i.
Article 36 of the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the Convention”).
ii.
Rules 1–4 of the Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (“Institution Rules”).
iii.
Article VI of the Treaty dated May 19, 1992 between the United States of America and the Republic of Kazakhstan Concerning the Reciprocal Encouragement and Protection of Investment (“the BIT” or “the Treaty”).
(a)
Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.
(b)
Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investments.
4. Each Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written consent of the national or company under paragraph 3. Such consent, together with the written consent of the national or company when given under paragraph 3 shall satisfy the requirement for:
(a) written consent of the parties to the dispute for purposes of Chapter II of the ICSID Convention (Jurisdiction of the Centre) and for purposes of the Additional Facility Rules; and an
(b) “agreement in writing” for purposes of Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958 (“New York Convention”).
(i)
the Claimants shall appoint one arbitrator not later than July 3, 2001, failing which such appointment shall be made by the Chairman of the Administrative Council;
(ii)
the Respondent shall appoint one arbitrator not later than July 3, 2001, failing which such appointment shall be made by the Chairman; and
(iii)
the third arbitrator, who shall be the president of the Tribunal, shall be appointed by agreement of the parties not later than August 3, 2001, failing which such appointment shall be made by the Chairman.
Appointments by the Chairman in compliance with this request must be made from the Panel of Arbitrators of the Centre. Such appointments must be made within 30 days of our receipt of the request, i.e., no later than October 4, 2001. Before such appointments are made, the parties must as far as possible be consulted. We will shortly begin the process of consultation with the parties.
As recalled in my letter to you of September 4, 2001, the Claimants have appointed as one of the three arbitrators Professor Piero Bernardini of Italy. As the other two arbitrators have still not been appointed, the Chairman of the Administrative Council is required to make the two appointments in order to comply, pursuant to Article 38 of the ICSID Convention and Rule 4 of the ICSID Arbitration Rules, with the request made by the Claimants in their letter of September 4, 2001.
As pointed out in my above-mentioned letter of September 4, 2001, the appointees of the Chairman of the Administrative Council must be members of the ICSID Panel of Arbitrators. They may not be nationals of the United States of America or of the Republic of Kazakhstan. As also explained in my letter of September 4, 2001, the parties must be consulted as far as possible before the Chairman of the Administrative Council makes his appointments. In this regard, I wish to inform you that we are considering recommending to the Chairman of the Administrative Council that his appointees in the present case be Dr Branko Vukmir and Mr Fali S. Nariman and that the Chairman designate Mr Nariman to be the President of the Tribunal.
Dr Vukmir is a national of Croatia and one of its designees to the ICSID Panel of Arbitrators. Mr Nariman is a national of India designated to the Panel of Arbitrators by the Chairman of the Administrative Council. Attached are copies of the curricula vitae of Dr Vukmir and Mr Nariman as on file at ICSID.
Please let me know by September 14, 2001, whether you have any objections to the appointment of Dr Vukmir or Mr Nariman.
The communication dated September 7, 2001, from the Centre was forwarded to the Republic of Kazakhstan at the following address: “Republic of Kazakhstan, Ministry of Foreign Affairs, 10 Beibytshilik Street, 473000 Astana, Kazakhstan”. A copy of this letter was also forwarded to the Embassy of the Republic of Kazakhstan, Aslan Sarimzhipov, 3rd Secretary, Trade Department, 1401 16th Street, NW Washington, DC, 20036. There was no response by the Respondent to this communication.
In our letter of September 7, 2001, we informed you that we were considering recommending to the Chairman of the ICSID Administrative Council that he appoint Dr Branko Vukmir and Mr Fali S. Nariman as arbitrators in this case and that the Chairman designate Mr Nariman to be the President of the Tribunal. We also requested the parties to indicate whether they would have any objections to those appointments. In our letter of September 25, 2001, we informed you that, in the absence of any objection by the parties, we would be proceeding to recommend the appointment of Dr Branko Vukmir and Mr Fali S. Nariman and the designation of Mr Nariman as President of the Tribunal.
On this recommendation, the Chairman of the Administrative Council has now appointed Dr Branko Vukmir and Mr Fali S. Nariman as arbitrators in this case and has designated Mr Nariman to be the presiding arbitrator.
Pursuant to ICSID Arbitration Rule 5(2), we are now seeking the acceptance of Dr Branko Vukmir and Mr Fali S. Nariman of their appointment.
On behalf of the Government of the Republic of Kazakhstan I would like to inform you that the Akim of Almaty Oblast (head of the Almaty Oblast Administration) has been appointed respondent from the Kazakhstan party in this case.
Also, due to internal procedures in Kazakhstan, more time is needed for appointing the arbitrator from the Kazakhstani party. Therefore, we ask you to grant a delay for conducting of all necessary procedures in Kazakhstan.
I have the honor to confirm our receipt on October 23, 2001 of your letter of October 6, 2001.
I understand from your letter that the Akim of Almaty Oblast will henceforth represent the Republic of Kazakhstan in this arbitration proceeding. To enable us to redirect our communications accordingly, we would be grateful if you could provide us with his full mailing address and telephone and fax numbers.
In the present case, it was established that the Arbitral Tribunal would consist of three arbitrators, one appointed by each side and the third – the President of the Tribunal – appointed by agreement of the parties. The Claimants appointed an arbitrator on August 7, 2001. The two other arbitrators, however, were not appointed within the 90-day period mentioned in Article 38 of the ICSID Convention. Following the expiry of that period, therefore, the Claimants requested the Chairman of the ICSID Administrative Council to appoint the two other arbitrators in accordance with Article 38 of the ICSID Convention. After we informed the parties, and received no objections from them, the Chairman of the ICSID Administrative Council appointed those arbitrators by the October 4, 2001 deadline for this under our rules. The Tribunal was officially constituted on the following day, October 5, 2001. As recalled in our letter of October 5, 2001 to the parties, the members of the Tribunal are Mr Fali S. Nariman, the President of the Tribunal; Professor Piero Bernardino; and Dr Branko Vukmir.
A first session of an ICSID Arbitral Tribunal is typically devoted to preliminary procedural matters. Under our rules, a Tribunal must hold this first session within 60 days after the official constitution of the Tribunal. As mentioned in our letter of October 18, 2001 to the parties, the President of the Tribunal in this case plans to hold the first session starting at 10:00 a.m. on Thursday, November 15, 2001, at the International Dispute Resolution Centre, 8 Breams Buildings, Chancery Lane, London, England.
We hope that the above-mentioned date and place for the first session of the Tribunal will be convenient for the Republic of Kazakhstan. Please do not hesitate to let me or my colleague Mr Ucheora O. Onwuamaegbu know if you have any questions.
Please accept, Mr Minister, the assurances of our highest consideration.
1.
The Respondent, through acts of its political subdivisions, has expropriated certain investments made by the Claimants in the territory of Kazakhstan.
2.
The fair market value of the expropriated investments immediately before the expropriatory act was $13.5 million.
3.
Under the terms of the Treaty between the United States of America and the Republic of Kazakhstan concerning the Reciprocal Encouragement and Protection of Investment, the Respondent is obligated to promptly pay the Claimants the sum of $13.5 million, plus interest until the date of payment.
4.
In addition, the Respondent shall pay to the Claimants their attorneys‟ fees, experts‟ fees and the costs of the arbitration.
5.
The Claimants shall be awarded such further or other relief as may be appropriate.
Pursuant to paragraph 15(1)(b) of the minutes of the Tribunal‟s first session, the Respondent‟s Counter-Memorial is due to be filed on May 15, 2002. The purpose of the session on June 2, 2002, would be to determine further steps to be taken by the parties and the Tribunal in the arbitration, including outstanding issues under ICSID Arbitration Rule 20, as well as to deal with other preliminary matters that the parties may wish to canvass before the Tribunal. A proposed draft agenda will be sent to the parties under separate cover.
As advised by the Embassy of the Republic of Kazakhstan in Washington, DC, I have been in correspondence with Mr Askar Batalov, President of the Kazakhstan Investment Promotion Centre (Kazinvest) – In my email to him, I again reminded the Republic of Kazakhstan of the deadline of May 15, 2002, for the filing of the Respondent‟s Counter-Memorial. I also informed him of the proposal by the Tribunal to hold a session with the parties on Sunday, June 2, 2002, in Paris, which was the subject of my letter to the parties of yesterday.
Please be advised that henceforth, all communications in connection with the proceeding will be sent to the above addresses unless other addresses are indicated to the Secretariat.
The absence of the Respondent was noted. The Tribunal declared itself satisfied that both parties were duly informed of today‟s meeting through:
a.
Letters from the Secretary [of the Tribunal] to the parties dated: March 27, 2002, April 22, 2002, May 13, 2002 and May 15, 2002;
b.
Telephone conversation between the Tribunal‟s Secretary (through an interpreter) and the office of the Akim of Almaty Oblast in March 2002; as well as with the Embassy of the Republic of Kazakhstan in Washington DC, in March 2002; and
c.
Electronic mail exchange, in March 2002, between the Tribunal‟s Secretary and the President of the Kazakhstan Investment Promotion Centre (Kazinvest), who had been proposed to the Centre, by the Embassy of the Republic of Kazakhstan in Washington, DC, as an additional addressee of correspondence in this case.
Unfortunately, despite your apparent several efforts to bring this matter to the attention of the Government of the Republic, the Ministry of Justice has been able to locate only a few of the communications pertaining to Claimants‟ claims that ICSID apparently has sent to various offices in the Government.
Thanks to the courtesy of Claimants‟ counsel, Mr Pietrowski, however, I now have a copy of Mr Escobar‟s letter of June 3, 2002, and its enclosures, namely, the minutes of a June 2 hearing and procedural order No. 1. I would appreciate your sending me copies of the communications, minutes, notes of telephone conversations and e-mails referred to on pages 1 and 2 [of] those minutes, specifically the letters from ICSID dated October 16, 2001 and February 27, March 4, 27 and 28, April 22, May 13 and 15, and October 18, 2002.
