BRUSSELS, May 29, 2018 /PRNewswire/ -- The Brussels Court of First Instance (attachment section) on May 25, 2018, rejected Kazakhstan and the National Bank of Kazakhstan's petition to lift the Stati Parties' attachment of assets held by the Bank of New York Mellon (BNYM).
The Stati Parties had made this attachment in Belgium to guarantee the enforcement of two Swedish arbitral awards issued in their favor under the Energy Charter Treaty, granting damages of about US$520 million. Kazakhstan and its National Bank both sought to quash the decision authorizing this attachment by invoking several different legal arguments, all of which the Brussels Court rejected, reaffirming the validity of the attachment. This latest judgment helps clear the way for enforcement of the arbitral award against Kazakhstan, and protection of international investors in general.
Kazakhstan first disputed the Belgian Court's jurisdiction, arguing that the attached assets (cash and securities) are to be located in England (at the London branch of BNYM). The Court rejected this argument, confirming its jurisdiction to order the attachment. This jurisdiction derives from the fact that the third-party debtor, BNYM, has its registered office in Brussels.
Kazakhstan and the National Bank also had argued that the Belgian attachment would be contrary to English law, and therefore BNYM would have no obligations towards Kazakhstan but only towards the National Bank of Kazakhstan, with the attached assets enjoying immunity from enforcement under English law. Instead the Belgian Court confirmed the validity of a Belgian third- party attachment with an international dimension, in this case against a foreign State, to be determined by Belgian law. The Court applied the principle of territoriality, which is central to attachment law.
The Court also confirmed that all common law conditions for conservatory attachment were fulfilled at the time of the attachment, rejecting counterarguments by Kazakhstan and the National Bank. The Court confirmed the urgency of the attachment, attaching particular weight to the persistent refusal by Kazakhstan – despite the two final Swedish decisions definitively confirming the validity of the arbitral awards - to voluntarily comply with these final and binding arbitral awards, in each jurisdiction where enforcement proceedings are initiated:
"[Kazakhstan] clearly does not want to pay its debt to the Stati-Parties and tries as much as possible to escape from forced enforcement and attachment measures by repeatedly contesting the validity of the arbitral awards and invoking immunity from enforcement."
Second, the Court ruled that the claim of the Stati Parties against Kazakhstan is certain, fixed and due, and that there is no violation of public policy, contrary to what is alleged by Kazakhstan.
Kazakhstan then put forward the argument that the Stati Parties would not be allowed to attach the assets in the hands of BNYM, as there would be no direct contractual relationship between itself and BNYM, but that such relationship would exist only between BNYM and the National Bank of Kazakhstan. The court rejected this argument.
Finally, Kazakhstan invoked the Belgian and international (customary) rules on immunity for foreign States and foreign central banks against enforcement. The Court thus had to determine whether the attached securities and cash are used or are intended for use by Kazakhstan "for other than non-commercial governmental purposes." The Court said Kazakhstan failed to demonstrate that the attached assets are used (or intended) for sovereign purposes and rejected the argument.
The amount due under the arbitral awards was approximately US$520 million. Taking into account the discrepancy between the judgment and the US$22 billion of frozen assets, the Stati Parties told the Court they were willing to accept reducing the attachment to US$530 million. The Court as a result agreed to limit the attachment to US$530 million.
The Stati Parties have also requested permission from the U.S. District Court for the District of Columbia in Stati et al. v. Rep. of Kazakhstan to take steps to enforce and execute the $520 million arbitral award, including by attaching Kazakh state commercial assets in the United States. The Stati Parties expect the D.C. court to rule soon on this motion, filed April 23, 2018, at which time they will move to seize any such assets that their ongoing investigation reveals.
The Stati Parties have already begun the process of obtaining discovery—which, under U.S. law, permits a judgment creditor to obtain information concerning a judgment debtor's assets on a worldwide basis—from both Kazakhstan and from the U.S.-based financial institutions that manage its assets.
Indeed, a U.S. federal court has recently ordered a major U.S. financial institution to provide testimony concerning Kazakh state assets. The Stati Parties are seeking additional discovery, including the deposition of a senior U.S.-based Kazakh government official.
The Stati claims originally arose out of Kazakhstan's seizure of the Stati Parties' petroleum operations in 2010. The Stati Parties acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan. They invested more than US$1 billion over the ensuing decade to turn the companies into successful exploration and production businesses. By late 2008, the businesses had become profitable and had yielded considerable revenues for the Kazakh state.
Just as the Stati Parties expected to start receiving dividends, more than half a dozen government agencies carried out numerous burdensome inspections and audits of the companies' businesses that resulted in false accusations of illegal conduct directed at the Stati Parties and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses. Kazakhstan's actions challenged the Stati Parties' title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in 2010.
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