Caratube International Oil Company LLP v. Republic of Kazakhstan (I)
ICSID · Investment (ICSID and treaty) · Kazakhstan · 5 Jun 2012
Why it matters
This case is a landmark on the 'foreign control' exception under ICSID Article 25(2)(b), clarifying that a locally incorporated company can only access ICSID if it is owned or controlled by nationals of another Contracting State. The Tribunal set a high bar for proving control and contribution, requiring evidence of actual decision-making power and financial contribution. It also addressed the burden of proof and the timing of nationality requirements.
Summary
Caratube International Oil Company LLP (CIOC), a Kazakh limited liability partnership, initiated ICSID arbitration against the Republic of Kazakhstan under the U.S.-Kazakhstan Bilateral Investment Treaty (BIT). CIOC claimed that Kazakhstan expropriated its investment in an oil field and subjected it to harassment and intimidation. Kazakhstan objected to jurisdiction, arguing that CIOC was not a 'national of another Contracting State' under the ICSID Convention because it was a Kazakh company and not owned or controlled by a U.S. national. The Tribunal had to determine whether CIOC could be treated as a U.S. national under Article 25(2)(b) of the ICSID Convention, which allows a juridical person that is a national of the host state to be treated as a national of another state if it is under foreign control. The BIT's Article VI(8) similarly requires that the company be owned or controlled by a U.S. national. The Tribunal found that the relevant time for assessing nationality was immediately before the events giving rise to the dispute, which it identified as mid-2007. The ultimate owner of CIOC was Devincci Hourani, who claimed U.S. nationality. However, the Tribunal found that Hourani had not proven his U.S. nationality at the relevant time, as he held a Jordanian passport and his U.S. citizenship was not established. Moreover, even if Hourani were a U.S. national, the Tribunal found that he did not own or control CIOC: he held only 10% of the shares indirectly, and the majority was held by a Jordanian company. The Tribunal also found that Hourani did not make any significant contribution to CIOC's investment; his personal guarantee was insufficient. Consequently, the Tribunal declined jurisdiction and dismissed all claims. It ordered CIOC to pay Kazakhstan USD 3.2 million in costs, noting that much of the proceedings on the merits could have been avoided had Kazakhstan requested bifurcation of jurisdiction.
The detail
Parties: Caratube International Oil Company LLP v. Republic of Kazakhstan (I)
Case number: ICSID Case No. ARB/08/12
Outcome: The Tribunal declined jurisdiction because Claimant failed to prove that it was owned or controlled by a U.S. national at the relevant time. Claimant's claims were dismissed, and Claimant was ordered to pay Respondent USD 3.2 million in costs.
Quantum: 0
Applicable law: ICSID Convention; Treaty between the United States of America and the Republic of Kazakhstan concerning the encouragement and reciprocal protection of investment (1992); Vienna Convention on the Law of Treaties; Contract No. 954
Issues in play: The key issue was whether Caratube, a Kazakh company, could be treated as a U.S. national under Article 25(2)(b) of the ICSID Convention and Article VI(8) of the BIT, which requires that the company be owned or controlled by a U.S. national. The Tribunal examined the nationality of the ultimate owner, Devincci Hourani, and whether he made a contribution to the investment.
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