Luxembourg Appellate Court Confirms US$540 Million Award Against The Republic of Kazakhstan

Ruling Paves Way for Foreclosure of Kazakh State Assets in Luxembourg

NEW YORK, Dec. 19, 2019 /PRNewswire/ -- On December 19, 2019, the Luxembourg Court of Appeal handed down its judgment in The Republic of Kazakhstan v Ascom Group S.A. et al whereby it recognized and enforced a US$540 million arbitral award against the Republic of Kazakhstan on Luxembourg soil.

The Stati parties are seeking enforcement of the award in various jurisdictions as a result of Kazakhstan's continued refusal to honor its payment obligations under the award. 

The Luxembourg Court of Appeal, in a 44-page judgment, rejected all of Kazakhstan's objections to the award. Among other things, the court dismissed Kazakhstan's allegations that the Award was procured by fraud in so far as it related to the construction costs of an LPG Plant – one of the expropriated assets with respect to which compensation was awarded to the Stati parties under the award.

The court ruled that Kazakhstan "has failed to prove that the Award was made on the basis of false statements and documents."  As part of its reasoning, the Luxembourg court also paid deference to the previous rulings of the Swedish courts in their capacity as the courts of the supervisory jurisdiction of the award.  

Anatolie Stati, CEO and sole shareholder of Ascom Group S.A., one of the claimants to the original action, said: "This ruling confirms the pro-arbitration policy of Luxembourg courts and once again demonstrates that international courts and tribunals are not going to put up with Kazakhstan's continuing bad-faith and dilatory tactics aimed at avoiding compliance with its international treaty obligations – obligations that have now been converted into a binding and enforceable Luxembourg domestic court judgment."

This ruling paves the way for the Stati parties to foreclose and collect on various attachments of Kazakhstan's property in Luxembourg, including its 40% shareholding in Eurasian Resources Group S.a.r.l. (ERG), frozen dividends owed by ERG to Kazakhstan in the sum of US$48 million, as well as certain receivables owed to Kazakhstan by Cameco Luxembourg and ArcelorMittal Luxembourg. The total value of the Kazakh state assets frozen in Luxembourg is estimated to be worth at least US$450 million.

In addition to the Luxembourg attachments, the Stati parties have successfully secured and maintain the benefit of various other attachments of Kazakh state property in the Netherlands, Belgium and Sweden, with the combined total value of all attachments worldwide exceeding US$6.25 billion. 

The Luxembourg court's ruling is the latest development in the Stati parties' long-running battle to enforce the award for Kazakhstan's violations of the investor protection provisions of the Energy Charter Treaty. In December 2013, a Sweden based arbitration tribunal found that Kazakhstan had violated international law by failing to treat the Stati parties' investments in Kazakhstan 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 July 2010.

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