Ron Fuchs v. The Republic of Georgia
ICSID · Investment (ICSID and treaty) · Georgia · 3 Mar 2010
Why it matters
This award is significant for its detailed analysis of the provisional application of the ECT and the interaction between multiple investment treaties. It also addressed the attribution of acts of state-owned entities to the state, and the valuation of an investment in a pipeline project that was later superseded by a larger consortium. The case illustrates the challenges faced by early investors in emerging economies when larger players enter the market.
Summary
The case concerns two investors, Ioannis Kardassopoulos (Greek) and Ron Fuchs (Israeli), who invested in a joint venture to rehabilitate and operate an oil pipeline from Azerbaijan to the Black Sea through Georgia. They formed Tramex International Inc., which entered into a joint venture with Georgia's state oil company SakNavtobi, creating GTI Ltd. GTI held rights under a concession deed to develop the pipeline. However, after the discovery of large oil reserves in the Caspian, major oil companies formed the Azerbaijan International Operating Company (AIOC) to develop export routes. Georgia transferred GTI's rights to a new state-owned entity, GIOC, effectively cancelling GTI's interests. The investors sought compensation through a domestic commission, which offered far less than they claimed. They then initiated ICSID arbitration under the ECT and the Greece-Georgia and Israel-Georgia BITs. The tribunal upheld jurisdiction over Kardassopoulos' expropriation claim under the ECT (but not under the Greece BIT due to temporal limits) and over Fuchs' fair and equitable treatment claim under the Israel BIT. It found that Georgia had unlawfully expropriated Kardassopoulos' investment and breached the fair and equitable treatment standard owed to Fuchs. The tribunal awarded each claimant US$15.1 million in principal, plus compound interest from 1996 to 2010, totaling US$45.1 million each, and ordered Georgia to pay all costs. The award is notable for its discussion of the provisional application of the ECT, attribution of acts of state entities, and the valuation of an investment in a project that was overtaken by larger developments.
The detail
Parties: Ron Fuchs v. The Republic of Georgia
Case number: ICSID Case No. ARB/07/15
Outcome: Georgia found to have unlawfully expropriated Kardassopoulos' investment and breached fair and equitable treatment of Fuchs; awarded US$15.1 million each plus compound interest and costs.
Quantum: US$45,124,736.83 each (principal plus interest to award date)
Applicable law: Energy Charter Treaty (ECT), Georgia/Greece BIT, Georgia/Israel BIT, ICSID Convention
Issues in play: The case involved the interaction between the ECT and bilateral investment treaties, and the application of stabilization clauses and fair and equitable treatment standards to an oil pipeline investment in post-Soviet Georgia.
Read the full decision at italaw ↗
Locus Standi links to the source decision and publishes its own plain-language summary. It does not reproduce the text of the award.