|Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings|
|BIT||Bilateral Investment Treaty, specifically the Agreement on encouragement and reciprocal protection of investments between the Republic of Kazakhstan and the Kingdom of the Netherlands of 1 August 2007|
|CMoM||KT Asia's Memorial on the Merits of 13 December 2010|
|CMoJ||KT Asia's Counter-Memorial on Jurisdiction of 20 June 2011|
|C-||Claimant [KT Asia]'s Exhibits|
|CL-||Claimant [KT Asia]'s Legal Exhibits|
|Duma||Duma Corporate Services B.V.|
|FSA||Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Institutions|
|ICSID||International Centre for Settlement of Investment Disputes|
|(ICSID) Convention||Convention on the Settlement of Investment Disputes between States and Nationals of Other States|
|KT Asia||KT Asia Investment Group B.V.|
|KASE||Kazakhstan Stock Exchange|
|MoJ||Respondent's Memorial on Jurisdiction of 18 March 2011|
|R-||Respondent [Kazakhstan]'s Exhibits|
|Refgen||Refgen Technologies Inc.|
|Request||KT Asia's Request for Arbitration of 24 April 2009|
|Rejoinder||KT Asia's Rejoinder on Jurisdiction of 12 December 2011|
|Reply||Respondent's Reply on Jurisdiction of 16 September 2011|
|RL-||Respondent [Kazakhstan]'s Legal Exhibits|
|Samruk-Kazyna||National Welfare Fund Samruk-Kazyna|
|Torland||Torland Productions Inc.|
|Tr. day/page/line||Transcript of the hearing on jurisdiction of 1-3 February 2012|
|VCLT/Vienna Convention||Vienna Convention on the Law of Treaties|
"Ablyazov: At the beginning, when we were just launching this process and when we were discussing, holding discussions with JP Morgan, I believe that Mrs Tatisheva was the beneficial owner.
Now, afterwards, when it was all restructured by using KT Asia, at the end of the day I became the owner and Torland and Refgen were wound up because there was no use for those. So instead of those two owners, KT Asia stepped in. I just need to confirm the dates.
Q: [...] So if I formulate my question: at this stage, before the shares were transferred to -- acquired by KT Asia, i.e. from the BVI companies, you were the beneficial owner of those companies; that's right, isn't it?
Ablyazov: By the time of the transfer from Torland to KT Asia I was owner of those shares, yes." (Tr. D1/159-160)
"Q: Refgen and Torland did not receive anything from KT Asia for the shares or the loans; in fact, those companies were wound up. Is that something that you know?
Ablyazov: Yes, I know that those companies were wound up.
Q: And it's also right that KT Asia did not make any payments of interest in relation to the loans?
Ablyazov: Well, it was the same owner. So at the end of the day Torland and Refgen were my companies and KT Asia was also my company, so on a technical basis no payments were made, most probably, but it does not change the nature of the ownership in any way." (Tr. D1/159)
"7.3 Compensation for breach of the BIT and/or relevant obligations under national and international law. The Claimant will particularise the valuation of its claim for compensation in due course, and if necessary will adduce expert evidence in this regard.
For indicative purposes only, losses suffered by the Claimant during the relevant period and occasioned by the Respondent's unlawful actions, by way of diminution of value and share dilution, are in the range of US $500 million (United States Dollars five hundred million) - US $1.5 billion (United States Dollars one and one-half billion.)
The Claimant's claims for compensation include, inter alia:
7.3.1 Compensation for reduction in value of the Claimant's shareholding in BTA, including loss of dividends and other rights/financial benefits and opportunities accorded to shareholders.
7.3.2 Consequential damages arising out of the Respondent's breaches and its ongoing mismanagement of the investment, including inter alia, administrative costs and damage to (BTA's) reputation.
7.3.3 Compound interest on all sums found due from the relevant due dates up until the date of payment.
7.3.4 An order requiring the Respondent to reimburse all costs and/or expenses incurred by the Claimant in these proceedings including, inter alia, the fees of the Arbitrators, ICSID, legal counsel, experts, consultants and the costs of the time expended by the Claimant's own employees.
