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$3.7 million sanction upheld against Moldovan businessmen in UK court battle with Kazakhstan and National Bank of Kazakhstan

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An English High Court decision has dealt a decisive blow to Moldovan businessmen Anatolie and Gabriel Stati. Previously, a different judge in the same court said there was evidence the businessmen won an arbitration through fraud. The English High Court ordered, on Thursday 11 March, the Stati business group to pay the Republic of Kazakhstan and National Bank of Kazakhstan $3.7 million in legal fees, rejecting an effort by the Moldovan businessmen to overturn the award of fees, writes Colin Stevens.

This concludes proceedings before the English High Court in which the Stati Parties were unsuccessful in all stages and which relate to the Stati Parties’ ongoing attempts to enforce an arbitral award obtained against Kazakhstan (the “Award”).

In 2014, the Stati Parties obtained an ex parte order from the English High Court giving them permission to enforce the Award subject any defences raised by Kazakhstan. On 6 June 2017 Mr Justice Knowles at the English High Court found that “there is a sufficient prima facie case that the Award was obtained by fraud”. Mr Justice Knowles ordered a full 2-week trial of the fraud issue, which the Stati Parties avoided by terminating the English proceedings. In doing so, the Stati Parties told the English court that they lacked the funds to participate in the fraud trial.

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Paradoxically, the Stati Parties then started numerous new court proceedings in six other jurisdictions for which they instructed a number of local counsel and incurred significant legal expenses. In the end, the Stati Parties were allowed to terminate their attempted enforcement proceedings in England on appeal, but only on harsh conditions:  they had to agree to have their prior enforcement order set aside, undertake never to seek to enforce the Award in England again, and accept liability to compensate Kazakhstan for its litigation costs.

The Stati Parties turned to other jurisdictions where, coordinated by King & Spalding International LLP (King & Spalding), they initiated enforcement proceedings and obtained attachments. In Belgium the Stati Parties obtained a freeze of the assets of NBK held by Bank of New York Mellon (BNYM) by alleging that Kazakhstan and not NBK had a claim against BNYM in respect of such assets. The Stati Parties’ counsel wrote to BNYM that “…information available to us shows that BNY Mellon has entered into a Global Custody Agreement with the Republic of Kazakhstan…”. The Global Custody Agreement (the GCA) referred to by the Stati Parties is a contract entered into between BNYM and NBK relating to assets held on custody by BNYM London branch, governed by English law and providing for the English courts to resolve any dispute.

The Belgian court therefore referred the question of who has a claim against BNYM in respect of the assets held pursuant to the GCA to the English court, which in turn led to the proceedings that are now concluded by the default cost order. The Stati Parties lost their challenge to the jurisdiction of the English Court in December 2018.

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In April 2020, the Stati Parties lost on the merits when Mr Justice Teare inter alia found that “[t]he obligations owed by BNYM London under the GCA are owed solely to NBK (and not Kazakhstan)”. As today’s decision states: “The Stati parties sought to challenge the jurisdiction of the High Court but were unsuccessful in doing so and this led to the order made on 4 December 2018. The Stati parties were also unsuccessful in the High Court proceedings themselves and were required to pay the claimants’ [Kazakhstan and NBK] costs….”

Having lost the English proceedings, the Stati Parties were ordered to pay the costs but failed to do so. They also failed to react when their counsel King & Spalding was notified in December 2020 that, following the Stati Parties’ failure to engage with Kazakhstan and NBK, ROK and NBK were initiating detailed assessment proceedings of their costs, resulting in the default costs order being made on 6 January 2021 after their 21 days for responding had elapsed. They have now also lost on their attempt to set aside the default cost order.

Marat Beketayev, the justice minister of Kazakhstan, welcomed this decision: “We will continue to take all steps necessary to enforce the costs orders issued by the English Court and we will continue to oppose the Statis’ enforcement proceedings in other jurisdictions. Leading experts have analyzed the facts and come to the conclusion that the Award was procured by fraud and the enforcement campaign of the Statis is unlawful and unethical.”

'It does not make good reading'

In his witness statement King & Spalding partner Egishe Dzhazoyan describes that it took him two weeks to instruct cost lawyers and a further two weeks to transfer the full file: “It took my firm two weeks or so to arrange for a transfer of a copy of the entire electronic data set/file in the required .pst format (…) which was shared with [the cost lawyers] on 4 February 2021. The reason behind the slight delay was to do with the need to seek and obtain certain internal approvals from my firm’s Director of Records & Information Governance concerning collating and sharing this type of data in light of my firm’s data privacy protection policies and procedures.”

