Pakistan reserves its right to present arguments before the ad hoc Committee with regard to its request that the enforcement of the Award be stayed, including the reasons why such stay of enforcement should be maintained until the Committee decides on the request for annulment, in the procedural calendar that the Committee establishes if it considers necessary.2
(a) Accept into the record the formal declaration presented by Pakistan Attorney General;
(b) Reject Karkey's request that the Stay of Enforcement of the Award be terminated;
(c) Maintain the Stay of Enforcement of the Award until the ad hoc Committee issues its decision on Pakistan's Request for Annulment without security;
(d) Order Karkey to pay for all costs and fees of the proceeding.3
a. Decline to continue the stay of enforcement of the Award;
b. Alternatively, require Pakistan, on the one hand, to provide security for the payment of the Award in the form of, (a) an unconditional and irrevocable bank guarantee or standby letter of credit... (b) an appropriately capitalized escrow account... or (c) any other form that the Committee determines is just and reasonable in the circumstances, and on the other hand, to pay the costs to maintain the Alican Bey and the Iraq while the stay continues.
c. Impose on Pakistan all costs and attorney's fees incurred in this proceeding in connection with the issue of the stay of enforcement.4
The Application for Annulment contains a request for a stay of the enforcement of the Award, pursuant to Article 52(5) of the ICSID Convention. ICSID Arbitration Rule 54(2) provides that the Secretary-General shall, together with the notice of registration of the Application for Annulment, inform the parties of the provisional stay of the Award. Accordingly, I hereby notify you that the enforcement of the Award is provisionally stayed.
Pakistan notes that the Award is currently stayed as provided for by the Secretary General in the Notice of Registration of November 7, 2017. Pakistan additionally notes that, unless Karkey requests that the stay be terminated in the terms of Arbitration Rule 54(2), second paragraph, the stay shall be continued until a decision on the request is rendered.
Accordingly, Pakistan respectfully requests that the Committee confirm this understanding, and hold Karkey responsible for any fees and expenses [and eventually damages] incurred by Pakistan or its instrumentalities if any attempts at enforcement of the Award are undertaken.
However, should the Committee wish for the Parties to address the stay orally at the 5 February 2018 hearing, and given the need for some time after such hearing for the Committee to make a decision, Karkey would not oppose the granting of (i) an additional period of 7 days after the hearing for the Committee to issue its decision without opinion (i.e., a decision whether or not the stay should continue, absent which the stay would be automatically terminated pursuant to Arbitration Rule 54(2)); and (ii) a further 14 days from the decision for the Committee to issue an opinion setting forth its reasoning.
• The Parties shall submit simultaneous briefs (with a limit of 25 pages) on Friday, 12 January 2018.
• The Parties shall submit simultaneous reply briefs (with a limit of 15 pages) on Friday, 26 January 2018.
• Following the first session on Monday, 5 February 2018, the Committee will hold an oral discussion on the stay of enforcement, during which each Party will be permitted to make an introductory oral submission of no more than 30 minutes.
ICSID annulment committees routinely continue the stay of enforcement of the award until the parties have presented their submissions on the issue and a decision has been reached. In fact, it is highly unusual, if not unheard of, for an ad hoc committee to make a decision on stay of enforcement within the 30-day period of Arbitration Rule 54(2).
Members of the Committee
Prof. Dr. Karl-Heinz Bockstiegel, President
Mr. Cavinder Bull, Committee Member
Ms. Dorothy Udeme Ufot, Committee Member
Secretary of the Committee
Ms. Lindsay Elizabeth Gastrell, ICSID
Participating on behalf of Pakistan
Mr. Ignacio Torterola, GST LLP Mr. Diego Gosis, GST LLP Ms. Mariana Lozza, GST LLP Mr. Guillermo Moro, GST LLP Mr. Gary Shaw, GST LLP Parties :
Mr. Ahmad Irfan Aslam, Additional Attorney General & Head, International Disputes Unit
Participating on behalf of Karkey
Mr. Paolo Di Rosa, Arnold & Porter Kaye Scholer LLP
Mr. Lawrence A. Schneider, Arnold & Porter Kaye Scholer LLP
Ms. Maria Chedid, Baker & McKenzie LLP
Mr. Monty Taylor, Arnold & Porter Kaye Scholer (UK) LLP Mr. John Muse-Fisher, Arnold & Porter Kaye Scholer LLP
Mr. Eugenio Cruz Araujo, Arnold & Porter Kaye Scholer (UK) LLP (Legal Assistant)
Mr. Orhan Remzi Karadeniz, Karkey Karadeniz Elektrik Uretim A.S.
