From 1999 to 2020: A forced nationalization in Kazakhstan, an award under the Energy Charter Treaty in Sweden, and a subsequent multijurisdictional strategy designed to frustrate the payment of the Award.
Tristan Oil Owners' Original Investment in Kazakhstan
Moldovan businessmen Anatolie Stati and Gabriel Stati (together, the Statis) begin investing in Kazakhstan by acquiring shares in the Kazakh oil companies Tolkynneftegaz LLP (TNG) and Kazpolmunay LLP (KPM), which subsequently became the guarantors of Tristan Oil Notes.
Tristan Oil Issues Eurobonds
Tristan Oil issues Eurobonds to fund capex projects onshore. The notes were guaranteed by TNG and KPM. The intention was for these bonds to be paid from cash flows generated by these companies. One of the largest of the bondholders was a US-based fund called Black River Asset Management, from which later Argentem Creek Partners spun out from.
Kazakh Government Agencies Target Tristan Oil and the Statis
Moldovan President Vladimir Voronin writes a letter (later leaked to Moldovan media) to Kazakhstan’s President Nursultan Nazarbayev asking the Government of Kazakhstan to investigate the Statis’ business activities in the country.
More than half a dozen different Kazakhstani government agencies begin carrying out a number of inspections and audits of TNG and KPM, in what an international arbitration panel later described as “a string of measures of coordinated harassment”. Among other things, this resulted in false accusations of illegal conduct, the criminal prosecution of KPM’s general director and criminal charges against three other executives of TNG and KPM.
Assets of Tristan Oil’s Owners Are Seized by Kazakhstan
Kazakhstan strips KPM and TNG of their sub-soil licenses and presents the Statis’ local companies with hundreds of millions of dollars in unwarranted tax assessments and criminal penalties, which ultimately leads to a total seizure and expropriation of the Stati’s assets in Kazakhstan.
The assets in question are subsequently transferred to the Kazakhstan’s state-owned oil and gas company KazMunaiGas (KMG) for free.
The Stati Parties Launch a Legal Battle in Stockholm under the ECT
In an effort to recover their substantial losses suffered as a result of the expropriation of their assets, the Stati Parties file a claim against the Republic of Kazakhstan under the auspices of the Energy Charter Treaty (ECT) before an international arbitration tribunal constituted under Swedish arbitration rules.
Sharing Agreement between the Stati Parties and the Bondholders
A sharing agreement between Tristan Oil’s bondholders and the Stati Parties is signed.
This agreement stipulates that any future recovery under the then pending ECT arbitration shall be split with approximately 70% of the future award proceeds going to the bondholders, and the remaining 30% to the Stati Parties. The Stati Parties agree to take the lead in enforcing the future award.
The Stati Parties Secure an Arbitral Award Requiring Kazakhstan to Pay Compensation of More Than US$ 500 Million
The Tribunal holds that Kazakhstan has violated its obligations under the ECT and awards the Stati Parties damages of approximately US$ 500 million, plus costs and interest.
“[Kazakhstan’s] measures, seen cumulatively in context to each other and compared with the treatment of the Claimants’ investments before the Order of the President of the Republic [Nursultan Nazabayev] on 14/16 October 2008, constituted a string of measures of coordinated harassment by various institutions of [Kazakhstan]. These measures must be considered as a breach of the obligation to treat investors fairly and equitably, as required by Art 10(1) ECT”.
The Award is Upheld by a Swedish Appellate Court
The Svea Court of Appeal in Sweden upholds the award in full by dismissing all of the challenges (including based on the fraud allegations) brought by Kazakhstan against the award and refuses the right to appeal its judgment to the Swedish Supreme Court.
Pre-Judgment Attachments Levied on Kazakhstan’s Property in Luxembourg
The bailiff in Luxemburg places a freeze on Kazakhstan’s 40% stake in Eurasian Resources Group, formerly publicly listed company ENRC, which was taken private in 2013 valued at £3.1 billion. In addition, dividends owed to Kazakhstan by ERG in the sum of US$ 48 million are frozen as a result of this attachment.
Swedish Court Grants Attachment of Kazakh State Assets in Sweden
The Stockholm District Court allows the Stati Parties to attach any Kazakh state assets on Swedish soil as an enforcement measure under the award.
Dutch Court Grants a US$ 5.2 billion Attachment of Kazakhstan’s Stake in the Kashagan Oil Field
The Amsterdam District Court grants a US$ 5.2 billion asset attachment of Kazakhstan’s stake in the Kashagan oil field, held via the sovereign wealth fund JSC Samruk-Kazyna’s (Samruk-Kazyna) 50% shareholding in the Dutch entity KMG Kashagan B.V., as an enforcement measure under the award.
The Kashagan oil field is one of the largest offshore oilfields in the Caspian Sea. The international consortium that has developed the field includes Eni, Royal Dutch Shell, Total, ExxonMobil, China National Petroleum Corporation, and Inpex.