We also have not been able to locate any of the correspondence from ICSID or Claimants relating to the appointment of the tribunal.
I would appreciate your sending me copies of that material as well. I would like to emphasize that I do not mean to suggest that ICSID did not act in complete good faith in its attempts to inform the Republic of Claimants‟ claims or of the other events that followed. The Government has indeed been aware of Claimants‟ claims since 2001, and it was pursuing settlement discussions until Claimants failed in January this year to deliver information concerning the specifics of their claims, but the Ministry of Justice has received very little information concerning the ICSID proceedings.
Thank you in advance for your assistance.
i.
that the Claimants have brought the claim against the wrong party;
ii.
that the Claimants have brought the claim in the wrong forum;
iii.
that the Claimants have not taken appropriate measures to obtain any compensation allegedly due to
them; and
iv.
that the Claimants have not made any serious or sufficient effort to mitigate [these] alleged damages and that the Claimants should be denied the compensation requested or alternatively should be ordered to recalculate compensation on the basis [of] appropriate procedures that customarily apply in the Republic of Kazakhstan.
Respondent‟s first objection is to the jurisdiction of this particular Tribunal. With all due respect to the three eminent arbitrators named by Claimants or ICSID, this Tribunal was constituted without proper notice to the Respondent. The result has been that Respondent did not participate in the Tribunal‟s formation, either by nominating one arbitrator or by having the opportunity to express its views concerning candidate for President. The reasons why the procedure followed by ICSID in constituting this Tribunal was improper and in contravention of ICSID‟s own Regulations are described in a letter to ICSID of today‟s date, a copy of which is attached thereto as Exhibit-A.
Suffice it to say here that, in Respondent‟s opinion, any award by this Tribunal would have to be annulled by ICSID pursuant to Article 52(1)(a) of the ICSID Convention because “the Tribunal was not properly constituted”.
Regulation 33 Communications with Contracting States
Unless another channel of communications is specified by the State concerned, all communications required by the Convention or these Regulations to be sent to Contracting States shall be addressed to the State‟s representative on the Administrative Council.
(a)
adopt Administrative and Financial Regulations of the Centre;
(b)
adopt the Rules of Procedure for the institution of Conciliation and Arbitration proceedings (for short “Institution Rules”);
(c)
adopt the rules for procedure for conciliation and arbitration proceedings (hereafter called “the Conciliation and Arbitration Rules”: for short, “Arbitration Rules” and “Conciliation Rules”).
(i)
Letters of the Centre addressed to the Respondent – (Letters dated May 4, 2001; May 8, 2001; May 31, 2001; June 4, 2001; June 12, 2001; August 8, 2001; August 13, 2001; September 4, 2001; September 7, 2001; September 14, 2001; September 25, 2001; October 1, 2001) – were addressed to the Respondent at the address mentioned in the Request for Arbitration (in accordance with the Institution Rules) – they were addressed to the appropriate and relevant Ministry concerned with foreign investment viz. the Ministry of Foreign Affairs: that this was the relevant Ministry is clear from the letter dated March 13, 2001 of E. Idrissov, Minister of Foreign Affairs addressed to the Deputy Prime Minister – (Claimants‟ Exhibit 31) – the first paragraph of which reads as follows:
The Ministry of Foreign Affairs of the Republic of Kazakhstan, having reviewed the appeal by Mr Richard G. Jones, the United States Ambassador, and the investment dispute notice received from AIG Silk Road Capital Management Ltd, informs you as follows...
In the course of his oral evidence Ambassador E. Idrissov admitted that it is the Ministry of Foreign Affairs that looks after foreign investments.39 None of the witnesses called by the Respondent professed ignorance of the contents of the letters referred to above commencing with the Centre‟s letter of May 4, 2001; none of them stated that those letters were in fact not received by the addressee to whom they were addressed.
(ii)
The Notices of the Centre dated June 12, 2001; and August 8, 2001 – specifically dealing with the composition of the Arbitral Tribunal (under the Arbitration Rules) were also addressed by name to HE Mr Erlan Idrissov (Minister of Foreign Affairs). Mr Idrissov was called as a witness on behalf of the Respondent and gave evidence on the merits of the case: he did not say that he was unaware of or did not receive these notices or that he was not aware of all or any of the Notices of the Centre commencing with the notice dated June 4, 2001 (intimating to the parties about the registration of the Request for Arbitration and for taking steps for constituting the Arbitral Tribunal): if it was the case of the Respondent that it was unaware of the various Notices forwarded by the Centre, the Minister of Foreign Affairs to whom at least two such notices were addressed by name would have deposed to the fact that the notices though stated to be addressed to him had not in fact been received.
(iii)
In the very first letter of July 18, 2002 addressed by Counsel for the Respondent to the Centre intimating that he had been retained to represent the Republic of Kazakhstan with respect to the claim filed by the Claimants; it was admitted that communications pertaining to the Claimants‟ claim had been sent by ICSID (the Centre) “to various offices of the Government” (of Kazakhstan) – and that (one of them) the Ministry of Justice had been able to locate “only a few of the communications...” (as to which were these communications is not stated, nor have these been mentioned at any stage of the Arbitration proceedings). The relevant part of the letter dated July 18, 2002 is quoted below:
Unfortunately, despite your apparent several efforts to bring this matter to the attention of the Government of the Republic of Kazakhstan, the Ministry of Justice has been able to locate only a few of the communications pertaining to Claimants‟ claim which ICSID apparently has sent to various Offices of the Government.
This letter further acknowledges that the Government of Kazakhstan had been aware of the Claimants‟ claim since the year 2001 and that it was pursuing settlement discussions with the Claimants which failed in January 2002 when the Claimants did not deliver information of certain specifics of their claim.
(iv)
Besides, copies of letters addressed by the Centre informing the Respondent at each stage of its rights under the Arbitration Rules (inter alia with respect to the composition of the Tribunal) had been also sent to the Embassy of Kazakhstan in Washington – receipt of which has not been denied at any time, either in evidence or during arguments.
(v)
None of the communications addressed by the Centre to the Respondents through the Ministry of Foreign Affairs were ever responded to – and it is significant that the letter of October 6, 2001, addressed to the Centre by Mr Erlan Idrissov (the Minister of Foreign Affairs) received by the Centre on October 23, 2001, shows that the appropriate Ministry (the Ministry of Foreign Affairs) was in fact aware of the pending Arbitral proceedings – ICSID Case No. ARB 01/6 is cited in the letter.
(vi)
The Tribunal having already been duly constituted under the Rules as communicated to the parties by the Centre‟s letter dated October 5, 2001, the request made in the letter dated October 6, 2001, by the Minister of Foreign Affairs of Kazakhstan, received by the Centre on October 23, 2001, that further time should be granted to Kazakhstan to appoint an arbitrator, was plainly a belated request. The letters of the Centre (dated June 12, 2001, and August 8, 2001) specifically addressed to HE Mr Erlan Idrissov and specifically inviting the Respondent to participate in the composition of the Tribunal under the Arbitration Rules were ignored: the Tribunal concludes that when an opportunity is afforded to a party to appoint an arbitrator and the party chooses to do nothing and does not respond, it cannot complain that it has been deprived of the opportunity and right to participate in the composition of the Tribunal.
The Respondent withdraws its objections to ICSID jurisdiction on the ground that the Republic is not responsible under the Treaty for the acts of the Almaty Oblast Akim. Respondent also withdraws its objection on the ground that this dispute can only be adjudicated by the courts of Kazakhstan.
Respondent renews, however, its objection to ICSID jurisdiction on the ground that neither of these Claimants has standing to invoke the US–Kazakhstan Investment Treaty.
1. For purposes of this Article, an investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to (a) an investment agreement between that Party and such national or company; (b) an investment authorisation granted by that Party‟s foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by the Treaty with respect to an investment.
2. In the event of an investment dispute, the parties to the dispute should initially seek a resolution through consultation and negotiation. If the dispute cannot be settled amicably, the national or company concerned may choose to submit the dispute for resolution: (a) to the courts or administrative tribunals of the Party that is a party to the dispute; or
(b) in accordance with any applicable, previously agreed dispute-settlement procedures: or
(c) in accordance with the terms of paragraph 3. 3. (a) Provided that the national or company concerned has not submitted the dispute for resolution under paragraph 2(a) or (b) and that six months have elapsed from the date on which the dispute arose, the national or company concerned may choose to consent in writing to the submission of the dispute for settlement by binding arbitration: (i) to the International Centre for the Settlement of Investment Disputes (“Centre”) established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington, March 18, 1965 (“ICSID Convention”), provided that the Party is a party to such Convention; or
(ii) to the Additional Facility of the Centre, if the Centre is not available; or
(iii) in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); or
(iv) to any other arbitration institution, or in accordance with any other arbitration rules, as may be mutually agreed between the parties lo the dispute (b) Once the national or company concerned has so consented, either party to the dispute may initiate arbitration in accordance with the choice so specified in the consent. 4. Each Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written consent of the national or company under paragraph 3. Such consent, together with the written consent of the national or company when given under paragraph 3 shall satisfy the requirement for:
(a) written consent of the parties to the dispute for purposes of Chapter II of the ICSID Convention (Jurisdiction of the Centre) and for purposes of the Additional Facility Rules; and
(b) an “agreement in writing” for purposes of Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958 (“New York Convention”).
(1)
That the Claimants‟ case for invoking ICSID jurisdiction is the BIT that allows a US private party to invoke ICSID jurisdiction in the event that it has a dispute with the Republic of Kazakhstan concerning an investment that the US party made in Kazakhstan. To qualify for Treaty jurisdiction, the investor must be “owned or controlled directly or indirectly” by a US entity.
(2)
That the investment here was the Crystal Air housing project (the Project) owned 100% by the Claimant CJSC Tema (the Joint Venture). CJSC Tema (the Joint Venture) itself is a Kazakhstani joint stock company, but it could assert Treaty jurisdiction as a US entity if it were owned or controlled by a US entity. (Reference is made to Articles I(1)(b) and (2). III and VI(1) of the Treaty.)
