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424 Pages·2017·14.18 MB·English

International Centre for Settlement of Investment Disputes
____________________________________________________________________________

Caratube International Oil Company LLP
and
Mr. Devincci Salah Hourani
Claimants

v.

Republic of Kazakhstan
Respondent

ICSID Case No. ARB/13/13

____________________________________________________________________________
AWARD
____________________________________________________________________________

Rendered by an Arbitral Tribunal composed of
Dr. Laurent Lévy, President
Prof. Laurent Aynès, Arbitrator
Dr. Jacques Salès, Arbitrator

Secretary of the Tribunal
Ms. Milanka Kostadinova

Assistant to the Tribunal
Dr. Silja Schaffstein

Date of Dispatch to the Parties: September 27, 2017
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS ............................................................................................................... IV
TABLE OF CASES ............................................................................................................................... VII
I. INTRODUCTION ............................................................................................................................. 1
A. THE PARTIES AND OTHER ACTORS ................................................................................................. 1
1. The Claimants........................................................................................................................ 1
2. The Respondent .................................................................................................................... 2
3. The Ministry of Energy and Mineral Resources of the Republic of Kazakhstan ................... 3
4. The Committee on Geology and Subsoil Resources Management ...................................... 4
5. The Western Kazakhstan Territorial Administration of Geology and Subsoil Use ................ 4
6. JOR Investment Inc. SAL ...................................................................................................... 5
II. THE FACTS ..................................................................................................................................... 5
A. THE CONTRACT ............................................................................................................................ 5
B. THE WORK PROGRAMS UNDER THE CONTRACT ............................................................................ 12
C. THE PERFORMANCE OF THE CONTRACT ........................................................................................ 14
D. THE TWO-YEAR EXTENSION OF THE EXPLORATION PERIOD IN 2007 ............................................... 19
E. TERMINATION OF THE CONTRACT ................................................................................................. 22
F. POLITICAL CONTEXT .................................................................................................................... 28
G. DISPUTE RESOLUTION PROCEDURES IN RELATION WITH THE PRESENT DISPUTE .............................. 31
III. PROCEDURAL HISTORY ............................................................................................................ 32
IV. THE PARTIES’ PRAYERS FOR RELIEF ..................................................................................... 63
A. THE CLAIMANTS' PRAYER FOR RELIEF .......................................................................................... 63
B. THE RESPONDENT'S PRAYER FOR RELIEF .................................................................................... 65
V. DISCUSSION ................................................................................................................................ 67
A. PRELIMINARY MATTERS ....................................................................................................... 68
1. Law applicable to the merits ................................................................................................ 68
a. The Claimants’ position ................................................................................................................ 68
i. Customary international law ................................................................................................... 68
ii. The Foreign Investment Law .................................................................................................. 68
iii. The Contract ........................................................................................................................... 69
iv. Kazakh law ............................................................................................................................. 69
b. The Respondent’s position ........................................................................................................... 71
c. Analysis ........................................................................................................................................ 73
2. Burden of proof .................................................................................................................... 76
a. The Claimants’ position ................................................................................................................ 76
b. The Respondent’s position ........................................................................................................... 77
c. Analysis ........................................................................................................................................ 79
i
B. JURISDICTION ......................................................................................................................... 86
1. Abuse of process ................................................................................................................. 87
a. The Respondent’s position ........................................................................................................... 87
b. The Claimants’ position ................................................................................................................ 93
c. Analysis ........................................................................................................................................ 99
2. Statute of limitations .......................................................................................................... 106
a. The Respondent’s position ......................................................................................................... 106
b. The Claimants’ position .............................................................................................................. 109
c. Analysis ...................................................................................................................................... 111
3. Collateral estoppel ............................................................................................................. 116
a. The Respondent’s position ......................................................................................................... 116
b. The Claimants’ position .............................................................................................................. 120
c. Analysis ...................................................................................................................................... 124
4. Res judicata ....................................................................................................................... 130
a. The Respondent’s position ......................................................................................................... 130
b. The Claimants’ position .............................................................................................................. 133
c. Analysis ...................................................................................................................................... 135
5. Jurisdiction over CIOC’s claims ......................................................................................... 138
a. The Claimants’ position .............................................................................................................. 138
i. Under the ICSID Convention ................................................................................................ 138
ii. Under the Contract ............................................................................................................... 147
