International Centre for Settlement of Investment Disputes Washington, D.C

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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES WASHINGTON, D.C.

IN THE PROCEEDINGS BETWEEN

IOANNIS KARDASSOPOULOS and RON FUCHS (Claimants) and THE REPUBLIC OF GEORGIA (Respondent)

(ICSID Case Nos. ARB/05/18 and ARB/07/15)

AWARD

Arbitral Tribunal Mr. L. Yves Fortier, C.C., O.Q., Q.C., President Professor Francisco Orrego Vicuña Professor Vaughan Lowe, Q.C.

Secretary of the Tribunal Ms. Aïssatou Diop

Assistant to the Tribunal Ms. Alison G. FitzGerald

Representing the Claimant Representing the Respondent Ms. Karyl Nairn Ms. Claudia T. Salomon Mr. Timothy G. Nelson Mr. Matthew Saunders Mr. David Herlihy Ms. Kate Knox Ms. Jennifer M. Cabrera Ms. Kiera Gans SKADDEN, ARPS, SLATE, MEAGHER AND FLOM Mr. Theodore C. Jonas (UK) LLP / SKADDEN, ARPS, SLATE, MEAGHER Mr. Nick Gvinadze AND FLOM LLP Mr. Avto Svanidze DLA PIPER UK LLP / DLA PIPER LLP (US) / DLA PIPER GVINADZE & PARTNERS LLP

Date of dispatch to the parties: March 3, 2010 TABLE OF CONTENTS

PART I. PROCEDURE ...... - 1 -

A. Overview ...... - 1 -

B. Registration of the Requests for Arbitration...... - 3 -

C. Constitution of the Tribunal and Commencement of the Proceeding ...... - 3 -

D. The Jurisdictional Phase ...... - 4 -

E. The Liability and Quantum Phase ...... - 5 -

1. The Written Procedure ...... - 5 -

a) Procedural Order No. 1 ...... - 5 -

b) Request for Adjournment of the Hearing...... - 6 -

c) Procedural Order No. 2 ...... - 7 -

d) Procedural Order No. 3 ...... - 7 -

e) Procedural Order No. 4 ...... - 8 -

2. The Oral Procedure ...... - 9 -

3. The Post-Hearing Procedure ...... - 11 -

F. The ECT and the BITs ...... - 11 -

1. The Arbitration Clauses ...... - 12 -

2. The Substantive Clauses ...... - 16 -

G. The Parties’ Respective Prayers for Relief ...... - 18 -

PART II. FACTUAL BACKGROUND ...... - 19 -

A. Introduction ...... - 20 -

B. The Joint Venture Agreement ...... - 23 -

C. The Deed of Concession ...... - 30 -

D. Work Performed by GTI...... - 35 -

E. The Proposed Partnership between Tramex and Brown & Root ...... - 36 -

F. AIOC and Negotiation of the PCOA ...... - 46 -

- - -

70 71 72

78 - 87 - 56 - 72 - 52 - 54 - 70 - 70 - 82 - 82 - 82 - 81 - 81 - 81 - 80 - 79 - 79 - 79 - 76 - 84 - 73 - 83 ------......

......

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ...... n......

......

s under the Georgia / Greece BIT / Greece Georgia the s under rocess SUBMISSIONS ......

......

b ......

......

...... PARTIES’

......

NDINGS FI

THE

DETERMINED

The Respondent’s Position Respondent’s The The Tribunal’s Determinatio Tribunal’s The The Claimants’ Position Claimants’ The The Respondent’s Position Respondent’s The The Tribunal’s Determination Tribunal’s The The Claimants’ Position Claimants’ The The Respondent’s Position Respondent’s The The Tribunal’s Determination Tribunal’s The The Claimants’ Position Claimants’ The OF Bar for Equitable Prescription

BE AND

......

a) Time c) b) a) Jurisdiction Ratione Temporis under the Georgia / Israel BIT / Israel Georgia the Jurisdiction Temporis Ratione under c) b) a) Jurisdiction Tempori Ratione Burden of Proof Burden c) The Law Applicable to the Merits The Law to the Applicable b) 3. 2. 1. Jurisdiction & Equitable Prescription Liability 2. 1. ANALYSIS The Creation of GIOC Rights The Cancellation of GTI’s P Commission Compensation The SUMMARY CaseThe Claimants’ Case Respondent’s The ISSUES Preliminary Matters

B. C. G. H. I. A. B. A. IV. V. III.

PART PART PART

- . 99 - 93 - 93 - 89 - 89 - 87 ------146 - 152 - 103 - 114 - 114 - 118 - 124 - 133 - 133 - 135 - 139 - 146 - 148 - 150 - 152 - 152 - 153 - 154 ------......

...... Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ......

......

c ......

pe of GTI’s Rights of GTI’s pe The Tribunal’s Determination Tribunal’s The Position Claimant’s The Position Respondent’s The Determination Tribunal’s The Position Claimant’s The Position Respondent’s The Determination Tribunal’s The Position Claimants’ The Position Respondent’s The Determination Tribunal’s The The Claimants’ Position Claimants’ The The Respondent’s Position Respondent’s The The Tribunal’s Determination Tribunal’s The The Respondent’s Position Respondent’s The The Claimants’ Position Claimants’ The

......

c) Kardassopoulos’Mr. inWas Expropriated? GTI Investment a) b) c) Treated Fuchs Mr. Was Unfairly and Inequitably? a) b) c) Position The Respondent’s The Claimants’ Position The Tribunal’s Determination of Stabilization the The Effect Clauses on Damages a) b) c) b) a) The Sco c) b) Attribution to and/or Georgia Transneft’s Acts/Omissions of SakNavtobi 87 - a) 3. 4. Causation 1. 2. 3. Quantum 1. 2. 1.

D. E.

205 - 157 - 157 - 159 - 161 - 166 - 166 - 168 - 169 - 171 - 171 - 171 - 181 - 182 - 184 - 191 - 191 - 191 - 194 - 203 - 203 - 204 - 204 - 205 - 205 ------....

......

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ......

ogy for Valuing the Claimants’ Claims for Valuingogy Claimants’ the d ’s Position ’s ...... The Market/Income Approaches The Market/Income The Cost Approach Approaches The Market/Income The Cost Approach Method The Appropriate Valuation Adjustments toProposed Value ......

TheClaimant Position Respondent’s The Determination Tribunal’s The Position Claimant’s The Position Respondent’s The Determination Tribunal’s The Position Claimants’ The (1) (2) Position Respondent’s The (1) (2) Determination Tribunal’s The (1) (2) Position Claimants’ The Position Respondent’s The Determination Tribunal’s The Position Claimants’ The Award Interest -

......

The Applicable Standard ofThe Applicable Compensation for Expropriation a) b) c) Standard ofThe Applicable Compensation for Fair and Equitable Treatment a) b) c) The Appropriate Methodol a) b) c) ofThe Amount Compensation Owing to Claimants the a) b) c) Pre a) 2. 3. 4. 5. Interest 1.

216

212 - 206 - 207 - 210 - 210 - 211 - 212 - 212 - 213 - 214 ------Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ......

......

e ......

s’ Position s’ ......

......

PART The Respondent’s Position Respondent’s The Determination Tribunal’s The The Claimant Position Respondent’s The Determination Tribunal’s The

Award Interest -

b) c) Post a) b) c) The Claimants’ Position Position The Respondent’s The Tribunal’s Determination ......

OPERATIVE 2. Costs 1. 2. 3.

G. VI.

PART

The :

ation and ation and nt vehicle, nt vehicle, incorporated - owned oil companyowned “Georgian Oil”) “Georgian

owned entity formed inowned entity tate-

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Cayman Islands incorporated investme

A Georgian s Main Pipelines (“Transneft” or (“Transneft” or Main Pipelines or in Englishor as -

1 A Georgian state- U.K. subsidiary of of subsidiary U.S.U.K. Halliburton a Inc.,

f entity holding rights over the oil transportation transportation rights over oil the holding entity

A Panamanian

“Gruzneft”,

owned

Corporate Personae nsation commission process. incorporated inincorporated company Tramexjoint which venture and - DRAMATIS PERSONAE

A Georgian state- owned national oil company and formally made a Department within the Ministry Department a within made Ministry the formally and owned national company oil also known in known Russianalso as The State Oil Company of Azerbaijan. of Oil Company State The Participating interests in July 1996[Hearing Bundle, Tab 185].

1 created in 1995 and to which certain rights held by by GTI transferred. held to were which in 1995 and rights certain created (“GOGC”): Corporation Georgian Oil Gas and SOCAR: Brown Ltd.wn (“Bro Root & Root”): & and engineering construction that firm, entered into a Heads of Agreement withTramex to its one of 50% in half GTI. interest acquire Georgian International Oil (“GIOC”): Corporation an2006 through amalgamation the of GIOC, Georgian Corpor International Gas SakNavtobi. GTI Ltd. (“GTI”): A Georgian owned interest. 50% each SakNavtobi a Georgian state - in and December 1992. Energy Fuel of International Tramex Inc. (“Tramex”): shares by in equal Claimants, and owned the Mr. RonMr. Fuchs. Kardassopoulos Ioannis Industrial Amalgamation of Georgian Oil Georgian of Industrial Amalgamation Azerbaijan International (“AIOC”): Azerbaijan Operating Company SOCAR oilconsortium of Pennzoil, companies (see below), including Amoco, Exxon, Unocal, Delta. Statoil, Ramco, and BP, Lukoil, TPAO, Itochu “TransNavtobi”): merged into SakNavtobi 1992). in (and Georgia in formally December network Kissinger Associates, upon to called York inInc.: New based firm consulting geopolitical A the compe during Claimants the assist design, Tramex provide to by engineering contracted firm Israeli An Inc.: Engineering Ludan procurement and the project. for GTI engineering work SakNavtobi (

ations in Azerbaijan Azerbaijan in ations 1985 to 1990 (Georgian (Georgian 1985 to 1990

f Georgia from November Chief Executive Officer of Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos o-

rgia rgia from 2001 to 2002.

Chief Executive Officer of Tramex - ion, seconded to AIOC, from 1995 to from AIOC, to ion, seconded

ineering and in construction the project of theof o Republic

Moral Personae of the Republic of Georgia to Azerbaijan from 1994 to 1997, to to 1994 Azerbaijan 1997, from Republic the of Georgia of Director of Oil and Gas Development for Europe and Africa for Africa and Europe for Development Gas Oil and of Director Founding President of AIOC from 1994 to 1998. President from Founding AIOC of born businessmanborn in residing formerly Israel, aMember of the Israeli The Claimant, a Greek citizen and C -

Chairman of Parliament Responsible for Brown & Root Energy Services oper Responsible for & Brown Root Energy Minister of Urbanization Minister of the Constructionof and of Republic Georgia Chairman of Kissinger of Associates,Chairman to 1990 upon to from Inc. 2006, called Deputy State Minister of the Republic of Geo Ambassador Ambassador Commercial Manager of BP Explorat

Minister of Culture of the Republic of Georgia from Georgia of Republic the Culture of of Minister Project Director overseeing theeng President Root from& Brown 1990 to 2000. of Georgian

Vice-

The Claimant, an Israeli citizen and Co and citizen an Israeli Claimant, The Financial advisor Financial to Tramex, in based who acted London, principal the as liaison Chee Jap: including partners, Root strategic & lendersBrown and with third parties, Ltd. Ioannis Kardassopoulos: Parliament and Attaché to the Republic of Georgia in Israel. Terence (“Terry”) Adams: Asatiani: Valeri Georgia). SSR), of to 1995 2000 (Republic and Batkin: Alan process. commission the compensation during Claimants the assist Chanturia: Giorgi GIOC of President fromand 1996 to 2004. Chkhenkeli: Merab 1997. Larry Farmer: Edward Ferguson: (“Ted”) Root. & Brown Ze’ev Frenkiel: Transneft at Gigolashvili: 1981 toVazha Mechanic 1996. Chief from Guner: Selcuk Yusuf 1993 to 2007. from Gur: Ephraim Koba Gvenetadze: Inc. International Tramex from 1995 to 2002. from Cook: Grahame Gviad Gamsakhurdia: Gviad Republic of Georgia on behalf of the Claimants. the on behalf of Georgia of Republic Fuchs: Rony Inc. International Republic 1991 April the 1992. from of Georgia President of to1990 to 1991, and January April

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

nessman residing in Israel who acted as an interpreter ate Council of the Republic of Georgia from of Republic March to Council the of Georgia ate born busi

- Deputy Minister of Energy of the Energy of Minister of of Deputy Republic 2004 tofrom Georgia Head of the St ad of Division of the Balance of Fuel and Energy of the Ministry of Fuel Fuel of of Ministry the Energy and Fuel of Balance the of Division of ad Georgian

house Brown Root 1994 to 1999. solicitor from for & Minister of Fuel and Energy Fuel of and of of Republic the Minister 1996 to from Georgia - Deputy Minister of Republic Deputy the Energy fromFuelof Georgia and of

of Energy since 2007. since Energy of In He

Chairman of SakNavtobi from Chairman from SakNavtobi of 1973 to 2004. Prime Minister of the Republic of Georgia 1993 to Prime from Georgia of Republic the 1995. Minister of Minister of Justice of the Republic of Georgia 1993 tofrom Georgia Justice of Minister of Republic the 1998. of Prime Minister of the Republic of Georgia from 1992 to of Republic 1990 to 1993. the 1991, and of Georgia Prime Minister Ludan’s Engineer Chief responsible for design the and works implementation of in

Attorney of the Claimants, involved in the drafting of the Joint the Agreement of Venture in drafting of the Attorney Claimants, the involved Donald: evaz Tevzadze: October 1992, when he was elected Chairman 1992, Chairman President he of elected Parliament. Republic the of when was of October from 2003. November Georgia to1995 November between Tramex and SakNavtobi. 1998. Tengiz Sigua: Avtantil Silagadze: Minister of State Property Management of the Republic ofGeorgia from 1995 to 1998. Smith: Jack R Zubitashvili: David and Energy ofand Republic the Georgia of from 1996 to 1998, and Economic of Director the of of Energy Ministry from Fuel and Department 1998 to 1999. Shevardnadze: Eduard David Mirtskhulava: Patsatsia: Otar Sadzaglishvili:Gia Alexandre Khetaguri: Minister Deputy Energy2005, First of 2005 from Directorto GOCG 2006, General 2006 of from Ministerto and 2007, 1995 to from Georgia of Republic the 1998. Minister of State Lekishvili: Nikoloz David Levy: Claimants. the behalf on of Georgia of Republic Faith Mac Energy from and of Fuel Minister 1995 to 1999 to 1998, and 2003. Nanikashvili: Abram Claimants. the for Tedo Ninidze:

MAP OF GEORGIA

OIL TRANSPORTATION FACILITIES

i THE TRIBUNAL

Composed as above,

After deliberation,

Makes the following Award:

PART I. PROCEDURE

A. Overview

1. At the outset of its present Award, the Tribunal deems it helpful to set out certain facets of the disputes between the parties to these arbitrations, which are brought under the Energy Charter Treaty (“ECT”) and the bilateral investment treaties entered into between the Republic of Georgia (“Georgia” or the “Respondent”) and Greece and Israel, respectively.

2. The investment dispute between the parties in these arbitrations arose during the years following Georgia’s emergence as a sovereign State. In essence, it concerns actions on the part of Georgia in respect of the interests held by Mr. Ioannis Kardassopoulos and Mr. Ron Fuchs (collectively the “Claimants” and together with Georgia the “Parties”) in an investment vehicle devoted to the development of an oil pipeline for the transport of oil from the Azeri oil fields on the Caspian Sea through Georgia to the Black Sea, known as the “Western Route”.

3. Development of the Western Route was of significant national and strategic importance for Georgia as a means of securing its sovereignty following the break up of the Soviet Union and deepening its ties to the West. President Shevardnadze is recorded as having stated that “[i]f Georgia the country could not establish itself as important to the West, then Georgia will be treated as a province or district of Russia and lose the fruits of its first independence since 1920…”.2 The shadow cast by the former Soviet Union over

2 This statement is extracted from The Oil and The Glory, published by journalist Steve LeVine in 2008, which recounts events surrounding the development and exploitation of the Caspian oil reserves. This extract, among others, formed part of the discussion among industry experts in these proceedings [Tr. D10:135].

- 1 -

) 3

”. MEP ” pipeline ”

BTC locked oil reserves. nt proposal to trade oil nt oil proposalto trade multiple pipelines for the for pipelines multiple with the exception that the the that exception the with o be there in order to to there in be order o Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Ceyhan or “ or Ceyhan – as Western partners once the

Supsa pipeline,- the now Baku

- ”) - Tbilisi stern Route as an export solution for solution export for an Route as stern SCP estment, the Azerbaijan International Oil Oil International Azerbaijan the estment,

2 - - hostage. If you have two routes, then you can you can then two routes, If have you hostage.

called “early oil”(originally the Gachiani

”

AIOC”), a consortium multinational of oil companies, beganalso operating 67]: ” [Tr. D10:122]. As the Respondent’s expert Mr. Effimoff testified [Tr. testified Effimoff expert Mr. Respondent’s the [Tr. As D10:122]. ” “If you have one route, you’re a a you’re route, one have “If you were there because time, over evolved thinking this And choice. a make but route, western the of proponents there were route, northern the of proponents t needed routes both was retrospect in answer the correct make it a workable solution, where there were checks and balances on the entire entire the on balances and checks were there where solution, workable a it make system. in the region as vast quantities of crude oil in the Caspian were confirmed. oil were quantities in Caspian vast the as crude in region the of the of We eventuality the dispute some over Despite Caspian oil, it is clear on the evidence in these proceedings that “happiness is multiple pipelines D10:166- – occurred and remains what Thiswhat today is, in fact, so- of transport (the - Baku oil reserves crude future Supsa pipeline), “ Pipeline South or natural (the Caucasus gas and Claimants, proved having far less thanattractive AIOC Company (“ Company idenced by the onset of hostilities between of between hostilities is theonset by Georgia palpable even to this asidenced day, ev Russia Georgia and during the course of these proceedings. virtual time resourceful of pioneers the oil Claimants, at were highly traders, two The importa modest yet relatively a with Georgia, in investment their and rehabilitate and complete the existing pipeline infrastructure crossing Georgia from to secure land transit to Black the ina for order - Sea, Azerbaijan route inv initial the Claimants of years few Withina of Western the potential scale Route (and overall the oil and exportgas solution) became but investment the into Georgia foray their to for show with nothing left are apparent, proceedings. in these brought claims Prior to confirmation of route, the this pipeline was simply referred to Main Export as the Pipeline or “

3 5. 6. 4.

Georgia / Georgia

(the “

”) was constituted er, C.C.,er, O.C., Q.C. ”) in respect of claims ”) on 2 August 2005 (the Tribunal Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Centre

” the or “

Georgia BIT / Israel

”), they had agreed on a method for constituting method for on a agreed had they ”), ICSID 3 - - (the “

el and the and the el Republic on the of Georgia Promotion and ”) invoking the ICSID arbitration provisions in the the arbitration provisions in the invoking ICSID ”) ”) and Rule and ”) 2 of Rules the of Procedure Arbitration for y General of the Centre on 16 July 2007. General Centre the on 16 July of y ”), invoking the ICSID arbitration the provisions invoking ICSID the ”), of n of the Requests Arbitration for n the of Fuchs Request Fuchs ICSID Convention ”) and the ECT. The Kardassopoulos Request was registered by registered thewas Kardassopoulos and Request ECT. The ”) the (“

unal held its first session, which the Parties attended, on 4 May 2006, in London, on 4 May attended, Parties the session, which its held unal first Registratio Proceeding the of Commencement and Tribunal the of Constitution

Kardassopoulos Request Secretary General of the Centre on 3 October 2005. Proceedings (“ICSID Arbitration Rules “ of Republic and the Republic of Hellenic the between Government the Agreement Protection Promotion of and Reciprocal on the Investments Georgia GreeceBIT for submitted Request a Fuchs Mr. 2007, on 20 April later, half a and One years “ (the Arbitration 2007, 12 September On registration of following the Fuchs Request, the jointly Parties to thewrote Secretary General of Centre the that,advising pursuant to Article 37 of the on theConvention of Settlement Disputes Investment between States and Nationals of States other Agreement between the State of Isra of Protection Investments Reciprocal were phase written the for timetables two alternative meeting, this During England. one a Parties, by the providing for jurisdictional one agreed and no contemplating phase below). Part toobjection jurisdictionI.D (see B. Kardassopoulos for submittedMr. Request for Arbitration a Centre to the International (“ Disputes of Investment Settlement the out of same the arising set the facts as of Kardassopoulos Request The Request. Fuchs was registered by the Secretar C. Arbitral in Tribunal The Kardassopoulos arbitrationthe (the “ Yves Forti of composed Mr. was 2006. L. on 27 February It Professor Francisco and President, as Parties agreementthe of by appointed (Canadian), Vicuña SirOrrego (Chilean) Arthur and Watts, Q.C. by respectively (British), appointed arbitrators. as Respondent, the Claimantthe and Trib The 8. 11. 7. 9. 10.

ent ent Deed of the and

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos over Mr. Kardassopoulos’ Mr. over treaty

pursuant to ICSID Arbitration Rule Arbitration Rule to pursuant ICSID ected to jurisdiction onected following the

tedappoin arbitrator. - 4 - -

as a matter of law; and

t contribution that the made has to public Sir Arthur a whole.

ions would run concurrently together same the and heard by concurrently ions would be would run and of the suspension of the proceeding the of suspension the of and

claims for two reasons: first, Mr. Kardassopoulos had not made an “investment” first, an not two reasons: Kardassopoulos made Mr. had for claims second, and in Joint Georgia; the Agreem Venture The Tribunal lacks jurisdiction lacks Tribunal The ratione materiae to pursuant Concession, Mr. which Kardassopoulos purportedly had made his void ab initio investment, were The JurisdictionalThe Phase Professor Vaughan Lowe, Q.C. (British), was thus appointed by the Respondent Respondent the by thus appointed Q.C. (British), was Vaughan . Professor Lowe, Arthur

itration and requesting that the same in Fuchs requesting the same itration Tribunal that the and the Tribunal arb already constituted in Kardassopoulos the hear decide the arbitration and in the presented claims Request. Fuchs Kardassopoulos that the 2007, confirmed in writing and 14 September Centre On the arbitrat Fuchs 19 November On away. passed 2007, Sir Arthur November on 16 monthsTwo later, the notified vacancy the on of 2007, parties thICSID e Tribunal created by the passing of Sir 2006, 3 October On filed Respondent the to jurisdiction objection an in the in set forth timetable thealternative first triggering thereby arbitration, Kardassopoulos minutes thethe of first session. Respondent The obj grounds: (a) Tribunal constituted in Kardassopoulos the arbitration.Tribunal D. on 28 December 2007 to serve as its 2007 to as partyon 28 December serve 10(2) Sir reconstituted 2008, the replacing with was Professor Lowe Tribunal 16 January On Respondent’s the as appointee. Arthur the On day final of the inHearing these arbitrations, both counsel for Parties recognized respec and with gratitude joined in this Tribunal The arbitration. system of to the and law ICSID international international to the on this and service for Tribunal Sir Arthur’s expression gratitude of as community arbitration 12. 13. 16. 14. 15.

os’

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos over Mr. Kardassopoulos’ treaty treaty Kardassopoulos’ Mr. over r 2006; andr Mr. Kardassopoulos

over Mr. Kardassopoulos’ Mr. over ECTclaims

16 January 2007 in16 January 2007 England. London, 5 - - Memorial on Jurisdiction on 7 November 2006; the 2006; the November on Jurisdiction on 7 Memorial - over Mr. Kardassopoulos’ BIT Theclaims. Tribunal hich occasioned the loss the occasioned occurredhich prioralleged tothe

ratione temporis and and

Procedural Order No. 1 Order Procedural

a) ed in the minutes of the first session of the Tribunal. However, before the before However, Tribunal. the of session first in minutes the the of ed ratione materiae The WrittenThe Procedure

o confer and propose time limits for the further procedures in the Kardassopoulos in Kardassopoulos the procedures further propose the and time limits for o confer claims because the acts w entryinto force of either the Georgia / Greece BIT or the ECT. 1. The Tribunal lacks jurisdiction rationetemporis lacks Tribunal The LiabilityThe Phase and Quantum

risdiction risdiction Mr. Kardassopoulos filed Counter a Kardassopoulos Mr. on Jurisdiction 2007. Rejoinder a filed on 5 January on jurisdiction on 15- held hearing A was TribunalThe rendered its on Decision Jurisdiction on 6 July 2007, that determining it has ju jurisdictionand ratione materiae On 13 July 2006, Mr. 13 July On filed a meritsKardassopoulos on the Memorial to the pursuant agre timetable any filed Parties further submissionswritten merits, the on the to Respondent objected suspended until jurisdictional was the phase. completion of procedure jurisdiction the and Respondent filed a Reply a filed Respondent Reply on Jurisdiction on 4 Decembe Kardassopoul Mr. temporis over jurisdiction ratione Tribunal’s the issue of joined the (b) to the Decision claims on Jurisdiction Tribunal’s is appended to merits. The BIT the present Award. suspended thereafter merits was submissionson the written further for procedure The until jurisdictional the phase. completion of E. Following the the Following ofrelease Tribunal’sthe Decision on Jurisdiction, invited the Tribunal the parties t arbitration. new a proposing wrote to Tribunal the jointly Parties 2007, the 26 September On timetable. 17. 18. 19. 20. 21. 22. 23.

ants

e dates for nal Hearing ”), which had which ”), I.E.(c) below). Hearing Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos January 2008, January Mr. Kardassopoulos -

6 - ibunal in mid ibunal - Memorial on the merits on 6 June 2008. The Claim The merits on 6 June on the Memorial 2008. - application for disclosure (see Part below), I.E.(d) wellas

ss- otivated by circumstances arising from the onset of hostilities hostilities of onset the from arising circumstances by otivated for of Hearing Adjournment the Request

g the time limits for 2007, the 9 October On Procedural issued 1, Tribunal No. for Order limits thefixin time g the further procedures of the arbitration in accordance with the Parties’ agreement. 5 NovemberOn 2007, held Tribunal the its first the session of Parties in the Fuchs the Parties, The attended who first telephone conference. session, by arbitration, agreed to to adopt, the extent established possible, procedures the already in the Kardassopoulos arbitration. followingthe Shortly suspension the of necessitated proceedings by the Sirpassing of and Arthur the reconstitution Tr the of Supplemental a filed Memorial merits on the on 28 January 2008. theOn day, same Mr. merits. on the Memorial a filed also Fuchs a filed Respondent Counter The Reply on the their filed on 31 Julymerits 2008. 2008, the 12 November On Respondent its onfiled Rejoinder the merits pursuant to a revised calendar of procedures necessitated discovery developments opposing (see Part inand applications Georgia by On 12 August 2008, theOn was Tribunal seized of by the application an Respondent for a the of postponement deadline for servicefiling and of its Rejoinder itsand to response 8 August cro Claimants’ the as an adjournment of the hearing on the merits and merits “ on the the quantum (the of adjournment hearing an as been scheduled to take place in London, England from 22 October to 2008. 5 November in England 22 October from place London, scheduled to take been The application was m submitting Tribunal the submissions with Claimants written 2008, the filed 15 August On origi that the premature requesting was and hearing the of that postponement dates be maintained and a schedule be fixed for filing and service of the remaining Claimants the The that would concerns. Respondent’s accommodate evidence written that they noaverred had other to Tribunal objection the possibl investigating purely basis. on a Hearing contingency the between Georgia and Russia. 24. 25. 26. 27. 28. 29.

arties Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Georgian Georgian evidence in connection a procedural meeting procedural a of the P l submissions were presented both l submissionspresented were held

Rejoinder and accompanying expert and

7 - -

he Tribunal, was fixed for 26 August 2008 to consider a a 2008 to fixed consider was 26 August Tribunal, he for during which extensive ora during

he Tribunal he the of President Procedural Order No. 3 Order Procedural Procedural Order No. 2 Order Procedural

c) d)

on seeking an order that three documents produced by the Claimants in redacted Claimants by the in documents redacted produced order that three an on seeking . The Respondent opposed Respondent The of each Claimants’ the applications, thatarguing it would be to divorce frompriate evidence factual theinappro the of testimony quantum and the that, experts situation and the of obtainingindustry in instructions view in Georgia, from or October the an to filingGovernment Georgian in meet the time Hearing for proposed serious would pose problems. dates Order 2, fixing Tribunal No. 2008, the issued Procedural later, on 28 August days Two dates new including procedures arbitrations, the in dates these for further peremptorily the Hearing, of the Respondent’s filing the for fact andfact evidence, filing the of submissions further disclosure the on applications before Tribunal. the On 19 August 2008, the Tribunal determined to cancel the Hearing Hearing the the to and determined vacate cancel Tribunal 2008, the 19 August On originally scheduled Hearing dates. A procedural meeting of the Parties and the President t on behalf of Tribunal, the of new calendar for further procedures. Parties expert its industry quantum and 25 including 2008, by September Rejoinder with its and file reports, remainder serve the its of and evidence pleadingsand in connection with 2008. October by late Rejoinder the letter datedBy 9 June Respondent 2008, the Tribunal seized the of a disclosure applicati firm English the from 1995 in Claimants the by sought advice legal to relating form, produced over been Co. be and had entirety. in their & privilege asserted, Paisner which During the the two Claimants telephonic additional brought meeting, During applications thatrequesting Respondent the file serveand all non- On 26 August t 2008, On telephoneby conference 33. 34. 30. 35. 32. 31.

the , the est of given or or given

application application - gia, and the Respondent any evidencing . Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

videncing writs of arrest, criminal criminal writs of arrest, videncing

8 - - submissions to Respondent’s the reply submissions written a d file

s he Claimant

Procedural Order No. 4 Order Procedural

e) 14 June 2008, the Claimants filed a written response to the Respondent’s request for request response to Respondent’s the written a filed 14 June Claimants 2008, the On to thein writing replied Respondent the day, that same On documents. of production the Claimants’ response. dated 8 August letter By Claimantsnal 2008, the Tribu seized the of a cross statement transit a of (a) produce: Respondent that the an seeking order disclosure for of receivedRespondent by the period certain the infees 1, respect for pipelines January July2008 through 31, 2008; (b)documents and all e levied or Giorgi sanctions, convictions Davidagainst and charges, penal Mirtskhulava witness a in each provided support evidence Chanturia, having written the of as case, Respondent’s well all documents as issued by the said in of respect witnesses. pardon to submissionsin response written filed Respondent 2008, the 25 September On 8 request August for theClaimant’s productio documents n of 2008, t 3 October On those in of unredacted ofdisclosure form parts produced three documents the by the Claimants that relate to advice received in respect of the International Chamber of contemplated Court and/or proceedings byEnglishCommerce Claimants High the and/or in of AIOC Transneft respect against their investments in Geor the of Respondent commencement the the since issued by documents of disclosure in of proceedings David Messrs. arbitration Chanturia respect Giorgi and Mirtskhulava had them of one either which evidence the to or implicitly explicitly relating Claimantsthe 2008 on 25 November to address written matters, several including with compliance materials, Rejoinder its with the Respondent by filed evidence in respect of their of August 8 requestin respect forthe production documents. of 28 OctoberOn 2008, the issued Tribunal Order Procedural 3, No. ordering, alia inter would give inwould the presentgive including the arbitrations, fact of either individual providing a Respondent. the on behalf of witness statement The President of the Tribunal held a telephone conference of the Parties at the requ 36. 37. 38. 39. 40. 41.

19 order

ir third third ir , directing the directing ,

hem. ”) to a request they BP reply further clarifying its its clarifying further reply - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos up Order order to Procedural 3 No. by 2 -

9 - -

duce documents certain the to Claimants, the but granted

14 2009. March - , (i) order requiring, (i) Respondent supplemental the a what to state

The Oral Procedure Oral The inter alia inter 2. ions to the Parties on 29 November 2008, rejecting the Claimants’ request to Claimants’ request the rejecting 2008, ions29 November on Parties to the cember 2008. cember January 2009 and 12 2009 and January A Hearing on England, in held and on 10- was Liability in Hearing Quantum A two parts London, exclude certain witness statements filed by the Respondent and, alia inter Procedural Order No. 3 and the conduct of the Hearing. The Tribunal issued written issued written Tribunal The Hearing. the of conduct the 3 and No. Order Procedural direct a follow for any application make to Claimants production the requiring supplemental certain (iii) of and documents; requiring an order to Respondent request the conduct search itsthat AIOC a of for archives 1995 the years t to produce documents 1996 and by and identified Claimantsthe certain Claimants’ the to response written a submitted Respondent 2008, the 9 December On on writing in replied Claimants The applications. three all to objecting relief for request the letter, 2008. that reply their 12 December In Claimants the requested (“ plc BP response from a in held abeyance pending be application certain submittedhad for information. sur 2008, a submitted Respondent 15 December the On 16 December next the On two applications. day, first the to Claimants’ regard in position that Tribunal declined the Claimants in had 2008, the writing informed BP to provide information third application. therefore their and them with requested the revived TribunalThe issued Procedural er No.Ord 4 on 19 December 2008. The Tribunal denied Claimants’ application the order for supplemental a Proceduralregarding 3 No. Order conductAIOC Respondent the that to request compelling order an its for and application a search of its archives and pro order. disclosure supplemental applicationa Claimants’ concerning second De 2 December 2008, On of Claimantsthe Tribunal seized the three (3) applications, seeking, specific measures it had taken to comply with Procedural Order No. 3; (ii) an 46. 43. 44. 45. 42.

or for 58]; 58]; 107; 56]; Mr. 56]; Mr.

163]; rom Mr. Smith. 96]; Dr. Revaz 124]; Mr. Ioannis 124]; Ioannis Mr. - 71- ’s case but were not Nikoloz Lekishvili [Tr. [Tr. Lekishvili Nikoloz d to testify at the Hearing. Hearing. the at testify to d Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 53]; Mr. 64]; and Mr. Terry Adams [Tr. 64]; Terry Mr. and 194]; Gigolashvili Vazha [Tr. Mr. 58]; Mr. Giorgi Chanturia [Tr. D6:58- Chanturia Giorgi Mr. 58]; as, accordingly, not accordingly, takenas, into account in its

50]; Ron Mr. [Tr. and Fuchs D4:51- 219]; Mr. Abram Nanikashvili [Tr. Nanikashvili D2:5- Abram Mr. 219];

136]; Mrs. Faith MacDonald [Tr. D7:1- MacDonald Faith Mrs. 136];

. 10 - - Alan Batkin and David Levy submitted fact written written fact submitted Levy andDavid Batkin Alan

4 123]; Mr. Edward Ferguson [Tr. D3:1 Ferguson 123]; Edward Mr. 193; Tr. D4:1- 193; Tr. 70]; Mr. David Zubitashvili [Tr. D7: 70]; Zubitashvili David Mr. - D5:15 Ninidze [Tr. Tedo 14]; Mr.

65]; Mr. Grahame Cook [Tr. Grahame - D9:1 Mr. 65]; Mr. Gia Sadzaglishvili [Tr.- D4:168 Ms. Chee Jap [Tr. D1:160- Chee Ms. –

–

the Claimants brought application an to introduce a second written statement f 202; Tr. D5:1- 202; Tr. 105]. 91]; Mr. David Mirtskhulava [Tr. D6:1- 91]; Mirtskhulava David Mr. 152]; Mr. Larry Farmer [Tr. D6:108- 152]; Larry Mr. the Claimantsthe [Tr. D2:59- Frenkiel Ze’ev Mr. The Respondent submitted a fact witness statement prepared formerby Georgian EduardPresident Shevardnadze in support of certain its aspects of ascase developed in its However, Rejoinder. January 2009, the on 5 the notified Respondent that itTribunal necessary to this and Rejoinder. become evidence had withdraw submitrevised a During the first part of the Hearing, the following fact witnesses were called to testify: f testify: to called were witnesses fact following the the Hearing, of part the first During [Tr. D3:125Kardassopoulos - 137- [Tr.- D7:60 Sigua Tengiz [Tr.Tevzadze D8:4- D9:65- Jack Smith, Gur, Ephraim Messrs. these of consideration written cases any evidence by Mr.filed previously Shevardnadze of Respondent, the it inference on behalf has drawn any submission nor the from and evidence such withdrawal of subsequent evidence in support of the Claimants’ case but were not but calle the in support of Claimants’ case were evidence President’s to former the without Rejoinder, reference Amended its filed Respondent The on 6 January evidence, 2009. The h Tribunal the Respondent the D5:54- Messrs. ValeriSimilarly, Merab Chkhenkeli, Asatiani, Koba Gvenetadze, Alexandre and submitted Selcuk evidence David Mr. Yusuf written and Guner fact Khetaguri Respondent the of insupport expert report Eliashvili an submitted orally. testify to called D4:194- During the Hearing

4 49. 47. 48. 50. However, this application was subsequently withdrawn and Mr. Smith did not appearbefore the Tribunal to give [Tr. D4:164]. oral evidence

Mr. Brent

- 143] for the 143] the for

80] for the Claimants; Mr. Mr. Claimants; the 80] for Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 106] the for Claimants; Mr. and 225]. 197], by a followed conferencing witness

of reply of 19 Octobersubmissionsreply costs by on

hearing briefs with Tribunal. the hearing 11 - ed into force for both States 1998; on 16 April and into for ed force - - ing, the Tribunal conducted a witness conferencing witness a ing, Tribunal conferencing the conducted

mants respectively advance their claims are, in the case

iled post ] for the Respondent;168] the Experts for Quantum - Mr. Richard Beazley [Tr. D10:2- Beazley Richard Mr.

the Tribunal requested detailedfurther costs submissions, which Hearing Procedure - The PostThe Industry Experts Industry 3. The ECT and the BITs 24 August 2009,

Igor Effimoff [Tr. D10:82 ofKaczmarek Navigant Consulting, [Tr. Inc. D11:66- [Tr. D11:107 PricewaterhouseCooper John- of LLP Gerard Lagerberg Respondent. second the part Hear the of During of quantum the procedure experts [Tr. D11:144- experts by counsel [Tr. these Parties to D11:197- of the On 22 May 2009, the Parties 2009, the 22 May On f were duly filedwere by the Parties on 30 September 2009. The Tribunal invited subsequently simultaneous a to Parties file the round Ms. Josephineserved Bacon translator, between translating as Hebrew and English for as served Ms. Nino Willsea Claimants’ and the Ms. of Moore and witnesses, Irina certain Respond ent’s the of several English, for and Georgian between translating translators, Hearing. the of part first this during witnesses called to were expert witnesses following the Hearing, part the of second the During testify: On duly also filed. were 2009, which 8 On February 2010, pursuant to Rule 38(1) of the Rules,Arbitration ICSID Tribunal the declared the proceedings closed. F. treaties under The which Clai the Kardassopoulos, Mr. of / signed Georgia Greece the 1994 and on 9 November BIT, Greece and Georgia by ECT, signed the 1996, and into on 3 August force entered which 1994 and enter which on 17 December in case the Mr. of GeorgiaFuchs, the / on signed BIT, Israel 19 June 1995 and which into on 18 1997. force February entered 53. 54. 51. 52. 55. 56. 57.

ispute

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos e respective treaties. respect In of

sion on International Trade Law Law Trade International on sion

State: ing

as follows: as 12 - “ARTICLE9 -

investment of the former, shall, if possible, be settled by the the bysettled be possible, if shall, former, the of investment isputes between States and Nationals of Other States, opened for for States, opened and of Other States isputes Nationals between a) the International Centre for the Settlement of Investment Disputes, Disputes, Investment of Settlement the for Centre International the a) of Investment the Settlement on the under Convention established D or arbitration for 1965, March on 18 D.C. Washington at signature or c[o]nciliation, arbitration the under established to be tribunal arbitral an ad hoc b) Commis ofrules theNations United (U.N.C.I.T.R.A.L.). Settlement of Disputes between an Investor and a Contracting Party a Contracting and Investor an between Disputes of Settlement The Arbitration Clauses Arbitration The ntracting Party involved in the dispute shall not raise the objection that the the that objection the raise not shall dispute the in involved Party ntracting 1. Disputes between an investor of a Contracting Party and the other other the and Party a Contracting of investor an between 1. Disputes this Agreement, under of latter the an obligation concerning Party Contracting an to relation in way. amicable in an parties disputing which of territory the in Party Contracting the of courts competent the to either arbitration. to international or made been has investment the dispute of to the such to submission consents hereby Party Each Contracting arbitration. international Investor the arbitration international to referred is dispute the 3. Where to: either the dispute submit may concerned 2. If such disputes cannot be settled within six months from the date either party party either date from the months six be within settled cannot disputes such2. If the d submit may concerned the investor settlement, amicable requested 1. 4. The arbitral tribunal shall decide the dispute in accordance with the the with in accordance the dispute shall decide tribunal 4. The arbitral of rules and principles the applicable and this Agreement of provisions on both fin and binding be al shall arbitration of law. The awards international any delay without out shall carry Party Contracting Each to dispute. the parties law. domestic with accordance in enforced shall be award such and such award the award, the of enforcement the or proceedings arbitration 5. During Co an under compensation received has Party Contracting other the of investor ” damage. the of part or all of in respect contract Insurance Article 26 of the ECT similarly the 26 of provides Article the Kardassopoulos arbitration,the Article 9 of / Georgia the provides Greece BIT follows as with the disputesin connection the of settlement under treaty arising between a State Contract an a and of investor Contracting TheParties’ arbitration agreements are contained in th 59. 58.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

pect to a dispute arising under the last last the under arising a dispute to pect

an alleged breach of an obligation of the the of obligation an of breach an alleged

its instrument of ratification, acceptance or or acceptance ratification, of instrument its

13 - -

“ARTICLE 26

CONTRACTING PARTY

y to the dispute requested amicable settlement, the Investor Investor the settlement, requested amicable to dispute the y Subject to subparagraphs (b) and (c), each Contracting Party Party each Contracting and (c), (b) to subparagraphs Subject such give not do ID in Annex listed Parties The Contracting (i) Investment of for Settlement The International Centre (i) A Contracting Party listed in Annex IA does not give such such give not IAdoes Annex in listed Party Contracting A (ii) For the sake of transparency, each Contracting Party that is is that Party Contracting each transparency, of sake the For (ii)

nternational arbitration or conciliation in accordance with the the with in or conciliation accordance arbitration nternational (a) (a) to dispute of the submission to the consent unconditional its gives hereby i Article. this of provisions (b) the submitted previously has Investor the where consent unconditional (2)(a)ph dispute under subparagra or (b). resolution for dispute the tosubmit chooses Investor an that event Inthe its consent provide further shall Investor the (2)(c), subparagraph under to: be submitted to the dispute for in writing of the Settlement on the to Convention pursuant Disputes, established opened States other of States and Nationals between Disputes Investment to referred as 1965 (hereinafter 18 March Washington, for at signature of Party if the and Investor the Contracting Convention”), the “ICSID (c) res with consent unconditional 10(1). of Article sentence policies, its of statement written a provide shall ID Annex in listed than later no theto Secretariat this regard in conditions and practices of thethe of deposit date of of Article its instrument deposit 39 or the with inapproval accordance 41. Article with accordance in accession c) in accordance with the following paragraphs of this Article. this of paragraphs following the with inc) accordance former under Part III shall, if possible, be settled amicably. settled be if possible, shall, III Part under former of theto provisions be according settled cannot If disputes such the on which date from months three of within a period (1) paragraph part either resolution: for it to submit choose may dispute the to party a) of to tribunals Party to the theContracting courts or administrative dispute; the dispute agreed usly previo any applicable, with in accordance b) or procedure; settlement Disputes between a Contracting Party and an Investor of another of and an Investor another Party a Contracting Disputes between of Area the in later the of Investment an to relating Party Contracting concern which the former, SETTLEMENT DISPUTES OF BETWEEN INVESTOR AN A AND

(3) (4)

(2) (1)

), ), the if ssion on on ssion State” and and State”

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

14 - - es to a [to] contract in have agreed for writing” nvestor given pursuant to paragraph (4) shall be be shall (4) paragraph to pursuant given nvestor agraph (4) and which, before a dispute between it and and it between a dispute before and which, (4) agraph “agreement in writing” for purposes of article II of the the of II article of purposes for writing” in “agreement

established pursuant to the Convention referred to in in to referred Convention the to pursuant established

(ii) The International Centre for Settlement of Investment Investment of Settlement for Centre International The (ii) any at request Article of the shall this under Any arbitration (iii) “the parti “the (iii) a sole arbitrator or ad hoc arbitration tribunal established established tribunal hoc arbitration ad or arbitrator a sole of Institute the Arbitration under proceeding an arbitral the written with together (3) in paragraph given The consent of purposes for to a dispute parties the writtenconsent of (i) (ii) an ntion. Claims submitted to arbitration hereunder shall be be shall hereunder to arbitration submitted Claims ntion. te in accordance with this Treaty and applicable rules and and rules applicable and Treaty this with inaccordance te

the Contracting Party to the dispute are both parties to the ICSID ICSID the to parties both are theto dispute Party the Contracting or Convention; Disputes, Facility Additional the governing the rules under (a)(i), subparagraph the Centre of Secretariat the by Proceedings of Administration for the Rules” Facility “Additional the as to referred (hereinafter the to Party Contracting the or Investor the of Party Contracting dispute, but not both, is a party to the Convention; ICSID Rules. Arbitration the UNCITRAL 1 of article of the purposes (b) to in theYork a stateis that to New partya party be the held dispute Conve for or transaction relationship a commercial of out to arise considered Convention. that I of article of the purposes in the issues shall decide (4) paragraph under tribunalA established dispu law. principles of international a of nationality the has which person a natural than other Investor An in writing consent the the of date on to dispute the Party Contracting par in to referred another of Investors by controlled is arises, Party that Contracting ofICSID the 25(2)(b) article of purpose the for shall Party, Contracting Contracting another of “national a as treated be Convention be Facility Rules of the Additional 1(6) article the of shall for purpose State”. another of as a “national treated

(b) Commi Nations theofUnited Rules Arbitration the under or “UNCITRAL”); to as referred (hereinafter Law Trade International (c) Commerce. of Chamber Stockholm (a) consent of the I for: the requirement to satisfy considered of Additional the purposes and for Convention ICSID II the Chapter of Rules; Facility of Enforcement and on the Recognition Convention United Nations 1958 (hereinafter June York, 10 done at New Awards, Arbitral Foreign and York Convention”); the “New as toreferred

(6) (7)

(5)

e. An award of of e. award An Washington on 18 18 on Washington

[Footnotes omitted.] [Footnotes Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos national government or or government national ll carry out without delay delay out without carry ll

Article 8 Article

“ ntracting Party and in which, before such a a such before in which, and Party ntracting 15 - - General of the Centre, as provided in Article 28 28 inArticle provided as Centre, the of General

on with the settlement of disputes between a Contracting State and State Contracting a between disputes of settlement the with on

nciliation or arbitration proceedings by addressing a request to that a requestto that by addressing proceedings or arbitration nciliation either Contracting Party shall pursue, through the diplomatic channel, channel, the diplomatic through shall pursue, Party either Contracting dispute arises, the majority of shares are owned by nationals or or nationals by owned are shares of majority the arises, dispute with accordance in shall, Party Contracting the of other companies the of purposes the for treated be of Convention, the 25(2)(b) Article Party. Contracting other the of company as a n Conventio A company which is incorporated or constituted under the law in force force law in the under or constituted incorporated is which company A Co of one territory inthe If any such dispute should arise and cannot be resolved, amicably or or amicably be resolved, cannot arise and should dispute If such any the of notification written from months three (3) within otherwise, institute may affected investor the then the dispute, of existence co - Secretary the to effect N unless: Centre, the to referred any dispute or 36 respectively of the Convention. The Contracting Party which is a a is which Party Contracting The Convention. of the respectively 36 or the of stage at any an objection as not raise shall dispute the toparty the ofthat which the an award investor fact or enforcement proceedings of pursuance an in dispute has received, to party the is other the its or his of all or some of respect in indemnity an contract, insurance losses. March 1956 any legal dispute arising between that Contracting Party Party Contracting that between arising legal dispute any 1956 March former. the of territory in the latter the of investment an concerning al Internation the to submit to consents hereby Party Each Contracting the (hereinafter: Disputes Investment of Settlement the for Centre the under arbitration or by conciliation settlement for “Centre”) States and between Disputes Investment of the Settlement on Convention at signature for opened States Other of Nationals The awards of arbitration, which may include an award of interest, shall of an award interest, shall include may which ofThe awards arbitration, the the to disput parties upon binding be final and the that provide shall Party Contracting disputing the of authority other any lieu of in damages monetary pay may Party Contracting sha Party Contracting Each granted. remedy - a sub of measure a concerning arbitration enforcement thefor effective provision make shall and award any such awards.” such of in its Area Reference to International Centre for Settlement of Investment Disputes Investment of Settlement for Centre International to Reference

2. 3. 4. 1. (8) In 8 of / the Article of respect the Fuchs In arbitration, provides Georgia BIT Israel the in connecti following State: Contracting a of investor an 60.

e Greece BIT in

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

me public knowledge, whichever is the the is whichever knowledge, public me

16 - - “ARTICLE 4 “ARTICLE 2 Expropriation t within the jurisdiction of the Centre; or Centre; the of jurisdiction the t within General of the Centre or a conciliation conciliation a or of the Centre General -

Promotionof and Protection Investments the Secretary that itbydecides constituted tribunal arbitral or an commission is no the dispute shall fail to by or abide to comply Party the Contracting other tribunal.” an arbitral by rendered award with any

nder due process of law, on a non discriminatory basis and against against and basis discriminatory a non on law, of process due nder Investments by investors of a Contracting Party shall, atshall, all Party times, a Contracting of investors by beInvestments (a) (b)

rritory, of investments by investors of the other Contracting Party, is not in in is Party, not Contracting of by investors the other investments of rritory,

The Substantive Clauses The other Contracting Party, shall not be expropriated, nationalized or subjected to to subjected or nationalized expropriated, be not shall Party, Contracting other or expropriation to tantamount be would which of effects the measure any other exceptin public the referred as “expropriation”), to (hereinafter nationalization u interest, Such compensation compensation. and effective adequate prompt, payment of before immediately affected investment the of value market the to amount shall beca or taken was measure the actual of date the until expropriation of date the from interest include shall It earlier. freely ina transferable freely be shall and rate commercial normal a at payment currency. convertible […]” 1. Investments by investors of either Contracting Party in the territory of th the territory in Party Contracting of either investors by Investments 1. […] 2. fullenjoy and protection shall and treatment fair and equitable accorded Party Each Contracting Party. of the in territory security Contracting the other in disposal, or enjoyment use, maintenance, management, the that shall ensure te its measures. discriminatory or unjustifiable by impaired any way […]” 2. oulos invokes the following provisions of the ECT in ECT in provisions the of following Kardassop addition, Mr. oulos the invokes In claims: with equitable his fair expropriationand treatment and connection Mr. Kardassopoulos invokes two substantive provisions in the Georgia / Georgia the in two substantive provisions invokes Kardassopoulos Mr. relevant the claims, equitable and treatment fair and with his expropriation connection below: reproduced are which portions of 62. 61.

quitable quitable

tor be expressed in a ina tor expressed be Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