7.3.5 Declarations as to breaches of the BIT and Kazakhstan law by the Respondent.
7.3.6 Any other relief the Tribunal may consider appropriate.
7.3.7 This request for relief will be amplified and further particularised in due course." (Request, Section 7)
• On 15 July 2010, the Tribunal issued Procedural Order No. 1, deciding the Parties' initial requests for document production, which were submitted in accordance with the timetable provided in the Minutes;
• On 24 August 2010, the Tribunal gave instructions on the confidentiality of certain documents, as briefed in the Parties' letters of 16, 17 and 20 August 2010. On 7 October 2010, the Tribunal provided further instructions on this issue;
• On 17 November 2010, the Tribunal decided, among others, the Claimant's request to inspect the originals of certain documents disclosed by the Respondent as well as the Respondent's request for the production of the unredacted versions of certain documents;
• On 13 December 2010, the Claimant filed its Memorial on the Merits, including exhibits, witness statements and expert reports;
• On 10 January 2011, the Tribunal issued Procedural Order No. 2 regarding the production of certain redacted information. The Tribunal provided further directions on this issue in its letters of 15 January and 1 and 23 February 2011;
• On 18 March 2011, the Respondent filed its Memorial on Jurisdiction, including exhibits and expert reports;
• On 26 May 2011, the President of the Tribunal made a disclosure concerning the involvement of Prof. Douglas in the University of Geneva's LLM program in international dispute settlement (MIDS) of which she is the Director. She then gave more detailed information on 15 June to respond to questions from the Respondent. On 1 December 2011, she followed up with some further information on the same topic;
• On 20 June 2011, the Claimant filed its Counter-Memorial on Jurisdiction, including exhibits, witness statements and expert reports;
• On 7 July 2011, the Tribunal issued Procedural Order No. 3 deciding to bifurcate the proceedings and thus limiting the present phase of this arbitration to the issue of jurisdiction;
• On 12 September 2011, the Respondent filed its Reply on Jurisdiction, including exhibits, witness statements and expert reports;
• On 12 December 2011, the Claimant filed its Rejoinder on Jurisdiction, including exhibits, witness statements and expert reports;
• On 20 December 2011, the Tribunal and the Parties held a pre-hearing telephone conference. On 23 December 2011, the Tribunal issued Procedural Order No. 4, which contained directions on the organization of the hearing on jurisdiction.
(i) On behalf of the Claimant:
• Prof. Zachary Douglas, Ms. Michelle Butler (Matrix Chambers)
• Mr. Louis Flannery, Ms. Tatiana Minaeva, Mr. Benjamin Garel (Stephenson Harwood LLP, London)
Claimant's Fact Witnesses:
• Mr. Ablyazov
• Mr. Roman Solodchenko Claimant's Experts:
• Prof. Peter Maggs
• Prof. A. J. A. Stevens
• Prof. J.B. Huizink
(ii) On behalf of the Respondent:
• Mr. Ali Malek, Q.C., Dr. Christopher Harris (3 Verlum Buildings)
• Ms. Belinda Paisley, Ms. Chloe Carswell, Ms. Suzie Savage, Ms. Dina Nazargalina, Ms. Dinara Jarmukhanova, Ms. Caroline Ovink, Mr. Jorge Klein (Reed Smith LLP, London)
Respondent's Fact Witness:
• Mr. Kuat Kozakhmetov Respondent's Experts:
• Prof. Maidan Suleimenov
• Mr. Marnix Leijten
• Dr. Veijo Heiskanen
• First, the Claimant's alleged investment was unlawful and is thus not protected by the BIT or the ICSID Convention. The Respondent adds that this objection can be viewed both as a matter of jurisdiction and of admissibility of the claim.
• Second, the Claimant's alleged investment does not satisfy any of the criteria for investments under the ICSID Convention because it had an extremely limited duration with no anticipated regularity of profit and return. Moreover, "the gratuitous transfer of the shares does not amount to a contribution", let alone to the development or prosperity of Kazakhstan; nor did this "one-way bet" involve any risk to the Claimant (Reply, § 18.2).
• Third, the Claimant never transferred ownership or control of the shares, nor intended to do so, as it never had any control over the shares. It was a mere shell with the sole purpose of holding Mr. Ablyazov's shares pending their sale.
• Fourth, the Respondent argues that the Claimant has made no investment in the territory of Kazakhstan, which is an important requirement limiting the Respondent's consent to arbitrate disputes pursuant to Article 9 of the BIT (Reply, 18.4).