(3)
That CJSC Tema (the Joint Venture) is owned 34% by another Kazakhstani company, LLP Tema, which could not have given CJSC Tema any right to assert Treaty jurisdiction. The only other owner or shareholder of CJSC Tema (66% owner) is a Bermuda company, AIG Silk Road Fund, Ltd (“the Fund”).
(4)
That the Fund itself does not have any right to assert Treaty jurisdiction and cannot give CJSC Tema US entity status because it is not a US entity itself.
(5)
That the question whether CJSC Tema (Claimant No. 2) was owned or controlled indirectly by the other Claimant (Claimant No. 1) – “admittedly a US entity” (sic) – and whether such indirect ownership or control gave the Claimants standing, must be answered in the negative because:
(a)
the indirect owners of CJSC Tema are, in order of magnitude of their ownership interest, LLP Tema (34%), the EBRD (European Bank for Reconstruction and Development 20% of “the Fund‟s” 66%), various US corporate investors that are not seeking to invoke Treaty jurisdiction (even if they could), and finally Claimant No. 1 AIG Capital Partners, Inc., which it is alleged owns only 5% of the Fund‟s 66% or 3.3%. Such limited AIG ownership cannot be sufficient to confer US status on CJSC Tema on the basis of US ownership, or confer Treaty standing on AIG (Claimant No. 1) itself;
(b)
there is no indirect control of AIG (Claimant No. 1) because, according to the record in this case, CJSC Tema is controlled by AIG Silk Road Investments I, Ltd, a Bermuda company that owns 66% of the common stock of, and has voting control of, CJSC Tema (Claimants‟ Exhibit 90).50 This Bermuda company is allegedly “controlled” by the Fund, but in fact it is managed by a third Bermuda company, AIG Silk Road Capital Management, Ltd (Claimants‟ Exhibit 87).51 The latter‟s management services include “the sourcing, analysis, structuring, and closing of investments, as well as active management of the investments after closing”. So day-to-day “control” of both the Fund and CJSC Tema is in the hands of “another third-country entity”.
(6)
That Claimant No. 1 AIG is indirectly a very minor shareholder of the third country investor, the Fund – five or even fifteen percent does not give AIG (Claimant No. 1) or its US parents, status of an “investor”; “the cases which are legion hold that such a minority ownership does not confer the right to invoke ICSID jurisdiction unless there is an express right in the treaty for related entities from third countries – which of course is not the case here”.
(7)
That the present case illustrates why there is good reason to exclude third country entities from Treaty rights and to reject AIG‟s claim of jurisdiction in this case. If Kazakhstan purposely limited Treaty jurisdiction to genuine US investors, why should it allow an investor wholly owned by a Kazakhstani and third-country interests to qualify as a US investor?
(8)
That the tenuous and distant relationship between Claimant AIG Capital Partners, Inc. and Claimant CJSC Tema, plus the small fraction of its indirect share in CJSC Tema, bars AIG Capital Partners (Claimant No. 1) from qualifying as a legitimate claimant under the BIT.
(1) That AIG Capital Partners, Inc. (“AIG”) is a US corporation organized and existing under the laws of Delaware, a political subdivision of the United States (as evidenced by Claimants‟ Exhibit No. 81); and is owned 100 per cent by AIG International Group Inc. (the holding company – a corporation organized and existing under the laws of Delaware, a US entity (as evidenced by Claimants‟ Exhibit No. 83)).
(2) That AIG SRI (i.e., AIG Silk Road Investors Inc., a US Company) owns the majority of the shareholders‟ voting rights in the Bermuda based Company AIG Silk Road Fund, Limited (the “Fund”) (as evidenced by Claimants‟ Exhibit Nos. 84–5). The Fund has three classes of shareholders, and AIG SRI owns 100 per cent of the Class A shares in the Fund, the remaining shareholders in Class B and C having no right to individually exercise voting rights in respect of Class B and Class C shares (as evidenced by Claimants‟ Exhibit No. 84).
(3) The entire voting power and voting rights of the Fund [are] vested “solely and exclusively” in the holders of Class-A common shares (bylaw 54(2)), i.e., in AIG Silk Road Investors Inc. the US Company (Claimants‟ Exhibit No. 84). Under the amended and restated bylaws of AIG Silk Road Fund Ltd, effective as of June 12, 1999 (Claimants‟ Exhibit No. 85), the purpose and nature of business conducted and promoted by the Fund is to seek long term capital appreciation through investments in portfolio companies and the term of the company (the Fund) is to be eight years. The Board of Directors of the Fund is to consist of not less than five directors – and holders of Class-A common shares are entitled to elect the Chairman and the Deputy Chairman and all but two of the directors (bylaw No. 16). The Investment Committee of the Board is to have six members or such higher number as may be approved by the Board – and the Chairman of the Board is entitled to appoint five out of six members of the investment committee: each member of the investment committee is to hold office until death, resignation or removal (bylaw 32). The Investment Committee is responsible for making all investment decisions relating to acquisition, management and disposition of the Fund‟s investments.
(4) That AIG Silk Road Investors Inc. (AIG SRI), a US Corporation, is in turn owned ninety-five per cent (95%) by National Union Fire Insurance Co. of Pittsburgh (“National” a US Corporation) and five per cent (5%) by AIG Capital Partners Inc. (“AIG” Claimant No. 1) (as evidenced by Claimants‟ Exhibit No. 82) – that both National and AIG (Claimant No. 1) are wholly owned subsidiaries of American International Group Inc. US (as evidenced by Claimants‟ Exhibit No. 83).
(5) “National” (the US Corporation) had agreed by memorandum dated September 29, 1997 (part of Claimants‟ Exhibit No. 83) that AIG (Claimant No. 1) shall exclusively exercise all voting rights in respect of Class A shares (owned by AIG Silk Road Investors Inc. US, and held in AIG Silk Road Fund Ltd); AIG (Claimant No. 1) thus controls AIG SRI with respect to the Fund (as also evidenced by Claimants‟ Exhibit No. 83).
(6) AIG (Claimant No. 1) indirectly controls the Fund, having the power to appoint the Chairman of the Board of the Fund and three of the five directors of the Fund (under the Fund‟s bylaws – Claimants‟ Exhibit No. 85). It has in fact done so (the Board‟s decisions are determined by a majority vote). The Board has delegated all decisions relating to the acquisition and disposition of investments to the Investment Committee (as evidenced by Claimants‟ Exhibit No. 85). Because AIG (Claimant No. 1) controls exclusively all voting rights in respect of Class A shares, it has also the power to appoint and has appointed five of the six Investment Committee members (as evidenced by Claimants‟ Exhibit No. 85).
(7) That AIG Silk Road Capital Management, Ltd (a Bermuda company), which is 100 per cent owned by AIG SRI (AIG Silk Road Investors Inc., USA), provides management services to the Fund through a Management Agreement (as evidenced by Claimants‟ Exhibit Nos. 86 and 87). These management services include the sourcing, analysis, structuring, and closing of investments, as well as active management of the investments after closing.
(8) That the Fund directly controls AIG Silk Road Investment I Limited (“the Investment Company”) and Kazakhstan Housing Limited (“the Financing Company”), companies organized under the laws of Bermuda (Claimants‟ Exhibit Nos. 88 and 89). The Investment Company and the Financing Company are 100 per cent owned by the Fund (as evidenced by Claimants‟ Exhibit Nos. 88 and 89); and the Fund is indirectly controlled by AIG (Claimant No. 1).
(9) That the Investment Company (AIG Silk Road Investment I Ltd) controls the Joint Venture (Claimant No. 2), and the Financing Company (Kazakhstan Housing Ltd) has provided finance for the Project to the Joint Venture (Claimant No. 2). The Investment Company entered into the Investment Agreement providing for the joint venture with LLP Tema (a Kazakhstan company owned and controlled by Kazakhstani principals), in CJPC Tema Real Estate Company (a Kazakhstan Company) (the “Joint Venture”) (as evidenced by Claimants‟ Exhibit No. 90). The Investment Company (AIG Silk Road Investors I Ltd) owns 66 per cent of the common shares and 100 per cent of the preferred shares in the Joint Venture, and exercises voting control of the Joint Venture and appoints a majority of the Board of Directors in the Joint Venture (as evidenced by Claimants‟ Exhibit No. 90) – this Investment Company is a wholly owned subsidiary of the Fund. The remaining 34 per cent of the Shares of the Joint Venture (Claimant No. 2) is owned by LLP Tema (a Kazakhstan Company). Pursuant to the terms of a Bridge Loan Agreement (Claimants‟ Exhibit No. 35A), the Fund lent LLP Tema funds to purchase the Project Property. Pursuant to an Assignment and Assumption Agreement (Claimants‟ Exhibit No. 35G), LLP Tema assigned the Bridge Loan to the Joint Venture. Pursuant to a Loan Agreement (established by Claimants‟ Exhibit No. 91) and an Assignment Agreement (Claimants‟ Exhibit No. 35D), the Financing Company (Kazakhstan Housing Ltd – a wholly owned subsidiary of the Fund) (as evidenced by Claimants‟ Exhibit No. 88) took over the loan made by the Fund; and agreed to lend the Joint Venture further sums for the Project.
(10) In sum, AIG (Claimant No. 1) through its control of AIG SRI, the Fund and its subsidiaries, controls the Joint Venture (Claimant No. 2), the vehicle through which AIG‟s investment was committed and made.
(i)
That AIG (American Insurance Group) Inc. – a US Company – is a large Insurance and Financial Services Company founded in 1919 in Shanghai China and has over $500 billion in assets.
(ii)
That AIG Capital Partners (Claimant No. 1) is a wholly owned subsidiary of American International Group Inc., US.