* “Article 2 “Article “Article 10 “Article 17 - - *

“Article 13 Expropriation “Article e shall such Investments be accorded treatment less less treatment accorded be Investments such e shall Promotionof and Protection Investment

ated at the time immediately before the Expropriation or impending impending or the Expropriation before immediately time the at ated ting Party shall not be nationalized, expropriated or subject to a a to subject or expropriated not be nationalized, shall Party ting not discriminatory; and law; of due process under carried out accompanied by the payment of prompt, adequate and effective and effective adequate prompt, the of payment by accompanied in the public interest; for public a which ispurpose in the

ropriation until the date of payment. date the until ropriation

(b) (c) […]” (d) compensation. ofInvestment value the amount to fair market the shall Such compensation expropri the in affect such of value as a way to the became known Expropriation Date"). "Valuation the to as referred (hereinafter Investment Inves the of the request at shall value market fair Such existing of exchange rate market of the the basis on Currency Convertible Freely include also shall Compensation Date. Valuation the on currency that for of date the from basis on a market established rate a commercial interest at Exp (1) Investments of Investors of a Contracting Party in the Area of any other other any of Area inthe Party Contracting of a Investors of Investments (1) Contrac measure or measures having effect equivalent to nationalization or expropriation expropriation or to nationalization equivalent effect having measures or measure is: Expropriation such where except “Expropriation”) as to referred (hereinafter (a) treatment. Such Investments shall also enjoy the most constant protection and and constant protection shall alsomost the enjoy Such Investments treatment. or unreasonable by impair any way in shall Party no Contracting and security or enjoyment use, maintenance, their management, measures discriminatory no cas disposal. In obligations. treaty law, including by international required that than favourable […]” (1) Each Contracting Party shall, in accordance with the provisions of this this of thewith provisions in accordance shall, Party Each Contracting (1) transparent favourable and uitable, eq stable, create and encourage Treaty, its in Investments make to Parties Contracting other of Investors for conditions to times all at accord to a commitment include shall conditions Area. Such e fair and Parties Contracting of other Investors of Investments Mr. Fuchs invokes invokes sole / Fuchs a Mr. substantive provision in in Georgia BIT Israel connection the claim: treatment equitable and fair his with 63.

damages for the

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ated Mr. Kardassopoulos’ 25% 25% Kardassopoulos’ Mr. ated ory measures the management, management, the measures ory he Georgia / Greece BIT and Article

vent, no less than the fair market value his of market fair the vent, no less than

18 - -

acted unfair and inequitableacted by treatment Respondent the which

does not make any claims under the [Georgia / Israel] BIT in respect BIT in respect / Israel] [Georgia the under claims any not make does Israel BIT. BIT. However,Israel Mr. Fuchs paragraphaverred at 89 his of

vestors of each Contracting Party shall be be shall Party Contracting each of investors by made Investments

interest in GTI and his 50% interest in Tramex’s loan to GTI, contrary to contrary Article to in loan GTI, Tramex’s his interest 50% and in GTI interest ECT; the of 13(1) maintenance, use, enjoyment or disposal of investments in its territory of of in its territory ofinvestments or disposal use,enjoyment maintenance, Party. Contracting other the of investors The Parties’ Respective Prayers for Relief expropri unlawfully that Georgia declaration a a declaration that Georgiatreated the Claimants’ investments unfairly, contrary to 10(1) the 2(2) of t Article of ECT, Article […] 2. full and security enjoy protection treatment and shall fair and equitable accorded shall in Party Contracting Neither Party. Contracting of other the interritory the or discriminat by unreasonable impair any way […]” / Georgia the of BIT; 2(2) Israel violation Article of damages to of for Georgia’s Kardassopoulos Mr. award an the of by ECT, 13(1) based required full reparation on the customarystandard e in any and, law international

In his Request for Arbitration, Mr. Fuchs pleaded an expropriation claim under Article 5 Article under expropriation claim pleaded an Fuchs Mr. Arbitration, his for Request In of the Georgia / took place after 18 February 1997 and arises out of the compensation process which which process out of compensation the arises 1997 and after 18 February place took on 23 Aprilbegan 1997”. in hisuest Req pleaded expropriation as claim, understands Fuchs’ that Mr. Tribunal The has totally disavowed Accordingly, Arbitration, or this abandoned. either claim for been further Award. ispresent in not the considered G. In these arbitrations the Claimants seek both declaratory relief and violations by thealleged of Respondent terms the Georgia the of the / Greece BIT, relief the following seek Claimants the particular, ECT. In and the BIT / Israel Georgia thisfrom Tribunal: (b) Memorial that he “ he that Memorial of 1996 the expropriation of his investments, but rather seeks redress in these for theproceedings protr (a) (c) 64. 65. 66.

both both el Ltd. as r payabler to the Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ngfully denied to Mr. toMr. ngfully denied Fuchs in the

award interest payment,award of until on the date the -

; 5 19 - -

IT in the amount of $137,901, being each Claimant’s 50% share of Claimant’s 50% in amount the each $137,901, being of IT

award interest,award well as post as - an award of award damagesan to Fuchs for Mr. Georgia’s 2(2) violation Article of the of Georgia / Israel BIT equal to the amount wro investments on the Valuation Date (including his interest in Tramex’s loan to loan Tramex’s in interest his (including Date Valuation the on investments GTI); above); process (equivalent to (c) compensation of Georgia’s 10(1) Claimant for violation Article of damages to of each award an the ECT, Article 2(2) of the Georgia / Greece BIT and Article 2(2) of the Georgia / Israel B in 1997 and the between participating while 2003 incurred expenses Tramex’s compensation Georgian process pre damages so awarded; and including proceedings, the the pay these costs of costs of that Georgia Order an the Claimants’ legal representation, experts’ fees and related disbursements, as paid o costs already arbitration share of all the Claimants’ as well fees Tribunal). the the (including of expenses Centre and and entirety; in their claims Claimants’ the Dismiss itsGeorgia Award in costs connectionincurred withings, including proceed these Georgia’s legal fees, experts’ fees and other costs and Georgia’s share of the fees Centre. Tribunal the the expenses of and and FACTUAL BACKGROUND

ward in the form of a detailed chronology. Where disputed by the Parties, the Tribunal the disputed by Where detailed a chronology. of in form the ward (d) (f) (e) (g) Georgia, that this of Republic Tribunal: The in requests turn, (a) (b) sets outThis below Tribunal its principal the decisions basis for factual in present the A in documentation contemporary adduced the facts from these established has primarily evidence by the Parties, supplemented by the testimony of their factual witnesses ( written) provided in proceedings. and as these to Tribunal the oral arbitration $137,901 being half of the total amount ($275,803) quantified by Deloitte Management Consultancy Isra Consultancy Management Deloitte by quantified ($275,803) amount total the of half being $137,901

5 67. II. PART 68. expenses incurred by Tramex while participating in the compensation process. compensation in the participating while Tramex incurred by expenses

”

r centre in

hey uring new export export new uring

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos even me when I begin to to I begin when me even Western Route). Western

born businessmanborn in living Israel,

ome order stability and to thereby Georgia 20 - - because that wasbecause had to anything how get you done tment foray into considerable presented Georgia risk. tment foray

it was vacuum, you must understand. I’m not saying t saying I’m not understand. you vacuum, must itwas

e teach me this business. I do no learn myself.” learn no I do business. this me e teach

are dangerous in the country, it really was financial vacuum: no banks giving, giving, banks vacuum: no financial was really it in country, the are dangerous no, stupid, were they not because It’s really need. So they contact. no banks -- tobegin need they but people, clever very were they way they cannot work. cannot they way Even big it’s Please, very important. important. Ithing, tell you one more letter a open to how know don’t they appear, they when like Lukoil, companies – the Only of credit. “After Soviet Union split, it appear vacuum in the system of the fuel and energy, offuel and energy, the in system the appear vacuum it split, Soviet“After Union before field, oil and own they Transneft, own they country, every because from the , budget centre the in export centre: the in concentrate was everything are you centre, is no there suddenly And centre. the from everything centre, of because the beginning; this was and any contract, have don’t they So alone. eithe beginning, the was This there. investors foreign for need was this, there someon learn, Introduction

[Tr. D7:6]. Expert testimony suggests, however, that the rise to power of President President of suggests, to power rise that the however, testimony [Tr. Expert D7:6]. Zviad removed President which coup 1992, the d’état in early following Shevardnadze fromGamsakhurdia brought office, s Georgia’s of period very early the with risk associated political the reducing significantly at which event, geopolitical prevailed any the landscape [Tr. D10:22].independence In inves Claimants’ the of time the Mrs. MacDonald, testifying on behalf of Respondent, testifying the MacDonald, Mrs. that “[t]here was stated no law, of was There no concept You quite worried safety. aboutitwere your was dangerous. or anything beingbribery wrong A. to replace the markets itpreferential hadaccess lostSoviet to former the Union. In to territory its through corridor transit a to develop sought investments Georgia particular, to Black from the (the oil gas Sea Azerbaijan and transport Mr. Hearing, Georgian the During a Nanikashvili, - the Georgia, as “vacuum” such independent states, infollowingdescribed newly left at the power the concentrated from had SovietUnion, which independence Following its independence in Georgia 1991, April soughtFollowing foreign actively investments as sec and infrastructure its energy national both developing of means a Soviet Russia [Tr. D2:24]: 71. 70. 69.

r of

owned oil company

f that Respondent f Respondent that Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos , possessing , possessing a legal based corporation, to Tramex International r in Georgia was Tramex, which is is which Tramex, was Georgia r in

21 - - 36]: is interesting to note that the letter dated 15 15 dated letter the to that note is interesting ”), in which Mr. Fuchs held equal shares with Mr. shares equal held Fuchs ”), Mr. in which n Israeli politician and member of the Israeli Parliament. Parliament. the of Israeli member and politician n Israeli Georgian Oil”). Georgian dia, various ministers of the Georgian Dr.Government and Georgian the ministers of various dia, bor Tramex ase the Respondent challenged investor an the status Kardassopoulos’ as Mr. challenged ase Respondent Respondent also contends that there is insufficient documentary support Respondent that contends also isthere support insufficient documentary that establishing evidence There in ample is, the view, Tribunal’s Tramex Panama was indeed the entity that signed the JVA with with JVA the signed that entity the indeed was Panama Tramex it connection, this In aimant’s assertion that he held an interest in Tramex Panama at the time time the at Panama in Tramex interest an held he that assertion aimant’s

“Neither Mr. Fuchs nor Mr. Kardassopoulos carried out any any carried out Mr. Kardassopoulos nor Mr. Fuchs “Neither in behalf their own or on name their own in in Georgia investments The investo Claim. the with relation Panama in registered and incorporated a legal entity identity separate and distinct from its owners.” (emphasis added) (emphasis its owners.” from and distinct identity separate

135. 138. 137. for Cl the of the basis on the Tribunal, Again, 1992. March in executed the was JVA evidence is before it, not by contention. Respondent’s persuaded the executed. was JVA the at time Panama Tramex in had an interest Claimant SakNavtobi and theSakNavtobi so Tribunal finds. 136. “ of Ministry the of Minister First Deputy Georgian the from 2004 November the before compensation for claim his that him informing toJustice Claimant proo compelling is additional rejected had been Commission USA: Tramex not the JVA, to party true the was Panama Tramex that aware was ., a Panamanian ., a Tribunal finding The ascorporation. dismissed this challenge, SakNavtobi (also known known (also “ SakNavtobi as signed Powe a Minister of Georgian the Industry meetings, these of result a As Inc 135- follows [Decision paras. on Jur., Several meetings took place in September 1991 involving, on the one hand, Mr. Fuchs, hand, 1991 involving, one Fuchs, in on the Mr. September took meetings place Several Gur Mr.Mr. and Nanikashvili, other on the and, the hand, of President the at Georgia Gamsakhur time, Zviad Mr. Revaz Tevzadze, the General Director of the Georgian State- the that during recalls here Tribunal 38]. Bundle, Tab The [Hearing Kardassopoulos ph jurisdictional corporate the of shift in identity a the his basis of of treaty the on claims purposes the for investmentvehicle from Tramex, a Delaware- The possibility of investing possibility in of was Georgia The first by Mr. broached oilFuchs, an Israeli Mr.trader. introduced toFuchs was representatives of the GovernmentGeorgian by Mr. a - Gur, Georgian Ephraim the on 4 September company with Fuchs 1991 through Mr. Tramex Attorney (“ (International) Ltd. 73. 72.

hares of of hares Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos or the purpose the or of theexploiting Georgian

Deputy Deputy Minister of andIndustry General the ant times (and remains now), the beneficial theremains beneficial now), (and times ant About Some Activities Related to the Oil and Gas Oil and Gas to the Related Activities About Some 22 - -

contradicting the extensive evidence submitted by by submitted evidence extensive the contradicting

Smith himself who confirmed that Claimant is the exclusive exclusive the is Claimant that confirmed who himself Smith above, Claimant, however, maintains that he has been the beneficial thehe hasbeen beneficial that maintains however, Claimant, above,

acus Ab from again 1993, May 25 dated letter, a produced also Claimant the only became Claimant that Respondent by Itsuggested has been The Tribunal therefore concludes that Claimant had an interest in in an interest had that Claimant concludes therefore The Tribunal

“We, the undersigned, the owners of all the shares of Tramex of Tramex shares the all of owners the the undersigned, “We, do hereby in Panama, registered company a Inc, International in the and interest title our all rights, transfer and irrevocably assign totion considera Tramex Inc without International Tramex of shares numbered 1 and 2 the please find certificates Enclosed BV. Development of issued shares and outstanding ofin the all respect issued to Bearer Inc.” International Tramex This evidence includes a letter dated 4 May 1993 from Abacus (C.I.) Limited, a a Limited, Abacus (C.I.) from May 1993 4 dated a letter includes This evidence s the of all owned which Islands Channel the in incorporated company Tramex International Inc. (i.e. Tramex Panama), to Tramex Development BV, a BV, Development to Tramex Panama), Tramex Inc. (i.e. International Tramex trust” intermediate “an as and used Dutch Antilles the in incorporated company Fuchs Mr. and Claimant purposes. for planning tax Fuchs Mr. and by Claimant stated in that letter: 139. shares. the bearer of one of beneficiary 140. (C.I.) Limited to Tramex Development BV, which confirms that two bearer share share two bearer that confirms which BV, Development Limited Tramex to (C.I.) BV Development Tramex to date that on transferred physically were certificates witness the by supported is This Israel. in attorney an Smith, Jack Mr. c/o Mr. of statement already As 1993. May in shares bearer the of one of beneficiary exclusive mentioned this point. on Claimant owner of one bearer share of Tramex Panama since February 1992. Claimant’s 1992. Claimant’s since February of Panama Tramex share bearer owner of one did of Fuchs. Respondent Mr. the witness testimony by issupported affirmation statements witness any file not 141. Tramex Panama at the time the JVA was executed. The Tribunal accordingly accordingly The Tribunal the at executed. time was JVA the Panama Tramex relev all at was, Claimant that finds a owned indirectly and Panama Tramex in capital of the share 50% of holder in investment an out carried which GTI vehicle venture joint inthe interest 25% ” Georgia. In December 1991, Mr. Fuchs, Mr. Gur and Mr. Nanikashvili met again Mr. with Prime the and met again Nanikashvili Gur Mr. December 1991, Mr. Fuchs, In Minister Minister, of the the Industry, which erupted this revolution visit, 1991 the During in SakNavtobi Georgia. of Director the explained during of Fuchs Mr. As Gamsakhurdia. President to deposing led the Two monthsTwo following this on meeting, first 1991, 8 November Georgian the of Cabinet 834 “ No. Resolution Ministers adopted Production and Refining in the Republic of GeorgiaProduction and Refining in Republic the This Resolution”. the authorized betweenjoint SakNavtobi venture and Tramex f Rustavi, license. and as export Ninotsminda, the oiloil of of Manavi as under fields well 75. 74.

[Tr.

we don’t don’t we ” [Hearing ”, the preamble year term unless unless term year -

e vehicle owned in 10 million tones tones 10 million - the other Party within six other the Party

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

Letter of Intents of Letter Poti)on the basis of this ”), a joint a ventur ”), Batumi’ Batumi’ thePipeline (on terrain - and exploitation of the local resources resources local the and exploitation of

this period, the Claimants stayed: “ stayed: Claimants the period, this

business,’ and this is how it developed.”

Gachiani’ Pipeline; Gachiani’

refinery on the terrain adjacent to Samgori to Samgori adjacent terrain on the refinery - Gachiani’ Pipeline; Gachiani’ l

- 23 - -

refinery with the capacity of 8 of capacity the with refinery - 200 thousand tones per tones year;200 thousand - (Supsa unit transferring -

Poti; “the rational extraction extraction “the rational -

ion of a large oil large a of ion ”) which created GTI Ltd. (“GTI

Khashuri -

written however,written were, amendments to made draft the by both contracting -

chiani ‘Ga the of a branch of The construction adjacent to Poti); oil an of construction The Gachiani construct The branch; – for products oil main Pipeline a new of theIn construction prospect, - ‘Grozno the main of The construction The construction of the main ‘Baku the main of The construction year.” per The Joint Venture Agreement “1.1 The construction of a small of oi The construction “1.1 - 50 of capacity the Mine, with

of which takes note that note takes which of as venture joint the of activities planned the details document 40]. Tab This Bundle, follows: for provided 1]. JVA by Tramex Tab The [Hearing SakNavtobi shares and Bundle, equal an initial term of 25 years, automatically renewable for a second 25 to agreement the terminate to intention its notified Party either of the months expiry agreement. the of draft original JVAThe prepared by Mr.was attorneyFuchs’ in JackMr. Israel, Smith. Certain hand has great importance for the establishing of an independent market economy for establishing the has importance great of independent an D4:153]. This commitment appears, at least initially, paid least at to appears, have off. D4:153]. This commitment “ SakNavtobi 1991, a Tramex signed and 7 December On the 1992, on 1992, Tramex spring of asigned SakNavtobi In Joint 3 March and Venture Agreement (“ JVA B. Hearing, while others left Georgia during Georgia left others while Hearing, leave the county we come back, and they see that we were serious, we did not escape, we said,a had back, theyand they people where know we good presentation, ‘These come comingare from, we can give them more 78. 76. 77.

in ency –

ner to maintain, to maintain, ner mproving the mproving ability including offering use use offering including Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos for transport or storage for or storage transport

–

Joint Venture shall act in accordance inaccordance act shall Venture Joint

widest range possible of in range buyers, possible the widest

and shall deal for the Republic of Georgia in in of Georgia Republic the for deal shall and 24 - - – 3 of the JVA, which provides as follows: as JVA, the provides 3 of which

written amendments, are central to the disputes between facilities, and the purchase, sale, storage and export of Oil of Oil storage and export sale, purchase, and the facilities, after described described after

to be placed at the exclusive use of the Joint Venture by the Georgian the Georgian by Venture Joint the of use exclusive the at placed tobe he session. final negotiating Several of JVA’s the provisions, including The construction, maintenance and operation of a small Oil Oil small a of and operation maintenance The construction, –

A. 50- of capacity the Mine, with Samgori to adjacent terrain the on refinery year; per tons 200 thousand The Joint Venture shall have sole, exclusive and uninterrupted use of the Export Export ofthe use uninterrupted and exclusive sole, have shall Venture Joint The License herein as Partner of such Oil and Gas Facilities to third parties parties third to Facilities and Gas Oil of such The Joint Venture shall have the sole, exclusive and uninterrupted use to be be to use uninterrupted and exclusive sole, the have shall Venture Joint The the Part Georgian by Joint the to Venture provided exclusively currently of Georgia, in Republic the Facilities Gas and use Oil all operate and of Republic the from rights exclusive and sole the have shall Venture Joint The of Georgia: in Republic the Projects following the out carry to Georgia under the control of the Georgian Partner and future ones future and Partner Georgian the of theunder control with the following principles: following the with Gas. and Oil export of and sale the acquisition, “The Joint Venture is created for the purpose of developing and strengthening strengthening and developing of purpose the for created is Venture Joint “The introducing of Georgia, of Republic the of markets independent free and the i of industry, Gas Oil and Georgian the into methods Western and Gas Oil in world effectively to participate Georgia of of the Republic natural resources the in exploiting efficiency maximized for ofmarkets, providing curr foreign of inflow increased for providing of Georgia, of Republic the of Gas, and Oil to related in matters dealing of and of Georgia, Republic the into Oil and other and Gas of Oil pipelines and Gas theincluding construction and storage transportation, refining, processing, manufacturing, production, infrastructure other and Oil in world Georgia of Republic the of representation products, and Gas of the in Republic resources Gas and of Oil exploitation and markets, Gas aforementioned the In achieving Georgia. The Joint Venture shall take all actions and measures and enter into the the into enter and measures and actions take all shall Venture Joint The and Gas Oil import and/or to acquire arrangements and agreements necessary and to tosell and/or export to the Republic of Georgia and/or outside thereof, the largest volume possible of Oil of Oil possible the volume outside thereof, largest and/or Republic of Georgia the by Facilities and Gas Oil the of utilization the to maximize and/or and Gas of the Republic within from both customers possible, of and users range widest prices. free market at it,of and outside Georgia consideration for payment of a rental or users fee or royalties [handwritten text text [handwritten royalties or fee users or rental of a for payment consideration in emphasis]; 3.2 3.4 3.3 3.1 the Parties and are therefore reproduced in full below. parties during t during parties - hand containing those of certain Article in forth set is mandate GTI’s 79.

Batumi Batumi - - -

ntations both in in both ntations

ities or order of of order or ities nsferring unit and Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos tra ht of first refusal in the the in refusal first of ht -

Poti; -

Poti branch between Gachiani between branch Poti

- Khashuri -

Pipelines. Gachiani 25 - - enance and operation of a large Oil a large of Oil and operation enance 10 million tons per year on a site to tons year be 10 million per - [handwritten text in[handwritten emphasis].

Gachiani transferring terminal; and further shall coordinate coordinate shall further and terminal; transferring - Poti) on the basis of the abovementioned branch branch abovementioned the of thebasis on Poti) ome of the Joint Venture. of Joint the ome

construction, maintenance and operation of the main the of main operation and maintenance construction, Batumi” Pipeline (on the terrain adjacent to Poti); adjacent terrain the (on Pipeline Batumi” - - of Checheno Republic the and of Azerbaijan Republic the with Gachiani” Pipeline; Gachiani” - Grozno the and Gachiani - The construction, maintenance and operation of a new main main new a of operation and maintenance The construction, The construction, maintenance and operation ofOil an and operation maintenance The construction, The construction, maintenance and operation of the main “Bako the of main and operation maintenance The construction, The the branch a ofof operation and maintenance The construction, The construction, maint The construction,

int Venture shall have the sole and exclusive right to represent the the represent to right exclusive and sole the have shall Venture int

- “Grozno D. G. of 8 capacity the with refinery Pipeline for Oil products – products Oil for Pipeline upon; agreed F. E. - (Supsa unit transferring Pipeline; Batumi” “Gachiani the of B. Gachiani” Pipeline; Gachiani” C. “Gachiani The Joint Venture will be located in Tbilisi and its offices shall be located at a a at located be shall offices its and Tbilisi in located be will Venture Joint The the decision to according and expedient be may As “Tbilisi”. the Hotel in suite represe and branches open will Venture Joint the theof Board, countries. of third in and the territory countries of the participating the territory necessary the all receive shall Venture the Joint by opened branches Any of Georgia. theof Republic authorities competent the from licences The Jo The foreign with projects related or energy Oil and Gas in any Georgia Republic of persons. the using activity the mentioned above out carry will The Joint Venture inc and Fund Authorized The Joint Venture shall have the sole and exclusive rig exclusive and sole the have shall Venture Joint The Republic of Georgia to participate or implement any other Oil and Gas related related Gas and Oil other any implement or participate to Georgia of Republic than the can be reached Georgia. no agreement If of in Republic projects the Government will issue a willtender issue Government Pipeline and the Poti oil Poti the and Pipeline contracts of and constructing projecting the issues of the coordinate in to order Inghushety the Bako For the sake of clarity, the Partners acknowledge that the listing of the Projects Projects the of listing the that acknowledge Partners the of clarity, sake the For prior of establishment constitute not does as above implementation and all Projects shall be implemented in accordance with the the with in accordance be implemented shall Projects and all implementation 8 below. Article of provisions Georgia of the of Republic Government the contact shall The Joint Venture oil an of construction the of inclusion regarding and Port, Poti of reconstruction the of the design in terminal corresponding the of Supsa regarding construction 3.9 3.7 3.8 3.6 3.5

and

December in the Republic inthe Republic

y of said license license said of y least until until least

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

her conditions connected with their their with connected conditions her

Georgia to acquire, import, export and export and import, to acquire, Georgia

26 - - and chemical products chemical and and Gas

products

that the said license will remain in force at force in remain will license said the that

roval of the Joint Venture.” Joint the of roval Oil [sic] [sic] Oil

s and representations of the Joint Venture may or may not be be not may or may Venture Joint the of representations s and crude oil crude

rry out the Projects as described hereinafter. described as Projects the out rry sell sell that it holds the Export License under which it has the sole, exclusive and and it the exclusive which sole, has License under the itthat Export holds of Republic the from rights irrevocable beyond said period, and its continued sole uninterrupted and irrevocable use by by use irrevocable and uninterrupted sole continued its and period, said beyond material of is thereafter, conditions of terms same the on Venture Joint the its ability to Venture of and Joint the operation for continued the importance ca 1995, and that such license may be placed at the sole, uninterrupted and and uninterrupted sole, the at be placed may license suchthat and 1995, [handwritten license. the of the duration for Venture Joint the of use irrevocable emphasis] in text and discovered and “all the existing pipelines, production, manufacturing, processing, refining and and refining processing, manufacturing, production, pipelines, existing the “all other and storage units, g transferrin lines, rail installations, transportation to by or the related used Oil Georgia in Republic of the facilities infrastructure the in Projects.” included Facilities Gas and Oil and all industry and Gas empowered by the Republic of Georgia to exclusively represent the Republic of of Republic the represent exclusively to Georgia of Republic the by empowered matters. related and energy and Gas Oil in all Georgia It is and will remain for the duration of the Joint Venture fully owned and and owned fully Venture the of Joint the for It duration and will remain is appointed been duly hasit and Georgia of Republic the by controlled which it bought, processed, produced, and transported transported and produced, processed, it bought, which abroad and of Georgia The Partners agree and understand that the continued validit continued the that understand and agree The Partners A separate branch or representation may be formed for the purpose of carrying carrying of purpose the for formed be may representation or branch separate A Projects. or Project particular any out The branche of representations or Branches Board. the by decided as entities, legal separate for the responsible be not shall legal entities, are which the Joint Venture esentations. repr or branches such of commitments The issue shares. may Venture thethe Joint of Board, decision By unanimous all ot and shares, of and terms such nature Board. the by determined as be shall issuance, any in rights subordinate or equal preferred, granted be may third party No without prior stated by,to, the above or used as Joint Venture rights granted app unanimous

3.10 3.11 Under Article 4 of the JVA, SakNavtobi and Tramex each made certain declarations and Pursuantrepresentations. to Section 4.1, SakNavtobi declared and represented the following: The “Oil and Gas Facilities” contemplated in Article 3 were defined at Section 1.12 to mean: B. “A. 81. 80.

monetary -

. [handwritten

port of Oil and Gas, and Gas, of Oil port Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ally every 5 years 5 every ally ght to construct, manage, maintain, maintain, to manage, construct, ght How in matters relating to Oil and and Oil to relating matters in How

How in Western methods in the Oil Oil the in methods Western in How

- - How in shipping of Oil and Gas. and Oil of in shipping How -

27 -

- nt Venture, the Export License and any extension thereof, thereof, extension any and License Export the Venture, nt maximization on world markets. on world maximization

the sole, exclusive and irrevocable right to manage, maintain, possess, possess, maintain, manage, right to and irrevocable the exclusive sole,

s the necessary financial capability and resources to fulfil its investment investment its to fulfil and resources capability financial s the necessary t maintains connections with persons and companies active in world Oil Oil world in active companies and persons with connections t maintains

and agents to to agents and representatives employees, of staff a disposal its at has it that and Gas.” in Oil trade international conduct that it has experience, expertise and Know expertise itthat has experience, Gas and in particular to world Oil and Gas markets, ex markets, Gas and world Oil to in particular and Gas profit pricing and that i that to relevance of institutions and other in banking Western and markets and Gas activities. its and venture the Joint that it has experience, expertise and Know and expertise experience, it has that industry. and Gas Know and expertise experience, has it that operate and use the Existing Oil and Gas Facilities and to charge fees for the the fees for and to charge Facilities Oil Gas and Existing the operate and use thereof. use or permits received by it at the use of the Joint Venture on the same terms and and terms same the on Venture Joint the of use the at it by received permits or herein. stipulated conditions that it has the Joint Venture and will be renewed automatic be renewed will and Joint Venture the automatically by additional 5 years, immediately at the time of the registration of of registration time the of the at immediately 5 years, by additional automatically that it ha it that this Agreement. in as specified undertakings text in emphasis] in text The Georgian partner shall place all new, additional or extended export licences licences extended export or place additional new, all shall partner The Georgian The Georgian side accepts and agrees that the Export License will be extended extended be will License thethatExport and agrees accepts side The Georgian to place at the sole, uninterrupted and irrevocable use of the Joint Venture, for for Venture, the of Joint use irrevocable and uninterrupted sole, the to at place ri exclusive its Venture, of the Joint the term and Georgia of Republic the in Facilities and Gas Oil and operate possess to place at the sole, uninterrupted and irrevocable use of the Joint Venture, for for Venture, the of Joint use irrevocable and uninterrupted sole, the to at place Joi the of term the it. by received License Export additional or thereto successor

Article 5 of the JVA provided that GTI was to be funded by an initial an amount of by was funded to be that GTI JVA the 5 of provided Article by parts in equal contributed and Fund” “Authorized in an deposited 20,000,000 roubles, Partner Tramex. Each and SakNavtobi to the JV was also to make certain non contributions to GTI. Pursuant to Section 5.3, SakNavtobi was to contribute the the to contribute was Section 5.3, SakNavtobi Pursuant to contributions to GTI. following: Pursuant to Section 4.2, Tramex declared and represented the represented the and following: Pursuant to declared Section 4.2, Tramex F. D. C. […]” C. 5.3.2 “5.3.1 “A. B. E. 83. 82.

law. law. as, and as, and

ment in full full in ment s not subject to to subject not s

ribution was as follows: as ribution was Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos tives in the Oil and Gas Gas and Oil the in tives

to full reimbursement for the the for reimbursement full to

28 - - “ARTICLE 12 c international law. c international

How and international contacts relating to World Oil Oil to World relating contacts and international How - Continuity of Property and Other Rights and Property of Continuity How and international contacts in the shipping industry.” thein shipping contacts international and How -

the JVAthe the of followed procedure to be in event addressed an the

Its international employees, agents and representa and agents employees, international Its industry. machines, telecopier and telex computers, such as systems, Communication required of for initialoperation the the Joint Venture. Know Its expertise, introduce therein any and all Oil and Gas produced or acquired by it or by the the orit by by or acquired produced Gas all and Oil and any therein introduce and G export Oil and import sell, market, to in order Joint Venture further to introduce into said Facilities Oil and Gas belonging to others for for others to belonging Gas and Oil said Facilities into introduce to further royalties or fee users rental, any charge to and processing, or storage transport, therewith” in connection Its expertise, Know Its expertise, to and industry, Gas and inOil the methods Western pricing, export, Markets, generally. Gas Oil and All property owned, leased Allor leased owned, property used bythe Joint Venture i expropriation, confiscation or nationalization. The property rights of the Joint Joint the of rights property The ornationalization. confiscation expropriation, the legislation of Georgian regulations with accordance are in Venture protected public international treaties and of conventions international and applicable leased including property, other and equipment Oil, the The rights Gas for protected are Venture to Joint the which belong and property, equipment international toaccording legislation applicable the the and Georgian treaties and publiconventions, The entry of the Republic of Georgia into any confederation or union shall not shall not union or confederation any into of Georgia theThe entry of Republic rights or nationalize confiscate expropriate, power tothe any entity confer upon in rights mentioned from derogate any way in or Joint Venture the of or property 12.1 above. Article or confiscation expropriation, event of or act alleged or attempted Any purported rights shall be and null Venture, or its of its Joint property the nationalization Partner Foreign the entitle forthwith shall and void, Foreign Partner’s contribution to the Authorized Fund and any amounts invested invested and any amounts Fund Authorized the to contribution Partner’s Foreign value market free the on interest bearing Projects, inany Partner the Foreign by reimburse such until and is higher whichever investment, of such shall forthwith entitle the Foreign Partner to payment of such users fee, rentals, rentals, fee, users of such topayment Partner Foreign the entitle forthwith shall tobe arbitrator an by determined be shall as compensation other or royalties in period any during this Agreement, of provisions to the appointed pursuant

Article 12 of Article follows: as similar event, other stating or expropriation, nationalization In JVA, the to Section 5.4 of addition, Tramex’s pursuant In cont “5.4.1 5.4.2 5.4.3 5.4.4 12.1 12.2 12.3 85. 84.

term term - future

agree and and agree

.”

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

vis third partiesvis

- à - Poti) of the main oil pipeline pipeline oil main the of Poti)

Parties and the Government of the the of the Government Parties and ty percent of the revenue of the Joint Joint of the of the revenue ty percent

acent to the main facilities of Samgori Samgori of facilities main the to acent

Acknowledgement 29 - matter of this Joint Venture, and no and Joint Venture, this of matter - - “ARTICLE 21 Venture Agreement involves a substantial, long a substantial, involves Venture Agreement Gachiani main oil pipeline within the Republic’s the Republic’s within pipeline oil main Gachiani Government

and the Government of the Republic of Georgia the of Republic Government and the and that the applicable legislation of the Republic of Georgia as of as of Republic of Georgia of the legislation thethat applicable and

Batumi and construction of the new oil terminal (on a terrain adjacent adjacent a terrain (on terminal oil new the of construction and Batumi -

any such purported, attempted or alleged acts are being carried out out carried being are acts or alleged attempted purported, such any

as partially struck partially as out by hand indicated by strikethrough here (as final the type), territory.” million tons per annum, on the adj terrain on annum, million per tons oilfield and development of the technology for producing a premium quality quality premium a producing for technology of the development and oilfield in defects in pinpointing used widely and others) (“Noroil” oil luminescence refinery; above the at configuration complicated with components Gachiani to Poti). The Partners hereby stipulate that the rate of the rental, users fee or royalties to to royalties fee or users rental, the of rate the that stipulate hereby Partners The fif at least be of in rate the be awarded shall as amounts additional any also may award The arbitrator Venture. profits.” of loss of respect inor expenses of reimbursement “Construction of a compact, ecologically safe oil refinery, with a capacity of one one of a capacity with refinery, oil safe ecologically a compact, of “Construction - (Supsa pipeline branch the of Construction - Baku of Construction legislation shall prejudice or detract from any rights of the Joint Venture or of of or of Joint Venture the rights any from or detract shall prejudice legislation vis rights including hereunder, Party the Foreign The Parties hereto hereto Parties The Accordingly, with herein. dealt the subjects all address not hereof may the date by the and covenanted it agreed is hereby Agreement, Venture Joint this of provisions the that of Georgia Republic the as in date on effect legislation Georgian of provision by the supplemented subject the govern shall hereof, which against the rightsof a ofproperty the Joint Venture. acknowledge thatacknowledge this Joint investment. ough this fact has no material bearing on this no fact Tribunal’s has bearing the findings). ough material

- - - On 7 March 1992, the Georgian Cabinet of Ministers adopted Resolution 123G under under 123G Resolution Ministers adopted of Cabinet Georgian 1992, the 7 March On [Hearing Bundle, venture the joint to register Finance of the Minister ructed it inst which would was Ministerthe on 9 March by duly registered 5]. Finance of 1992 (It Tab GTI properly was registered not, several that GTI in fact, on this later date, appear years alth “fields activity” of follows: as GTI’s Resolution defined 123G Finally, Article 21, which contained an acknowledgement of the JVA by the Georgian JVA the of by acknowledgement an contained Article 21, which Finally, State, w clause appearing as follows: 87. 88. 86.

sters in sters ect cost,

”. ”, at at ”, US $29.5

to improve of structure the

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos t pipeline the next stage ”. Oil Pipelines (also known as as Oil known Pipelines (also

he rights overhe Georgia’s oil main

Poti oil produc oil Poti - advisable review to elaborate, and sanction

30 - -

Khashuri ton capacity oil refinery.” oil capacity ton - - d obtain a formal Deed of Concession from Transneft Transneft from Concession of formald obtain a Deed Gachiani main oil pipeline. oil main Gachiani

- . D8:19]. acknowledge[d] was agreement that with the coordinated the 10 million 10 transhipment rack at Gachiani railway, estimating the total proj the estimating railway, Gachiani at rack transhipment - ”), was “united of SakNavtobi in department the Batumi pipeline [Tr pipeline Batumi

- called “early called “early oil”was officially project by the approved Cabinet Miniof ion, the Resolutionion, the that it noted was “ The Deed of Concession Construction of a new Gachiani a new of Construction 8- an of Construction “Construction of a Grozny of “Construction -

Transneft - - - Decree 951, passedNo. Decree Tab 15 Decemberon 1992 [Hearing 7].Bundle, particular, In at on terminal a construction commence to GTI authorized Ministers of Cabinet the an Supsa and oil In addit In “ of Ministers Cabinet The .” of Georgia Republic ofMinistry of The Industry 1992, the Ministers issu of Cabinet 14 December ed On Decree No. 1105, which effected reorganizationa of of the management fuel and resources energy in [HearingGeorgia Tab 6].Bundle, The purpose of this reorganization was “ ofmanagement fields the inincluded the complex of fuel and ofenergy Georgia, increase resources and provide population fuel and energy the withits effectiveness the in Department the a as established was 1105, SakNavtobi No. Decree of result a As t held which entity the and Energy and Fuel of Ministry Amalgamation Georgian pipeline, of - Main Industrial “ The so oil andincluding oil product reconstruction pipeline in “ C. ” for the following projects: following the appropriate proposition design the for ” million. restructuring of the Following the fuelGeorgian andsector, energy the contracting parties shoul GTI that JVA decided to the to Tevzadze, Dr. According JVA. the under it obtained had rights the to confirm in order begun the refurbishment of on the already with work to the continue this necessary was Samgori 89. 90. 91. 92. 93. 94.

”). The The ”). ified by the by ified es and ”) in favour of in favour ”) Petroleum Petroleum

Concession Deed

that GTI has met this this has GTI met that

including pumping pumping including – Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos provements or extensions to to extensions or provements etroleum etroleum

31 - -

sponsibility during the Concession Period all the the all Period Concession the during sponsibility the concession granted hereunder to GTI, including including to GTI, hereunder granted theconcession – tored properties, which may be used by GTI.” be used may which properties, tored

year concession over Georgia’s “ Pipelines over (the concession year

Concession’ means means Concession’

“the existing main pipelines systems in the geographical territory of the Republic of Republic the territory in systems geographical the pipelines “the main existing of P and/or storage transport for ofGeorgia “‘The the Pipelines it may deem necessary. The Board of Directors of GTI shall closely closely shall GTI of of Directors Board The necessary. deem may it the Pipelines concerning in resolutions management with Transneft consult on a regular basis Pipelines. the be made to and investments ses of expen nature the the to ongoing Having regard Fee the Concession Period, the Concession throughout inby Pipelines GTI the paid to be deemed be shall and Period Concession the throughout shall accrue expens the for consideration in Period Concession entire the throughout of GTI.” investments In consideration for the grant of the Concession, GTI agrees to bear on its its on to bear agrees GTI Concession, the of grant the for In consideration re own its for and account reasonable and ordinary the out carrying in involved investments and expenses of Petroleum method existing the upon and based the of Pipelines maintenance im any effecting in and calculations cost transport the sole and exclusive control and possession of the Pipelines, all the rights with with rights the all Pipelines, the of and possession control exclusive and sole the Transneft, of assets the use and possess to right the Pipelines, the to respect s presently excluding facilities, storage and discharging loading, units, transferring terminals, stations, the of part forming installations or equipment other any and stores workshops, or new extensions and any system Pipelines transport Petroleum addedpipelines in the future” GTI confirms that the minimum initial investment in the Pipelines shall be US$ US$ be shall Pipelines the in investment initial minimum the that confirms GTI obligation.” Article 7 contained the declarations of GTI, providing among other declarations that declarations other providing among the GTI, of 7 contained declarations Article “ and Transneft acknowledges Dollars) U.S. Million 1,000,000 (One GTI, granting it 30- granting a GTI, Article 6 of the Deed titled “Concession Fee” set forth the consideration for the grant of for grant the set consideration the Fee” forth titled “Concession Deed the 6 of Article Concession: the The “Pipelines” the subject of the Concession were further defined in the subject were the Concession the “Pipelines” of further Deed as: The On 28 April 1993, Transneft executed a Deed of Concession (the “ (the Concession Deed of a executed 1993, Transneft 28 April On was by signed Deed witnessed and both Transneft by SakNavtobiGTI, and rat are Deed the provisions in TabSeveral [Hearing 3].Bundle, Energy and Fuel Minister of below.disputes to these therefore are reproduced material also and key defined those in Deed, “Concession” was terms the Among asdefined follows: 6.2 “6.1 99. 98. 97. 95. 96.

TI, ent,

tions or extensions. tions or detachable from the the from detachable - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos to effect improvements, improvements, effect to

l return the possession and and l possession return the

Samgori segment of the Pipelines segment the of Pipelines Samgori - the sole property of GTI.” property sole the

additions or extensions to the Pipelines Pipelines the to extensions or additions I shall have a property interest in the inthe interest property a have I shall

32 - -

year period, GTI period, to GTI possession the the was of use return and year

Petroleum and the storage facilities constructed by GTI at the the at by GTI constructed facilities the storage and Petroleum

Without derogating from the generality of the foregoing, upon the termination of of termination the upon foregoing, the of generality the from derogating Without uninterrupted the GTI allow to continue shall Transneft Period, the Concession improvements, investments, any of use made by GTI and accordingly shall maintain the connection to the Pipelines of of Pipelines the to connection the maintain shall and accordingly GTI by made transport the and shall continue extensions or additions improvements, any such addi improvements, such any through Gas and of Petroleum Upon the termination of the Concession Period, any investments, improvements, improvements, investments, any Period, Concession the of termination the Upon sole the shall remain GTI by the to Pipelines made extensions or additions GT additionally and GTI property of Pipelines equal to any outstanding loans of GTI to Transneft at the date of Transneft of at of date to loans the GTI to equal anyPipelines outstanding this of Deed of purposes the for (and Period Concession the of termination deemed an investm be also interest shall property such Concession the to Pipelines). extension or addition improvement, At the termination of the Concession Period, GTI shal GTI Period, the of Concession termination At the to Transneft. Pipelines the of use extensions or additions to the Pipelines, at its discretion and in consultation with with and in consultation its discretion at Pipelines, the to or extensions additions or addition Pipelines, the of segments of replacement including Transneft, , loading units, transferring terminals, stations, of pumping improvement ofdischarging the and storage facilities, attachment toPipelines or existing other of pipelines to Pipelines the of attachment and fields oil prospective states. sovereign irrespective of whether they are detachable or non or detachable are they whether of irrespective Pipelines. provisions, Transneft hereby acknowledges that the rack for loading and and loading for rack the that acknowledges hereby Transneft provisions, unloading and the Gachiani station railway Gachiani installed at GTI’s expense and the pipeline extension terminal and marine marine and terminal extension pipeline and the expense GTI’s installed at are at Supsa, by GTI constructed facilities

18.1 18.2 “ “10.1 During the Concession Period, GTI shall have the right the shall have GTI Period, Concession the During “10.1 10.3 Without derogating from the generality of Section 10.2 and in conformity with its its with conformity in 10.2 and Section of generality the from derogating 10.3 Without 10.2 All improvements, additions or extensions shall be the sole property of G of property sole the be shall or extensions additions improvements, All 10.2 At the end of the of end 30- At the Pipelines to Transneft. However, any investments, improvements, additions or additions investments, or improvements, any However, Pipelines to Transneft. GTI to were extensions itserty. to Pipelines the by prop sole Transneft remain made torights the whatsoever any grant lease or “pledge, not to Article in this undertook the thus provided Deed the 18 of Article Period.” Concession the Pipelines during following: Article 10 of the Concession contained several provisions concerning GTI’s rights to rights GTI’s provisions concerning several contained Concession the 10 of Article “Improvements, certain effect Additions Extensions to Pipelines”: the and 101. 100.

ents, ents,

21.1 above. 21.1 ssion Period.” ssion ipelines. how and expertise expertise and how of such expenses or or expenses such of - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

l forthwith entitle GTI the right to receive receive to right the GTI entitle l forthwith

33 - - gate from rights mentioned in Article in mentioned rights from gate tion, operational and managerial improvements of of improvements and managerial operational tion,

extensions plus the LIBOR rate for U.S. Dollars accrued thereon thereon accrued Dollars U.S. for rate LIBOR the plus extensions

of the Republic of Georgia into any confederation or union shall not shall not or union any into confederation of Georgia of Republic the

The Pipelines and all property owned, leased or used by GTI in connection in by GTI connection or used leased owned, property and all The Pipelines the or nationalization confiscation, expropriation, to subject not is therewith The whatsoever. entities or persons rights to ofany sale grant any or the of regulations with accordance in protected are GTI the of rights Concession public and treaties international applicable and legislation Georgian law. international The entry confer upon any entity the power to expropriate, confiscate or nationalize the the or nationalize confiscate power to expropriate, the entity confer upon any entities or persons other to rights any therein or grant to sell or Pipelines dero way in any or whatsoever Any purported attempted or alleged act or event of expropriation, confiscation, confiscation, expropriation, of event or act alleged or attempted Any purported or persons other to therein rights of grant or the Pipelines of nationalization shal and void, and be null shall entities full reimbursement for any amounts expended by GTI in managing, operating or or operating managing, in GTI by expended amounts any for full reimbursement or additions or in improvements, carrying out themaintaining Pipelines value market free the on interest bearing thereto, extensions to GTI entitle forthwith shall full in reimbursement such until and investment be shall as compensation other or royalties rentals fee, users such of payment of to this the provisions pursuant to be appointed by an arbitrator determined GTI I full upon the termination of the Concession Period and until such payment payment such and until Period Concession the of termination upon the IGTI full shall not rights hereunder other and all rights Concession GTI’s is effected, Pipelines and operate the manage to use, possess, continue may expire and GTI under the hereof. and terms conditions The amounts due to GTI under Section 18.3 above shall be due and payable to to payable due and shall be above 18.3 Section to under GTI due The amounts contributed by GTI concerning the Pipelines and any other tangible or or any tangible other and the Pipelines concerning GTI by contributed P the concerning GTI by established or created asset intangible GTI, increased demand from users of the Pipelines, know usersthe of Pipelines, from demand increased GTI, additions or extensions to the Pipelines, it shall pay GTI a price to be agreed price a pay GTI it be to agreed the to shall Pipelines, orextensions additions of cost the of sum (i) the than less not anyevent in but parties the between upon improvements, the investments, and maintaining managing inGTI installing, or additions GTI of and expenses costs of basis the on calculated per annum 2.5% annually + year. respective in each [sic] into in rate month LIBOR shall beThe LIBOR the to be twelve applied for compensation and (ii) Period, of Concession the year each separate for effect between upon be agreed to an amount in Pipelines the to GTI of contribution the by the income generated increased the based upon be shall which the Parties termina date the at Pipelines Upon the termination of the Concession Transneft shall notify GTI if it wishes to to wishes it if GTI notify shall Transneft Concession the of termination the Upon to the Pipelines extensions or additions improvements, the investments, purchase improvem the investments, topurchase wishes If Transneft GTI. from To ensure GTI’s rights hereunder Transneft undertakes not to sell, pledge, lease lease pledge, sell, to not undertakes Transneft hereunder rights GTI’s ensure To the Conce during to Pipelines the whatsoever rights any or grant

18.4 18.5 18.3 “21.1 21.2 21.3 Finally, the 21 of Expropriation”, titled follows:Article “No as Finally, provided Deed, 102.

35]: from my point of Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

in any international arbitration, arbitration, international in any relationship[Tr. D4:33- -- -

ting the JVA, the Georgian part, with the the Georgian with the part, JVA, the ting 34 - - profits.”

we were negotia were we ssed extensively the JVA, the concession came at a later stage. stage. later at a came the concession JVA, the extensively ssed

ould be strong in international international in strong be ould Agreement, during any period in which any such purported, attempted or or attempted purported, such any which in period any during Agreement, thereof. part or any Pipelines the against out carried being are alleged acts “I am interested to know what significance you attach to the difference between between difference tothe attach you significance what toknow interested am “I the in of formula breadth the that’s the formula use deed and the of concession in the JVA to describe the oil facilities, where, for example, in the JVA, it refers refers it JVA, inthe example, for where, facilities, oil the todescribe JVA inthe you how explain just you Could facilities. the of aspect one as refineries tooil instruments? two those saw therefore, and do with to pipelines, has The concession A. point in I that of what the is saw, view the mentioned view, commercial from venture, joint the means which JVA, the on applicable also is what is concession or ones, on any future had Transneft that pipelines the on had a concession GTI, I do whatever. or ones additional or ones, future or existing the of extensions difference. any see not to refers of concession deed the be that reading to may One it say Q. of to example, for refer, does not but pipelines petroleum new of extensions and facilities rail to explicitly refer doesn’t It facilities. other to and refineries sense. that in definition narrower a much it’s so on, so A. Yes. and concession of deed the 2 of paragraph between comparison a It’s Q. say I also in JVA. should the facilities of and gas oil the 1.2 of notion paragraph than rather submissions legal for a question is also this that Ithat appreciate you the saw relationship to how know interested I am but evidence direct witness instruments. two the between discu A. We the needed we that felt Georgians The JVA. the of part was Transneft Already, where about, came it this is the to and JVA, solidify in order deed of concession -- were we and international law and so on, and we were protected by the investment laws of of laws investment bythe protected were and we soon, and law international also. Georgia assistance of our lawyer, Jack Smith. The only thing that was of interest to us to us interest of was that thing only The Smith. Jack lawyer, our of assistance diminished. be not would terms JVA the that was concession of deed the means which applications same the that two, number And also w The arbitrator may also award any additional amounts as reimbursement of of reimbursement as amounts any additional award also may arbitrator The of loss of respect in or expenses The relationship between these two instruments (the JVA and Deed of Concession) is of is between JVAConcession) relationship two instruments Deed (the The and these to Further arbitrations. these in issue in rights the of scope the to important critically Mr. Kardassopoulos Tribunal by the merits Hearing, the on this during questioning matter inter following explanation their the of offered 103.

