium industry and their newly acquired facilities. The goal was plain and simple from the start – to access and resell raw materials for hefty profits.

 

Soon thereafter, understandably, the government of Kazakhstan terminated the agreement and suspended operations at WWM’s facility. The company filed for bankruptcy and was forced to sell its Kazakhstan assets. Despite this seemingly logical outcome, the Canadian company filed a court case against Kazakhstan claiming one billion dollars in damages.

 

On what grounds, you might wonder? Canadian lawyers immediately appealed to the 1989 Bilateral Investment Treaty between Canada and USSR which protected Canadian investments. Ottawa considered Kazakhstan a logical successor of the Soviet Union, obliged to carry over the protection guarantees. Failure to protect the investments meant reparations.

 

However, it is internationally acknowledged that the rightful successor of the Soviet Union is Russia. It is reflected in multiple international treaties, as well as official agreements between Russia and Kazakhstan. Until this day none of the international powers contested the successor right.

 

Canada became the first to challenge the status quo. Despite the absurdity of the case, it is going well for Ottawa. In October 2015, the Arbitral Tribunal of Canada heard WWM’s claims against the Republic of Kazakhstan and fully sustained investment protection guarantees under the 1989 Bilateral Investment Treaty between the Governments of Canada and the USSR, thus recognizing Kazakhstan the successor of the USSR and its legal obligations. What a surprise – Canadian arbitration ruling in favor of a Canadian company. WWM used the favorable ruling and increased the settlement amount to two billion dollars.

 

The claims pending before the Tribunal are now proceeding to the merits. The final hearing is scheduled to take place in the Arbitrary Court in London, UK, in the coming months. 

 

Time will tell whether the WWM vs Kazakhstan case will become a historical precedent. One thing is clear – the absurdity of the proceedings is through the court roof. Rings a bell with the creative burglar incident, doesn’t it?

Leave a Reply

Your email address will not be published. Required fields are marked *