Rumeli Teleko and Telsim Mobil v. Kazakhstan – Damages Are Tricky

Kazakhstan applied to annul the award given by the ICSID tribunal in this case under Article 52 of the ICSID Convention. Ultimately the Annulment Committee decided that the award should stand.

On the way the Annulment Committee elaborated how any Annulment Committee should assess the quantum of damages that are awarded by the tribunal, holding that regard could be had to the entire record before the tribunal when the reasons on the face of the award might be insufficient and giving a wide deference to the tribunal due to the complications inherent in assessing future loss.

The dispute concerned the alleged expropriation of Rumeli and Telsim’s 60% shareholding in KaR-Tel, a Kazakh company which won the bid for a 15 year licence to operate a second  mobile  telephone network  in Kazakhstan in violation of the Turkey – Kazakhstan BIT.

The Tribunal decided that Kazakhstan had  not accorded the claimants fair and equitable treatment and that they expropriated  Rumeli  and Telsim’s investment. It  ordered Kazakhstan to  pay  Rumeli  and  Telsim US$125 million by way of compensation, together with interest and costs.

Kazakhstan took a host of points in their application to annul the award, the most interesting of which was that the damages had been wrongly calculated in violation of Articles 52(1)(b), 52(1)(d) and 52(1)(e) of the ICSID Convention. They argued that there was no possible way to follow the tribunal’s reasoning from the materials that it had before it to the final result that it reached in valuing the damages.

The Annulment Committee stated that they understood how Kazakhstan might be concerned by the award, as there was no clear mathematical calculation undertaken by the tribunal to arrive at the figure for damages.

However, the only burden on the claimant was to prove that damages occurred. Once the question turns to valuation, the tribunal enjoyed a considerable discretion in determining issues of quantum.

This is because quantum is established on the basis of the tribunal’s estimate of the loss in the light of all available evidence. To arrive at its estimate the tribunal could compare different valuation method and were not constrained to the result of any one method. Since the result arrived by the tribunal was not unreasonable in light of these principles, the award would stand.

Read the initial award here. Read the decision on Annulment here. Two good texts on damages in investment law here and here.

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