” 2)

minimal repair work 102; D3:143:1 to 144:2]. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos , an oil industry oil, an industry publication, Batumi pipeline; (4) building of a a of building pipeline; (4) Batumi Batumi pipeline [Hearing pipeline Batumi Tab Bundle, -

35 - -

44]. partners at the time that GTI’s work was deficient [Levy I,

Batumi pipeline which would bring the which to pipeline pipeline Supsa [Tr. would bring Batumi - elements of the project were undertaken and progressed by GTI by progressed and undertaken were project the of elements mi pipeline, others were not commenced at all. In any event, all VA terms would not be diminished, is that what you said? what you that is be diminished, not would terms VA ination during the merits Hearing, Mr. Frenkiel, project director for director project Mr. Frenkiel, Hearing, the merits during ination article published in Petroleumarticle was Argus Batu

- exam -

A. Yes.” Q. Can I just check what you said? On the transcript it says that your interest interest your that says it transcript the On you said? what just check I Can Q. J the that was Work Performed by GTI Work Performed by 66; Frenkiel I, paras. 15- 66; Frenkiel I,

The work involved in the GTI project was comprised of five principal elements: (1) (1) elements: principal comprised five project of was GTI involved in the work The ( Azerbaijan; from rail by oil receive to station railway Gachiani the of conversion 1995, May In an “ because project, GTI the to commitment Tramex’s questioning D. near Supsa on of port the distribution mooring and oil facility storage, an of construction - Samgori existing the of restoration (3) Sea; Black the an of building d (5) an Gachiani; at station loading to rail that pipeline the of branch new extension to Samgori the D2:65- to that been performed on thehad date Gachiani The Parties dispute the extent of work performed in respect of of GTI element the each extent dispute of the in Parties respect performed The work of certain Whilst project. as held oil such pipeline, rights in early period the the Tramex/GTI in which during work Supsa port, at railway station, testing on the design and work Gachiani construction Samgori the of 1994, and spring of the been by to have put on hold project on the appears work physical of nature ceasedend any by the 1995 [Tr. of D2:101- all work 147]. re On commitment Tramex’s 1992 to was 1996, explained criticism of from that the GTI project, repair the GTI the on other of elements completed been had works as misplaced, the but being one of [Tr. pipelin on the e D2:114].whole element work a and EngineeringCo. Ltd. Ludan from engineer chief of Levy, Mr. evidence written The thewitness for was Claimants (who not called to testify), confirms that no was suggestion made by any of the Georgian para. 12.2]: para. 104. 106. 105. 107.

versed in the inthe versed -

her provide financing or

Supsa pipeline project, with Supsa pipeline with project, Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos - i 94]. Ms. As Jap explained during

36 - - when they had comments or suggestions, they they or they suggestions, when had comments e very difficult, insurance was going to be difficult and and difficult to be going was insurance difficult, very e thin the Georgian government which called into question the into question the called which government thin Georgian the means you have to be flexible and you have to go the route route the go to have you and flexible be to have you means

term loan to finance the Gachian -

how tohow the advance further project. TramexGTI the engaged had - I said to you, it didn't seem the right way to go, to go alone as GTI; as GTI; go alone go, to to right way the didn'tit seem you, to I said

I looked to go to EBRD, I looked to Morgan Grenfell, and various other other and various Grenfell, Morgan I to looked go toA. I EBRD, to looked There was never any suggestion whatsoever by them that the of our quality by them whatsoever anyThere suggestion never was expensive, and it seemed the best way to go about this was to ally oneself with best seemed go about and it the to with this expensive, to was way ally oneself knew about in the worked region, who in the already region, was someone who those, of one for around looked then We et cetera. transportation, oil, pipelines, time. the right at along come to Root happened & and Brown a reach financing of potential sources any with discussions your Did any of Q. financing? the of terms specific discussing you were where stage as No, A. entities, including Turkish contractors, I believe, in order to see if there were were there see if to inorder I believe, contractors, Turkish including entities, zone a war a project in this that was became apparent It export credits. possible which was going to b “ made them early on and we took full account of them. This was a partnership in in This a partnership of was took them. full account them and we early on made .” sense a truest designs or the construction work was in any way deficient. This was a highly a highly was This deficient. way in work was any the construction designs or and them, to important project Partnership Proposed The TramexBrown between Root and & “ you had to align yourself with a large corporation who was well was who corporation large with a yourself to align you had subject, and in the area, in order to be successful, and that's what we sought to to sought we that's what and to order be successful, in the in area, subject, and do. Doing these projects that the circumstances dictate, not, you know, blindly following the route that that the following route blindly not, you know, dictate, thethat circumstances ” possible. was thought perhaps you first

Whilst progress of the GTI project was differentthe clearly at project of points to GTI Whilst encumbered due progress including theft concerns, project materials insurgent of security and fighting in certain proximateregions to project sites, oral the and evidence documentary that discloses of upon the emergence only waned to have appears project the commitmentTramex’s to wi steps taken and rumours development in the GTI’s exclusive of rights early oil the validity of pipeline. E. 1994, TramexIn began to look for partnera that would eit know operational Claimants, the of witness for financial consultant,a a in Jap, 1992 to services Ms. Chee short a assist in securing no success. Financing proved to be unavailable without a guarantee of throughput or proved unavailable throughput or to of be a no success. Financing without guarantee a strong enoughpartner to projectthe carry [Tr. D1:193- [Tr. D1:183:9 merits Hearing the to 183:7]: 108. 109.

y of tness Mr. Larry

ith AIOC by by ithAIOC .” GTI held the the held GTI

”), a U.K. a subsidiar ”), Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

Brown Root & tracting oil from the Tengiz fields in in fields Tengiz the from oil tracting

37 - tail. He explains Brown & Root’s interest in the in Root’s interest & He Brown tail. explains - 95, I was spending about 80% of my time in Russia and and in Russia of time my 80% about spending I was 95,

shore drilling structures for the consortium’s exploration exploration for the consortium’s structures drilling shore - From our perspective, a stake in GTI offered an ideal fit for Brown & Root’s Root’s & fit Brown for an ideal in offered GTI stake a our perspective, From licence that would enable us to export oil from the Georgian fields that we were were we that fields theGeorgian from oil export usto enable would that licence and more and Makoil. Secondly, Halliburton with toplanning develop systems and railtransport pipeline over Georgia’s right GTI’s importantly, the from oil exporting for solution proposed our in plank ntral ce the us offered Root was that that rights Brown very It the & seemed Caspian reserves. Tramex Apparently, GTI. to allocated been already had acquiring in interested to interested quite I was and industry oil the of rest the of in ahead had moved & Brown Iall.confirmed it behind businessmen Israeli and theGreek meet […] 1995. March 13 Jap dated Ms to a letter through interest Root’s strategy in the region. Firstly, under the joint venture agreement venture joint the under Firstly, region. the in strategy “ “[…] the Caspian reserves were one of the planet’s largest untapped sources of of sources untapped largest theplanet’s of one were reserves theCaspian “[…] with to work began and development that of a part tobe werekeen We energy. ex time that at was which Corp., Chevron off some designing - 1994 During activities. .” region the Caspian Kazakhstan. We also established a relationship with [AIOC], a consortium of oil oil of a consortium [AIOC], with a relationship established also We Kazakhstan. & Oil Ramco Statoil, ExxonMobil, BP, included time that at which companies our contact w initiated had and Unocal. We TPAO (“Ramco”), Gas This is confirmed by 26 JuneThis contemporaneous is confirmed a dated 1995, sentemail, by Halliburton Inc., U.S. Halliburton a construction in involved and Inc., engineering the firm oil and gas was seekingsector, investment opportunities Caspian in to the region. According the Root wi and & Brown former of a employee Mr. Ferguson, of Ted evidence written & superior Brown at Ferguson’s Mr. and Respondent the of witness on behalf a Farmer, the to Mr. Root period, relevant during Knight, and Larry President CEO of &Brown Mr. Ferguson learned of Tramex’s investment in Georgia throughntact of co learned involved in investment Ferguson in a Mr. Tramex’s Georgia oil and exploration gas Caspian in the region, and arranged subsequently for meeting a with Ms.June Jap Root to Ferguson, According 1994. Mr. in was, & thisBrown at time, ons for soluti the export oil into Caspian and research its of stages early the in still following the until early year again Jap with Ms. up contact did not take therefore 2.10]. para. [Ferguson I, met with Ferguson Mr. in MarchMs. Jap again 1995 to discuss GTI’s rights under the JVA Concession the and in de further 3.2]: para. follows [Ferguson project thisas I, at GTI stage Around this same time, Brown & Root Ltd. (“ Root & Brown Ltd. time, this same Around Claimants, the 2.1]: of para. [Ferguson on behalf I, 113. 111. 112. 110.

which

her side of the her of side the 10]: and they agree agree and they rofit (after tax if [Emphasis added.] [Emphasis Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos t would be advantageous to us, we we to us, be advantageous t would

ngs, we had made some strategic some had made we ngs,

.”

t pivotal point for the export of crude oil in in oil crude of export the for point t pivotal and we weren't unique in this, I must say -- say I must this, in unique weren't -- and we if on the low end I would think it difficult, and and difficult, it would think I low end the on if 38 - - — 50 million. If it is on the high end of a markup of it If high on the end of50 million. is of a markup

can legally withdraw that we go along with the USD USD the with along go we that withdraw legally can ey will fund this work. We don’t know the value of the CAPEX scope, don’t scope, work. ey the know will fund of CAPEX value this We the 10 million to stay in game the stay to 10 million

A. Yes, from our various managerial meeti managerial Yes,A. our various from Ted Ferguson met with Tramex and was able to come to agreement generally generally to agreement come to able was and Tramex met with Ted Ferguson decisions on the Caucasus in particular. The principal client we were looking at at looking were we client principal The in particular. the Caucasus on decisions them. with contracts engineering to have wanted we and Azerbaijan in AIOC was the ot across Kazakhstan, Chevron in for were already working We Caspian, and we wanted to do more work for them, so our presence in the region our presence in region the so work for more do wanted we them, to Caspian, and alreadywas there and we wanted to expand it. In looking forward we saw Georgia Georgia saw we forward In looking we saw Georgia as a very importan a very as Georgia saw we indeed, else, and of anyone ahead had inwe Georgia, any presence sothe future, outdated, even existing, insome equity having footholdby some have could if we export lines, tha and some lines supply Russian “ As it is logical that oil will flow through Georgia someday, I suggest we go along go along we I suggest someday, flow Georgia through will As it oil that logical is with USD Tramex will not budge from USD 10 million. I have been been I have 10 million. USD from budge not will price. Tramex but on everything of p out come to have will pay we price whatever that adamant feasible be might 10 million USD “ work that on our binds and that CAPEX an agreement any) will not we commit us to is pay agreement the in with to place construction until funding satisfactory our it. Macdonald, Faith with and has no problem this us. understands Tramex Arbour – this,istouch Peter in with handling is lawyer who here we if out step to means adequate us give agreement of heads proposed the that want to. the to Ambassador Turkish the (through reiterated has government Turkey The th that UK) 25- USD but is our estimate e (but maybe not as we don’t know the drivers). the know don’t we as not maybe (but e asid step to have might we suggested DOE the US the theYou that acting on behalf of recall lawyer may are (we venture the of percent 50 Tramex the for million 21 USD of value 25 percent). to buy proposing I so that long as we suggest 10 If million. the won’t it stand project the at time that the know we financing my then determined, be to factors other and possibilities, tariff requirements, tomake inorder price their of view take a will pragmatic is that guess Tramex to up time any at withdraw can we that be must requirement Our go. project the penalty. without theof project financial closure On direct examination during the merits Hearing, Mr. Ferguson was asked to explain his asked his to was explain Ferguson Mr. merits Hearing, the examination during direct On in Farmer’s this Mr. of last paragraph [Tr. email - understanding D3:9 President Halliburton and of CEO EmilRoot and Mr. Inc., Zerr, International, 280]: Bundle, Tab [Hearing states 114.

asn't likely to to likely asn't

examination the meaning of meaning the examination Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos -

business terms, especially from the point of of point the from especially terms, business

39 - - e were various disruptions, as I recall, political as I e various disruptions, recall, were political Russia flows through Chechnya? through flows Russia

lieve at the time there was concern about the reliability of the delivery delivery the of reliability the about concern was there time the at lieve crude oil from Azerbaijan through GTI’s oil transport system. In his letter, letter, his system. In transport oil through GTI’s Azerbaijan from oil crude

aragraph, concerning the the concerning eventuality oilaragraph, [Tr. through of flowing Georgia Q. Why in your opinion in 1995 was it almost certain that oil would flow flow would oil that certain in almost it 1995 was in your opinion Q. Why through Georgia? through “ becauseIn opinion, w A. it my the of was that least path resistance, through flow to likely wasn't it direction, that in down and Iran through flow they that industry the oil among doubt or resistance there was and Armenia, existed already a pipeline course of and Russia, through north it flow to wanted to me believe, caused that factors the of some areso those and Georgia, through likely. most Georgia through flow would oil that time, that at believe I of north pipeline the that fact a it is Russia, through north You mentioned Q. thatGeorgia flows through would have a presence, and people would like to see an international engineering engineering international an to see like would people and a presence, would have ” independently. working in region, the company ” right. you're IA. suspect Q. It's also fair to say that AIOC saw it in the same terms, isn't it? isn't terms, same the in it saw AIOC that say to fair also It's Q. A. I believe that's true. that's I A. believe there would have why you on the comment reasons As a businessman,Q. can north flow have a pipeline to industry oil the amongst or doubt been resistance Chechnya? including Russia through statement. a fair be would that think I Yes, A. A. I be area. that through the of be one region ethnic contested inwas a hotly fact it that the Q. Would delivery? of reliability about concerns for reasons Ther true. that's think IA. professional? industry a pipeline view of disruptions, that were perceived to possibly jeopardise the continuous flow of oil. of flow the continuous jeopardise possibly to perceived were that disruptions, as of the you Georgia see future did strategic terms; very You'reQ. in speaking in issue strategic a as oilan corridor Mr. Fuchs wrote to GTI’s Board of Directors and to SakNavtobi to to to SakNavtobi and Directors to of GTI’s Board wrote Fuchs 1995, Mr. 20 March On progress them of inform in negotiations Tramex’s Root made & with Brown concerning of the possibility of respect in withAIOC as well as project, GTI the in participation their shippingtheir this last p last this D6:126:9 to 127:18]: Later during the Hearing, Mr. confirmed Mr. Hearing, the during Farmer on cross Later 116. 115.

. ” ab ted inted dealing seriousstage h the system, i.e proceeding in good .” At this point, it is is it point, this At .” Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ms of a confidentiality agreement and the

40 - -

insurance cover, and expertise engineering connections, not ill prepared to proceed to heads of terms with us but they they us but with terms of heads to proceed to ill prepared I think B&R are st are B&R think I complete the project, the complete but also to incorporateit as part of a wider transportation would carry the condition that AIOC can get B&R as a shareholder as soon as soon as as as a shareholder B&R get can AIOC that condition the would carry “ ” and Mr. Fuchs therefore proposed that the GTI Board of Directors consent to consent Directors of Board GTI that the proposed therefore Fuchs Mr. and ” Mr. Fuchs advised that discussions with Brown & Root had reached a a “ Root reached that had & advised discussions with Fuchs Brown Mr. 95A]. in a confirmed Respondent, the of on behalf witness a Tevzadze, 1995, Dr. 27 April On to Grahame Mr. letter Cook AIOC, of a also witness of Respondent, the on behalf that the GTI had toBoard agreed documentation AIOC’s subject to request the aturesign of a and liaise to authorized was that Tramex also confirming agreement, confidentiality subject the JVA cover the GTI which of of in all matters on behalf with AIOC negotiate Tab 104].Bundle, [Hearing AIOC and Tramex never agreed on the final ter documents wererequested therefore never forwarded by GTI its or partners, it although project other through to GTI the related documents did obtain certain that AIOC appears 296]. Tab [see e.g. Bundle, Hearing channels 3 May On 1995, Ms. Jap met with Bob Brendling, a ofcolleague Mr. Ferguson at Brown project. Ms. Jap’s Meeting GTI the of in respect deal a of terms Root, to discuss & the interes not was AIOC that the fact reflects discussion their recording Note with Tramex or GTI, they as were unknown entities [Tr. D3:44:5 to 46:17]. Furthermore, Tramex with deal a to commit wouldnot Root & Brown that Note this from clear it is throug oil of amount put certain to a AIOC from commitment a without providing the companiesproviding with documentation to requested GTI, relating andits rights T Bundle, [Hearing agreement confidentiality a into entering their to subject interest, and that they that they and would bring “ toonly additional oil and products and to for bringnetwork finance crude that Tramex both Rootevident believed to& beBrown AIOC and “ faith and would“throughput”, or not finance work on the development Georgian oil with other companies because of a company directive to cooperate with AIOC. The Meeting Note Tab follows 108]: as Bundle, [Hearing concludes 117. 118. 119.

he Respondent, wrote

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos sary governmental authorizations

still want the [$10] million, which they they which [$10] million, the still want

41 - - register[ed] as soon as possible. soon as as register[ed] examination during the merits Hearing that cooperation that cooperation Hearing merits the during examination - -

stice of the Republic of Georgia, according to the request of of the to according request the Georgia, of Republic of stice legal expertise of the presented documents, appeared that many many that appeared documents, the presented of expertise legal

orm the foreign partner, Tramex the following: the Tramex partner, foreign the orm The Joint Venture, GTI, was registered improperly and against the and against the improperly registered was GTI, The Joint Venture, Concession of Act the Georgia, of Republic the law of the to According

was always first Root’s Brown they because choice, needed work with the & ” ]. C “ gned between SakTrans and GTI is not legal and does not give GTI any rights any GTI give not and does legal not is GTI and SakTrans between gned The Ministry of Ju Ministry The … of the subjects are not in constitute [sic: conformance] with the existing existing the with [sic:conformance] constitute in not are of subjects the ofjurisdiction Georgia. Georgia of Republic the of Justice of Ministry The mentioned, above the From torequests inf the Cabinet of Ministers, reviewed the legal position of the foundation documents documents foundation the of position legal the reviewed Ministers, of the Cabinet on and GTI by SakTrans signed were which the of Concession, Act of and GTI 1993. ofthe April 28 objective After “ 1. re be to and has law existing 2. si [ would not wish to pay unless AIOC has committed. The structure contemplated contemplated The structure committed. has AIOC unless to pay wish would not notis workable.” think I proposal in their possible in order that they can negotiate on behalf of GTI with AIOC, which may may which with GTI AIOC, of on behalf negotiate can they in that order possible we however, faster; little a events move Mr. Ferguson confirmed on cross confirmed Ferguson Mr. with AIO with […].AIOC was any never So there intent in anything thatBrown Root doing were & in oil companies. major the and AIOC with relationshipsthe with to […]Georgia interfere [Tr. D3:46] .” itUnfortunately, happened On 15 May 15 May On 1995, TevzadzeDr. wrote to Mr. Fuchs confirming that SakNavtobi would interest in partner sharing Root as an equity in Tramex’s on Brown“look favourably & and, ifGTI would needed, to undertake obtain the neces Tab 110]Bundle, [Hearing effect to to give their participationand consents .” Before Tramex and Brown Root& reached agreement on the terms of a deal, the MinisterGeorgian of Mr. Justice, Ninidze, witness a on behalf of t on 26 Tevzadze to Dr. himJune wasregistered, 1995, informing improperly that GTI rights as any GTI did not give Concession of law, Deed that the and to Georgian contrary [Hearing119]: Tab notit legal Bundle, was 120. 121. 122.

anted and and anted

Saknavtobi, and was and was Saknavtobi,

vernment officials, the the officials, vernment Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos of the Deed of Concession Concession of theof Deed at GTI Ltd. should be ‘re be should Ltd. at GTI

registration’ of GTI Ltd. is is Ltd. GTI of registration’ ertificate of incorporation was was incorporation of ertificate

42 - -

ations given both by Saknavtobi and Saktrans contained contained Saktrans and Saknavtobi by both given ations

third Georgian State owned company, State owned Georgian third

GTI Ltd. and Saktrans, which in theSaktrans, which and body Ltd. GTI

–

affirmed by yet a by yet affirmed our above comment is is comment above and our required is GTI Venture, Joint the of registration The assertion concerning the Deed of Concession is in our opinion a blatant a blatant opinion in our is ofthe Concession Deed concerning The assertion interests and clear rights undermine to motives, ulterior upon attempt,based We as a foreign investor. to indirectly our company to and GTI accruing directly Georgian State owned two between made an agreement that cannot accept was companies […]” ratified by the Minister of Energy, would be declared by another Department of of Department another by declared be would Energy, of Minister the by ratified in incredulous more even becomes This invalid. be to Georgia of the Republic declar clear the of light with all of ofDeed asConcession to the thein the Concession conformity of Deed decrees. government We found the assertion made in your letter, namely th namely letter, your in made found assertion the We is Saktrans and Ltd. GTI between Concession of Deed the that and registered’ standpoint. from any unacceptable totally law, Georgian with conformity not in the that is have received, we that legal advice upon based position, Our to contravention inclear are and incorrect are letter inyour assertions and courts national by implemented law as of principles accepted internationally relevant the As stipulated in tribunals. international by recognized as all adopted these by governed are Ltd. GTI involving agreements the all legal documents, forming Government, Georgian the expect we and law of principles accepted these principles. to to adhere nations, civilized of the community part of law commercial customary of principles fundamental and basic most the of One affected adversely or invalidated be cannot rights or interests vested that states rights. or interest such of ture investi after enacted legislation by - ‘re to reference any that clear quite is it Therefore, with accordance in registered once above, stated as since, irrelevant completely Go Georgian by confirmed explicitly as laws the prevailing future to any due any detraction toimmune Ltd. are of GTI interests rights and legislation. a laws existing the under that assertion your for basis the do not understand We re- legislation Georgian of relevant the examination to our without prejudice to letter. inyour referred On March 9, 1992 GTI Ltd. was registered and a c was MarchOn Ltd. 9, 1992 GTI of Georgia the Republic subsequently, If, Georgia. of Republic the by issued obviously this of registration, form a new required which legislation enacted new gr which were Ltd. GTI of interests and the rights affect cannot laws. the prevailing with in accordance acquired

4. “1. 2. 3. Tramex responded to the Minister’s letter on 17 July 1995, taking the following position the taking 1995, July on 17 letter to Minister’s the responded Tramex Tab 127]:Bundle, [Hearing 123.

ives in respect of this this of respect in ives pipeline between pipeline between

ents with AIOC until the the until AIOC with ents Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos house legalhouse counsel & to Brown

.” [Hearing 135].Bundle, Tab Mr. [Hearing .” continued to develop a plan for for plan a to develop continued

43 - - legalities are called being into question”, but were

interfering or attempting to interfere in an ongoing process in to an ongoing interfere interfering or attempting ked that and “ ion with Mrs. Faith Macdonald (a fact witness on behalf of of fact witness on behalf (a Macdonald ion with Faith Mrs. to Root for in exchange US$10 & million.Brown of payment & Brown Gachiyani and Supsa. and Gachiyani Cleaning, testing and refurbishing the existing and refurbishing testing Cleaning, Completion and expansion of the rail car unloading system at Gachiyani Gachiyani at system unloading car rail the of expansion and Completion volumes. throughput anticipated line with in capacity with a Upgrading and refurbishing of the existing pumping and pressure pressure and pumping existing the of refurbishing and Upgrading stations. regulation at Supsa.” facility loading and storage new a of The construction

1. 3. 2. 4. “ implementation of the GTI project. 25 On August GTI the wroteimplementation Ferguson to of 1995, Mr. President Mr. this letter, same proposal. to to inform their In Shevardnadze him changes of Ferguson recommended agreem “that sign Georgia no more this have assessed proposal and Georgia new AIOC in Respondent the of a as witness on behalf AIOC, of appeared President who Adams, his mot and Ferguson quite Mr. of was critical proceedings, these “ it is that stating letter, potential for and the governments, or two national a national government, between Respondent) and Mr. Hartley (not and witness), Michael Respondent) a inthat Tramex GTI’s and aware Root was & 1995, Brown 14 July of Root, that, as indicates attac being were rights under rights GTI’s declaring of the Justice Minister sent by recently of the letter unaware Concession of 126].Bundle, Tab invalid [Hearing Deed the Root & August 1995, Tramex Brown and In Conclusion of final HeadsConclusion final was of Agreement subject of things, to, other completion among Ms. Jap prepared note by GTI. of meeting A review diligence Root’s due & Brown of her discuss recording During the months the During June of and July 1995, Tramex Brown and & Root proceeded to negotiate the approval to submitted Agreement, te Heads for was of a which rms of draft of GTI the Board Directors and 12 on approved [Hearing 1995 July 125].Bundle,Tab draft Headsof The Agreement the provided for sale by Tramex 50% of of its rights and GTI in interest throughputRoot committed also to obtaining commitments commencing producers from follows: “Projects”, defined as the of upon completion 126. 125. 124.

undermine and undermine

” to 92]. Mr. However, a meeting with Prime Prime with meeting a Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos it helped [his] business initiative initiative [his] business it helped ” [Tr.- D9:91 ”

44 -

several parties, including AIOC - deems necessary concerning the steps GTI should should GTI the steps concerning necessary deems

69]. - The Board of Directors irrevocably authorizes Tramex International Inc. Inc. International Tramex authorizes irrevocably Directors The Board of

.”

” if President did President not if sign” AIOC’sShevardnadze proposal, the of purpose this It has come to our attention that members of the Cabinet of Ministers have have Ministers ofCabinet the of members that our attention to It come has 2. signed an agreement with AIOC intending to grant AIOC the sole and exclusive and exclusive the sole AIOC grant to intending AIOC with an agreement signed system. oil pipeline crude existing of Georgia’s the Republic over rights “ “ it as advice legal toreceive take to protect its rights under the Joint Venture Agreement and/or the Deed of of Deed the and/or Agreement Venture Joint the under rights its protect to take legalproceedings initiate to and required taketo action all and Concession AIOC therewith, against n in GTI, connectio on behalf of necessary, wherever to GTI’s contradiction in are which activities in involved parties other and all rights On 12 SeptemberOn 1995, Fuchs wroteMr. to Prime Minister Patsatsia in connection with a the AIOC. received previousfrom s’letter Mr. day letterFuch states, in relevant part, the [Hearing 141]:Bundle, Tab. following investment in an exportinvestment through route to the West “ that while testimony oral his in explained Ferguson somewhat a separate considering offerwas AIOC from that the President advise to was letter its of assessment completed had AIOC until action no further taken and should be Turkey D3:67 [Tr. alternative this Root, & internal in AIOC & Brown as Brown well conflict and as This tension between their involvement by Root occasioned with Tramex/GTI, is a recurrent theme of these been tensions would have no certainty that these be can Whilst there arbitrations. as in such way participation to enable the Brown resolved a of & theRoot (and Georgian that the clear it is region, the for solution export oil andgas any in Claimants) in quashing possibility. role such a any State played Root presented and was & to GTI Tramex/GTI Brown the Plan prepared by Business A of on 8 Directors 1995, which Board resolvedSeptember to request meeting, Board same this During Plan. the with him present to Patsatsia Minister by Dr. Tevzadze,attended Mr. Mr. Asatiani, Mr. Kardassopoulos, and Mr. Fuchs “ action by issue of the taken Frenkiel, following the reflect minutes meeting The discussed. was rights Tramex/GTI’s eliminate Tab 140]:Bundle, additional resolution [Hearing 129. 127. 128.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ded by AIOC that whatever

Azeri oil. By October oil.Azeri By 1995, Brown

September 1995, […] advises us that that […]advises us 1995, September

would be an acceptable solutionwould an acceptable [Tr. D9:97]. be ”

45 - - “[i]f the “[i]fthat the testified Adams Mr. Hearing, rits 3.10]. however, was, agreement final No ever concluded. e hereby request an urgent meeting with you, at your earliest earliest at your you, with meeting urgent an request e hereby etter of AIOC to Tramex, dated 11 dated to Tramex, of AIOC etter

[…] had AIOC that representatives governmental fromGeorgian understood had We and in ongoing the discussions being included to Tramex/GTI objected system. pipeline the regarding AIOC with negotiations The l AIOC would be ‘more than willing to discuss its crude oil transportation transportation oil its crude discuss to willing than ‘more would be AIOC the Government’. so by do to advised are we if Tramex/GTI with requirements is it actions, their us for towards ility from liab AIOC’s Without derogating be we instructions, would if that apparent receive AIOC appropriate would AIOC. with held being thein discussion included sorted and into looked be urgently should thismatter that opinion firm It our is out and w the of matter.” clarification official obtain may so we that convenience, & Root had arranged financing for the GTI project and purportedly secured a purportedly project and for GTI the Root arranged financing had & of million US$250 facility credit a provide to government Turkish the from commitment paras. 3.9- [Ferguson II, (see GIOC of creation the 1995, following in November met with Adams Mr. Farmer Mr. with the connection & Root’s in of activities theBrown nature to clarify below), Part II.G Western Route. isIt clear from the meeting notes recor this not had point determined by been, have they Root’s intentions original may & Brown deal Bundle, Tab a with Tramex[Hearing to 150]: pursue It would appearIt that suchinstructions, to include in GTI deal any discussed with AIOC, never were Duringgiven. me the This is consistent with opinion by the expressed Claimants’ industry the expert inhis oral and Expertevidence 62]. para. written Report, [Tr. D10:71; Beazley fall the through Root proceeded & wn Plan with Bro Business a of development Although in the by AIOC’s presence been overshadowed to have appear GTI 1995, Tramex and of in governments Azeri and Georgian with both the negotiations ongoing the and region the of export development an solution of respect for government ofgovernment Georgia had said, ‘this company has rights which acknowledge we and we thatrequest they are in accommodated the consortium’, would we have reviewed the whatsituation and assessed time at that 132. 130. 131.

Brown & Root Brown & ” [Guner, para. [Guner, ” ”), known as the”), as known

PSA and technical ability to ability technical and

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ” [Tr. D10:63].” trations that the deal with Brown & & Brown with deal the that trations there is just no shadow of doubtthere in my

he Claimant’s industry expert Mr. Beazley, Mr. Beazley, expert industry he Claimant’s

e, Tab 274; Adams, para. 6]. for Tab The e, para. 274; purpose Adams, 46 - ent with Tramex which provides B&R with an with an B&R provides which Tramex with ent - oot could have done itoot have could done national oil companies in December 1994 as a “no “no a 1994 as in December companies oil national ”) Production Sharing Contract Production Sharing (“ ”)

is news, and urged B&R to initiate a dialogue with SOCAR’s SOCAR’s a dialogue with to initiate and urged B&R news, is ACG ”) which eventually crossed through Georgia. Georgia. which crossed through eventually Guner,”) Mr. providedwho B&R had been invited to Georgia by a California company to assist with with to assist company by had beenCalifornia to a invited Georgia B&R MEP senior management. not competitor was a B&R that agreed both parties Atthethe enddiscussion of agreed parties both and cordial, was meeting The a contractor. purely to AIOC, sincere confirming their B&R with of communication, channels to open maintain to wished B&R relationships. external its and AIOC with interfere to not intent itsshareholders.” and AIOC with relations good maintain “B&R advised that their relationship with Tramex goes back two years. At that that At years. two back goes Tramex with relationship their that advised “B&R point, an had others, with Tramex, the oilfields. from production of the enhancement to and one forthe rights pipelines; Government the with Georgian agreement agreem signed an B&R year ago, share. of 50% Tramex’s 50% purchase to option in their into activity energy more decide to advised put had B&R they AIOC. with opportunities other pursue to wished respect this in and Azerbaijan, th welcomed AIOC AIOC the PCOA and Negotiation of

F. by 13 multi formed was AIOC Chirag the Azeri of terms the with consistent company operating oil joint loss” profit/no Deepwater Gunashli (“ “Contract of the Century” [Hearing Bundl Root would have proceeded as an absolute certainty or that it would have been a success a that it or have would absolute been an proceeded as certainty Root would have the occurred under of direction AIOC. the actually of what scale on the ut who was not called to give oral not called to but was case give who Respondent’s the in support of evidence written that in Root, stated of “ testimony, with & experience his Brown 25 years construct andconstruct operate the early oil in pipeline whole in or part, let alone the main export (“ pipeline actually or owned never this pipelines, operated wasn’t [its] business core by the4]. of testimony This t is countered in equity taking were group Halliburton Root & Brown the time, the that, at insists who world the in hisoil and, opinion, around fields “ R Brownmind but for fact that the & under been GTI the project have might what of irrespective later, will seen As be with Root, itpartnership & isBrown unnecessary, Tribunal’s inthe forview, the to prevail arbi in these inClaimants order to prove The Parties dispute whether Brown & Root had & experience Brown the dispute whether Parties The 135. 134. 133.

. ent of Russian Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos SOCAR jointly ”), wrote to President

erests within the immediate region, but to to but region, immediate the within erests 47 - -

ield was overlain on a map of London it would stretch stretch itof would London on a map overlain ield was yev and Shevardnadze were fundamentally aligned from from aligned fundamentally were and Shevardnadze yev d President Shevardnadze benefited from international political political international from benefited Shevardnadze d President vis the of independencestrengthening their Russiafrom [Adams, para. arrels per day) that would require an MEP to the Mediterranean. As As Mediterranean. the to MEP an require would that day) per arrels - he Early Oil Pipeline]. In effect, nothing of significance in relation to to in relation significance of In nothing effect, Pipeline]. Oil heEarly à ther explained the strategic importance of PSA the to both and Georgia - “The validity of Aliyev’s oil strategy was fully vindicated by subsequent events. events. subsequent by vindicated fully was strategy oil Aliyev’s of validity “The Both he an powers the by welcome made being their in resulted that West tothe exposure tobalance ability remarkable the had They Washington. in particularly be, that int political not conflicting only manipulate external political players of great influence. For example, the the example, For influence. great of players political external manipulate oil toCaspian access preferential from security energy improved of pursuit involvem the Equally, priority. political American became an “The commercial prize for the shareholders in AIOC was substantial, which substantial, was which in AIOC the shareholders prize for commercial “The Gunashli Deepwater Chirag eri The Az risk exposure. their justified more than in by the state in company oil oil the discovered was included (‘ACG’) PSA field not could technology offshore be developed. (Soviet not could Soviet but times, barrels) 3.5bnbls Some (billion involved.) water the depths cope with of anticipated it was In1994 proven. been already had reserves oil recoverable following 5bnbls at lease to increase ultimately would reserves oil these that mmbls/d 1 some of production field a in result would This drilling. appraisal b (million to increased now have reserves recoverable ACG shown, have events subsequent in this place To oilfields. supergiant few the world’s of one it making 9.5bnbls, oilf ACG the if perspective, size of the times four roughly was ACG other. the to M25 theof side from one to subject not an area in located was and Sea, North UK the in Field the Forties control.” and influence OPEC Moscow for the PSA of importance the demonstrated TPAO Turkish and Lukoil Aliyev and Shevardnadze President with involvement too. Myand Ankara direct delivery the eventual and AIOC, of management effective the for critical became of[t EOP with consistent it consider not did Aliyev President if happen would Baku oil interest. national Azerbaijan’s in The same to President applied Shevardnadze Ali Presidents Tbilisi. in 1998.” EOP of activation the 1995 to

Gregory Rich, ViceGregory President AIOC, of and toValekh Advisor Aleskerov, President the (“ of Company Azerbaijan State Oil the of transportation of to proposed the Protocol providing relating draft Shevardnadze a in Azerbaija information received advised also conflicting of They Georgia. n oil through 23]: 22 MarchOn 1995, two days Mr. after Fuchs wrote to the GTI Board requesting Mr rights status and GTI’s to inof AIOC, respect permission to documentation disclose Azerbaijan vis Mr. Adams Adams Mr. fur this common venture is this venture common explained Mr. in written the of evidence Adams [Adams, para. 9]: 137. 136.

”

he protocol will protocol will he

operation of your staff staff your of operation Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos the transportation of Azerbaijan Oil Oil Azerbaijan of transportation the

48 -

- .” nture GTI and confirming certain rights; [sic] none none [sic] rights; certain confirming and GTI nture t had the authority to make such a to rights authority make the a of t such had Cabinet grant absent Samgori pipelines which was signed in April 1993. April in signed was which pipelines Samgori - , of the, of the legality of GTI joint the to venture GTIand rights granted ture agreement signed by them with Tramex International Inc. does grant grant does Inc. International Tramex with by them signed agreement ture inter alia During the visit last week you were kind enough to instruct your officials to to officials your instruct to enough kind were you week last visit the During across the territory of the Republic of Georgia, it is important that we fully thatit fully important we is Republic of the Georgia, of theacross territory GTI. tojoint venture the granted the rights validityof and the extent understand co - and assistance the request would we this end Towards to are If we retain willing a legal helpful, is it these matters. in deemed clarifying law to advisory familiar inwith thisassist matter. Georgian such rights Should Item 2 of valid and in t and remain force then have been granted accordingly to beneed modified Before we can progress our negotiations on negotiations our progress can we Before research whether any Government Decrees had been issued to this effect. They They effect. tothis issued been had Decrees Government any whether research the recognising issued been had Decrees several whilst that us to reported ve joint the of formation of any of, lease term long or over, rights exclusive any of granting the decreed to in Protocol. the referred the facilities joint the that Oil Georgian of Department by informed been have we However, ven on agreement lease term long a inparticular and rights exclusive certain GTI the Gachiyani “ preliminary positioning work … on the western route without contractual commitment contractual without route western the work … positioning on preliminary approval [Hearing approval Bundle, Tab 105]. This statedreport, as in its introductory pages, was the of record complete to a opposed as summaries, document basis of on the prepared relevant legal was instruments, at contractual and (and of time) and is the therefore rights. Claimants’ the of assessment dispositive a as use limited Georgia of the Azerbaijan, and governments and for the Protocol between AIOC, The was signed through 1995 oil on 17 May Georgia and several Azeri executed of transit to Cook, 1995. According Protocol Mr. the on 31 August enabled months later “ At or aroundAt or this time, the retained AIOC legal Nabarro firm Nathansonto prepare an analysis, that validly Concession. JVA of report the GTI the concluded and Their under Deed was provisions rights the existed to in JVA invalid of GTI the and but grant and that the were invalid similarly neither rights as to to GTI purporting grant Concession of Deed Transnef nor SakNavtobi respect of rights granted to GTI, which, if valid, would require appropriate valid, if modification which, require would rights to of GTI, granted respect 97]. as in Tab part, They relevant Protocolfollows: [Hearing the wrote, of Bundle, [Tr. D9:11]. a contractual Indeed, commitment in of respect Western the Route was not 139. 138.

.]. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos coverage and we are well are and we coverage well Ibid

49 - - 11). A letter from Prime Minister Patsatsia to United United to Patsatsia Minister from letter Prime A 11). made and that it was “almost adequate”, with a possible

ardassopoulos wrote to Mr. Adams concerning Tramex’s wrote concerning to Adams Mr. ardassopoulos Claimants understood to be a tentative offer of offer tentative a toClaimants be US understood $25 million.

ing either on behalf of several or all of the members of AIOC, AIOC, of members the all of or several of on behalf ing either

”). PCOA rights of GTI Ltd concerning the pipeline system. the pipeline concerning Ltd GTI rights of aware also that you have made inquiries in the Republic of Georgia concerning concerning of Georgia thein Republic inquiries made you have that aware also and as of oil, transport for system pipeline the of Georgian the use possible the and rights our of cognizant are you us, with contacts your by evidenced Your activity and interests in the region adjacent to the Republic of Georgia are in to theYour the and interests are adjacent region Republic of Georgia activity press received expansive and have well documented that information received have we that attention wish urgent to to bring your We accepted from deviated have AIOC with associated allegedly elements certain the our rights and to attempting undermine and are business norms rights of GTI abovementioned with the aim of what they promoting, to perceive

[…] “ 3. 4. share capital [Hearing Bundle, Tab 121]. Prime Minister Minister 121]. Tab Prime Bundle, [Hearing capital share of 5% of additional offer with Tramex should expressed continue opinion negotiations the that the Patsatsia further quickly should as be possible agreement [ as and reached 1995, Mr. 24 July K On 128]: as Bundle, Tab follows [Hearing advising investment in GTI, Discussions between the Claimants and represe ofntatives Energie Velt and United Claimants’ concerns the to On hand, have no further. progressed other the appear Perlite AIOC’sin of involvement respect in region the with the and Georgian Government to have intensified. appear Perlite shortly shortly Perlite following meeting the however, indicates, that the Georgian Government considered that an offer was finalized until 1996 March in the ofform the Pipeline Construction Operating and Agreement (“ Perlite and United Energie of Velt with representatives met the Claimants 1995, June In act who, Ltd. Industries expressed an interest in buying out Tramex’s 50% interest in GTI. The meeting was arranged and attended by Dr. Tevzadze. Various figures appear to have been discussed, the what in culminating following the exchangeShortly ofan meeting, correspondence someensued casting 120, 122; Bundle, Tabs [Hearing agreed have not) been (or may may doubt on what paras.Kardassopoulos III, 3.10- 142. 141. 140.

e of deal only with the with only deal the , whether directlyor Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos nce of Tramex/GTI as potential

alf of the Republic. We believe believe We Republic. the of alf favour [Hearing favour 129].Bundle, Tab Mr.

suggest that you contact Georgian Georgian you contact suggest that

d plainly state that our rights in GTI Ltd in Ltd GTI rights our that state d plainly 50 - - whether they be Tramex, GTI, Georgian Oil or any any Oil or Georgian GTI, Tramex, be they whether

, confirming AIOC’s intention to “ , confirming th .” Mr. Adams further advised that, in this light, [Hearinglight, that, in this advised further Adams Mr. .” iate parties with whom to discuss AIOC’s export options options export AIOC’s discuss to whom with iate parties

” sitive to their international business reputations; this sensitivity dictates the the dictates sensitivity this reputations; business international their to sitive AIOC have sought clarification and authorisation from the Republic of Georgia the Republic of Georgia from and authorisation have clarification sought AIOC […] authorities to determine your role in the discussions. in the role your determine to authorities of rights the with interfere to AIOC of intention the been ever it has nor not is It particularly are this Consortium of companies member the All third party. any sen [AIOC]. the of practices and business ethical through the Republic of Georgia. We have received that authorisation from the the from authorisation that have received We of Georgia. Republic the through certain appointed have formally in who turn of highestGovernment levels beh on discussions these out carry to individuals AIOC instruct to authority proper the have Government Georgian the only that as to of the identity parties. those efforts the in included been not have GTI or Tramex of representatives If AIOC in Georgia, underway currently as to such appropr tosuch as “ indirectly, a knowing intervention in a contractual relationship and/or economic economic and/or relationship a contractual in intervention a knowing indirectly, actions tothose such shall hold and we responsible our company interests of consequenc a as suffer may GTI or we either losses or damages for all liable such conduct. be, the interests of AIOC. This information has been provided to us by well bywell us to provided been has information This AIOC. of interests the be, the in situation. involved sources established an clearly to like therefore would We duly been have Concession of Deed the to pursuant Ltd GTI of rights and the and of Georgia Republic the of authorities competent the ratified by and granted attempts any Obviously, and enforceable. validare fully

[…]” The next day, Mr. Adams signed an Indemnity Mr. an next Adamsand The day, signed Guarantee AgreementIndemnity between AIOC,and Georgia on behalf of AIOC in itsand Cook confirmed during thatCook testimony Agreement his confirmed oral the referred Indemnity generally to those facilities covered by the Protocol signed by the Georgian and Azeri prese the 1995 contemplated and in May governments Mr. Adams replied on July 25 replied Adams Mr. This letter was, in no uncertain terms, a shot across the bow from Tramex in defence of in defence Tramex from shot bow across the a terms, in no uncertain was, This letter in Georgia. interests its appropriate parties in [Georgia],appropriate parties other properly sanctioned party sanctioned properly other 130]: Tab Bundle, 5. 145. 144. 143.

luding 59]. 59]. The Indemnity - owned enterprises - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

dered to interfere with an valid Third valid Third an with to interfere dered

51 - -

ntract rights), claims, demands, liabilities, costs, costs, liabilities, demands, claims, ntract rights),

letter. Mr. Cook and Mr. Adams both testified that such an an that such both testified Adams Mr. and Cook Mr. letter.

AIOC now wishes to confirm its willingness to commence discussions discussions to commence willingness its to confirm now wishes AIOC wnership and other claims of exclusive rights of use, management management use, of rights exclusive of claims other and wnership om the record whether the Indemnity Agreement was triggered by Mr. Agreement triggered by was the whether om record the Indemnity as the full power and and fullit the power has that and warrants confirms The Government the and AIOC hold and to defend agrees hereby The Government owned enterprises; owned

- “[…] tovarious subject been have or are facilities Georgian the of certain WHEREAS o of claims and apart separate companies and/or entities by individuals, operation and/or and agencies ministries, its and of Georgia Republic the of Government from the state WHEREAS Republic the of Government the of representatives authorised properly any with such condition express the on Representatives”) (“Georgian of Georgia consi be way in any not will discussions to Georgian relating the arrangements contractual below) party defined (as and Facilities; now (“Government”) Georgia of the Republic of the Government WHEREAS no in way will interfere discussions proposed the that confirm to withwishes any and any Georgian Parties Third between arrangements valid contractual state or agencies officials, ministries, units, governmental (“Georgian State Entities”) State (“Georgian […] 2. agreements and binding and legal the enter into to discussions authority binding the of use and control exclusive the regarding Participants the and/or with AIOC inc entity, or person any of claim valid any of free Facilities Georgian of rights or concession contract of claims enforceable limitation) (without royalties fees, Facilities, Georgian the of management control, use, ownership, charges. other or 3. companies and affiliated subsidiaries agents respective their and ts Participan Group”) “AIOC (collectively, directors officers and employees, their and its and of claims action(including of causes actions, all against fromand harmless co with interference tortuous by AIOC incurred and damages fees) attorney reasonable expenses, (including by the made warranty and of as breach the a resultGroup of representation 2 hereof. clause in Government […]” It is unclear fr unclear is It 24 July Kardassopoulos’ wouldAgreement Indemnity sought in be the normal course of business [Tr. D9: 56, 57; [Tr. taken D9:57]. timee some to89] prepare Cook that the would hav Mr. testified and third party claimants over those same facilities [Tr. D9:58 [Tr. facilities same those over claimants party third Agreement provided, in part, relevant follows: as Agreement 146.

”). GIOC

transportation, transportation,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

governmental organizations of Georgia, the the of Georgia, organizations governmental 52 - - with pipeline development in Georgia until sometime in in until sometime Georgia in development pipeline with erving as Georgia’s ambassador to Azerbaijan, was C owned company Oil Georgian Corporation (“ International 70]. -

.” rporation: the State Oil Company of Azerbaijan, LUKOIL, the Russian Oil the Oil Russian LUKOIL, of Azerbaijan, Company State Oil the rporation: claims of exclusive rights over the Georgian facilities by individuals apart from from apart individuals by facilities Georgian the over rights exclusive of claims The following be also invited to participate in the Georgian International Oil Oil International Georgian the in to participate invited be also The following Co and Georgia and Azerbaijan by held jointly company INTERSYSTEM Company, insurance and investment financial, banks, companies, oil international other companies “ Rehabilitation of oil pipeline and other oil transportation facilities available in in available facilities transportation oil other and pipeline oil of Rehabilitation works, oil construction including of Georgia, territory the e International Oil Consortium, the founding companies the companies founding Oil Consortium, th with e International As agreed upon the as as well structures, investment and banking financial, international thereof, non- and authorities governmental as deemed is Corporation alestablishment of Oil the Internation Georgian expedient.“ include: shall Corporation Oil International Georgian the The aim of The CreationThe GIO of and infrastructure, relevant of formation as well as thereof, sale and processing and insurance investment, financial, banking, of management and coordination issues.” aforesaid to the related activities other

Mr. Giorgi Chanturia, Giorgi Mr. s then the government was understood by AIOC to refer to Tramex and GTI [Tr. D9:59]. On [Tr. D9:59]. On to refer GTI AIOC to and Tramex understood was by government the these of the in timing the iscoincidence reading, striking. events any of President appointed GIOC. At this time, Mr. little had orChanturia no in experience industry oil the and appear involved [Tr.gas he to D6:61, 100]. have does been Nor in Azerbaijan his service during Agreement was not specifically related to concerns about Tramex [Tr. D9:56], but later confirmed that the recital (reproduced as the third recital in paragraph 145 above) in respect of G. 1995, 11 November On Shevardnadze President No. Decree adopted 477, which State the established 477 provided, 11]: No. Bundle, Tab follows [Hearing as Decree in part, 1995 [Tr. D6:69- late No. indicated 477 also Decree that other invited companies to in be would participate GIOC: 148. 147. 149.

”, ” to ” may be advisable

.”

