Summary of the Dispute between Romak and the Government of Uzbekistan
International grain trading group with headquarters in Geneva, and parent company of Romak USA based in Kansas City, Missouri.
Uzbekistan State Share Holding Corporation responsible for ensuring grain purchased for the needs of the state. Formerly the State Grain Ministry. Established by a Decree of the President supported by a Resolution of the Council of Ministers and subsequent Order of the Council of Ministers. These documents stipulate that the Government retains 51% ownership, approves management, and directs the activities of the company. Uzkhleboprodukt’s Charter states clearly that the company is directly accountable to the Council of Ministers. (see also: Comments on Council Resolution, and Comments on Uzkhleboprodukt’s Charter)
Foreign trade subsidiary of Uzkhleboprodukt. Uzdon’s charter is signed by the Director of Uzkhleboprodukt and states that Uzdon is a constituent part of Uzkhleboprodukt. Uzdon’s letterhead and the company’s official stamp both include Uzkhleboprodukt. (see also: Comments on Uzdon’s Charter)
Uzbekistan based private trading company with same ownership as Adil
Kazakstan based private trading company with same ownership as Odil
Following negotiations with Uzkhleboprodukt and representatives from the Office of the Prime Minister of Uzbekistan, Romak signed a Contract with Uzdon (with Addendum) selling them up to 50,000 tonnes of wheat with delivery to Uzkhleboprodukt by the end of 1996. This contract was Guaranteed by Uzkhleboprodukt and contained a clause specifying dispute resolution by arbitration with the Grain and Feed Trade Association (GAFTA) in London.
At the request of Uzkhleboprodukt, Romak agreed to deliver at least 40,000 tonnes of wheat in July/August, 1996 against a Guarantee that the appropriate letter of credit, payable in January 1997, would be opened no later than October 10, 1996. This Guarantee specifically states: "Whereas we have concluded with you a contract . . . . and whereas you have agreed to start immediate deliveries against part of this contract," Both of these facts were subsequently denied by the government of Uzbekistan beginning in March, 1997.
Romak delivered approximately 40,600 tonnes of wheat to the Uzbek border, as stipulated in the contract. Original documentation including railway bills (see samples) confirms that the wheat was shipped by Romak to Uzkhleboprodukt.
Despite repeated promises (for example: Uzdon/Uzkhleboprodukt fax of October 24, 1996) that the letter of credit would be opened, it was not. In January 1997, Romak asked Credit Suisse/First Boston to present documents to the Uzbek National Bank for payment. Payment was never made.
Uzkhleboprodukt/Uzdon acknowledged taking delivery of the wheat and repeatedly assured Romak that failure to open a letter of credit was simply due to an administrative delay (see: Uzdon/Uzkhleboprodukt faxes of February 15, 1997 and February 18, 1997). In March 1997 they suddenly stopped acknowledging responsibility to pay and claimed to owe Romak nothing (see fax from the Office of the President of Uzbekistan of March 20, 1997 and Uzdon/Uzkhleboprodukt fax of April 10, 1997). In a letter dated April 7, 1997 Uzdon’s lawyer states: “FTC “UZDON” REFUSES TO PAY ON THE FOLLOWING REASONS: TAKING IN TO CONSIDERATION THE FACT THAT FTC “UZDON” HAS NO WORKING FINENCE OF ITS OWN AND ACTS ACCORDING TO THE ORDER OF GAC “UZKHLEBOPRODUKT” WHICH IS THE GUARANTOR, THE PAYER AND TAKER 40.581,579 TONNS KAZAKHSTAN WHEAT, LOADED BY THE FIRM “ROMAK S.A.” . . . . . . . . . “
Romak took the case to
arbitration with GAFTA in London, as per the contract.
Uzdon, represented by their Chief Legal Advisor, Mr. Tulaganov, made two
submissions to the Arbitration Panel. Uzdon
argued that since they paid Odil/Adil for wheat which was delivered by Romak,
then Romak should seek it’s payment from Odil/Adil instead of Uzdon/Uzkhleboprodukt. They claimed that Romak must have acted as an agent for Odil
because Romak’s contract with Uzdon had not been properly registered in
Uzbekistan and had, therefore, never come into force, despite the fact that the
text of the contract specifically states: “the present contract is in force
from the moment of it’s signing by both parties and is valid until complete
execution of their obligations by both parties.”