(iii)
That AIG Capital Partners (Claimant No. l) has 100% voting control of AIG Silk Road Investors Inc., a US Company, which, in turn, controls the Fund (the AIG Silk Road Fund Ltd) which, in turn, controls the Joint Venture (Claimant No. 2) and that AIG Silk Road Capital Management Ltd is the investment manager of AIG Silk Road Fund Ltd.
(iv)
That AIG Silk Road Investors Inc., a US company, controls the Fund through control of the Class A Common Shares. The Class A Common Shares appoint the majority of the Board of Directors and appoint the majority of members of the Investment Committee which is the primary investment decision-making body within the Fund.
(a)
AIG Silk Road Investment I Ltd (a Bermuda Company) is the equity vehicle, and has 66% ownership of the Joint Venture. It has also voting control and right to appoint the majority of the Board; the remaining 34% of the Joint Venture is owned by LLP Tema (the Kazakhstan Company)
(b)
Kazakhstan Housing Ltd (a Bermuda Company), which is a vehicle by which debt-financing is provided to the Joint Venture which is also a wholly-owned subsidiary of the Fund which is controlled by Claimant No. 1.
AIG Capital Partners is one of the Claimants and it has voting control of AIG Silk Road Investors which, in turn, controls the fund which, in turn, controls the joint venture.
Perhaps I will take just a couple of minutes and go through some of the details of this. AIG Silk Road Investors controls the fund through a control of the class A common shares. According to the bylaws of the fund, the class A common shares appointed the majority of the Board of directors, they employ the majority of the Investment Committee which is the primary investment decision-making body within the fund. It is the group of people which approve all investments and all sales of investments, and it also has most of the major corporate governance rights according to the bylaws of the fund.
Moving back up stream, AIG Capital Partners has 100% voting control of AIG Silk Road Investors although some of the funding for AIG Silk Road Investors comes from another wholly owned subsidiary of AIG, but that is a very typical arrangement by which AIG injects its funding into these private equity funds.
Moving below the fund level, we move to the second exhibit here.
Q. This is the second chart that has been distributed?
A. Where the fund itself, the AIG Silk Road Fund, has two wholly owned subsidiaries which effectively control the joint venture. One of these is referred to as AIG Silk Road Investments I which is the equity vehicle. It has 66% ownership of the joint venture, it has voting control and it has the right to appoint the majority of the Board.
The other entity is Kazakhstan Housing Limited, which is a vehicle by which debt financing is provided to the joint venture, and that is also a wholly owned subsidiary fund.
That is the basic chain of control.
He was then asked:
Q. So is it your testimony that AIG Capital Partners (Claimant No. 1) controls the Joint Venture (Claimant No. 2) through these relationships?
And he gave the following answer: “That is correct.”52
(1)
The assertion of the Respondents that to qualify for Treaty jurisdiction the investor must be owned or controlled directly or indirectly by a US entity is another way of asserting that under the Treaty the investment must be owned or controlled directly or indirectly by nationals or companies of the other Party. “Controlled . . . indirectly” is not defined in the BIT – and the interpretation of that expression must be governed by its ordinary legal meaning. In Black‟s Law Dictionary, 6th Edn, page 329, the word “control” (as a noun) is defined as:
Power or authority to manage, direct, superintend, restrict, regulate, govern, administer or oversee. The ability to exercise a restraining or directing influence over something;
And as a verb the word “control” is defined as:
to exercise restraining or directing influence over; to regulate; restrain; dominate; curb; . . . Govern.
The legal meaning of the word “indirect” is (Black‟s Law Dictionary, 6th Edn at page 773):
not direct in relation or connection . . . ; not related in the natural way. Circuitous, not leading to aim or result by plainest course or method or obvious means, roundabout . . . Almost always used in law in opposition to “direct”.
The upshot of all this in the context of the Treaty definition of “investment” is that investments originating from US companies and routed through a chain of other companies (whether US or non US based) would be “indirectly controlled” by “companies of the other parties” (i.e., companies established in the USA) and hence protected by the Treaty. The Law in Kazakhstan also recognizes and treats investment “with respect to which foreign investors are entitled to determine decisions being made” by legal entities established in Kazakhstan as “foreign investments”. Admittedly, and there is no dispute about this, Claimant No. 1 is a company established and incorporated in the USA and therefore entitled to invoke the Treaty.
The “investment” in the project in Kazakhstan was to be made by AIG Silk Road Fund Ltd (the Fund)53 – a Bermuda based company – through its wholly owned subsidiary AIG Silk Road Investment I Ltd (also a Bermuda based company – Investment Company);54 the Investment Company having a 66 per cent ownership, voting control and Board majority in Claimant No. 2. It has been established that the fund (AIG Silk Road Fund Ltd) was in turn controlled by AIG Silk Road Investors Inc., which owned the entire Class A common shares of the Fund (which carried 100 per cent voting rights); the entire voting power and voting rights of the Fund were vested (under the Bylaws of the Fund)55 “solely and exclusively in the holders of Class A common shares” – the other class of shares (Class B and Class C) having no individual voting rights. And by virtue of Claimants‟ Exhibit No. 83 AIG Capital Partners (Claimant No. 1) was entitled “exclusively” to exercise all voting rights in respect of Class A shares in the Fund. Thus the chain of control of investments effectuated through the Fund and the Joint Venture has been established: by documentary and oral evidence.
(2)
The next contention of the Respondent that the investment viz. the Crystal Air Housing Project was owned 100 per cent by Claimant No. 2 Tema (the Joint Venture), which could assert Treaty jurisdiction “as a US entity if it were owned and controlled by a US entity”, is refuted by the evidence oral and documentary on record which has established that Claimant No. 2 was controlled indirectly by a US entity viz. Claimant No. 1.
(3)
The next contention – that CJSC Tema is owned 34 per cent by another Kazakhstan company LLP Tema which could not have any right to assert Treaty jurisdiction – is factually correct; the further narration that the other owner of Claimant No. 2 is a Bermuda company viz. AIG Silk Road Fund Ltd (the Fund) is also correct; and the plea that the Fund itself does not have any right to assert Treaty jurisdiction, as it is not a US entity itself, cannot also be disputed: but as explained above, the chain of control did not stop at the Fund but extended to US based corporations where the investments originated. The further contention that the invocation of Treaty jurisdiction under Kazakhstan law on foreign investments (Claimants‟ Exhibit No. 2) was initially asserted by the Fund as an investor (as established by Claimants‟ Exhibit No. 101 – the Notice of Investment Dispute dated July 7, 2000): and that the notice of investment dispute was given by the AIG Silk Road Fund Ltd, because it was “the investor”, is correct: it was in fact an approved investor under the Agreement dated April 10, 1999 (Claimants‟ Exhibit No. 90) with the Kazakhstan Investment Agency.
But in the Notice of Investment Dispute (Claimants‟ Exhibit No. 101) the chain of control is indicated and mentioned in the following words:
AIG Silk Road Fund is a private equity fund established in 1997 by American International Group Inc. (“AIG”) to make equity investments in projects throughout Central Asia and the Caucasus. AIG is one of the world‟s largest financial services companies with assets of over $260 billion and operations in more than one hundred thirty countries. The Fund‟s investors include the European Bank for Reconstruction and Development, AIG, and major strategic and financial investors with an interest in the region. In December 1998, the Fund approved an Investment in the establishment of a 75-unit Western-style residential compound in Almaty with a total projected Investment of $18 million, called Crystal Air Village (the “Project”). The Fund designed the Project to be the premier Western residential housing complex in Kazakhstan. The Fund, to implement this investment, entered into a joint venture with a leading real estate development firm, LLP Tema, whose principals are generally recognized as the premier real estate developers in the region. The joint venture company, JSC Tema Real Estate Company (the “Joint Venture”), was the vehicle through which the Fund would construct the Project and market the residential units.
The investment made and to be made by the Fund and through the Joint Venture (as established by oral and documentary evidence on record) was controlled indirectly by AIG (Claimant No. 1) and therefore the investment is one which is protected by the BIT.
(4)
The further contention that the day to day control of the Fund and the Joint Venture is of “another third country entity” is an argument based on an erroneous hypothesis and unsupported by evidence. It is said that AIG Silk Road Investments Ltd (which owns 66 per cent of the stocks and voting control of the Joint Venture), though controlled by the Fund (AIG Silk Road Fund Ltd), is in fact managed “by the third Bermuda company AIG Silk Road Capital Management Company” – reference is then made to Claimants‟ Exhibit No. 87, which is the Management Agreement between AIG Silk Road Capital Management Ltd and AIG Silk Road Fund Ltd (the Fund).
But as already mentioned above the AIG Silk Road Capital Management Ltd (Bermuda based) is wholly owned by AIG Silk Road Investors Inc. (US)56 through which the chain of control emanating from Claimant No. 1 has already been established.
Claimants‟ Exhibit No. 86 shows that 100 per cent of the shares of the Bermuda based AIG Silk Road Capital Management Ltd is owned by AIG Silk Road Investors Inc. (admittedly a US Company); and AIG Silk Road Investors Inc. US is ultimately controlled 100 per cent by Claimant No. 1, (Claimants‟ Exhibit No. 83); through exclusive control of voting rights in the Fund.
(5)
The assertion of the Respondent that Claimant No. 1 – “admittedly a US entity” – had only a minimal indirect ownership or control of Claimant No. 2 – “5 per cent of the Fund‟s 66 per cent or 3.3 per cent”, which was insufficient to confer US status on Claimant No. 1, is also devoid of merit. Though AIG Silk Road Investors Inc. (a US company) is owned 95 per cent by National Union Fire Insurance Company, Pittsburgh (also a US Company) and 5 per cent by AIG Capital Partners Inc. (Claimant No. 1) (Claimants‟ Exhibit No. 82) it has already been established by documentary evidence (1) that National Union Fire Insurance Company, of Pittsburgh and AIG Capital Partners Inc. (Claimant No. 1) are both wholly owned subsidiaries of the American International Group Inc., the holding company of Claimant No. 1 (Claimants‟ Exhibit No. 83) (2) and that by a memorandum of September 29, 1997, National Union Fire Insurance Company of Pittsburgh had agreed that AIG Capital Partners (Claimant No. 1) shall exclusively exercise all voting rights in respect of the Class-A shares of AIG Silk Road Fund Ltd (the Fund) owned by AIG Silk Road Investors Inc. US (part of Claimants‟ Exhibit No. 83). Although Claimant No. 1 had a minimal ownership shareholding (5%) in AIG Silk Road Investors Inc. the exclusive voting control of the entire Class A Shares of the Fund (AIG Silk Road Fund Ltd) was vested in Claimant No. 1 by virtue of the memorandum of agreement dated September 29, 1997 (part of Claimants‟ Exhibit No. 83).
