AIG Capital Partners Inc. and another v Republic of Kazakhstan (National Bank of Kazakhstan intervening)

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMr Justice Aikens
Judgment Date20 October 2005
Neutral Citation[2005] EWHC 2239 (Comm)
Docket NumberCase No: 2004/536
Date20 October 2005

[2005] EWHC 2239 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before

Mr Justice Aikens

Case No: 2004/536

Between
(1) Aig Capital Partners, Inc
(2) Cjsc Tema Real Estate Company Limited
Claimants
and
The Republic of Kazakhstan
Defendant
(1) Abn Amro Mellon Global Securities Services B.V.
(2) Abn Amro Bank N.V.
Third Parties
The National Bank of Kazakhstan
Intervener

Mr R Salter QC, Mr D Lloyd Jones QC and Mr Paul Key (instructed by Holman Fenwick Willan, Solicitors, London) for the Claimants

Mr A Malek QC and Mr D Quest (instructed by Richards Butler, Solicitors, London) for the Defendants

Hearing dates: 26 th and 27 th July 2005

Judgment Approved by the court

for handing down

Mr Justice Aikens

A. The Main Issue

1

This case concerns a claim for state immunity by the Republic of Kazakhstan (" the RoK") and its central bank, the National Bank of Kazakhstan ("the NBK"). The Claimants have obtained an arbitration award from the International Centre for the Settlement of Investment Disputes (" ICSID") in Washington, DC, against the RoK. 1 The Award required the RoK to pay to the Claimants a total of US$ 9,951,709 plus continuing interest. The Claimants have obtained leave to register this award in the High Court under section 1 of the Arbitration (International Investment Disputes) Act 1966. 2They wish to enforce this award as a judgment by obtaining final Third Party Debt and Charging Orders against cash and securities that are held in London by the Third Parties (" AAMGS"), pursuant to a Global Custody Agreement dated 24 December 2001 with the National Bank of Kazakhstan. 3 The Claimants have already obtained Interim Orders 4 and they say that the cash and the securities are assets of the RoK that can and should be the subject of Final Orders. The National Bank of Kazakhstan intervened in the proceedings and applied to discharge both orders on the ground that the cash and securities held by AAMGS constitute "property" of the NBK and are the subject of immunity from enforcement under sections 13(2)(b) and 14(4) of the State Immunity Act 1978. 5 The Claimants say that those sections, properly construed and applied to the facts of this case, do not grant immunity, so that the Interim Orders should indeed be made Final.

2

Following an Order of Master Miller made on 25 November 2004 giving directions on the trial of the issue 6, (which was varied by a further order of Langley J on 23 February 2005), I heard argument on 26 and 27 July 2005 on whether Final Third Party Debt and Charging Orders should be made against the cash and securities held by AAMGS in the name of the NBK. No witnesses were called. It was agreed between the parties that the statements, 7 experts' reports 8 and documents before the court should all be received as evidence of the facts stated in them, subject to any comments as to weight. I was also supplied with 5 bundles of authorities. After the

succinct and very helpful oral submissions from Mr Salter QC for the Claimants and Mr Malek QC for the RoK and NBK, for which I am most grateful, I reserved judgment.

B. The Facts giving rise to the Main Issue

3

The Project and the dispute giving rise to the ICSID Arbitration.

In 1999 and 2000 the First Claimant ( "AIG") became involved in a project to develop a residential housing complex called " Crystal Village" in Almaty, in the RoK. This project was a joint venture between AIG and a Kazakhstan company called LLP Tema, which was owned and controlled by Kazakhstani principals. Those two companies together formed a joint venture company, CJSC Tema Real Estate Company, the Second Claimant. Property was purchased for the project; contracts for the construction were signed and the work begun. Then the government of the RoK announced that the project was to be cancelled because the land concerned was required for a national arboretum. In March 2000 the Almaty Oblast issued a resolution ordering the transfer of the project property to the City of Almaty, without compensation to the joint venture. 9 On 15 May 2000 the joint venture attempted to resume construction work on the site, but the City Authorities, accompanied by the police, expelled the joint venture's contractors from the property. In February 2001 the City of Almaty physically seized the project property. The ICSID Arbitration Award recorded that these actions amounted to expropriation, were arbitrary, in wilful disregard of the due process of law and "were shocking to "all sense of juridical propriety"…". 10

