On September 13, 2007, the Tribunal issued a Decision on Jurisdiction, in which it unanimously decided that (1) it had "jurisdiction under Article Vll(2)(a) of the BIT over claims based upon alleged violations of obligations arising under the BIT;"1 (2) it had "jurisdiction under Article 18(2)(a) of the Kyrgyz Investment Law over claims based upon alleged violations of rights and obligations arising under the Kyrgyz Investment Law;"2 (3) it did "not have jurisdiction under Article 12 of the Main Agreement or under Article 6 of the Share Purchase Agreement;"3 and (4) it would "take no decision as to costs at this stage, but will decide on the matter at the close of the proceedings in this case."4 A copy of the Decision on Jurisdiction is annexed hereto.
Counsel for the Respondent made an application for the other two persons attending the hearing on behalf of the Respondent, Mrs. Valentina Kharlamova and Mr. Belek Sarymsakov to be allowed to testify as witnesses. Since this was contrary to the agreed procedure on witness examination at the hearing, the Tribunal sought the Claimant's observations. Claimant's counsel objected to Mrs. Kharlamova testifying since a witness statement had not been filed for her and sought some time to revert to the Tribunal on whether Mr. Sarymsakov, for whom a witness statement was already on the record, should be allowed to testify. After the lunch break, counsel for the Claimant announced their wish to cross-examine Mr. Sarymsakov at the allotted time on the second day of the hearing, while reiterating their objection to the proposed testimony of Mrs. Kharlamova.5
"The Kyrgyz delegation said that Sistem's local partner, Ak-Keme was bankrupted and had left significant debts to the Government and third parties. The Kyrgyz delegation also said that they would like to invite Sistem to resume its investment in Kyrgyz. Mr. Fehim Yenice was invited for negotiations. During the meetings, the Ministers and bureaucrats representing the Republic of Turkey and the Republic of Kyrgyz were present. Sistem and the liquidator of the bankrupt Ak-Keme also participated in the meeting."34
Article 2 of the Main Agreement contained the following provision:
"The Liquidator of 'Ak-Keme AO' Company and the Government of the Republic of Kyrgyz guarantee that
• There is no sale, pledge, dispute, mortgage or seizure on the asset of the new limited company,
• All the creditors in the first and second ranks were wholly satisfied.
• The interest of the other creditors shall not be damaged."
The preamble to the Main Agreement records that the four signatories
"have agreed on the below mentioned issues:
• By the decision of the Supreme Arbitration Court of the Republic of Kyrgyz it was held and declared that Ak-Keme Company went into bankruptcy and the liquidation is in progress.
•According to Kyrgyz Bankruptcy law, the liquidator is the sole legal representative of the Ak-Keme Company and has all authority for any kind of transactions regarding the assets of the debtor.
•The Economy Development Fund instituted under the Kyrgyz Ministry of Finance is the main creditor of Ak-Keme AO.
•The investments are protected by the Treaty on 'Mutual Protection of Investments and Encouragement of Investments' executed in 1992 between the Republic of Turkey and the Republic of Kyrgyz.
•Sistem Muhendislik Insaat Sanayi ve Ticaret A.S. (Turkey) owns 50% of the shares according to the agreement made on February 1, 1993 and also according to the Turkish Protocol dated September 13, 1996."38
"The assets and ownership of Hotel Ak-Keme De Luks are not subject to sale, pledge, dispute, mortgage or seizure which may somehow restrict the asset and ownership of Ak-Keme De Luks Limited Company."
This Agreement sets out provisions concerning the manner in which the indebtedness of Ak-Keme was to be treated. In effect, it transferred the Eximbank funding that Ak-Keme had borrowed via a loan from the Kyrgyz Government, to Sistem. The key provisions of the Loan Transfer Agreement are contained in Articles 3 and 4, which read as follows:
"3. The liquidator of 'Ak-Keme AO' Company affirmed that 'Ak-Keme AO' Company owes 10,985,799 USD and 19,571,000 [Kyrgyz] Som to the Government of the Republic of Kyrgyz.
4... the Government of the Republic of Kyrgyz shall transfer its credit amounting to 10,985,799 USD (including 8,700,000 USD and 2,285,799 paid by the Government of the Republic of Kyrgyz to Turk Eximbank) and 19,571,000 Som to Sistem Muhendislik Sanayi ve Ticaret A.S. The Republic of Kyrgyz shall not demand any additional interest, punishment or interest cost from Sistem Muhendislik Sanayi ve Ticaret A.S. other than 12,700,000 USD."
In addition, under Article 5, Sistem undertook to pay USD1,249,881 to the liquidator, for the payment of Ak-Keme's debtors other than Turkish Eximbank.46 Article 12 of the Agreement stated that "[t]his Agreement represents all the conditions of the agreement regarding the issues determined and declares the understanding of the parties."