In his judgment, Costs Judge Rowley reproduced this part of the witness statement and found that “It does not make good reading”. He goes on to say: “Taking a (further) fortnight to produce a data file in what is a common format for emails in Outlook is surprising. Describing it as “a slight delay” is euphemistic and the reason given for the delay of there being an internal governance issue is both surprising and unconvincing. In circumstances where some criticism of [King & Spalding] might be levied – since that is always a possibility where a default judgment has been entered – it might be thought that priority would be given to any necessary internal approvals being obtained.” He further finds: “In my judgment, the Stati parties have failed to act with sufficient promptness…”. Applying the legal test leads Costs Judge Rowley to find that “[t]here is no doubt in my mind that the failure to comply with the time limit for serving points of dispute is a serious breach of the rules…” and that “[t]here is no good explanation for the breach.”

Fiona Gillett, the partner with conduct of the claim for ROK and NBK said: “As was recognized by Mr Justice Teare in his costs order made following his judgment on the merits dated 22 April 2020 and as was recognised by the Court of Appeal in refusing the Stati’s application for permission to appeal against the costs order, my clients were the overall successful parties and the Stati’s the unsuccessful. The default costs certificate for a sum in excess of US$3.7m stands and my clients will continue to pursue all their rights to recover their significant legal costs from the Statis.”

Another loss for the Statis

The attachment of assets of NBK in the form of cash held by BNYM on an account in London is currently under review in two Belgian proceedings. On 17 November 2020, Kazakhstan’s appeal against the Belgian exequatur decision was also upheld by the Brussel Court of Appeal, which effectively means that Kazakhstan’s fraud case will be re-opened in full. 

As reported previously, on 11 February 2021, the Luxembourg Court of Cassation annulled the Luxembourg Court of Appeal’s decision to confirm the award against Kazakhstan in its entirety. The Court of Cassation decided that the judgment of the appeal court violated due process, as it did not allow the admission of crucial evidence from KPMG, while still relying on it in its judgment. The case will now be heard again by a different chamber of the Luxembourg Court of Appeal.

Moreover, through another landmark decision dated 8 January 2021, the Luxembourg district court recognised the seriousness of the criminal complaint filed by the Republic of Kazakhstan against the Stati Parties with the Luxembourg law enforcement authorities, and stayed the validation of the Stati Parties’ title under the award until the criminal procedure comes to an end. After reviewing the evidence of the Stati Parties’ fraud and the various expert opinions submitted by Kazakhstan, the district court found that there is a sufficient nexus between Kazakhstan’s fraud case and the Stati Parties’ purported civil claims under the arbitral award against Kazakhstan. With the above discussed judgment of the Luxembourg Court of Cassation, the Stati Parties’ alleged title under the award in Luxembourg is without basis altogether.

Furthermore, on 12 December 2020, the Dutch Supreme Court nullified the judgment of the Amsterdam Court of Appeal in the summary proceedings relating to the attachment of the assets of Samruk-Kazyna Sovereign Wealth Fund in the Netherlands. The Supreme Court based its decision on the United Nations Convention on Jurisdictional Immunities of States and Their Property, finding that the sovereign immunity of Samruk-Kazyna's assets has not been disproven.

Earlier last year, the Swedish Svea Court of Appeal also based its decision on the UN Convention while finding that the attachment of NBK’s assets by the Stati Parties is not compliant with public international law obligations relating to affording immunity from execution to central banks' property.

Expert opinion

The Stati Parties’ illicit conduct and fraudulent schemes have also been confirmed by independent legal opinions of two leading experts in international arbitration, Professor George Bermann and Professor Catherine Rogers.

Professor George Bermann provided an independent opinion, analyzing the whole factual background and determining the legal implications of the parties’ conduct in the Stati dispute. Professor Bermann came to a number of conclusions, including finding that the Stati Parties operated their fraudulent machinery through a “deceptive corporate structure” and “sham companies”, by means of which the Statis were able to “enrich themselves at the expense of others”. The expert also determined that “[t]he Statis’ misconduct thus thoroughly compromised the legitimacy of the Arbitration and resulting Award, both as to liability and damages,” making the Award in question “a product of gross deceit [which] is unworthy of recognition or enforcement under the New York Convention”. In Professor Bermann’s opinion, the Statis’ “fraud did not end with the Kazakh operations, the Arbitration or the post-Award Proceedings. It is continuing today by ongoing misrepresentations in the actions pending in various courts.”