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ”. y the invited foreign experts experts foreign invited y the commission, pursuant to Decree No. No. commission, to Decree pursuant

being promised since we believed that the that the believed we since promised being ad hoc

53 - - ”. Georgia national interests of feguarding the With sa International Oil Consortium

parked further further parked concern the among Claimants, sought who n about the the ton about us informatio and give proposals to present and prepare The above mentioned proposals will be learned b will be proposals mentioned The above as well will participate, structures the corresponding them, using and in of case by in tender announced as other us organizations, international intellectual, construction, transportation, financing, industrial potential and also potential and also industrial financing, transportation, construction, intellectual, foreign the with together GIOC by used be can which abilities other about problems. GIOC the solve to partners, “ sidering potential foreign partners to participate in GIOC, as confirmed in a letter letter a in confirmed as GIOC, in participate to partners foreign potential sidering interpreted as referring either to the Claimants or to AIOC [Chanturia I, para. 21; 21; para. [Chanturia toI, AIOC or referring as Claimants to the either interpreted 2.6]. despite isunclear, response para. Nanikashvili, this a invitation, whether It sent. ever was Claimants or the GTI identifying 1996, Georgia established 30 January On an Georgia in the sector to oil relating and arrangements contracts all examine to 133, commission ad hoc that the noted 12]. to Decree the Tab preamble Bundle, The [Hearing “ of spirit the in established was agreements all analyzing and of studying task the assigned was commission the aim, this currently in place and those “in the process of preparation in sphere the of oil industry “ the in this were include work for the President. Among those entities those deemed report for Among “ a President. preparing the and toAccording Mr. Fuchs, this decreealthough was additional sourcean of concern “it was inconsistent with was not necessarily what The ambiguous reference in Mr. Chanturia’s letter to “foreign partners Thecreation of GIOC s would not that this event officials from Georgian Tevzadze other Dr. and reassurance paras. 1.3; para. Nanikashvili [Gur III, II, investment in GTI their them or disadvantage 1ff]. 2. para. Fuchs 2.4ff; III, the period that followed,During with Claimants various the met repeatedly government GTI in new how the might to included framework, and discuss whether be officials shareholder GIOC. to a of as its appears begun GIOC, part, for including have con Mr.from to Chanturia Dr. on 4 Tevzadze December 1995 in which Dr. Tevzadze is asked Tab 151]:Bundle, [Hearing 153. 154. 152. 150. 151.

stock - for purposes the e Protocol, ion of the Samgori the ion of

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ion of rights on ownership, on ownership, of rights ion

54 - - para. 2.09] para. g Bundle, Tab 14]. The Decree included following: Tab the 14]. Decree g Bundle, The lly with the connected specified pipeline; 31, 1995, will be concluded between the Government of of the Government between will concluded be 31, 1995,

.” [Fuchs III, ” [Hearin owned state property, without rights to to of transfer property, joint without rights state owned Batumi pipeline with an external diameter of mm; 530 diameter an external with pipeline Batumi - - stock company [GIOC] to represent the Georgian party (instead of of (instead party the Georgian to represent [GIOC] company stock - thirty years: thirty se, management, use, management, rightson ownership, the [GIOC], to provide company all including of state property, the herein provided reconstruction exploitation, signed which party, the to as company specified the for necessary rights, other rigthe the ht and also of pipeline exploitation and to the on construction contract the mentioned give To property. specified the from of profit kinds all receive on construction contract the by fixed than less not term the for [GIOC] to rights or this contract, of prolongation possible of view in pipeline, of and exploitation for To assign a shareholder partnership to [GIOC] in order to manage the the to manage in order [GIOC] to partnership shareholder a assign To government The Cancellation of GTI’s Rights GTI’s of Cancellation The Joint on in contract Georgia) the Main of Pipelines of Oil Industrial Association th to according which pipeline, the of exploitation and construction on August signed Oil Main of Association Industrial Azerbaijan, of the Government Georgia, International and Azerbaijan of company Oil State Georgia, of Pipelines ijan.” of company Operating Azerba On Samgori On On all kinds of the equipment, necessary for reception, storage, measurement, measurement, storage, reception, for necessary all theOn of equipment, kinds and means other and all pressure oil of reduction over, pumping control, check, functiona equipment, of including oil exploitation pipeline, and for the construction intended On land, other also and pipeline, of the extent the whole through landany plots of realizat for is essential of which the use territories, property.” specified the of reconstruction and exploitation use, management,

“3. pipeline: Batumi Decree No. 178 further provided that GIOC would represent Georgia in a contract with contract in Georgia a would represent that GIOC provided 178 further No. Decree AIOC, the other theamong entities, for construction exploitat and H. 20 On 1996, theFebruary of Cabinet Ministers adopted No. Decree 178 “ favourable essential of creating conditions for the transportation gas within of oil and the Georgia of territory interests that had now just been taken away would be away integrated taken interests that effectively been into had now GIOC the just that In way,structure. wouldwe be essentially benefitregaining the of rights the that away taken had been “4. “4. 156. 155.

t - cross

”. ”. This rounding a II, para.

certain existing existing certain ory of Georgia of Georgia ory

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

all rights (given earlier the by

104, 149; see e.g. Hearing Bundle, Tab Bundle, Hearing e.g. –104, 149; see

quoted decree, entered Georgia into a Host -

55 - - ”) with AIOC, the preamble of which explains its its explains which of preamble ”) the with AIOC, No. 178,No. Chanturia, Mr. in effect, inherited of control the

HGA

WHEREAS the Government is responsible for and controls the Georgian the Georgian controls for and is responsible the Government WHEREAS WHEREAS in developing such pipeline system and marine export marine export and such in system pipeline developing WHEREAS WHEREAS the Oil Companies wish to develop a secure and efficient pipeline pipeline efficient and a secure the to Oil develop Companies wish WHEREAS facilities and construct certain new facilities as well as to operate and utilise the the as to well operate and utilise facilities as new certain facilities and construct capacity in, such system and export terminal,pipeline all marine on the terms and Agreement; and Operating Construction Pipeline the of and conditions Party; and terminal the Oil Companies wish to refurbish and upgrade and wish to refurbish the Oilterminal Companies system for the transportation of Petroleum across theterrit across Petroleum of transportation forthe system to wish Oilthe Companies which terminal export to marine a new (“Georgia”) and Georgia; of coast Sea Black the develop on “ The finalThe provision of 178 No. Decree cancelled “ togovernment Georgian of the any parties) contradicting Decree present the to an rights end in Georgia. abrupt Tramex/GTI’s brought With the passage of Decree para. in early oil the [Chanturia to pipeline have rights Tramex claimed 26],I, but during on 30 January 1996 as stated date late testimony which(the his that as ad hoc oral the Tramex or [Chanturi GTI of no knowledge had he commission established) was D6:67].1; Tr. questioning Tribunal, On by the confirmed that he ofhe had knowledge Tramex by August 1996 [Tr. claimedD6:149]. initially also not to Chanturia have Mr. during Tramex’s of in 1997, butuntil accepted claims knowledge sometime early oil pipeline project, formerly in the hands of GTI, without any apparent background without any GTI, of in hands the oil project, pipeline formerly early in this industry. Mr. Chanturia claims in his written evidence not to recall when he became aware tha examination that several government documents presented to him indicated that he was [Tr. D6:102 in claims 1996 Tramex’s of aware 159]. Mr. Chanturia stated that he did not recall much of the circumstances sur circumstances the of much didnot recall that he 159]. stated Chanturia Mr. the enactment of Decree No. 178 and the events which followed, even though he though he even appears Decree events followed, the of which 178 and No. enactment the period. this during center controversial been the action at the of to have 8 March 1996, On with above consistent the Government Agreement (“ Government follows [Hearing 285]: as Bundle, Tab purpose 157. 158. 159. 160.

f examination, examination, -

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos truct GIOC to resolve Tramex’s Batumi pipeline [Hearing Bundle, Bundle, [Hearing pipeline Batumi

- amex’s legal rights and“expenditure

year PCOA with AIOC foryear the transportation examined on his written evidence and, and, is as examined on his evidence written - 56 - - ed to GIOC [Hearing Bundle, Tab 16]. In practice, Transneft practice, Transneft 16]. Bundle, Tab In [Hearing ed to GIOC ”, noting that Tramex had presented SakNavtobi with a claim SakNavtobi claim with a presented that Tramex had noting ”, REAS the Government wishes to facilitate and support the activities the activities support and to wishes facilitate theREAS Government WHEREAS the Facilities are, or will become, State property; and the the property; and State are, or will become, the Facilities WHEREAS WHE The CompensationThe Commission Process of the Oil Companies, as described above, and the Operating Company.” the Operating and above, as described Companies, of Oil the Government enters into this Agreement as the body ultimately responsible for for responsible ultimately body the as Agreement this into enters Government and State property; managing t from the discussion which follows, President Shevardnadze initiated a a initiated Shevardnadze President follows, discussion the which t from much, inmuch, what form from sourcesand what [Gur 5.3]. para. IV, Although such

compensation process approximately two months process approximately compensation later. JVA. In the to pursuant compensation and rights its reinstatement the of demanding that requested he Shevardnadze ins President particular, On the same the On day, GIOC into entered a 30- AIOC PCOA, the and sole of the terms granted the GIOC Under Georgia. oilof through to construct operateexclusive and Samgori rights the 286].Tab 19 August 1996, TransneftOn was 33a to No. “liquidated” Order pursuant and itsall of property was transferr to different entity. a but reported to now government function continued I. following Decree was issuance of Shortly arranged 178, a byNo. meeting Tevzadze Dr. Shevardnadze President the Gur, Mr. of a and Claimants,between witness on behalf in President to Gur’s Mr. written Shevardnadze June or evidence, 1996. According May was grateful to the investors for their patience and indicated there was o a possibility “ proper then butwas structure if new not the including that possible [them] within would 5.2].compensation be para. [Gur paid this” left Gur IV, Mr. feeling meeting questions being only Tramex, the had committed to compensate that Georgia satisfied how eviden letter a toIn President dated 26Shevardnadze, August 1996, Dr. Tevzadze appealed to President the resolution a directly Tr for of issues compensation and legal compensation issues [Hearing 159]. Bundle, Tab During cross assurances are assurances disputed by the Respondent, including by Dr. [Tevzadze Tevzadze para. I, cross to be not called 14], was Gur Mr. 161. 162. 163. 164.

”, then to then ”, ddressed to Mr. p would in what

23].

23]. is also that Dr.It clear Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ” in connection” with President

es.

ed by Minister Lekishvili, was circulated for for circulated was ed by Lekishvili, Minister The draft Order contemplated the establishment the contemplated establishment Order draft The

57 - - the commission as a representative of Tramex. its rights, applied costs and compensation volume of volume its costs and compensation rights, applied tion (G. Chanturia) jointly, on a par basis of costs to to costs of basis par on a jointly, Chanturia) (G. tion out process, lasting decade, over which during a out Claimants process, the ” [Hearing 17].” Bundle, Tab ste first the This was After obtaining conclusion of auditing firm, compensation within 30 days 30 days within compensation firm, of auditing conclusion After obtaining To offer company Tramex International (R. Fuchs) and Georgian and Georgian Fuchs) (R. International Tramex offerTo company ” [Hearing Bundle, Tab 22]. Bundle, Tab [Hearing ”

3. to assigned to be compensation of volume determine and discuss should period re of sources recommendations work out International, Tramex company discussion.” for present and compensation “2. Corpora Oil International be to firm inviteestimation incurred, investments auditing for acknowledged of its rights,applied Georgia, in International Tramex by company carriedout ofcosts and volume futurecompensation loss prove to be a long, drawn a to be prove - the recompense investmentsfor in loss their sought Georgia. of memorandum internal to certain an circulated 1996, Minister Lekishvili 18 September On officials, including Messrs.government Ninidze, andChanturia Tevzadze, thatrequesting they expresstheir “opinion in shortest the time 18]. Tab request [Hearing Bundle, Shevardnadze’s 1996, prepar draft Order, December a In Tramex in out by with investments the carried of in connection assessment the review determination “ and of Georgia future losses State the of adopted) (which Order purpose that the never stated draft was The following: the to effect was Commission of a State Commission consisting of Mr. Silagadze (Chairman of the Commission), Mr. Mr. Commission), the of (Chairman Silagadze Mr. of consisting Commission State a of Fuchs Mr. Chanturia. Mr. and Tevzadze, Dr. Chkhenkeli, Mr. Ninidze, Zubitashvili, Mr. in participate to identified also was Dr. Tevzadze testified that Mr. Chanturia was not happy that he had to the that he appealed was Chanturia notMr. that happy testified Tevzadze Dr. Tramex’s for rightsPresident to be [Tr. considered D8:45:11- itsfor compensation not only sought time, that Tramex the at understood, Tevzadze [Tr. D8:46:11- taken away been rights that had the expenses but for 30 August President 1996, On 479, No. Shevardnadze issued Order a Chanturia, Tevzadze Mr. Dr. Mr.Lekishvili, and “[g]ather, that Ninidze, they urging people, necessary invite and find a decision for acceptable all parties the “[r]eport to on me 166. 167. 168. 165.

- ains a single single a ains

imately adopted [Tr. D8:44- Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos [t]he created tobe should commission

58 - - ompensation commission reflects several important important several reflects commission ompensation ensationCommission for comp identification and possible given remarks change not only Georgia’s responsibility responsibility Georgia’s not only change remarks given ” [Hearing cont [Hearing 24].” Bundle, Tab This Order olicy Development of State Chancellor). State Development of Chancellor). olicy

including Mr. Fuchs: Mr. Zubitashvili (Chairman of the Commission), the including Fuchs: of Zubitashvili Mr. Mr. (Chairman

”. ” [Hearing Bundle, Tab 165]. Accordingly, Mr. Chanturia proposed amending proposed amending Chanturia Mr. [Hearing 165].” Bundle, Tab Accordingly, To create a government committee for reviewing Tramex International International Tramex forreviewing committee government a create To company’s expenses in Georgia, who will determine a possible reimbursement of of reimbursement possible a determine will who inGeorgia, expenses company’s .” expenses such “ future losses Mr. Ninidze, Dr. Tevzadze, Ninidze,Mr. Dr. Murjikneli Minister of Mr. (First Deputy Mr. Finance), Mr.Silagadze, Chkhenkeli, Chanturia, Mr. Mr. Head ofChumburidze (Deputy Finance Order 84 establishing No. the Order c the from changes December 1996 draft there is Notably, noOrder. longer mention ofany “ compensation The commission of composed most the was of same individuals proposed in the draft Order, Credit P and Budgeting particularOf interest to the Tribunal is the Mr. inclusion of one ofFuchs, Claimants,the its of respect Tramex in for compensation to consider established in commission the In a letter to Dr. Tevzadze, dated 31 March 1997, Mr. Chanturia rejected the above the 1997, rejected Tevzadze, Chanturia Mr. 31 March to Dr. letter dated a In the of formulation stating draft Order, that “ liable future for not be any can this by We company. borne expenses real the identify such or expected contractual losses, in since any condition isincome not envisaged document “ read: to Order the of title the by borne of expenses the company ‘Tramex International’ Mr. ”. in closing, Georgia In “ the that observed Chanturia matter the defines tha itt the also objectively company, abovementioned the before into above the remarks to take it for. is Therefore, necessary iscommission created consideration.” that opinion, testified Tevzadze Chanturia’s Dr. in Mr. this naturally expressed as letter, effect some on the scopehad of and ultwording Order the 45]. on 23 Indeed, 1997, GeorgiaApril adopted State Minister 84 No. Order “[r]egarding International Tramex in expenses company’s Georgia, and a possible of expenses the reimbursement provision, follows: which as provides operative 171. 172. 173. 169. 170.

t ”) to Nexia .” [Chkhenkeli, .” Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos he commission’s work and proposed proposed and commission’she work it possible won’t to be talk about any audit. However, Mr.audit. However, Zubitashvili, who

of works carried out and their legality are not not of works are out and their legality carried ” and “

, Respondenta commented witness, in his written 59 - - r the pressure of an interested party of an interested pressure r the

the Commission will its continue work within bounds the

] The commission therefore resolved to form a ibid. resolved a ] to commission form working The therefore whichgroup .” [ t an independent audit of Tramex’s expenditures related to the GTI project [Fuchs to GTI the project expenditures related Tramex’s independentt audit of an t Mr. reassured Mr.Zubitashvili Fuchs that they would a tofind way the compensate would review Tramex’s expenses. the endTowards 1997, of the Tramex appointed Nexiafirm (“ International conduc commission that the 9.13, Hearing requested para. delay 179].Bundle, Tab Fuchs Mr. I, audit repor submitted Nexia and the its of until review conclusion received Tramex had Bundle, Tab[Hearing 180]. its Nexia 1999, over in audit completed May a later year anticipated. originally than of the functions give toof functions the give Order it the by if actual expenses tilldamages [sic]the estimated para. 12]. para. subsequently Fuchs was Mr. a removed as member the of compensation commission Bundle, on 1997 [Hearing 136, adopted No. State Minister September Order 12 through of meetings certain to attend Fuchs continued that Mr. itears app 26].Tab Nevertheless, commission. the testified Nanikashvili Mr. that Mr. merits the during was Hearing unhappy Fuchs with the of wording No.final Order it He omittedreference claims because to 84 “damages”. any tha [Tr. D2:32]. damages their Claimants for aDuring of meeting the compensation commission on 25 August1997, Mr. Fuchs t of scope in the included that damages be requested to estimate owing to Claimants audit the compensation international conducted that an be Bundle, Tab[Hearing 174]. the Protocol recording The minutes the of indicates meeting an of concept endorsed the Tevzadze that Dr. “ that stated meeting, the chaired evidence that work ofthe a to party participate in “it isunusualvery for an interested to issue in discuss the meet commission. typically commissions Such governmental unde rather than operating private, investment in Georgia. Chkhenkeli Mr. 177. 174. 175. 176.

” suffered” by

of May last

.]. th the agreement to sell sell to the agreement

ibid 999 [Fuchs I, para. 9.15; para. 999 [Fuchs I, total losses total the Commission’s review review the Commission’s

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos personal request, became the the became request, personal

f GTI’s rights (i.e.

e and revenues due to Tramex anddue e revenues upon the

sis for the Nexia report [Hearing Bundle, Tab Bundle, Tab [Hearing Nexia report the sis for 60 - -

opriate measures.” opriate year to Deputy Minister of Fuel and Energy of that time, Mr. G. Chichua. G. Mr. time, that of Energy Fuel and of Minister toyear Deputy International instruct Georgian to advisable be it will information, this on Based the basis on by ‘Tramex’ losses suffered total the to determine Oil Corporation now are facilities disputed the since conclusions, audit International’s’ of ‘Nexia management. of GIOC’s control theunder Please take the appr take Please “Due to the fact that Georgian International Oil Company became the legal the legal became Company Oil International tofact Georgian that “Due the resolving and legal rights Tramex’s of investigation facilities, above the owner of upon your issues, compensation the expenditure responsibility of the management of the aforesaid corporation. A similar task similar A task the corporation. of aforesaid of management the responsibility of Ministry Georgia.The of Energy FueltoMinistry and of the assigned was Minister ofFinance, and Ministry of of Justice atedparticip Economy Georgia in well. as investigation the [was] to there clear that it a need As a result became of the investigation, Tramex losses of the to determine inorder auditing international an conduct rights. Tramex’s away taking by caused by International,’ ‘Nexia by and conducted Tramex initiated Such was an audit sent were on the and their law conclusions firm 28 an international

Nexia examined Tramex’s internal operating expenses, payments to third parties, and loss loss and parties, to third payments expenses, operating internal Tramex’s examined Nexia of revenue in association with the cancellation o its Root of share in25% GTI for to& Brown its assessing US$10,000), total losses at 199, p. 15]. Tab that this does amount Bundle, US$24,040,904 Nexia [Hearing clarified incom future loss any the of not include [ implementation operational its and Project GTI the of completion Tramex submitted the report to Mr. Giorgadze (Minister) and Mr. Chichua (Deputy (Deputy Chichua Mr. and (Minister) to Giorgadze Mr. report the Tramex submitted 1 of the in summer Energy of Fuel of Ministry the of Minister) Bundle,Hearing Tabs 199, 200 and 201]. Having received no response, Mr. Fuchs wrote shortly 2000, latter’sfollowing the on 18 January to Mirtskhulava appointment as Mr. FuelMinister and of Energy, enquiring the about status of [Hearing Tab 203].Bundle, [Hearing to 24 August President 2000, Mr.On the wrote Shevardnadze, Mirtskhulava chronicling that the and “ advising Tramex in Georgia involvement of ba on the determined Tramex should be 203]: 178. 179. 180.

ations to

undle, Tab Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos .” [Hearing [Hearing 217] .” Bundle, Tab ry of Justice would prepare a report Justice a of would prepare ry

61 - - [d]iscuss, appropriate the ”. decision and make Mr. authenticity of debts to Tramex International and possibilities possibilities International and Tramex to ofauthenticity debts ” [Hearing Bundle, Tab 216]. Tab [Hearing ” Bundle, the partythe violating of act Concession the is of itself GTI request and the

eplied several weeks later, indicating that he expected a conclusion theby compensation Approximately one month one Shevardnadze issued President Approximately 1888/8 No. later, Order Chanturia Mr. to “ instructing on 10 October any to response to deny this oblig was 2000, Chanturia’s Order, to determine that GIOC Tramex’s averring able would notbe GTI, lossTramex or “ June State 2001, Deputy of variousIn Minister Gvenetadze of meeting heads a convened Kelbak President Dr. GIOC, ministries, and Vice of Tevzadze iani, the including Irakli Justice of to Ministries the resolved would submit it that SakNavtobi which was during debts any Management concerning available documents to GIOC and State Property and their to Tramex for examination, Minist the owed and “ the on within month one for legal proceedings Tramex’s issued GIOC’s of assessment claims, Kelbakiani 2001, Mr. 20 August On that “ concluding on damage compensationTramex is groundless absolutely Several letters were exchanged between the Claimants and SakNavtobiin the period to Dr. on 5 wrote Tevzadze taken. Fuchs Mr. was action but no further ensued, which 2000, payment demanding November withinin 30 days US$ 24,040,904, of with interest, Tramex’s 206]. as Bundle, Tab Fuchs for highlighted Mr. [Hearing compensation losses to President Mirtskhulava Mr. from letter the position Tramex’s support for SakNatobi, of Director Makharadze Mr. General in August 2000. The Shevardnadze r 207]. Tab [Hearing Bundle, commission shortly such losssuch was indeed incurred Mr.”. Chanturia advised that assessment and resolution of issue, inthe his view, fell the under competence SakNavtobi of [Hearing B 205]. additional 2000 requesting 18 December on to Fuchs Mr. wrote Tevzadze Dr. Mr. which a information, Fuchsremitted week later Tabs [Hearing Bundle, 211]. 210 and commission no conclusion compensation the of forthcoming. Nonetheless, was 181. 184. 185. 182. 183.

ete ries

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ed for in Article 19 of the JVA) JVA) the of 19 inArticle for ed ipulated in minutes theipulated the of June 2001

62 - d with its obligation to provide all available available all provide to its with d obligation -

longer, we require, as a sign of your good faith, sign faith, ofas longer, a your good require, we

ssions and negotiations, Saknavtobi and various representatives of of representatives various and Saknavtobi negotiations, and ssions n has taken far longer than Tramex envisaged when these assurances these assurances when envisaged Tramex n has far taken than longer “Throughout the period of the State Commissions review, and in the course of of course the in and review, Commissions the State of the period “Throughout discu many bringing todefer Tramex requested have Georgia of the Government the rules of the to pursuant England, in proceedings arbitration international provid (as Commerce of Chamber International If are any we off to hold a defined within resolved be issue will compensation the that confirmation days.” 30 exceed to not period assuring Tramex that our damages would be determined by the State State by the determined be would damages our that assuring Tramex having JVA breach the the of for toliability Tramex Saknavtobi’s Commission, thework of the State however, Unfortunately, already beenaccepted. Commissio time defined a within progress positive seen have must Tramex and given were as law English under arbitration ICC the with proceed to force will be or period, us. between upon agreed originally take not should Tramex that requested again have you days few last the Within resolved be will matter the that belief your expressed have and course this for arbitration. the need months without few thein next satisfactorily February 2002,February Mr. Fuchs wrote to Dr. Tevzadze confirmation requesting the that

Deputy State MinisterDeputy Gvenetadze another meetingconvened the of heads minist of it was which 2001, during again wouldresolvedon 23 August that SakNavtobi all deliver Management Property and State of Justice Ministries the to possession its in materials compl out a to carry order to regarding Tramex in owed debts the to GIOC and examination of same, and that another meeting would be held at the State Chancellery to Tab 218].Bundle, [Hearing outcome discuss the wrote Tevzadze to Dr. StateDeputy Minister Gvenetadze on 5 November 2001, advising SakNavtobithat while complie had documents concerning any debts to any Tramex concerning owed Statedocuments and Justice to Ministries the of a Justice of not prepared Management Ministry had the to GIOC, and Property issues on the Tramex, by conclusion st raised as [Hearing meeting 222].Bundle, Tab appears instructionsthat further It by issued were Tevzadze’s of Dr. receipt following of Justice Ministry the to Minister State Deputy the Tab [Hearing 225] letter Bundle, On 28 On Tab [Hearing within next issue would Bundle, the compensation resolved 30 days be 223]: 186. 187. 188.

ot even an n Georgian n Georgian

h compensation per se but se per h compensation Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 2002. tate Minister of Georgia Georgia of Minister tate th

2002, in which the latest date date latest the in which 2002,

nd 2002

the Deputy S Deputy the s need so desperately.” s need

63 - - which, as you are aware, is considered as Force Major for for Major Force as considered is aware, are you as which,

on its receipt. In addition, Georgian Oil would like to once again again once like to would Oil Georgian In addition, on its receipt.

gian Oil management has advised yougian Oil management several thattimes the agreement response to your letter dated February 28 February dated letter your to response was sent to the Ministry of Justice on February 2 February on Justice of Ministry tothe sent was for the Ministry to present the conclusion was March 15 March was conclusion the present to Ministry the for “In Thank you for the above letter. As you are aware the issue concerning the Joint the Joint concerning issue the aware are you As letter. the above for you Thank is Oil under Georgian and Tramex 1992 between in made Agreement Venture directorate. Oil of Georgian control constant its finalize shortly will of Justice Ministry the that believe we and government, was matter this on information detail the time to time From conclusion. oil. Georgian by to Tramex provided The Geor breached was (it side Oil Georgian from canceled or breached been never has well been have you which of Georgia of President the of Decree specific under of the the recovery ensure to efforts the all g is Oil makin and Georgian aware), the that is It obvious by Tramex. incurred costs actually losses and this was level delayed, but on authority hasbeen of this issue consideration i changes the to related reason an objective byquite caused – Mr. Zoidze A. by signed letter The last So, Tramex has no basis to require the recovery of its losses and costs from from costs and its losses of recovery the require to no basis has So, Tramex moral both losses, no less carried has Oil Georgian more, Even Oil. Georgian future. near the in raised fairly be will issue and this Tramex than and financial, keeps it if more benefit will Tramex that understand well you Ron, very Dear us enable This and not will as a defendant. Oil contractor asGeorgian a true partie as both final results to achieve both both parties. Georgian Oil will try to provide Tramex with the mentioned conclusion conclusion mentioned the with provide Tramex to try Oil will Georgian up immediately desperate Tramex notice the can Oil management the Georgian outpoint that effort to Georgian Oil charge with the breach. n there was that advise you to officially like would once again We the agreement above to or cancel breach Oil side from Georgian attempt made (although there is and currently was the that for thusbasis to the happen), the of under Decree the but not Oil by Georgian breached was agreement Georgia, of President The Ministry of Justice released its report on 2 April 2002, attributing the prolonged the 2002, attributing on 2 April its report Justice of released Ministry The it were to submitted documents that the fact the to report its preparing in delay not wit dealt report The jointly. not submitted and incomplete rather withrather the legal SakNavtobirelationship between the and Georgian State [Hearing 225]. Tab Bundle, SakNavtobi’s response 2002 by SakNavtobi’s [Hearing measure wason 26 March any defensive 224]: Tab Bundle, 190. 189.

going compensation

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ]:

ibid. ablished. Unfortunately, this this Unfortunately, ablished.

64 - -

tance of Dr. and Henry Kissinger his firm.consulting d the situationd the follows [ as

investigating the legal aspects of the issue and carrying the issue to to issue the carrying and the issue of aspects legal the investigating

: f Justice back to GIOC and Saknavtobi management. It is clear that is It clear that and Saknavtobi management. GIOC to f back Justice ] still remains unresolved. unresolved. ] remains still 230]

ab “In spite of multiple written resolutions from the President of Georgia, in spite spite in Georgia, of the President from resolutions written multiple of spite “In in spite and of State Ministers, consisting of a State Commission the of creation [of Tramex’s case the unfortunately, instructions, of department of a series claims […] to and loss the [sic]of amount the of to determine Tramex, of loss the As for of Heat issued and Power Minister the compensation, the for arrangements make of Presidential 24, 2000 and by virtue 1/1276 August Resolution No. letter dated ‘consider, the 2000, 19, September dated letter, this following issued no. 1888/8 assigned to was task Mr. Chanturia. G. measures” and take appropriate the of management 2001, the 13, November dated 105 No. Letter to According to take of Georgia President the to request one more de ma Saknavtobi in Decree Presidential a Personal of basis the On measures. appropriate Arsenishvil’s Gia Minister’s State former to and according letter this to response est was Commission State order an appropriate Minister (Gia the both issue, because thenot to close managed also Commission replaced. were Ministers the Deputy and Arsenishvili) The only thing this Commission managed to do was to put the Ministry of Justice Justice to of the to do was put Ministry managed Commission The only this thing in of charge its final conclusion. the Deputy Minister and the of replacement later (the 6 months Unfortunately, the from again redirected was issue the time) this at place took Ministers o Ministry it solve not could they independently, issue the solve to is able them of neither future.” the in it solve to able be won’t definitely and years 7 last the during Mr. Mirtskhulava summarize Mirtskhulava Mr. Clearly frustrated by the failure of the Georgian State to compensate him and his business business and him his to compensate State of the Georgian by the failure frustrated Clearly Mr. partner, Fuchs sought assis the Chairman Kissinger of Vice Batkin, Fuchs 2002, Mr. late Alan with met Mr. In to discussAssociates, inInc., retainer a connection with on- the process. On 8 January 2003, Dr. ChairmanKissin ofger, Kissinger Associates,wrote to matter the to discuss with Batkin Mr. meet that he requesting Shevardnadze President Tab 229].Bundle, [Hearing asked Mr. to Shevardnadze Mirtskhulava 2003, President 20 January dated Order an In letter. in Kissinger’s Dr. outlined of the concerns preparerespect in information certain Tramex’s chronicled again Mirtskhulava 2003, Mr. 7 February letter a dated In [Hearing process compensation the of saga the in particular and involvement in Georgia T Bundle, 193. 191. 192.

”, and and ”,

any other any other nt of its actual actual its of nt One thing that is clear,

Mr. Kissinger’s claims Kissinger’s Mr. nts and spent a lot a lot and spent nts 21; 54:14 to 58:11] Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ” [Hearing [Hearing 232].” Bundle, Tab from the very beginning. should determine who will be the will the who be should determine Mr. Mirtskhulava, Dr. Tevzadze, and Tevzadze, Dr. Mirtskhulava, Mr. toassist

.” [Tr. D6:20- i.e. ”,

a mutual consent – consent a mutual 65 - – -

he details and that is why they wanted to offer the the offer to they wanted why is that and details he the Georgian Government Georgian – the ava testified that this directive referred to SakNavtobi, and was predicated

year period in our country. This is the exact reason that Tramex Company not not This Company Tramex that is exact reason the in period our country. year Georgian sideGeorgian the right approach “I find it natural that after all this it will be difficult to answer the question: question: the answer to difficult be will it this all after that natural it find “I from ousted sowas unduly it which for to Georgia do wrong did Tramex What than more much did Tramex for which country the country, the […] in the engaged gotten never would have legal firm ItMr. that is Kissinger’s clear the that notice can One winning. of sure been not had firm the if case Tramex t all scrutinized has firm investor performing in Georgia? performing investor 20, 1996 178 on February No. Order Presidential that perfectly understand We to it fair was how but benefit, country’s our for step a political rather was investme significant has carried out which Company, Tramex incountry? the purposes various for of money been had expenses actual Tramex’s of compensation of mechanism the If order, a new by or even 20, 1996, February 178 of No. order draft provided by the for undeservedly and unfairly so suffered have not would definitely Tramex 7- since to it) get not manage did (or restored rights its legitimate only not get did any acknowledgeme not get even did it 1996, but February inthe country. had incurred been that expenses Tramex’s demanded of 24 million dollar compensation is not the main thing, the the thing, main is the not compensation million dollar of 24 demanded Tramex’s the by determined be or higher; will proba it bebly loweramount might for will be responsible who tois determine thing The main audit. international Georgia.” in respondent the will be who and this money paying Georgian side – side Georgian

rtskhulava’s letter, Presidentrtskhulava’s Shevardnadze observed that “ Mr. Chanturia, in order to reach a conclusion [Hearing Tab to 230]. conclusionBundle, a in order [Hearing Chanturia, reach Mr. directed 2003, cryptically issued on 21 February Order, Presidential subsequent A Jorbenadze Mirtskhulava, Messrs. Chanturiaand “ In a handwritten to note a In onJorbenadze (State Mr. Mr. of prepared cover Minister), the Mi should considered not be groundless, but at that there time was no other out way directed that he convene persons “interested MirtskhulMr. the on his letter toon his President letter which with the Shevardnadze concluded following resolve, “ against action recognized likelihood Georgia: legal the of having respondent before Mr. Kissinger’s Mr. before arrives respondent deputy 195. 194.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ing Bundle, Tab 234]: Tab Bundle, ing conversation therefore turned to to turned therefore conversation

66 - owner of the pipelines, which provided for the the for provided which pipelines, the of owner

e held by GTI and that Tramex was therefore entitled to to entitled therefore was Tramex that and by GTI held e

establishing how much should be paid and how that figure should be be that should figure and how be paid should much how establishing calculated.” (v) The Government of Georgia later adopted another resolution unilaterally unilaterally resolution another adopted later Georgia of The Government (v) ments agree andrespective their under GTI and Tramex of rights the cancelling granting the rights same to GIOC. the for Georgia of Government the by compensated tobe entitled is Tramex (vi) the of loss of the value the for and invested it the amounts incurred, it costs signed. agreements the under evolved have would that opportunities business incurred costs the for compensation any received have Tramex nor GTI Neither rights. of loss the for or (iv) No assertions were ever made that Tramex or GTI defaulted on any of their their on any of defaulted or that GTI made assertions ever Tramex No were (iv) of all its met Tramex that It acknowledged ns. was obligatio contractual to. a party it was agreements various the under obligations (ii) GTI entered into a Concession Agreement with the government entity of of entity government the with Agreement Concession a into entered GTI (ii) Georgia that, at the time, was the pipeline future and the existing over concession term long of a to grant GTI Georgia. of territory the in system the implement of to GTI, on behalf in and GTI, money invested (iii) Tramex the and inthe Joint Venture stated projects other and project pipeline of donations made also Tramex Oil. Georgian with Agreement Concession Georgia. of welfare the for money “(i) Tramex entered into a Joint Venture Agreement with Georgian Oil, pursuant pursuant Oil, Georgian with Agreement Joint Venture a into entered Tramex “(i) Ltd., GTI company, a Georgian established Oil and Georgian to which Tramex to to was be exclusive rights granted them, which between in shares owned equal The of Georgia. territory the through of petroleum transmission for the pipelines Ministers. of the Cabinet by approved was GTI of establishment “At the meeting, the Georgian delegation did not dispute that Georgia had taken taken had Georgia that dispute not did delegation Georgian the meeting, “At the onc rights the away We thisissue. about oropen disagreement debate no There was compensation. the resolving by arbitration or litigation avoid tobest be would it that agreed all The amicably. compensation of matter According to According Mr. of Batkin’s recollection events, told Mirtskhulava Mr. Fuchs andMr. colleagues that once a sum had been quantified and agreed, it repaid to Tramex would be similaron terms to the Paris Club [Batkin rules para. 11].I, Mr. Batkin subsequently to Mirtskhulava Mr. 2 Junewrote on 2003, key the memorializing pointsthe of agreement reached. His letter records the following [Hear A meeting was arranged between various Georgian officials and Mr. Batkin, Mr. Fuchs Batkin, Fuchs Mr. Mr. and officials Georgian various arranged was between meeting A Smith Mr. and Mr. 2003. on 19 May in Tbilisi was written which evidence, Batkin’s 9]: indicates nor Hearing, [Batkin follows the tested as at challenged para. neither I, 197. 196.

ket

Supsa and Supsa and BTC - 35]. However, as Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

2003 Mr. is meeting disputed by

”) to conduct the audit [Hearing Bundle, audit [Hearing the ”) to conduct

Deloitte 67 - -

el (“ el Ltd. ave spoken with Mirtskhulavaave Mr. spoken over telephone the on 19 June espondent elected notMr. to challenge espondent Batkin’s evidence. elected akashvili became President in January 2004. became akashvili he said economic costs. He also said it usually takes about 10 days to get get to days 10 about takes usually it said also He costs. economic said he – I spoke with the Minister today. Minister the with I spoke He confirmed that he had received my letter and agreed with the conclusionswith agreed and letter my received had of he that confirmed He President the sent have they that said He letter. the in forth I set that meeting our the determine to firm an accounting appointing authorizes to which sign a decree poc outof saydid not He contract. theof losing toTramex costs economic costs .” week next back it to get expected he so signed, a decree “ (vii) The Parties prefer to resolve this issue amicably and to avoid litigation.” avoid to and amicably issue this to resolve prefer Parties The (vii) letter and agreed with agreed and its [Batkin letter contents II, 5; para. Tr. D6:34-

nd Mr. Mirtskhulava’s testimony stands in contradiction to Mr. Batkin’s written evidence, in evidence, written Batkin’s Mr. stands in contradiction to testimony Mirtskhulava’s Mr. h to he claims which time Mr. which 2003, at confirmed Mirtskhulava June Mr. had that he received Batkin’s 2 Mirtskhulava. Mr. Mirtskhulava denies having received the above record of their their of aboverecord the received having denies Mirtskhulava Mr. Mirtskhulava. the of respect in meeting to their subsequent to Batkin Mr. spoken having or meeting [Tr. D6:32]. contrary the suggesting evidence documentary despite his of letter, contents by Mr. sent the on 19 email An in part relevant Batkin to Fuchs June Mr. 2003 records [Hearing 235]:Bundle, Tab following R the above, noted event, independentany on 28 June to audit of an In Shevardnadze agreed President 2003, Deloitte Tramex 2003, Tramex commissioned by 27 October on and, costs incurred the Consultancy Isra Management The accuracy of Mr. Batkin’s record of the May Mr. the of of accuracy Batkin’s record The Tabs 236, 238].Tabs resigned 2003, PresidentNovember In Rose Revolution Shevardnadze the as gained was and established subsequent government a election, new a In momentum in Georgia. MikheilMr. Sa The Deloitte audit report, presented to the Ministry of Fuel and Energy Energy on 5 February and Fuel of to Ministry the presented audit report, Deloitte The value Tramex’s the of 2004, estimated share in GTI’s rights in the Baku US $12.1 of interest and expenditure wasted as well as US at $64 million, pipelines of million (as US$ a 106.3 of for total loss million, respectively, US $30.2 million and [Hearing 238]. 2003) Tab 31 December Bundle, 199. 200. 198. 201. 202.

- e throughe t legal t legal obi and and obi Government Government

ormed the Claimants that that Claimants the ormed owned, under the then the under owned, Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos - existing and current Georgian Georgian and current existing March 1992 and the Concession theConcession and 1992 March the problem problem the companyconcerning the July Tramex 2004, gave notic

68 - - r, the Agreements are governed by Georgian law. Georgian by governed are Agreements r, the

On setting up a governmental commission setting forOn governmental up a studying

entitled “ entitled April 1993 (collectively, the ‘Agreements’) were SakNavt were ‘Agreements’) the (collectively, 1993 April

November Minister the 2004, Ms. Gureshidze, Deputy Ekaterine First al transactions, acted on their own behalf and were responsible for for responsible and were behalf own their on acted transactions, al lly set uplly set but commissions, regrettablyways of solving it not beenhave ”. The Decree further noted that “ ely because it approved the project. approved it because ely Tramex undoubtedly was aware of the fact that under the legislation of Georgia Georgia the of legislation of fact under that the aware was undoubtedly Tramex none In state. the from separate identity legal possessed partners contractual its to as the to a Government reference slightest a even there is Agreements of the Energy and Fuel of Minister the Although Agreements. the to party the by 1993, preceded of 28 April Agreement the Concession countersigned a party in be brought as to cannot an agreement state the words, ‘I confirm,’ mer legislation, SakNavtobi and TransNavtobi clearly possessed independent legal legal independent possessed clearly TransNavtobi and SakNavtobi legislation, remembe may As you capacity. the for responsible held be can not a government that The fact of shareholder sole the is state theif even a legal person of obligations/liabilities or Sovie Georgian of idiosyncrasy an constitute not such does entity, existing legislation of Georgia, represented legal entities distinct and and distinct legal entities represented Georgia, of legislation existing decisions binding make to unilaterally ability had the state, the from independent incommerci - then the to both, According obligations. their own developed by accepted and recognized is widely principle This systems. international courts of different fact, is by and, in upheld jurisdictions arbitration.” Agreement of 28 Agreement did not represent a party to any of the agreements which were concluded by by concluded were which agreements the of toany party a represent not did inTramex Georgia. of3 Agreement JointVenture theto parties The TransNavtobi, respectively. Both entities, although state Both entities, although respectively. TransNavtobi, “The Government can not be held liable for the Claim because the because thefor Claim liablebe held not can Government “The Decree No. 144 No. Decree October 2004, the new Georgian Government established another commission 2004, the Government Georgian established new October estions concerning the claims of the company ‘Tramex’ made on the Georgian on made Georgian the ‘Tramex’ of company claims the the questions concerning Government .” [Hearing Bundle, Tab 31] Bundle, Tab [Hearing found.” In a letter to Prime Minister Zhvania, dated 22 dated Zhvania, Minister Prime to letter a In this Tab reimbursement of amount its 241]. for of claim Bundle, counsel [Hearing On 9 under has‘Tramex’ existed than for ten more years. Study of this was problem by discussed specia different In a letter dated 15 Commission, the of Justice of Chairman inf Ministry and the of commissionthe decided had no there were legal for grounds holding theGovernment The claim. 249]: the Bundle, Tab for follows [Hearing liable as Commission reasoned 203. 204. 205.

letter [Hearing [Hearing letter

th ompensation. mber2004, inviting [Footnotes omitted.] [Footnotes very important also for for also important very

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ng which led you to believe to believe you led which ng

as the head of the Georgian Oil in these these in the Oil of Georgian the head as

oach adopted by the State commission in in commission by the State adopted oach

he preceding decade. preceding Mr. he Batkin’s conclusion

69 - - by Georgian Oil.” by Georgian out compensation para. [Batkin 23]: process I, because he w because

--- of the Respondent reflects the Claimants’ disappointment in Claimants’ disappointment the reflects Respondent the of

58]: ar understanding, based on the admissions made by the Georgian Georgian by the made the admissions based on ar understanding,

“Did Mr. Tevzadze ever say anything or do anythi do or anything say ever Tevzadze Mr. “Did for compensation issue of the on spokesperson Georgia’s been not had he that Fuchs? Mr. and Mr. Kardassopoulos on government the to approach can else who anyone have don’t and we days, pushed was he and answers, the there isbringing he and there going is He this. for these all matters to not go in the itbecause court, was A. Your Honour, our link to Georgian government in these particular days was was days particular these in government to Georgian link our Your Honour, A. don’t we Mr. Tevzadze, because the for payment, responsible Oil, will be who him, like Georgian him, for So for Oil will be payment. So Georgian company. the like head of what he was ment, govern Georgian the of spokesman was who basically the we guy us, he was one. any other have don’t Our faith in the process was seemingly confirmed as the Government allowed the the allowed Government the as confirmed seemingly was process in the faith Our without planned, as months the ensuing over to proceed appointed auditors inconsistent also was response The State commission’s raising any objection. cle my with as something to Tramex obligation the regarded Georgia that had met, I officials cancellation (the conduct own Government’s the of a result arisen as which had conduct and not rights) of GTI’s “I cannot help but remark that thethat appr but help remark “I cannot in Mr.Fuchs and tome given acknowledgements express the contradicted 2004 the Georgian by agreement and the 19, 2003 on May meeting our during Tbilisi c determine to be engaged process party a third that Government as regards this volte regards as face to long, the drawn- end bitter a such theory on of Batkin’s Mr. change effect the on the the in government compensation the by questioning under Nanikashvili Mr. of by is testimony confirmed the process [Tr. D2:56- Tribunal This was an unequivocal rejection of the Claimants’ demand for restitution and, indeed, a a indeed, and, restitution for Claimants’ demand the of rejection unequivocal an This was events the State for part Georgian on the the of responsibility any of denial complete t transpired over of course had the which the commission to reconsider its position, failing which formal arbitral proceedings proceedings arbitral formal which failing position, its reconsider to commission the would issue [Hearing 250]. Bundle, Tab Ms. on Gureshidze replied 10 December 2004, the confirming commission’s position forthset as in its 15 November 251]. Tab Bundle, The Claimants wrote to Claimants wrote The through Ms. on 24 Nove Gureshidze counsel 208. 207. 206.

year - h the

with these new

Mr. Fuchs tried to to tried Mr.Fuchs

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

mants’ claims are not prescribed, the Respondent Respondent the not prescribed, are claims mants’ 70 - -

”

ith them --- them ith

w, isw, not inconsiderable. The that in Claimants November contend date 1995, the Revolution, ofRose Revolution, the because finishes, Shevardnadze FirstA. Mr. when all, of Mr. was a solution, for knowledge, our best from pushing, was who Shevardnadze. Mr. with contact established Kissinger Mr. Even Shevardnadze. is donefirst the clear all and what he has president, then present And the come left is who one no is there So Tevzadze. Mr. including n Oil, from people Georgia anyone even and nobody, no committee, was, nobody talk, can we whom with even will nobody understand So we now. people young come intent, the have have the intent to talk with us. w contact establish Q. When the negotiations broke down, what was the cause of the breakdown, in in breakdown, the causetheof whatwas brokedown, the negotiations Q. When the cause? was What successful? discussions the weren’t why words, your a find to the people and president new the even with me, believe tried, Mr. Fuchs I because try already --- try, not me, via solution, but a lot, people, I was not involved in any ---in involved not Ipeople, was wit came breakdown the that evidence your testimony, your So it’s Q. administration? new the of arrival the and Shevardnadze Mr. of departure is committee the thought everybody when the case, really was this I think A. the go to --- no other to and there would be chance finished The Respondent’sThe Case The Claimants’The Case SUMMARY OF THE PARTIES’ SUBMISSIONS

period during which compensation was promised but never delivered and the testimony and delivered compensation promised testimony the which during was butperiod never own maintain Respondent’s who the compensation witnesses of of measure is that some appropriate. B. The Respondent submits Respondent not Claimants’ thatThe claims timely, that the and are it would be to these so allow heard long theinequitable to after claims in be whichperiod relevant the events occurred. To theextent theClai event, any in and, provision treaty any under Claimants the to liable not it is that submits invalid are rights GTI’s because either compensation to not entitled are Claimants the that A. amount the of question a essence, in is, it case; simple a is this that submit Claimants The its amount, in That for Respondent conduct. the unlawful by to Claimants the owing vie their their which cancellation significant the foreseen, rights had GTI’s by rights be of could Claimants’ the Respondent’s the value. view, In that the position arbitrations in these over eight the conduct by Georgia’s is belied entitled to nothing Claimants are 210. 209. PART III. PART

over Mr.

levant period?levant over Mr. Fuchs’ fair Fuchs’ Mr. over of the standards of of standards the of

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos barred underof equitable barred rules - n clauses on damages?

71 - -

n? because the Claimants could not have had legitimate any

: The issue of quantum (if liability and causation are decided in favour are and causation liability quantum (if issue of : The : The issue of liability is comprised of the following the questions: of is following four comprised liability issue of : The Does the Tribunal have jurisdiction Tribunal ratione the temporis Does BIT? / Israel Georgia the under claim treatment equitable and Does the Tribunal have jurisdiction Tribunal ratione the temporis Does time claims the Claimants’ Are prescriptio Kardassopoulos’ expropriationKardassopoulos’ claim under the Georgia / Greece BIT? SakNavtobi omissions of and acts commitments, the contractual Are attributable Transneft Respondent? toand/or the Mr. and treated Fuchs Mr. investments Kardassopoulos the of Were in breach otherwise or inequitably and unfairly or BIT / Greece the Georgia BIT, / the in set out Israel Georgia treatment the ECT? ClaimantsDid the suffer loss a any as of result of any above the alleged trea so,ty if breaches and, Claimants’ losses? the cause did Respondent the the of stabilizatio effect the is What What was the scope of of during scope GTI’s the rights, any, What if re was the Was Kardassopoulos’ Mr. investment in GTI in breachexpropriated of the requirementsof the ECT and/or the Georgia / Greece BIT? ofWhat breach is compensation applicable standard the of for Article (the / BIT Greece Georgia the of 4(1) Article ECT and the of 13(1) expropriation provisions)?

(i) (i) (i) (i) Liability to question: the rise Causation following causation issue of gives : The Quantum following five the of questions: Claimants) is the comprised of Jurisdiction & EquitableJurisdiction Prescription: The jurisdiction issues of equitable& and three questions: following comprised the are of prescription ISSUES TO BE DETERMINED TO ISSUES (ii) (ii) (ii) (iv) (iii) (iii) as follows: summarized riefly

(b) (d) (c) (a) and unenforceable, or or unenforceable, and the not because may be rights or simply valued. compensation, toexpectation any issues beforeThe the Tribunal for determination be may grouped into six and categories are b PART IV. 211.

in turn. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ns are has, Tribunal nsextensive. are The se of these proceedings.

award interest owing to the Claimants? to the owing interest award - award interest owing to Claimants? the owing interest award - 72 -

- sue Tribunal the costs requires of the to consider appropriate

Accordingly, this shallnot claim further considered be in present the 6 : The issue of interest is comprised of the interest of issue of is: The two questions: comprised following What post is of amount the owing to the to the Claimants? owing What compensation is of amount the What pre is of amount the What is the appropriate methodology for valuing the Claimant’s claims? Claimant’s the valuing for methodology appropriate the is What What is the applicable standard of compensation for breach of Article 2(2) of breach of for compensation standard Whatis applicable the of the Georgia / Israel BIT,Article 2(2) ofthe Georgia /Greece BIT and of treatment ECT 10(1) the equitable fair and Article provisions)? (the

CT and Article 2(4) of the Georgia / Greece (the “umbrella” clauses) has : Finally, the is the : Finally,

(i) (v) Interest Costs allocation (if any) of the costs of these arbitration proceedings as between the Parties. ANALYSIS AND FINDINGS Matters Preliminary (ii)

(iv) (iii)

(e) (f) wishes Tribunal issues the identified to address above, turning to specific the Before present the of merits the to law applicable the (1) including: matters, preliminary certain allocation burden proof. the the of of disputes; (2) and been abandoned. been The Tribunal notes that the Claimants’ claim in respect of the alleged breach of Article Article of breach the alleged of respect in claim Claimants’ the that notes Tribunal The E the of 10(1) Award. issues discuss shall now these Tribunal of determine each The and A. the identifying in Parties the full of submissions the considered has Tribunal The The Award. its at issues on those in decisions this in arriving issues and principal arbitratio in these oral submissions and written Parties’ summarized parts or convenient, reproduced where of submissions those of in body the Award; however,the it is not possible to incorporate the ofentirety Parties’ the in the made cour oral, and submissions, both written Reply at para. 372. para. at Reply

215. 6 212. 213. 214. PART V.

dispute [Footnotes omitted.] [Footnotes Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos levant as a fact to determine as a factlevant determine to

n the absence of such agreement, agreement, of such the absence n

146]:

73 - - as. 144- as.

ablished under paragraph (4) shall decide the issues in in issues the decide shall (4) paragraph under ablished ons of this Agreement and the applicable rules and principles of of and principles rules applicable the and this Agreement of ons ovisions of the ICSID Convention, the ECT and the BIT which are are and the BIT which ECT the Convention, ICSID the of ovisions the Tribunal shall apply the law of the Contracting State party to the the to State party the law of Contracting the shall apply the Tribunal and such of rules of on the laws) conflict its rules dispute (including applicable” be may law as international “A est tribunal and rules applicable and this Treaty with in accordance dispute law.” principles of international BIT of the 9(4) Article the with inaccordance the dispute shall decide tribunal arbitral “The provisi law (…)” international Article 42(1) of the ICSID Convention of ICSID the 42(1) Article rules of with such in accordance a dispute decide shall Tribunal “The I parties. the by agreed be law as may of ECT the 26(6) Article The ApplicableLaw to the Merits 145. is that law by theThere no doubt in a choice ofeither international Parties by be respected to and has valid is its own on law or a national with conjunction law, is it apply to Georgia not this is Tribunal authorized While our Tribunal. can that agreements ofinternational are provisions there that well established law. to municipal reference by meaning given only be Georgian re 146. In law is the present case, the and the ECT of terms the by is covered investment Claimant’s not or whether applying court municipal a of determination the be may whatever BIT. But, law to the can the Georgian issues in dispute, decide this Tribunal only “144. As an international Tribunal, this Tribunal must decide the issues in in issues the must decide thisTribunal Tribunal, international an As “144. and rules applicable the with in accordance Parties the dispute between the cite to point this at essentially thus is It law. international of principles pr relevant follows: as read They clear and prescriptive. in rules and of with law.” accordance international theprinciples applicable 1. The Parties have provided no further submissions on this issue, with the exception of the submissions the exception provided of the on this no further have issue, with Parties The law applicable to Mr. Fuchs’ claim. The Tribunal BIT, / recalls Georgia Israel the that the Tribunal the during was basis for claim, the Fuchs’ not Mr. forms before which The Tribunal addressed the issue of the applicable law during the jurisdictional phase of of jurisdictional phase the during the law applicable addressed the Tribunal issue of The to itfinds convenient which findings, following the made arbitration and Kardassopoulos [Decision here reproduce on Jur., par 217. 216.

nalysis is nalysis

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

The Claimants submit that the treaty treaty the that submit Claimants The

Article 11 Article “ 74 - -

Application of Other Rules Other of Application .”

