In late March, the High Court of Justice in London decided to carry out hearings for a legal case remotely for the first time in history. The proceedings of the case pitting Kazakhstan’s government and its Central Bank against Moldovan investor Anatolie Stati’s companies and partners were livestreamed in an effort not to delay justice during the COVID-19 pandemic. “The courts exist to resolve disputes,” Justice Nigel Teare said in a statement.
On April 22, the judge said the court agreed with the Kazakh side that the country’s Central Bank cannot be considered the same entity as the government, and therefore it had no obligation to pay the Moldovan investor with assets from the National Fund.
The legal war between Stati’s side and Kazakhstan’s government arose from an oil investment gone awry in 2010, when government agencies confiscated two oil operations in Mangistau, in the west of Kazakhstan. Through his companies Ascom Group and Terra Raf Trans Trading, Stati had acquired the licenses for the fields in 1999, through Tristan Oil, registered in the British Virgin Islands. In 2008, however, business relations turned political when Stati and then-President of Moldova Vladimir Voronin fell out. In a letter leaked to the Moldovan press, Voronin essentially asked then-President of Kazakhstan Nursultan Nazarbayev to take away Stati’s businesses.
Government pressure from Kazakhstan led Stati to abandon the business venture. In an effort to recover his investment, however, Stati started a legal battle at the commercial court in Stockholm. In 2013, the arbitration awarded Stati compensation of around $500 million, which Kazakhstan’s government should have paid. The decision was made within the framework of the Energy Charter Treaty, an international agreement used as a protective instrument by investors. Kazakhstan signed the Treaty in 1994 and has been under its regulatory umbrella since 1998.
Through the years, however, Kazakhstan’s government refused to pay, alleging several violations in the legal spat. The reaction from the Stati side made international headlines in late 2017, when a Belgian court froze part of the assets of the government’s National Fund, held by the Belgium-registered subsidiary of the Bank of New York Mellon (BNYM) at its Brussels and London divisions. Since then, the skirmishes in court have become a full-fledged war.
In several jurisdictions in Europe and the United States, both sides sued and countersued each other. In late 2019, Kazakhstan’s side argued that the annual reports that the Stati side based its claims on were not reliable. KPMG, the auditing firm, admitted to have validated several reports that were based on inaccurate information. After withdrawing the audit reports on 18 of the statements by Stati-controlled companies in Kazakhstan over a period of three years, KPMG said that “one should not rely on audit reports issued by KPMG Audit LLC.” Still, the U.S. Supreme Court rejected the appeals that Kazakhstan had filed to invalidate the lawsuit.
Different legal proceedings, however, led to different battles on several fronts. Both sides have “lost” and “won” throughout the years. In early March, importantly, a court in Sweden rejected another appeal from Kazakhstan.
During the virtual trial, the High Court considered an argument brought in jointly by the Kazakhstan’s government and Central Bank. They essentially claimed that BNYM has obligations regarding Kazakhstan’s National Fund only toward the Central Bank, which legally is a separate entity from the government. As such, Stati should not be able to obtain his claim from the National Fund. Yet the court also stated that the final decision on the matter should be made by the Belgian court.
Both the Ministry of Justice and the Central Bank of Kazakhstan saluted the decision at the High Court with optimism. They could have finally succeeded in detaching the Stati award from the assets of the National Fund.
“The court said that the frozen assets belong to a third party,” Marat Beketayev, Kazakhstan’s minister of justice, said in a statement.
The Stati side showed confidence on the ruling, as it could now concentrate on the jurisdictions that controlled the possible disbursement of the arbitral award.
“Kazakhstan and NBK’s [the Central Bank] attempts to secure the release of the National Fund assets through the English proceedings have failed,” Egishe Dzhazoyan, a partner at King & Spalding, the law firm representing Stati, told The Diplomat. “The determination of the destiny of the assets will be decided in due course by the Belgian courts. Helpful evidence emerging from these proceedings relating to the ownership of the National Fund assets, the autocratic nature of Kazakhstan’s political regime and its bad faith breach of its obligations under the Energy Charter Treaty to pay the Award, will all be brought to bear.”
While the ruling concludes the proceedings at the High Court on a favorable note for Kazakhstan, the Stati side seems to still have the better argument, especially in courts in Belgium, Sweden, and the Netherlands, where it targeted KMG Kashagan BV, which holds part of the government’s shares in Kazakhstan’s largest offshore oilfield. Long-time observers of the legal war argued that Kazakhstan is ultimately poised to lose and will eventually pay compensation to Stati. In the meantime, investors are witnessing a complex illustration of the troubled business climate in Kazakhstan.