4

The project had been started pursuant to a Bilateral Investment Treaty between the USA and the RoK dated 19 May 1992 ("the BIT"). Article VI(4) of the BIT stated that investment disputes between an investor and the host company could be submitted to arbitration by ICSID. 11 On 3 May 2001 the two Claimants filed a request for arbitration with ICSID, claiming that the RoK had expropriated the Claimants' investment in the project. The ICSID Arbitration Tribunal was constituted on 5 October 2001. It held hearings in 2002, at which the RoK was represented by McGuireWoods, Kazakhstan LLP. The tribunal's Award was published to the parties on 7 October 2003. No part of the sums awarded to the Claimants have been paid by the RoK.

5

Under the terms of the ICSID Convention, to which the UK is also a party, each Contracting State shall recognise an arbitration award made pursuant to the ICSID Convention. Contracting States will "enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court of that State". 12 The Convention provides that "Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose

territories such execution is sought". 13 However, Article 55 of the ICSID Convention states expressly that:

"Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or any foreign State from execution".

6

The Arbitration (International Investment Disputes) Act 1966 was passed to implement the Washington Convention on the settlement of investment disputes between States and nationals of other States. Section 1(2) provides that a person seeking recognition or enforcement of an Award made pursuant to the Washington Convention (ie. an ICSID Award) "shall be entitled to have the award registered in the High Court.." subject to various matters set out in the 1966 Act. Section 2 of the 1966 Act provides that, subject to the provisions of the Act, an award registered under the Act:

"…shall, as respect the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date or registration under this Act, and, so far as relates to such pecuniary obligations –

(a) proceedings may be taken on the award,

(b) the sum for which the award is registered shall carry interest,

(c) the High Court shall have the same control over the execution of the award,

as if the award had been such a judgment of the High Court."

7

As I have said, on 2 July 2004, Langley J made an order permitting the Claimants to register the ICSID Award as a judgment.

8

The Assets against which the Claimants wish to enforce the judgment

As referred to above, AAMGS' predecessors had agreed with the RoK to hold cash and securities of the National Fund of the RoK, "as custodian and banker" 14 pursuant to a Global Custody Agreement (" GCA") dated 24 December 2001. AAMGS is now the Global custodian of cash and securities of the National Fund of the RoK. The Claimants wish to enforce the judgment against these assets insofar as they are held by AAMGS in the jurisdiction.

9

In a letter dated 22 September 2004 from AAMGS to Holman, Fenwick & Willan, solicitors for the Claimants, AAMGS stated that it held cash and securities "to the order of the NBK" in a number of jurisdictions, including England and Wales. The letter stated that the value of the cash held on behalf of the NBK within England and

Wales was £3.1 million. The value of the securities held on behalf of the NBK was stated as £91 million. 15 It is agreed that this cash and these securities form part of the assets of the National Fund of Kazakhstan (" the National Fund"). These assets were referred to (together) as " the London Assets" of the National Fund. It is also agreed that AAMGS holds the cash and securities in two separate types of account, respectively the Cash Accounts and the Securities Accounts. Under the terms of the GCA, the cash and the securities are held by AAMGS in the name of the NBK.

10

The National Bank of Kazakhstan

The Deputy Director of the Monetary Operations Department of the NBK, Mr Gerasimenko, describes the National Bank in his statement as "the central bank of Kazakhstan". 16 The NBK carries out its activities under the Law on Banks and Banking Activity of 31 August 1995 and the law on the National Bank of the Republic of Kazakhstan dated 30 March 1995. Article 1 of the latter law provides that the NBK shall be the central bank of the RoK. Article 6 states that NBK will be a distinct legal entity, with a single structure that has branch offices, representative offices and organisations. Article 7 of the same law sets out the responsibilities of the NBK. These include: the development and pursuit of the credit and monetary policy of the RoK; ensuring that payment systems function properly; currency regulation and control; and assisting towards the stability of the financial system of the RoK. 17

11

The National Fund of Kazakhstan ("National Fund") and its management.

Kazakhstan has large oil resources. In common with...

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