Professor Catherine Rogers also reviewed the operative facts, focusing principally on the ramifications of KPMG in August 2019 taking the extraordinary step of withdrawing all of their audit reports for the financial statements relied upon by the Stati Parties. Professor Rogers found that “the tribunal’s decision‐making would have been affected by a determination by the Stati Parties’ own independent professional auditors that their financials were completely unreliable and had been procured through material misstatements or omissions.” The expert is also of the opinion that “this new evidence would have raised independent concerns that the Stati Parties had engaged in underlying fraud and corruption that should preclude them altogether from bringing claims in investment arbitration.”

Energy

Kazakhstan joins race to produce 'green' hydrogen

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German investors intend to establish the production of “green” hydrogen in Mangystau region. The road map for the implementation of the project was signed at the meeting with the President of SVEVIND Wolfgang Kropp, organized during the visit of the Kazakh delegation headed by the Deputy Minister of Foreign Affairs of Kazakhstan Almas Aidarov to Sweden. 

SVEVIND activities are aimed at long-term investment of the company’s own and attracted funds, as part of the further development of low-carbon energy in the Republic of Kazakhstan through large-scale production of “green” hydrogen for further export to the EU countries and other foreign markets.

The investor plans to build wind and solar power plants with a capacity of 30 GW, and use these resources to produce up to 2 million tons of hydrogen per year.

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 “SVEVIND aims to combine the outstanding natural resources in Kazakhstan with SVEVIND’s long-time experience and passion in project development to supply Kazakhstan and Eurasia with green, sustainable energy and products, “powered by nature”. The green hydrogen facilities will lift Kazakhstan among the global leaders of renewable energy and green hydrogen. We are very excited to take the next step in the project development, and we are thankful for the outstanding support of the Kazakh government”, - said Wolfgang Kropp, President of SVEVIND. 

 “Hydrogen energy is one of the most promising fields that may displace all traditional methods of energy extraction in the future. Currently, we have the availability of all the required resources such as wind, solar, water, land and the know-how of SVEVIND. We are looking forward to interesting, large-scale and challenging projects moving forward”, - added the Deputy Minister of Foreign Affairs of Kazakhstan Almas Aidarov during the meeting with the Head of SVEVIND.

During the visit, the Kazakh delegation got acquainted with the progress of the company's current project in Sweden and the largest wind farm in Europe “Markbygden 1101”.

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In June this year, SVEVIND signed a Memorandum of Understanding with KAZAKH INVEST. Within the framework of the agreement, the national company and relevant government agencies will provide to the investors full support and comprehensive assistance in the implementation of the project at all stages - from obtaining permits to commissioning. 

SVEVIND is a German company with many years of experience in large-scale renewable energy projects. The company implemented Europe's largest project of an onshore wind generating complex - the Markbygden 1101 cluster of wind farms in Sweden with a capacity of more than 4 GW. The company is represented in the markets of Sweden, Finland and Germany.

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Belgium

Ombudsman for Children’s Rights of Kazakhstan Aruzhan Sain meets with her Belgian colleagues

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In order to study the best Belgian experience in the field of work with children with disabilities, social programs to support children and their families, as well as the organization of integrated and inclusive education, the Ombudsman for Children’s Rights of Kazakhstan Aruzhan Sain met with Belgian representatives in the field of children’s rights. The visit of Sain was organized with the assistance of the Embassy of Kazakhstan in Belgium.

During the meeting with the Chairperson of the National Commission on the Rights of the Child of Belgium Karin Van Laethem, the issues of coordinating the efforts of the authorities at the federal level and at the level of communities and regions of Belgium dealing with child rights issues were discussed. Due to the territorial and administrative structure of the country, independent human rights institutions of the Kingdom operate at the regional level.

In this regard, the Kazakh Ombudsman also visited the Wallonia Regional Agency for Better Life (AVIQ), as well as the Institute for Child and Family Development (IDEF), where the Belgian system of psychological, medical and social support for children with disabilities was presented in detail.