Ms. Nazli Dereli Oba Karkey, Karadeniz Elektrik Uretim A.S.
Court Reporter Ms. Diana Burden
the risk of non-recovery of sums due under the award if the award is annulled, non-compliance with the award if the award is not annulled, any history of non-compliance with other awards or failure to pay advances to cover the costs of arbitration proceedings, adverse economic consequences on either party and the balance of both parties' interests.13
a. Pakistan has consistently complied with its international obligations in general and with the ICSID Convention specifically. There is no evidence to the contrary, and most ICSID cases against Pakistan have been settled and discontinued.24 In fact, there has not been a single ICSID award rendered against Pakistan, except the Award in this case.25
b. The Kaya Bey incident does not establish a "track record" of non-compliance as Karkey suggests. Rather, because the Kaya Bey has now been released in accordance with the Tribunal's decision on provisional measures, the Committee should consider it an example of Pakistan's compliance with orders in ICSID proceedings.26
c. Karkey's discussion of Pakistan's local courts is misplaced because there is no reason Karkey would need to turn to the Pakistani court system to enforce the Award; ICSID awards are complied with voluntarily rather than enforced before the Respondent's courts.27 In any event, the decisions of Pakistani courts reflect Pakistan's commitment to the ICSID Convention.28
As the Attorney-General for the Islamic Republic of Pakistan, I declare and confirm that Pakistan recognizes its international obligations in accordance with international law. Pakistan actively participates in international dispute settlement systems, arbitral and judicial processes, and complies with its obligations in those proceedings. I also declare and confirm that Pakistani law is compatible with the ICSID Convention, which it explicitly incorporated in the Arbitration (International Investment Disputes) Act, 2011.
Pakistan strongly believes that its Request for Annulment of the Award and its request for confirmation of the stay of enforcement should be granted. In case, however, the Award is not annulled, Pakistan hereby undertakes to recognize the Award rendered by the Arbitral Tribunal as binding and will enforce the pecuniary obligations imposed by that award.30
a. Pakistan would have to pay the significant amount of the Award by diverting public funds from its annual budget, causing hardship to its population.39
b. This hardship would only worsen if the Award were annulled and Karkey were to delay repayment of the funds. Karkey has provided no evidence or assurances to show its ability or willingness to repay the Award promptly.40
c. If the Award were annulled, Pakistan would face significant legal fees in attempting to enforce the annulment decision and recover amounts paid, and there is no guarantee that such proceedings would succeed.41
To apply a strict rule that the price for the stay is the provision of security... would be in derogation to the approach to interpretation reflected in Article 31(1) of the Vienna Convention and also would work in a de facto sense impermissibly to amend the ICSID Convention by substituting a new and absolute enforcement mechanism for the qualified provisions of the Convention itself.45
Article 52(5) of the ICSID Convention provides that the stay shall only be continued if the Committee considers that "the circumstances so require". The Convention does not use other less categorical verbs, such as "recommend", "deserve", "justify" or similar words, but resorts to the imperative verb "require".75
• The risk of irreparable prejudice or catastrophic consequences for the award debtor if the stay were terminated;
• The prospects of recoupment of monies paid to the award creditor if annulment were to succeed;
• The risk of non-compliance with the award by the award debtor; and
• The risk of harm to the award creditor if the stay were continued.77
a. During the original proceeding, Pakistan engaged in dilatory tactics. As a result, the tribunal rendered a cost award of US$10 million against Pakistan, noting that "Pakistan seemed to be trying to delay and disrupt the proceedings."82
b. Pakistan refused to comply with the tribunal's provisional measures decision ordering release of the Kaya Bey for seven months, contrary to Article 47 of the ICSID Convention.83 The Sindh High Court in Pakistan declined to recognize the effect of the tribunal's decision.84
c. In 2002, the Supreme Court of Pakistan restrained the claimant in SGS v. Pakistan from pursuing its ICSID arbitration against the State.85
d. Pakistan disregarded a sovereign guarantee that accompanied the contract at issue in the original arbitration, even though it had been signed on behalf of the President for and on behalf of the State.86