iii. Under the FIL ........................................................................................................................ 148
b. The Respondent’s position ......................................................................................................... 158
i. Under the ICSID Convention ................................................................................................ 158
(a) CIOC does not meet the requirements of Article 25(2)(b) of the ICSID Convention ..... 158
(b) CIOC did not make an investment within the meaning of Article 25(1) of the ICSID
Convention ................................................................................................................... 162
(c) The Respondent has not consented to ICSID Arbitration of CIOC’s claims through the
FIL ................................................................................................................................ 163
ii. Under the Contract ............................................................................................................... 163
iii. Under the FIL ........................................................................................................................ 164
c. Analysis ...................................................................................................................................... 171
6. Jurisdiction over Mr. Devincci Hourani’s claims ................................................................ 191
a. The Claimants’ position .............................................................................................................. 191
i. Under the ICSID Convention ................................................................................................ 191
ii. Under the FIL ........................................................................................................................ 195
b. The Respondent’s position ......................................................................................................... 196
i. Under the ICSID Convention ................................................................................................ 196
ii. Under the FIL ........................................................................................................................ 201
c. Analysis ...................................................................................................................................... 203
C. CIOC’S CLAIMS FOR ALLEGED BREACHES OF THE RESPONDENT’S OBLIGATIONS .. 205
1. The Claimants’ position ..................................................................................................... 205
a. The alleged expropriation ........................................................................................................... 205
b. The alleged breach of the Respondent’s obligation to compensate the Claimants .................... 212
c. The alleged breaches by the Respondent of the fair and equitable treatment standard ............ 213
ii
d. The alleged breaches by the Respondent of the standard of protection against arbitrariness,
unreasonableness and discrimination ........................................................................................ 216
e. The alleged breaches by the Respondent of the standard of full protection and security .......... 216
f. The alleged breaches by the Respondent of specific commitments ........................................... 216
2. The Respondent’s position ................................................................................................ 217
a. The Claimants obtained the Contract extension through misrepresentation .............................. 217
b. The Respondent rightfully terminated the Contract .................................................................... 219
c. There was no harassment, no expropriation and no state action ............................................... 237
d. The Respondent has no liability to the Claimants ...................................................................... 240
3. Analysis ............................................................................................................................. 247
a. CIOC’s expropriation claim ......................................................................................................... 248
i. The applicable standard ....................................................................................................... 248
ii. Application to the present case ............................................................................................. 251
(a) The unreasonable substantial deprivation of existing rights ......................................... 251
(b) Duration........................................................................................................................ 278
(c) Sovereign act ............................................................................................................... 278
(d) The lawfulness of the expropriation .............................................................................. 288
b. CIOC’s claim for compensation .................................................................................................. 288
c. CIOC’s other claims regarding the Respondent’s alleged breaches of its obligations ................ 289
D. DAMAGES .............................................................................................................................. 289
1. The Claimants’ position ..................................................................................................... 289
a. Compensatory damages ............................................................................................................ 289
b. Moral damages .......................................................................................................................... 304
2. The Respondent’s position ................................................................................................ 307
a. Compensatory damages ............................................................................................................ 309
b. Moral damages .......................................................................................................................... 324
3. Analysis ............................................................................................................................. 329
a. Compensatory damages ............................................................................................................ 329
i. The applicable standard ....................................................................................................... 329
ii. Categories of compensable losses ....................................................................................... 335
(a) Lost profits .................................................................................................................... 335
(b) Lost opportunity ............................................................................................................ 353
(c) Sunk investment costs ................................................................................................. 358
b. Moral damages .......................................................................................................................... 368
E. INTEREST .............................................................................................................................. 369
1. The Claimants’ position ..................................................................................................... 369
2. The Respondent’s position ................................................................................................ 371
3. Analysis ............................................................................................................................. 372
F. COSTS .................................................................................................................................... 376
1. The Claimants’ position ..................................................................................................... 376
2. The Respondent’s position ................................................................................................ 378
3. Analysis ............................................................................................................................. 382
G. DECISION............................................................................................................................... 386