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In turn, A.Sain shared information about the work carried out in Kazakhstan to improve the quality of life of children with disabilities, the purpose of which is to build a system with a guarantee of early detection and early assistance to reduce children with disabilities. According to the Children’s Ombudsman, it is important to provide an individual approach to the treatment of children with functional impairments with the required number of services and technical means of rehabilitation. She told her Belgian colleagues about Kazakhstani reforms in the field of providing children with sports and creative circles at the expense of the state budget.

During a visit to the Royal Institute for People with Musculoskeletal Disabilities (IRAHM) in Brussels, the experience of rehabilitation programs for a child was reviewed, taking into account the characteristics of his physical condition and psychological profile.

Along with this, the Kazakh Ombudsman met with the General Commissioner for the Rights of the Child of the French Community «Wallonia-Brussels Federation» Bernard De Vos, who spoke about the integration policy in the field of inclusive education for children with developmental disabilities and the integration of migrant children. The parties agreed that there are discussions on these issues in all countries and the search for the right path. Discussing the system of prevention and early intervention, the ombudsmen of the two countries noted the importance of screening newborns and monitoring the development of young children.

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In addition, during her visit, the Children’s ombudsman A.Sain held a separate meeting with the Social Protection Adviser of the international company « Socieux + » Marzena Breza, with whom the possibilities of cooperation on the introduction of the institution of foster (professional) families were discussed.

The parties have agreed to exchange relevant information and maintain contacts in matters of protection of children's rights.

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Belgium

Inter-parliamentary dialogue between Kazakhstan and Belgium is expanding

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Ambassador of Kazakhstan to Belgium Margulan Baimukhan met with the Chairman of the House of Representatives of the Parliament of Belgium Eliane Tillieux, during which the parties discussed the current state and prospects of bilateral cooperation between Kazakhstan and Belgium.

Ambassador M. Baimukhan spoke about the ongoing political and socio-economic reforms in Kazakhstan, initiated by the President of Kazakhstan Kassym-Jomart Tokayev within the framework of the concept of «hearing state». The issues of vaccination in Kazakhstan and production of the Kazakhstani vaccine «QazVac» were also discussed.

E.Tillieux, representing the large French-speaking Socialist Party (PS) in the Belgian parliament, gave a positive assessment of the socio-political transformations and the level of vaccination of the population in Kazakhstan.

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Discussing the issues of expanding inter-parliamentary ties between the two countries, the Belgian speaker noted the growing dynamics of the inter-parliamentary dialogue between the two countries. According to her, online negotiations with the Chairman of the Majilis of the Parliament of Kazakhstan Nurlan Nigmatulin in May 2021, as well as a trilateral meeting of two speakers of the Belgian parliament with the head of the Majilis on September 8, 2021 in Vienna within the framework of the 5th World Conference of Speakers of Parliaments gave an additional impetus to development of the inter-parliamentary dialogue.

The parties also welcomed the ongoing development of cooperation between the parliamentary friendship groups. The last meeting of the Chairman of the Committee on International Affairs, Defense and Security of the Majilis of the Parliament Aigul Kuspan with the Head of the Interparliamentary Group on Cooperation «Belgium - Central Asia» Tim Vandenput was held in June 2021.

In the context of economic diplomacy, the parties welcomed the upcoming visit of Belgian enterprises to Kazakhstan, planned in November 2021 with the support of the Belgian investment agencies AWEX and FIT. Today, Belgium is one of the largest investors in the economy of Kazakhstan, the volume of Belgian investments is more than 9 billion US dollars.

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A separate topic of conversation was the development of civil society, gender equality in Kazakhstan, higher education, ecology, regional security and the situation in Afghanistan. The Belgian politician, noting the significant role of women in political life, welcomed the growing number of women in the Kazakh Parliament and political parties. In addition, the situation around the Aral Sea, Kazakhstan’s efforts to combat climate change in the context of the upcoming UN Conference on Climate Change in Glasgow (COP-26) aroused a certain interest in E.Tillieux. Answering questions, the Kazakh diplomat also spoke about the international initiatives of the First President of Kazakhstan - Elbasy Nursultan Nazarbayev in the nonproliferation of nuclear weapons and the Semipalatinsk nuclear test site, the 30th anniversary of its closure is marked this year.

At the end of the meeting, Ambassador M. Baimukhan reaffirmed the invitation of the Kazakh side for the Belgian Speaker E.Tillieux and the Belgian deputies to pay an official visit to Kazakhstan.

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