In the post-Soviet era, various lawsuits against the Kyrgyz Republic have been brought under international arbitration. Often, lawsuits were brought due to the fact that investors became tired of the arbitrariness of Kyrgyz officials, or by companies specializing in earning money by winning arbitration lawsuits against developing countries. In this regard, the government and ministries implementing large-scale commercial projects should conduct their relationships with investors on a professional basis to avoid subsequent arbitration proceedings.

During the Akayev’s regime, an Austrian company won a tender to find a buyer for the government’s stake in a Kyrgyz company. My colleague, an American lawyer, said that it was a small company, and it would not be able to find a buyer since large companies would not wish to deal with it. The outcome was just as he said.  The Kyrgyz side chose to withhold payment to the Austrian firm, and as a result the government was taken into international arbitration, which led to larger budget losses.

Kyrgyzstan’s membership in the New York Convention of 1958 on the Recognition and Enforcement of Arbitral Awards means there are legal and policy instruments that can be applied to ensure compliance with decisions or to collect awards.  According to the Convention, if the party that wins the arbitration cannot achieve the enforcement of the award in a Kyrgyz court, it has the ability to do so in another country where Kyrgyzstan has public assets. The plaintiff can obtain a court decision for the arrest of the offending party’s property, for example, a Kyrgyz government plane when it is on a foreign country’s territory, and then become its owner. Courts around the world respect the requirements of this Convention.

With the above in mind, Kyrgyzstan has voluntarily performed all arbitration decisions it has ever lost. Moreover, winner companies may use leverage on the Government to expedite the process, utilizing the authority and reach of the IMF, ADB, EBRD and other supranational institutions. It goes without saying that Kyrgyz government takes special care to maintain an attractive perception of the country’s investment climate. The failure to perform arbitral awards is a violation of commitments taken by Kyrgyzstan in international treaties, and therefore, would threaten its political and economic standing internationally.

The question is whether the government is able to protect the country’s interests in international arbitration on claims against Kyrgyzstan.  The answer is no, since nobody in the government is responsible for this issue. 

The Kyrgyz authorities do not think it necessary to set aside funds in the state budget for protection against international arbitration. The financial costs faced by the party when moving through the entire process are extremely high.  Arbitration usually takes place in London, Paris and Stockholm in English, with very high fees charged by arbitrators. The government should remember that all arbitration expenses are an additional burden for the losing party.

In practice, the government lacks funds to defend itself in arbitration, though it requires large sums from the onset. Since these funds have not been set aside specifically in the budget, the government starts spontaneous search for money, and loses time for a successful defense. It is also worth mentioning the role of irresponsible bureaucratic attitudes of mid-level officials that compound the frustration of conducting a resounding defense.

While appointing arbitrators, the Kyrgyz side needs to take full advantage of the   opportunity and select an arbitrator. There were several cases when the Kyrgyz side missed the deadline for appointing an arbitrator, and it was determined by the nominating institution, which did not always choose the best option for Kyrgyzstan.

Since 2002, a list has been made available where one can find an arbitrator from Kyrgyzstan, the CIS, and Europe, who is familiar with Kyrgyz law; it cannot be overstated how important it is to find an arbitrator who is familiar with CIS or European law. The list is available on the web-site of the International Arbitration Court at Kyrgyzstan’s Chamber of Industry and Commerce.

The government should take proactive steps to change this situation, and provide   means for arbitration in the national budget. It will be necessary to appoint a body which will be responsible to efficiently manage these funds. It is also necessary to change the current law and refuse from the institution of tender when dealing with international arbitration: only experienced law firms should be involved in the process of defending in arbitration.

Experience has shown that some companies that enter Kyrgyz market as investors begin their initial collection of materials for an upcoming arbitration early. Later, those companies initiate an action with a very large sum, and watch the reaction of the Kyrgyz side as it struggles to build its defense. The calculation is very simple: the peculiarity of the arbitration is that the tribunal makes decisions only on the basis of the materials and arguments presented by the parties. Therefore, if defendants are not able, financially or otherwise, to make the right choice in arbitrators, and present their arguments in a qualified way they will definitely lose a dispute.

Another issue should always be considered as well – whether it is worth to dispute the lawsuit.  If, from the materials of the lawsuit, it becomes obvious that the Kyrgyz side is guilty and faces such a decision by the court, it will have to compensate all the additional costs of the plaintiff (the arbitrators’ fees, payment to the plaintiff’s lawyers and experts, transport and all other expenses), generally amounting to half a million US dollars or more.