iii
TABLE OF ABBREVIATIONS
AWP Annual Work Program
BIT or Treaty Bilateral Investment Treaty; specifically, the Bilateral Investment
Treaty concluded between the United States of America and the
Republic of Kazakhstan Concerning the Encouragement and
Reciprocal Protection of Investment, dated 19 May 1992
Caratube Caratube International Oil Company LLP
Caratube I Caratube International Oil Company LLP v Republic of Kazakhstan;
arbitration ICSID Case No. ARB/08/12
CCC Consolidated Contractors (Oil and Gas) Company S.A.L.
CDC The Central Committee on Development of Deposits of the MEMR (the
Central Development Committee)
CER Caspian Energy Research Limited Liability Company
CIOC Caratube International Oil Company LLP
Claimants Up to the decision on jurisdiction: Caratube International Oil Company
LLP and Mr. Devincci Salah Hourani. Thereafter: Caratube
International Oil Company LLP
Contract Contract [No. 954] for the Exploration and Production of Hydrocarbons
within Blocks XXIV-20-C (partially); XXIV-21-A (partially), including
Karatube Field (oversalt) in Baiganin District of Aktobe Oblast of the
Republic of Kazakhstan between Ministry of Energy and Mineral
Resources (Competent Authority) and Consolidated Contractors (Oil
and Ga) Company S.A.L. (Contractor), dated 27 May 2002
Counter Memorial The Respondent's Counter Memorial on Jurisdiction and the Merits
dated 20 March 2015
CRP Cessation risk premium
Decision on The Tribunal’s Decision on the Claimants’ Request for Provisional
Provisional Measures dated 4 December 2014
Measures
Decision on The Tribunal’s Decision on the Claimants’ Request for the Production
“Leaked of “Leaked Documents” dated 27 July 2015
Documents”
Defense on The Claimants’ Defense on Jurisdiction dated 17 September 2015
Jurisdiction
DCF Discounted cash flow
DLOM Discount for lack of marketability
Exh. C- Claimants’ Exhibits
iv
Exh. CLA- Claimants' Legal Exhibits
Exh. R- Respondent’s Exhibits
Exh. RL- Respondent’s Legal Exhibits
Extended MWP Revised Minimum Work Program agreed between CIOC and MEMR for
the two-year extension period, dated 23 April 2007
FCP First Calgary Petroleum
FET Fair and equitable treatment
FIL Foreign Investment Law
FMV Fair market value
fn Footnote
FRV Full reparation value
FSU Former Soviet Union
Geology The Committee on Geology and Subsoil Resources Management
Committee
GT Grant Thornton
ICSID International Centre for Settlement of Investment Disputes
IFM IFM Resources, Inc.
ILA International Law Association
ILC Articles International Law Commission, Draft Articles on Responsibility of
States for Internationally Wrongful Acts with comments, November
2001, Supplement No. 10 (A/56/10), chap. IV.E.1
IRR Internal rate of return
JOR JOR Investment Inc. SAL
KNB National Security Service of the Republic of Kazakhstan
Law on Oil Kazakh Law on Oil of 28 June 1995
Memorial The Claimants' Memorial dated 19 September 2014
MEMR The Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan
MFN Most-Favored Nation clause
MT Metric tonnes
v
MWP Minimum Work Program
NPV Net present value
p./pp. Page(s)
para./paras. Paragraph(s)
PCIJ Permanent Court of International Justice
PO1 Procedural Order No. 1 dated 20 June 2014
PO2 Procedural Order No. 2 on the Claimants’ Document Production
Requests on Jurisdiction dated 24 July 2015
PO3 Procedural Order No. 3 on the Parties’ Remaining Document
Production Requests dated 31 August 2015
PO4 Procedural Order No. 4 on the Respondent’s Supplemental Document
Production Requests dated 14 September 2015
Request for The Claimants’ Request for Arbitration dated 5 June 2013
Arbitration
Respondent The Repulic of Kazakhstan
Respondent’s First The Respondent’s First Post-Hearing Brief dated 4 March 2016
Post-Hearing Brief
Respondent’s The Respondent’s Reply Post-Hearing Brief dated 13 May 2016
Reply Post-
Hearing Brief
Revised Work Revised Minimum Work Program agreed between CIOC and MEMR for
Program the two-year extension period, dated 23 April 2007
SPE-PRMS Society of Petroleum Engineers Petroleum Resources Management
System
Tr. [page:line] Transcript of the hearing on jurisdiction and the merits
TU Zapkaznedra The Western Kazakhstan Territorial Administration of Geology and
Subsoil Use, based in Aktobe
UNCITRAL United Nations Commission on International Trade Law
US United States of America
Vienna Convention Vienna Convention on the Law of Treaties, concluded at Vienna on 23
May 1969
World Bank The World Bank Group, Legal Framework for the Treatment of Foreign
Guidelines Investment: Volume II, Report to the Development Committee and
Guidelines on the Treatment of Foreign Direct Investment dated 21
September 1992

