GILS Dispute Resolution: Uzbekistan
UZBEKISTAN
CASE №1:
In the early 2000s, a contract was concluded for the construction of a railway section between two Libyan cities ("the Construction Contract"), in which a Russian Joint-Stock Company ("the Claimant") was engaged as a co-contractor. In connection with the execution of the Construction Contract, the Claimant entered into 2 subcontracts with a major Turkish construction company ("the Respondent"), under which the Respondent was obliged to perform construction works. However, due to force majeure caused by the civil war in Libya, the Claimant terminated the Contracts.
Since the Respondent refused to return the advance payment and compensate for expenses, the Claimant filed a claim with the International Commercial Arbitration Court (ICAC) for the return of unjust enrichment in the form of an unused advance payment due to the termination of the Contracts. The Respondent filed a Counterclaim. In 2019, the ICAC arbitration panel partially satisfied the claims of the Parties and ordered the recovery of more than EUR 45 million from the Respondent in favour of the Claimant ("the ICAC Award").
From 2019 to 2022, the Respondent attempted to annul the ICAC Award in Russian arbitration courts, thereby obstructing the enforcement of the ICAC Award. Subsequently, the Respondent voluntarily failed to comply with the ICAC Award.
In 2023, the Claimant approached GRATA International Uzbekistan ("GRATA") with a request to determine whether the Respondent had branches/representative offices in the Republic of Uzbekistan, in order to recognize and enforce the ICAC Award against the Respondent's assets in Uzbekistan.
GRATA's lawyers established that the Respondent does not have branches/representative offices in Uzbekistan, but is a participant in a Company ("the Company") registered in Uzbekistan. Considering that the Law on LLCs of Uzbekistan allows for claims by creditors to recover against a participant's share in the charter capital of the company for the participant's debts in case of insufficient other property of the participant, it was decided to recognize and enforce the ICAC Award in Uzbekistan at the location of the Respondent's assets, i.e., at the place of registration of the Company.
Subsequently, GRATA's lawyers filed an Application for Recognition and Enforcement of the ICAC Award to the Tashkent Regional Economic Court ("the Application").
Due to the fact that from 2019 to 2022 the Claimant was awaiting the results of the appeals to annul the ICAC Award, the procedural time limit for recognition and enforcement of the ICAC Award was missed. In this regard, GRATA's lawyers filed, together with the Application, a Motion for Reinstatement of the Procedural Time Limit. The main argument was that the Economic Procedural Code of Uzbekistan establishes that grounds for refusing recognition and enforcement of a foreign arbitral award is that the award has not become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. In other words, it would have been impossible to recognize the ICAC Award in Uzbekistan while the Respondent was appealing it in the competent courts of Russia. Consequently, missing the procedural time limit in this context was deemed excusable.
In addition, GRATA's lawyers filed a Motion for Interim Measures in the form of seizure of the Company's charter capital until the Respondent fulfils all of its obligations.
By rulings of the Tashkent Regional Economic Court, the Application was accepted for proceedings, and the interim measures were granted.
The Respondent's representatives filed an Objection to the Application on the following grounds:
1. the Application for Recognition and Enforcement of the ICAC Award is not subject to the jurisdiction of the Tashkent Regional Economic Court, considering that the ICAC Award should be recognized at the Respondent's location;
2. the statute of limitations was missed;
3. the Claimant's (Applicant's) representatives lack the necessary powers of attorney, as the power of attorney issued by the Claimant was not legalised or apostilled.
Regarding the first two grounds, the court took into account GRATA's lawyers' arguments.