(6)
The assertion that Kazakhstan purposely limited Treaty Jurisdiction to “genuine US Investors” and there was no reason why it would allow an investor wholly owned by Kazakhstani and third country interest to qualify as a US investor, is a tenuous plea, and the further plea that the relationship between Claimant No. 1 and Claimant No. 2 barred Claimant No. 1 from qualifying as a legitimate Claimant under the US–Kazakhstan Treaty “to protect US investments” is again only a rhetorical plea devoid of merit. All the funds invested and to be invested in the Project were routed through the AIG Silk Road Fund Ltd (Bermuda) as evidenced by the documents – Claimants‟ Exhibit No. 35 through 80.57 AIG Silk Road Fund Ltd (Bermuda) is owned by AIG Silk Road Investors Inc. US, and AIG Silk Road Investors Inc. US is controlled solely and exclusively by the Claimant No. 1 – all voting rights in respect of Class A common Shares in the Fund being exclusively vested in and exercised by Claimant No. 1 – the Fund – through which investments were made via Claimant No. 2 – was thus entirely operated, managed and controlled by Claimant No. 1 (Claimants‟ Exhibit No. 85).
(a)
that the dispute must be a legal dispute arising directly out of an investment;
(b)
that the dispute must be between a Contracting State and a national of another Contracting State; and
(c)
that the parties must have consented in writing to submit their dispute to the jurisdiction of the Centre.
(i)
The Claimants have alleged that the Respondent has expropriated their investment in Kazakhstan in violation of the Bilateral Treaty between the United States of America and the Republic of Kazakhstan concerning the Reciprocal Encouragement and Protection of Investment (“the Treaty”); allegations to be dealt with on the merits – if proved, they have raised a legal dispute arising directly out of an investment.
(ii)
The Republic of Kazakhstan is a “Contracting State” within the meaning of Article 25(1) of the ICSID Convention, the Republic of Kazakhstan having ratified the Convention on September 21, 2000. The Claimants are nationals of “another Contracting State” because:
(a)
The United States is “another Contracting State”, it having ratified the ICSID Convention on June 10, 1996.
(b)
Claimant No. 1, a US based company, is a national of the United States because it was constituted under the laws of the United States and is domiciled there under 9 USC (s) 202.58
(c)
Claimant No. 2 (the Joint Venture), although it was constituted under the laws of Kazakhstan and domiciled there, is “a national of another Contracting State” for purposes of this arbitration, because of “foreign control” (it is indirectly owned and controlled by US companies) and the Parties have agreed (under the BIT) – Article VI(8) – to treat such a Joint Venture as a national of another Contracting State for the purposes of the Convention: Article 25(2)(b).
(iii)
The Republic of Kazakhstan has already consented in writing to submit the parties‟ dispute to the jurisdiction of the Centre by virtue of Article VI(4) of the BIT, which provides that “Each Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written consent of the national or company ...” The Claimants‟ written consent to submit the parties‟ dispute to the jurisdiction of the Centre is evidenced by Claimants‟ Exhibit No. 10.
(1)
that they owned or controlled directly or indirectly an investment in the territory of Kazakhstan as envisaged in Article I(1)(a); and
(2)
that the investment was expropriated directly or indirectly through measures tantamount to expropriation.
(1)
That AIG Silk Road Fund Ltd‟s (the Fund‟s) Investment Committee approved an initial investment of USD 7 million in the Crystal Air Village Project in Almaty, Kazakhstan in December 1998 – corroborated by the Appraisal Report dated December 8, 1998 (Claimants‟ Exhibit No. 14). The Fund‟s total investment in the Project “would have been approximately USD 16.3 million” (according to the oral evidence of Mr Scott Foushee: see transcript of oral hearing, Day One, pp. 34, 37). Mr. Foushee also stated that the fund Sources of this investment were to be 7 million US Dollars from AIG; 500,000 US Dollars of hard cash investment from Tema (Claimant No. 2); in addition to their 1.2 million US Dollars of collateral. We would have been seeking 2.4 million US Dollars in a combination of bank financing and pre-rental revenues. Then finally 6.4 million US Dollars would have been re-invested cash flows from the first and second phases into the succeeding phases. (emphases added) (Transcripts of the oral hearing, Day One, p. 37)
(2)
That the Fund‟s investment in the Crystal Air Village Project (“the Project”), including its investment in the Joint Venture, was controlled by AIG Capital Partners Inc., US Company (Claimant No. 1): oral evidence of Mr Scott Foushee, transcripts of the oral hearing August 28, 2002, pp. 23–4; corroborated by documentary evidence – Claimants‟ Exhibit Nos. 81 to 91 (which establish the chain of control):
(a)
Claimants' Exhibit No. 81
Certificate of Incorporation for AIG Capital Partners, Inc. (US) - Claimant No. 1: that it continues to have a legal corporate existence as of April 20, 2001
(b)
Claimants' Exhibit No. 84
Certificate of Incorporation and Share Register (dated September 1997) for AIG Silk Road Fund, Limited (Bermuda) - "the Fund" - and Subscription Agreement dated September 25, 1997 showing ownership of all Class A Common Shares by AIG Silk Road Investors, Inc. (US)
(c)
Claimants' Exhibit No. 85
Amended and Restated Bylaws of AIG Silk Road Fund Limited - effective as of June 12, 1998 - under these Bylaws:
(1) The entire voting power and all voting rights (in AIG Silk Road Fund Ltd) is vested solely and exclusively in the holders of record of Common Shares (Bylaw 54(2)).
(2) The Board of AIG Silk Road Fund shall consist of not less than 5 Directors. The holders of Class A Common Shares shall be entitled to elect the Chairman and Deputy Chairman and all but two of the Directors (Bylaw 16).
(3) The Investment Committee of the Board responsible for making all investment decisions shall have 6 members and the Chairman of the Board shall be entitled to appoint 5 members to the Investment Committee. Each member of the Investment Committee shall hold office until death, resignation or remov[al]. Any member of the Investment Committee may be removed by the Chairman (Bylaw 32).
(d)
Claimants' Exhibit No. 82
Secretary's Certificate dated August 9, 2002 of Ownership of Shares of AIG Silk Road Investors, Inc. (US) - SRI by National Union Fire Ins. Co. of Pittsburgh (US) - 95% and AIG Capital Partners, Inc. (US) - 5%.
(e)
Claimants' Exhibit No. 83
Control of AIG Silk Road Investors Inc. (US) - SRI by AIG Capital Partners Inc. (Claimant No. 1) is proved by letter dated August 15, 2002 from AIG Capital Partners Inc. New York to the National Union Fire Ins. Co. of Pittsburgh New York (and confirmed by the latter) to the following effect viz.:
(i) that each of the companies, National Union and AIGCP, are wholly owned subsidiaries of American International Group, Inc.62
(ii) that as contemplated in a memorandum sent by Thomas Haughey on September 29, 1997 (attached as Exhibit A), National Union had agreed that AIGCP shall exclusively exercise all voting rights in respect of the Class A shares of AIG Silk Road Fund, Limited (the "Fund") owned by SRI.
(iii) that AIGCP (Claimant No. 1) controls SRI with respect to the Fund.
(f)
Claimants' Exhibit No. 86
Secretary's Certificate dated August 9, 2002 and Share Register of AIG Silk Road Capital Management, Ltd (Bermuda) showing ownership of 100% of shares by AIG Silk Road Investors, Inc.
(g)
Claimants' Exhibit No. 87 Fund Management Agreement between AIG Silk Road Capital Management, Ltd (Fund Manager) and AIG Silk Road Fund Ltd (the Fund) dated September 25, 1997:
(i) Subject to the supervision of the Investment Committee the Fund Manager agrees to provide Fund Managing Services to the Fund.
(ii) Managing Director of the Fund is Mr L. Scott Foushee.
(h)
Claimants' Exhibit No. 88
Certificate of Incorporation on Change of Name of Kazakhstan Housing, Ltd (Bermuda) - Share Registry showing 100% ownership by AIG Silk Road Fund, Limited, and Share Transfer Form, dated February 10, 1999.
(i)
Claimants' Exhibit No. 89
Certificate of Incorporation of AIG Silk Road Investment I, Ltd (Bermuda) and Share Register showing 100% ownership by AIG Silk Road Fund, Limited (December 18, 1999).
(j)
Claimants' Exhibit No. 90
Investment Agreement between AIG Silk Road Investment I, Ltd. LLP Tema, Serik Tulbassov, Serzhan Zhumashev and CJSC Tema Real Estate Company, dated 10 April 1999, with annexes: recites that the Joint Venture Claimant No. 2 has been caused to be registered on the basis of the Foundation Agreement dated February 16, 1999 (part of Exhibit No. 90) under which AIG Silk Road Investment I Ltd would purchase 66% of shares of the Joint Venture (Claimant No. 2).
(k)
Claimants' Exhibit No. 91
Example of Share Certificate of CJSC Tema Real Estate Company held by AIG Silk Road Investment I, Ltd.
(3)
That on December 18, 1998, LLP Tema (34% owner of Joint Venture Claimant No. 2), using a 62 bridge loan from the AIG Silk Road Fund (the Fund), purchased the Project Property at Ahmaty suburb from LLP Talap (a limited liability partnership) for a price of USD 1.5 million.
