"The principal events at issue in this case occurred between the summer of 1996 and autumn of 1997. At that time, Kazakhstan had recently regained independence following the December 1991 dissolution of the Soviet Union. Kazakhstan had been an important supplier of uranium to the Soviet Union prior to 1991, and by 1996 it was selling uranium on world markets, although sometimes at less than world market prices. It faced challenges both in developing its mineral resources and in gaining access to world markets on favourable terms.
In a series of Decrees between 1994 and 1996, President Nazarbayev announced Kazakhstan's intention to privatize many State industries with the goal of attracting domestic and foreign investors. Included among the industries to be privatized were the metallurgical and mining industries. Mining industries were particularly significant to the Kazakh economy because of large uranium deposits, previously under the control of the Soviet Union and now under control of the new Kazakh state. These were offered to potential investors through tenders for bids administered by GKI, a government agency...
The uranium deposits were divided into two main areas: the Northern Mines and the Southern Mines and other deposits in the southern region. Of these two areas, the southern region was believed to hold greater potential. Exploiting its deposits also used a more productive and cost-effective method of mining known as in-situ recovery (ISR), which made them significantly more economically valuable. The Southern Mines and other deposits in the region have in subsequent years turned out to be very productive and were described at the hearing as "some of the most lucrative uranium mines in the world." The assets made available for privatization included the Southern Mines...
Kazakhstan wished to attract foreign investors to increase production from the Southern Mines.
Other assets offered for privatization included TGK, a large, run-down, and inefficient mining and processing facility in the north-central part of the country. TGK included mines in the Akmola and Kokshetau oblasts, as well as a refinery and other large industrial facilities. The industrial facilities were located near the city of Stepnogorsk, a city whose very existence was a state secret during Soviet times. Respondent's expert described the complex in the mid-1990s as "an absolute basket case. Claimants agreed: "In the summer of 1996, TGK was effectively bankrupt. Its debt included overdue wages for over 10,000 workers and pensions for thousands of retired employees. It was shut down, which... meant that 65,000 residents in the nearby town of Stepnogorsk were in danger."
"The relationship between the Parties began in June 1996,... WWM... submitted to the Kazakh State Committee on Management of State Property ("GKI") a Tender Proposal for Management and Acquisition of a large and run-down complex of uranium mining and processing facilities known as Tselinny Gorno-Khimicheskii Kombinat ("TGK" or "TGK Complex"). The Tender Proposal set out WWM's proposals to manage, develop, operate, and ultimately acquire TGK. Inter alia, the Tender Proposal called for WWM to enter into a Management Agreement pursuant to which it would determine a program for development, upgrading, and promotion of TGK's operations. On 12 June 1996, the Tender Commission of the Republic of Kazakhstan's accepted the Tender Proposal.
13. WWM subsequently concluded a Management Agreement with GKI... which gave WWM substantial rights and financial and other responsibilities for managing the TGK complex, including an option to purchase the complex in the future. Over the following months WWM, acting through its local subsidiary Kazuran, took steps to restore production at TGK, including providing loans of several millions of dollars. Claimants engaged in discussions with KATEP, a state-owned entity charged with managing Kazakhstan's uranium resources, regarding their ambitions to secure access to the production of the Southern Mines."
"In the early months of 1997, WWM... sought to export from Kazakhstan a quantity of uranium oxide refined from TGK's stockpile in order both to generate cash to meet their continuing payment obligations under the Management Agreement and to gain entry into and visibility in international uranium markets. A sales contract was concluded with a prospective purchaser in the USA. WWM contends that the Management Agreement and other documents provided for its own and its subsidiaries' right to export and sell freely in international markets uranium and uranium compounds produced by TGK. However, for reasons that are disputed, WWM did not secure the required export license. WWM... never exported any uranium oxide from Kazakhstan."
"422. Under the Management Agreement... WWM acquired the entitlement to export to world markets, subject to compliance with licensing requirements related to Kazakhstan's international obligations. Under the Management Agreement, the Licensing Law, and ultimately the BIT, it was entitled to expect that this process would proceed in a predictable fashion, utilizing the same procedures and standards applied in other cases. This did not occur. Instead, the application for an export license was treated in an ad hoc manner that allowed opponents of the sale to shape the process and to layer on repeated new obstructions and requirements, all as the time available to obtain the license drained away.
423. Claimants' investment did not receive the predictable and consistent treatment to which it was entitled under the treaty's guarantee of fair and equitable treatment."
"... the BIT's obligation to accord fair and equitable treatment clearly required Respondent's authorities to assure that a foreign investor with a major financial stake in the pending bankruptcy received timely notice of the proceedings so that the investor could participate to protect its interests in the investment. This obligation is all the more clear and compelling where such notice is required both by law and by a contract binding a State organ.
