NEW YORK, March 26, 2018 /PRNewswire/ -- On March 23, 2018, the U.S. District Court for the District of Columbia issued its ruling in favor of the plaintiffs in Stati et al. v. Rep. of Kazakhstan, a long-running litigation concerning the Stati Parties' efforts to enforce a $520 million arbitral award issued in their favor and against Kazakhstan under the Energy Charter Treaty.
The court refused, for the second time, Kazakhstan's request to consider evidence it claimed demonstrated that the arbitral award was "procured by fraud." The court also recognized the arbitral award, meaning that a U.S. court judgment will be issued for the full amount of the award.
Kazakhstan had first sought to introduce its evidence of alleged fraud to the U.S. court in 2016. In May 2016, the court refused to allow Kazakhstan to introduce this evidence, based on its finding that the arbitral tribunal had not relied upon the allegedly fraudulent evidence — which concerned the value of a liquefied petroleum gas plant, one of the assets Kazakhstan expropriated from the Stati Parties — in reaching its decision. The U.S. court held it had no reason to conduct a "mini-trial" on the fraud issue, since the allegations of fraud would be heard by the courts of Sweden, the jurisdiction where the arbitration took place.
Kazakhstan sought reconsideration of this ruling, offering additional facts and a different theory of fraud than it had presented in its original motion. The U.S. court refused to change its ruling, holding that Kazakhstan could have offered these additional facts and theories on its original motion, but did not. Consistent with U.S. law preventing re-litigation of issues based on facts that were available on the original motion, the U.S. court refused to consider them and declined to change its decision.
The U.S. court's judgment also rejected all of Kazakhstan's other objections to recognition of the award — including the alleged failure of the Stati Parties to observe a "cooling off" period imposed by the Energy Charter Treaty; improper constitution of the arbitral tribunal; and various alleged procedural violations concerning the conduct of the arbitration. The court fully rejected each of these arguments, citing U.S. arbitration principles that strictly limit a court's authority to second-guess arbitrators' decisions and call for deferential review.
The U.S. court's ruling is the latest development in the Stati Parties' long-running battle to enforce an arbitral award issued in December 2013 for Kazakhstan's violations of the investor protection provisions of the Energy Charter Treaty. A tribunal constituted under the auspices of the Stockholm Chamber 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 Stati Parties have secured attachments of Kazakhstan's property worth approximately US$28 billion before various courts in the Netherlands, Belgium, Sweden and Luxembourg.
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 a number of 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.
SOURCE Ascom Group S.A.