vi
TABLE OF CASES
Exhibit
Short Name Full Name
Number
Asian Agricultural Products Ltd. v Republic of As cited in
AAPL v Sri Lanka Sri Lanka, ICSID Case No. ARB/87/3, Final Rumeli,
Award, 27 June 1990 CLA-16
AES Summit Generation Limited and AES-Tisza
AES v Kazakhstan Erömü Kft. v Hungary, ICSID Case No. RL-141
ARB/07/22, Award, 23 September 2010
AIG Capital Partners, Inc. and CJSC Tema Real
Estate Company v Republic of Kazakhstan,
AIG CLA-4
ICSID Case No. ARB/01/6, Award, 7 October
2003
Aguas del Tunari S.A. v Republic of Bolivia,
ICSID Case No. ARB/02/3, Decision on
Aguas del Tunari v Boliva CLA-245
Respondent’s Objections to Jurisdiction, 21
October 2005
Alan Craig v Ministry of Energy of Iran; Water
Engineering Service (Mahab); Khuzestan Water
and Power Authority (KWPA); Khadamat Iran-
Alan Craig Zemin Engineering Consultant Services CLA-205
Company (KIZ), Iran – United States Claims
Tribunal Case No. 346, Award, 2 September
1983
Amco Asia Corporation and others v Republic of
AMCO II Indonesia, ICSID Case No. ARB/81/1, Award, 5 CLA-98
June 1990
Apotex Holdings Inc. and Apotex Inc. v United
Apotex III States of America, ICSID Case No. RL-49
ARB(AF)/12/1, Award, 25 August 2014
Franck Charles Arif v Republic of Moldova,
Arif ICSID Case No. ARB/11/23, Award, 8 April RL-160
2013
Anatolie Stati, Gabriel Stati, Ascom Group S.A.,
Terra Raf Trans Trading Ltd. v Republic of
Ascom CLA-33
Kazakhstan, SCC Case No. 116/2010, Award,
19 December 2013
Autopista Concesionada de Venezuela, C.A. v
Aucoven Bolivarian Republic of Venezuela, ICSID Case CLA-257
No. ARB/00/5, Decision on Jurisdiction, 27
vii
September 2001
Azurix Corp. v Argentine Republic, ICSID Case
Azurix v Argentina CLA-86
No. ARB/01/12, Award, 14 July 2006
Ann Eulogia Garcia Cadiz (Loretta G. Barberie) As cited in
Barberie v Venezuela v Venezuela, American-Venezuela Commission, Gentini,
1890 CLA-204
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v
Bayindir Islamic Republic of Pakistan, ICSID Case No. RL-122
ARB/03/29, Award, 27 August 2009
S.A.R.L. Benvenuti & Bonfant v People's
Benvenuti & Bonfant v
Republic of the Congo, ICSID Case No. CLA-123
Congo
ARB/77/2, Award, 8 August 1980
Biwater Gauff (Tanzania) Limited v United
Biwater Gauff v Tanzania Republic of Tanzania, ICSID Case No. CLA-101
ARB/05/22, Award, 24 July 2008
Cable Television of Nevis, Ltd. and Cable
Television of Nevis Holdings, Ltd. v Federation
Cable Television Nevis CLA-131
of St. Kitts and Nevis, ICSID Case No.
ARB/95/2, Award, 16 December 1996
Caratube International Oil Company LLP v
Caratube I arbitration Republic of Kazakhstan, ICSID Case No. CLA-8