533. There was no such notice here. Respondent's conduct in relation to the bankruptcy thus did not satisfy its obligation to accord fair and equitable treatment with respect to Claimants' investment."
"Having found breaches of FET1 in certain specific respects, but having dismissed Claimants' claims of expropriation or breach of other articles of the BIT, the Tribunal now turns to the question of quantum. Arbitrations such as this one pose the challenge of valuing damages when a claimant no longer holds the investment but the tribunal does not make a finding of expropriation. Nonetheless, as the Tribunal has found Respondent to have breached its BIT obligations, an appropriate measure of damages is required in order to "make full reparation for the injury caused by the internationally wrongful act."
No attempt had been made to address causation either other than in the terms summarised by the Tribunal at paragraph 544 of the Award:
"Claimants allege that there exists a clear causal link between their losses and Respondent's actions. They contend that, as the result of Respondent's breaches, they lost the rights: 1) to manage and later acquire TGK and the Northern Mines; 2) to profit from toll processing uranium solutions from the Southern Mines; 3) to partially own, develop, and operate the Southern Mines; 4) to be repaid for their multi-million dollar loan to TGK; and 5) to have repayment rights secured against TGK's shares and assets. Furthermore, Claimants argue that as several of these rights were intended to be on-going and long-term, they are entitled to the profits that would have accrued to them as these rights were exercised over time, thus requiring application of a DCF valuation."
"The final valuation presented by Claimants contemplates a third scenario in which the Tribunal finds that Respondent's conduct involves violations of the BIT requiring compensation, but that Claimants' losses cannot be assessed on the basis of lost projected future profits. Claimants emphasize that, in their view, such an award would not adequately compensate them for the loss of their investment. Under this approach, Claimants would recover their invested capital with interest, as well as any other costs they incurred for the purpose of WWM's investment in Kazakhstan. Accuracy's2 valuation of the amount invested took into account cash advances to TGK, direct payments to suppliers made on TGK's behalf, costs incurred in relation to creating Kazuran3, due diligence costs for the Northern and Southern Mines, and the non-refundable deposit paid to GKI. In total, Accuracy calculated Claimants' sunk costs at the date of the breach to be US$16.5 million with an additional US$2.8 million in consequential losses, reflecting the costs of WWM's unsuccessful efforts to recover its investment in Kazakhstan, leading to a total of US$19.3 million in sunk costs."
"As referenced by Claimants, the standard established in Chorzów Factory for damages is as follows:
"[R]eparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it such principles which should serve to determine the amount of compensation due for an act contrary to international law.""
"... while Claimants' investment was not expropriated, Respondent did breach its FET obligations in ways that resulted in significant injury to Claimants. Whether or not Claimants' investment would have succeeded had they received a timely export license can never be determined. Nevertheless, the failure to grant a license clearly contributed to the demise of the investment. Respondent's subsequent failure to assure that Claimants learned of the bankruptcy proceeding denied them the opportunity to seek to protect their claimed security interests in TGK's assets. The Tribunal finds further that the resulting damage suffered by Claimants would be appropriately compensated by the recovery of their sunk costs." [Emphasis supplied]
"(1) The tribunal shall—
(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it."
By AA S.68:
"(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—
(a) failure by the tribunal to comply with section 33 (general duty of tribunal);
(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);
(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;
(d) failure by the tribunal to deal with all the issues that were put to it;
(e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;
(f) uncertainty or ambiguity as to the effect of the award;
(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;
(h) failure to comply with the requirements as to the form of the award; or
(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.
(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may—
(a) remit the award to the tribunal, in whole or in part, for reconsideration,
(b) set the award aside in whole or in part, or
(c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration."
"(1) In order to make out a case for the court's intervention under section 68(2)(a), the applicant must show:
(a) a breach of section 33 of the Act; ie that the tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;
(b) amounting to a serious irregularity;
(c) giving rise to substantial injustice.
(2) The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the courts in the arbitral process.
(3) A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. In striking this balance, only an extreme case will justify the court's intervention. Relief under section 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.
(4) There will generally be a breach of section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.
(5) There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent's case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of section 33 or a serious irregularity.
(6) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.
(7) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome."
"S. 68 imposes a high threshold for a successful challenge... It is not to be used simply because one of the parties is dissatisfied with the result, but rather as a longstop in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice "calls out for it to be corrected"."
"As a matter of general approach, the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults. The approach is to read an award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault"
"It is enough if the point is "in play" or "in the arena" in the proceedings, even if it is not precisely articulated... a party will usually have had a sufficient opportunity if the "essential building blocks" of the tribunal's analysis and reasoning were in play in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal. Ultimately the question which arises under s. 33(a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case."
- See Reliance Industries Ltd & Anor v The Union of India  EWHC 822;  1 Lloyd's Rep. 562 at paragraph 32.