”. ment more favourable than is provided for by the present present the by for provided is than favourable more ment

” adopted by arbitral tribunals recently in the context of Article Article the in context of recently tribunals arbitral by approach adopted ”

If the provisions of law of either Contracting Party or obligations under obligations or Party Contracting of either law of If provisions the the between hereafter established or present at existing law international whether rules, contain Agreement present the to addition in parties Contracting Contracting of the other investors by investments entitling specific, or general treat a to Party prevail favourable more are they that extent tothe shall rules such Agreement, agreement the present over ncipal source of law to be applied by the Tribunal, the law of the host of the to Tribunal, of the law by law other source the applied State and ncipal be product ofproduct international law The Respondent makes Respondent The of submission its no particular aid in on this issue but invokes to various the law. Georgian claims and defence law both international the of ICSID 42(1) Article with in connection Claimants the by identified authorities The thatConvention confirm tribunalsarbitral must on decide proper the toles ro played be by of the each sourcesrelevant of obligations law of theand in terms applying agreements of the dispute, as given to a law international and domestic provisions the of and On the basis of Article 11, the Claimants reason that substantive treaty rules are the are rules treaty substantive that reason Claimants the 11, Article of basis the On pri international of law secondaryrules a playing role applying only to and extent the they this a Claimants contend The investor. the for favourable treatment more offer but is nevertheless42(1), by the restricted primacy of the /Georgia as BIT Israel a “ jurisdictional phase. Unlikethe treaty between Greece and Georgia, the Georgia / Israel law. set not explicitly applicable out does the BIT drafters’intent is neverthelessclear in Article 11 of the Georgia / Israel BIT, which follows: as provides Convention. the of ICSID 42(1) consistent with Article be may law position principles, the Claimants these the that Georgian take Applying relevant as a fact to determine certain issues, consistent with the and pragmatic “more less doctrinaire 220. 221. 218. 219.

Wena Wena

provided for In that case, 10

”.

[Emphasis added.] [Emphasis 8 /08, Award (12 May 2005) at at 2005) May (12 Award /08, observed that a discussion that discussion observed a

at para. 117. para. at 9

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

CMS Gas ” CMS

”). lowed for both legal orders to have a role. a role. to have orders legal both lowed for nron 75 - - E

, ICSID,Case No. Argentina v. ARB/01 Gas CMS aw under the Convention, or under particular treaties related to to related treaties under particular or Convention, underaw the as follows: as 7 ”), affirming this interpretation of Article 42(1) in and case that noting there that a is determined that it would apply domestic law and international law to the the to law international and law domestic apply would it that determined

41. See also also See 41.

- What is clear is that the sense and meaning of the negotiations leading to the the to leading negotiations the of and meaning sense the that is clear is What al 42(1) of Article sentence second international with conjunction in applied be indeed can State host the of The law the if itself by be applied law can international too So justified. is law this if ambit this other in found is rule appropriate to relate indirectly or directly that law international of rules the particular, In with incompatible might be that rules over domestic consent prevail the State’s them. In this it tocontext bethe that concluded cannot theresort rules of l international interest.” national State’s that to is antagonistic itsoperation, “Some of these views [as to the role of international law in the context of Article of in Article context the law international the[as of to role views of “Some these of the role at restricting aimed are they fact that the incommon have 42(1)] la w of the of that the and highlighting host law international State. Conversely, law aims at of international broad a the calls that application for view single tobe not seems There State. host the of law the of role the restricting tances circums The one. of the correct is approaches these of towhich as answer the of word use the […] Further, solution. or another justify one may each case the that Convention indicates of in the this provision sentence “may” second of scope respective the of distinction the for line sharp a draw not does to effect the has this that and, correspondingly, law domestic and of international interpretation. for and power certain margin a theto Tribunal confer on CMS Gas 17 (“ Enron Corporation v. Argentina tribunalv. the in Enron Corporation recently More in law domestic international and erns Convention law law as which gov of between isproceedings “theoretical”, as Article 42(1) of the ConventionICSID has “ of sources, a variety none of a which excludes certain for role another tribunal the it. the of before claims to decision relevant the various extent and pertinent circumstances warrant. warrant. circumstances This is out set by the Co Annulment in mmittee ICSID Egypt v. Hotels at para. 205. para. at

. at paras.39 .at Ibid. ternational law, as embodied both in the Treaty and in customary international law. All of these rules are are rules of these All law. international customary and in Treaty the in both embodied as law, ternational Ibid

ICSID Case No. ARB/01/3, Award (22 May 2007) (“ 2007) May (22 Award No. ARB/01/3, Case ICSID ICSID Case No. ARB/98/4, Decision on Annulment (5 February 2002). February (5 on Annulment Decision No. ARB/98/4, Case ICSID close interaction between the legislation and the regulations governing the gas privatization, the License and License the privatization, gas the governing regulations and the the legislation between interaction close

9 10 7 8 222. paras. 116- paras. in Tribunal. the by applied be justified, extent the to will, and inseparable “

a 11

was 13

a Party AAPL destruction” by Sri Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

”). ”). l’s statement, to the effect that “ effect that the to l’s statement,

AAPL

Methanex ear the initial claims. the their proving of ear burden tribuna 76 - -

lects the general rule in international arbitrations that that arbitrations international in rule the general lects which was not caused in combat actionwhich in was combat not caused or was not

ants face in their proving face ants claims. Parties onBoth rely the , simply ref, simply 12

” ng subject to a heavy onus as a result of the strict criteria of the Burden of Proof Burden forces or authorities “ SID Convention, it may apply the substantive rules of the Georgia / Israel BIT, BIT, / substantive Georgia the the of Convention, rules SID Israel apply it may

2. required by the necessity the by required of situation the ”. characterized as bei Lanka’s Chapter XI arbitration,NAFTA that to hold that the Claimants bear a particularly heavy relevant treaty provision, that being whether the U.K. investor’s property subject the was property investor’s U.K. the provision, whether treaty that being relevant of either “ forces or authorities or Sri “requisitioning by Lanka’s ” The Claimants observe, in further The reliance on the in Methanex award Unitedv. States, having the burden of proof must not only bring evidence in support of his allegations, but but allegations, his in support of evidence bring only must not proof of burden the having must the also convince Tribunal of their truth, be lest they disregarded for want, or of proof insufficiency a claimant must present sufficient evidence to prove its case on a balance of probabilities. in involved claims of the treaty one aspect only to Claimant the According international law and Georgian law, as the Tribunal determines relevant and relevant law, Tribunal Georgian the appropriate, and as determines law international it. before claims the to decide AAPL the that assert Claimants The The Tribunal is satisfied in respect of Mr. Fuchs’ claim that, consistent with Article 42(1) 42(1) withArticle consistent that, ofclaim Mr. Fuchs’ respect in satisfied is Tribunal The the of IC The Parties agree that the Claimants b disagree they However, as this Claimants of burden. to weight the The contend that their is not subjectburden to special ora heavy onus, Respondent the while argues that this is precisely what the Claim tribunal the of Sriindecision Lanka v. AsianICSID Agricultural Limited Products other positions. authorities) competing their in of support (among . para.at 56. ICSID Case No. ARB 18713, Final Award (27 June 1990) (“ 1990) June (27 Award Final 18713, No. ARB Case ICSID Ibid 2005) (“ (3 August Award Final UNCITRAL, (NAFTA)

11 12 13

226. 225. 223. 224.

- to be to be ibunal

16 with mathematical mathematical with respect respect second the of ft to the Respondent, for for to Respondent, ft the

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ”). and the cases cited therein in

15 Salini ”). evidentiary showingevidentiary on particular a

74 (“ Sapphire

tribunal framed this principle termsin of a general duty

in proposition relied) to turn support the that the

77 - - Salini Methanex

, although the Sapphire InternationalSapphire Ltd. National Petroleums v. Iranian Oil Co.

espect of theespect of burden in proof of proceedings international arbitration applies in these lstrade SPA v. The Hashemite Kingdom of Jordan Kingdom of Hashemite The lstrade v. SPA The Claimants also contend that the evidentiary burden may shi may burden evidentiary that the Claimants contend also The burden of proof burden bewould to the “antithetical” of“equality arms” principleinherent in all arbitrations. treaty investment in Salini Costruttori SPA award on the & relies hand, other the on Respondent, The Ita example where a claimant has madefacie a prima apposite: issue or where the Respondent interposes an affirmative defence, and that in the and that in the defence, affirmative Respondent the an interposes where issue or fixto damages inability tribunal’s a damages of case particular certainty is not a reason to award no damages at all where the facts otherwise prove that a this to oppose proposition The first not appear does Respondent loss occurred. has shall bealthough, as seenlater, it taken has positionthe in in of proposition absence certainty that the value calculating a for GTI’s rights in results value zero a of ascribing to rights. those respect of burden of of respect proof. However, the Tribunal not does understand this (nor award the cases on which the tribunal in simply confirms well orIt the “onerous” “heavy”. is especially claimant on the burden a proof of beyond burden any Parties and proceedings not impose does on the concurrent probabilities. of balance to With proof respect damages inof particular, Tr the the from submissions written in their the Claimants by quoted passage following the finds award in The Tribunal finds that the principle articulated by the vast majority of arbitral tribunals tribunals of arbitral majority the vast by articulated the principle that finds Tribunal The in r accepted principle that the claimant must principle it claimant prove facts that the the on which relies accepted in support of claim. its at para.at 54. The that notes Tribunal this statement was in the contextmade of the admissibility of documents e No. ARB/02/3, Award (31 January 2006), at paras. 70- paras. at 2006), January (31 Award ICSID Cas No. e ARB/02/3, (“ 136 35 I.L.R. in reprinted 1963), March (15 Award Arbitral Ibid. Ibid.

owed by parties the to each other and to tribunal the in conduct the of an arbitration. and not the burden of proof per proof se of burden the not and 15 16 14 228. 227. 229.

o award o award the equitable prescription prescription equitable the

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ake place.” ake

78 - - ed to the expropriation of Claimant’s investment investment of Claimant’s the to expropriation ed

sopoulos’ BIT claims to the merits, reasoning as sopoulos’ claims as BIT follows merits, reasoning tothe

17 .” over Mr. Kardas Mr. over

It is not necessary to prove the exact damage suffered in order t inorder suffered damage exact the toprove necessary isnot It “In the Tribunal’s view, Respondent’s objection to the Tribunal’s jurisdiction jurisdiction the to Tribunal’s objection Respondent’s view, “In the Tribunal’s Tribunal The decision. for ripe not is clearly BIT the under temporis ratione 3 after or before occurred breaches BIT the alleged whether determine cannot that other and evidence the testimony considered having without August 1996, examination thorough A case. the of full hearing a through be obtained can only l have may which events of the Prescription & Equitable Jurisdiction breached was oftheBIT 4 Article whether determine to isnecessary inGeorgia ofto stage be the left the This must merits itand, if breached. was so, when t will hearing evidentiary full a when proceeding damages. On the contrary, when such proof is impossible, particularly as a asa particularly impossible, is such when proof contrary, the On damages. to judge the for enough is it damage, the of author the of behaviour the of result the of and extent the existence probability sufficient with admit tobe able damage “ 88. - lst, in certain instances, alst, in more burden certain may demanding be imposedon claimanta (or

Having heard the Parties’ the heard Having on the full cases and basis complete the a evidentiary record, of is in now Tribunal position a this remaining to jurisdictional decide question, well as as the jurisdictional defence in respect of Mr. Fuchs’ claim and defence raised Respondent. by the defence The Respondent has raised three defences in these arbitrations that may, if either proved, that may, arbitrations defences in these raised three has Respondent The 257]:[Decision on Jur., para. at B. Whi the cases to depart from there these is respondent), facts of no basis on the a indeed facts. the on claims its proving of burden initial the bears claimant the that rule general Claimantthe by identified those (including in certain circumstances may, This burden shift to Respondent. the above), preclude or Tribunal the from claims investment Claimants’ the over jurisdiction remove on equitable heard being grounds. from claims the ratione jurisdiction its issue of the joined Jurisdiction, Tribunal the its on Decision In temporis . at p. 187 . at Ibid

17 233. 231. 230. 232.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos onstituted of two sets of rights, each each rights, of two sets onstituted of associated assets such as the facilities at

over the claims is now of little practical practical little of now is claims the over

under the Georgia / Greece BIT 79 - - o force and all that remained was a complaint that Georgia on that extended beyond the entry into force of the Georgia / Georgia the into of force entry the beyond on that extended t apply to conduct which occurred prior tot to3 August occurred apply conduct which 1996. The The Respondent’s Position The Respondent’s The Claimants’ Position

a) b)

Jurisdiction Temporis Ratione in GTI inin GTI 1996 [see Decision on Jurisdiction, 247ff], / Georgia paras. Greece the 1. The Respondent submits that because treaties do not have retroactive effect, the Georgia / Greece BIT canno the takes Respondent position events relevant the of that all to Mr.relating Kardassopoulos’ expropriation claim were discrete acts that were completed before the Georgia / Greece BIT came int significance. c investment is that his contends Kardassopoulos Mr. Government: the (i) independent Georgian act the an of by expropriated was which of income early oil the until pipeline from derive and operate to construct, exclusive right over bundle with a rights of 2023, together failed to compensate Mr. Kardassopoulos for that alleged expropriation. A mere claim for claim mere expropriation. A that alleged for Kardassopoulos Mr. to compensate failed however, notcompensation, does in Respondent’s the view transform acompleted act violati into continuing a ECT finding that the in that, view Tribunal’s the Respondent of the However, concedes Kardassopoulos’ Mr. expropriation of at alleged the timeof provisionally the applied interest non applicability ratione temporis BIT’s Greece BIT. Gachiani and land at Supsa; and (ii) a residual package of rights, oil unrelated of residual land a package and (ii) to early Supsa; the at and Gachiani sole pipelines the exclusive control and all future including possessionpipeline, of and to all rights with and respect oil natural gas) and products petroleum (including any for in Republic the Georgia and pipelines, exclusive for of right and to sole deal future those or oil gas in Georgia any and and represent gas and export oil and of acquisition, sale the energy re persons. projectslated with foreign to Mr. Kardassopoulos,According was of Decree set first the expropriated rights No.by 178 on 20 February 1996 second the of set taken and rights through was 33aNo. Order 234. 236. 235. 237.

t of rights in future oil t Hearing Br., fn. 103].t Hearing Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos , the taking remains remains legitimate. taking , the eatment required by the treaty. ece on 3 August into entered force BIT ece t was completed.

orgia / Greece BIT and international legal

The Tribunal is therefore clearly bereft of 18 80 - -

essary to question address the temporis essary jurisdiction of ratione

opriated by the Georgian Government several months earlier, on 20 on 20 months Government several the earlier, Georgian opriated by The Tribunal’s Determination

under the Georgia / Greece BIT. Nevertheless, for greater certainty, the Tribunal early 1996. GTIs’ into on 3 August entered BIT force / Georgia Greece that the observes expr were rights oil February 1996, through Decree 178. 1996, through Decree February Finally, Mr. Kardassopoulos contends that Georgia violated Article 2(2) of the Georgia / Georgia the of 2(2) Article violated Kardassopoulos Mr. that Georgia contends Finally, (fair BIT Greece and equitable treatment) through conduct occurred which August after tr of itself, of standard which, the violates 1996 and the reasonsFor discussed Part below V.C.3(c)),(see Tribunal the finds Georgia that Kardassopoulos’ Mr. 13(1)expropriated the investment in of violation Article ECT of unnec itand is therefore / expropriation under Georgia claim the Kardassopoulos’ Mr. jurisdiction to consider Greece BIT. on 19 August 1996. Although the the /on 19 AugustGeorgia 1996. Although Gre Mr. Kardassopoulos taking, alleged first the of date the months after five than 1996, more argues that Georgia provided a contemporaneous undertaking to make reparation for this Ge the on Article 4 of Relying taking. the as taking first Kardassopoulos takings, that so Mr. long governing principles argues may by which be offer accompanied reasonably an consideredwas to to lead is both and which “prompt”compensation “adequate” Kardassopoulos submits further Mr. 4(1) of that because breach Article elements the a of of the Georgia / Greece BIT were completed after that BIT entered into force, the breach ac composite the which at time the from dates to for Tribunal the event, unnecessary it also is in Kardassopoulos any submitsMr. that, / Greece Georgia the under to expropriation with respect jurisdictional finding a make the ECT [Cl.Tribunal’s the given jurisdictionBIT under Pos As explained below in Part V.C.2(c), the Tribunal has determined that any purported any that determined gran has Tribunal V.C.2(c), in the Part below explained As

18 240. 241. 238. 239. and gas facilities in Georgia is unenforceable. in Georgia facilities gas and

nts’ claims claims nts’

Hearing p. 39,Br. at Hearing n. to consider the separate -

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 18; Cl. Post ”, extends under ”, investment protection ratione temporis

under the Georgia / Israel BIT 81 - - The Claimants’ Position The Respondent’s Position The Respondent’s in respect of Mr. Fuchs’ claims to the extent that they pertain to the to they pertain that the to extent ofclaims Mr. Fuchs’ in respect

b) a) tion [Tr. commission process D12:5:14- ribunal finds that it has jurisdiction jurisdiction it has that finds ribunal Jurisdiction Temporis Ratione 2.

s’ fair and equitable treatment claim were expropriatedallegedly in prior 1996, to sdiction over those claims. The Respondent reasons that in order for the Tribunal to Tribunal the for that in order reasons Respondent The claims. those sdiction over compensation process. compensation Notwithstanding the the Notwithstanding Respondent above, Tribunal the that the has concedes jurisdiction ratione temporis Claima the of subject the are investments which the submits that Fuchs Mr. made prior of to entry Georgiawere the into even force / BIT, though the conduct Israel 12 of that date. event, Fuchs Mr. Article occurred after that, in of notes any complained the BIT, which states “[t]he shall provisions to of apply investments this made Agreement into entry the ofon or this before force Agreement investments. to such BIT the further in Mr. does the any that he For clarity, notFuchs under claims BIT confirms make the of his 1996 expropriation of investments. respect accept Mr. Fuchs’ fair and equitable claim, it must necessarily determine that Georgia Fuchs’ Mr. expropriated investments in 1996. The Respondent takes the position that the investments which form the basis of Mr. Mr. basis of the form which investments position the that the takes Respondent The Fuch to relating breaches and no subsequent as / BIT, Georgia Israel the into of force entry Tribunal the no has into force entered BIT the after investmentsthose occurred juri Whilst the T Whilst the as BIT / Georgia Greece the of Article 2(2) Kardassopoulos under Mr. by advanced claim regards fair and equitabletreatment, the Claimants have acknowledged that consideration in thisisof claim unnecessary the the event Tribunal infinds favour of Mr. his on for amountsKardassopoulos claimed the by Mr. save expropriation claim, of as his the Kardassopoulos share by Tramex incurred expenses while in participating compensa the 155]. 244. 245. 246. 243. 242.

over Mr. Mr. over

to present the

barred to their due

- ratione temporis ratione

Wena HotelsWena Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Wena Hotels Hotels Wena Limited Arab v.

”). . The compensation first commission

eters of prejudicial delay”, noting that in that that in that noting of delay”, prejudicial eters

Wena Hotels

82 -

- claim. 10 theIn view, Respondent’s it toyears. is inequitable

i.e. for the principle that equitable principles of prescription shall shall prescription of principles that equitable principle the for

561. - rder 84 on 23 April No. 1997. / Georgia The BIT into entered Israel in regard to the “param also serves as a basis for Mr. Fuchs’ fair and equitable treatment

The Respondent’s Position The Respondent’s The Tribunal’s Determination 20 Bar for Equitable for Prescription Bar

- a) c) claims to proceed as the delay has resulted in the loss of crucial evidence Time

3. case the claims were allowed to proceed because both parties were able to produce and extensivevoluminous testimony. evidence Contrasting The Respondent also refers the Tribunal to refers the also Tribunal Respondent the case The ICSID The Respondent argues Respondent The Claimants’ claimsthat the time should be claims, their filing in delay of Egypt Republic prevent parties from asserting untimely claims where the delay has prejudiced the party against which the claims are asserted. permit the permit which has severely prejudiced Georgia’s ability to defend itself. The Respondent relies Gentini Caseupon the The TribunalThe observesthat Respondent’s the objection to jurisdiction in connection with / Georgia the BITIsrael to the pertains question the whether of expropriation Mr. of investment Fuchs’ the Respondentthe that jurisdictionclaim. has concedes Mr. Tribunal Indeed, over process. compensation to the it relates that extent to the claim Fuchs’ oral and written submissions, understands Tribunal the the Claimants’ of basis the On Mr. Fuchs’ fair and equitable treatment claim to relate solely to the compensation process not to and the se hisexpropriation of investment per was established by O two on 18 February 1997. approximately monthsforce earlier, Accordingly, the Tribunal is satisfied that it has jurisdiction jurisdiction has it that satisfied is Tribunal the Accordingly, Fuchs’ fairequitable and treatment R.I.A.A., Vol. X (1903), pp. 551 (1903), X pp. Vol. R.I.A.A., (“ 2000) December (8 Award No. ARB/98/4, Case ICSID

19 20 251. 250. 247. 248. 249.

Wena Wena

, which states 21 bar argument bar outright - is “particularly strong” in strong” “particularly is

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos .” The Respondent therefore Respondent The therefore .” Case principle, preclude a state from it would be evident injustice to refuse refuse to injustice evident be it would “

forecloses actions under international law law international under actions forecloses

it has suffered the harmthe tribunal the in it suffered has

when itwhen appears on has been that no laches there 83 - - hich Georgia wasestablished both mandatory and sham,a Stevenson Case Stevenson or the to Turning claim. the facts hand, at the Respondent

Tribunal to reject the Respondent’s the time to reject Tribunal

87.

- The Claimants’ Position

b) 22 ”. ts own wrong (here, delay) to evade (here, ts wrong Claimants own jurisdiction. rely also The t

contemplated would require the imposition prescription. the would equitable of contemplated require The Respondent Respondent The recalls proposition opening the Stevenson Case the of The Claimants urge the Claimants urge The arbitration, the Respondentthe submitsarbitration, that Hotels would itself be instance that prescription in this assertion response to Claimants’ the In Respondent the inequitable, counters that the doctrine of laches applies because any delay to the According Georgia’s. than rather actions Claimants’ own by the occasioned was in forRespondent, order to Tribunal the theaccept Claimants’ position, must Tribunal the w process the claims that find The justified. was arbitration forego to decision Claimants’ the that further and propositions. to support these record on the there is no evidence contends Respondent be “ avoided only may that prescription payment for ... in its presentation partthe of claimant the that the position the takes in delay been there undue has issue where at substantive merits the of regardless that or paid was claim the that either presumption a up setting by claim, a presenting there was never a basis f Stevenson in the presumption referenced that the contends doctrine. favours application laches the and of this case four independentfor reasons. Claimants the that principles First, reason equity andof actio the turpi faith, non oritur causa including ex good on i relying proposition the that Case for Stevenson upon the claimant a hearing was bythe apparently delay the when occasioned respondent the Governmen at p. p. 387. at

R.I.A.A., Vol. IX (1903), pp. 385 (1903), IX pp. Vol. R.I.A.A., Ibid.

21 22 253. 254. 252.

nt , the ample bar couldbar Memorial, Memorial, - a Hotels Wen y havey otherwise bar defence is not inbar - edings implicate conduct Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos barred where the other party party barred other had the where “ -

, the result, were the Respondent to succeed, Respondent the tosucceed, were result, , the

year period 1995 to 2005, from Mr.year when 84 - -

The Tribunal’s Determination

dictional phase of these proceedings. Whilst this time Whilst this proceedings. these of phase dictional ” of the dispute. the of ” notice Third, the Claimants contend that the Respondent has not been disadvantaged by any by disadvantaged been not has Respondent that the contend Claimants the Third, upon record exists the which mentary extensive there that docu an observing delay, exhibits as produced documents of hundreds decide the including claims, may Tribunal over to as 30 witness statements. discovery well requests, as in response and proce the that submit event, in Claimants any the and Finally, Second, the Claimants take the position that, in this case, the Respondent has been on position Respondentthe the Claimants been the that, in take has thisSecond, case, to be claimed to 1997 2004, from period the during 1995 and, since claims the of notice the to thecompensationcalculating Claimants. payable Relying on also time not are claims that contend Claimants occurring as late as December 2004, in respect of which no case for time- exist. possibly in its Counter defence prescription its equitable raised first Respondent The the 2004, when 1995 through transpired from which events the as well as in Georgia upClaimants gave hope of compensation receiving the through commission process in 1997. commenced after the juris after se per jurisdictional defence a of nature the be from Tribunal the it the and as would preclude same would effectively hearing claims. Claimants’ the ering consid time 10- passage of the The over Kardassopoulos his brought first investment claim to has clearlyICSID, resulted in the fading of memories and loss of certain documentary evidence that ma light facts on the in shedding Tribunal the assisted in dispute. Respondent of who witnesses the both Claimants on behalf the and testified fact Certain investme Claimants’ the surrounding circumstances the precise recalling difficulty had 256. 257. 255. 258. 259. 260.

he guy is 31]: nging their claims claims their nging examination Mr.by - and continuedand to hold for Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos eved in the manner proposed by her, we sit with the two top top two the with sit we her, dit basis, and put it there before there before it put and basis, dit so has happened, you will be fully fully be you will happened, so has -

and 85 - - hing, no contribution, no loans. We bring in wheat bring in no loans. wheat We no contribution, hing,

lowing testimony offered on lowing testimony offered cross a person. We have a person of the calibre of Shevardnadze have calibre a personthe of Shevardnadze of We a person.

you sir’. The man is a very serious, straightforward, respectable respectable is man straightforward, a veryyou sir’. serious, The

wrote to him, and he appointed Deloitte, and everything was on the the on was everything and Deloitte, heappointed and tohim, wrote we do it, we are close with them. close with areit, we do – we So with relations, and two people like this, we had no reason to believe that they they that believe to reason no had this, we like people two and relations, So with word. their fulfil would not the the resolution, the meeting, commission, the The facts, to? did stick we What the only is this. It toadd to nothing have I move. the on were report. Things because the whole thing, changed that Shevardnadze, after administration, new what Dr. accepted Shevardnadze Shevardnadze, to Kissinger Dr. wrote Kissinger the tax to the country, we mill the wheat, we sell the wheat in the country. We bring bring We in country. the wheat the wheat, sell we the mill we to country, the in to bring us would ask ministers the Zubitashvili country, the into gasoline gasoline, an extra credit on open crequantity working in the street, people stop and bow and say, ‘Professor Tevzadze’. He is is He Tevzadze’. ‘Professor say, and and bow stop people the in street, working the in offices in Russians Moscow, to him flew with We person. serious very a and say shake hand his to employees, corridor, the of out come government to‘Nice see individual. 10 or he survived Oil, of Georgian chairman the 30 years for been has The man So own. his on a class in is man The everything. coups, energy, of 15 ministers such sitwe with - us, ‘So telling us and coming with for country, the to wheat bring we country, inthe stay we see resolutions, We no not donation, business. No f trust. We went there, into a very strange strange very a into there, went We trust. of relations were relations The “A. traded We out. them helped everything, through went wars, through went place, we sick, were People wheat. gave we wheat’, need ‘We said They oil. crude the toget worked We them. trusted We inmedicine. flew describe to have don’t I which Shevardnadze, President country, thein people in person only the is which Tevzadze, Professor and from, coming is he where t mean, I labour. for degree learning highest the has which country the compensated’. However, the Tribunal the Claimants’ isthat the However, not in persuaded bri delay unreasonable orwas unjustified circumstances. in the Havingreviewed the the of totality to reason good Claimants the had that Tribunal to the clear it is abundantly evidence, that suppose fair a resolution dispute the of could achi be to recourse Claimants the Government if Georgian didarbitration.the not have The Claimants (reasonably, were in trying the circumstances) having to avoid to pursue dispute. the of arbitration Tribunal fol the The accepts Fuchs, which the held belief indicates faith he Fuchs, in 1995 – good years thereafter [Tr. D4:130 - solution reached – that an be could amicable 261. 262.

any ofany these

thatrespondenta d compensation the from [Footnotes omitted.] [Footnotes – of course, is one of the the one of is course, of

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

23 tribunal found that: found tribunal which, which, , in which over 30 years had passed before had before 30 passed over , in which years

Wena HotelsWena luminous evidence produced by the parties as as parties by the produced evidence luminous 86 - -

ved principle that the of repose applies to a whether

tribunal obser also

of equitable prescription. The The prescription. equitable of verge of solution and then there was the Rose Revolution, whatever they call it, it, they call whatever Revolution, the was there then and Rose verge solution of down.” upside is and everything “Another equitable principle is the notion of ‘repose’ is of principle ‘repose’ the “Another notion equitable o should not be be restlong not or ago should to laid been abandoned a dispute that believes has that finds the Tribunal however, Here, resurrection. subsequent its by surprised “contrary to the Respondent’s claim that ‘Claimant severely compromised the the compromised severely ‘Claimant that claim Respondent’s the to “contrary Tribunal the proceedings’, to itself defend in these ability of Respondent the the vo given that, withagrees Wena particular, (in witnesses several by provided testimony extensive the as well case), the of recollection remarkable a showed who Munir, Mr. counsel, EHC’s – been disadvantaged to have seems party neither equitable reasons for disallowing an untimely claim.” untimely an disallowing for reasons equitable t para. 104. para. t a

Wena Hotels Despite theDespite passage of time, Parties the to these proceedings have produced thousands of witnesses. overM well documentary 30 fact of and materials pages witnesses did recollect the relevant events with a reasonable degree of clarity, and in a the of full understanding a at it to arrive Tribunal that the enabled is has satisfied manner documentary evidence. The dispute has been commenced too late to it too permit commenced late to proceed: been dispute has Georgian Government beginning inGeorgian to 1996 through ultimate rejection in their 2004, to be markedly different from cases such as Gentini to time first the for a debt, of ection of coll nature the in claim, its presented Claimant the of Venezuela. Government the the of result a that as Respondent’s by the argument persuaded is not also Tribunal The the justify would which harm suffered it has claims their presenting in delay Claimants’ imposition The cases on which cases The the relies thatRespondent either conclusion support the there is no undue delay where (as here) a claimant has persistently pursued its claims in negotiations distinguishable are The concerned, on their or with government facts. the findsTribunal the circumstances here, where the Claimants persistently pursue Wena Hotels Wena

23 265. 266. 264. 263.

”) draft

Articles on ILC to determine determine to

[Footnotes omitted.] [Footnotes ”). Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Maffezini quitable prescriptionquitable defence. acts are attributable to the State. These

87 - - follows: as tribunal ough the adoption of certain executive instruments, executive i.e. adoption the certain of ough going dispute.” going - the “structural test” and the “functional test” –

”) as an authoritative statement of the principles of international law of international the principles of statement authoritative as an ”)

25 The Claimants’ Position

ave continuously and persistently ave continuously andpursued persistently thecompensation for loss of

he attribution State.he to a conduct of a) Attribution of SakNavtobi and/or Transneft’s Acts/Omissions Transneft’s Attribution and/or SakNavtobi of to Georgia

Liability 1. Wena continued to be aggressive in prosecuting its claims and that Egypt has has Egypt that and claims its prosecuting in aggressive to be continued Wena this on of notice had ample

In addition, the Claimants rely addition, Claimants the In twoon the rely tests by developed the in tribunal ICSID SpainMaffezini v. Decree No. 178 No. 33a, is No. and directly and the responsibleDecree Order therefore for the in event the and alternative, the law. international In Claimants’ losses under Tribunal determines that the acts SakNavtobi omissionsgave or Transneft either or of omissions or acts such that position the take Claimants the losses, Claimant’s the to rise responsibility. state In of to Respondent the to principles attributable the pursuant are Commission’s(“ on the International Law rely ants Claim the regard, this Wrongful Acts States for on Responsibility of (“ Articles Internationally Responsibility State t of rules on the its that such entity State a is an entity whether tests were set forth by the Maffezini C. Accordingly, the Tribunal the Respondent’s the e Accordingly, rejects their investment in Georgia since 1996. It is simply not credible to suggest is not credible that Georgia simply since 1996. It investment in Georgia their notice this ample of not dispute. had has The Claimants h Claimants The directly Respondent the that is arbitrations these in position primary Claimants’ The breached the relevant treaties thr at para. 105. para. at

Ibid. (“ 2000) January (25 Jurisdiction, on Award No. ARB/97/7, Case ICSID

270. 24 25 268. 267. 269.

i.e.

[Footnotes omitted.] [Footnotes Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

26 Here a finding that the entity findinga the that Here is remain … fully owned and and owned … fully remain will and it is

.6 of theSections 8.6 of and JVA). 8.2(vi) The . An additional test has been developed, a a developed, test has been additional . An

88 - i.e. -

, a State function through SakNavtobi into by entering , a through JVAState function the (

80. inter alia inter

The question of whether or not SODIGA is a State entity must be examined examined be must entity State is a SODIGA not or whether of question “77. The view. of point structural or formal a from first presumption rebuttable a to rise gives indirectly, or directly State, the by owned by controlled is entity an if obtain will result same The entity. State a is it that entity’ if an arises presumption similar A indirectly. or directly the state, purpose or objectives is the carrying out of functions which are governmental in in governmental are which carrying functions out of is or the objectives purpose their by which or State, the to reserved normally otherwise are which or nature individuals. or business by private out carried usually not are nature e many forms that State enterprises may take and thus shape take may and thus shape State that enterprises 79. Because forms e of many th a be always not may itself by test the structural action State of the manners whether or the of State an organ is entity an whether determination conclusive State the to attributed be may acts its the by be performed torole or of functions the to looks test,which functional […] entity. discharging profitfor while operating corporation […][A]private 80. the under could, State the by it to delegated functions governmental essentially the engage thus and State the of organ an as considered be test, functional acts.” wrongful for responsibility international State’s […]

In the Claimants’ submission, satisfy Transneft In and SakNavtobi both the and structural the owned controlled and by (a) were wholly attribution they as tests for functional (b)Respondent; and their activities powers, and as in described the JVAand Deed of the to a commercial opposed as State, the of organ enterprise. an of those were Concession, support the of its Respondent of submission,In to Claimants evidence the point exercising, in Section 4.1A SakNavtobi represents that “ represents in SakNavtobi Section 4.1A several authority and Republic the governmental through ”) of by controlled Georgia provisions in JVA the SakNavtobi whereby makes commitments representations and that ( perform could itself State the only to into in order JVA entered was that the twin the facts underscore Claimants further achieve certain national objectives (as set out in Article 3 thereof) and the Deed of organ of an Georgian the Energy, Fuel Ministerand of the ratified by was Concession State. Ibid. at paras. 77 and 79- and 77 paras. at Ibid.

26 271.

42]. 42].

194]: under

7 of the e validity of the The principle of . Article e instruments were Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos e to a treaty. It is also e It to also a treaty. is Tribunal’s jurisdiction ratione Tribunal’s

cannot simply avoid the legal effect of of effect legal the avoid simply cannot

89 - -

JVA (the acknowledgement by the Government) was Government) the by JVA acknowledgement (the

ushvili) were closely involved in the negotiation of the JVA and the the and JVA the of negotiation the in involved closely were ushvili) The Respondent’s Position The Respondent’s The Tribunal’s Determination

c) b) A and the Concession, respectively. respectively. the Concession, and A In the Tribunal’s view, Respondent view, Tribunal’s the In did not agree to be bound by the terms of the joint venture [Tr. D1:140- [Tr. venture terms the joint the of by bound to be did not agree

which relate to the issue of attribution [Decision on Jur., paras. 189 to relate on Jur., which attribution [Decision paras. - issue of the 189. Respondent, it is recalled, does not accept that these representations [in [in these representations that notit accept does recalled, is 189. Respondent, Gamsakhurdia, President Shevardnadze, Prime Minister Sigua and Prime Prime and Sigua Minister Prime Shevardnadze, President Gamsakhurdia, Gug Minister the JVA and the Concession or whether or not they they not or whether or Concession the and JVA the by contemplated rights the law Georgian under their authority beyond acted otherwise it,the conduct vires of acts ultra authority governmental toexercise empowered to State the attributable is nevertheless in question 191. and the in set by the Concession forth JVA and warranties the representations are void which ab initioinagreements are they contained that arguing th regarding Claimant to given assurances The law. Georgian JVA by itself, the of and endorsed and the were some Concession Government President alia, inter (including, Georgia of officials Government senior the most “ thosthat the to effect Concession the of and Deed JVA law]are Respondent relevant. with Georgian entered in into compliance had not it because to it be attributed cannot representations these that maintains concluded Transneft and SakNavtobi when BIT the nor the ECT into entered yet the JV untenable. position Respondent’s finds Tribunal The 190. a sovereign as its status of virtue by Georgia to applies principle, in attribution, on the of timing itsState adherenc and is contingent not to authorized were grant Transneft and SakNavtobi not or whether immaterial Articles on State Responsibility provides that even in cases where an entity entity an where cases in even that provides Responsibility State on Articles this regard are intertwined with its submissions on on submissions its with are intertwined regard arguments Respondent’s inthis The causation (see Part V.D below). materiae, substantially deleted (see paragraph 86 above), the Respondent argues that the Georgian that Georgian argues the Respondent the 86 above), deleted (see paragraph substantially Government in phase jurisdictional the during findings following the it made that recalls Tribunal The toobjection the with Respondent’s the connection The Respondent does not that it does is Respondent executive not the responsibleThe argue instruments for to have expropriated Kardassopoulos’ alleged Mr. Respondent the investment. However, of commitments contractual the for responsible not is State position the that the takes Transneft, and SakNavtobi and that neither SakNavtobi Transneft nor be may held responsible for the acts of the State, namely the cancellation of GTI’s rights. Moreover, becauseArticle 21 of the 273. 272.

v. existent or - acts of

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

t “legally non “legally t , including the highest highest the , including , the Tribunal is of the view that that view the of is Tribunal the ,

. A determination that these acts acts these that determination A . 90 - municipal law would resolve the not - acts vires or ultra unauthorized such If existent or null and void or susceptible susceptible or void and null or existent omforted in this finding by the decision of the ICSID ICSID the of decision the finding by this in omforted created expectations protected by established established by protected expectations created e of international law which the Tribunal is bound is bound Tribunal the lawwhich international eof

officials have been performed by State agents under cover of cover of by under State agents performed haveofficials been character. official their could not be ascribed to the State, all State responsibility responsibility State all State, the to ascribed be not could added) (emphasis illusory.” rendered would be […] principl The international the establishes which that is to apply or ultra unauthorized when vires States of responsibility these acts were cloaked with the the with cloaked were acts these However, to invalidation. investments question in acts the law or not, Egyptian under legal Whether authorities were the of acts Egyptian principles oflaw international ible that under Egyptian law certain acts of Egyptian of acts Egyptian law Egyptian certain ible under that “It is poss be may 475, No. Decree Presidential even including officials, non- legally considered mental Govern of mantle authority and communicated as such to their making them in on relied who investors foreign are null and void under under are and void null victims the by suffered for damages of liability question ultimate a reliedprovide who on thedoes not If acts. municipal law the the be cannot whatsoever remedy any of denial the remedy, answer. final of the Government. These acts, which are which are These acts, ofGovernment. the authority executive municipal violation of alleged been to thenow in have Egyptian system, legal 194. The reasoning in Southern Pacific Properties is apposite to this case in to in this case apposite is Properties Pacific in Southern The reasoning 194. in into entered were if and the JVA the Concession even Thus, respects. many absolutely null and void” under Egyptian law. The arbitral tribunal found that that found tribunal law. The arbitral under Egyptian and void” null absolutely authorities, governmental by performed were they illegal, were acts if such even investor: the for expectation legitimate a created which Respondent created a legitimate expectation for Claimant that his investment investment his that for Claimant expectation legitimate created a Respondent breach, of in event the and, law Georgian with in accordance made indeed, was, protection. treaty to entitled would be Georgia. of execution the following years inthe that observes further 192. The Tribunal Georgia respectively, Transneft, and SakNavtobi by Concession the and JVA the Georgian under illegal were agreements these that claimed nor protested never above circumstances the of all light of law. In c is 193. The Tribunal Limited (MiddleEast) Properties Pacific the of in Southern Tribunal case officials acts Egyptian certain of that had argued Egypt case, that Egypt. In upon thehad investor which inrelied facwere Concession. The Tribunal also notes that the Concession wassigned and of Republic the organ of an Energy, and of Fuel Ministry the by “ratified”

ithGeorgian law, owned entities, but but entities, owned - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

he preceding articles shall shall articles preceding he

[Emphasis added. Footnotes omitted.] Footnotes added. [Emphasis

Organs of a State Article 5 Article Article 11 Article “Article 4 “Article 91 - -

Conduct of

own as its a State by adopted and acknowledged Conduct . Claimant therefore had a legitimate expectation that his investment investment his that expectation legitimate a had therefore Claimant . An organ includes any person or entity which has that status in in status has that which entity or person any includes organ An The conduct of any State organ shall be considered an act of that State State that of act an considered be shall organ State any of The conduct

s or entities exercising elements of governmental authority governmental of elements exercising entities Conduct ofs or person he State, and whatever its character as an organ of the central government or of of or government central of the organ as an character its and whatever he State, Conduct which is not attributable to a State under t under a State to attributable not is which Conduct to if law and international under act State an that of considered be nevertheless its as inquestion conduct the adopts and acknowledges theState that the extent ” own. (1) executive, legislative, exercises the organ whether law, international under of it the in organization holds position whatever functions, judicial or any other t State. the of unit a territorial under State the organ of is an not which or entity a person of The conduct of elements exercise to State that of law the by empowered is which but 4 article under actthe of State an sidered shall be con authority the governmental the in capacity that in acting is entity or person the law, provided international instance. particular reason to believe that these agreements were in accordance w inaccordance were agreements these that believe to reason State entered by into Georgian were they not because only officials government Georgian by approved was content their because also years many for Georgia of part the on legality their to as without objection thereafter breach of Georgian law, the fact remains that these two agreements were were agreements these two that fact remains the law, of Georgian breach had every Claimant authority”. of Governmental mantle the with “cloaked in Georgia was in accordance with relevant local laws. Respondent is is local laws. Respondent relevant with inwas accordance in Georgia ratione jurisdiction to Tribunal’s objecting the from estopped accordingly the BIT on and the basisthe ECT materiae under that the JVA and the law.” Georgian under initio ab void be could Concession (2) State. the of law internal the with accordance In the Tribunal’s opinion, there Tribunal’s be the opinion,In no there can arbitrationsreal question in these to the as actsattribution any of omissions or part on the SakNavtobi to of the Transneft or Tribunal The Respondent. Article theinvoked on 7 of Articles State Responsibility in its They applicable here. equally are 11 5 and 4, Jurisdiction, but Articles on Decision follows: as provide 274.

ft and the and ft t were incorporated within incorporated t were Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos e decree explicitlyidentified he Pipelines to GTI in in GTI to Pipelines he

.” exercised (or purported to exercise)

92 - - Cabinet of Minister’s approval for the commencement of commencement the for approval Minister’s of Cabinet nce of suggests evidence nce the at JVA that the supported was

It is duly authorized to grant the Concession to GTI as provided herein and no and no herein as provided to GTI Concession the grant to authorized duly is It It is and will remain for the duration of the Joint venture fully owned and venturethe fullythefor and It owned duration of Joint and will remain is accordance with the terms and conditions hereof and conditions terms the with accordance further consent or approval of any third party or governmental authority is is authority governmental or third party any of approval consent or further t to theConcession grant to Transneft for required trolled by the Republic of Georgia and it has been duly appointed and and appointed been duly hasit and Georgia of Republic the by controlled of Republic the represent exclusively to Georgia of Republic the by empowered matters related and energy and Gas Oil in all Georgia “ “ Georgian government officials espoused the terms of the JVA and the Deed of of Deed the JVA and the of terms the espoused officials government Georgian JVA in the Article 21 of acknowledgement formal government WhileConcession. the out, struck abundawas an levels ofhighest the government. jointIndeed, venture between SakNavtobi Tramex and by the approved was Cabinet Ministers in of Resolution 123G. 834 and Nos. No. Decree the confirms 951 further Similarly, in Section 4.1 of the Deed of Concession, Transneft Concession, of Deed the declares in Section 4.1 of Similarly, and represents the following: Both SakNavtobi and Transneft and SakNavtobi clearly also Transneft Both authority. representations by the among governmental made Indeed, in SakNavtobi JVA, represents the and of that: Section 4.1A it declares Concession Deed of projectsaddition, on the the outlinedconstruction in JVA. the In Energy. of Minister the by ratified was The evidence demonstrates that both SakNavtobi and Transnef demonstrates and that both evidence SakNavtobi The brought explicitly was SakNavtobi Energy. Fuel and of Ministry the of structure the the department in of a Ministry as of Energy Fuel the auspicesand of the Ministry under 1105. issuance ofThis Decree sam Cabinet 1992 through the “management of main oil” as of pipeline Georgia “united in the of department of Georgia Ministry and Energy of ofSakNavtobi of Republic the Fuel the ” [Hearing 6]. Tab Bundle, together, the SakNavtobiWhenrepresentations Transne considered and by of by the espousals JVA the Deed of various Government Georgian and areConcession conclusive. 278. 277. 276. 275. 279.

ior to ior the Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos al jurisprudence to ascertain Supsa Pipeline; (ii) any rights to rights any (ii) Pipeline; Supsa -

93 - -

existing Gachiani existing

The Respondent’s Position The Respondent’s

a) Supsa Pipeline were invalid and unenforceable; and further or alternatively or further and unenforceable; invalid and Supsa Pipeline were - Supsa pipeline in response to the Claimants’ case on quantum. This argument is therefore - The Scope of GTI’s Rights of Scope The upsa Pipeline. upsa S ani

- 2. Hearing Brief, the Respondent also developed argument the GTI that not was entitled to a be passive - In support of its first contention, Georgia argues that specific Government resolutions argues that specific its Georgia of support contention, first In express terms Resolutions the JVA 951), the the(e.g. 123g and of and Concession, justice of principles and equity, industry practice and written ce alleviden the preclude of theinterpretation JVA or Concession conferringas rights to any all and future pipelines. The Respondent has advanced several arguments in respect of the scope of the rights by GTI held considerswhich most Tribunal allegedly to the efficient address pr takes Respondent theThe positions threshold scope the of that: (i) the JVA the and then the to limited was Concession (iii) any remaining the(iii) any rights under JVA the and limited of were Concession to recovery GTI’s proven and incurred the expenses Tramex’s with in connection developing Gachiani Accordingly, whether one applies the principles of attribution set forth in the ILC Articles Articles the ILC in forth set ofattribution principles the one applies whether Accordingly, tests the developed Responsibilityon State or in arbitr answer the State, a to attributable are entity particular a of omissions or acts the whether in is these thearbitrations same. The relationship SakNavtobi between and on Transneft, other bears State, on th Georgian hand, e the hand, one thethe and all of of hallmarks satisfied the that, for is therefore Tribunal The law. international attribution under any or acts omissions applicable treaties, the of determining of breach of a purpose attributed be may to the breach such constitutin Transneft g and/or SakNavtobi it so and finds. Respondent claims. treaty substantive Claimants’ the Gachi In their Post

27 283. 281. 282. 280. owner of the Gachiani of owner dealt in Partwith V.E.4below.

” in

future ones

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos e Respondent that the Respondent e argues ” to include not to include ” only existing but Hearing Br. atpara. 9]. - nce on the wording “ wording on the nce documents, including the Preliminary Note Preliminary the documents, including

ontract is ambiguous, pointing in to particular ” [Resp.” Post examination that the Claimants’ obligations obligations Claimants’ the that examination - e 94 - - matter formatter [Tr. discussion D4:39].” “good commercial sense,” in circumstances where no

Oil and Gas Facilities andOil Gas examine Dr. Tevzadze on this issue the of indicative “is - rred rights to future The pipelines. Respondent underscores Mr. 33]. Section 3.3 of the JVA, the Respondent contends that if the parties had JVA, the contends parties Section 3.3 of Respondent the the that if to intended “ of the definition alter drastically would have they facilities future oil gas and unspecified all possible and and any also so stated in Sectionclearly JVA. the 1.12 of suggests that the Respondent The notClaimants’ to decision cross fact that is their argument unsustainabl Relying also on the witness statement of Dr. Tevzadze and expert report of David David of expert report and Tevzadze Dr. of statement witness on the also Relying th Hearing), the at testify to called not was (who Eliashvili of JVA Deed the and that the expectation legitimate a have had Claimants only could rights the Government of Resolutions. granted Concession aforesaid within scope the , neither JVA that, when the further the Respondent properly nor construed The argues rights confers Concession to future pipelines. on theBased text Articles 3 of 1 and the of either or were conveyed pipelines JVA, submits to future Respondent the that no rights relia Claimants’ the to response In contemplated. Respondent’s the In view, Section 3.6 of JVA the (which granted GTI a to refusal right of Claimants’ the assist not does Georgia) in projects gas and oil other in participate projects future to to the ants subject propose Claim the permitted it simply as argument such The for projects. terms commercial the on Government’s agreement Georgian that notes Respondent this was confirmed in Mr. oral Kardassopoulos’ [Tr.testimony D4:32- that further Respondent The argues term of of term reciprocal obligation imposed was Tramexfor to construct all future oil and gas interpreting precludes JVA the facilities, the or Deed of so Concession toas conclude that instrument either confe on cross testimony Kardassopoulos concerning future pipelines were a “ contemporaneous identifies Respondent The of Advice prepared by Tab [Hearing 142], which barrister Advice of of Bundle, a none London to conferral of the pipelines. contendsrefer rights Respondent to future The that recourse hadbe may to such documents a where c 284. 285. 286. 287. 288.

” o the improvements, ” must relate to ” relate must

118]: ng need to develop todevelop needng additions to Pipelines the Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

” listed in Section 10.1 all concern the adding to adding listed the in” Section 10.1 all concern 95 - - ” and Petroleum “new added pipelines eline systems and all related facilities, in accordance with Batumi pipeline. pipeline. the Batumi particular, RespondentIn contends - the distinction between extension and addition in Article 10, the 10, the Article extension distinctioninthe between addition and

extensions idence tothe contrary. idence Georgian officials were of course aware of the pressi the of aware course of were officials Georgian to Azerbaijan’s aspect political significant the of in light Moreover, s set out in paragraph 97 above) and Article 10 (Improvements, Additions Additions (Improvements, 10 and 97 above) Article paragraph s out set in

” being the main pip main the being ” ding of the existing main pipelines system and related facilities and do not and facilities related system and pipelines main of the existing ding “117. Georgia’s oil and gas facilities, yet neither they nor Mr. Fuchs specifically specifically Fuchs Mr. nor they neither yet facilities, gas and oil Georgia’s not does Mr.Fuchs (even projects SCP or the BTC discussed or contemplated have and the Claimants brainchild) were his SCP and the that claim BTC no ev adduced 118. choice of export route for Caspian oil and the uncertainties surrounding legal legal surrounding the uncertainties Caspianand oil for route choice of export t parties which the upon no basis was simply there reserves, title Caspian to JVA and the Concession could enter into any binding obligations in 1992 or or in 1992 obligations binding any into enter could Concession and the JVA time).” the at exist not did (which SCP or the Pipeline BTC the 1993 for ndent maintains that the text maintains that the ndent Deed the of supports its interpretation the of lopment of thelopment of Samgori Pipelines nd distinct main pipeline systems (such as the (such the as nd distinct SCP). systems the BTC main pipeline and pipeline extensions or additions to the existing main pipelines in Georgia, and not entirely new not and existing entirely inextensions the main pipelines Georgia, additions or to a the interpreting Claimants the in upon by relied nuances to textual those With regard i.e. Concession, of Deed or additionsextensions to Pipelines the (“ In a similar interpretation exercise, the Respondent relies upon the text 2 upon the Article relies Respondent of the similar interpretationa exercise, In a (Definitions, the of to Concession above) 100 paragraph out set in as Pipelines, Extensionsto the and with the under associated those this instrument rights to the conferred narrowly construe deve that the references to “ Respo “ examples the of to Respondent, the According Claimants’ rights. or exten all. at systems pipeline of main new adding the envisage the UNIDROIT Principles of International Commercial Contracts, which expressly expressly which Contracts, Commercial of Principles International UNIDROIT the in interpreting regard to contracts. “extrinsic to for be provide given evidence” the JVA, of the interpretation its supportin g evidence addition toIn documentary explainsRespondent context time geopolitical the did that the at not lend support to a 117- paras. at GTI’s interpretation rights of [Am.broad Rejoinder Thus, in Respondent’s the Section 10.1 view, illustrates that “ 291. 290. 289. 292.