"361.1 an order declaring that the Tribunal and the Centre lack jurisdiction in respect of this dispute; or
361.2 if the Tribunal finds that it does have jurisdiction, an order declaring that the claims are inadmissible and that the Tribunal lacks competence to determine them;
and in any event:
361.3 an order that the Claimant (and/or Mr. Ablyazov) pay all costs incurred in connection with these arbitration proceedings including their own costs, the costs of the arbitrators and ICSID, as well as the legal and other expenses incurred by the Respondent including the fees of its legal counsel, experts and consultants, as well as the Respondent's own officials and employees on a full indemnity basis, plus interest thereon at a reasonable rate and
361.4 such other relief as the Tribunal, in its discretion, considers appropriate." (Reply, § 361)
• First, KT Asia is an "investor" under the BIT and the ICSID Convention and the Respondent's approach to treaty interpretation is impermissible (Rejoinder, § 32 ff.).
• Second, the Respondent must recognize KT Asia's undisputed Dutch nationality under Article 1 of the BIT. Apart from the fact that no less than nineteen tribunals have denied that the nationality of claims rule governing in diplomatic protection applies to investment treaty arbitration, the Respondent has specifically accepted in the BIT that the nationality of Dutch corporate entities be determined by the place of incorporation (Rejoinder, § 47 ff.).
• Third, the illegality of the investment alleged by the Respondent cannot provide the foundation for a jurisdictional objection, as the BIT contains no requirement with respect to the legality of the investment. Moreover, the alleged illegality does not engage any international public policy and hence the leading cases on illegality in investment arbitration are easily distinguishable. Finally, as a matter of Kazakh law, the alleged illegality does not void the acquisition of shares ab initio (Rejoinder, § 128 ff.).
• Fourth, Article 1 of the BIT supplies the test for an investment and the lack of definition of an investment in the ICSID Convention cannot supplant it. The Salini23 criteria should not be applied as rigid jurisdictional preconditions. In any event, the Claimant's investment meets the Salini test (CMoJ, § 288 ff.).
• Fifth, the Respondent's objection based on the alleged lack of intention to transfer the Bank's shares to the Claimant seeks to challenge the relevance of KT Asia's undisputed legal title over the shares in BTA. The Respondent has not cited a single authority for the proposition that legal title over an asset is not a sufficient interest in that asset to constitute an investment. There is certainly no support for such a revolutionary doctrine in the text of the BIT itself (CMoJ, § 279).
• Sixth, the Respondent's argument that the ownership of shares in a commercial bank incorporated in Kazakhstan is not an investment in the territory of Kazakhstan is nonsensical (CMoJ, § 306).
• Seventh, the Respondent has not been able to point to a single case where an international tribunal has pierced the corporate veil of a corporate claimant and declined jurisdiction on that basis. It has also failed to produce any positive evidence whatsoever to show that KT Asia was established to perpetrate some kind of fraud (Rejoinder, § 225 ff.).
• Finally, as to the Respondent's allegations of abusive treaty shopping, the Claimant stresses that there is nothing wrong in law with planning or restructuring an investment to benefit from an applicable investment treaty or the ICSID Convention. It is only inadmissible to restructure an investment after a dispute has arisen in order to vest an international tribunal with jurisdiction, which is not the case here (Rejoinder, § 245 ff.).
"(a) an order declaring that the Tribunal has jurisdiction over the dispute and that the Claimant's claims are admissible;
(b) an order that the Respondent pay all costs incurred in connection with this preliminary phase of the arbitration proceedings including its own costs, the costs of the arbitrators and ICSID, as well as the legal and other expenses incurred by the Claimant including the fees of its legal counsel, experts and consultants, on a full indemnity basis, plus interest thereon at a reasonable rate; and,
(c) such other relief as the Tribunal, in its discretion, considers appropriate." (C's Rejoinder, § 313)
"The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."
"Each Contracting Party hereby consents to submit any legal dispute arising between that Contracting Party and a national of the other Contracting Party concerning an investment of that national in the territory of the former Contracting Party to the International Centre for Settlement of Investment Disputes for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature at Washington on 18 March 1965. A legal person which is a national of one Contracting Party and which before such a dispute arises is controlled by nationals of the other Contracting Party shall, in accordance with Article 25 (2) (b) of the Convention, for the purpose of the Convention be treated as a national of the other Contracting Party."
