Hamid Gharavi and Melanie van Leeuwen secured a US$22.7 million damages award (US$30 million with interest and costs) against Kazakhstan in an ICSID case Aktau Petrol Ticaret A.\u015e. v. Republic of Kazakhstan, case number ARB\/15\/8. This is a third consecutive win in ICSID treaty claims against Kazakhstan for Hamid Gharavi, following the awards in Rumeli and Caratube II, issued in 2008 and in September this year respectively. This victory was reported in Global Arbitration Review (GAR), in two different articles, in the following terms:<\/p>\n
\u00ab\u00a0Kazakhstan ordered to pay for actions of court Bailiffs<\/strong><\/em><\/p>\n An ICSID tribunal has ordered Kazakhstan to pay nearly US$25 million for the seizure of investments at the port of Aktau on the Caspian Sea through the<\/em> \u201cexecutive action\u201d of court bailiffs that went uncorrected by the courts \u2013 but rejected allegations of judicial corruption.<\/em><\/p>\n The 125-page award of Ian Binnie QC, Bernard Hanotiau and Sir Daniel Bethlehem in favour of Turkish investor Aktau Petrol Ticaret was dispatched to the parties yesterday. It is the third successive time Hamid Gharavi of Derains & Gharavi has won damages for a client in ICSID treaty claims against Kazakhstan, following the awards in Rumeli and Caratube II, issued in 2008 and in September this year.<\/em><\/p>\n The tribunal upheld jurisdiction and held Kazakhstan to be in breach of the protections against uncompensated expropriation in the Energy Charter Treaty and Turkey-Kazakhstan bilateral investment treaty. It also held that the state had violated the fair and equitable treatment provision of the Switzerland-Kazakhstan BIT, imported into the Turkey-Kazakhstan BIT by virtue of a most-favoured nation clause.<\/em><\/p>\n The tribunal stressed at several points of the award that this was a case about expropriation<\/em> \u201cby executive action\u00a0\u00bb \u2013 namely the action of court bailiffs. It said Kazakh courts had not initiated or approved the action but had failed to correct it despite<\/em> \u00ab\u00a0every reasonable opportunity\u00a0\u00bb to do so.<\/em><\/p>\n In this respect, it said there had been<\/em> \u201csystemic\u201d failure by the courts – however it did not accept allegations by Aktau that they wer<\/em>e \u201cpuppets, tools\u201d of prominent Kazakh businessmen.<\/em><\/p>\n In fact, it said there was<\/em> \u201cno evidence of judicial corruption\u201d in this case and declined to order that Kazakhstan pay Aktau’s legal costs on the usual<\/em> \u00ab\u00a0loser pays\u00a0\u00bb principle on the basis that this allegation had failed.<\/em><\/p>\n Of US$80 million claimed at the hearing earlier this year, the tribunal awarded US$22.7 million damages plus the costs of the arbitration, taking the value of the award to US$24.5 million. It also ordered the payment of pre and post judgment interest at a rate of LIBOR plus 2 per cent.<\/em><\/p>\n With interest so far, the award is worth US$30 million. In the early days, the claim had been reported as US$150 million but this sum was not mentioned in the award.<\/em><\/p>\n Transhipment investments<\/em><\/p>\n Aktau Petrol is part of the ASB Group, owned by Turkish citizen Sitki Ayan. Between 2006 and 2014, it and other companies in the group invested in oil transhipment and storage facilities at the port of Aktau in western Kazakhstan, including a private railway connecting the state railway system to the port, an oil terminal and 695 railway tank cars.<\/em><\/p>\n The dispute began in 2007 when Ayan struck up a commercial relationship with Askar Kulibayev, a prominent Kazakh businessman and former government official, in the hope it would make it easier for ASB Group to overcome bureaucratic obstacles and to operate and thrive in Kazakhstan. Although it was not mentioned in the award, GAR has previously reported that Kulibayev is related to Kazakhstan’s president Nursultan Nazarbayev by marriage.<\/em><\/p>\n According to Aktau Petrol, the commercial relationship was abused and exploited by Kulibayev, who orchestrated multiple court proceedings that led to the expropriation of its investments in breach of the ECT and BIT.<\/em><\/p>\n Kazakhstan for its part argued that Aktau lacked any investment in the railway, having acquired its shares by transfer from other corporate entities in the ASB Group, and that its title to the railway cars had been assigned away by the time of the alleged expropriation.<\/em><\/p>\n It said the company had invested only a small amount in the oil terminal and that any losses it suffered were inflicted by Kulibayev and Ayan’s own Azerbaijani representative in Kazakhstan, for whom the state bears no responsibility.