Kornikom EOOD v. Republic of Serbia, ARB/19/12
ICSID · Investment (ICSID and treaty) · Serbia · 20 Sep 2023
Why it matters
This case is significant for its detailed analysis of whether a state's termination of a privatization agreement for alleged non-compliance constitutes expropriation under a BIT. The Tribunal clarified that contractual breaches by the investor, including failure to meet investment and business continuity obligations, can justify termination without triggering expropriation liability. It also addressed attribution of conduct by a privatization agency to the state and the application of the 'police powers' doctrine.
Summary
Kornikom EOOD, a Bulgarian company, acquired a Serbian mining company (Rudnik Kovin) through a privatization auction in 2007. The Privatization Agreement required Kornikom to invest, maintain business continuity, and comply with a social program. After several inspections, the Privatization Agency found Kornikom in breach and terminated the agreement in 2010, transferring the shares back to the state. Kornikom initiated ICSID arbitration under the Bulgaria-Serbia BIT, claiming expropriation. The Tribunal held that the termination was a lawful exercise of Serbia's regulatory powers under the privatization law, not an expropriation. It found that Kornikom had failed to meet its obligations, including investing the required amount and maintaining operations. The Tribunal also rejected claims of unfair treatment, noting that the Agency's actions were consistent with Serbian law and not arbitrary. The award dismissed all claims and ordered Kornikom to pay costs.
The detail
Parties: Kornikom EOOD v. Republic of Serbia, ARB/19/12
Case number: italaw/cases/10907
Outcome: The Tribunal dismissed all of Claimant's claims, finding no unlawful expropriation, and ordered Claimant to reimburse Respondent USD 398,118.42 in arbitration costs and USD 5,418,328 in other costs and expenses, plus simple interest.
Applicable law: Agreement between the Federal Government of the Federal Republic of Yugoslavia and the Government of the Republic of Bulgaria on Reciprocal Promotion and Protection of Investments (BIT), ICSID Convention, Serbian Law on Privatization
Issues in play: The case involved the interplay between Serbia's privatization law and the BIT's expropriation protections. Claimant argued that the termination of a privatization agreement and subsequent measures amounted to expropriation, while Respondent contended that the termination was a lawful exercise of contractual and regulatory rights.
Read the full decision at italaw ↗
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