CCL Oil v. Republic of Kazakhstan - Chapter 3 - Investment Arbitration Decisions
About the Editor:
Noah Rubins is a Partner in the Paris office of Freshfields, where he is a member of the international arbitration and public international law groups. Mr. Rubins is a U.S. qualified lawyer and has advised and represented clients in arbitrations under ICSID, ICC, ICDR, SCC and UNCITRAL rules. He specializes in disputes in the former Soviet Union and investment treaty arbitration. In addition to advising clients, Mr. Rubins has served as arbitrator in a range of disputes, conducted under the ICC, ICSID, LCIA, SCC and UNCITRAL rules.
Hans Smit, Stanley H. Fuld Professor of Law, Columbia University in the City of New York
Originally from Investment Arbitration Decisions
CCL OIL V. THE REPUBLIC OF KAZAKHSTAN
(1) JURISDICTIONAL AWARD RENDERED IN 2003 IN SCC CASE 122/2001
(2) FINAL AWARD RENDERED IN 2004 IN SCC CASE 122/2001
(3) SUPPLEMENTAL AWARD AND INTERPRETATION RENDERED IN 2004 IN SCC CASE 122/2001 RENDERED IN 2004 IN SCC CASE 122/2001
The government of Kazakhstan held 87.9 per cent shares of a Kazakh Company (the Kazakh Company), which was the owner of an oil refinery (the Refinery).
The Refinery was commissioned as a state enterprise in 1978. In 1994, it was reorganized as an open joint–stock company established under the laws of Kazakhstan.
On 7 May 1997, Claimant-investor and Respondent-Kazakhstan entered into a concession agreement (the First agreement) for the transfer to Claimant-investor of the right to possess use and manage Respondent-Kazakhstan’s 87.9 per cent shares in the Kazakh company for a period of five years.
On about 8 July 1997, Claimant-investor and Respondent-Kazakhstan signed a new or revised concession agreement (the Agreement) to replace the First Agreement.
Before the Agreement was signed, a financial analysis performed by a consulting firm on 18 April 1997 made both parties fully aware of the considerable debt that was payable by the Kazakh Company, including the court action brought by a Kazakh company (Company X) which resulted in a major court award against the Kazakh Company on 19 May 1997.
The Agreement contained a dispute settlement clause which, in brief, established that certain disputes in connection with the Agreement associated with any "foreign investment," as defined, should be settled at the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm (the SCC), while all other disputes should be settled by court in Kazakhstan with a right to appeal according to the legislation of Kazakhstan.
[On] 1 September 1997, the operation of the Refinery was transferred to a new Kazakh company on behalf of Claimant-invetor (the New Kazakh Company), [and] registered on 15 August 1997, under a lease agreement (the Lease Agreement) between the Kazakh Company and the New Kazakh Company.
During the operation of the Agreement, [and] by court actions, Company X gained the right to attach and subsequently to take over the ownership of the Refinery's assets in satisfaction of its claims against the Kazakh Company.
Further, the Office of the General Prosecutor of Kazakhstan (the General Prosecutor) brought an action in a Kazakh city court of law (the Kazakh City Court) and obtained a decision on 9 June 2000 under the Civil Code of Kazakhstan that the Agreement be terminated.
Based on the decision of the Kazakh City Court, the Ministry of Finance Committee for State Property and Privatization in Kazakhstan issued Order No. 156 that the Agreement must be terminated.
On 18 December 2001, Claimant-investor submitted a Request for Arbitration against Respondent-Kazakhstan to the SCC.
The arbitration procedures were in a first stage limited to five issues on jurisdiction, as specified in the Respondent- Kazakhstan's request for a separate decision. A hearing on these jurisdictional issues was held, and a decision on jurisdiction was made by the Arbitral Tribunal in 2003.
After exchange of further written briefs and a hearing on all remaining issues, an arbitral award was rendered in 2004.
In April 2004, Claimant-investor submitted its request for a supplemental award and interpretation.
(1) SCC Case 122/2001 Jurisdictional Award Rendered in 2003
1) Applicable law to jurisdictional issues under the arbitration clause.
2) Res judicata and collateral estoppel.
3) Principle of Separability, Competence-Competence Doctrine.
4) Act of State Doctrine.
5) Comity among states.
6) Sovereign state, Issue of sovereign immunity.
7) Definition of "foreign investor" under the Foreign Investment Law of Kazakhstan.
8) Applicable law to jurisdictional issues under the Treaty between the USA and the Republic of Kazakhstan Concerning the Encouragement and Reciprocal Protection of Investment (19 May 1992) ("BIT").
9) Definition of "National of another Contracting State" under the Treaty between the USA and the Republic of Kazakhstan Concerning the Encouragement and Reciprocal Protection of Investment.
10) Burden of proof to establish "National of another Contracting State" under the Treaty between the USA and the Republic of Kazakhstan Concerning the Encouragement and Reciprocal Protection of Investment.
(2) SCC Case 122/2001 Final Award Rendered in 2004
1) Jurisdiction - Validity of the Agreement - Apparent authority, Ratification by acceptance.
2) Jurisdiction - Admission to jurisdiction of the Kazakh courts.
3) Party to the arbitration agreement - Sovereign state and state organ - whether the department designated in the Agreement or the State is the contractual party.
4) Effects of prior court decision on termination of the Agreement.
5) Whether act of the Prosecutor General, and the national courts, either in its capacity of contractual party to the Agreement or under norms of Kazakh law and customary international law should be considered as acts attributable to Sovereign State.
6) Loss of future profit based on contractual right of first refusal - the owner's decision to sell and without specification on the purchase price to be paid, may give rise to a claim for damages.
7) Concept of expropriation, "creeping" or "covert" expropriation.
(3) SCC Case 122/2001 Supplemental Award and Interpretation Rendered in 2004
1) Enforcement of the Tribunal's decision on costs - whether the Tribunal can issue award or order to enforce its decision on costs.
2) Correction of the award based on miscalculation.
Observations by Hans Smit