Lee John Beck and Central Asian Development Corporation v. Kyrgyz Republic
Arbitration at Moscow Chamber of Commerce and Industry (MCCI) · Investment (ICSID and treaty) · Russia · 13 Nov 2013
Why it matters
This award is a rare example of an investment arbitration conducted under the 1997 Moscow Convention on Protection of Investor Rights, a multilateral treaty among CIS states. It demonstrates that the Convention's protections can be invoked by investors from non-signatory states (South Korea) through locally incorporated entities. The tribunal's finding of indirect expropriation through a series of administrative acts and its application of the Kyrgyz Civil Code to assess damages provide a precedent for investor-state disputes in the CIS region.
Summary
Lee Jong Baek, a South Korean national, and his Kyrgyz company Central Asia FEZ Development Corporation invested in the Bishkek Free Economic Zone (FEZ) under a 97-year lease agreement. They alleged that the Kyrgyz Republic, through its FEZ administration and other state bodies, engaged in a creeping expropriation by: (1) reallocating part of the leased land to a third party (Jipara Enterprises) without consent; (2) allocating another portion to the Presidential Affairs Department; and (3) unilaterally terminating the lease agreement in 2012. The claimants invoked the 1997 Moscow Convention on Protection of Investor Rights, which allows investors from any state to bring claims against signatory states. The arbitration was held at the Moscow Chamber of Commerce and Industry (MCCI) under its rules. The tribunal found that the FEZ administration's actions constituted indirect expropriation without compensation, violating the Convention and Kyrgyz law. It awarded the full claimed amount of USD 22,481,437 as direct losses, based on an expert valuation of the lease rights and improvements. The tribunal also ordered reimbursement of arbitration costs and legal fees. Claims for compound interest and moral damages were dismissed because the claimants failed to pay the required arbitration fees for those claims. The award is notable for applying the CIS investment treaty framework and for holding a state responsible for acts of its subnational entities.
The detail
Parties: Lee John Beck and Central Asian Development Corporation v. Kyrgyz Republic
Case number: italaw/cases/2637
Outcome: The tribunal ordered the Kyrgyz Republic to pay USD 22,481,437 in damages, USD 73,293 in arbitration costs, and USD 103,600 in legal fees to the claimants. Claims for compound interest and moral damages were dismissed without consideration.
Quantum: USD 22,481,437
Applicable law: Convention on Protection of Investor Rights (Moscow, 28 March 1997); Kyrgyz Civil Code; MCCI Arbitration Rules
Issues in play: The case involved the definition of indirect expropriation under the 1997 Convention on Protection of Investor Rights and the attribution of acts of the Free Economic Zone 'Bishkek' administration to the Kyrgyz Republic under international law.
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