Brussels Court Sanctions an Attachment Order Targeting National Fund Assets Held by BNY Mellon
The Brussels Court of First Instance makes an attachment order as sought by Stati Parties. The said order was served on BNY Mellon as global custodian of Kazakhstan’s National Fund assets leading to BNY Mellon freezing US$ 22.6 billion in assets of the National Fund (comprising about 40% of the Fund’s entire portfolio).
This attachment is believed to be the largest in legal history.
The Swedish Supreme Court Upholds the Award
The Swedish Supreme Court upholds the Award for the first time and rejects Kazakhstan’s extraordinary review application against the Svea Court of Appeal judgment from December 9, 2016.
Dutch Court Upholds the Kashagan Shares Attachment
Swedish Court Confirms Attachment of Kazakh State Assets in Sweden
The Stockholm District Court upholds its previous decision from August 21, 2017 allowing the Swedish bailiff to levy attachments on Kazakh state property on Swedish soil by dismissing Kazakhstan’s challenges to the original ruling.
U.S. Federal Court Confirms the Award
The federal district court in Washington, D.C. rules that the Award is valid and enforceable as a binding U.S. judgment following an application by the Stati Parties to confirm the award on U.S. soil. In doing so, the U.S. court rejects the fraud allegations brought forward by Kazakhstan.
Kazakhstan Loses Appeal Against the Belgian Attachment Order
The Brussels Court of First Instance rejects Kazakhstan’s and NBK’s appeals against the original attachment order with respect to the National Fund assets held by BNY Mellon granted on October 11, 2017. With the Stati Parties’ consent, the Court reduces the attachment value from US$ 22.6 billion to US$ 530 million given the then size of the award.
The Stati Parties Discontinue the Award Recognition Proceedings in England
The Court of Appeal in England allows the Stati Parties to discontinue the English award proceedings for recognition of the award, after the High Court had initially granted Kazakhstan’s application for a trial based on the fraud allegations.
The Rome Court of Appeal Recognizes the Award
The Rome Court of Appeal recognizes the Award in Italy, dismissing all of Kazakhstan’s challenges to the award (including based on the fraud allegations).
U.S. Federal Court Tosses Kazakhstan’s RICO Complaint
The federal district court in Washington, D.C. dismisses Kazakhstan’s complaint against the Stati Parties filed pursuant to the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Act by describing this lawsuit as “ill-advised” and “an improper use of the auspices of this Court to revive and prolong a dispute that is over”.
U.S. Appellate Court Confirms the Award
The U.S. Court of Appeals for the District of Columbia Circuit confirms the previous court ruling from March 23, 2018 that the award is valid and enforceable as a binding U.S. judgment. The ruling states that: “We find that it was not an abuse of discretion for the District Court to deny Kazakhstan’s motion because the District Court based its ruling on multiple valid grounds. We further agree with the District Court that Kazakhstan improperly presented new facts in its motion for reconsideration that it had not introduced in its original motion to supplement.”
As a result of this ruling, any non-state immune Kazakh state assets on U.S. soil become amenable to attachment and foreclosure by the Stati Parties.
Dutch Appellate Court Confirms the Kashagan Shares Attachment for a Second Time
Swedish Court Dismisses Appeals Against US$ 93 Million Attachment Made by the Swedish Bailiff
A District Court in Stockholm dismisses Kazakhstan’s and NBK’s separate appeals against various attachment orders made by the Swedish bailiff concerning Kazakh state property in Sweden.
The assets in question represent proceeds of shareholdings and related economic rights in various Swedish listed companies owned by Kazakhstan as part of the savings portfolio of the National Fund. These proceeds are currently blocked in the Swedish bailiff’s escrow account in the sum of SEK 790,284,526 (approximately US$ 95 million) pending final resolution of the Swedish award enforcement proceedings before the Swedish Supreme Court.
The Stati Parties Ask the U.S. Court to Sanction Kazakhstan
The Stati Parties file a motion for sanctions and contempt before the federal district court in Washington, D.C. given Kazakhstan’s repeated breaches of its discovery obligations stemming from previous U.S. court orders in the local award enforcement proceedings.
This matter is currently stayed pending Kazakhstan’s compliance with its discovery obligations.
The Luxembourg Court of Appeal Grants Recognition of the Award
The Luxembourg Court of Appeal grants recognition with respect to the award. The Court finds that Kazakhstan has failed to prove the existence of any fraud. This decision is binding and enforceable as a matter of Luxembourg law notwithstanding any further appeals.
Belgian Court Grants Recognition of the Award
The Brussels Court of First Instance grants recognition with respect to the Award, dismissing all of Kazakhstan’s challenges to the award (including based on the fraud allegations).
Swedish Appellate Court Rejects Second attempt by Kazakhstan to Re-litigate the Award
The Svea Court of Appeal in Sweden dismisses Kazakhstan’s second challenge of the award filed on the basis of alleged new evidence. The award is therefore again confirmed to be final, binding and non-appealable for all intents and purposes.
U.S. Appellate Court Confirms Dismissal of the RICO Claim
English Court Rejects National Bank of Kazakhstan’s (NBK) Debt Claim Against BNY Mellon
The High Court of Justice in London rejects NBK’s US$ 530 million debt claim against BNY Mellon for the latter’s refusal to release the National Fund assets frozen as a result of the parallel Belgian enforcement proceedings, by agreeing with the Stati Parties that the decision with regards to BNY Mellon is to be determined by the Belgian courts in due course.
