ICSID Tribunal Rejects Big Sky Energy's USD 460 million + Claim against Kazakhstan

By Diego Luis Alonso Massa, 2 December 2021

On 24 November 2021 an ICSID arbitral tribunal rejected a claim in excess of USD 460 million against the Republic of Kazakhstan, reports Kazakhstan’s Ministry of Justice of the Republic.

The claim had been initiated in 2017, when US-based Big Sky Energy Corporation instituted proceedings against the Republic of Kazakhstan (Big Sky Energy Corporation v. Republic of Kazakhstan, ICSID Case No. ARB/17/22) for allegedly violating the BIT between the United States of America and the Republic of Kazakhstan

Given that the ICSID award has not been made public, the precise reasons for the dispute are not yet known. Nevertheless, according to information published by UNCTAD, Big Sky Energy relied on a series of allegedly illegal actions by the Kazakh government, its courts and state agencies which led to 100% of its shares in the company Kozhan LLP allegedly being expropriated without compensation. Big Sky Energy appears to have owned Kozhan LLP through one of its Canadian subsidiaries, Big Sky Energy Kazakhstan Ltd.

It should be noted that the ICSID proceedings were suspended for several months following  a series of procedural developments related to finalising the tribunal’s constitution. In this regard, a tribunal was first constituted on 29 January 2018 with members: Michael Moser (Austrian), President, appointed by agreement of the parties; Stanimir Alexandrov (Bulgarian), appointed by the Claimant; and Rolf Knieper (German), appointed by the Respondent. However, on 30 January 2018, the Claimant lodged an application to disqualify arbitrator Rolf Knieper.

Subsequently, President Michael Moser resigned from his position and on 4 April 2018 Bernardo Cremades (Spain) accepted an appointment as President by the Chairman of the Administrative Council.  On 3 May 2018, the proposal for disqualification of arbitrator Rolf Knieper was upheld by the co-arbitrators. 

Thereafter, on 15 June 2018, Peter Tomka (Slovak) accepted his appointment as arbitrator, appointed by the Respondent. Finally, on 18 June 2018, the tribunal was reconstituted as follows: Bernardo M. Cremades (Spanish), President; Stanimir Alexandrov (Bulgarian), appointed by the Claimant; and Peter Tomka (Slovak) appointed by the Respondent, and the proceedings were resumed pursuant to ICSID Arbitration Rule 12.

As for the proceedings themselves it is worth mentioning that on 19 October 2018 the Respondent filed a request to address an objection to jurisdiction as a preliminary question.  However, on 5 December 2018 the tribunal decided that the preliminary objection to jurisdiction should be joined to the merits. 

Taking into account the press release by the Ministry of Justice of the Republic of Kazakhstan, it is to be assumed that the tribunal rejected the preliminary objection raised by Kazakhstan and asserted jurisdiction over Big Sky Energy’s dispute. 

While the substance of the award is not known, the tribunal ruled that the BIT had not been violated, thus rejecting all claims raised by Big Sky Energy, and ordered the company to pay all costs of the arbitration proceedings.

In the ICSID arbitration proceedings, Big Sky Energy was represented by Fietta LLP, and the Republic of Kazakhstan by Reed Smith, Samuel Wordsworth QC and Paul Choon Kiat Wee.

Background

Big Sky Energy Corporation (formerly China Energy Ventures Corp.), a company incorporated in the State of Nevada, USA, started operations in 2000 as an internet service provider in China. By 2003, however, it had moved into oil and gas exploration and production – mainly in Kazakhstan. 

According to the Annual Report filed with the United States Securities and Exchange Commission (SEC) for the fiscal year ended 31 December 2004, one of Big Sky Energy’s main subsidiaries, Big Sky Energy Kazakhstan Ltd (incorporated in Alberta, Canada), owned KoZhaN LLP (a Kazakh limited liability company).  

Kazakhstan’s Ministry of Energy and Mineral Resources had, in February 2003, awarded Big Sky Energy three licences for the exploration and production of hydrocarbons (in the Dauletaly, Karatal and Morskoe fields of the Atyrau region). In 2007, the company received approval from the Kazakh Ministry of Energy and Mineral Resources to export and sell its crude oil at world prices. 

According to the aforementioned Annual Report, Big Sky Energy Kazakhstan had, by August 20023, acquired 90% of KoZhaN LLP’s shares from its five original owners – all Kazakh nationals. And by November 2005, it had agreed to purchase the remaining 10% for USD 1,275,000 – with the Ministry of Energy and Mineral Resources’ approval.

However, in 2008, a domestic tribunal declared the 2003 share purchase agreement (in which Big Sky Energy acquired 90% of KoZhaN LLP’s shares) invalid after finding that the spouses of the original owners had not granted notarised consent for the sale of the shares. While in 20019, Big Sky Energy alleges it lost the remaining 10% of the shares in connection with a fictitious debt the original owners purportedly owed to KoZhaN.

In response, Big Sky filed and succeeded in a claim with the International Arbitration Court of the Juridical Centre "IUS" in 2012, recovering part of what it had invested in the acquisition of the company. But this amount was later offset by local courts in a series of proceedings related to the fictitious debt the original owners purportedly owed to KoZhaN – even though Big Sky claimed that this debt had been settled by the 10% of the shares already seized.  

Accordingly, on 7 July 2017, Big Sky Energy filed with the ICSID Secretary-General a request for arbitration against Kazakhstan under the BIT United States of America - Kazakhstan 1992 arguing that Kazakhstan had breached the BIT when its courts indirectly expropriated Kozhan's shares and related investments without adequate compensation. It claimed compensation of USD 460.1 million. 

URL: https://taobserver.com/news/72/icsid-tribunal-rejects-big-sky-energys-usd-460-million--claim-against-kazakhstan

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