, - 28 hat hat given given Supsa

- Hearing - subsequent subsequent

”). Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Bridas

” would include extending the pipeline. would the ” extending include 96 - - s’ argument that had GTI the right to lease theGachiani case are distinguishablecase from the facts in these arbitrations. In om the “associated obligation” to reconstruct theGachiani

” were made which affirmed the Claimants’ interpretation of either the JVA retation of the JVA. the of retation the definition in Article 2) could include the include could 2) transferring definition inthe units Article new addition of or discharging facilities, whereas “extensions response to Claimant the In remain and Supsa pipeline [Tr. “passive owner” a that D11:13], argues as Respondent the to collect right” “isolated the Tramex/GTI granted Concession JVA the the nor neither fr divorced transit fees, and/or (1) Respondent the inequity defences: three contractual invokes rights, or performance of consideration. misrepresentation; lack (2) (3) and/or unconscionability; of respect In this defence, first Respondent the argues that consideration should be Concession the JVA the and Jack drafted Smith, lawyer, Claimants’ that the to fact the with Georgian negotiated and officials had who withno experience foreign concessions, instability. transition and of state in a was Respondent the when time a at RespondentThe rejects Claimants’ the contention, on based the in Bridasaward of Turkmenistan, Government al v. et International, Ltd., Bridas Energy S.A.I.P.I.C., t is contract contending unconscionable, that a precluded arguing from that States are the facts in the Bridas by Respondent counsel the not that it represented legal was contends particular, of it into JVA the when Deed and concessions in entered oil gas and experienced that to Respondent, is the “ also, no evidence There according Concession. amendments this the Concession. Claimants’ the the t or RespondentIn regard, argument rejects (the “amendment” to an agreement likened to original should Concession the the be JVA), reasoning that the Concession was a separate agreement between different parties to JVA the does construed, serve to and confirm Claimants’ not, the properly interp In support of its second submission concerning the alleged unenforceability of GTI’s of unenforceability alleged the concerning submission its support of second In pipeline, no such right could be expropriated or transferred to GIOC [Resp. to GIOC Post transferred or could expropriated be right no such pipeline, 25]. para. at Br. ICC Arbitration Case No. 9058/FMS/KGA, Partial Award (25 June 1999) (“ 1999) June (25 Award Partial 9058/FMS/KGA, No. Case Arbitration ICC

28 293. 295. 294.

.” The ” and to effect ” and “that it has

Tramex itself had no ommitment under the JVA JVA the under ommitment Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos in Sections 3.4 and 3.5 of the the of 3.5 and in Sections 3.4 t may deem necessary .” According to ” more broadly than the initial the than ” broadly more financial

97 - - use itsuse to best operate and endeavours the manage How in matters relating to Oil and Gas and relating to Oil matters How in - rects the toSection rects Tribunal specifically 4.2 JVA, the of [Kardassopoulos [Kardassopoulos 4.13] para. witnessI, and that testimony that it financial necessary capability and resources has the

” carried out (as identified ” quirement to contribute 50% of the budget to project the contribute of any quirement 50% of investment undertakings se and Knowse . alone substantialalone funds any improvements or improvements extensions i any to Pipelines the In regard to its second contractual defence, the Respondent claims that the Claimants Claimants the that claims Respondent defence, the contractual to its regard second In misrepresented that they had the necessary financial resources and expertise to carry out Respondent project. the The di JVA). In addition, under Section 6.1, GTI’s “Concession Fee” comprised a requirement requirement comprised “Concession a Fee” addition, under Section 6.1, GTI’s JVA). In merely to carry of Pipelines out the maintenance “ordinary and reasonable “ Concession, the in Section 7.2 of elsewhere weaker is even language the Respondent, the “ that it shall declared GTI which in its at Pipelines, the of intenance ma ordinary periodic and toPipelines effect discretion…” in which Tramex represented “ Agreement this in specified as undertakings investment its fulfill to experience, experti The Respondent further submits further JVA Concession Respondent the the The and under commitments the that bargain. unenforceable) therefore (and constituteand unconscionable inequitable an are c Respondent the financial Tramex’s points this to regard, In to nominal payment a limited Authorised the was to providing which Concession, the and the of of only 50% investment its and GTI’s US$ share capital 1 millionFund, minimum costsof each of the “Projects “ interprets Respondent by required undertaking investment all comprising JVA, the in stipulated commitments re the JVA,the including to Section 5.4.pursuant misrepresentation is, in The the defence Respondent’s view, that “ out Kardassopoulos’ by Mr. to effect borne the evidence stand- Claimantsthe were unknown in the industry and no had building experience pipelines 13; para. D3:40]. 20; Cook Tr. [Adams, testimony, Ferguson para. II, defence, the Respondent to its regard third contractual In argues that the Claimants failed this making latter JVA. the provide consideration under and/or adequate In to perform to implied subject were point, submits Respondent the GTI which terms, that Tramex and r the fo alleged consideration constituted their exclusive rights. Specifically, the 297. 296. 298.

Supsa - greements,

frame, in light of light in frame, - te expectation that a

ence to the Preliminary ts received in 1995 1995 in received ts asis added)” asis , and we shall have to shall we to have , and Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos y bearing in mind the mind the y in bearing

the clients. It was noted that , but were told that this would appear appear this would that told , but were

98 - - und for asserting that the concession agreement is of no no isof agreement concession the that asserting for und

Risk of repudiatory breach by GTI by breach repudiatory of Risk party purchaser would have rights.party such them for paid -

suddenly to begin on the pipeline This issue has been adverted to with towith adverted been has issue This detailed many posing of course the in authorities Georgian the although of for details asked agreement concession the respecting questions on repudiatory relied had entity state no Georgian GTI’s performance, gro a as breach work for instructions urgent give they that proposed clients The effect. to be the contrivance which in substance it is. (emph is. it in substance which contrivance the to be (f) A further previously redacted section of the Preliminary Note goes on to to on goes Note Preliminary the of section redacted previously further A The Claimants’ protestations regarding the work they allegedly did are are did allegedly they work the regarding protestations The Claimants’ think how best to deal with bestthink how this, particularl to deal added) (emphasis disclosure. frank full and of obligations It is clear that little if any work has been done on the pipeline over the the pipeline the over done on work has been any if It little clear that is executed was agreement the concession since years

175. “174. following: the record flatly refuted by the unredacted legal advice that the Claiman the that advice legal unredacted the by refuted flatly the required 2008 October 28 dated 3 No. Order Procedural thethatTribunal’s Preliminary of a section redacted previously A todisclose. finally Claimants Sales Philip and QC Field Richard of 1995 September 19 dated Advice Note of this respect: in and admission instructions the Claimants’ records 175]: The Respondent takes the takes Claimants Respondent the not position could The circumstances that in these had legitimate a have to expectation of continuing rightsthe enjoy thegranted under JVA legitima a to hold continued rights, they if or, Concession the and knowledgeable third knowledgeable the assert to ability Georgia’s to as submissions Claimants’ the to response In a the and Concession to rescind of and/or its JVA the failure unenforceability Respondent identifies the following implied the identifies obligationsRespondent following GTI upon Tramex and incumbent in thewhich, Respondent’s view, notmet were (and whose tofailure is not meet excused): (i) to carry out the project works necessaryto operate the Gachiani Pipeline; and (ii) to completePipeline; (ii) project such works and reasonable in a time Pipeline. operation the to of need commence urgent the supports Respondent refer through The itsthis position regard in Advice Paisner provided of to ClaimantsNote Co. the by [Am. paras. at & Rejoinder 174- 300. 301. 299.

te expectations nt any Oil any other nt .” (JVA 11 §3.7) .” at Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ,” including the maintenance of of maintenance the future including ,” Supsa Pipeline. ” to participate or impleme participate to ” -

99 - -

Oil and Gas asons: first, the Claimants failed to establish that any of the of any that establish to failed Claimants the first, asons: right ofright refusal first sole andsole right of exclusive to represent Republic the Georgia in ”, pointing to the following additional provisions which bespeak bespeak additional provisions which to following the pointing ”, ” plainly and unambiguously extended GTI’s rights to future to future rights extended GTI’s unambiguously and plainly ” it that the Respondent’s interpretation of GTI’s rights as limited to to limited as rights GTI’s of interpretation Respondent’s the that it The Claimants’ Position

the JVA the and up Concession to date the of the alleged expropriation.

b) all … future ones The unqualified The “ and Gas related projects in the Republic of Georgia.” (JVA 11 §3.6) at projects Georgia.” related of in Republic Gas the and unqualified The “ Oil related and Gas any withprojects foreign persons term, term, underexclusive Joint Venture which wasintended GTI to have broad rights -

s Facilities Oils and Ga The Respondent accordingly submits that the alleged affirmations were ineffective. the Respondent contends that the Claimants’ arguments fail for several several contends Respondent Claimants’ argumentsthe for that the reasons, including fail the rescind to requirement technical if a inequitable be it would view its in because legitima had they that claim to Claimants the entitle could contracts scope the ofregarding the JVA the and Concession of in light Claimants’ the admitted repudiatory breaches of the contracts. The Respondent rejects the Claimants’ argument that Georgia affirmed the Claimants’ re principal two citing rights, in second, and affirmation; for legal test the satisfy affirmation alleged of instances circumstances in which there were continuing alleged affirmations, Georgia retained its to rescind right to its submission, third With alternative contendsand Respondent the that in regard the interest Kardassopoulos an Mr. under JVAevent the the retained in rights and rights those Concession, limited are to Tramex’s compensation for proven and GTI’s Gachiani the in developing expenses incurred facilities: pipeline (a) in respect of all matters related to “ to related matters of all respect in The Claimants submThe facilities. Claimants’ the In the view, Respondent is Tribunal the asking the to ignore “ words a long (b) oil facilities existing at the time of the making of the JVA and the Concession is not not is Concession JVA and the the theof making of time at the existing facilities oil term that the argue Claimants The Concession. JVA the the of terms or the by supported “ 302. 303. 304.

” ” .” ”, the or in the extension extensions lessees and ” captures two existing pipeline pipeline existing - lease the Pipelines ”: (1) “ preferred, equalpreferred, or -

Pipelines Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos .” Therefore, in the Claimants’

,” the Claimants assert that plain that a assert the Claimants ,”

” being “ granted being ” Batumi pipeline used pipeline Batumi for transporting - ” added pipelines tosuch “ systems GTI may license or sub

Pipelines

leased leased identity of sub - and the the existing main pipeline systems mainpipeline existing 100 - nterpret the terms of the parties’ agreement. In the In agreement. parties’ the of the terms nterpret - ”, ”, (2)and “ third part[ies] .” (JVA 8 §3.2.) .” at deal fordeal the Republic of in Georgia acquisition, the sale JVA and Deed of to license or entitled GTI JVA Concession Deed and

s definition of “ ” in any “rights to, granted the by or used VentureJoint ” are different from “additions re referred to disjunctively referred offset are re by theand word “ ” to third parties in return for a fee, relying in on relying fee, a in return particular to for third parties ”

fied right to use the “Export Licence” possessed by SakNavtobi. by possessed “Export the rightto Licence” use fied ing pipeline theing (e.g., Gachiani extensions exist - The unquali The (JVA 8 § 3.2.) at on “ prohibition general The subordinated rights (JVA 12 §3.7.) at The unqualified rightThe to “ and export of Oil and Gas and export existing main pipeline systems pipeline main existing ”. These terms a Hearing Br. at para. 46; Hearing Bundle, Tab para. Tab Br. at 228].46;Bundle, Hearing Hearing - lease the “Pipelines

(c) (e) terms the by dispelled rights are of breadth GTI’s the to any doubts as view, Claimants’ which supersedes on textual Concession, the and of clarifies JVA’s the Drawing terms. in Concession’nuances the of only this support reading instrument broad can a of scope the of reading Claimants’ the of Ministry Georgian by the prepared opinion to Claimants an the point Finally, rights. “ to GTI granted provisions had Concession’s that the indicates inJustice 2003 which ”Georgia all rightsole [Cl. use or and existing potential to in control, pipelines operate Post “ definition of Concession’s the to Claimants, the According of categories further pipeline beyond “ to “ the future (d) documents an as reliance Respondent’s on contemporaneous the Claimants reject The to i extrinsic of evidence use improper indicating that “ that indicating view, a new pipeline (such as the BTC or SCP), although not necessarily “ an not necessarily although SCP), or BTC the as (such pipeline new a view, of any pre Early Oil to the Black Sea), is nonetheless an “addition to pre the ” system within Georgia, within Concession. and Georgia, the of system thus within scope the that the Claimants contend The sub- that “ the 17 of provided Deed, which Article it however, provided, thereto, extensions additions and any or thereof segment or any sub- segment the shall of notify Transneft 306. 305. 307.

- .” Hearing Hearing - ” [Gur I, were well

that governs thethat governs act was in force at the catoria

” project [Cl.” Post Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos operate Batumi pipeline” [Cl.- Post pipeline” Batumi -

own-

build- ” the” position subleaseRespondent’s a that to Georgia’s other contractual defences, i.e. contractual other defences, to Georgia’s

101 - - textual - Hearing Br. at para. 14]. - performance and/or failure of consideration. In the Claimants’ consideration.performance failure of and/or In

s reject as “counter re dealing with, citing Mr. Gur’s evidence that the Georgian “ Georgian that the evidence Gur’s Mr. dealing with,re citing 22]. JVA the This what recorded. is, view, in their may only be avoided on the basis of misrepresentation if the aggrieved party aggrieved the misrepresentation if avoided of only basis may be on the his principle mutatishis principle mutandis er sought to rescind the agreements, these defences are unavailable. shall continue to be liable to Transneft for the performance of its obligations hereunder of its obligations performance to the Transneft for liable shall to be continue TheClaimant claim. expropriation an be of subject the properly it then can expropriation, the time of of Principles UNIDROIT the in codified principles several identify Claimants The lex mer the evidencing as Contracts Commercial International up of set Respondent’s are the which contract Concession, JVA to Deed counter the and arguments [Cl.based Post the regards As Respondent’s other thecontractual defences, Claimants submit that a contract mere the election, affirmative an such Absent way. timely a it in rescind to seeks Claimants The void. contract the make misrepresentation a not of does claim possibility t apply non- unconscionability, anyIn event, the Claimants contend that the contractual representations concerning their financial capability and experience were true when made and that the Georgiansknew we they who wasaware that Tramex just for Fuchs a vehicle Mr. and Mr. Kardassopoulos never themselves to berepresented submit4.3]. Claimants that they further The para. seven in mid/upper funds the reserve held who owledgeable “kn than oil traders other oil using through to trading additional funds earn GTI ability the for had and figures GTI’s export license and its access to the Samgori view, as both Saknavtobi as treatedview, Transneft and JVA Concession the the and valid and as neith As regards the Respondent’s second contention, that GTI’s rights are unenforceable, the rights unenforceable, Respondent’s are the GTI’s that contention, regards second As at existed rights what ascertain must inquiry relevant the that position the take Claimants the timethe of relevant expropriatory if conduct: particular a contr would be unconscionable, for the reasons set forth below, as well as the Respondent’s the as well forth set as below, reasons the for unconscionable, would be “ a authorized only position Deed the that atBr. para. 51]. atBr. para. 309. 310. 308.

the

agreement,

”). sided”, pointing in - Bridas

23 (“

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

, that the Respondent is estopped is estopped Respondent , that the 31 performance claims are also without - ), Judgment of 28 February 1969: ICJ Reports Reports ICJ 1969: 28 February of Judgment ), Supsa line, including developmentSupsa line, including the of

- ”: in their view, they paid the paidthe they view, fortheir in nothing”:

Hearing Brief [at para. 15]: - 102 - -

the obligation to contribute its expertise in various areas. areas. various its to expertise in contribute obligation the scale significant Gachiani; at other work and equipment -

ants contend there is simply no factual basis for the Respondent’s non- Respondent’s the basis for no factual is simply there contend ants nd the Northnd the Continental Sea Shelf Case - 22 pp. at 1999) June (25 Award Partial 9058/FMS/KGA, No. se such a defence is inapposite to the facts here. The Claimants reject the a

pipeline between Gachiani between pipeline Samgori; and work Supsa; at significant ofand pipeline; development the overall oil with strategic and producers. investors negotiations installation of large of installation an initial design for the initial Gachiani an design whole improvement and of facility Supsa port railway, development a of Gachiani 29 was held not to be unconscionable, not held to be the the was and unconscionable, JVA. claimants Finally, contend 30

performance claim. claim. performance allIn the events, Claimants assert on the basis of International Court of Preah Temple the Case Concerning the in particular and jurisprudence, Justice of Vihear (b) (d) (e) The Claim (c) from nowfrom arguing unenforceability the of JVA the and Concession. the The Claimants explain this Post in their further position they did not theirthey acquire rights Concession “ Claimants maintain The Respondent’s the that non (a) The Claimants that argue The defencehas unconscionability Respondent’s the no foundation not, in could and event,any as such prevail defence isa intended to protect disadvantaged in the tribunal by articulated reasons same the for that assert ts Claiman individuals. The Bridas, to obligations the in respect contributions Tramex inparticular contemplated of and e.g. JVA, the 9 of 5 and Articles of the Bridasthe terms between similarities the to point again Claimants The which time. the at the rights for price market performed following works Tramex: the identify They merit. by proposition terms the that JVA the the of and “one are Concession Federal Republic of Germany v. The Netherlands & Denmark & Netherlands The v. Germany of Republic Federal ), Judgment of 15 June 1962: ICJ Reports 1962, p. 6. p. 1962, Reports ICJ 1962: 15 June of Judgment ), Thailand v. Cambodia ( ( ICC ICC Arbitration Ca

313. 30 31 29 312. 311. 1969, 3. p. 1969,

Hearing - pondent’s pondent’s ground ground

repeatedly and

[Footnotes omitted.] [Footnotes 192, 194]. As regards the192, 194]. regards As Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos evidence” from Georgia from Georgia evidence” o the GTI site office, and (ii) a a (ii) and office, site GTI the o

performance claim. Instead, Georgia relies relies Georgia Instead, claim. performance er hearing a fuller account of the facts, then then facts, the of account fuller a erhearing

.” 103 - - no Georgian witness involved in the GTI project has has the project in GTI involved witness no Georgian

eorgian Government created a legitimate expectation that ribunal made the following observation: the made following ribunal d familiarising themselves with the case in more detail, the the detail, in more the case with themselves familiarising d The Tribunal’s Determination

c) As explained previously, explained As - intestified of non support Georgia’s not was he that acknowledged who Mr of Gigolashvili, evidence the solely(i) on t keys no had and team theGTI in involved hearsay remark from an English barrister who had been briefed on obviously on obviously been briefed had who barrister an English from remark hearsay (hardly against AIOC application injunction an urgent for facts incomplete is common It story. the opposite tells evidence direct The “evidence”). not no work that mean does that halted in 1994, but works that physical GTI’s a in comment the The barrister’s to jointbe venture. donecontinued for further meetings after and, moreover, weight has no evidentiary note preliminary with Mr Fuchs an which application injunction an for papers the draft to on went barrister believed actually counsel If extant. were rights GTI’s that basis on the proceeded aft existed termination of risk that a of lawduty theofEnglish part thisas address to required been have theywould as application, injunction exan parte thatgoverns disclosure full frank and “ of piece Neither note. the preliminary in stated all at weight any carries therefore “ ctual defences ctual this list for based, are relying of proposition lengthy on a assurances that their rights would be vindicated through the rights the that their by vindicatedcompensationassurances be through would process refraining from seeking private law remedies. as regarded be must rights GTI’s that submit Claimants the foregoing, the of result a As on the subsisting valid and relevant valuation date. its on Jurisdiction,In Decision that Mr. Tribunal the Kardassopoulosdetermined owned 25% indirectly ina GTI that, theinterest and of validity irrespective the of JVA G the Concession, the and/or law that and with Georgian any would in accordance breach this made investment was protection treaty trigger [Decision 141, 191- on Jur., paras. GTI’s rights, T of the scope Finally, the Claimants assert that they relied, to their detriment, on the Res the on detriment, their to relied, they that assert Claimants the Finally, expressly” affirmed GTI’s rights before and after events the on thewhich Respondent’s contra and correspondence witness testimony adduced [Cl. proceedings in these Post 16]. para. at Br. In addition toIn the foregoing, the Claimants contend that Georgia “ 316. 317. 315. 314.

Supsa - ” and that

the terms of

ghts in theghts Gachiani Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos il. Section 3.2 of the JVA provided JVAthe provided il. Section 3.2 of at the sole, uninterrupted and and uninterrupted sole, the at nd gas pipelines in pipelines Georgia. nd gas s Decision on Jurisdiction,s Decision rights the

avtobi’s declaration, further underscored the further declaration, avtobi’s 104 - -

Oil [products] and Gas [and chemical products] in the Republic in the [products] [andproducts] Republic and chemical Gas Oil sole, exclusive and uninterrupted use of the Export License of Export the and uninterrupted use sole, exclusive year year renewable licence to export o - solution No.solution 123G.” A cursory comparison of the terms of Resolution No. 834, on the one the one 834, on No. Resolution of terms the of comparison cursory A

that it holds the Export License under which it has the sole exclusive and and exclusive sole the has it which under License the Export holds it that irrevocable rights from the Republic of Georgia to acquire, import, export and export and import, to acquire, Georgia Republic of the from rights irrevocable oil] [crude sell and transported and processed bought, it [which abroad and of Georgia [December] until at least force in remain will license said the that discovered] be placed may license suchthat and 1995, license. the of duration the for Venture Joint the of use irremovable “ “152. hand, and the rights and activities contemplated by the JVA, on the other hand, hand, other on the JVA, by the contemplated and activities rights the hand, and exceeds far latter the of scope the that clearly demonstrates be that in cannot JVA the accepts the while 834. And Tribunal No. Resolution a is it earlier, days four enacted was which 123G No. Resolution of “breach” authorized that than is broader far JVA the under work of scope fact GTI’s that under Re

shall deal for the Republic of Georgia in the acquisition, sale and export of Oil and and of Oil and export acquisition,the sale in of Georgia shall for Republic deal the ”. Section 4.1B, which SakN contains Section 4.1B, ”. GTI “ Gas and : extentimportance this of right The Respondent has contested not only the scope of the rights allegedly held by GTI, held but allegedly by rights scope the the of not only contested has Respondent The very ontheir existence basis of the whichcontractual seek defences the to impugn Tribunal the However, JVA Concession. of the the rights and granted the under validity never that GTI/Tramex in this phase arguing to Respondent be the not understand does any had oil and rightsgas in Georgia; but that rather, rights the granted under the of terms JVAthe the and Deed Concession of were limited to ri export SakNavtobi’s right to under the export was oil rights of to GTI to grant the Central Thelicence. terms original of this were licence set out in Resolution 834, No. and comprise a five “ the had that GTI described in the JVA thandescribed in broader Resolutions are the described activities and 834 Concession them of granted Deed JVA that the and contend Claimants The 123G. future rights and oil of a present development in the The Tribunal will first consider the question of precisely what rights GTI the under held rights GTI what precisely questionof the will consider Tribunal first The ofJVA Concession. Deed and noted As in it pipeline, and that those rights were rendered unenforceable for several reasons several for outlined unenforceable rendered were rights that those and pipeline, above. 318. 320. 319.

”

” as the “all icenses icenses ”. The “Projects

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos d in Projects the xport License will be extended extended be will License xport Oil and Gas Facilities Gas and Oil

[Handwritten amendments in brackets.] in amendments [Handwritten

from, through or for Georgia. This was a a This was for Georgia. or through from, – 105 - - emember putting a special wording, we used a a used we wording, special a putting emember

” as those “currently the under control of Georgian the ”, there is a troubling vagueness to this expression which is to this is troubling expression isvagueness which a there ”, Oil and Gas Facilities include Facilities Gas and Oil y other countries within the area. Number two, we were, and this this and were, we two, Number thearea. within countries y other ” and “ Supsa Pipeline. by the reliance placed upon it by the Claimants to expand the grant of of grant the to expand Claimants the placed upon it by reliance the by - ogetically expert oil traders, not pipeline developers. He said expert oil He developers. ogetically not [Tr. traders, pipeline D3:140:8- Oil and Gas Facilities Gas and Oil e Claimants emphasize the handwritten amendment to Section 3.3, which 3.3, which to Section amendment handwritten the emphasize Claimants e and future ones automatically by additional 5 years, immediately at the time of the registration of of registration time the of the at immediately 5 years, by additional automatically years.] 5 every automatically renewed be will and venture the Joint l export extended or additional new, all place shall partner The Georgian and terms the same on venture the Joint at of the use it by received permits or .” herein stipulated conditions The Partners agree and understand that the continued validity of said license license said of validity continued the that understand and agree The Partners by use irrevocable and uninterrupted sole continued its and period, said beyond material of is thereafter, conditions of terms same the on Venture Joint the to ability its and venture Joint the of operation continued the for importance hereinafter. described as Projects the out carry theE that agrees and accepts side [TheGeorgian very important issue, and I r and issue, important very JVA.” the in special wording “A. We were obligated, as far as I remember, to refurbish an existing pipeline, pipeline, an existing refurbish to I far remember, as were obligated, as We “A. Georgia, from oil early exporting of capable it make to it, to value some to add and probabl the use to right exclusive and the sole given were we tous, important very was through oil export to license export

Whilst th Whilst “ qualified partner underscored Turning to the alleged rights granted to GTI in respect of the development of present and inrespect to development present GTI the of of to alleged the rights granted Turning JVA the of reading close on a clear from it is far in pipelines Georgia, oil gas and future oil rights and to Concessionintended of future broad of grant a parties that the Deed and in pipelines Georgia. gas with JVA, the Beginning Section 1.12 defined “ pipelines existing JVA,the set which 3.5 of Sections 3.4 and listed in projects those defined as further were including of to reconstruction was of that GTI undertake, projects category closed out a the Gachiani 17]: Mr. Kardassopoulos importanceMr. explainedthe of this right for Claimants, the were who quite unapol 324. 322. 323. 321.

17]:

ion 3.3, testified intestified his ion 3.3,

Hearing Br. at para. 47]. For the the For 47]. para. Br.Hearing at -

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos - examination [Tr. D8:15 ” [Cl. Post

s; that’s true, isn’t it? isn’t true, that’s s;

and future ones and future 106 - -

Hearing Br., p. 23]. Dr. Tevzadze’s evidence on this this on evidence p. Tevzadze’s Dr. Br., 23]. Hearing d not have granted such rights because Saknavtobi Saknavtobi because rights such granted have d not - this could only be decided by the Georgian Government. the Government. Georgian by could be decided only this uestion. –

arch 1992 and my question is: at around the same time as that that as time same the is: at around question and my 1992 arch

” of the terms “ of the ” meaning natural omewhat muddled due to difficulties posed by the translation of his testimony, testimony, of his the translation by posed to difficulties due muddled omewhat It was certainly not my intention to grant to GTI rights to all future oil and has has and oil future all to rights GTI to grant to intention my not certainly was It Q. Certainly, and I apologise for any confusion. We have looked at the cabinet cabinet the at looked have We confusion. any for apologise I and Certainly, Q. ” investment. and funding Claimants’ the out with carried hey were facilities in Georgia. I coul I Georgia. in facilities in or facility control constructed of have pipeline any new would not necessarily Georgiain thefuture “ oil future Georgia’s and rig to suchhts I sought broad that known Had Tramex the not agreement this was the as JVA, have executed not I would has facilities, to to such and I grant rights not was that with empowered Tramex, I reached the or ret JVA interp can Claimants the how not understand I do facilities. future we that well quite and understood knew always They this way. in Concession JVA inthe to referred specifically projects the over only rights the GTI granted if in projects those included facilities over rights have would only they and that t resolution of M of resolution “ pipeline future ifthat Fuchs other you Mr. told drafted, being was resolution be would resolutions cabinet further that commenced, be to were projects future project those to authorise obtained question. the understand doesn’t still He MR. SVANIDZE: the sense I the understand question? paraphrase IIf could MR. KBILASHVILI: confusing. a bit is in Georgian translation the but English in of question the my That’s witness? our understand to Georgian in translation a I make Shall question. lawyer other the as long as and president, the of leave the With MR. NELSON: in the can hear room for and the long the loudly asenough question youas speak totranslators hear q the 25] and the “ the and 25] The Claimants criticize Dr. Tevzadze’s recollection in respect of his intentions during the during his of intentions in recollection respect Tevzadze’s Dr. Claimants criticize The [Cl. Post JVA the of negotiation exclusive rights in the early oil pipeline to include rights in all future oil and gas pipelines pipelines oil and future gas in all to include rights pipeline oil in the early rights exclusive in the State of Georgia. to Sect amendments handwritten the of author the Tevzadze, Dr. such that of broad partner’s evidence not Georgian grant the a written rights intentionwas 8]: para. [Tevzadze II, s point was as is apparent from the following exchange on cross The Claimants rely on Mr. Kardassopoulos’ understanding of GTI’s rights to extend to future pipelines [Tr.

- D4:39:23 32 326. 325. rein, the Tribunal cannot accept this interpretation. accept this cannot the rein, expressedTribunal he reasons

[Emphasis added.] [Emphasis

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

umber of projects in this this ofumber in projects

Council of Ministers would not If no agreement can be reached then then reached be can agreement no If

”

107 - - other projects take should inprojects part this,other I think the

ll future oil and gas pipelines in Georgia to Tramex/GTI. in Georgia pipelines gas and oil ll future

S. MOORE: Should I ask that to the witness? the to that I ask Should MOORE: S. ent will issue a tender. issue will ent

The Joint Venture shall have the sole and exclusive right of first refusal refusal of first right exclusive and the sole have shall Venture Joint The lines:

3.6 in the Republic of Georgia to participate or implement any other Oil and Gas Gas and Oil other any implement or to participate Georgia of theinRepublic Georgia. of Republic the in projects related “ the Governm A. I don’t remember, and in particular, I don’t think so.” think I don’t particular, in and remember, IA. don’t THE CHAIRMAN: Yes, go ahead. Yes, go CHAIRMAN: THE Minister would not refuse that at that time – time that at that refuse not would Minister of lot a were there because exactly, remember don’t I time. that at that refuse so atsolution, that it re time, this is to by hard approved being were that projects specifically. remember it’. I said think ‘I don’t said, He MS. SALOMON: THE CHAIRMAN: Agreed. (Question interpreted.) (Question Agreed. CHAIRMAN: THE I remember a lot don’t issues, so about of talking MeA. were and Mr. Fuchs not. I did maybe him, to that I told Maybe exactly. did? you that likely itIs MR. NELSON: the that said Fuchs Mr. If A. and I by this There resolution A. approved were a lot being projects were of that desires. other any Fuchs had Mr. period that at that don’t CHAIRMAN:Ms.THE Knox? that inthat, no tonot say would Ministers of the Cabinet But A. there was, if timeframe. that in period, MS. KNOX: We understand that there was a correction to what was translated translated was what to correction a was there that understand We MS. KNOX: n a were there said Tevzadze Mr. where earlier, he projects, of a number there were because that explaining he was resolution, he than rather projects, more about discussion a there was that think doesn’t projects. more of a discussion being there remember doesn’t INTERPRETER M Nevertheless, it is far from evident to the Tribunal that Dr. Tevzadze intended to commit to commit intended Tevzadze that Dr. to Tribunal the evident from it isNevertheless, far in a rights committed indeed or Section 3.6 of the JVA suggests that, at most, the Claimants had a qualified right of first first of right qualified most, that, at Claimants a the had JVA suggests the Section 3.6 of oil as such future projects, related andgas oil other or in implement participate to refusal pipe gas and 327. 328.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ement the project, and they put put the and they project, ement

“early oil” rights. In other other Section words, oil” rights. In “early

108 - - a project would come. Maybe, I am not a legal not IMaybe, am come. a project would and gas related projects strongly suggests that the rights suggests rights that the projects strongly related gas and

elation to these other projects was the right to propose a a to propose right the was projects other toelation these

someone would come up with the idea for a completely new pipeline, pipeline, new a completely for idea the with up come would someone

-- FESSOR LOWE: How did you understand the procedure envisaged by by envisaged procedure the you understand did How LOWE: FESSOR PRO

ossibility of there being no agreement reached reached agreement no being there of possibility the to 3.6 in refers it When Q. issue a tender, obliged to then being government and the with government, the terms. commercial the on agreement no means presumably that maybe we would have had to present to the government, let's say, this proposal, proposal, this say, let's government, the to to present had have would we maybe this continue to like would we to say right had the have would we and then project or not. yes. terms, commercial on the agreement No A. IfA. impl in they want us to practice didn't hurdles, yes.” Q. So what you had in r you had in So what Q. it to implement right no necessary terms, the but tothe propose project, right correct? that is terms, commercial on the agreed government unless the for example, and what would happen then? happen would and what for example, was one who the was JVA the Because be? would someone that Who A. The inGeorgia. facilities energy these for responsible was JVA the operating, put to ideas would matters, procedural in various as is would put, JVA described to decree a issue or agree to have would vernment the thego and government, projects. specific confirm in say we as represented, we or abroad, from came somebody if I suppose with third parties, with discussions in of Georgia Government 3.7, the paragraph and such foreign persons, paragraph 3.6 as operating in relation to any future projects? What would would What futureprojects? toany relation in as operating 3.6 paragraph happen “ Turning to the Deed of Concession, the picture is even less clear. This less clear. is to Deed of even instrument, the picture the Concession, Turning is the State, by rights of grant direct a as JVA and the than time in later coming the of moret for theunquestionably purpose of resolving important documen the scope those oil and gas rights not otherwise granted under JVA. the not otherwise granted rights to oil gas those 3.6 applied and of Section 3.6 and confirms Mr. of this Kardassopoulos testimony interpretation oral The D4:31:22 JVA [Tr. the under granted rights the of extent the of respect in implications its – 33:2]: Thefact that the Government of Georgia retained the right to issue a tender in the event in participation GTI’s the of in respect agreement an notJVA reach did to the parties the oil other implementation of or use and operate to maintain, right limited to exclusive JVA the the were under granted i.e., in pipelines Georgia, existing gas oil and 331. 330. 329.

the existing existing the , “ ” does not appear not appear does ” estments to be tobe estments ” to existing pipelines, pipelines, existing to ” [Emphasis added.] [Emphasis Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos extensions ter thereof. Yet, it suffers fromthe same

an obligation Transneft acknowledged to have Transneft obligation an

– 109 - - and based upon the existing method of Petroleum Petroleum of method existing the upon based and

going nature of the expenses and inv of expenses nature the going

” ”, in turn which defined was inter alia to mean, ” in pipelines Georgia and extensionsor Petroleum “any new ”. Petroleum, under the terms of the Concession, includes both oil includes Concession, and the of terms the under Petroleum, ”.

stments of GTI. of stments Pipelines nance of the Pipelines the of nance

linessystems tly throughout the Deed. The consideration for the Concession, set forth in in forth set Concession, the for consideration The throughout Deed. the tly 6.1. In consideration for the grant of the concession, GTI agrees to bear on its to agrees bear GTI its on grant the the of concession, for 6.1. In consideration the Concession Concession the Period, Concession the throughout Pipelines the in GTI by made account and for its own responsibility during the Concession Period all the the all Period the during Concession responsibility itsown for and account reasonable ordinary and the out in carrying involved investments expenses and and inve “ mainte necessary. deem it may the Pipelines […] to- 6.2 Having regard the on tobe shallbe deemed and Period theConcession throughout accrue fee shall for inthe Period the consideration Concession expenses paid entire throughout in effecting any improvements or extensions to to extensions or improvements any and ineffecting calculations cost transport w pipelines: w

rights held by the Claimants through GTI. This is confirmed in Article 27 of the 27 Deed, of in Article This confirmed GTI. is through the Claimants heldby rights or arrangements allsuperseded agreements, prior Deed that the provided which with respectunderstandings to the mat subject as vagueness of JVA.problems the underthe conveyed 2 described by reference rights to Concession Article the the “ definition of main pipe in future the added consisten and pipelines of existing maintenance ordinary the with 6, consistent is Article to refers this exclusively extensions. Article “ Indeed, not ne the among Article 7 Additionally, commitments by GTI, for undertaken a provided million US$1 of investment minimum additional no new words, investment other GTI. In by been made already was required oil part and in future to purported gas obtain the exclusiveon GTI’s rights pipelines. gas. However, the reference in future the to added pipelines “new 332. 334. 333.

” to the”

” are those tments,

Pipelines improvements, additions or improvements, additions improvements, or Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

so be deemed an investment, investment, an be deemed so

”

110 - improvements, additions,extensions and - GTI and additionally GTI shall have a property a property shall have GTI and additionally GTI If Transneft wishes to purchase the inves to purchase wishes If Transneft additions or extensions plus the LIBOR rate for U.S. Dollars rate for the Dollars plus U.S. extensions LIBOR or additions

estments, improvements, additions or extensions to the Pipelines to Pipelines the or extensions additions improvements, estments, Upon the termination of the Concession Transneft shall notify GTI if it it if GTI notify shall Transneft Concession the of termination the Upon Upon the termination of the Concession Period, any investments, any investments, Period, the of Concession theUpon termination

” ” present throughoutas Deed. the Section 18.3, whichIndeed, contemplated expenses of GTI in each respective year. ofrespective GTI ineach expenses improvements, additions or extensions to the Pipelines, it shall pay GTI a price it shall a price pay to GTI Pipelines, extensions the or additions improvements, of sum the notevent than less the in any Parties but between upon to be agreed investments, the maintaining and managing installing, GTI the of cost (i) improvements, costs and the of basis on calculated per annum 2.5% + annually accrued wishes to purchase the investments, improvements, additions or extensions to the the to or extensions additions improvements, investments, to the wishes purchase GTI. from Pipelines 18.3. “18.2. or to made the extensions by additions Pipelines improvements, shall GTI of the property remain sole as Transneft to of GTI loans outstanding to any equal in Pipelines the interest this of the for purposes (and Period the of Concession termination the of date al shall interest property such Concession of Deed the to Pipelines). extension or addition improvement, Without derogating from the generality of the foregoing, upon the termination of of upon the termination generality of from foregoing, the the derogating Without the GTI uninterrupted allow to shall continue Transneft Period, the Concession useinv of any of the to Pipelines the connection shall maintain and accordingly by GTI made transport the continue shall and or extensions additions improvements, any such and extensions. additions improvements, such through Gas and of Petroleum the Pipelines or any segment thereof and any additions segment and any thereof or any ”. Pipelines the thereto or extensions pipelines, butpipelines, does not address the construction ortenance main of “new” pipelines in the Rather, of plain the future. this language Article suggests“ that the purchase by Transneft of any investments, by Transneft additions extensions improvements, or any of to purchase the price minimum a of cost reflective the for purchase GTI, of Pipelines the from provides investments, those andmaintaining managing, installing, Article 10 similarly contemplated “ contemplated similarly 10 Article pipelines already in existence at the time the concession was granted. or subletting of new licensing the for any provision make to fails 17 again Article in future,pipelines but provided the thefor rather and of licensing generically subletting “ Pipelines the to of of use possession return Article and the 18 provided for Finally, to new is no reference there However, upon termination Concession. the of Transneft “ of iteration the same rather but future, the in pipelines extensions new Pipelines: entirely of extensions not value the and 335. 336. 337.

early

examination examination -

[Emphasis added.] [Emphasis reement between GTI and was, nevertheless, far from

of resources. The evidence

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos gas pipelines in pipelines gas for theexchange they negotiated were andthey by agreed

oil and

111 - future - rights are limited to recovery of Tramex’s proven

unconscionability, misrepresentation and lackand of misrepresentation performance, unconscionability,

represented parties on both sides of the bargaining table.represented bargaining the on both Tevzadze, sides of parties Dr. -

insignificant. the Respondent’s by Tribunal to question the the is validity, not persuaded of Turning argument that these rights were invalid as of the date on which they were allegedly taken the Claimants’ or that the State by Tribunalexpenses. The but help observe defencescannot raised contractual bythat the i.e. Respondent, the appear to be raised for in the the andare, first proceedings arbitration these time in oral the opinion, by and unsupported evidence. Tribunal’s written oil pipeline and related facilities to GTI, including associated export rights, and to give associated export toa rights, give facilities and related including oil and to pipeline GTI, in rights immediate any grant projects, but not to future regarding proposals to make right oil future and in pipelines Georgia. gas This bundle of rights The Tribunal finds no evidence to suggest that Georgia was disadvantaged in the in disadvantaged the was to suggest that Georgia evidence finds no Tribunal The unilaterally not JVA were the of terms the that text reflects The JVA. the of negotiation contrary, Respondent; quite the imposed on the capable, well JVA the negotiated who SakNavtobi, on behalf of on cross confirmed While it have may been unconscionable for the Claimants to have received a grant of Georgia’s to of all rights exclusive its Georgian partners. partners. its it Georgian Government is that the almost unimaginable Indeed, Georgia of the of to hands the sector energy entire its to commit State organs its through sought commitment modest relatively a for exchange in Claimants in contrary. these the arbitrations suggests adduced to instruments purporting various the of Tribunal the effect finds that the Accordingly, the the operate exclusive rights and to is possess, use to in convey GTI rights vest of Deed for the in provided the from Claimants commitment financial modest relatively this interpretation of Tribunal’s the is thisConcession, moot of argument in view oil pipeline. early to the to innot case regard rights the isinstrument certainly the and These provisions in the Deed reflect the proper scale of the ag the of proper scale the reflect Deed provisions in the These 340. 342. 341. 339. 338.

o have world Oil Oil world

in Section 4.2 in Section 4.2

13]. - all of which appear How in “ - 24]: maximization on world - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos lish speaking lawyer within the within lawyer speaking lish gian translation of the draft JVA JVA of translation draft the gian

’s knowledge of various of related of knowledge ’s aspects

”, shipping and banking – shipping banking ”, and ms defence of JVA. the This contractual first 112 - - 24]. ” (JVA, Section 4.2A). The record supports the record The supports (JVA, the ” Section 4.2A). 8]. The evidence, including the textfinal JVA, the of Western methods Western 25, 72:21- “

appear, at any point, to have represented themselves as anything

. Tramex. represented that it had to the resources “financial capability and that these resources were adequate to enable them to fulfil their investment

” (JVA, Section 4.2B). The Tribunal understands this to refer to this Claimants Tribunal the to The understands refer (JVA,” Section 4.2B). Tramex also represented that it has experience, expertise and Know during the merits Hearing that he had reviewed had a he that Hearing merits Geor the during with discussed session negotiating with Mr. final to had draft the the prior Fuchs; the over text final the and negotiated government; had within Georgian the colleagues ofdays several course anwith assistance of the Eng Georgian [Tr. D8:7- government is therefore rejected. The Respondent’s misrepresentation defence is similarly misplaced. The evidence indicates that the Claimants represented their experience and financial resources do not they accurately; oil experienced than with substantial means disposal.other their at traders financial This is consistent with the declarations and representations made by Tramex markets,and Gas export of Oil and pricing and Gas and profit suggests that both contracting parties acted in theirsuggests under interests, being best own neither ter the to influence agree or pressure undue Finally, further in the proceedings. which these is not experience, challenged oil trading in Sectionrepresentations Tramex 4.2 invoke markets – industry oil gas the and to have been within the Claimants’ competence. The Georgian Georgian The Government officials with whom the Claimants dealt also t appear understood them to be successful oil them to be traders,understood not experts. successful pipeline This and was by Dr. [Tr. merits the D8:17:10 Tevzadze- confirmed Hearing during undertakings [Tr. D4:71:3- undertakings conclusion that theconclusion Claimants significant had financial resources toavailable them and believed fulfill its investment undertakings investment its fulfill of the JVA the of Dr. Tevzadze testified that he understood Tramex was owned by the Claimants [Tr. the Claimants owned D8:17:10 was Tramex by he that understood Tevzadze testified Dr.

33 344. 343. 345.

Batumi -

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ion with prior discussions, our our discussions, prior ion with Batumi pipeline was restored to to restored was pipeline Batumi -

113 - - wned by Mr Fuchs and Mr Kardassopoulos, didn't you? didn't Kardassopoulos, Mr and Mr Fuchs by wned

compensated, that assumes there are rights. there are assumes that compensated,

spondent’s witnesses testified that the Claimants should be compensated for spondent’s Claimants that the compensated testified shouldwitnesses be Q. Well, because finally, this is in connect in is this finally, because Well, Q.

“ of end the in that thought they whether witnesses key two asked has Chairman compensated been have should particular in Tramex or GTI business, the whole heavily so was who Chanturia, Mr of specifically that asked He way. in some course of was who Tevzadze, Professor and side, political the on more involved, been have should they yes, was both of reply the And side. technical more the on or the of compensation of amount the again irrespective Well, compensated. be to right A. Yes, of course. of Yes, A. you? didn't traders, oil successful were both they that you And knew Q. A. Yes. Gachiani the that sure make would they that you And believed Q. 't didn refurbished, you? was pipeline A. Yes. once Gachiani the that YouQ. believed also would expertise trading Mr Kardassopoulos' and Fuchs' Mr that operations, you? didn't for Georgia, revenue oflot earn a A. Yes.” “MR NELSON: At the time that you signed the joint venture agreement, you you agreement, venture joint the that signed time At the you “MR NELSON: o was Tramex that knew As regards the Respondent’s contention that any recovery in this case should be limited limited should be in this case recovery Respondent’s the that any contention regards As to proven Tribunal Tramex’s expenses, the notes the that during merits, on the Hearing Re the of one the value of their rights if the rights were validly granted and were later taken by the State D9:63:19Tr. [Cook – 65:2]: testimony, The Respondent’s last contractual defence, lack of performance, is also quickly disposed on the of facts. While it appear does that progress GTI on the project was and impeded various at suggestsslowed points, evidence the that works were conducted, as far as local conditions point up to would permit, the GTI’s in rights time were when bythreatened of invalidity the asserted those within Government who Georgian the actors rights, and is no evidencethere to trary. Accordingly, this con the too last contractual is defence rejected. Accordingly, the Tribunal the Accordingly, rejects also the second contractual defence. 348. 347. 346.

Batumi Batumi - I

they were .”

aken away from akenfrom away g from from expropriation underg Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

114 - -

up question. up - tion revolved around whether they were in a position to to a position in were they whether around revolved tion to what the law says about that. about says law the to what

The Claimant’s Position

a) Was Mr. Kardassopoulos’ Investment in GTI Expropriated? in GTI Was Kardassopoulos’ Mr. Investment 3. PROFESSOR ORREGO VICUNA: Okay, ORREGO you.PROFESSOR thank assuming, granted, validly rights were the that assuming But CHAIRMAN: THE follow the of for purposes laterSo if and then t A. were the rightsgranted were validly A. Well, my understanding is that the issue revolved around the nub that that nub the around issue revolved thethat is understanding my Well, A. as or agreements, the through clearly granted had Oil Georgian granted had agreements, the saw never we said I as because us, to related The to AIOC. granted those with conflict in were which toGTI rights certain my in least at position, a in were they whether around revolved issue posi the understanding, grant rights. those is it whether perspective, legal a from therefore, and lawyer, a not I'm Now -- is granted validly not are which rights for compensation grant to appropriate as a view have don't itfor compensated be should they reasonable is it logically them, then You wouldn't compensate if there is nothing. Would you say that is right? is that say you Would nothing. is there if compensate You wouldn't In view of view In the Tribunal’s the finding on jurisdiction under / Georgia Greece (seeBIT only Kardassopoulos’ 241 above), Mr. arisin paragraph claim here. considered ECT shall the be In summary, the Tribunal is satisfied on the basis of the totality of the evidence that the the of evidence totality Tribunal the the of summary, basis on the isIn satisfied export incl uding Georgia, in facilities pipeline oil in early the rights held Claimants and not vitiated by that these rights, rights of were any of the virtue defences contractual whether of toturn consideration next Respondent. the shall by Tribunal The raised rights wereby the GTI’s in fact taken Government in Georgia breach of of its treaty to Kardassopoulos. Mr. obligations Mr. Kardassopoulos submits that his investments were unlawfully taken through unlawfully through taken Kardassopoulos Decree Mr. submits were that his investments in Samgori held the that GTI exclusive the rights extinguished 178, which No. ipeline and related facilities, related and pipeline 33a, No. Order and GTI’s extinguished which rights over that that taking. not and pipelines, been has for compensated he future 350. 349. 351.

”, erning the public the erning

.” Moreover, in Kenneth in Kenneth Moreover, .” commission established in in established commission

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 92) at 1992) Taxation, and Law (Kluwer

Thus, in Mr. Kardassopoulos’ Thus, in Mr. Kardassopoulos’ a seizure undertaken ostensibly a seizure 34 the development of the Georgian of Georgian the development the .”

(1967) considers “ (1967) 115 -

- states the public interest test. In any event, Mr. Mr. event, any test. In interest public the states - functioning pipeline system were in public the interest - in fact, to be used by persons connected therewith connected persons by for in used solely fact, to be

xpropriations that from transfer one merely xpropriations property private to party it is open to question whether or not the Respondent’s decision to switch to to switch decision to Respondent’s the or question not whether to is open it ich transferred GTI’s rights in Early Oil pipeline to GIOC. GTI’s Oil to transferred rights pipeline GIOC. ich in Early ad hoc part the of formed having as, it unlawful enders Kardassopoulos rejects Georgia’s contention that “ rejects Georgia’s Kardassopoulos prohibit[s] e tabilization clauses in the JVA and Deed of Concession in itself renders the renders in itself Concession JVA Deed and of the in clauses tabilization interest is entitled to a large measure of deference. However, Kardassopoulos Mr. deference. of measure large is entitled tointerest a “ that submits business GIOC the model outsourcing all construction, maintenance and(i.e. the operation of pipeline the in return for collecting reduced a greatly was transit in fee) 266]. [Supp. interest.” para. Georgia’s at Mem. mis effectively that this asserting undertaking taints the in process the role contends Chanturia’s that Mr. Kardassopoulos r and Mr. As regards the public interest public the regards criterionAs to applicable 13 expropriations under Article of that Kardassopoulos ECT, Mr. the a conc decision concedes State’s expropriation unlawful. As a threshold a As position, Kardassopoulossubmits Mr. the that all of conditions out set in lawful expropriation to be an for in order ECT mustsatisfied the of be 13(1) e Articl this Kardassopoulos ECT. the that Mr. the case, hisunder expropriationIn of rightsavers of none thesesatisfied conditions. He also that Georgia’s ofcontends breach the s oil and gas industry and a fully Mr. pipelines, Georgia’s to relating 1996 to examine existing agreements January of No Decree stood passage monthfollowing the 178 a in particular toChanturia gain later wh Draft to OECD Convention Article the 3 of that commentary notes Kardassopoulos Mr. of Property Protection Foreign on the for but, public purposes test public purpose that the on observes he treatise U.S. investment treaties, Vandevelde’s “ or another which are carried out as a political reprisal private gain is unlawful and gives rise to a claim for claim damages rise to a and gives gain isprivate unlawful

Kenneth Vandevelde, UnitedKenneth States Investment Treaties: Policy and Practice

34 354. 353. 352. 355. p. 121. p.