(Evidence of Mr Scott Foushee – transcripts of the oral hearing. Day One, at p. 35, corroborated by Claimants‟ Exhibit 18): the Land Purchase Contract dated December 18, 1998 (Claimants‟ Exhibit No. 18) stated that the land plot (the Project Property) would contain not less than 10 hectares and would be used for purpose of building residential units.
(4)
On December 23, 1998, the Karasai District Land Resources Management Committee issued an Act of Ownership confirming Tema‟s ownership of the Project Property (area: 10 hectares) and stating that the designated use of the Property was “constructing and servicing a property – a residential compound” (Claimants‟ Exhibit No. 19).
(5)
An Investment Agreement (as between the investors) was entered into on April 10, 1999, between AIG Silk Road Investors I Ltd and LLP Tema (along with two individual citizens of the Republic of Kazakhstan) and the Joint Venture Company (Claimant No. 2) represented by its Chairman L. Scott Foushee (Claimants‟ Exhibit No. 90). This investment agreement recited that the parties had caused the Joint Venture (Claimant No. 2) to be registered on the basis of the Foundation Agreement dated February 16, 1999, under which AIG Silk Road Investment Ltd would purchase 66 per cent of the registered shares of the Joint Venture (Claimant No. 2) – LLP Tema the other shareholder of Claimant No. 2 holding 34 per cent. It was recorded in this Investment Agreement that the company (i.e., Joint Venture – Claimant No. 2) would directly or indirectly through one or more subsidiaries undertake and implement the project (i.e., residential real estate project) described in Annexure I which contemplated a construction of 81 units (later reduced to 76 units) within a housing development in a three-phased development plan.
(6)
On the same day – April 10, 1999 – LLP Tema transferred the Project Property to the Joint Venture for a price of USD 1.5 million – the same price that LLP Tema had paid LLP Talap for the property in December 1998 (see Claimants‟ Exhibit No. 20): this is also corroborated by Claimants‟ Exhibit No. 35, an invoice showing payment of USD 1.5 million to LLP Talap by LLP Tema from the Fund emanating from AIG Silk Road Fund Ltd.
(7)
On May 10, 1999, the Akim of the Almaty Oblast, Mr Zamenbek Nurkadilov, having considered the application of the Joint Venture, signed a decree (Claimants‟ Exhibit No. 21) authorizing the Joint Venture to carry out the Crystal Air Project on the land plot with total area of 10 hectares (Claimants‟ Exhibit No. 21); this particular land plot had been allocated in accordance with Decision No. 2-4 of the Akim of Almaty Oblast dated February 18, 1999 (Claimants‟ Exhibit No. 145).
(8)
On May 13, 1999, the Karasai District Land Resources Management Committee issued an Act of Ownership in favour of the Joint Venture (Claimant No. 2) which earmarked the Project Property (land plot of 10 hectares) for construction and servicing of a housing complex (Claimants‟ Exhibit No. 12).
(9)
On December 3, 1999, the Joint Venture‟s design contractor, TISV, completed the detailed design for the project, including full application drawings upon which the construction contract was then tendered: the Joint Venture paid TISV USD 325,000 for this design as evidenced by Claimants‟ Exhibit No. 38.
(10)
That on December 13, 1999, a contract (on the provision of incentives on and State support [of] investment activities in the Republic of Kazakhstan) was entered into by and between the Agency of the Republic of Kazakhstan for Investment (the Agency) represented by the Chairman of the Agency of the Republic of Kazakhstan for Investment and the Joint Venture – viz. Claimant No. 2 – as “approved investor”. The object of the Investment Activity was stated to be the construction of a residential complex. It was provided in this contract – contract No. 0159-12-99 – that unless otherwise stipulated by International Treaty signed by the Republic of Kazakhstan, the laws of the Republic of Kazakhstan shall apply to the contract and other agreement[s] signed on the basis of this contract. The contract provided that the “approved investor” would conduct its investment activity in accordance with the work programme agreed with the Agency (Claimants‟ Exhibit No. 3).
The Work Programme (attachment 1 to Contract No. 0159-12-1999 dated December 13, 1999) identifies the plot on which the investment project is to be constructed – “construction of Crystal Air Residential Compound in Almaty suburb”.
(11)
That on January 18, 2000, after receiving bids from six companies in a competitive tender, the Claimants selected TISV as the general contractor for the Project based on the application design which was the final design provided to the Claimants by TISV. As required by the tender, each cost item was priced according to the scope of work described in the application design, and was based on TISV‟s record of completing premium quality construction within the budget and within the time period allotted. On January 27, 2000, the Joint Venture and TISV signed a Turnkey Contract for USD 7.29 million (inclusive of VAT) for the construction of the first phase of the project (Claimants‟ Exhibit No. 39 contains this contract) – evidence to corroborate this was given during the oral hearing on August 28, 2002 by Mr M. Kasher Senior Associate of Claimant No. 1 and Investment officer in AIG Silk Road Fund Ltd (transcripts of the oral hearing, Day One, at pp. 128 and 130).
The evidence of Mr Mark Kasher establishes the source and extent of the expenses actually incurred in designing and implementing the Project before the Government ordered the Joint Venture to permanently halt construction. The expenses together with all the relevant receipts (proved by Claimants‟ Exhibits No. 35 through Exhibit 79) aggregated in all to USD 3,563,294.29 – which funds were wire transferred through the AIG Silk Road Fund Ltd, Bermuda.63
(12)
That on January 26, 2000, the State Architecture and Construction Inspectorate for the Almaty Oblast after making an assessment of the project (Act No. 7-19/99 dated October 14, 1999) issued a Permit authorizing the Joint Venture to begin construction „“at the residential complex CRYSTAL AIR” (Claimants‟ Exhibit No. 23).
(13)
According to the uncontradicted testimony of Mr Foushee and Mr Evseev (Claimants‟ witnesses), by mid-February of 2000, the Joint Venture had completed certain infrastructure work on the Project Property, including installation of water lines, electrical cabling and a temporary fence, and its contractor (TISV) had mobilized its construction crew on the site to commence general construction of the Project. (See Evidence of Mr Scott Foushee, transcripts of the oral hearing, Day One, at p. 93 and Evidence of Mr Boris Evseev, at p. 164 and p. 169.)
(a)
That on February 18, 2000, the Joint Venture received an oral request (telephone call) from the Chairman of the Oblast Land Committee. Mr Nauryzbay Taubaev, to the effect that a billboard which had been put up three months back advertising the Crystal Air Village Project be removed from the Project Property. Mr Taubaev said that the billboard was offensive to low-income residents of Almaty who could not afford the advertised project. Accordingly, the Joint Venture removed the billboard, “for fear of the billboard being taken down forcibly and damaged”: evidence of Boris Evseev, Country Director of AIG Silk Road Capital Management Ltd, given at the oral hearing, Day One, at page 165.67
This part of the evidence was not contradicted by the Respondent; Mr N. Taubaev Chairman of the Oblast Land Committee did not attend the hearings or give any oral evidence on behalf of the Respondent. His absence is the more significant since Mr Nurkadilov (at the relevant time the Akim of Almaty Oblast) who did give evidence for the Respondent deposed that the Land Committee did not have information and was not aware of “the fact” that according to the general plan of the City the land which was given to Talap to build the residential compound was to be developed as a green area for Almaty and the Land Committee made a “mistake” when it gave its consent: “According to that same general plan, they were supposed to develop a Green Area for Almaty. The Land Committee did not have the information or it was not aware of this . . . “ (Oral Evidence of Mr Nurkadilov – transcripts of the oral hearing, Day Two, pages 144–5): there is no independent evidence to corroborate this assertion viz. that the Land Committee made a mistake and/or was unaware of building construction being not permitted on the Project Site Property, and the person who could have deposed to this as a fact was Mr N. Taubaev, Chairman of the Oblast Land Committee, whose non-availability to give evidence for the Respondent is neither explained nor accounted for.
(b)
That on February 26, 2000, the Joint Venture received a telephone call from the Chairman of the Oblast Architectural Committee, Mr Sairan Fazylov, who said that the Joint Venture must stop construction of the Crystal Air Village project because the Project Property was to be taken for use “as an arboretum”. After the Joint Venture was told to stop construction Mr Nurkadilov, Akim of Almaty Oblast, was contacted and he confirmed this (evidence of Mr Boris Evseev – transcripts of the oral hearing, August 28, 2002, pages 166–8).68 Mr Boris Evseev was then asked:
Q. And did you stop construction?
A. Yes, we had to comply with the order. The people who ordered the Joint Venture to stop construction were the same people who had issued prior approvals and construction apartments [sic], so we had to comply and complied with this order, and halted construction on the Project Property.
(Evidence of Mr Boris Evseev on August 28, pp. 166–8.)
(c)
That in response to the telephone calls from Mr Taubaev and Mr Fazylov, the Claimants requested a meeting with Mr Nurkadilov, the Akim of the Almaty Oblast. (See Evidence of Boris Evseev, transcripts of the oral hearing, August 28, p. 169.) Mr Fazylov, Chairman of the Oblast Architectural Committee did not give oral evidence nor is the telephone call of February 26, 2000 – deposed to by Boris Evseev – denied.
(d)
That the Claimants‟ representatives met with Mr Nurkadilov on 2 March 2000. At this meeting, Mr Nurkadilov confirmed to the Claimants that their property was being taken for use as an arboretum and that they must therefore stop construction of the Crystal Air Village Project. (Evidence of Boris Evseev, transcripts of oral hearing, August 28, pp. 169–70.)