The Swedish Supreme Court Dismisses Kazakhstan’s second application to overturn the Award
The Swedish Supreme Court upholds the award for the second time, dismissing Kazakhstan’s application to overturn the December 9, 2016 ruling of the Svea Court of Appeal filed on the basis of alleged new evidence. The award is therefore once again confirmed to be final, binding and non-appealable for all intents and purposes.
Kazakhstan Files a Civil Complaint in New York Against Argentem Creek Partners and Its CEO
Kazakhstan files a civil complaint in New York against Argentem Creek Partners and its CEO, alleging that they had been involved in a criminal conspiracy together with the Stati Parties.
Dutch Appellate Court Grants Recognition of the Award
The Amsterdam Court of Appeals grants recognition with respect to the award, dismissing all of Kazakhstan’s challenges to the award (including based on the fraud allegations).
U.S. Federal Court Rebukes Kazakhstan for Non-Compliance with Court Orders
The federal district court in Washington, D.C. compels Kazakhstan once again to provide discovery of its assets on a worldwide basis – including assets of various Kazakh state instrumentalities such as NBK and Samruk-Kazyna.
The Judge also rebukes Kazakhstan and its legal counsel for the breaches of the previous U.S. court orders regarding discovery:
“Don’t get me wrong, the Republic of Kazakhstan had every right to litigate the petition to confirm the arbitral award, and they had every right to appeal my decision. But those proceedings are over. These are post-judgment proceedings. And the Republic of Kazakhstan and its counsel needs to get that into their heads because the level of intransigence that we’ve seen to date is not acceptable and it officially ends today.”
Kazakhstan Files a Further Case in Gibraltar Countering the Award through TNG
Kazakhstan induces TNG’s bankruptcy manager to file a further claim in Gibraltar against the Stati Parties in a renewed attempt to dispute the award decision. In this claim, Kazakhstan again alleges conspiracy, fraud and deceit; similar allegations which had already been dismissed by multiple courts in Europe and the USA.
The Dutch Supreme Court Refers Kashagan Field Asset Freeze to Lower Court for Re-Examination
The Supreme Court of the Netherlands sets aside the Amsterdam Court of Appeal’s decision on the attachment of Kazakhstan’s stake in the international consortium developing the Kashagan oil field, held via Kazakhstan’s sovereign wealth fund Samruk-Kazyna, and refers the case back to a lower court (the Hague Court of Appeal) for further consideration. Meanwhile, the Kashagan shares attachment, valued at $5.2 billion, remains fully in place.
Outrider Management joins Kazakhstan as plaintiff against Argentem Creek
Kazakhstan amends its civil complaint in New York against Argentem Creek Partners and its CEO, adding Outrider Management as a plaintiff to the case. Outrider, a small distressed-debt investor based in California, had purchased Tristan Notes with a face value of nearly US$ 48 million between 2009 and 2014 and sold the last of its notes in 2016.
Luxembourg Court Stays Local Attachment Proceedings
The Luxembourg District Court stays proceedings on the validity of the attachments of various Kazakh state assets obtained by the Stati Parties pending the outcome of the criminal proceedings initiated by Kazakhstan in Luxembourg. The attachments in question are estimated to be worth US$550 million and include Kazakhstan’s 40% shareholding in Eurasian Resources Group (ERG) and frozen dividends owed by ERG to Kazakhstan among further receivables. In the meantime, the attachments continue to remain fully in place as a security measure under the award.
Magistrate Judge finds that US asset manager for Kazakhstan’s National Fund should be compelled to produce documents detailing Kazakh holdings
Magistrate Bowler of the United States District Court in Boston has affirmed her Report and Recommendation which finds that State Street Corporation, asset manager for one of Kazakhstan’s sovereign wealth funds, should be compelled to produce certain documents, emails, details of SWIFT payments and other financial records relating to the management and custodianship of Kazakhstan National Fund assets.
The Magistrate’s Report and Recommendation was originally issued in November 2020, but State Street did not immediately comply and instead sought clarification and reconsideration.
Luxembourg Court of Cassation Refers Award Enforcement to Lower Court
The Court Of Cassation of Luxembourg concludes that the lower court incorrectly examined evidence in the award enforcement proceedings, and decides that the case should be re-heard by a different panel of judges at the Luxembourg Court of Appeal. The attachments of Kazakhstan’s assets in Luxembourg remain in place.
A U.S. District Judge declines a bid to halt Kazakhstan’s suit in New York
A Judge in the U.S. District Court for the District of Columbia declines a bid to halt Kazakhstan’s litigation initiated in New York against Argentem Creek and its CEO last year, finding that a court in New York may be better positioned to determine whether Kazakhstan’s claims are precluded.
The Judge previously enforced the arbitral award in 2018 and confirmed again that Kazakhstan is still subject to this valid and binding arbitration award in the United States, and that Kazakhstan’s previous complaint alleging fraud and RICO violations had failed even to state claim, and so had been dismissed.