IOC, a the only only the r wouldr have

”, as GTI’s rights were Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos granting of those rights. Mr. those Mr. of rights. granting 1995 Georgia began to negotiate began to negotiate 1995 Georgia - opriation in any event lacked due due event lacked inopriation any ” [Tr. D12:34].” mal standard of internationalmal of standard process. due

hich to were hisgranted rights third parties, him that GTI would continue to be involved would continue involved to be him that GTI

for thefor proposition due that the process by required 116 -

- Mr. Chanturia, and could not therefore have been in been have not therefore could and Chanturia, Mr.

34]. was politics taintedby and factional interest hanturia) rendershanturia) expropriation unlawful. the owned state entity. GIOC, in turn, licensed those rights to AIOC and, in the the in and, to AIOC rights those licensed in turn, GIOC, owned entity. state - According to Mr. Kardassopoulos, beginning in to Kardassopoulos, Mr. mid- According beginning with AIOC in respect of rights held at that time by GTI. He was offered neither an neither offered He was GTI. by time that at held rights of respect in AIOC with to participate by w opportunity in process the re ultimate the to in contest which forum a nor the public interest [Tr. D12:33- public interest the submission, this purely political agenda (orchestrated under questionable circumstances questionable circumstances (orchestrated under political agenda submission, purely this by Mr. C the shows evidence the that submission their reiterated the Claimants Hearing, the During expropriation “ to away and given taken essentially 50% the of only revenues. received Kardassopoulos contends this that during to period, failed Georgia answers clear give assured and rights GTI’s status the of about industry in Georgia Georgia. JVA did the in oil gas not Deed of the cancel or and done so. least at Claimants – or, having the Concession did of not advise Mr. Kardassopoulos contends that the expropriation was also discriminatory because discriminatory also contends expropriation was that the Kardassopoulos Mr. them to G and been took to that had the GTI granted simply rights granted Georgia According to GTI. accrued that would have of 100% transit revenues the reaped process, to Kardassopoulos, Mr. if GTI had licensed those therights, Georgianpartne to as inference draw to an Tribunal the invited Claimants the argument, closing their In “ expropriation the claims: of discriminatory purpose the intent for Georgia’s wholly who endpeople up out foreigners, of pocket were so there becan an that inference target[ed] were foreigners way in a discriminatory Mr. positionNotwithstanding Kardassopoulos’ breached the Respondent that the above expr the minimum, a at that, submits he criteria, two Draftto OECD Convention the on commentary relies Kardassopoulos Mr. again process. Protectionon the of Foreign Property of mini to ECT 13(1) a the Article corresponds 360. 356. 357. 358. 359.

from the from the .” [p]rocedural due g authority,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos prompt, adequate and effectiveprompt, adequate d by Mr. Ninidze, then Minister of Minister of Ninidze, d by Mr. then rticle 13(1) of the ECT for lawful a ’ with the affected investors and invite invite investors and affected the with ’

n, Mr. Kardassopoulos takes the takes position Kardassopoulos n, Mr. that 117 - Hearing 74] para. Br. at Hearing - - compensation, muchcompensation, less “

.” [Cl..” Post 35]: ges fed to the claimants from certain parts of the Georgian parts of Georgian the certain claimants fed from the ges to MR NELSON: Let me just talk about due process. The best authorities on due due on authorities best The process. due about talk just me Let MRNELSON: process which we've cited in our memorials indicate that due process must must process that due indicate memorials inour cited we've which process expropriatin the answer to chance a and process, judicial involve assurances had had theWe ... that. opposite of We case. one's and toargue to us to spoke who People government. the from Patsatsia, and from SakNavtobi about rumours heard we Then partners". still our "You're [and] said, our face GIOC why of indication clear a never was There departments. other government was Mr Chanturia any indication. never was there be emerging, seemed to to deal have unfortunately and I issues in testimony, of his opaque on a number with them in a moment. messa The other by taken actions secret the by contradicted completely were government due process and transparency of theis antithesis This government. the of parts “ expropriation, Kardassopoulos Mr. that contends breach the the of stabilization clauses contained in the JVA (Article 12) and the Deed of Concession (Article 21) itself renders this follows “ to Kardassopoulos, Mr. According expropriationthe unlawful. Finally, and apart from the criteria identified in A in identified criteria the from apart and Finally, As regards the compensation criterio Georgia’s failure to pay any necessarily expropriation Article”, the renders under compensation the unlawful 13 of explanation further Claimants pressed of the for Tribunal the Hearing the ECT. During requirements the of that one insist Claimants The to 103:1]. [Tr. position D1:99:4 their did not here. which lawful a expropriation occur of is payment, The Claimants highlight the confidential report prepare report confidential the Claimants highlight The in March 1995 Justice, that the concluded which JVA of Deed the were and Concession under Georgiandefective [Hearing law Tab 98],Bundle, that averring “ requiredprocess Georgia to its share ‘conclusions of and Deed Georgia JVA the required to analyse process due Substantive their views. reference to body by Concession the of law agreed which Georgia to it when apply into two was the contracts internationalentered Georgia (which law, law). not Georgian of of awareness the lack investor’s the Ninidze Mr. described Instead, did neither. problem’ as ‘their process Claimants summarizedThe position their on due process the at inHearin closing g [Tr. D12:34- argument 364. 363. 361. 362.

.” of

, the , the ter of ition that that ition gross law violations of Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos .” [Supp. Mem. at para. 271]. [Supp. .” para. at Mem. erased any prospect any erased of generating y unlikely any agreementy have would

118 -

e meaningless. Host States will be encouraged to encouraged be will meaningless.e Host States - 318] ” and that it was highl that it and was ” The Respondent’s Position The Respondent’s

b) Supsa Pipeline JVA Concession the the concluded and under and that no valid Memorial at paras. 314- at Memorial - - inter alia invalid because, that the inter were JVA Concession concluded the Justice and Concession the void and for was 123g Resolution scope Cabinet the of JVA exceeded “ through to GTI granted and been had authority of lack attract investment by inserting such clauses in every investment contract safe in the investment contract in safe the in every inserting clauses by such attract investment that additional flow no knowledge from them consequences basic underlying principle that contractual commitments freely entered into by host enteredhost into by freely that principle commitments contractual underlying basic givenStates should legal be effect. no If consequences flow international under law from ar they violationthe clauses, of such The Re principalspondent’s is that therewas the no expropriation defence because expropriableClaimants no had rights in theand, that any alternative, expropriation was lawful. respect this of In position, first Respondent the that claims to prior passage the Decree No. 178, Georgia had analyzed the existence of any exclusive rights to the Gachiani existed. report Minisa 1995, the 25 April rights Shevardnadze to dated President In [Counter further Respondent No. The submits178 “ that Decree for Kardassopoulos’ Mr. Rootvalue shareholding in Brown through GTI proposed the & agreement purchase share been forthcoming between GTI and Brown & Root due to the conflict of interest such a a such interest of conflict the Root to and due & Brown GTI between forthcoming been posed Root AIOC. and for would have & Brown deal in alternative, the next Respondent Tribunal the the Arguing that should contends determine that Georgia expropriated investmentsany protected by the Georgia / Greece international The under law. customary lawful expropriation ECT, was such the or BIT expropriation expropriation that the (a) lawful that a requires acknowledges Respondent purpose be discriminatory; a which not be carried for is (b) (c) in public interest; be the process (d) accompanied compensation. due the and be by appropriate law; out of under Respondent the pos threshold the adopts to Claimants, the however, contrast By an expropriation is provisionally lawful so long as it meets the first three criteria of the of criteria three first the as it meets long so lawful provisionally is expropriation an 365. 366. 367. 368.

ng great national national great

.” ”).

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Antoine Goetz Supsa Pipeline was of of Supsa Pipeline was “ -

d Georgia, and also to the U.S., a multiple and also the a multiple d Georgia, to U.S., r for an expropriation […] to r or for be an expropriation lawful, as 119 - - nal importance and key to the country’s economic to country’s the key and importance nal the absence of a legal or factual error, or a manifest manifest or a factual error, a legal or of absence the 60]:

erning the discretion afforded to governments to act in the national in national the to act togovernments the afforded erning discretion criteria for a lawful expropriation, the Respondent argues that there isno that there argues Respondent the expropriation, for lawful a criteria

”) for the proposition that the development of Georgia’s oil pipeline Georgia’s of for oil the pipeline ”) proposition development the that conc

35 countries, namely Turkey and Georgia, and the U.S regarding Russia’s regarding Russia’s U.S and the and Georgia, Turkey namely countries, its used had Moscow region. Sea Caspian the in energy over hegemony at stopping times its smaller neighbors, against leverage political monopoly as an Turkey like countries To imports. “On the other hand, there was a competing concern on the part of neighbori of part on the concern competing a was there hand, other the “On providers and resources energy diversified promoted that solution pipeline corridor, energy as an For example, Russia’s power. dimishing the tooffered key than other to Russia be able untries getGeorgia of from part would its co energy dependency. its energy decrease could hopefully and therefore some commentators have coined it, provisionally lawful, in the context of of context the in lawful, provisionally it, coined have commentators some the for only concern is it of ofdamages, measure appropriate the determining was tof compensation paymen whether a question of and not factors, first three be case there would a BIT never the If then made. case, actually were that inbrought there which a claim was lawful expropriation. Furthermore for applying the v Amoco Iran test, you don't look at the fourth factor “Now we would argue that in orde in that argue would we “Now interest Georgia submits that in “ in that submits Georgia interest importance infrastructure was of crucial natio position this encapsulates report first Mr. Effimoff’s stability. and political development paras. 59- follows [Effimoff as I, The Respondent points to the Expert Report of Igor Effimoff, the Witness Statements of Statements of Witness Effimoff, the of Report Igor Expert the points Respondent to The (which Memorial Supplemental and its Adams, and Khetaguri Chanturia, Messrs. recognized at paragraph 27 that the Gachiani error in the evaluation for an abuse of power, the Tribunal may not substitute its own Tribunal its not substitute own may of power, the an abuse for in evaluation error the by Government] [the made evaluation fo discretionary judgment rof the ‘considerations of 270]. para. public interest … or at nationalRejoinder interest.’” [Am. Turning to the Turning treaty expropriation provision. by thetreaty made was succinctly This argument in Respondent argument [Tr. D12:158]:closing definition of precise the“public purpose” for purpose of lawful the expropriation test international customary Relyingunder law. v. Goetz on Antoine du République Burundi ICSID Case No. ARB/95/3, Award (10 February 1999), at para. 120 (“ 120 para. at 1999), February (10 Award No. ARB/95/3, Case ICSID

35 370. 369.

and

ities to Supsa Pipeline to - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ive to the West … The Western Western … The West the to ive

construct the Gachiani -

Supsa Pipeline. Accordingly, it was not not it was Accordingly, Pipeline. Supsa

Supsa Pipeline and accordingly Tramex and and Tramex and accordingly Supsa Pipeline

ave a feasible business plan, any throughput throughput any plan, business feasible ave a - .” 120 - -

”). Amoco

Memorial at para. 358]:Memorial para. at - but to grant the rights the tobut re to grant

the JVA and the Concession were void and unenforceable. Accordingly, Accordingly, unenforceable. and were void Concession the the and JVA by 1996, Tramex and GTI had failed to make any material progress in in progress any material to had failed make and GTI by 1996, Tramex Tramex and GTI did not have the necessary expertise or financial financial or expertise necessary the have not did GTI and Tramex Tramex and GTI did not h not did GTI and Tramex

“(1) At the same time, [Turkey and Georgia] hoped to achieve economic economic to achieve hoped Georgia] and [Turkey time, same Atthe the maintaining of benefits the direct economic by reaping independence a viable to become for that Georgia zerealized Shevardnad President pipeline. the to closer itself align economy, its had to develop Georgia state, independent viewed government Georgian … the “Sovietness” its shed ingeneral and West attract Georgia make to the the vehicle as pipeline reliance on oil from the Caspian would encourage the West to be Georgia’s to be Georgia’s the West encourage Caspian would the from on oil reliance there inensuring interest vested a have would West the because “protector” operations.” pipeline’s the to were no disruptions Tramex and GTI had no right to construct and operate the pipeline or to claim or pipeline the and operate no right to construct had GTI and Tramex therefrom; arising the revenues (2.) Gachiani the and operating developing facil thethese to development of entrust further ininterest Georgia’s Tramex and GTI; and Tramex (3) Gachiani develop the capability to GTI wouldGTI to have been the unable implement and project; (4) commitments from end users and, accordingly, Tramex and GTI would have wouldhave and GTI Tramex accordingly, and, end users from commitments project the finance to been unable

U.S.C.T.R. 189 (1987) (“ 189 (1987) U.S.C.T.R. - national natural resource is in the public interest, citing the following passage from that that from passage following the citing interest, public the in is resource natural national Thus, the RespondentThus, the Shevardnadze reasons President no had in choice, acting Georgia’s interest, public argues that a state’s decision to increase its share of revenues derived from exploitation of a award: at it was in the public interest for GIOC to enter into into GIOC for enter to interest Respondent public The submitsthe in it was that with arrangements businessa that possessed the unquestionable ability to develop the the for not public interest in the correspondingly, and, oil infrastructure country’s citing four hands, to principal pipeline remain operation the in of GTI’s and construction [Counter reasons AIOC. RespondentThe relies upon Amoco International Financial Corporation v. Iran 15 IRAN

36 372. 371. 373.

37 Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

Case Concerning Oscar Case Concerning the and Oscar

”). 38 a similar only as material the situation , the Respondent distinguishes the BP the distinguishes Respondent , the 40

r. Chanturia and, as such, such, Chanturia as r. and, was discriminatory BP Exploration BP BP ExplorationBP Limited (Libya) v. Company Memorial at para. 367]. The Respondent relies Respondent 367]. Memorial The para. at - affected alleged the affected grant by in terms of equal

121 -

- ”).

”). n ” [Counter”

AMINOIL 59].

” and both were and” “ both were Oscar Chin and therefore they andsaidcannot therefore they be to have been in a similar situation, is which

in support of its that view expropriatory an law is not discriminatory simply

“ … in recent practice and mostly in the oil industry, States have admitted admitted States have industry, in oil and mostly the …“ in recent practice foreign were nationalizing they that of cases, number inexpressly, a certain of totality, the even or share, greater a obtain to inorder primarily properties which, resource, natural national a of exploitation the from drawn revenues the a Such the of country. to development accrue the should to them, according illegitimate.” and unlawful as hasbeenpurpose denounced notlly genera ”innuendo relating selection to the of Mr. to headChanturia GIOC of instead Dr. 39 Chinn In to Mr.response Kardassopoulos’In that expropriation allegation effected alleged the was M of to fulfill political the agenda in order in the same manner as was found in Arab Republic of Libyan the Government The Respondent also also Respondent The contends alleged that the GTI’s rights of to notgrant was GIOC of basis on the discrimination there no was that firstly reasoning discriminatory, Tramex in were nationality: SakNavtobi and “ inshareholders GTI GIOC rights alleged to GTI’s and GTI to Respondent, the According enterprise. one foreign only it affects because different distinct in positions fundamentally entirely were created GIOC for and purposes, of discrimination. element important an The Respondent also denies the Claimants’ allegationsin respect of the existence of submitted the Respondent Hearing, the During Georgia. in interests factional or political the expropriation the of that record on the no evidence is there argument closing in is there interest), public the to opposed (as politics by motivated was rights Claimants’ “ only [Tr.Tevzadze D12:158- in Government award upon the of Kuwait AMINOIL v. . at para. 145. para. . at PCIJ, Ser A./B., N. 63, 1934 (“ 63, N. PCIJ, A./B., Ser (“ 297 (1979) ILR 53 1973), October (10 (Merits) Award Ibid (“ 1982) March (24 Award 1984, YCA

39 40 37 38 376. 375. 374.

tent h not binding for the the for h not binding brought in. Mr Mr in. brought n its Constitution or n its other Constitution x its singled out being for Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos n which, after both a private private both a after n which, , althoug ign nationality, which we say is is say we which ign nationality, that Georgian entity, either either entity, Georgian that

” [Tr. D12:160].” owned entity but different than - discriminatory ofnature the alleged discriminatory

122 - - 31]: on to the - non

case by noting there is no evidence of Trame of there is no evidence by noting case PROFESSOR ORREGO VICUNA: Do you mind if I put to you a question a question you to put I if mind you Do VICUNA: ORREGO PROFESSOR before you move over, in relati in over, move you before “ expropriation, in this respect, that if a Georgian entity, as you mention in point point in mention you as entity, a Georgian if that respect, this in expropriation, 1, SakNavtobi, was also allegedly affected bythis assignment of rights, what of whether question the on would you comment new the in its way got state, the Georgian of a part being indirectly directly or hypothetical a in else, whoever or AIOC with developed being was that business example. out left be might side one but sides of equation, the both expropriate You would if door, some particularly through back brought in mightand the be one other would of How entity sort. of some a state business larger idea you look the at that? on you comment not was this SakNavtobi in case, Well, MSSALOMON: that have don't we and so upset, being about talk will SakNavtobi of Tevzadze state as a SakNavtobi have and we situation, real the government itself, and so we would submit that that entity itself, to the ex theto itself, entity that that submit would we so and itself, the government it was negatively impacted as the claimants allege, is impacted in exactly the the exactly in impacted is allege, the claimants as impacted negatively it was .” claimants the as way same Draft Convention on the Protection of Foreign Property of Protection Foreign the Draft on Convention Commentary The assistance. some of ECT, is the of Article of 13(1)(c) interpretation that dueprovides process “implies that whenever a State seizes property, measures the from free i must existing be arbitrariness.taken Safeguards must administrativelaws fully judicial observed; be or established by precedent or judicial used machinery must or available correspond at least to the minimum standard international by law.”required In regard to due process, the Respondent submits that the Commentary to the OECD to the Commentary process, to due that the regard submits Respondent the In Exploration its insisted closing argument, Respondent [t]here's that the nationality. Panamanian In discriminate to part on Georgia's whatsoever was intention that any there no evidence fore of their claimants because the oragainst Tramex […] expropriation lawful of limb this of determinative the for significance, the on the view Hearing Respondent’s solicited the During Tribunal situation discrimination a i the of of purposes criterion, the and a State entity are expropriated, the State entity alone returns to participate in an D1:130- business [Tr. investment or 378. 377.

, the , the just

”. The ”. Respondent making, in terms in terms making, - ” argument and reiterates its Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos iterion of a lawful expropriation in lawful a expropriation of iterion in judicial machinery

cumstances of each case. thisIn case, the

U.S. Claims Tribunal’s reasoning U.S. reasoning Claimsin Amoco Tribunal’s - trariness, the acts about which they complain complain they which about acts the trariness, 123 - - innuendo ofinnuendo shadowy activity the Respondent’s “ Respondent’s the

ent cannot act behind closed doors in making certain decisions, decisions, certain making in doors closed act behind cannot ent The fourth factor in terms of due process, again, we have no evidence, we have no evidence, of we terms due again, process, factor in The fourth “ .” and decrees orders governmental concern have innuendo of shadowy activity, and somehow, because the claimants didn't didn't claimants the because somehow, and activity, shadowy of innuendo have decision in government happened that thing single every know suggestion The process. due of lack a was there somehow, that pipelines, of the a governm that that the to government provide advice not could of Justice Ministry or the that wasn't process due that suggestion a way any in not is distributed doesn't get of arbi evidence no There's met. rnment. In the Respondent’s submission, many of Mr. Kardassopoulos’ Mr. of complaints submission, Respondent’s the many rnment. In

As regards the compensation criterion, the Respondent also submits that while the the while the submits also Respondent the that compensation regards criterion, As compensation to cr pay settled is obligation a settled”. is well “less paid be that must the amount law, international customary compensation to is subject appropriate of determination the to Respondent, the According cir particular the considerations and equitable that contends Respondent a it created commission by Order governmental 84 forNo. the Tramex was compensation of to Tramex. possible the payment examining of purpose to claims compensation. their in support of documents all relevant invited to produce its evidencing documents to produce that Tramex failed states Respondent the However, expenditure. The Respondent reiterates that there is no evidence to Kardassopoulos’ support Mr. isno evidence that there reiterates Respondent The Georgian within the AIOC by driven factions political were there that allegation Gove relate to AIOC’s conduct rather than Georgia’s. In this case, the Respondent of there avers is nor no evidence arbitrariness any evidence that the relevant governmental orders breached any administrative requirement under or law otherwise. international in theNor, be view, Respondent’s anycan there in failure a of allegation concludes that, consistentconcludes with the Iran be basis” a thereforecannot to be considered ordershad and properly “legal government in breach of due process. dismisses Respondent The the “ expropriation out in that any process carried withview due was accordance [Tr. D12:160- 61]: 382. 381. 379. 380.

ation of particularly sly found thatfound sly the ECT which

in support of their Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos n the Area of any other other any of Area the n

in breach of law. in international Rather, breach in reach the treaty the reach compensation provision

Thus, the absence of payment of compensation payment compensation of of absence Thus, the

124 - - that in that case the tribunalthat in the that foundcase allegedthe Article 13 Expropriation “ spite repeated requests from a government commission , reasoning , reasoning , in the which stated tribunal that it would be “ The Tribunal’s Determination

Amoco c) to construe a contract to which the to contract which a State is party not forbidding a to as construe prompt payment of”. just compensation

,” the,” tribunal did notfound b Iran (1) Investments of Investors of a Contracting Party i Party Contracting of a Investors of Investments (1) a to subject or expropriated not be nationalized, shall Party Contracting adventurous” the State had not breached the stabilization clauses since these clauses “bind the only ”. NPC and Amoco parties namely to …Agreement, the of 13(1) it terms the Article considers of Tribunal to recall helpful The where Party Contracting a of investor an investment of the expropriationpermits the of conditions: with certain outthat expropriation in is accordance carried nationalization, the Respondent argues that the tribunal in that case expres in tribunal that case that the argues nationalization, Respondent the expropriation was lawful even though made lawfulexpropriation even was payments.Iran no compensation Because had claimant the failedto documents produce to a commission “ As Mr. Mr. As Kardassopoulos to provide properfailed ofevidence value the of his allegedly investment, de expropriated Respondent the compensation, of payment the established to examine specifically submits Kardassopoulos Mr. that failed to has establish that Georgia breached the compensation paid. to for be requirement the not render does circumstances, in particular mind these bearing to date, in this case expropriation unlawful. this alleged parallel regard, draws Respondent a the In between this case and demands requiring “ breach the either of Respondent JVA by the Concession any the Finally, that states or TransneftSaknavtobi or not render does the Thealleged expropriation unlawful. observes thatRespondent there is no stipulation in ECT that the an expropriation in of provision contractual a is ipsobreach facto its view, the stabilization clauses establish an agreed formula for the calcul damages. on AmocoRelying 386. 383. 384. 385.

is:

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

police powers. police , claims that failure to satisfy this this satisfy to failure that claims ,

Amoco r. Kardassopoulos’ claimpresent a classic

en someen discussion of GTI’s in participation 125 - - met the standard of “prompt, adequate and effective

of the State’s bona fide ender an expropriation an ender unlawful. Iran Claims Tribunal in Tribunal Claims Iran

not discriminatory; and law; of due process under carried out and effective adequate prompt, of the payment by accompanied for a purpose which is in the public interest; is in the which for a purpose

(b) (c) (d) compensation. […]” (a) measure or measures having effect equivalent to nationalization or expropriation expropriation or to nationalization equivalent effect having measures or measure Expropriation such where except “Expropriation”) as to referred (hereinafter It is clear on the record, however, that an rights in that an planned GTI’s expropriation record, of was is on the clear however, It 178 was No. adopted. 20 February on which of Decree date Decree advance 1996, the 477, adopted No. on 11lished 1995, estab November the to GIOC, entity whom GTI’s rights were eventually transferred, with essentially thesame aims as GTI. In other words, the adoption of laid through rights was GTI’s expropriation the of for groundwork the Decree No. 477. While there may have be the new GIOC regime, the status of GTI’s rights in Georgia was clearly in serious for significance Tribunal’s the particular 1995. has ThisNovember finding question by Parties’ the of submission below. in V.E. Part consideration on quantum, discussed toTurning the for criteria a lawful expropriation in forth set Article 13(1) the of ECT, it is Georgian undisputed that the Government never Mr. compensated Kardassopoulos for of GTI’s rights, taking let alone the on the Respondent, the relying However, prescribed 13(1). ” in Article compensation the of U.S.- reasoning r in itself not does criterion Respondent’s the whether argument the is is unnecessary to valid for decide Tribunal It ECT, the of 13(1) criterion out set in Article another to fails meet also its since conduct namely the requirement that any expropriation out in carried be accordance with due case of direct expropriation,case 178 having No. Decree deprived ofGTI its rights in the early Kardassopoulos’ Mr. Tribunaloil therein. and The pipeline interest also finds that this not an was exercisedeprivation The Tribunal finds that the M finds that of Tribunal circumstances The 388. 389. 390. 387.

1990s. ic interest” n taken in the public in public the n taken e in the e expropriation is a called “factional interest” - le required to satisfy the satisfy to le required Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos t may have shaped the manner have shaped manner the t may

126 - -

l infrastructure following theand GTI’s rights, taking of gas Tribunal the at the expropriation the at Kardassopoulos’ was Mr. public of in Georgian the rights mstances prevailing in Georgia and the wider the relevantmstances and the during The prevailing region period. in Georgia rted that the development of Georgia’s oil pipeline infrastructure was of crucial crucial of was oil infrastructure pipeline development Georgia’s that the of rted The Tribunal is also of the is Mr. of while also that Tribunal view The rol Chanturia’s process of law. Such a failure, the Respondent concedes, would in any in would any concedes, Respondent law. theevent the failure, of render Such a process expropriation unlawful. it is on the all that, evidence, finds the Tribunal the criterion, first with Beginning arguable th Asinterest. Claimantsthe the is acknowledge, Respondent to entitled measure a of in this deference regard. Tribunal both The heard expert industry fact and whowitnesses asse in its the and politicalregion independence to country’s the importance national in light all the of finds thiscompelling Tribunal evidence development. The economic circu ofevidence Effimoff, Mr. Respondent’sthe industry expert, was particularly illuminating in this regard. matter of concern, it is not clear on the evidence that the so was coalesced aroundChanturia which Mr. which driving factor the to led the that i it seem would rights, although GTI’s expropriation of out. carried compensation discussions were ensuing and expropriation the in which was broaderThere a context GTI’s the to expropriation rights, the of namely need to find who pipelinesomeone delivercould a solution sca on a the during mid concerns Georgia - of economic and geopolitical prevailing in decision this Considered light, to pursue arrangement with Georgia’s an even at AIOC, the expense of the Claimants, be may understood asa decisio it in the out was which below, though, carried as manner seen even shall be interest, the is Tribunal Therefore, obligations. treaty with reconciled be Georgia’s cannot the not Respondent convinced that the “publ breached accordingly in ECT’s the expropriation provision.requirement it in while the does Georgian that the to secondWith the criterion, appear partner respect in the of role to a development in measure some restored was SakNavtobi, joint venture, Georgia’s oi not that find does the expropriation was carried out discriminatory in a manner. While it 392. 391. 393.

. ce , which provides as as provides , which adjudicator to to adjudicator

the national law of the the law of the national Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos discrimination element of the ECT’s ECT’s the of element discrimination process. The Tribunal aobserves, as

substantive legal procedure for legal for a substantive procedure Saxon notion, or of “Rechtsstaat”, or of “Rechtsstaat”, notion, Saxon

ADC”).

ion of due process of law make it akin to the to the akin it law make of process due of ion .” 127 - - in the BIT between Hungary between in BIT the Cyprus the and by ICSID which the Tribunal finds Tribunal the to present the case: which apposite 41 , foreign investor, butforeign investor, arather in case it which determined that

Hearing Brief, the Claimants rely on a discussion of an identical of an identical adiscussion on rely the Claimants Hearing Brief, - Draft Convention on the Protection of Foreign Property Foreign of Draft Protection on the Convention The Tribunal agrees with the Claimants that “due process of law”, in the in the of process law”, “due that the with Claimants agrees The Tribunal In essence, the contents of the not the of contents the Inessence,

If no legal procedure of such nature exists at all, the argument that “the actions actions “the that argument the all, at exists nature such of procedure legal Ifno - an Anglo of Law”, “Rule the of requirements the agreement, in Used international an law. in continental asunderstood to by a reference is exhausted not this notion content of and actual an demands context, expropriation or taken already actions depriving the against claims its toraise investor foreign reasonable as such mechanisms, legal basic against Some about it. taken to be impartial and an unbiased and fair hearing a notice, advance accessible and available readily be to expected are dispute, in the actions assess legal the In general, legal meaningful. procedure toto such make the investor chan reasonable a investor affected an grant to nature a of be must procedure heard claims its have and rights legitimate its claim to time reasonable a within parties concerned. The “due process of law” of each of them must correspond to to of process of of law” them each must correspond The “due parties concerned. law international of principles the “ “ bsequently struck up withbsequently AIOC,a foreign partnership entity. words,another other In In their Post their In contained expropriation criterion Hungary intribunal ADC v. starting point, that both Parties rely upon the definition of due process contained in the definition upon the contained process rely due Parties of point, that both starting OECD’s this was not a case in which the Georgian againstgovernment Georgian discriminated the in or Tramex which case this not a was Kardassopoulos qua Mr. investor. The is different not Tribunal with a deal had foreign to be was better a there that there has aconvinced of non breach been the - may, in certain circumstances, bethe case that a taking can be considered discriminatory the nationality, of basis on the investor an against intention to an discriminate absent taken rightsGTI’s were Although case. is a such this that is notTribunal convinced GIOC SakNavtobi, both and Tramex of to detriment handed the to GIOC, and away su expropriation provision. usThis brings to third the due criterion concerning follows: ICSID Case No. ARB/03/16, Award (2 October 2006) (“ 2006) October (2 Award No. ARB/03/16, Case ICSID

41 395. 394.

’ rights

IOC had evidence, evidence, must be of must be [Emphasis added.] [Emphasis Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ” if it if is” to be found been to have tribunal and, in particular, with the with the in particular, and, tribunal

, the Respondent in the present case case present the in Respondent , the

42 128 - - term basis, the evidence is equally clear that if the if that clear equally is evidence the basis, term - in March 1995, which Claimants’ concluded that the rights ted investor a reasonable chance within a reasonable time to to time within a reasonable chance a reasonable investor ted inidze, former Ministerinidze, former of Justice, evidences Georgian the

there was a procedure or mechanism in place, either before thetaking finds in the present case.” present in the finds

are taken under due process of law” rings hollow. And that is exactly what the that what the exactly is And of hollow. rings law” due process are under taken Tribunal or thereafter, thereafter, or Mr.which allowed Kardassopoulos, within a reasonable period time, to of have his claims heard. The Tribunal agrees with the reasoning of the ADC the of reasoning with the agrees Tribunal The mechanism legal or the proposition whatever that put in to place,procedure it “ affec an toa nature grant heard claims its have and rights legitimate its claim in As ADC law. of process due out under carried failed to ensure that Rather, contrary to several elements which may be considered to form partof due the process obligation, such as reasonable advance notice and a fair hearing, the Mr.expropriation of Kardassopoulos’ rights was out in carried mannera that can best at described be opaque. as This is illustrated best the documentary by and oral of underscores matrix which part factual the as discussed above, Georgian the in thethat ledrole Government’s events to Claimants squeezing the out of investment the indicates that A While evidence region. the the AIOC entered had once picture reservations some the embracing about Claimants within corporate their structure or long to them on a control ceding GovernmentGeorgian had the confirmed existence validityand of Claimants the seriously. taken Claimants’ presence the would have oil AIOC pipeline, in early the AIOC repeatedlyAlthough sought fromclarification ofGeorgia Claimants’ the status in they assuredwere Georgia existed. that no conflict testimony Mr.The of N in interest its expressed AIOC rights once Claimants’ the for disregard Government’s report with a When presented export solution. reserves Caspian the of part as Georgia by his Ministry prepared was that he testified invalid, Ninidze Mr. were Concession of JVA the Deed and under at para. 435. para. at

Ibid.

42 396. 397. 398.

this report to your your to this report

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos f AIOC asked and requested requested asked and AIOC f

country legislation, if any subject is is subject if any legislation, country

know whether it was sent to GTI or Tramex. or GTI to sent was it whether know

129 -

28]:

y have to know that it exists first, isn't that true? that isn't first, exists it that to know y have

“Q. So I take it that at no time in March or April 1995 was 1995 April or March in time no at that it take So I “Q. A. This report was prepared by the ministry, it was addressed to the Cabinet of of Cabinet to addressed the was byit the This ministry, A. report prepared was it signed was of Justice, the Minister by it signed wasn't signed, it was Ministers, department. the of head by the document thisthat to say like would I but stated, I have as know, IA. don't this requested and asked havethey should GTI to sent been would have us. from document i AIOC to sent it been have Would MR NELSON: we from have therequesting an official to to document, respond government that it. send not will we request, don't they Ifrequest. But the Q. problem. their That's A. helpful, that it's exists, it you if it, do know isn't an opportunity, Q. it's also Well, right? it, for ask can you then because […] was: clarifying was Svanidze Mr question The WILLSEA: MS INTERPRETER them or not? to the sent And report was this whether know do you actually not. answer was I know. don't was MR The answer SVANIDZE: doesn't CHAIRMAN:THE he And it? for in- legislation, the to According A. yes.” that, with argue IA. do not knowledge sentknowledge to is Tramex, that right? is 1995 then, or April March in to Tramex being it of sent You're Q. not aware right? that A. No, I'm not saying that. I'm looking at the report which was signed by the the by signed was which report the at looking I'm that. saying I'm not No, A. I speak cannot Ministers. of sent was the to Cabinet and head of department the else. of anything unaware whether the report had ever been report the whether been ever forwarded Claimants, tounaware the had but that itwould Claimants the did not that know for it. hadasked If simply to they sent them if been have report existed,the how couldask they for it, he was asked. Mr. Ninidze replied was that problem” [Tr. D5:26- “their simply

try 1995, 1995,

above). above). Petroleum conflicting

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ements we had obtained earlier. Mr. Mr. earlier. had obtained we ements

130 - 109; Hearing 147,Bundle Tab p. 132 ( -

s and to see if there was now a risk that the Georgian the Georgian risk a that now was tosee if there s and hin the Georgian government, this had been arranged this arranged had been Georgian the government, hin I, paras. 8.2 and 8.4]: 8.2 and paras. I,

” [Gur ess than a month after receiving the Ministry of Justice report, concluded of Justice concluded the Ministry report, receiving month after a than ess Nabarro Nathanson, the law firm advising AIOC on the status of the the status the of on AIOC advising firm Nathanson,law the Nabarro

s’ rights, completely unbeknownst completely E to the F Parts rights, and s’ Claimants (see II. “I was accordingly very surprised when it was first brought to my attention by by to attention brought my it first was when surprised very “I accordingly was I government. Georgian the with brewing troubles were there that Fuchs Mr. rumours there were thattold I was of middle 1995. the around itbelieve was oil international to an to offer going were government Georgian the that the in were GTI that pipeline same very theto rights AIOC) (called consortium find any was there if to I try if out Fuchs could asked Mr. middle constructing. of truth to the rumour I very was Naturally arrangements. Venture the Joint betray would government after happen, could a thing such believe not did this but about hear to concerned and endors approvals all government the of out find to best my did I but time, this by Minister Prime longer no was Sigua - No Ministries. within the contacts to various by speaking happening what was received I and certain very be to seemed government the in one within influential quite now was person a new that clear seem did It reports. to not able I was Chanturia. Giorgi namely sphere, Shevardnadze’s Chairman to I needed whenever now, until Up him. with meeting private any arrange wit anyone access unusual. was this so immediately […] 1995 November early in matter this about Shevardnadze President to I spoke I Rabin. Prime Minister Israel’s of thefor funeral Israel he towhen came ); Kardassopoulos); 8.2]. para. I, This is confirmed by the statement Mr. of Gur, need not worry need whose evidence has not been challenged in these proceedings. Argus emerged first trouble the of in midsigns - that although not only confirms Gur Mr. in the officials senior from comfort to receive continued Claimantsthe nevertheless werethey and President told from that Shevardnadze Government including Georgian “ According to Mr. Frenkiel, the first time the Claimants became aware that their rights rights that their aware became Claimants the time first the Frenkiel, Mr. to According indus oil gas in an and publication the article an was of challenged being through were in May 1995 newsletter [Tr. D2:108- Claimants’ rights in Georgia, received a copy of this report shortly after it was completed completed it was after shortly of report this a copy received Georgia, in rights Claimants’ in report in to their AIOC 105]. Nathanson Bundle, Tab Nabarro [Tr. D5:28; Hearing 1995, l April and invalid. Claimants’ that AIOC that the notes were Tribunal rights The tentatively other the concerning received documents appear to counsel have government legal their Claimant However, However, 401. 400. 399.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos y assured me that the the that me y assured door reports press opposite the are - at the expense of the Claimants. — [b]ack

AIOC also this investment. I expressed my concern concern my expressed I investment. this also

131 - - ”. The Tribunal is not persuaded by the”. Tribunal The Respondent’s is not persuaded Hearing Br. at para. 78]. is also It clear that these were not idle - he official bus during his time in Israel and we had a good a good had and we Israel in time his bus during official he with the Claimants that “ that Claimants the with

payment in this case was justified due to Mr. Kardassopoulos’ alleged alleged to Kardassopoulos’ justified Mr. due was payment case in this .” [Cl. Post .” nd approval of Dr. Tevzadze, as well as other Georgian officials, the the officials, Georgian other as well as Tevzadze, Dr. nd approval of provide proper evidence of proper value the provide of of evidence circumstances his investment. The

escorted him in t in him escorted was door his added that He protected. wouldbe fully introduced I investors had Mr. them onto passed and his words reassured by I greatly always was open. Mr. Kardassopoulos.” to relay to Nanikashvili Mr. Fuchs and opportunity to speak when his plane was delayed for several hours at the airport. at airport. the for hours several hisdelayed when was speak plane to opportunity the on waited it while plane the in sat and we plane his onto me invited […] He and things many discussing tarmac rights that such side Azeri the on struck been had deal a that theaboutrumours he had taken said He to be no decision to that given AIOC. the would pipeline personall worry. need He to not did yet we that but assopoulos’ investment outassopoulos’ in of breach carried Article ECT. of 13(1) the was prompt, adequate and prompt, adequate effective The evidence reveals to the satisfaction of the Tribunal that, during the remainder of remainder the that, during Tribunal the reveals of to satisfaction the evidence The Tramex1995, while partnership discussions pursued Root with& Brown full with the a knowledge of rights negotiations same Government wasthe in pursuing with respect AIOC Georgian already held by Tramex through GTI. and the rights, by which to Respondent ok GTI’s process the in its totality, Viewed any definition be investment, by cannot Kardassopoulos’ Mr. expropriated thereby the Moreover, law. of process due out under been carried to have considered within a chance Kardassopoulos Mr. reasonable a to grant failure Respondent’s his expropriationinvestment the of following his heard claims time to have reasonable in the theunquestionably, of Tribunal,eyes falls what short of is by this required criterion. Accordingly, Tribunal the determines that the expropriation Mr. of Kard that no these of cases facts on the above, noted it as is and uncontroversial Finally, Government in compensation Georgian the by to Kardassopoulos Mr. made was payment for the expropriation of that may payment considered hisbe investment, let alone “ failure to failure defence that non- defence of due process of due toGovernment process afoot a within of Georgian reflection the a but were rumours, back a– bigger faster, horse and stronger The Tribunal Tribunal The agrees 403. 404. 405. 402.

s t this t this Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos . First, there is evidence on the is evidence there . First, never pursued a remedy before the before remedy a pursued never

Therefore, the Tribunal the finds Therefore, tha 43

132 - - lso finds that the Respondent breached the ECT by reason t Article 13(1) the of t no requirement Article ECT contains that an

. Second, the claimant in Amoco claimant the Second, .

party to being either obligations of instrument,it no capable had contractual at para. 134. para. at

by the Government of Iran, whereas the evidence on the record here indicates here that Mr. evidence the record on the whereas Government of the Iran, by expropriation sought persistently the of compensation for hisKardassopoulos investment the compensationthrough commission process. This last element ofThis last element Mr. Kardassopoulos’ expropriation is claim put forward in the on that, on the the submissi basis of to enumerated of primary requirements his alternative ECT, the the Mr. expropriationof rightsKardassopoulos’ out was carried in unlawfully, treaty. Tribunal’s the the of that the of breach view Mr. In expropriation finding of investmen tKardassopoulos’ was unlawful, as it violated at least one of the prescribed aconditions for lawful expropriation, it is in Tribunal’s tothe opinion unnecessary this expropriation last Kardassopoulos’ element Mr. address of claim. Mr. on the expropriated determines Respondent al that the foregoing, Tribun the Based by unlawful expropriation was that such 178 and No. Decree rights by Kardassopoulos’ the of virtue Respondent’s failure to out thecarry expropriation in accordance with due of law.process The Tribunal a The TribunalThe that notes KardassopoulosMr. also that the argued Respondent’s breach of stabilizationthe clauses JVAin the the and Deed Concession, of the in renders itself, criteria the met otherwise expropriation the whether of regardless expropriation unlawful, 13(1) the of Respondent in Article ECT. The enumerated rejects this claiming allegation, non- a that, as this case are simply not comparable to in those Amoco not simply comparable are this case that documentary record Mr. support to assist Kardassopoulos’ in valuing investment was process, in compensation the points various commission compensation to at the provided unlike in Amoco investment of nationalization the from arising claims consider to established commission fail. too must argument and, event, in any breached tha of commitment. out in contractual breach a carried expropriation must not be Amoco, See See

43 407. 408. 406.

44 , i.e.

(

” re occur even

ncy action; of ncy (3) ”) standard”) contained in

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos FET at para. 302, for this proposition. this for 302, para. at

making; and (4) inconsistency in inconsistency (4) making; and ibid. ,

meant to a be providing guarantee a positive

”). and may may and variousarise from sources, including 133 -

tribunal in Saluka v. Investments Czech Republic -

46 Saluka ” and a violation of the standard may therefo award Republic in Czech v. Saluka

of that standard The Claimant’ssition Po ad hoc

Was Mr. Fuchs Treated Unfairly and and Treated Inequitably?Unfairly Was Fuchs Mr.

4. a. 293. a. Mr. Fuchs submits that the legitimate expectations element of the FET standard is theis standard FET the of element expectations legitimate the that submits Fuchs Mr. dominant element 1997 the 1997 over Georgia period that theadopted measures by alleges various Fuchs Mr. of breach 2004, Georgia’s constitute a totality, inFETconsidered their obligationthrough legitimate of investor’s elements: breach an in key respect (1) four to Fuchs of Mr. insufficie and administration negligent and/or arbitrary (2) expectations; contracts, treaties, domestic law and unilateral government statements. He argues that various of the establishment through expectation legitimate a created Georgia Fuchs for Mr. loss his the of that itduct would compensate con commissions other and investment. of its continuing itsof prompt, continuing adequate tofailure pay effective compensation, requiredand as ECT. 13(1) the termsof the Article of by (“ treatment equitable and fair that the submits Fuchs Mr. / 2(2) the of Article isGeorgia BIT an aautonomous higher requiring Israel standard conduct the of than international level customary minimum law Fuchs standard. Mr. on therelies reasoning of ad hoc the “ is standard the FET that effect the to forincentive foreign investors where a State’s conduct of inappropriateness degree lower “displays a relatively law). international customary at treatment of standard minimum the than - process decision in administrative due to provide failure a State’s dealings with a foreign investor. at parat

Ibid. The Claimants rely upon the UNCITRAL, Partial Award (17 March 2006) (“ 2006) (17 March Award Partial UNCITRAL,

411. 45 46 44 410. 409.

PSEG and and

48 yield saga

- year, zero year, -

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos he Claimants were slow in in slow were he Claimants 89]: -

” in the present case. ”). reference to internal Georgian law law Georgian internal to reference ion Company v. Ecuador v. Company ion

”).

Metalclad responding guarantees in Georgia’s Law Law Georgia’s in guarantees responding

Fuchs’ FET Fuchs FET Mr. Fuchs’ claim, submits that

PSEG OEPC”). one in the Georgian Government bothered to to bothered Government thein Georgian one - 134 - ”. ”. in Relying awards Metalclad on the Corp. v. - Hearing Br. at paras. 88 Mr. Fuchs contends that the considerations identified by by identified contends considerations that the Fuchs Mr. -

d mirrored in Georgia’s own foreign investment statute). This was was This statute). investment foreign own Georgia’s in mirrored d irness [Cl.irness Post are present, to an even greater present, degreeare to an even Occidental Exploration and Product Exploration and Occidental

The facts prove that Georgia’s handling of the compensation process was was process compensation the of handling Georgia’s that prove facts The 47 was also procedurally unfair, because it failed to analyse the claims under the the to the failed it under unfair, because claims analyse was procedurally also supply. toagreed previously it had and that bound was it which laws by was process compensation the of result the that prove also facts The and liquidated Transneft, 178 No. it Decree passed When unfair. substantively value for fair market the Tramex to compensate an obligation triggered Georgia international of customary matter as a arose obligation The GTI. in interest of its standar law (a Concession of and Deed JVA the in obligations contractual the by reinforced on rules law’s international customary incorporated had expressly (which and the cor expropriation for reparation read it. On any view, a delay of eight years in rendering a decision on Tramex’s on Tramex’s a decision in rendering years eight of a delay view, any it.read On (and toassess election belated Georgia’s excessive. and unfair is claims by solely claims Tramex’s dismiss) ultimately In to short, on produce required Georgia Investment). the standard Foreign FET pacta of principle the and law the applicable with consistent result a substantive sunt servanda.” submitting the Nexia Report, but this was due in part to SakNavtobi, whose duethis in was whose but part the Report, tosubmitting Nexia SakNavtobi, 1999 25 May until Tramex to debt million $1.5 GTI’s confirm not officers did thisl fina soon as report as the to swiftly finalise proceeded [Tab 198] Nexia had theClaimants if even Moreover, received. been had item necessary would that claims, their processing in to delay way the minor some in contributed that, the fact or Georgia by caused indisputably longthe delays justifyhardly no bmitted, su was report the when and we will not repeat it here. It is accepted that t that Ithere. accepted it is repeat will not and we procedurally unfair. The Tribunal is familiar with the eight the with familiar is Tribunal The unfair. procedurally “ extreme insufficiency of action of insufficiency extreme Global Inc. et al. v. Turkey, al. et v. Global Inc. tribunals “ these Mexico, In In respect ofthe second element of Mr. negligence arbitrary administrative conduct, through FET breached the standard Georgia “ and Mr. Fuchs summarizesMr. of his alleged position his Respondent’s the of in respect breach and both procedural of instances identifying follows, expectations as legitimate unfa substantive SID Case No. ARB/02/5, Award (19 January 2007) (“ 2007) January (19 Award No. ARB/02/5, Case SID LCIA Case No. UN 3467, Final Award (1 July 2004) (“ 2004) July (1 Award Final 3467, UN No. Case LCIA IC ICSID Case No. ARB(AF)/97/1, Award (30 August 2000) (“ 2000) August (30 Award No. ARB(AF)/97/1, Case ICSID

48 49 47 413. 412.

to the official official

t Georgia oming; (2) it (2) oming; any adequate adequate any tortuous path, tortuous path,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos manifestly inconsistent,manifestly non- 161] - ”, citing by way of example the repeated

135 - - minary point, that the FET standard is point, FET minary that the objective an he standard tribunal in the that case, explained that something [Fuchs Memorial at paras. 159 ” The Respondent’s Position The Respondent’s

ccord him process,ccord due to procedures by the the implemented pointing inRespondent, investor but never implemented. Commissions established to resolve the matter fell apart fell apart matter the Commissions to established resolve implemented. butinvestor never reachedand never conclusions. replaced but Ministers were their responsibilities were not. Correspondence went for unanswered months, if not permanently. Twoindependent audits to quantify investors’ the loss were for,called paid performed, for by Tramex and their findings …. ignored Mr. Fuchs claims that the Fuchs claims Mr. Shevardnadze Government him a led down “ destination:whose signposts an to one all award pointed of compensation”. However, reneged new and all on the regime, assurances. undertakings Georgia under previous in Mr. more importantly, view,Perhaps Fuchs’ the process by which Tramex’s claims the short of 2003 falls 1997 and between Minister to another one shuffled from were “ this process, administration. Throughout competent of minimumlevel statements from the highest levels of Government were made and conveyed failed that Georgia argues Fuchs Mr. claim, his of FET third element the to Withregard to a “ to provide failed to which with 2004 Commission, respect the particular and failed to assessed offer the be Claimant’s would claims information the as to how or participate its decision which it based material on the to see opportunity Claimants an para. at Memorial [Fuchs 169]. its” at conclusion. which itin meetings the reached in his of the of element respect Fuchs claimsFinally, FET Mr. fourth claim, tha “ is that manner a in act to not obligation its violated … transparent, or discriminatory unreasonable forthc would soon be compensation position that: SakNavtobi (1) of official theregarded JVA still as in valid and (3) force; Tramex fully had properly compliedand para. at Memorial [Fuchs Concession of JVA the Deed and under obligations with all its 165]. submits, preli Respondent a The as threshold that the breach international and for with law synonymous customary standard the, particular, Saluka Claimants’ interpretation rejects the of Respondent is high. In that in applying t observing 414. 415. 416. 417.