Pakistan has breached every important commitment it has made to Karkey from the very start of the parties' relationship... leaving no doubt that at every opportunity presented to it Pakistan will breach, delay and defy, and if given more time under a stay in these proceedings, will undoubtedly seek to reposition its assets in a manner that would make enforcement by Karkey even more difficult.89
• Continued delay in collecting the amount of the Award and putting those funds to productive uses;
• Reduced standing with creditors and insurers;
• Continuing maintenance costs for the Alican Bey and the Iraq ; and
• Continuing harassment in connection with stewardship of the Alican Bey and the Iraq.99
a. Security ensures the effectiveness of awards.107 Committees have held that where there is a risk of non-payment of the award, the stay should be conditioned upon security to protect against that risk.108 In the present case, there is a significant risk that Pakistan will not voluntarily comply with the Award if it is not annulled, despite its obligation under the Convention.109
b. Requiring security for the award may "serve as a possible deterrent to requests for annulment that are motivated primarily by a desire to delay and, possibly, to avoid compliance."110
As the Repsol committee explained, those cases that have refused security have largely been cases where the award at issue was relatively small. This makes sense, as it naturally would be easier for a state to pay or a Claimant to locate and seize assets to satisfy a smaller award. Here the sheer size of the award makes it even more unlikely that Pakistan will comply with its payment obligations.111
the appropriate comparison is not with a scenario where the award debtor would not comply with its obligation under Article 53 (where a guarantee would obviously be 'better'), but with one where the debtor would comply. In such case the guarantee would not place the award creditor in a better situation.118
The Committee may, if it considers that circumstances so require, stay enforcement of the award pending its decision [on annulment]. If the applicant requests a stay of enforcement of the award in his [annulment] application, enforcement shall be stayed provisionally until the Committee rules on such request.119
The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.
Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.
(1) The party applying for the interpretation, revision or annulment of an award may in its application, and either party may at any time before the final disposition of the application, request a stay in the enforcement of part or all of the award to which the application relates. The Tribunal or Committee shall give priority to the consideration of such a request.
(2) If an application for the revision or annulment of an award contains a request for a stay of its enforcement, the Secretary-General shall, together with the notice of registration, inform both parties of the provisional stay of the award. As soon as the Tribunal or Committee is constituted it shall, if either party requests, rule within 30 days on whether such stay should be continued; unless it decides to continue the stay, it shall automatically be terminated.
(4) A request pursuant to paragraph (1), (2) (second sentence) or (3) shall specify the circumstances that require the stay or its modification or termination. A request shall only be granted after the Tribunal or Committee has given each party an opportunity of presenting its observations.
(i) Enforcement of the Award would impact its budget.127
(ii) There is no guarantee that Pakistan would be able to recoup any amounts already collected by Karkey if the Annulment Application were to succeed.128
(iii) The Award has severe defects that make its annulment unavoidable.129
(iv) The Attorney-General's assurances provides sufficient security for Karkey.130
In case, however, the Award is not annulled, Pakistan hereby undertakes to recognize the Award rendered by the Arbitral Tribunal as binding and will enforce the pecuniary obligations imposed by that award.140
I confirm the assurances provided in my letter and as subsequently presented by the delegation of Pakistan during the course of hearing on 5 February 2018. For avoidance of doubt, Pakistan shall abide by and comply with the Award in conformity with Article 53 of the ICSID Convention, if it is not annulled.141
The Government of Pakistan shall be pleased to provide any further assurances to the Annulment Committee... that it may require to be fully assured of Pakistan's commitment to complying with the Award, if it is not annulled. In this regard, I kindly request the Committee's guidance on the terms of any letter that would, in its view, provide it with the comfort necessary to continue the stay based exclusively on this sovereign assurance.
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