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December 12, 2016

King & Spalding Client Prevails In Swedish Appeal of $500 Million Arbitration Award Against Kazakhstan

HOUSTON, Dec. 12, 2016 — King & Spalding has earned a significant international arbitration victory on behalf of clients Anatolie and Gabriel Stati and their companies, Ascom SA and Terra Raf Trans Traiding Ltd. in Sweden’s Svea Court of Appeal. On Dec. 9, the court affirmed an arbitration award on these clients’ behalf against the Republic of Kazakhstan of $506 million plus interest. The award is one of the largest ever rendered under the Energy Charter Treaty, the international framework agreement to ensure the protection of foreign investments in the energy industry throughout the Charter’s constituency.

“We are delighted that the Svea Court of Appeal thoroughly and completely rejected all grounds advanced by the Republic of Kazakhstan to challenge the arbitration award rendered by an esteemed tribunal in favor of our Moldovan clients for their mistreatment at the hands of Kazakhstan,” said Reggie Smith, head of King & Spalding’s Global Disputes practice and lead partner on the matter. “Now that Kazakhstan has lost its appeal, we are hopeful that the country will honor its commitment as a signatory to the Energy Charter Treaty to promptly pay, without further delay, the award that it owes to my clients.”

The King & Spalding cross-office team handling the arbitration and appeal consisted of international arbitration partners Smith (Houston), Ken Fleuriet (Paris), Kevin Mohr (Houston), Amy Frey (Paris), and Egishe Dzhazoyan (London); senior lawyer Heloise Herve (Paris); and associates Alexandra Rotar and Valeriya Subocheva (Moscow). King & Spalding was ably assisted by the team of Bo G.H. Nillson, Therese Isaksson and Ginta Ahrel from Stockholm’s Advokatfirman Lindahl KB, which handled advocacy before the Swedish court.

In its Dec. 9 judgment, the Svea Court of Appeal rejected all grounds argued by Kazakhstan to set aside the historic award, declined to grant leave for further appeal, and ordered Kazakhstan to pay all of the Moldovan investors’ costs in defending the appeal proceeding. The award was issued for violations of the investor protection provisions of the Energy Charter Treaty, after more than three years of arbitration proceedings. A tribunal constituted under the auspices of the Stockholm Chamber of Commerce found that Kazakhstan violated its international obligation to treat the claimants’ investments fairly and equitably. It also vindicated the claimants and their general manager of any wrongdoing while operating in Kazakhstan, and it ordered Kazakhstan to pay for the value of the investments it seized, which were substantial.

The claims arose out of Kazakhstan’s seizure of the claimants’ petroleum operations in 2010. The claimants acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan. They invested in excess of a billion dollars over the ensuing decade to turn the companies into successful exploration and production businesses. In late 2008, after the businesses had become profitable, had yielded considerable revenues for the Kazakh state, and claimants expected to start receiving dividends, more than half a dozen government agencies carried out a number of burdensome inspections and audits of the companies’ businesses that resulted in false accusations of illegal conduct directed at the claimants and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses. Kazakhstan’s actions challenged the claimants’ title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in 2010.

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