Kazakhstan Ordered To Pay $506 Million For Crude Expropriation Of Oil And Gas Investments

Author:Mr Zachary Chalett
Profession:Proskauer Rose LLP

In a case that highlights both that governments are not above the rule of law and that it is difficult to swiftly enforce arbitral awards, a Swedish appeals court, on December 12, 2016, upheld a $506 million award against Kazakhstan. The award stems from Kazakhstan's 2008 seizure of the oil and gas investments of two Moldovan businessmen. The Swedish appeals court refused to allow Kazakhstan to further appeal the award and also ordered the country to pay attorney's fees in excess of $3 million.

The Moldovan businessmen, Anatolie and Gabriel Stati, along with their respective companies, Ascom Group SA and Terra Raf Trans, claim that they invested more than $1 billion in Kazakhstan's energy sector only to have the Kazakh government coerce the sale of their profitable investments. The Statis allege that when their energy investments became profitable, the Kazakh government used criminal prosecution and colossal tax penalties to provide a legal gloss to what was effectively a forced sale.

The Swedish appeals court rejected Kazakhstan's position regarding the initial decision of the Swedish arbitration tribunal in 2011, determining that the award was fair under the governing terms of the Energy Charter Treaty. The Treaty is a legally binding international agreement that established a framework for international cooperation in the energy industry. Articles 26 and 27 of the Treaty contain dispute resolution procedures, including the Arbitration Rules of the Stockholm Chamber of Commerce, which were utilized in this matter.

Kazakhstan alleged that, under the terms of the Treaty, it was unjustly denied the opportunity to appoint an arbitrator to the Swedish tribunal. Kazakhstan also argued that the Statis and their associated companies inflated the value of their investments and that the arbitration violated the...

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