On the third ground, the Respondent's representative stated that: "according to the Economic Procedural Code of Uzbekistan, documents issued, drawn up or certified in the prescribed form by institutions, organisations and citizens of foreign states outside the Republic of Uzbekistan in accordance with foreign law in relation to institutions, organisations and citizens of the Republic of Uzbekistan or foreign persons shall be accepted by the economic courts of the Republic of Uzbekistan only if such documents are duly legalised or apostilled..." GRATA's lawyers argued that the Respondent omitted an important continuation of the legal provision, namely: "unless otherwise provided by the legislation or an international treaty of the Republic of Uzbekistan, to which the Republic of Uzbekistan and the state from whose institutions and organisations these documents originate are parties." Russia and Uzbekistan are parties to the Convention on Legal Assistance and Legal Relations in Civil, Family and Criminal Matters of 2002. This Convention states that a valid power of attorney with a notarized translation into the language of the Contracting Party in whose territory it will be used, or into Russian, shall be accepted in the territories of the other Contracting Parties without any special certification. Considering that the power of attorney was issued in Russian, no additional actions with the valid power of attorney were required.
The court took into account GRATA's lawyers' arguments.
Irina Obukhova.
CASE №2:
In accordance with the decision of the Tashkent City Economic Court dated July 29, 2022, and the rulings of the appellate and cassation collegiums of the Supreme Court of the Republic of Uzbekistan dated February 27, 2023, and September 6, 2023, respectively, over USD 300 000 were recovered in favour of the Bank with Foreign Investments from the largest Belarusian IT company as a refund of the licence fee due to the termination of the License Agreement between the parties.
The Licence Agreement was concluded for the right to use software, which was subsequently supposed to be implemented and adapted into the Bank's system based on the Implementation Agreement. After the signing of the acceptance certificate under the Licence Agreement and the completion of part of the work under the Implementation Agreement, the Bank unilaterally refused the services of the IT company, while demanding a refund of the licence fee.
The courts of the first, second, and third instances, considering the Licence Agreement and the Implementation Agreement as a single contract, recognised the impossibility of the Bank to fully utilise the software, and the rights acquired from the IT company, as a significant change in circumstances. They found grounds for terminating the Licence Agreement and refunding the licence fee.
Lawyers from GRATA International Uzbekistan have decided to file a protest against the aforementioned court rulings by personally submitting a statement to the Chairman of the Supreme Court of the Republic of Uzbekistan. They pointed out the incorrect determination of the legal nature of the License Agreement, incorrect identification of the grounds for its termination, and the absence of an assessment of compliance with the conditions for terminating the agreements.
As a result of the reconsideration, by the decision of the revision collegium of the Supreme Court of the Republic of Uzbekistan dated March 5, 2024, the court rulings of the lower instances were overturned, and a decision was made to deny the satisfaction of the claims for the termination of the Licence Agreement and the return of the licence fee. This decision was made based on the arguments presented by GRATA International Uzbekistan, stating that the rights and obligations of the parties under one contract cannot be linked to the exercise of rights and obligations provided for in another contract, as this is not stipulated by the agreements between the parties. Furthermore, the Licence Agreement is based on exclusive rights, and the objects of intellectual property rights are intangible, so the provisions on property rights are not applicable to intellectual property rights, and the transfer of rights constitutes a separate legal act. Based on these criteria, the rules of the Civil Code of the Republic of Uzbekistan concerning the sale contract, including the seller's obligation to deliver the goods, the seller's obligation to preserve the sold property, defects in the goods for which the seller is responsible, and many other rules related to sale contracts and property lease contracts, cannot be applied to licence agreements.
It should also be noted that a significant change in circumstances constitutes external changes beyond the control or actions of the parties to the contract. The implementation of the software did not occur in full due to the Bank's own refusal of the Implementation Agreement. Therefore, there is a change in circumstances stemming from the actions and will of one party, without external changes affecting the Licence Agreement. Additionally, it is necessary not only to consider the terms of the License Agreement between the parties, which stipulate the absence of the Licensee's right to demand a refund of the paid licence fee upon the annulment of the right to use the software but also to take into account the duration of the contract, the expiration of which precludes its termination. The Licence Agreement remains in effect until the parties have fully performed their obligations, and the document granting the Licensee the right to use the software under simple non-exclusive licence terms, signed and certified by the parties, serves as the primary accounting document, documenting the proper fulfilment of the parties' obligations. Therefore, the Bank is not entitled to demand the return of what it has already fulfilled under the obligation until the Licence Agreement is changed or terminated.
Irina Obukhova.