"The parties have affirmed their determination to fulfil the main agreement signed on July 1, 1999, in Ankara, under the guarantee of the Governments of the Turkish and Kyrgyz Republics, concerning Pinara Bishkek Hotel located in Bishkek."59
The resolution of October 7, 2002 concluded by recording that the Legislative Assembly "agreed... [that the] Government of the Republic of Kyrgyzstan:
• Shall cancel the Main Agreement and other Agreements which were regulated on July 1st, 1999 in Ankara (Turkey) between the Republic of Turkey and 'Slstem Muhendislik' Turkish Company; and, the Government of Kyrgyzstan and the Liquidator of 'Ak-Keme' Joint Stock Company because It has not been ratified by the Parliament of the Republic of Kyrgyzstan and It Is against the demands of the public and state;
• Shall compel 'Sistem Muhendislik' Turkish Company [to pay debts totalling USD 6,292,900 and 7000.000 soms;]
• A new legal entity shall be established within 10 days and direction of the 'Pinara Bishkek' Hotel shall be transferred to the said entity. Following, for the assurance of the management, contribution of the Republic of Kyrgyzstan Government, 'Ak-Keme' Joint Stock Company and the Malaysian Company 'Biznes Fokus Sdn. Bhd.' To the hotel construction shall establish, [sic]...."63
The resolution noted that the Assembly also agreed that the Kyrgyz General Prosecutor would Investigate Sistem, and that "Parliament examination shall take place on hotels Including 'Pinara Bishkek' hotel constructed with contributions of foreign Investors."64
The Tribunal further recalls that Article 27 of the Vienna Convention on the Law of Treaties, which it considers to be an accurate reflection of customary international law, asserts that "A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty," subject to the provisions of Article 46 of that Convention. Article 46 reads as follows:
Provisions of internal law regarding competence to conclude treaties
1. A State may not invoke the fact that its consent to be bound by a treaty has been expressed in violation of a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of fundamental importance.
2. A violation is manifest if it would be objectively evident to any State conducting itself in the matter in accordance with normal practice and in good faith."
The Tribunal does not consider that the conditions for the application of Article 46 would be met even if the 1999 Main Agreement were properly to be regarded as a treaty; and it concludes that whatever the position in Kyrgyz law, the validity of the Main Agreement cannot be impugned as a matter of international law on the basis of any alleged failure to conform to procedures set out in the Kyrgyz Constitution.
This repayment schedule enabled Sistem to pay the 1999 contract price, interest-free, over a period ending almost 24 years after the making of the 1999 Agreements. On the other hand, the Kyrgyz Government had the benefit of knowing what sums would be paid and on what dates. The Claimant says that
"According to the 1999 Agreements, there was no time-limit for our payments as they were related to the profit margin of the Hotel. The Ministry however asked for us to complete the payment in 20 years because the Turkish Eximbank had postponed Kyrgyz's loan payments for 20 years. Accordingly, we were asked to complete our payments within 20 years. Because of this, we prepared an agreement changing our payment Schedule. This agreement was signed by the Kyrgyz Vice-Minister of Finance and [Sistem]."74
Again, it is not for the Tribunal, which has no knowledge of the circumstances surrounding the renegotiation of the payment terms, to judge whether the rescheduling was or was not a balanced and beneficial arrangement. What the 2003 Repayment Schedule does make clear, however, is that at the end of 2003 the Kyrgyz Government adhered to the 1999 Agreements and recognized Sistem's title to the hotel.
"The Minister of Finance conveys its concerns over the matter, since the aforementioned situation, in line with the Articles of Association signed on July 01, 1999, prevented 'Sistem Muhendislik' company to effect necessary payments concerning the debt and tax and insurance payments." Moreover; the depropriation of the property of Turkish citizens might have a negative impact on mutual efforts initiated under the framework of the Paris Club with regard to the dispensation of Kyrgyz Republic debts to Turkish Republic.... [T]he Minister of Finance demands the investigation of the situation and related institutions to be directed to inspect whether the acts of Sarimsakov R. are consistent with the law."81
On April 6, 2005 the Kyrgyz Prime Minister wrote to the Kyrgyz Public Prosecutor, the Ministry of internal Affairs and the National Security Committee. The note read as follows:
"1. I kindly request you to return the rights of the investor and take urgent measures in order to fulfil the previous commitments of the Government of the Republic of Kyrgyzstan.
2. An investigation shall take place for those state security organs who participated in the usurpation of Pinara Hotel. A report regarding the measures is requested within 3 days."82
That, or a similar letter, was also sent to the Ministry of Foreign Affairs and to the Turkish Embassy in Kyrgyzstan.83
On the same day the Prime Minister (and Acting President), at a meeting with representatives of the international donor community,
"assured the donor community that he will take all mentioned concerns into account and specifically responded that some of the raised issues are already being addressed, for example:
- Pinara Hotel, Bitel- he gave appropriate instructions and these cases will be resolved according to law."84
On April 8, 2005 the Assistant Prosecutor of Bishkek issued an "Order on immediate ending of unlawful actions" to Mr. R. Sarymsakov, stating that
"You have usurped the 'Pinara Bishkek' Hotel premises on March 25, 2005 by claiming that ZAO 'Ak-Keme', administrated by yourself, was unlawfully bankrupted and that the transfer of the premises to the Turkish company was unlawful, and you are still holding the premises....