The terms "investment" and "national" used in Article 9 are defined in Article 1 as follows:
"For purposes of this Agreement:
(a) the term "investments" means every kind of asset and more particularly, though not exclusively:
(i) movable and immovable property as well as any other rights in rem in respect of every kind of asset;
(ii) rights derived from shares, bonds and other kinds of interests in companies and joint ventures;
(iii) claims to money, to other assets or to any performance having an economic value;
(iv) rights in the field of intellectual property, technical processes, goodwill and know-how;
(v) rights granted under public law or under contract, including rights to prospect, explore, extract and win natural resources.
(b) the term "nationals" shall comprise with regard to either Contracting Party:
(i) natural persons having the nationality of that Contracting Party;
(ii) legal persons constituted under the law of that Contracting Party;
(iii) legal persons not constituted under the law of that Contracting Party but controlled, directly or indirectly, by natural persons as defined in (i) or by legal persons as defined in (ii).
(i) The Tribunal lacks jurisdiction ratione personae because the Claimant is not an investor;
(ii) The Tribunal lacks jurisdiction ratione materiae because the Claimant has no investment;
(iii) In the alternative, the Tribunal lacks jurisdiction because the Claimant has abused the Convention and/or the BIT.
"(i) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration, and,
(ii) any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention."
It is common ground that the ICSID Convention does not impose any particular test for the nationality of juridical persons not having the nationality of the host State, be it the place of incorporation, or the effective seat, or control.34 This leaves broad discretion to Contracting States to define nationality, and particularly corporate nationality, under the relevant BIT. Kazakhstan and the Netherlands have used that discretion by agreeing on the following definition of a "national" in Article 1 of the BIT:
"For purposes of this Agreement:
(b) the term 'nationals'" shall comprise with regard to either Contracting Party:
(i) natural persons having the nationality of that Contracting Party;
(ii) legal persons constituted under the law of that Contracting Party;
(iii) legal persons not constituted under the law of that Contracting Party but controlled, directly or indirectly, by natural persons as defined in (i) or by legal persons as defined in (ii)."
Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27), Decision on Jurisdiction, 10 June 2010 (hereinafter "Mobil"), §§ 155-157; The Rompetrol Group N.V. v. Romania (ICSID Case No. ARB/06/3), Decision on Respondent's Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008 (hereinafter "Rompetrol"), §§ 81-83; § 93.
"The parties had complete freedom of choice in this matter, and they chose to limit entitled ‘investors' to those satisfying the definition set out in Article 1 of the Treaty. The Tribunal cannot in effect impose upon the parties a definition of ‘investor' other than that which they themselves agreed. That agreed definition required only that the claimant-investor should be constituted under the laws of (in the present case) The Netherlands, and it is not open to the Tribunal to add other requirements which the parties could themselves have added but which they omitted to add." 35
See, among others, Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/00/3), Award, 30 April 2004, § 85; RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. Arb. V079/2005 , Final Award, 12 September 2010, §§ 322-333; Rompetrol, § 83; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary (ICSID Case No. ARB/03/16) , Award, 2 October 2006 (hereinafter "ADC"), §§ 357-359; Saluka, §§ 240-241, Tokios Tokeles v. Ukraine (ICSID Case No. 02/18), Decision on Jurisdiction, 29 April 2004 (hereinafter "Tokios Tokeles Majority"), §§ 77, 81-82 and 86, Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan (ICSID Case No. ARB/05/16), Award, 29 July 2008 (hereinafter "Rumeli"), § 326; Ceskoslovenska obchodni banka, a.s. v. Slovak Republic (ICSID Case No. ARB/97/4), Decision on Jurisdiction, 24 May 1999, § 32; Saba Fakes v. Republic of Turkey (ICSID Case No. ARB/07/20), Award, 14 July 2010 (hereinafter "Saba Fakes"),
"[T]he Tribunal cannot find any trace of justification for an argument that international law deprives the States concluding a particular treaty -whether a multilateral Convention like ICSID or a bilateral arrangement like a BIT - of the power to allow, or indeed to prescribe, the place and law of incorporation as the definitive element in determining corporate nationality for the purposes of their treaty.
In the light of these conclusions, the Tribunal is clear in its mind that there is simply no room for an argument that a supposed rule of ‘real and effective nationality' should override either the permissive terms of Article 25 of the ICSID Convention or the prescriptive definitions incorporated in the BIT."45
Relying primarily on Barcelona Traction, certain cases, including ADC, Rumeli and Tokios Tokeles, have indeed acknowledged the possibility of piercing the corporate veil to "prevent the misuse of the privileges of legal personality"50 or where the "real beneficiary of the business misused corporate formalities in order to disguise its true identity and to avoid liability".51 Assuming for the sake of argument that one were to follow that line, it would require a showing of abuse of the corporate form, which is not present here.
