Marco Gavazzi and Stefano Gavazzi v. Romania
ICSID · Investment (ICSID and treaty) · Romania · 18 Apr 2017
Why it matters
This case is significant for its detailed analysis of valuation methodologies for expropriated investments that are not going concerns, applying equitable objective principles rather than discounted cash flow. It also addresses the allocation of costs in ICSID arbitration, adopting a 'costs follow the event' approach and apportioning costs based on relative success in different phases. The decision on rectification corrected the quantum, highlighting procedural nuances.
Summary
The dispute arose from the privatization of Romanian steel company Socomet. In 1999, the Gavazzis contracted to acquire 70% of Socomet's shares, with Romania undertaking to restructure the company's debts. The Gavazzis alleged Romania failed to restructure the debt, froze bank accounts, and rendered the company insolvent, leading to judicial reorganization. Prior commercial arbitration found for the Gavazzis, but Romanian courts annulled that award. The Gavazzis then initiated ICSID arbitration under the Italy-Romania BIT. In the 2015 Decision on Jurisdiction, Admissibility and Liability, the Tribunal (by majority) found Romania breached the fair and equitable treatment standard and expropriated the investment, but dismissed denial of justice claims. In the 2017 Award on quantum, the Tribunal determined compensation for the expropriation. Since Socomet was not a going concern, the Tribunal rejected the discounted cash flow method and instead applied equitable objective principles, considering the investment's value based on the price paid and subsequent investments, minus certain deductions. The Tribunal also awarded loss of opportunity damages for the FET breach. It ordered Romania to pay compensation (amounts redacted in excerpts), plus compound interest from September 1, 2002. On costs, the Tribunal applied a 'costs follow the event' approach, ordering Romania to bear 100% of the Gavazzis' costs for the liability phase and 33.3% for the quantum phase. A dissenting opinion by Arbitrator Rubino-Sammartano challenged the majority's findings. A subsequent Decision on Rectification corrected the sums due.
The detail
Parties: Marco Gavazzi and Stefano Gavazzi v. Romania
Case number: ICSID Case No. ARB/12/25
Outcome: Romania ordered to pay compensation to the Claimants for breach of the fair and equitable treatment standard and expropriation under the Italy-Romania BIT, plus costs and interest.
Quantum: Compensation amount redacted in excerpts; costs and interest awarded.
Applicable law: Agreement between the Government of the Italian Republic and the Government of Romania on the Mutual Promotion and Protection of Investments (BIT), signed December 6, 1990, entered into force March 14, 1995; ICSID Convention; ICSID Arbitration Rules 2006.
Issues in play: The BIT's fair and equitable treatment standard (Article 2(3)) and expropriation provisions (Article 4) collided with Romania's sovereign right to regulate and manage state assets, particularly regarding debt restructuring and privatization obligations.
Read the full decision at italaw ↗
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