ARB/08/12, Award, 5 June 2012
CCL v Republic of Kazakhstan, SCC Case
CCL v Kazakhstan CLA-288
122/2001, Jurisdictional Award, 2003
Cementownia "Nowa Huta" S.A. v Republic of
Cementownia “Nowa Huta”
Turkey, ICSID Case No. ARB(AF)/06/2, Award, RL-31
S.A. v Turkey
17 September 2009
Case Concerning the Factory at Chorzów
Chorzów Factory (Germany v Poland), ICJ Reports Series A. No. CLA-102
17, 13 September 1928
CME Czech Republic B.V. (The Netherlands) v
CME v Czech Republic Czech Republic, UNCITRAL, Final Award, 14 RL-199
March 2003
CMS Gas Transmission Company v Argentine
Republic, ICSID Case No. ARB/01/8, Decision
CMS CLA-188
of the Tribunal on Objections to Jurisdiction, 17
July 2003
Desert Line Projects LLC v Republic of Yemen,
DLP v Yemen ICSID Case No. ARB/05/17, Award, 6 February CLA-34
2008
viii
Europe Cement Investment and Trade S.A. v
Europe Cement Republic of Turkey, ICSID Case No. RL-30
ARB(AF)/07/2, Award, 13 August 2009
Venezuela Holdings B.V. and others v
Exxon Mobil Bolivarian Republic of Venezuela, ICSID Case RL-181
No. ARB/07/27, Award, 9 October 2014
Gemplus, S.A., SLP, S.A. and Gemplus
Industrial, S.A. de C.V. v United Mexican States,
ICSID Case No. ARB(AF)/04/3, and Talsud,
Gemplus v Mexico CLA-115
S.A. v United Mexican States, ICSID Case No.
ARB(AF)/04/4, Award in Conjoined Arbitrations,
16 June 2010
Alex Genin and others v Republic of Estonia,
Genin ICSID Case No. ARB/99/2, Award, 25 June RL-136
2001
Gentini Case (of a general nature), Italian-
Gentini CLA-204
Venezuelan Mixed Commission, 1903
Antoine Goetz and others v Republic of Burundi,
Goetz ICSID Case No. ARB/95/3, Award, 10 February CLA-301
1999
Gold Reserve Inc. v Bolivarian Republic of
Gold Reserve v Venezuela Venezuela, ICSID Case No. ARB(AF)/09/1, CLA-307
Award, 22 September 2014
Henderson v Henderson, High Court of
Chancery, 3 Hare 100, [1843] EngRC 917,
Henderson v Henderson RL-38
(1843) 67 E.R. 313, Sir James Wigram VC, 20
July 1843
As cited in
Inceysa Vallisoletana S.L. v Republic of El
Europe
Inceysa Salvador, ICSID Case No. ARB/03/26, Award, 2
Cement,
August 2006
RL-30
Interocean Oil Development Company and
Interocean Oil Exploration Company v Federal
Interocean v Nigeria Republic of Nigeria, ICSID Case No. CLA-207
ARB/13/20, Decision on Preliminary Objections,
29 October 2014
James M. Saghi, Michael R. Saghi and
others v Islamic Republic of Iran, Iran – United
James M Saghi v Iran CLA-305
States Claims Tribunal Case No. 298, Award,
22 January 1993
KT Asia Investment Group KT Asia Investment Group B.V. v Republic of RL-83
ix