ADC, § 359. See also Rumeli, § 206, and Tokios Tokeles Majority, §§ 54-56.
In Tokios Tokeles, the tribunal was faced with the question whether jurisdiction ratione personae existed under the ICSID Convention when the claimant corporation was owned and predominantly controlled by citizens of the host State. Professor Weil dissented from what he called "the philosophy of the Decision" largely on the basis of an overall interpretation of the ICSID Convention and its object and purpose.52
Tokios Tokeles Dissent, §§ 1, 19 -20 (VH-51).
"[...] the legal limitations governing the function of international courts and tribunals in matters concerning nationality may be stated both in terms of the nationality of the claimant and in terms of the nationality of the claim. While legal scholarship and arbitral jurisprudence has not consistently distinguished between these two approaches, they are conceptually distinct and lead to a different legal characterization of the problem: while the former approach states the issue in terms of jurisdiction, the latter states it in terms of admissibility." (Heiskanen, 1 ER § 66)
First of all, the Claimant contests the Respondent's reliance upon the Salini criteria as if these were "jurisdictional requirements engraved onto the text of Article 25 of the ICSID Convention or Article 1 of the BIT" (Rejoinder, § 210). Instead, the Salini criteria are mere indicia ; a "judicial invention in a system without a principle of stare decisis" where "the merits of each criterion must be established before being adopted by any tribunal" (Rejoinder, § 210).
"Q: So it was your understanding that you had a beneficial interest in the shares; that's right, isn't it?
Q: And by "beneficial interest", what you had in mind is that you were the true owner, the person who had the economic interest in the shares, and that you could vote and exercise the rights of an owner in relation to those shares; that's right, isn't it?
Ablyazov: Yes, that's correct." (Tr. D1/114/4-12)
"Q: And would I be right in saying that it is you that finances this arbitration?
Ablyazov: Yes, I do.
Q: And it's right to say that the objective of these proceedings is to recover damages for your personal benefit?
Ablyazov: Ultimately, yes. Well, first it's the company who gets the damages, and then me as the owner of the company.
Q. Does anyone else have any financial interest in KT Asia apart from you?
Ablyazov: No, none." (Tr. D1/117/3-13)
"in light of the fact that the ultimate seller (behind Torland and Refgen) and the ultimate buyer (behind the Claimant) were the same individual, it would not make commercial sense to transfer cash between related vendor and purchaser companies. The more advantageous commercial solution was to provide this consideration by way of loans between the corporate vendors and the corporate purchaser" (Rejoinder, § 280).
"Ablyazov: […] Now, afterwards, when it was all restructured by using KT Asia, at the end of the day I became the owner and Torland and Refgen were wound up because there was no use for those." (Tr. D1/159-160; Rejoinder, § 281)
CMoJ, § 292.
For completeness, the Tribunal notes that the Claimant has also referred to Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/00/5) , Decision on Jurisdiction, 27 September 2001 and Aguas del Tunari S.A. v Republic of Bolivia (ICSID Case No. ARB/02/3), Decision on Respondent's Objections to Jurisdiction, 21 October 2005 (hereinafter "Aguas del Tunari") in a footnote, without however discussing how these cases would provide support for the Claimant's case. The Tribunal finds that they do not, particularly in light of the factual differences concerning the respective corporate restructurings.
"Q: […] The point I am asking you to accept is that the receipt of shares by KT Asia was intended to be temporary, as you indicate here in paragraph 6 of your second statement.
Ablyazov: Well, what it means here is that there was a special structure - i.e. KT Asia -- that was being put in place and it was anticipated that it would be sold on to the investors in case the private placement was a success.
Now, whether it was put in place on a temporary or not on a temporary basis was really dependent on how successful we would be within the framework of that private placement. At the end of the day it became a fixture really." (Tr. D1/-163)
"In the case of arbitration proceedings the Tribunal shall, except as the parties agree otherwise, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award."
(i) The Tribunal lacks jurisdiction over the present dispute;
(ii) Each Party shall bear 50% of the Tribunal’s fees and expenses (including ICSID’s fees) as notified by ICSID;
(iii) Each Party shall bear its own costs.