## Facts

- AIG Capital Partners, Inc. (a U.S. investor) and CJSC Tema Real Estate Company (a Kazakh project vehicle) invested in a real estate development project in Almaty.
- The City of Almaty issued a municipal construction permit; investors funded and began development.
- Municipal authorities later rescinded the permit and cancelled the project, stating the land had been reserved for a national arboretum and the permit was issued by mistake.
- A governmental study group reportedly found no conclusive evidence of corruption but concluded the city failed to follow proper cancellation procedures and recommended reinstatement or compensation.
- The recommendations were not implemented; the relevant property interests were transferred to the City of Almaty without compensation.
- Claimants initiated ICSID arbitration under the U.S.–Kazakhstan BIT and the ICSID Convention, seeking damages for treaty breaches.

## Issues

1. Whether the permit rescission, project cancellation, and transfer of property interests substantially deprived claimants of their investment and constituted indirect expropriation under the BIT.
2. If expropriation occurred, whether it satisfied the BIT’s requirements for a lawful taking (public purpose, non-discrimination, due process, and compensation).
3. The proper measure of compensation (valuation date, methodology) and the award of interest and costs.
4. Whether objections to the tribunal’s constitution and other jurisdictional objections defeated ICSID jurisdiction or were procedurally barred.

## Decision

- The tribunal rejected Kazakhstan’s challenges to the tribunal’s constitution and affirmed jurisdiction under the BIT and ICSID Convention.
- The tribunal held Kazakhstan responsible for an indirect expropriation because state measures effectively eliminated the economic benefits of the investment.
- The expropriation was unlawful due to lack of compensation and procedural deficiencies inconsistent with the BIT’s legality conditions.
- The tribunal awarded USD 6 million in compensation plus interest (less than the approximately USD 13.5 million sought) and addressed costs in the final award.
- Allegations concerning conduct of a claimants’ associate were treated as subsidiary and did not alter state responsibility for the expropriatory measures.

## Legal Principles

- Indirect expropriation may be found where state action substantially deprives an investor of the use, enjoyment, or economic value of an investment, even without formal transfer of title.
- Characterization turns on the effect of the measures on the investment, not solely on the state’s stated regulatory justification.
- Under a typical BIT expropriation clause, a taking is lawful only if for a public purpose, non-discriminatory, conducted with due process, and accompanied by prompt, adequate, and effective compensation.
- Domestic administrative findings and procedural irregularities may be probative of whether due process was afforded and whether state action was arbitrary in the treaty sense relevant to expropriation legality.
- Valuation of incomplete, forward-looking projects may justify a reduced damages figure where expected profits are uncertain and development is partial.
- Jurisdictional objections in ICSID proceedings are subject to timing and waiver rules; late or procedurally defective objections may be barred.

## Conclusion

The tribunal concluded that Kazakhstan’s cancellation of the Almaty development and reallocation of the project land amounted to an unlawful indirect expropriation under the U.S.–Kazakhstan BIT, and it awarded the investors USD 6 million plus interest based on a cautious valuation of an incomplete project.


AIG Cap. Partners, Inc. v. Republic of Kaz., ICSID Case No. ARB/01/6, 11 ICSID Rep. 3 (2003)