(e)
That following the meeting with Mr Nurkadilov, the Claimants “strongly persuaded for nearly four months” (i.e., persuaded governmental authorities) to reverse the Government‟s decision to cancel the Crystal Air Village Project.69 The Claimants even sought and obtained the intervention of US Ambassador to Kazakhstan, Richard Jones. The Claimants and Ambassador Jones both wrote to President Nazarbayev‟s advisor, Mr Bolat Utemuratov, seeking to have Mr Nurkadilov‟s decision to cancel the Project overturned.70 The Claimants also met repeatedly with Mr Dulat Kuanyshev, the Chairman of the Agency for Investment, which represents the Republic of Kazakhstan in its dealing with foreign investors. At the Claimants‟ request Mr Kuanyshev wrote Mr Nurkadilov warning him of the legal implications of his decision to cancel the Project and asking for an explanation of that decision. The letter is on record – Claimants‟ Exhibit No. 6 – March 2, 2000.71 The Claimants also met with the Mayor of the City of Almaty, Mr Victor Khrapunov, because they were told that their property was being transferred to the City and it was the City that would build the arboretum. (Evidence of Mr Boris Evseev, transcripts of the oral hearing, August 28, at pp. 174–81.) By letter dated March 21, 2000, Mr Scott Foushee, a Managing Director of Claimant No. 1 and the Managing Director of Claimant No. 2, wrote the Advisor to the President of Kazakhstan informing him of the Akim‟s intimation to confiscate the Project Property in order to construct a National Arboretum (a copy of this was forwarded to the Prime Minister of Kazakhstan): this document is also on record (Claimants‟ Exhibit No. 25).
(f)
That on April 6, 2000, the Architecture and Construction Department of the City of Almaty issued a Resolution ordering the Joint Venture to suspend all works of construction of the Project (Claimants‟ Exhibit No. 95).
(g)
That on May 15, 2000, when the Joint Venture attempted to resume construction on the Project Property, the City authorities, accompanied by police, expelled the Joint Venture‟s contractor from the site. (Evidence of Mr Boris Evseev, transcripts of oral hearing, Day One, pp. 186–7) – Material part of his evidence reads as follows:
Q. After meeting with the city Akim, did you try to recommence the construction at the site?
A. Yes, we did. There was a period of time after that meeting when, despite the communications that we have received from the city and the Oblast prior to that, nothing happened. The authorities did not actually move in and start construction of the arboretum on that site.
We were about three months late in to the construction season and our crew was still in a stand by mode, so in mid May we decided to recommence construction.
We sent a contractor with some equipment to the site, with a bulldozer.
Q. What happened when you did that?
A. Shortly after our contractor showed up at the site, the representatives of the city authorities appeared on the property, accompanied by the police, and expelled our contractor from the site.
Q. What do you mean when you say “expelled”?
A. They requested that the contractor leave the property, leave the land and suggested that they would apply physical force if the contractor did not apply.
Q. When you say “apply physical force” what are we talking about?
A. The representatives that were on the property were accompanied by police, and the police is equipped with the necessary tools to apply physical force. The contractor would be forcibly expelled.
Q. Were you physically present when this took place?
A. No, I was not.
Q. How do you know it took place?
A. The contractor contacted me and said that indeed took place.
Q. As of May 15 or thereabouts therefore you had been prevented from constructing on the property. So what did you next do?
A. At that point, it had become clear to us that we would not be allowed to continue with the project. We consulted with AIG Capital Partners in New York, myself, Mr Foushee and others, and made a decision that the project had been essentially cancelled and that we could no longer continue with it. We had to mitigate our damages.
(h)
That the Fund‟s Investment Committee decided not to proceed further with the Project, to mitigate their mounting losses, and to release the construction contractor. Accordingly, the Joint Venture invoked force majeure, and terminated the construction contract on June 16, 2000, paying $182,000 in furtherance of a mutual release of claims. (Oral evidence of [Mr] Scott Foushee, transcripts of oral hearing, August 28, 2002, pp. 112–15.) Evidence of Mr Boris Evseev, August 28, 2002, p. 188:
Q. When you say “mitigating” your damage, what do you mean?
A. It means reducing our losses as a result of this.
Q. What did you do?
A. Specifically, first, we invoked the force majeure provision in our construction contract, and both the joint venture and the contractor decided that performance was no longer possible under the contract. The contract was therefore terminated and the joint venture paid compensation to the contractor for the costs involved. Second, we, being the joint venture management, terminated most of the staff of the joint venture, most of the eleven people, reducing our costs, operating costs, therefore.
We also tried to sell some of the project property. We were not successful in doing that, but electrical cables, water pipes, simply, there was no demand for those assets because they were configured for this larger project that was not going to happen.
All this is further corroborated by Claimants‟ Exhibit No. 27, a letter dated June 16, 2000 from Boris Evseev (for and on behalf of Claimant No. 2) to the Contractor (TUNA):
As you are aware, Closed Joint Stock Company Tema Real Estate Company (“TREC”) having entered into that Contract for Works of Civil Engineering Construction with Tuna Insaat Sanayi ve Ticaret Ltd, St. (“TUNA”) dated January 27, 2000 (the “Contract”), as Employer under the Contract, has been unable to continue with construction of the project as contemplated in the Contract due to the Government of Kazakhstan‟s apparent decision to use the site as part of a national arboretum. Although it remains possible that the project will continue in some form, the parties to the Contract have been blocked from making progress on the project in accordance with the Contract for over three months without any indication from the Government that it will permit the use of the site for the project.
In light of these intervening circumstances, the Parties agree that both are prevented and discharged from performing the Contract pursuant to Clauses 66.1 and 65.8 of the Contract. In satisfaction of all amounts due from TREC and TUNA pursuant to the Contract, as well as in satisfaction of losses, costs, and expenses incurred by TUNA as may be due under the Contract, TUNA has confirmed that its costs associated with performance of the Contract amount to $182,179 (the “Settlement Amount”) and TREC has agreed to pay such Settlement Amount in consideration for this release (the “Release”).
(i)
The Claimants treated the date of expropriation as June 16, 2000 and on July 17, 2000 a Notice of Investment Dispute was submitted by AIG Silk Road Fund72 pursuant to Article VI of the BIT and Article 27 of the Law of Kazakhstan on Foreign Investments dated December 27, 1994 (Claimants‟ Exhibit 101): further explained by oral evidence of Boris Evseev (transcripts of oral hearing, Day One, p. 190).
Q. Did yon reach a point in time when you decided to file a formal claim related to the taking of the property?
A. Yes. In the summer of 2000, on July 17, after a continuous series of attempts to bring this issue to a resolution through negotiations with the Government officials that were involved in this, we filed a Notice of Investment Dispute.
(j)
That on August 2, 2000, the Chairman of the Agency for Investment, Mr Dulat Kuanyshev,73 wrote to the First Deputy Prime Minister, Mr Alexander Pavlov, concerning the Notice of Investment Dispute filed by AIG Silk Road Fund, Ltd on July 17, 2000. In this letter, the Chairman stated:
An analysis of the notice submitted and the preceding correspondence points to violation of a series of legal procedures concerning the seizure of the land plot owned by CJSC Tema Real Estate Company.
Given all of the above, with the aim of preventing the dispute from going to international arbitration, which could prove very expensive for the government of the Republic of Kazakhstan, we think it acceptable to seek a path to constructively resolve this conflict in an out-of-court settlement. (Claimants‟ Exhibit 118)
(k)
That to consider the notice of Investment Dispute on September 2000, an ad hoc Working Group (Protocol of Inter-Ministry Working Group) was set up consisting of representatives of the Foreign Ministry, the Ministry of Finance, the Ministry of Justice, the Agency for Investment, the Almaty Oblast and the City of Almaty: these representatives concluded that the cancellation of the Project was “in violation of [applicable] legislation”. The Working Group recommended that the Akim‟s order to stop construction of the Project be invalidated and the Project Property be returned to the Joint Venture, or if this was not possible, that the Joint Venture be compensated for the taking of the Property. (Claimants‟ Exhibit 28) – the conclusion is reproduced verbatim below:
Having reviewed the available materials the Working Group considers that:
(1) the decision of the local executive body that impedes the implementation of construction by the investor was adopted in violation of the procedures established by the current legislation;74
(2) with view to avoid the involvement of the Government of the Republic of Kazakhstan in the litigation process in the framework of international arbitration, bearing of judicial costs by the state, lowering of the credit rating and deterioration of the investment image of the Republic of Kazakhstan and to reimburse the economic damages concerned with the compensation of the investor‟s expenses to recommend the following to the Government of the Republic of Kazakhstan:
1. In accordance with Article 16 of the Constitutional Law of the Republic of Kazakhstan “On the Government of the Republic of Kazakhstan”, for the Government of the Republic of Kazakhstan to cancel the decision of the local executive authority with regard to the land plot owned by Tema Real Estate Company.
2. In case it is impossible for the investor to maintain ownership of the land plot (10 hectares), for the Akim of the Almaty Oblast jointly with Tema Real Estate Company to coordinate a more precise amount of compensation in the order established by law.
The Minutes (of the Working Group September 5, 2000 – Exhibit No. 28) show that the Group consisted of the Director of the Department for Regulation of Investment Activity in priority sectors of the economy (Agency on Investment of the Republic of Kazakhstan) who chaired the Working Group, as well as eight other representatives75 from various departments of Government. The fate of this unanimous recommendation of the Working Group (recorded in Claimants‟ Exhibit No. 28) later endorsed by Mr Idrissov, Minister of Foreign Affairs in his letter dated March 13, 2001 to the Deputy Prime Minister, is not known: it was (apparently) not further pursued;76 the decision to cancel the project was at no time revoked nor were the Claimants informed of the same. On the contrary – on February 14, 2001, contractors for the City of Almaty, accompanied by police, began construction on the Project site, and expelled the Claimants‟ representatives from the site. (Claimants‟ Exhibit 30 and 128 – video tape and written transcript recording construction by Almaty Oblast‟s Contractors on the Project Property.)
The video tape shows a Site Visit by representatives of Claimants and their US attorney’s firm to the plot
It is in evidence that the Claimants received notification from their security guard at the Project Property on February 14, 2001 that a construction crew had entered upon the property accompanied by local militia and had started site work for the arboretum. The next day AIG personnel accompanied by lawyers from Coudert Brothers visited the Project Property to view and document the seizure of the land plot.77
(l)
That, inexplicably, and despite what was stated in the letter of Mr Idrissov (March 13, 2001) to the Deputy Prime Minister (Claimants‟ Exhibit 31) – recommending that the prior decision of the Local Executive Body which was “in breach of certain procedures” be cancelled78 – on April 2, 2001, transfer of Project Property from Almaty Oblast to City of Almaty was decreed (Claimants‟ Exhibit No. 13).