(a) Whether there has been a serious irregularity within the meaning of AA s. 68(2); and if there has been
(b) Has it caused substantial injustice to TRK. This depends on whether TRK has proved that had it had an opportunity to address the point, the Tribunal might well have reached a different view and produced a significantly different outcome.
"Respondent's actions and omissions in frustrating the Strategic Alliance Agreement and Claimants' access to the Southern Mines; in denying export licenses in violation of the Management Agreement, the Strategic Alliance Agreement, the Toll Processing Agreement and Kazakhstani law; in unlawfully terminating the Management Agreement and Claimants' rights under the Toll Processing Agreement; and in frustrating and ultimately breaching the Loan and Pledge Agreements, constitute a combination of conscious acts which both individually and taken as a whole, inflicted catastrophic damages upon Claimants and completely destroyed Claimants' investment in Kazakhstan." [Emphasis supplied]
The words underlined are the words that Mr Flynn relies on. I reject this submission for the following reasons.
"V. RESPONDENT'S TREATY BREACHES CAUSED SUBSTANTIAL DAMAGE FOR WHICH CLAIMANTS ARE ENTITLED TO FULL REPARATION".
The former sub-sub-heading is in lower case and numbered "5". It comes within Section C within Part IV of the defendants' Memorial and is entitled "Respondent Failed To Accord Fair and Equitable Treatment To Claimants' Investment". Part IV of the Memorial is entitled "RESPONDENT HAS REPEATEDLY BREACHED ITS TREATY OBLIGATIONS TO CLAIMANTS AND THEIR INVESTMENT". The short point is that Part IV is concerned with breach whereas Part V is concerned with causation. Part V sets out WWM's case as to causation and does so on the basis that all the breaches alleged have been made out and damages are to be calculated on that assumption on one of the three bases identified earlier. Part IV is concerned with breach and is not relevant to WWM's causation case.
"these coordinated acts were, in short, an exercise of resource nationalism in the hands of the newly created National Atomic Company Kazatomprom. Viewed as a holistic endeavour to achieve that end (which it eventually did), the creeping breach cumulatively becomes a single one, all in violation of Article III(1) of the Treaty."
In my judgment this is consistent with the general point I have made already – that WWM's case before the Tribunal was that all the breaches should be found proved as part of an overarching breach amounting to expropriation of their investment, which entitled them to damages to be assessed on one of the three bases to which I have referred earlier.
"453. As explained above and in Claimants' Memorial, Respondent's acts and omissions caused catastrophic damages to Claimants. This was not a so-called lawful expropriation, where the Treaty sets the standard for compensation. Because Respondent's wrongdoing constitutes a breach of the Treaty and of international law, Claimants are entitled to "full reparation" and compensation that would "wipe out all the consequences" of Respondent's multiple wrongful acts and place Claimants in the position they would have been "but for" those acts. The actual events of the past 20 years, as proven by the evidence presented in these proceedings, demonstrate that, but for Respondent's wrongful conduct, WWM would still be owning and operating "some of the best producing and lowest-cost uranium projects in the world today." The only remedy that would wipe out the consequences of Respondent's illegal acts and provide WWM with the reparation to which it is entitled under customary international law is payment of compensation in an amount computed as of the date of the award (Section VI(A)(1)). But even if that valuation is completed at the date of the breach, as Respondent urges, Claimants are still owed the fair market value of their investment (Section VI(A)(2)), as calculated through an appropriate DCF model (Section VI(A)(3))." [Emphasis supplied]
"454. In the end, the Tribunal is left with a range of valuations. If Claimants' damages are calculated at the date of the award (as they should be), Accuracy has provided an updated valuation of US$1,661 billion (Section VI(B)(1)). If Claimants' damages are calculated at the date of the breach (as Respondent argues), the appropriate valuation is US$436 million (Section VI(B)(2)). And should this Tribunal choose to deny Claimants full reparation (which it absolutely should not), Claimants are at minimum entitled to their sunk costs plus interest, which amounts to US$54.3 million (Section VI(C)). Respondent's contentions that Claimants are entitled to no compensation are simply untenable (Section VI(D))."
"The sunk costs claim was a claim which sought to compensate the WWM Parties for RoK's breach of the USSR-Canada BIT, including RoK's failure to issue an export license and to give notice of the bankruptcy proceeding, by awarding damages. to "fully reparate" the WWM Parties for those breaches and to "wipe out all the consequences" of those breaches"
"Claimants are aware of the existence of arbitral precedent which declares that, in the event a tribunal declines to award damages under a claimant's particular damages theory, and no alternative damages theory has been pled (in response to arguments by the respondent), the claimants must 'bear the risks of having based their claims on a single assumption.' While Claimants disagree with this authority, they have nonetheless – out of an abundance of caution – instructed Accuracy to undertake a valuation of their investment based only on their sunk costs plus interest."
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