<\/em><\/p>\n Overzealous bailiffs<\/em><\/p>\n An interesting discussion at the outset of the award – covered by GAR separately here – concerns the relevance of<\/em> \u201csimilar fact evidence\u201d, in light of Aktau\u2019s arguments that Kazakhstan\u2019s conduct followed a familiar<\/em> \u201cmodus operandi\u201d seen in the Rumeli case and elsewhere. The tribunal said it would not be swayed by such<\/em> \u00ab\u00a0propensity evidence\u00a0\u00bb.<\/p>\n This was followed by the tribunal\u2019s finding that it had jurisdiction over all Aktau\u2019s claims, including ones relating to the private railway line. The line had been acquired for a nominal share value as part of a corporate reorganisation of ASB Group\u2019s investments in Kazakhstan, the tribunal said.<\/em><\/p>\n Turning to the merits, the tribunal observed that Aktau had<\/em> \u201ccast its net of accusations and opprobrium broadly over Kazakh officials and judges.\u201d<\/p>\n It said that in its view, the company\u2019s problems were caused mainly by the conduct of bailiffs employed by Kazakhstan to implement court decisions, rather than by the courts themselves. It said Aktau had made<\/em> \u201creasonable efforts\u201d to get the Kazakh courts to correct the illegalities but the courts were<\/em> \u201cuninterested\u201d \u2013 and thus<\/em> \u201ccrystallised the expropriation\u201d of the investments.<\/em><\/p>\n For example, the tribunal described how following a US$870,000 court judgment against a Swiss-incorporated company in the ABS Group, a Kazakh court bailiff took Aktau Petrol\u2019s entire shareholding in the railway line in satisfaction of the debt \u2013 despite the fact that they were separate entities.<\/em><\/p>\n It held that this was in breach of Kazakh law – which, according to experts for both sides of the arbitration, prohibits the state from<\/em> \u00ab\u00a0taking the property of corporation A to satisfy the debt of corporation B\u201d.<\/p>\n It also noted that the bailiff had seized goods quicker than permitted by the law and failed to carry out a legally-required valuation of the shares \u2013 to determine whether Aktau was entitled to any money back through a public sale.<\/em><\/p>\n The tribunal found there had been similar misconduct by court bailiffs in relation to Aktau\u2019s other losses, set out in detail in the award.<\/em><\/p>\n Apart from a single first instance court decision in relation to the railway shares, the Kazakh courts had avoided delving into Aktau\u2019s complaints or reviewing the legality of the bailiffs\u2019 conduct, it said. Further litigation by Aktau would not have been constructive<\/em> \u201cbecause the appellate courts demonstrably lacked any will to intervene\u201d.<\/p>\n The tribunal said that what had occurred in this case was not judicial expropriation, as contemplated in the NAFTA case of Eli Lilley v Canada, but<\/em> \u201cjudicial apathy\u201d in discharging the responsibility to hold the executive to account.<\/em><\/p>\n It took the hypothetical view that Kazakhstan could also have been found liable for a denial of justice since in two separate sets of proceedings, there had been<\/em> \u201cthe same failure of proper judicial supervision of executive action\u201d at the appellate level, not just<\/em> \u201cisolated maverick decisions by first instance judges.\u201d<\/p>\n Unconsummated agreements<\/em><\/p>\n The tribunal said quantum in the case posed<\/em> \u201cconsiderable difficulty\u201d as there had been three accepted but<\/em> \u201cunconsummated\u201d agreements to buy Aktau\u2019s investment in the oil terminal in the late 2000s. The last of these was with Kulibayev\u2019s company AKA Oil Trading and named a sale price of US$70 million.<\/em><\/p>\n Aktau considered these agreements<\/em> \u201creliable indicators\u201d of the value of its investments that supported its US$80 million claim. However, the tribunal said that<\/em> \u201cextrapolating an accurate assessment of quantum\u201d from any of them was problematic, even with the assistance of experts from KPMG and BDO (for Aktau) and Navigant Consulting (for Kazakhstan).<\/em><\/p>\n For one thing, the tribunal noted the evidence of Sitki Ayan, the owner of Atkau, that the reality of business in Kazakhstan meant he could only sell to Kulibayev \u2013 who had successfully chased away rivals and had the company<\/em> \u201cin the grip\u201d of litigation.<\/em><\/p>\n \u201cThe evidence shows that there was no \u2018fair market\u2019 [\u2026] in which \u2018fair market value\u2019 could meaningfully be ascertained,\u201d the tribunal said. It also raised doubts over the<\/em> \u201cbona fide\u201d nature of Kulibayev\u2019s own offer to buy the terminal in light of Aktau\u2019s portrayal of him as<\/em> \u201ca manipulative, unprincipled and deceitful businessman\u201d.