Energy for Growth

April 22, 2019

U.S. Appeals Court Reaffirms Enforcement of US$530M Award

Stati Parties To Attach And Foreclose On Kazakh Assets In U.S.

NEW YORK, April 22, 2019 /PRNewswire/The U.S. Court of Appeals for the District of Columbia Circuit, on April 19, 2019, affirmed the judgment of the U.S. District Court for the District of Columbia, finding that the Republic of Kazakhstan had failed to demonstrate any ground to deny enforcement of the US$530 million arbitral award awarded to the Stati parties by a Swedish arbitral tribunal.

Kazakhstan had asserted three grounds on appeal: the Stockholm Chamber of Commerce acted improperly in appointing an arbitrator after Kazakhstan itself failed to do so; the arbitrators failed to enforce a "cooling off" requirement that Kazakhstan claimed was a prerequisite to its agreement to arbitrate; and the District Court improperly refused to consider evidence of "fraud" that Kazakhstan wished to inject into the case.

The Court of Appeals rejected each of these arguments in a summary order, reserved for cases that do not require a full published opinion. With respect to the first issue, the Court found that it was required to defer to the arbitral body's interpretation of its own rules, and that Kazakhstan "had notice and an opportunity to appoint an arbitrator but failed to do so." With respect to the "cooling off" period, the Court found that the tribunal had "received a stay — the precise remedy they sought." Finally, with respect to the final ground, the Court of Appeals noted that the District Court had based its decision on "multiple valid grounds" and that Kazakhstan had "presented new facts" to the District Court that it claimed supported its fraud theory, but that it had failed to present those claims when it first sought to raise the issue.

Anatolie Stati, CEO and shareholder of Ascom Group, one of the appellees to the action, said: "We welcome the latest judgment of the U.S. Court, which confirms the pro-arbitration policy adopted by U.S. Courts." Stati added: "We will now move to attach and foreclose Kazakh assets on U.S. soil in aid of the execution of the Award. Assets to be attached are owned by the Kazakh sovereign wealth funds Samruk-Kazyna and Baiterek, as well as proceeds from the privatization of Kazakh state-owned companies that pass through the U.S. banking system."

The U.S. court's ruling is the latest development in the Stati parties' longrunning battle to enforce the award for Kazakhstan's violations of the investor protection provisions of the Energy Charter Treaty. A tribunal constituted under the auspices of the StockholmChamber of Commerce found that Kazakhstan violated its international obligation to treat the Stati parties' investments fairly and equitably and awarded the Stati parties more than US$500 million in damages, legal costs, and interest. The Award has since been fully upheld by two tiers of the Swedish judiciary, including the Swedish Supreme Court.

The claims originally arose out of Kazakhstan's seizure of the Stati parties' petroleum operations in 2010. The Stati parties acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan. They invested more than US$1 billion over the ensuing decade to turn the companies into successful exploration and production businesses. By late 2008, the businesses had become profitable and had yielded considerable revenues for the Kazakh state. Just as the Stati parties expected to start receiving dividends, more than half a dozen government agencies carried out multiple burdensome inspections and audits of the companies' businesses that resulted in false accusations of illegal conduct directed at the Stati parties and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses. Kazakhstan's actions challenged the Stati parties' title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties, and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in 2010.