(m)
On April 2, 2001, a decree of the President of [the] Republic of Kazakhstan recorded:
DECREE OF THE PRESIDENT OF THE REPUBLIC OF KAZAKHSTAN
REGARDING DEMARCATION OF THE BOUNDARIES OF THE ALMATY CITY
In compliance with submission of the Government of the Republic of Kazakhstan prepared in accordance with Article 9 of the Law of the Republic of Kazakhstan “On Administrative– Territorial Structure of the Republic of Kazakhstan”, dated December 8, 1993 and considering the opinions of representative and executive bodies of the Almaty city and the Almaty oblast I hereby DECREE:
1. To demarcate the boundaries of the Almaty city and include certain part of lands of Karasai district of the Almaty oblast with the total area of 158. 4 [sic] hectares in the territory of the city.
2. This Decree shall become effective from the date of publication.
The President of the Republic of Kazakhstan N. Nazarbayev. Astana. April 2, 2001 No. 579
(n)
All this meant that the cancellation of the Project was irrevocably affirmed and the Project Property was transferred out of the jurisdiction of the Almaty Oblast to the City of Almaty.
(o)
The case suggested to the Claimants‟ witnesses on behalf of the Respondent, and also mentioned in the arguments of the Respondent, that the Akim Oblast had no authority at all to grant the construction permits on the Project Property or that there had been a mistake in granting them – because of some lack of authority – has not been established by reference to any law of Kazakhstan. On the contrary what is established on the evidence is that the cancellation of the construction permits and continuous course of impediments to the Project being proceeded with on the Project site, were contrary to procedures established by Kazakhstan law.
(a)
That it has been proved that the investment79 of the Claimants was expropriated, directly or indirectly through “measures tantamount to expropriation” (Article III( 1) of the BIT); the date of taking was treated according to the Claimants as June 16, 2001 [sic],80 shortly after the date on which the Claimants were physically and forcibly dispossessed from the project site (May 15, 2000) – making their ownership rights to the plot allocated practically useless. By May–June 2000 the practical and economic use of the Project Property by the Claimants was irretrievably lost – and could not thereafter be used for development purposes.
(b)
The later recommendation of the Working Group to revoke the “expropriation” (even though it was at a very belated stage) was never finally accepted by the Government: in any event the Claimants were never informed of the same, and
(c)
The Tribunal also holds that the expropriation of the Project Property was not in accordance with “procedures established by current (Kazakhstan) legislation” (as admitted in the Minutes of the Working Group September 5, 2000 – Claimants‟ Exhibit No. 28).81
The same is also acknowledged in the Post-Hearing Brief of the Respondent (filed on October 18, 2002) in which under the heading “Facts not contested by the Respondent” it is stated:
Respondent acknowledges that the Akim of Almaty Oblast did not follow Kazakhstani law when he stopped the Project and for six months prevented CJSC Tema (Claimant No. 2) from building the Project at the Site.82
On 26 February 2000, the Government verbally notified the Joint Venture that it had decided to cancel the Project for the purported reason that the Project Property was needed for a “national arboretum”. This notice was given despite the prior approval by governmental authorities of the land purchase, the zoning and the construction plan for the Project.
10.4.4 In the Request for Arbitration, the only mention of the President of Kazakhstan is in the context that the Project Property was located in one of the most exclusive residential areas of Almaty, “adjacent to the private residence of the president of the Republic of Kazakhstan” (page 3 of the Request for Arbitration). [The] verbal intimation to the Joint Venture that the Government had decided to cancel the project (February 26, 2000) was “for the purported reason that it was needed for a national arboretum”; this is further amplified by the statement (in the Request for Arbitration) that on March 2, 2000, the Representatives of the Fund and the Joint Venture met with the Akim of the Almaty Oblast, who said he had made a “mistake” [in] having the Oblast Administration permit the sale of the Project Property to the Joint Venture. There is no mention in the Request for Arbitration that it was at the express instance and request of the President of the Republic of Kazakhstan that the project was cancelled. In the Claimants‟ Memorial (page 22) it is once again mentioned that on February 26, the Chairman of the Oblast Architectural Committee (Mr Sairan Fazylov) stated that the Oblast Administration had decided to take the Project Property for use as an arboretum and that the construction on the property should cease. No mention of the President is made. It is however stated that the mistake of the Akim was that he had failed to obtain the permission of the President before authorizing commercial authorization of the project.84(a)
In his examination-in-chief Boris Evseev says that he learned from his meeting with the Akim of Almaty that the real reason why the billboard advertising the project had to be removed was:
we learnt that the real reason was that President Nazarbayev did not want the billboard to be there (transcripts of the oral hearing, page 165).
The witness does not say who told him this.
(b)
He went on to further depose in his examination-in-chief as follows:
Q. What did the Oblast Akim tell you when you met with him?
A. The Oblast Akim told us that, indeed, President Nazarbayev was opposed to the Project and that we had to stop construction. There was no choice otherwise.
He said that the Project property indeed would be taken and an arboretum would be constructed on it.
Q. Did he give you any hope that this decision was reversible?
A. No, he made it very clear that this was a final decision and there was nothing we could do about it (transcripts of oral hearing, Day One, pages 169–70).
(c)
Boris Evseev was asked about his conversation with US Ambassador Richard Jones, and he once again attempted to implicate the President (transcripts of oral hearing, Day One, page 178):
Q. Did the (US) Ambassador (Jones) investigate the situation any further?
A. Yes, he did. He later informed us that, based on his information, there had indeed been presidential interference into this project, and the reason was that the President did not want this development in the vicinity of his Almaty residence.
Boris Evseev then went on to state in cross-examination (transcripts of oral hearing, Day One, page 234): I was told by the officials that I mentioned, including Mr Nurkadilov, which was later supported by US Ambassador Jones that the President himself indeed interfered with this project and it did not appear as a reasonable proposition to us to go and seek presidential blessing for the new site (i.e., the alternative site).
This evidence is again unsubstantiated. Ambassador Jones did not give evidence and his only letter on record (Claimants‟ Exhibit No. 26) makes no mention of Presidential interference.
(d)
About the meeting with the Mayor of the City of Almaty, in April Boris Evseev deposes as follows (transcripts of oral hearing, Day One, page 180):
Q. Can you tell us what happened at that meeting?
A. Yes, Mr Khrapunov told us that the project property was indeed being taken by the Government and that we could not construct our project on it. He further told us that an arboretum and a golf course would be built on that land. He also suggested that the Oblast authorities had made a grave mistake in not consulting with President Nazarbayev when they issued for us with the permits to go ahead with the project (emphasis added).
He also issued what we interpreted as a thinly-veiled threat by invoking a prior example of dealing with a US Ambassador. He did not specify who it was but apparently the situation was when the city wanted the Embassy to move to another location and the Ambassador was reluctant to do that. Soon thereafter they found themselves without power and water. The message was very clear that “this is my City, I make the rules here. Don‟t mess with me.”
Again the alleged involvement of the President is unsubstantiated.
The [italicized] portion is not foreshadowed at any prior stage of documentation (nor mentioned or relied on in the written arguments of the Claimants).
Arbitrariness is not so much something opposed to a rule of law as something opposed to the rule of law. This idea was expressed by the Court in the Asylum case when it spoke of “arbitrary action” being “substituted for the rule of law” (Asylum Judgement ICJ Report 1950 p. 284). It is a wilful disregard of due process of law, an act which shocks or at least surprises a sense of juridical propriety (para. 128 at p. 76).
10.5.2 In the facts and circumstances of the case – particularly the events that occurred between February [and] May 2000 (already set out in detail – para. 10.3.2 above)89 – and in the light of the findings recorded in the Minutes of the high-powered Working Group (of September 5, 2000)90 to the effect that the decision of the local executive body impeding implementation of construction by the investor on the Project Property was adopted “in violation of the procedures established by the current legislation”, this Tribunal records a finding that the taking (by measures tantamount to expropriation) was arbitrary, in wilful disregard of due process of law and the series of acts from February 26, 2000 and culminating in the events of May 15, 2000 were shocking to “all sense of juridical propriety”.Then, on March 2, 2000, the Akim (governor) of the Almaty Oblast formally notified the Claimants that the authorization to construct the Project was being rescinded. The Akim said that he had “made a mistake” when he authorized construction on the Project Property, because he had failed to obtain prior authorization from the President, Nazarbayev. The Akim said that the Project Property and other contiguous property were to be used to create a public park adjacent to the President‟s home. In exchange for the Project Property, the Akim offered the Claimants an alternative but inferior site on which to build the Project. The Claimants explained that the Project Property was an integral part of the Project and that moving the Project to a different site would in effect involve a new and different project which would require new feasibility studies, re-design of the Project, a new construction contract and de novo approval of the Project by the Fund‟s Investment Committee. The Akim replied that construction of the Project on the Project Property was simply not an option.
The Respondent‟s Counter-Memorial does not dispute the fact that an alternative site was offered on March 2, 2001, orally by the Akim of the Almaty Oblast, and was not accepted by the Claimants. Apart from relying on Kazakhstan law about Claimants “not taking reasonable measures to mitigate losses” (reliance is placed on Article 364 of the Civil Code of the Republic of Kazakhstan), it is concluded that “Claimants have not made any serious or sufficient efforts to mitigate the alleged losses” and that the Claimants should be denied the compensation claimed.
So in other words, Kazakhstan offered an alternative site and we offered to undertake some of the expenses so that they would not be duplicated, and for reasons, that will [have] to be explained, at least to me, Claimants rejected that offer (emphasis supplied). (See transcripts of the oral hearing, Day One, page 13.)