<\/p>\n In the end, the tribunal said none of these offers could be taken<\/em> \u201cat face value\u201d and favoured a much earlier, 2003 valuation of the oil terminal as worth US$11.4 million. It explained that it had added sums for the railway track and cars and proceeded on the basis that Aktau\u2019s expropriated investments were<\/em> \u00ab\u00a0a package,\u00a0\u00bb the value of which had increased briefly then declined because of their poor financial performance.<\/em><\/p>\n It also took into account fluctuations in the economy and the price of oil that had<\/em> \u201cknock-on\u201d effects on the value of oil-related service industries.<\/em><\/p>\n The final damages award reflected Aktau\u2019s sunk costs, with some inflation to reflect repairs and improvements it had made to the terminal.<\/em><\/p>\n While normally ICSID tribunals observe<\/em> \u201cthe losers pays\u201d principle in relation to costs, the tribunal said in this case it would not because of the<\/em> \u201cbroad allegations of corruption\u201d Aktau had made against the Kazakh judiciary, with<\/em> \u201cno probative evidence.\u201d<\/p>\n It also noted that most of the<\/em> \u201cvoluminous\u201d court documents on which Aktau had relied had been collected by, Kazakhstan\u2019s lawyers, who naturally had<\/em> \u201cgreater clout\u201d in dealing with Kazakh court officials.<\/em><\/p>\n It declined to award a<\/em> \u201csuccess fee\u201d of 5% of the damages, interest and costs requested by Derains & Gharavi.<\/em><\/p>\n In passing, the tribunal revealed details of another arbitration brought by one of the potential buyers of the oil terminal, Hawkinson Capital Incorporated, against Ayan’s company SOM Petrol Ticaret, for failing to transfer the promised shares. This case went to LCIA arbitration and ended with a US$20 million award in Hawkinson\u2019s favour delivered by sole arbitrator W Laurence Craig in 2009.<\/em><\/p>\n Aktau’s counsel reacts<\/em><\/p>\n Speaking to GAR today, Gharavi said that arguing against Kazakhstan is always a challenge<\/em> \u201cbecause of the legal spin it gives to its expropriations and the quality of lawyers it hires to defend it\u201d \u2013 and this case was<\/em> \u201cno exception\u201d.<\/p>\n He adds that it was refreshing for him and his co-counsel Ziya Akinci to see<\/em> \u201ca tribunal of such experienced arbitrators render an award so promptly\u201d [less than six months after the hearing]. It is also hard to find a<\/em> \u201csharper, more prepared and humbler arbitrator than Ian Binnie QC, who was tribunal president,\u00a0\u00bb he said.<\/em><\/p>\n Gharavi won US$125 million plus interest for Turkish investor Rumeli against Kazakhstan in 2008 and has recently won US$39 million for oil company Caratube after the claim was rejected on jurisdictional grounds the first time round. He is currently fighting a further claim against the state brought by investors in a pharmaceutical business.<\/em><\/p>\n In the Aktau case, Kazakhstan was represented by a team from Reed Smith in London led by partner Belinda Paisley and by barrister Christopher Harris of 3 Verulam Buildings, who both have a long track record of acting for the state. Harris declined to comment on the award, which has yet to be published by ICSID.<\/em><\/p>\n The case saw an early challenge to Hanotiau by Kazakhstan on the basis of his involvement in the Rumeli case, which the state said involved similar issues of facts of law. The challenge was rejected by his co-arbitrators in 2015, with the case proceeding to a week-long hearing in Paris in March and April this year<\/em>\u00ab\u00a0.<\/p>\n \u00ab\u00a0Aktau tribunal considers<\/em> \u00ab\u00a0similar fact evidence\u00a0\u00bb\u00a0\u00bb<\/strong><\/p>\n \u00ab\u00a0The tribunal in the Aktau award refused to be swayed by<\/em> \u201csimilar fact evidence\u201d alleged to show a propensity by Kazakhstan to expropriate foreign investments through its courts.<\/em><\/p>\n An early discussion in the ICSID award dispatched to the parties yesterday concerns the relevance of such evidence. This was in light of the claimant Aktau Petrol’s submissions that the expropriation of its investments followed (in the tribunal\u2019s words)<\/em> \u201ca well worn pattern of mistreatment of foreign investors who initiate and grow businesses in Kazakhstan, only to be deprived of their investments by unscrupulous Kazakh businessmen connected to the president, Nursultan Nazarbayev.\u201d<\/p>\n According to Aktau a<\/em> \u201csignature element\u201d of these deprivations was the<\/em> \u201cuse of the machinery of a compliant, complicit and corrupt judiciary.\u00a0\u00bb<\/p>\n The tribunal cited Hamid Gharavi of Derains & Gharavi, counsel to Aktau, who said in his opening submissions that his case concerned the<\/em> \u00ab\u00a0modus operandi\u00a0\u00bb of Kazakhstan and<\/em> \u00ab\u00a0its oligarchs and elite\u00a0\u00bb.<\/p>\n They control<\/em> \u00ab\u00a0everything\u00a0\u00bb including commercial matters, Gharavi alleged – and<\/em> \u00ab\u00a0use the judiciary as their puppets, tools.