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NEWS

Landmark victory for Uzbekistan in World Bank Dispute

www.uzbekistan.org
14 February 2014

The Republic of Uzbekistan achieved  a major victory in Metal-Tech Ltd. v. The Republic of Uzbekistan, an investment arbitration before the World Bank's International Centre for Settlement of Investment Disputes (ICSID).

In a unanimous award dated October 4, 2013, an arbitral tribunal comprising Gabrielle Kaufmann-Kohler, John Townsend, and Claus von Wobeser refused jurisdiction over Metal-Tech's request for more than US0 million for alleged treaty violations, finding that Metal-Tech made corrupt payments to obtain its alleged investment in the Uzbek molybdenum industry. The claim, which Metal-Tech brought pursuant to the Israel-Uzbekistan bilateral investment treaty (BIT), is the first investment treaty case ever to be dismissed on corruption grounds; the only other ICSID case to be dismissed on that basis is World Duty Free v. Kenya, which was brought pursuant to a contract rather than a BIT.
Uzbekistan proved its allegations of corruption through the oral testimony of a key Metal-Tech witness and other circumstantial evidence of corruption. At the hearing on jurisdiction and the merits, Metal-Tech's witness admitted that Metal-Tech paid approximately US million to three alleged consultants pursuant to agreements that predated Metal-Tech's investment. The tribunal thus concluded that Metal-Tech made its investment in violation of Uzbek law and the legality requirement in the BIT.
In another important ruling, the tribunal also agreed with Uzbekistan that Article 10 of its Foreign Investment Law on Guarantees does not entitle an investor to commence arbitral proceedings before ICSID. Several investors recently have raised ICSID claims against Uzbekistan based on this provision. Uzbekistan intends to rely on the tribunal's decision in Metal-Tech to defend against these claims.
This landmark award is a complete victory for Uzbekistan and a vindication of its investment framework, which has contributed to investment inflows while reasonably expecting investors to follow the rules. This is an important decision which demonstrates that the conduct of investors matters in the investment treaty context. An investor whose investment is tainted by corruption cannot present claims to an international tribunal about alleged State misconduct.