According to article 19/2 of the Constitution of the Republic of Kyrgyz (KC GK 222, 281), property rights can not be violated; property owners rights cannot be violated by a third party's decision; and a property can only be seized against its owners will by a Court decision.
Besides, according to article 183 of the Civil Code of the Republic of Kyrgyz, the Share Purchase Agreement signed between ZAO 'Ak-Keme"s liquidator and 'Sistem Muhendislik Insaat Sanayi ve Ticaret AS' on July 1, 1999 can be annulled only by a Court decision....
You are obliged to return 'Pinara Bishkek' Hotel's premises which were usurped unlawfully, in order to cure the injustice regarding 'Pinara Bishkek' LTD's property rights."85
"[f]rom the text of a brief information as of 4.12.1998 addressed to the President of the Kyrgyz Republic, made by Department of Economic Policy of Administration of the President of the Kyrgyz Republic, it follows that 'Ak-Keme' CJSC is solvent, profitable, had no debts on payments to the budget (book 11, pages 160-163 of the case)."89
In the final weeks of 2005 there were moves towards an amicable settlement of the dispute. At one such meeting, held on November 23 and attended by (among others) the Chairman of the Kyrgyz Supreme Court, the Deputy Chairman of the Kyrgyz Republic National Bank, representatives of the Kyrgyz Ministries of Economy and of Foreign Affairs and the State Committee of State Property and the Prime Minister's office, and Mr. Sarymsakov (but no representative from Sistem), it was resolved that
"The Ministry of economy and finances of the Kyrgyz Republic together with the Kyrgyz Republic State Committee on state debt management, and Joint Kyrgyz and Malaysian enterprise 'Hotel Ak-Keme' (R. Sarymsakov) and the Turkish Company 'Sistem Muhendislik' till December 5, 2005 shall conclude the amicable agreement on settlement disputes and differences, arising in connection with the activity of 'Ak-Keme- Pinara' Hotel."100
It was further resolved that the Kyrgyz Ministry of Foreign Affairs would assist the participation of the representative of Sistem, and the Turkish Ambassador, in the negotiations. These moves did not produce an amicable settlement.
Whatever might be the position in relation to breaches of duties of Fair and Equitable Treatment or Non-Discrimination or Full Protection and Security, in cases where the breach takes the form of an expropriation compensation will generally be assessed by reference to the value of the property or rights of which the Claimant was wrongly deprived: that is what the property was worth. The oft-repeated Chorzow Factory formula refers to
"the obligation to restore the undertaking and, if this be not possible, to pay its value at the time of the indemnification, which value is designed to take the place of restitution which has become impossible. To this obligation, in virtue of the general principles of international law, must be added that of compensating loss sustained as a result of the seizure."141
It is questionable whether an arbitral tribunal has the power to order a State to restore expropriated property to its original owner. In any event, restoration of expropriated property is plainly no longer the primary judicial remedy in cases of expropriation, if it ever was. Monetary compensation is the normal remedy, and its role is precisely "to take the place of restitution."
"The share purchase agreement was signed by Sistem Muhendislik in 1999 based on the value of the hotel at that time, which was agreed as USD10,570,000."147
Furthermore, it cannot be assumed that the entire sum would in fact have been payable by Sistem. Article 6 of the 1999 Loan Transfer Agreement stipulated that
"[i]n case the Republic of Turkey immunizes the Republic of Kyrgyz from the guarantor obligations to be fulfilled regarding the provided credits [sc., the Eximbank loan], the Government of the Republic of Kyrgyz shall immunize 'Sistem Muhendislik Sanayi ve Ticaret A.S' Firm from the payment of the credit transfer fee amounting to 8,700,000 (eight million seven hundred thousand) USD."151
This appears to mean that if Turkey waives its right to repayment of the loan by the Kyrgyz Republic, the Kyrgyz Government would waive its right to repayment by Sistem. Sistem might, therefore, have ended up paying as little as USD2.2 million, if the payments in respect of the full USD8.7 million credit were waived.
i. that the Respondent should pay to the Claimant the sum of USD400,000 as a contribution towards the Claimant's legal fees. Interest is payable on that amount from the date that the payment is due: i.e., the date of this award.
ii. that the Respondent should reimburse the Claimant USD247,410 representing half of USD494,820, which is the total advance payments that the Claimant has paid to ICSID for the fees and expenses of the Centre and the costs of the Tribunal;
i. That the Respondent shall pay the Claimant the sum of USD8.5 million, plus interest on that sum at the LIBOR USD twelve-month rate for the period from the date of the taking (June 27, 2005) up to the date of the payment of the sums owing under this award.
ii. That the Respondent shall pay to the Claimant the sum of USD400,000 as a contribution towards the Claimant's legal fees, plus interest on that sum at the LIBOR USD twelve-month rate for the period from the date of this award up to the date of the payment.
iii. That the Respondent shall reimburse the Claimant USD247,410 representing half of USD494,820, which is the total advance payments that the Claimant has paid to ICSID for the fees and expenses of the Centre and the costs of the Tribunal.
iv. That all other claims are hereby dismissed.
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