\u201d<\/p>\n To establish Kazakhstan’s liability for the expropriation of its investments, Aktau drew parallels with the ICSID case of Rumeli Telekom v Kazakhstan, in which the state was held responsible for depriving a Turkish telecoms investor (also represented by Gharavi) of a major financial investment and ordered to pay US$125 million compensation. That award came out in 2008.<\/em><\/p>\n Aktau also filed background, information, reports and international commentary which it said further showed that Kazakhstan regularly expropriates foreign investors in this way.<\/em><\/p>\n However, the tribunal including Ian Binnie QC, Bernard Hanotiau and Daniel Bethlehem QC was not swayed.<\/em> \u201cSimilar fact evidence presupposes that entities or personas alleged to be guilty of misconduct on one or more occasions are likely to have misconducted themselves in the case under consideration. It is \u2018propensity\u2019 evidence,\u201d it said.<\/em><\/p>\n \u201cThe danger is that the prejudice created by \u2018propensity\u2019 evidence generally outweighs any probative value. People ought not to be assumed to be guilty of a particular offence simply because they have been convicted of other offences. Similar fact evidence that amounts to little more than an allegation of pre-disposition to a certain type of bad conduct does not prove that an individual misconducted himself or herself on the present occasion.\u201d<\/p>\n Such evidence is all the more problematic when it relates to<\/em> \u201cthe numerous individuals who individually and collectively act on behalf of a state,\u201d the tribunal said.<\/em><\/p>\n The tribunal added that it could not<\/em> \u201cinfer\u00a0\u00bb that Kazakhstan was liable for misconduct based on the tribunal\u2019s decision in Rumeli or the Aktau’s<\/em> \u00ab\u00a0generic allegations of misconduct by Kazakh officials in even less comparable situations involving different investors.\u201d<\/p>\n It distinguished Rumeli on the basis that the Kazakh state actor found to be primarily at fault in that case was a state organ called the investment committee \u2013 which was accused of impropriety but exonerated by the courts. In Aktau, in contrast, the courts were alleged to be to blame for the expropriation.<\/em><\/p>\n This distinction had already been made in response to proceedings brought by Kazakhstan to disqualify Belgian arbitrator Bernard Hanotiau early on in the case, it noted.<\/em><\/p>\n The tribunal went on to offer the view that Aktau’s evidence regarding Kazakhstan’s alleged propensity to expropriate was in fact not<\/em> \u201csimilar fact evidence\u201d at all as the factual situations it raised were quite different even though the outcomes (the seizure of foreign investments) were the same.<\/em><\/p>\n Gharavi had acknowledged this when he told the tribunal,<\/em> \u00ab\u00a0Every time they do it differently. The fact pattern of each case is different\u00a0\u00bb.<\/p>\n To the tribunal, this defeated the evidence’s value.<\/em> \u00ab\u00a0The essence of similar fact evidence, as the name implies, is similarity of facts not outcomes,\u00a0\u00bb it said.<\/em><\/p>\n Similar fact evidence is occasionally raised in criminal court trials in the UK and other jurisdictions, when it is alleged that a defendant had a propensity to commit a certain type of offence in a certain way, raising the likelihood of guilt in the case before the court. However, there is normally vehement debate as to whether the probative value of the evidence is outweighed by its prejudicial effect.<\/em><\/p>\n Speaking to GAR, Gharavi explained there are some actions by states that can only be proved by<\/em> \u00ab\u00a0circumstantial evidence\u00a0\u00bb and that referring to the findings of other investment tribunals can be helpful, especially where the<\/em> \u00ab\u00a0same players\u00a0\u00bb are involved [in Rumeli, the expropriation supposedly benefitted Timur Kulibayev, the son-in-law of president Nursultan Nazarbayev; while in Aktau the beneficiary was his father, Askar Kulibayev].<\/em><\/p>\n \u00ab\u00a0In this case, the tribunal did not believe such evidence to be probative or that it needed it to make findings that Kazakhstan illegally expropriated Aktau’s investments and denied it fair and equitable treatment,\u00a0\u00bb Gharavi says.<\/em><\/p>\n Kazakhstan was represented in the case by a team from Reed Smith in London led by partner Belinda Paisley and by Christopher Harris of 3 Verulam Buildings. Harris declined to comment\u00a0\u00bb<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":" Hamid Gharavi and Melanie van Leeuwen secured a US$22.7 million damages award (US$30 million with interest and costs) against Kazakhstan in an ICSID case Aktau Petrol Ticaret A.\u015e. v. Republic of Kazakhstan, case number ARB\/15\/8. This is a third consecutive … Continuer la lecture