Criminal Proceedings Against Statis Cause Luxembourg Court to Stay Enforcement of Fraudulent Arbitration Award

Criminal Proceedings Against Statis Cause Luxembourg Court to Stay Enforcement of Fraudulent Arbitration Award

 On 2 December 2021, the Court of Appeal of Luxembourg ruled in favour of Kazakhstan and stayed the Stati’s efforts to recognize and enforce their fraudulent arbitral award.  The basis for the stay was the ongoing criminal court proceedings against the Statis in Luxembourg for forgery, fraud and money laundering.

This ruling comes just two weeks after the ground-breaking judgment obtained by Kazakhstan in Belgium, in which the Brussels Court of Appeal conclusively determined that the Statis have engaged in a massive fraudulent scheme, and not only obtained their arbitral award by fraud but also “deliberately misled” the Swedish courts during Kazakhstan’s prior attempt to annul the award. 

As a result of the Belgian judgment, the Statis and their counsel were compelled to lift the attachment that they had wrongfully obtained on circa $530 million of the National Bank of Kazakhstan, as reported here.

In the present Luxembourg decision, the Court of Appeal agreed with Kazakhstan that if the arbitral award was obtained by the Statis by way of fraud, "the recognition and enforcement of the arbitral award in question would be contrary to public policy, within the meaning of Article V (2) b" of the New York Convention.

In coming to its decision, the Court of Appeal determined that, according to several distinguished experts, the Statis " acted in a fraudulent manner, by knowingly altering the reality in the declarations and documents produced before the arbitration court, and then the national exequatur judge, in order to influence the decisions to be taken."

In particular, the court quotes from the following expert opinions:

"The evidence that has now become available, including the KPMG Correspondence and the false Financial Statements, clearly demonstrates the Stati Parties’ illicit conduct and bad faith. The availability of this evidence to the Arbitral Tribunal would have been critical for the determination of its jurisdiction, the admissibility of the Stati Parties’ claims and the liability of Kazakhstan."

[Expert Opinion of Prof. Christoph Schreuer dated 20 January 2020, para. 72]

"The fact that the Statis intentionally submitted false evidence to the Tribunal on such essential matters renders the Award unworthy of enforcement. Moreover, the causal link between the Statis’ fraud and the Tribunal’s findings is crystal clear. The Tribunal had accepted, almost verbatim, the Statis’ case on causation, which is now proven to be the product of deceit. At the Statis’ urging, the Tribunal also relied on a product of the Statis’ fraud, namely the KMG Indicative Offer, for its decision on the quantum of the damages relating to the construction of the LPG Plant."

[Expert Opinion of Prof. George A. Bermann dated 17 January 2021, para. 198]

"Consequently, it is certain that the content of the Award and the findings of the Arbitral Tribunal regarding its jurisdiction, liability, causation and the quantum would have been totally different.

Taking into account all of these elements, I consider, given the seriousness and importance of the fraudulent procedures used by the Stati Parties, which had not been brought to the attention of the Arbitral Tribunal, that the Arbitral Award whose recognition is sought, cannot be granted exequatur in Belgium because of a manifest and fundamental violation of international public policy."

[Expert Opinion of Prof. Bernard Hanotiau dated 29 April 2021, paras. 157 - 158]

 This decision is amongst other successes obtained by Kazakhstan in Luxembourg. As reported before, in February 2021 Luxembourg’s highest court (the Court of Cassation) reversed the recognition of the Statis' award because the lower court had not allowed a proper debate on crucial, new evidence of the Statis' fraud, namely the so-called KPMG correspondence.

Separately, in January 2021, the Luxembourg District Court had already stayed one part of the Stati Parties’ efforts to enforce their fraudulent award – their request for immediate validation of their claims under the award in connection with the release of a garnishment.

The Statis used the same law firm NautaDutilh for enforcement actions in Belgium, the Netherlands, and Luxembourg from the outset in 2017, and their efforts were globally coordinated by the law firm King & Spalding LLP, which also presented the Statis’ case in the ECT Arbitration that has now been determined to be fraudulent.

Commenting on the Luxembourg decision, the Minister of Justice of the Republic of Kazakhstan Marat Beketayev said:

“The Statis have lost in England, lost in Belgium, and now their efforts to enforce their fraudulent arbitration award in Luxembourg have been blocked until the conclusion of the ongoing criminal court proceedings against them. Prosecution of international corruption and fraud is critical to protecting the rule of law.  The Ministry of Justice reiterates that it will not rest until the Statis and their accomplices are brought to justice.”