AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan
ICSID · Investment (ICSID and treaty) · Kazakhstan · 7 Oct 2003
Why it matters
This case is notable for its detailed analysis of indirect expropriation and the award of compound interest on actual expenditures to achieve 'full reparation.' It also addressed jurisdictional issues regarding the validity of the tribunal's constitution and the requirement for a legal dispute under the ICSID Convention.
Summary
AIG Capital Partners, Inc. (US) and its Kazakh joint venture, CJSC Tema Real Estate Company, invested in a residential housing project ('Crystal Air Village') in Almaty, Kazakhstan. After purchasing land and obtaining permits, the Kazakh government ordered the project halted in February 2000, claiming the land was needed for a national arboretum. Despite attempts to negotiate, the government physically seized the property in early 2001. The Claimants initiated ICSID arbitration under the US-Kazakhstan BIT, alleging expropriation. The Tribunal rejected Kazakhstan's jurisdictional objections, including that the dispute was not legal and that the tribunal was improperly constituted. On the merits, it found that the government's actions constituted indirect expropriation, violating BIT Article III. The Tribunal awarded USD 3,560,000 for actual expenditures with compound interest at 18% from June 16, 2000, to the award date, and USD 2,399,330 for lost profits (30% expected return minus interest that could have been earned on uninvested funds) with simple interest at 8% from the award date. It also ordered Kazakhstan to pay USD 1.25 million in costs. The award emphasized that compound interest was appropriate for actual outlays to ensure full reparation, while simple interest applied to the lost profits component.
The detail
Parties: AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan
Case number: ICSID Case No. ARB/01/6
Outcome: The Tribunal found that Kazakhstan's actions constituted indirect expropriation and awarded Claimants USD 3,560,000 with compound interest for actual expenditures, plus USD 2,399,330 for lost profits, and USD 1.25 million in costs.
Quantum: USD 5,959,330 plus interest and costs
Applicable law: US-Kazakhstan Bilateral Investment Treaty (1992); ICSID Convention
Issues in play: The case involved the definition of indirect expropriation under the BIT and the calculation of compensation, including compound interest for actual expenditures and simple interest for lost profits.
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