On August 22, 1997 the GAFTA arbitration panel ruled in Romak’s favor, ordering Uzdon to pay approximately $10.8 million for the wheat received. With interest, which continues to accrue, the amount due is now over $12.75 million. The ruling confirmed that Romak did not act as an agent on behalf of Odil and that there was no contractual relationship between Romak and Odil/Adil, nor responsibility for Romak to meet any obligations of Odil/Adil. The GAFTA Panel found that Romak had delivered wheat to Uzdon/Uzkhleboprodukt based on a contract valid under UK law and should be paid. [Note: the arbitration panel struck down the contract’s penalty clause as invalid under UK law. Enforcement of this clause would have accrued penalties at roughly $25,900 per day, making the total now due greater than $33 million.]. (Russian translation of this GAFTA Award.)
Because the Arbitration Award was not appealed by either side within the stipulated 30 day time limit, it became final and binding on September 22, 1997. Despite the fact that Uzbekistan has signed the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, they have refused to pay.
In January 1998 Uzdon was blacklisted by GAFTA for non-payment of the Arbitration Award. This prompted two faxes from Uzdon/Uzkhleboprodukt to GAFTA (February 9, 1997 and February 19, 1997) complaining about the Award. On March 27, 1998 (over six months after the time limit for appeal had expired) Uzdon gave Notice of Appeal through their London solicitors requesting the Arbitration Panel waive the expired time limit. Uzdon claimed that they were unaware an appeal against the award was possible until after the deadline had expired, even though the Award and its covering letter from GAFTA specify both the appeal fee and the 30 day time limit. Uzdon’s Appeal Submission to GAFTA acknowledges reception of the original award within 4 days of its issuance.
On July 31, 1998 the GAFTA Panel rejected the appeal in an Appeal Award which, under the GAFTA Rules of Arbitration, is “final, conclusive and binding.”
On August 28, 1998 Uzdon’s London solicitors, Richards Butler, applied to the High Court of Justice in London asking the court to overturn the Arbitration Award against Uzdon under the U.K. Arbitration Act of 1996. A hearing was held on October 30, 1998 and a written ruling issued on November 6, 1998. The London Court rejected Uzdon’s application, confirming the Arbitration Award. The judge’s ruling states that: “In my judgment the reality of this dispute is that the arguments advanced by UZDON both before the tribunal and before me are inconsistent with the agreements they entered into and the correspondence they wrote and received. The award recognised that and nothing put before me now on this application, made over 14 months after the Award was published, affects the position. It would indeed be a substantial injustice to ROMAK if the Award were not allowed to stand.” (Russian translation of London Court Ruling)
On January 28, 1999 The High Court in London issued a Judgment against Uzdon for $12.1 million based on the unpaid GAFTA Arbitration Award.
Presidential Decree of April 22, 1994 establishing Uzkhleboprodukt
Resolution of the Council of Ministers of June 20, 1994 establishing Uzkhleboprodukt
Order of the Council of Ministers of June 24, 1994 establishing Uzkhleboprodukt
Contract between Romak and Uzdon
Addendum to contract between Romak and Uzdon
Guarantee of Uzdon and Uzkhleboprodukt
Sample falsified Customs Declarations
of October 24, 1996 from Uzdon/Uzkhleboprodukt
of February 15, 1997 from Uzdon/Uzkhleboprodukt
of February 18, 1997 from Uzdon/Uzkhleboprodukt
of March 20, 1997 from the Office of the President of Uzbekistan
of April 10, 1997 from Uzdon/Uzkhleboprodukt
of April 7, 1997 from Uzdon's lawyer
Arbitration Ruling cover letter
Arbitration Ruling (Russian Translation)
of February 9, 1997 from Uzdon/Uzkhleboprodukt to GAFTA
of February 19, 1997 from Uzdon/Uzkhleboprodukt to GAFTA
GAFTA Appeal Ruling
High Court of Justice in London Ruling
High Court of Justice in London Ruling (Russian Translation)
High Court of Justice in London Judgment
High Court of Justice in London Judgment (Russian Translation)