- – the

453]: judice the the judice . at paras. 452- paras. . at Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos insurance polices against bad against bad polices insurance ibid and NAFTAand arbitralauthorities,

dentified by the Claimants – the Claimants by dentified Compagniet AS v. Lithuania], v. AS Lithuania], Compagniet 50 -

d not reasonably expect a stable political political expectstable a notd reasonably 136 - -

tribunal that claimants are not permitted to use the right to right the use to permitted not are claimants that tribunal

442]. Accordingly, 442]. contends Respondent Accordingly, the that proper - des that a claimant must show a measure inconsistent with with inconsistent measure a show must claimant a that des Genin v. v. of EstoniaGenin Republic fezini

ry much a country in transition from the prior Soviet era. Mr. era. the Mr. Soviet prior from country in transition ry a much ” or to relieve investors of the to of investors or ” in investment. relieve business risks inherent

, Saluka veral ICSID awards, the Respondent the desire wish or veral awards, submits every ICSID that not in a manner that permits host states a reasonable degree of flexibility so that of flexibility so that degree reasonable states a thatin permits host a manner “ on must be given to the prevailing investment climate in Georgia at the time of the time at in Georgia climate investment be the prevailing to on must given environment. In passing remarks, Mr. Kardassopoulos asserts that Tramex was was Tramex that asserts Kardassopoulos Mr. remarks, Inpassing environment. former Prime and Abdulshelishvili fromMr. assurances” given “specific pre not would framework detailed of lack “the that Sigua Minister Georgia ve was aware well were Claimants the that apparent make pleadings Kardassopoulos’ this changing of In their investment. constantly of at time the the uncertainty coul Kardassopoulos Mr. environment, “Much like Lithuania [as Parkerings described in Lithuania “Much like As regards the protection of legitimateexpectations, the Respondent recalls the principle articulated by the Maf more than mere illegality or lack of authority is required to find a treaty violation. violation. treaty a find to required is authority of or lack illegality mere than more Drawing from conclu Respondent the law breach. international to establish a customary inAccordingly, the event of betweenan equivalence these standards, two Respondent the there has to as whether been determination any breacha that position the oftakes this must understoodbe obligation perspective the from international of law, reached and deference of to regulators. domestic perspective submits Respondent a from The further ofthat none the three ofelements this obligation i ofprotection legitimate expectations, for requirement the transparency, and process due has been breached. “ into treaties investment transform to means a as FET business judgments on se Relying to a rise give will state, a host of statement general every nor investor, potential a of be must expectations legitimate of doctrine the Rather, expectation. legitimate interpreted retain thethey ability to to effectively respond circumstances. changing [Counter” Memorial at paras. 440 considerati [ follows as describes it which investment, Claimants’ the ICSID Case No. ARB/99/2, Award (25 June 2001). 2001). June (25 Award No. ARB/99/2, Case ICSID

50 419. 418. 420.

a single Memorial at - be formed on the on the be formed ” [Counter” Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos specific, submitting there bespecific, submitting there could on-

on with the joint venture. The Respondent The on with joint the venture. 137 - - oposition Paisner isthe notas advice makes credible commercial terms as indicated by Mr. Fuchs in his inhis Fuchs Mr. by indicated as terms commercial he he providedevidence by various ministers, former that the

Hearing 66]. para. Br. at Hearing -

investment and that investment law would be made around the law.” As As law.” the around bemade law would investment that and investment to any readily have it apparent been Sigua, would Minister by Prime explained of capable apparently one sophisticated a (especially investor reasonable certain insistingupon statement), that neither former Prime Minister Sigua nor the Georgian Georgian the nor Sigua Minister Prime former neither that statement), or realistic be it would Nor promise. a on such good make could Government would law assume national that to for an investor legitimate one of favour in discriminate law would that national (e.g., investor ofbasis one foreign investor).” The Respondent thus asserts that Mr. Fuchs’ claims to legitimate expectations are invalid, invalid, are expectations to legitimate claims Fuchs’ Mr. that asserts thus Respondent The as they are based on what he subjectively wanted but not to receive, conditionsor assurances that he objectively and legitimately could have expected at the time of his officials to Georgian the as by discounts statements Respondent investment. The government’s approval of the JVA as general and n would bind Transneft with or SakNavtobi agreements expectation that the no reasonable the executive. compensation the liability commission Government admitted during Georgian never by Paisner Moreover, Preliminary on the prepared Co., relying theprocess. Note & that pr contends Respondent a such “ not demonstrated has he because fails claim Fuchs’ Mr. position the takes that or an promise expectation that created or Georgia through its reinforced own actions, on relied reasonably which to assert he his then right to recover 489; Resp. Post para. In to stated the theregard surrounding process,In expectation compensation Respondent the on thecontends, basis oft clear that, as early as September 1995, the Claimants were aware that it was likely that Georgia would claim breach of contract once it learned the facts“true concerning Tramex’s lack of performance 142].” [Am. 344; Bundle, Tab Hearing at Rejoinder. para. claim to expectations concerning to Fuchs’ Mr. contends also Respondent in regard The to failed had Tramex that commission compensation the by decision a of timing the est to commission’s the requ respond for evidence of its expenses, despite repeated requests. to According when Respondent, the Tramex the produced Nexia Dr. report, the of understanding his in excess of far to be claimed amount the found Tevzadze in spent connecti amount that Tramex had 421. 422. 423.

tent with with tent d assurances the Claimants Claimants the

sions merely because Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos hed this obligation. In the the In thished obligation. Hearing 63]. Br. at para. -

it is evident was that nothing there about certain 138 - - .” All the Georgian Government agreed to do, to the according the precise amount of compensation was never agreed upon” [Fuchs agreed never was of amount compensation precise the

on the offace Order 84, No. “ -- In any event, the Respondent submits that all of the alleged assurances concerning concerning assurances Respondent alleged any the the of event, submitsIn that all compensation were made years after the investments were made, and therefore the allege such on reliance in Georgia in investment any make not did Claimants due to Tramex’s review process was to extentRespondent, the claims; and, that any satisfied. were they review, that to attached duties In respect of the amount of compensation that Mr. Fuchs’ could legitimately have legitimately could Fuchs’ amount Mr. that the of compensation respect of In the to receive, expected submitsRespondent claim Fuchs’ Mr. that is inconsis “ that admission his accepted the risk of not being able to reach agreement on terms that were acceptable to them Post [Resp. reimbursement would forthcomingwhether ” be compensation. and consistency faith the Fuchs’ Mr. and of arguments, respect transparency, good In broad or narrow whether a adopts of Tribunal the irrespective submitsRespondent that has Respondent the not breac transparency, definition of that asserting the Georgian the no basis for view, Respondent’s Claimants have in participate to Claimants the permit not it did because transparent not was Government Claimants. the it should compensate deliberations to own whether as their in context the to Claimants the owed was process that no due claims also Respondent The by procedures settlement the established of Georgia, that it wouldarguing novel be and unprecedented if due process rights attached to settlement discus held were they sovereign.with a the that dueevent any In process rights owed were to Claimants,the Respondent the is submits nothing the about that there compensation process question the that to one or lead that would “shocks a manner surprises in of processpropriety the III, at para. 3.4]. Moreover, the Respondent takes the position that by entering into the entering that by position the takes Respondent the 3.4]. Moreover, para. at III, compensation, for criteria the without process specifying compensation 425. 424. 426. 427.

handed”, -

53 ”. The Parties conduct of a less

Each Contracting

exercise the powers t”. The Respondent Respondent The t”. ”). , concluding that this is that, concluding this is 52 ” Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos S.D. Myers I Myers S.D. , ICSID Case No. ARB/02/8, Award (6 (6 Award ARB/02/8, No. Case ICSID , ” (emphasis added).

, ICSID Case No. ARB/01/7, Award (25 May 2004), at at 2004), May (25 Award No. ARB/01/7, Case , ICSID and, subject to its to right and, subject

139 - - , to the effect that an infringement of the standard standard of the infringement an that theto effect , . encourage andencourage create favourable conditions for investments tribunal added to this catalogue the statement by by the statement catalogue this to added The tribunal Saluka

51 ”). S.D. Myers S.D.

The Tribunal’s Determination Siemens v. The Argentina Republic Argentina Siemens The A.G. v.

c) ”);

, in its territory, territory, its in , MTD Equity ,at para. 297. para. ,at

likely as close to the “ordinary” of meaning fair and equitable as one may get. Party shallParty Party Contracting of other investors the by Article 2(2) of the Georgia / Israel BIT requires that “[i]nvestments requires BIT / the Georgia Israel of 2(2) madeArticle by investors of Contracting Partyeach fairshall accorded and be treatment equitable dispute what precisely is required “fairby and equitable treatmen standard. law international customary the with synonymous is standard this that claims standard is Claimants contend The FET that the with not synonymous customary the breached by be but may rather “minimum law standard”, international Tribun / the Georgia BIT, the the notes al of 2(2) Israel to context the Article of Turning “ clause: precedes FET the immediately provision which following its by laws, shallconferred investments admit such the NAFTA tribunal in tribunal NAFTA the requires that “treatment treatment the manner an unjust in rises such to or the arbitrary that is unacceptablelevel international from the perspective egregious nature. egregious the is required Tribunal and inThe inapply accordance to faith, interpret with treaty good meaning to ordinary the to the be of terms given the in treaty proper their context, in and Vienna the of consistent31(1) purpose, and with Article object treaty’s the of light of LawConvention the Treaties meaning the tribunals have “fair attempted of equitable”, producing toand Several parse a catalogue of alternative dictionary meanings, including “just”, “even and legitimate”. unbiased” UNCITRAL (NAFTA), Partial Award (13 November 2000), at para. 263 (“ 263 para. at 2000), November (13 Award Partial (NAFTA), UNCITRAL Saluka MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile v. S.A. Chile MTD & Bhd. Sdn. Equity MTD e.g., See

52 53 51 428. 431. 429. 430. February 2007), at para. 390 (“ 390 para. at 2007), February para. (“ 113 para.

— his

st that any

”

54 on Respondent the which .”

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

the of conduct the host

”). LG&E LG&E

140 - -

ing passage: LG&E Energy Corp et al., v. Argentine Republic Energy Corp Argentine al., et v. LG&E hereinafter as the “Contracting Parties”) “Contracting the as hereinafter

2/1, Decision on Liability (3 October 2006) (“ 2006) October (3 on Liability Decision 2/1, It can be said that the investor’s fair expectations have the following following the have expectations fair investor’s the that said be can It

An investor’s decision to make an investment is based on an assessment of the the on an assessment of based is to an investment make decision investor’s An The Government of the State of Israel and the Government of the Republic of of Republic the of Government the and Israel of State the of The Government “ the at State host the by offered conditions the on based are they characteristics: the by unilaterally one of not may they be established time of investment; the DESIRING to intensify economic cooperation to the cooperation mutual DESIRING to ofbenefit intensify economic both countries, investors by investments forgreater conditions favorable tocreate INTENDING and, Party, Contracting theof other in territory the Party Contracting of either on investments of protection reciprocal and promotion the that RECOGNIZING of tothe stimulation be will conducive Agreement theof the basis present states. in both prosperity increase will and initiative business individual the the of at time environment theof business the state totality of lawand the that expectation investor’s the on as well as investment and equitable fair will be investment theto State subsequent Georgia (referred to (referred Georgia “ “ expectations must be based on conditions offered by or prevailing in the host State at the the in host the State at prevailing or by on conditions offered based expectations must be made. is investment original the time follow the in contained is relies The relevant discussion of legitimate expectations in expectations legitimate of discussion relevant The The Tribunal takes note of the Parties’ respective positions as regards the legitimate legitimate the as regards positions respective the Parties’ note of takes Tribunal The of of which the claim, to form expectations Fuchs’ element appears Mr. gravamen The standard of FET in Article 2(2) must therefore be understood in the context of this in context the this understood of be must therefore 2(2) in of Article FET standard The Saluka investment. the As foreign of theretention and inflow encouraging aim of The Treaty’s preamble sets out its object and purpose as follows: sets preamble as Treaty’s The purpose out its and object to inve decision investor’s an for basis the provisions form explained,tribunal such territory: particular not – in a or claim. claim. the particular, In contendsRespondent that Fuchs’ Mr. FET claim, centered itas requirement to the it not conform does because fails expectations, is on legitimate in thetribunal by articulated . at para. 301. para. . at Ibid ICSID Case No. ARB/0

54 55 435. 434. 433. 432.

Pey Casado y Casado y Pey recisely to modify the to modify recisely

.” ar compensation process, process, compensation ar time at which they arise for for arise they which at time

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos , emphasize that, just as in as just that, , emphasize to be particularly helpful in particularly helpful to be

Saluka Saluka

where a simil

57 discrimination. […] discrimination.

- 141 - cific assurances of compensation alleged to have - ”). Casado Pey

itations upon the notion of fair and equitable treatment equitable and notion fair of upon the itations .” ail to consider parameters such as business risk or or risk business as such parameters toconsider ail handedness and non and handedness -

; they must exist and be enforceable by law; in the event of infringement of infringement in the event law; by be and enforceable exist ; they must ffects the investors’ investment, reasonably justifiable by public policies and and policies by public justifiable reasonably investment, the investors’ ffects

A foreign investor protected by the Treaty may in any case properly expect that that expect properly case inany may the Treaty by protected investor foreign A the Czech Republic implements its policies bona fide by conduct that is, as far as as far as is, that conduct by fide bona policies its implements Republic the Czech it a of consistency, requirements the violate manifestly not that does conduct such even transparency, “ parties for except arises damages for investor the compensate to a duty State, the host by fair investor’s the however, necessity; of state of event the in caused those f cannot expectations patterns industry’s regular , the assurances of compensation in this case were designedp ntended to induce reliance, and the Respondent accordingly submits there can be no can submits be there Respondent the and accordingly reliance, to induce ntended In the present case, although the spe the the presentalthough case, In understanding the potential sources of expectations, potential of the the understanding and sources the Tribunal Georgia, in investment initial his after Mr. to Fuchs came given years been the of element expectations the legitimate of interpretation Respondent’s the considers to presuppose lim standard FET the of terms the with inconsistent that are and law of matter as a established not are that proper in read their context.BIT The Tribunal Tribunal passage inThe finds the following The Claimants, thanrather The seeking to distinguish LG&E The purported assurances by Georgian government officials that Mr. Fuchs would be Fuchs would be that Mr. assurances governmentGeorgian officials purported The by compensated for his losses were made many years after his initial investment and were not i on this breach ground. LG&E Claimants’ behaviour, anddid, in they fact, take of step the foregoing private law claims in reliance on those assurances. The Claimants also on therely award in Chile v. Allende de Presidente Fundacion expectations. legitimate create to held was initial investment, the after years initiated the purpose of asserting the breach of a treaty standard: . at para. 130. para. . at Ibid (“ 2008) May (8 Award No. ARB/98/2, Case ICSID

56 57 439. 438. 437. 436.

- 58 à - decision n States

61 hroughout the the hroughout edness non- and hand treatment that does not that not treatment does Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

”). ”). Sempra tionalEnergy Argentina Interna v. nitially begun in the spirit of reaching an of reaching spirit the in begun nitially

Sempra

er GTI’s property nor its rights would be nor be would GTI’s its property rights er Tecmed 142 - -

25. - (28 September 2007) (“ 2007) September (28

Award (29 May 2003) (“ 2003) May (29 Award , 2 /

Similarly, the tribunal in the tribunal Similarly, 00 59 ,at ,at paras. 124

.” determined that measuresdetermined the in question “substantially had changed legal the

LG&E

60 and business framework which the under investment was and decided implemented. wasis business now there opposite.” the and stability, certainty Where there Applied to the present case, the fact that it was after the investment was made that made was the investment after it was that the fact case, present the to Applied specific assurances of compensation were given, which assurances gave rise to a specific from holding Fuchs t compensation,Mr. notexpectation of preclude does As the tribunal inTécnicas tribunal the As Medioambientales Tecmed SA v. United Mexica “ providing of consists FET to provide obligation explained, the to foreign investor make the by account into expectations that taken basic the were affect the investment vis itself would conduct that Georgia expectation the legitimate investment his of term Republic the confiscated in or State and, by expropriated event, such reimbursement would be not loss only for of for also profits. forthcoming but amounts potentially invested the to have process i compensation The appears vis his investment in a manner that was reasonably justifiable and did justifiable and reasonably that was not manifestly manner vis his investment in a transparency, - requirementseven basic consistency, violate of the of discrimination. view in This the includes, implementing compensation Tribunal, a and that is both procedurally rights the GTI’s expropriation following of process fair. substantively the in out set treatment of based standards claim on the a Fuchs advances Mr. Although / (as JVA Article the provision), toGeorgia BIT 12 of Israel its opposed expropriation assurances provided stabilization (the Concession of clauses) Deed the 21 of Article and neith that Claimants both to principle in amicable settlement consistent with what Mr.Fuchs may reasonably have expected, ordered formation the Shevardnadze having President commission “ a to of a find at para. 303; 303; para. at

. at para. 154. para. . at Award No. ARB/02/16, Case ICSID Ibid. ICSID Case No. ARB(AF)/ Ibid

60 61 58 59 441. 440. 443. 442.

investments [Hearing Bundle, [Hearing

examine Mr. Mr. examine - espondent, to be consistent toespondent, consistent be Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Hearing Br. at fn. fn. Br. at 153]:Hearing - 1996 that the Claimants would be would the Claimants that 1996 - For example, as well as electing not to to not electing as as well example, For

ndle, ndle, despite 17].Tab thisLamentably, initial 8.7, Gur II para. 1.5, and Gur IV paras. 5.1 IV paras. and Gur para. 1.5, II Gur 8.7, .” [Hearing Bundle, Tab 22]. Order No. 84, by by 84, No. 22]. Bundle, Tab Order [Hearing .” 143 - - lity for the matter combined to result in an overall overall an in result to combined matter the for lity GTI’s rights were given, was unhappy with the proposition with proposition the unhappy was given, rights were GTI’s examination, Georgia also failed to cross failed to also Georgia examination,

” [Hearing Bu - suggested (based solely on the wording of Order No. 84) 84) No. Order of wording the on solely (based suggested

diting firm would be hired to conduct an audit of the “ the audit of hiredditing an be would to firm conduct imply that the commission would review Tramex’s expenses in expenses Tramex’s review would the commission that imply his is confirmed by the written evidence of Mr. of Gur, states written also by the who evidence confirmed his is lf [Hearing Bundle, Tab 165]. Tab [Hearing lf Bundle, Whilst Georgia Whilst 23]. T call Mr Gur for cross Mr Gur call 5.6] treated in the most civilised manner, and would receive either a replacement replacement a either receive would and manner, civilised most the in treated to of the value their equivalent full compensation or else interest in GIOC 8.4- [Gur I GTI. paras. interest in received assurances compensation of full assurances received “[] Mr. Gur’s uncontradicted testimony establishes that President Shevardnadze Shevardnadze President that establishes testimony Gur’s “[] uncontradicted Mr. mid 1995 and in November him assured made Georgia that notable is it expenses, reimburse to only offered Georgia that who witnesses Claimants’ the of evidence direct the challenge to attempt no contrast, provided s provided contrast, Georgia expenses.” and of such “determine a possible reimbursement instruction, the spirit of settlement appears to have diminished over time as lengthy lengthy as time diminished over have to appears settlement of spirit instruction, the internal and officialsvarious matter, the by refusals to address government delays, responsibi carried who disputes over duty the to provide for andcompensation disregard the process of obfuscation compensation. draft original Order in response toThe prepared Shevardnadze’s President’s instruction contemplated that an au costs and applied rights, its Georgia, International in Tramex company out by carried of volume futurelosses compensation that Mr. the indicates Chanturia, Dr. of clearly Tevzadze evidence 24]. oral Tab The to whom GIOC, of President Tramex let alone full value the compensating for anything, Tramex for compensating of [see Order in final the reflected change the for responsible was that he and itsof rights, D8:45:5- Tr. that Mr. Chanturia was entrusted with the “negotiation details” following the adoption of adoption of the following details” “negotiation with the entrusted was Chanturia that Mr. 8.7], 178 [Gur a by Mr. No. documentand contemporaneous prepared para. I, Decree himseChanturia acceptable for all parties the acceptable of concerning assurances of evidence the summary following finds the Tribunal The Claimants’ witnesses, Government the the of Georgian to by various given compensation R the was not by in challenged this regard testimony whose of [Cl. own record the with Tribunal’s the analysis Post 444. 445.

arbitrary eli and Mr. eli and Mr. [Emphasis added.] [Emphasis

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ” 2.17; Nanikashvili III para. III para. Nanikashvili 2.17; transparent, arbitrary and unfair. The and arbitrary unfair. transparent, - vardnadze in 2003 exposes the process process the in 2003 exposes vardnadze

r, the record shows that the Claimants did the Claimants that shows the record r,

examine Mr. Batkin, whose uncontradicted uncontradicted whose Batkin, Mr. examine - 144 - - r period following the formal following the establishmentperiod r a of

the process would be forthcoming. While the Claimants complied with with complied Claimants the While forthcoming. process would be the ny establishes that Mr. Mirtskhulava and other Government officials officials Government other and Mirtskhulava Mr. that establishes ny

was carried out, even allowing for some delay on the part of the Claimants in Claimants the in of part on the some for delay out, allowing carried was even ntly met with a circular response in which a resolution of the matter was ordered ordered was matter the of resolution a which in response a circular with met ntly Zubitashvili repeatedly assured him that full compensation would be paid to to be paid would full that compensation him assured repeatedly Zubitashvili - 2.10 paras. II [Nanikashvili its losses. for Tramex not cross did Georgia 5.7] Similarly, testimo a commitment compensation: full to provide 2003 May 19 on committed [Tab234] 2003. 2 June of letter Mr.in Batkin’s recorded Nanikashvili on his evidence dealing with the compensation process, including including process, compensation the with dealing evidence his on Nanikashvili Tseret Mr. Basilia, Mr. Tevzadze, Professor that testimony his

from the highest level of the Georgian Government only to be avoided or passed off by or off avoided passed to be Government only of level Georgian the highest the from such resolution.a individuals with the effecting tasked Over the course of a seven yea for the farce that it had become [Hearing Bundle, Tab 230]. While some relief appeared each request in an effort to settle thematter of their investment amicably, arranging for were their firms, efforts accounting by reputable two audit reports of preparation the consiste submitting documentation of their claims. The record shows that the Claimants were were Claimants the shows that record The claims. their of documentation submitting asked forrepeatedly documentation their of expenses in and Georgia told that a of conclusion process, Tramex’s compensation for one shuffledresponsibility from was claim progress. overview An this toof without ministry process any government another, She Mirtskhulava President Mr. for by prepared There is noThere moreover defence, on the evidence presented, for delay the thewith which process relevant questionrelevant is not the Georgian whether Government had obligation an to include Rathe deliberations. their in Claimants the The process The ultimatelywhich unfolded following constitution the of compensation non as described be only commission in 1997 can substantially participate process, bothsubstantially formally compensation in the 1997 the when was after removed informally Fuchs and Mr. itsCommissionfrom roster. established was Georgia was, however, obligated to act reasonably, transparently inand non- a demonstrates not, that this is record the on evidence Claimants. the The towards manner transpired. what in fact, 448. 447. 446.

ster of responsible for theresponsible for

8.7; Tevzadze testimony, Tr. 8.7; testimony, Tevzadze Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

as elected and anotheryet State commission on the admissions made by the Georgian Georgian by the made the admissions on tter. tter. Thisdisposition wholly however, was, 145 - - mmission had apparently resolved that Georgia bore no no bore Georgia that resolved apparently had mmission

s 230, 232, 233, 235; Gur I, 8.4- paras. I, Gur s 230, 232, 233, 235; 24]: owned entities, rather than by the State itself. State the than by rather entities, owned - -

te commission in in commission by thete Sta adopted the that approach I help remark cannot but in Fuchs Mr. to and me given express acknowledgements the 2004 contradicted Georgian by the agreement the and Mayon 2003 19, our meeting during Tbilisi compensation. determine to be engaged process party a third that Government the allowed Government the as confirmed seemingly was process faithOur in the without planned, as months the ensuing over to proceed appointed auditors inconsistent also was response The State commission’s raising any objection. based with clear understanding, my officials I had met, that Georgia regarded the obligation to Tramex as something as something to Tramex obligation the regarded Georgia met, that Iofficials had cancellation (the conduct own the Government’s of asresult a whicharisen had Oil. by Georgian conduct and not rights) of GTI’s “I recall that, in October 2004, the Georgian Government established yet yet established Government 2004, the “I Georgian recall in that, October commission’s The issue. Tramex the toexamine commission State another Mini First Deputy the though by sent a letter werecommunicated findings 15, on November firms Arps theto Skadden, Guershidze, Ekaterine Ms. Justice, and all the assurances from a complete turnaround […] was letter 2004. The previous the during Government previous the by into entered commitments co the short, In years. entered been had Concession and venture the Joint because toTramex liability into by State Mr. Batkins’ uncontrovertedMr. provides succinctevidence a summary of the of the Respondent decision final the received Claimants the which with disappointment paras. 22 [Batkin I, The Tribunal finds inexcusable the categorical denial of any responsibility denial obligation any or of categorical the finds inexcusable Tribunal The towards the Claimants, which came eight years after Georgia initiated the compensation that senior discloses evidence this the period, throughout so since, All mo the re process. members of the Georgian Government believed that theState was to be onto be horizon the for the Claimants following Kissinger’sMr. intervention in 2003, the tide turned again as a new government w in accomplished commission This claims. Tramex’s of matter the consider to established monthone what previous each commission found had itself incapable of – accomplishing disposition final Tramexthe the of ma thatClaimants’ losses and amount of some compensation owed to was them [see e.g. Hearing Bundle, Tab Tr. testimony, D6:150].D8:64; Chanturia unacceptable. 450. 449.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos refore considers it most efficient to efficient it most considers refore

to producing an amicable settlement, have, have, settlement, amicable an producing to sation commission process.

146 -

Supsa Pipeline or the Future Pipelines and to derive profits profits derive to Pipelines Supsa and Future the Pipeline or -

eve that the process had ultimately become a victim of the change in victim of in the had ultimately become a change eve process the that The Respondent’s Position Respondent’s The so far, led to nothing.” nothing.” to led so far, 1. Government, with the assurances given by one Government simply ignored after after ignored simply Government one by given assurances the with Government, efforts, my that disappointed I remain elected. been had Government a new close very seemed point at one which Causation I beli

fically, the Respondent claims the Claimants have failed to demonstrate that, but for for but that, demonstrate to failed have Claimants the claims Respondent the fically, le 2(2) of the Georgia / Israel BIT.

he Respondent submits as a threshold proposition that in order to be recoverable the recoverable to be proposition submits threshold Respondent that in a order he as Georgia’s alleged conduct: (i) Tramex/GTI would have been able to construct and/or and/or to construct able would been alleged have conduct: Tramex/GTI (i) Georgia’s operate the Gachiani T theconduct. infringing State’s been by the caused have In Claimants’ losses must proof. of burden their not discharged Claimants the submission, have Respondent’s Speci Based on the totality of the evidence, the Tribunal has no hesitation in finding that the Tribunal the no hesitation in finding has of totality evidence, on the the Based to afford as to equitable Fuchs failed pursuant fair Mr. Respondent treatment required and Artic finds, also matrices overlap in factual Tribunal the the considered treaty having The and to essential establish the ingredients Claimants’ shared required the in particular, and, respective fair and equitable treatment in claims connection with the compensation Kardassopoulos Mr. and failed fair Respondent to that the afford commission process, / and BIT Greece Georgia the of 2(2) to Article pursuant required as treatment equitable recovery double Claimants’ submissions on the of view ECT. In the of 10(1) Article Mr. of that part in of respect only is made paragraph this 242 above), finding (see by incurred expenses the of his share maintains for he which claim Kardassopoulos’ compen in the participating while Tramex D. that this in out, set understanding in submissions are which Parties’ the order the reverse no way alters the burden respectively held by the Parties as explained in Part V.A.2 of the Award. Whilst the Claimants hold the burden of proving their loss in accordance with loss their proving in accordance of burden hold the Whilst Claimants the positive several advanced has Respondent the causation, of principles law international the Tribunal The causation. of in respect arguments 454. 451. 452. 453.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ”). Biwater

80 (“

62 ” 147 - -

he Respondent further submits that not even Brown Root the had & submits Brown Respondenthe that not even further

hrough either litigation or arbitration. or litigation either hrough uture oil exportsuture in witness the discussed Messrs. as of statements Cook and on, the Respondent avers that the Western Route was never a certainty, nor was nor certainty, a never Route was Western that the avers Respondent on, the Put another way, the claimant must show a link between the wrongful act and the the and act the wrongful a link between show must claimant the Put way, another diminished was investment its of the “value that prove must rather or damages, and the actual were actions] [compla of theined that …or and eliminated diminution… such of cause proximate “compensation for any violation of the BIT, whether in the context of unlawful unlawful of in context the BIT, whether the violation of any for “compensation there if be due will only standard, treaty of any other the breach or expropriation loss the and BIT the of breach actual the islink between causal sufficient sustained. any accommodation ofany Claimants, upon the evidencerelying of the geopolitical a oil as pipeline early the for developing strategy AIOC’s and region the conditions in pilot f for Effimoff. expert Mr. report the of and Adams required skillsrequired to own and the operate pipeline, claiming that their of“back the envelope” to its secure regards ability particularly as throughput agreements. inadequate, was plan additi In shoes, into have GOGC’s stepped never could contends also Respondent that GTI The that fees transit AIOCthe to has not paidentitled therefore is GOGC and for the Western the that the that failed to Claimants prove Route. argues Specifically, have Respondent the had right underGTI JVA the the or to Concession enterDeed of into leasing a On the basis of the On this formulation, Respondent the submits proposed that the transaction in pipelinethe of Claimants’ inexperience because materialized would not have T development. therefrom; (ii) Tramex/GTI would have been able to stand in GOGC’s shoes and receive have would Claimants the (iii) or seek; now Claimants that the fees transit the of all unspecified damages by pursuingrecovered claims SakNavtobi AIOC, against and Transneft t falls that question on the Claimants’ case argues the causation Respondent Thus, the of Tribunal’s that the and of to analysis becausation by ought in analysis the guided following the ublic Ltd. Rep United citing of v. Tanzania, Biwater Gauff (Tanzania) passage from that award: ICSID Case No. ARB/5/22, Award (24 July 2008), at para. 779- para. at 2008), July (24 Award No. ARB/5/22, Case ICSID

62 457. 458. 456. 455.

” [Am.

”). t or indirect is not not is indirect t or

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ifically, the Respondent the ifically, submits The Respondent avers that the that the avers Respondent The S.D. Myers II Myers S.D. pipeline or, alternatively, that could alternatively, GTI or, pipeline and argue that the same principles apply

cannot properly be attributed to any unfair unfair to any attributed be properly cannot Supsa - 148 - -

t the Claimants simply made a bad investment of a high of investment a made bad simply t the Claimants t foreseeability in the sense used in the law of contract. contract. of law inthe used sense inthe tforeseeability

nquiry in this case is more akin to ascertaining damages for a tort or or a tort for damages ascertaining to akin is more case in this nquiry The Claimants’ Position Claimants’ The The I delict. The damages recoverable are those that will put the innocent party into into party put innocent the will that those are recoverable damages delict. The The passed. been not interim measure the had been in have would it the position no isfocuscausation, on is That recoverability. of range the limit may foreseeability law, In contract the is the key. Remoteness of delict. in thelaw or not case tort too are not 11 and Chapter engage event, the by caused were they If appropriate. “ direc are damages whether as to a debate Similarly, 2.

The Claimants argueThe losses, that while in order to recoverable,be musthave been caused infringing this does issue conduct, the not obstacle State’s present an in by to recovery in award from NAFTA the passage Claimants following the quote The case. present the Myers, Inc.S.D. v. of Canada Government , here: arrangement in respect of the Gachiani have leased its rights to AIOC under the terms to the leasedits achieved. that GOGC under rights have AIOC Finally, the Respondent submits that neither of the Claimants suffered any a damage as any Claimants suffered the of Respondent the neither submits that Finally, alleged the breaches the of of result FET standard. Spec the FET of the breach to attribute specifically Claimants the which damage only the that is value law the of saystandard claims private the they that they broughtcould have in 1995. AIOC and Transneft SakNavtobi, against “ claims those bring to failure Claimants’ upon based presumably their own choice, was part, but on Georgia’s rather conduct than Georgia g to with negotiate seekin from more stood to gain they their own that belief and uncertainties defects (and so many from whichsuffered from pursuing legal claims where they may well have been left with significant adverse costs exposure). 479]. para. at Rejoinder Respondent The concludes tha risk nature without adequate experience and with no profit. and of without experience adequate guarantee risk nature UNCITRAL (NAFTA), Second Partial Award (21 October 2002) (“ 2002) October (21 Award Partial Second (NAFTA), UNCITRAL

63 461. 459. 460.

.” ory Supsa - Hearing - , denying in, denying ” causation in cases .” [Cl. Post .” nt’s causation arguments: nt’s causation arguments: Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos taken rights the of the loss speculative

149 - -

by their very nature cause introduced a newintroduced requirement “ of ion of the rights, not causation. In that case, the not the athat case, causation. had rights, claimant the ion of In

64 y valuable as of the valuation date and neither the JVA nor the Deed the nor JVA the neither and date valuation the of valuable as y Biwater Biwater

Hearing Brief, the Claimants characterize the Respondent’s causation the -

. [u]nsurprisingly, the ICSID tribunal” and ICSID the “[u]nsurprisingly, found would no that be there Hearing Br. at para. 93]. 60. - was the valuat -

remote, remote, there is in nothing language the of 1139 that Article their limits .” recoverability 59 worthless business that was about to be taken away from it anyway [as it was was [as it anyway from away it taken be to worthless was about business that Br. 96] para. Br. at other words, on theIn valuation the date, expropriated had asset no Reviewingvalue. the in the evidence present arbitrations, Claimants the that contend ver were rights their of Concession had been terminated, which is altogether different from the rights at issue issue the at from different rights is altogether which terminated, been had Concession of in Biwater [Cl. Post factsthe distinguish of Claimants theThe present case from those in Biwater any event that in result the dictated to Claimants, issue which the the expropriation. According of Biwater “ insolvent] rights anything for to the pay prepared willing buyer hypothetical In their Post their In (1) Georgia was was preferred Georgia a oil the route (1) for early AIOC main export and pipelines; (2) & Brown pipelines; (3) Georgia’s to access in order with GTI negotiated would have capability tod build financial an operate and technical Root the the had Baku market fair of assessment the to that inapposite is element speculative a introducing as value in treaty claims generally or in determining whether an expropriation has caused a to to the do in nothing loss. expropriation has Claimants, claims According causation aboutwith speculation mightwhat have happened in the the future had not been rights expropriations “ seized. Rather, The Claimants advance four Responde propositions the to rebut Claimants advance The pipeline; and (4) hadpipeline; and the oil pipelineearly with remained GTI, it would have been viable profitable more under it probably than AIOC. was and at paras at 1

Ibid.

64 464. 463. 462.

xplained ts of the of ts tribunal e tribunal

an internationally wrongful internationally an

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos t no compensation would be is fac on the inapposite

e bee no real questioncan that but gation to male full reparation for for full reparation male to gation

which establishes that a State is under an an under is State a that establishes which

150 - -

, relied upon by the Respondent, upon by , relied

The responsible State is an obli under State The responsible the by caused moral, or material whether damage, any includes Injury

The Tribunal’s Determination Tribunal’s The

“Article 31. Reparation “Article 1. act. wrongful internationally the by injury caused the 2. a State.” of act wrongful internationally “[b]y the beginning of May 2005, and before the events that begin on 13 May May 13 on begin that events the before and 2005, May of beginning the “[b]y in and was the process termination underway, 2005, contractual the normal the of Lease termination in the all view, circumstances, Tribunal’s Arbitral – weeks of matter a within materialise to going was and inevitable was Contract quite apart from the events that as occurred then of 13 May 2005.” 3. at para.at 791.

present cases. In that case, the Tribunal any link” of Tribunal “factual the that case, absence focused on the cases. present In the that wrongful damage suffered, ofbetween acts the offinding as and date the Biwater The no economic value. expropriation, investment had the James called tribunal in Professor aid on ArticleThe Commentary 31 Crawford’s Biwater Responsib ility, on State Articles the of injury caused the for reparation by full to make obligation Article follows: Specifically, as act. 31 provides for the Respondent’s the conduct, Claimantsfor the would suffered loss their the of not have rights. Whatever contractual rightsthe Claimants possessed as a result of their The proverbial deathblow. , the 178 withNo. Decree disappeared investment in Georgia in of Justice Ministry the of Gureshidze Ms. from letters withthe shut nailed was coffin had Respondent the that finally and no liability stated December 2004, which November in respect of the claimsmade by Tramex and tha towards liability the The repudiationGovernment’s any Georgian of forthcoming. Claimants was a clear breach of their rights under international law. in Biwater award The that, On the matter of that finds matter causation, the Tribunal On the ther . at para. 785. para. . at Biwater, Ibid

65 66 467. 466. 465.

t the t the

he d was a direct , Report adopted by by adopted , Report vol. II, Part Article 2,

his should been have [Emphasis added.] [Emphasis Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos others “foreseeability” or or “foreseeability” others

cessary but not a sufficient condition condition not sufficient a but cessary

caused the loss of GTI’s rights and, a rights and, loss GTI’s the caused of

151 - t, but without the addition of any particular any particular of the addition without t, but - deliberately the lossthe that Mr. Kardassopoulos suffere uncertain to be appraised”, or to “any direct loss, loss, direct orto “any appraised”, to be uncertain

and and

67 .

must exist between the wrongful act and in for the theact order between the injury must exist and wrongful

e law which can be satisfactorily solved by search for a single verbal verbal single a for search by solved satisfactorily be can which e law The notion of a sufficient causal link which is not too remote is is remote too not is which link causal a sufficient of notion The

qualifying phrase embodied in the general requirement in article 31 that the injury should be in in be should injury the 31 that in article requirement the in general embodied ac of wrongful the consequence “The allocation of injury or loss to a wrongful act is, in principle, a legal and and a legal inis, principle, act to a wrongful or loss injury of allocation “The the describe to used are terms Various process. causal or a historical not only which link losses to made be may reference example, arise. For to reparation of obligation is which or to damage cause”, [the as a proximate act wrongful] to “attributable and remote, “too indirect, resources natural theof depletion and damage environmental including damage the of” result a as corporations and nationals Governments, foreign to injury or ne a factis in causality Thus, act. wrongful injury of exclusion the with associated element, is a further There for reparation. In some reparation. of subject the to be or “consequential” tooisthat “remote” in used, be may “directness” of the criterion cases, State whether example, for be relevant: also may factors But other “proximity”. caused harm the whether or question, in the harm caused deliberately organs t to regard having breached, was which rule the of ambit the within was not link is a causal of requirement the In words, other rule. that ofpurpose obligation. international an of breach every to in relation same the necessarily not “is damage of remoteness of question law, the national in as In international th of a part formula”. In this case, the failure to provide adequate compensation following adoption of Decree adoption compensation Decree following of failure to the adequate this provide case, In directly had 178, which No. of violation clear a is Georgia, in investment entire Claimants’ the of loss the time, same duties Claimants. Respondent’s the isthe no questiontowards There or of remoteness foreseeability of damage here – GIOC, of with establishment the process that began the of consequence foreseeable and No. Decree through 477, and in theculminated of cancellation GTI’s rights in favour of pursuant GIOC, Decree 178. As No. matter t a of law, international the loss that Mr. not. Similarly, was but payment it the compensation, of by followed awas BIT / Israel provision Georgia the FET the in of breach through sustained Fuchs ablishment of a causal link between causal link a between ablishment of the to est respect with 31 Article to Commentary The damage sustained act and wrongful provides: a Draft Articles on Responsibility of States for Internationally Wrongful Act, with commentaries with Act, Wrongful Internationally for States of on Responsibility Articles Draft

67 469. 468. 31, Commentary para. 10. 10. para. Commentary 31, U.N. General Assembly, A/56/10, in Yearbook of the International Law Commission, 2001, Commission, Law International the of Yearbook in A/56/10, Assembly, General U.N.

ddress what the contractual

ssue here effectively s conduct throughout s conduct throughout d haved expected a very

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos on which Decree No. 477 was 477 was No. Decree on which

) the clauses in i 68

152 - - TOPCO v. Libya

The Claimants’ Position

a) The Effect of the Stabilization Clauses on Damages Clauses Stabilization the of Effect The 1. Quantum

t the stabilization clauses in the JVA and the Deed of Concession do not affect the do Concession of not affect Deed in JVA the the and t stabilization clauses the

bring in Chorzówbring the Factory standard of compensation. Moreover, Section as 12.1 of Claimants the from, derogated be shall not therein principle the that JVA establishes the JVA woul one the Section 12.3 of that in construing contend The Claimants note that they have brought claims Claimants treaties, their that they not note The under direct and foreseeable consequence of the Georgian Government’ Georgian the of consequence foreseeable and direct relief in in denial 2004. the any of culminating commission compensation process, the foundHaving that the Claimants valid held subsistingand rightsin the early oil pipeline, date 1995, the as export 11 November of rights, including on Respondent the 20 February taken were by GIOC; rights that these creating passed Decree1996 through No. 178; that the Respondent under was legala duty following that loss caused to fulfill that duty failure the and Mr. Kardassopoulos to compensate taking to Kardassopoulos; Mr. that and Mr. Fuchs unfairly treated was and inequitably, breach in a / on 10 December Georgia culminating the of BIT 2004, which Israel also treatment caused loss to Mr. will Tribunal nowFuchs, the a Respondent. the to Claimants is the by due compensation E. Claimants submitThe is due that compensation to scale them on the applicable generally in law takings of of respect foreign Claimants property. The international submit in also that private parties cannot contract by vary customary international law or a formula view, their in the follows, ECT. as such It treaty in States multilateral a among to agreed tha the of 13(1) violation Article a of for damages the of is toRespondent liable pay measure ECT. the clauses, however, contractual the language of the Considering stabilization clauses. stabilization internationalised where cases other many in as that contend Claimants clauses have been revoked (e.g. Award (19 January 1977), 17 I.L.M. 3 (1978). I.L.M. 17 1977), January (19 Award

68 472. 470. 471.

the

”. The”. Claimants event cannot be said to said be cannot event tion clauses would not, would tion clauses slation applicable and on. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos rrying out improvements, additions or sed Fund and amounts any in anyinvested

the propertythe rights of are the Joint venture 153 - - ”) in reparation for expropriati an ard profits of would be than permissive mandatory and rather that, The Respondent’s Position The Respondent’s

b) standard. In their In Chorzów standard. the from Factory to “subtract” in order explicit derogation damages a JVA not the Articleaward. cap of of 12 and amplify terms the view, stabiliza the that submit Claimants the position, alternative an As dictate any event, award. inSection different any JVABoth the 12.1 of and Section 21.1 Deed of the of Concession that provide “ in accordance legi withprotected Georgian regulations of international law and public ofinternational treaties conventions international that both law lawcustomary contend and require at of Georgian payment least Fair Market Value (“FMV do, in fact, stabilization clauses that the view opposing the takes Respondent The an therepresent agreement to Parties limitby damages for expropriation. of The effect to expectation legitimate no e can hav is Kardassopoulos this that Mr. interpretation to Respondent, the JVA in the those than for itself. According provided damages greater theSection 12.3 of JVA in the of provides, event expropriation, foran full reimbursement Claimants’ the of contribution to Authori the Concession of provides Deed the 21.3 of Section JVA. the Similarly, by covered projects on managing, for amounts expended isany entitled to full reimbursement that GTI maintaining the or or operating pipelines, ca extensions thereto. the in profits lost expenses or other that provision for argues further Respondent The Parties’ the reflects invested, amount the of reimbursement until discretion, arbitrator’s agreement that an aw the of life short not entire a the event, profits and such for duration paid would be in any JVA Concession. or damages, do not cap clauses the submission to Claimants’ that the Referring JVA ECT the were Concession did that the notes not and Respondent existwhen Mr. ECT in the his 1994, Kardassopoulos made after signed well Georgia As negotiated. facto that this contends post Respondent investment in 1992, the 473. 474. 475. 476.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos erein to other persons or or persons toother erein

re. tional amounts as reimbursement of of reimbursement as amounts tional

154 - -

expenses or in respect of loss of profits.” of loss of respect inor expenses The Tribunal’s Determination by an arbitrator to be appointed pursuant to the provisions of this this of the to provisions pursuant to be appointed by an arbitrator

eign Partner in any Projects, bearing interest on the free market value value market free the on interest bearing Projects, inany Partner eign c) Any purported attempted or alleged act or event of expropriation, confiscation or or confiscation expropriation, event of or act alleged or attempted Any purported rights shall be and null Venture, or its its of Joint property the nationalization the for reimbursement full to Partner Foreign the entitle forthwith shall and void, invested and any amounts Fund Authorized the to contribution Partner’s Foreign by the For full in reimbursement such until and is higher whichever investment, of such rentals, fee, users of such topayment Partner Foreign the entitle forthwith shall to be byan arbitrator shall be determined as nsation compe other or royalties in period any during this Agreement, of provisions to the appointed pursuant out carried being are acts or alleged attempted purported, such which any against the rights of a ofproperty the Joint Ventu The arbitrator may also award anyaward addi also may The arbitrator profts.” of loss of respect in or expenses Agreement, during any period in which any such purported, attempted or alleged alleged or attempted purported, such any which in period any during Agreement, thereof. part any or Pipelines the against out carried areacts being Any purported attempted or alleged act or event of expropriation, confiscation, confiscation, expropriation, event of or alleged act or attempted Any purported th rights of grant or Pipelines the of nationalization right to the receive GTI entitle forthwith and shall be and void, null entities shall or operating inmanaging, GTI by expended amounts any for fullreimbursement s addition or improvements, out carrying or in Pipelines the maintaining or expenses ofsuch value market thefree on interest bearing thereto, extensions to GTI entitle forthwith shall full in reimbursement such until and investment be shall as compensation other or royalties rentals fee, users of such payment determined The Partners hereby stipulate that the rate of the rental, users fee or royalties to to royalties or fee users rental, the of rate the that stipulate hereby Partners The Joint the of revenue of the percent fifty least of at rate inthe be shall awarded be as amounts additional also may any award The arbitrator Venture. of reimbursement

The Tribunal addressed the Parties’ arguments concerning the Claimants’ legitimate legitimate Claimants’ the concerning arguments Parties’ the addressed Tribunal The JVA the 12 of on Article based rights their of taking the for compensation expectations of Similarly, Section 21.3 of the Deed of Section Concession follows: Deed as the 21.3 of provides Similarly, have influenced influenced Mr. have what to Kardassopoulos legitimately expected makingreceive when his investment in 1992. contain Concession of stabilization JVA Deed the and that both recalls the Tribunal The clauses in whicheither is, investment contemplate Claimants’ the which in a situation orwhole in part, expropriated or nationalized by Georgia. Section particular, In of 12.3 JVAthe provides: “12.3 “21.3

479. 478. 477.

75]: the relevant

where a treatyis I'mgoing into

it could well be. well could it Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos based. Therefore - that's a different case. I do I do case. a different that's --

s, but we'll stipulate that damages for for damages that stipulate we'll s, but 155 - -

and governments who saw a treaty in front of them and clearly agreed agreed treatya themclearly and saw in frontof who governments and o by contract? Turkmenistan, I know the ECT applie ECT the know I Turkmenistan, this in liquidated be will expropriation clear and a standard, treaty the of foreknowledge if had you that acknowledge and case, different be a would it provision, liquidated damages “PROFESSOR LOWE: I understand the difference between the contract and the the and contract the between difference the I understand LOWE: “PROFESSOR toagree capacity legal the has investor an that position your it Is claim. treaty to do and claim, treaty a in claimed be might that damages to approach upon an s a with agreement into can a concession enter investor An MR NELSON: I'm caveat, to I'll I want think, and things. of It do a number can government. had you if think I cuff, the this, off law on case any there's whether sure not investors an be there might cap on damages, clause, or a damages upon a liquidated that in for that effect, -- argument you the if stipulated, ECT Article 21 of the Deed of Concession in its discussion of liability (see Part V.C.4 Part (see liability of discussion its in Concession of the 21 Deed of Article This finding is without to prejudice host a State and investor’s an ability to contractually expropriation following be an owed may which limit compensation the categorical the denial an such of to is accept loathe Tribunal the inIndeed, also play. arrangement urged by the Claimants as a matter of law. The Claimants themselves [Tr. Hearing position the D12:71 their to soften - during appeared on this issue and and inTherefore, this above). Tribunal the considers part issue only the of the whether recoverab damages of amount limit the to agreement an constitute clauses stabilization arbitrations in impose or these of otherwise a compensationbeyondceiling the which Claimants could not legitimately have expected to recover in the event of an expropriation. treaty are claims Claimants’ the that recalls Tribunal The quantum in the purpose both and the liability of provisions contained are treaties for and, international broadly, more Whilst law. JVA the Deed of and Concession to relevant are constituted not been has Tribunal the claims, matrix those underpins which factual the provisions the of JVAunder Deed the the nor to Concession consider Parties’of the dispute. the Articlecontractual of 12 JVA Article the 21 of and Deed do not, therefore, such,as legal the govern framework within thewhich mustunal Trib the consider to the the breach ECT and the owing Claimantsof BITs. for compensation 481. 480.

in as

free s of the the s of

language language me result. result. me wise left those rights rights left those wise

69 he conclusions reached by reached conclusions he Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ”. Whilst under the term the Whilst under ”.

156 - -

.”

” of such expenses or investment as well “as additional amounts (as opposed, example, confiscation to a for that other ational law", or it would say, "It is agreed that the following events shall shall events following the that agreed "It is it say, or would law", ational

[…] contractual there's and clearly, can you if principle, In NELSON: MR I can doubt, beyond expectations the doubt, beyond thethat language puts obviously. here happen didn't that that is our position but possible, that's imagine to would a clause If how do that, intended theyLOWE: had PROFESSOR clause? this from differed have effect that having Treaty, Energy Charter the say, "Notwithstanding would It MR NELSON: hereby parties the Treaty, Charter Energy the of 11 article notwithstanding public of the provisions say, "Notwithstanding would it that", or agree intern Chorzow take least at would that expropriation", unlawful to be deemed not be off it table. You ways. the in do and explicit of could a number informed very You see don't that here PROFESSOR LOWE: Why should a liquidated damages clause be possible, but but be possible, clause damages liquidated a should Why LOWE: PROFESSOR not be quantum of to the determination approach a general stipulating a clause possible? rights market value profitsloss of of or in of respect expenses reimbursement the of of of award the Concession lostJVA Deed the is profits in discretion and the to consider amount ofappointed the arbitrator compensation upon an due expropriation, the sa essentially would yield case this in discretion that of exercise the carrying out improvements, additions or extensions thereto, bearing interest out bearing improvements, “ thereto, on the extensions additionscarrying or The Claimants could legitimately expect that a neutral arbitrator vested with the authority with the authority vested arbitrator a neutral that expect legitimately could Claimants The compensation JVA the the Deedto award and for under Concession expropriation of of GTI’s both quantum experts during the witness conferencing procedure. the bothwitness conferencing quantum experts during for sums his the discretion not only would exercise compensation to her intact), award or The contractual formula agreed upon contemplates the award of compensation for all all compensation of for upon contemplates award the formula agreed contractual The maintaining the or operating Pipelines in or managing, /amounts expended invested Nevertheless, even if the stabilization clauses were to be applied in this case, the Tribunal law international of application the as same the would be result the that opinion is the of consistent t with is generally This compensation. of principles See Kaczmarek, Tr. D13:174; Lagerberg, Tr. Tr. D13:176. Lagerberg, Kaczmarek, D13:174; See

69 484. 483. 482.

t of and the the and

a 70 –

”).

establish the the establish - known passage fromknown passage - nt, as isby required in Amoco. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Chorzów Factory is that reparation must, as far as far must, reparation that is not have legitimately expected to –

157 - - n this of part the only Award consider applicable the ”) in the Case concerning at Chorzów Factory the PCIJ

The Claimant’s Position

, wipe out all the consequences of illegal act the consequences and re all, wipe out the

compensation out of all that wipes the consequences the of illegal act or

a) i.e. The Applicable Standard Expropriation Applicable CompensationThe for of Factory The essential principle contained in the actual notion of an illegal act ofnotion illegal an the actual in contained principle essential The principle which seems to be established by international practice and in in and practice international by established be to seems which principle tribunals of arbitral decisions the by particular as possible situation which would, in all probability, have existed if that act had not been been not that ifhad act existed have allin probability, would, situation which committed. to of corresponding a sum payment in or, this if is possible, kind, Restitution not of be, need if award, the bear; would kind in a restitution thee which valu “ 2. ment, Iran Claims Tribunal’s interpretation of Chorzów of Factory interpretation Tribunal’s Claims Iran - U.S. Chorzów As a starting point, well the Mr. cites following starting Kardassopoulos a As standard of compensation for expropriation applicable under Article 13(1) compensation under of Article ECT. the expropriation applicable of standard for In view of the Tribunal’s findings on jurisdiction and liability paragraphs 241 and view Tribunal’s the (see of on jurisdiction liability and In findings Tribunal the 408 above), shall i 36 and 31, 34 upon Articles relies position, this Kardassopoulos Mr. support of acts. In the of ArticlesILC’s on State Responsibility, the the judgment of Permanent Cour expended by the lossthe Claimantsinvestment, by the butexpended for also from profits of the ofvalue whichexpected points investme value to the the of law. international the TribunalAccordingly, finds that thestabilization do clauses not “cap” damages for of purposes valuing thethe Claimants’rights, do they of nor ceiling a establish Claimants beyond the could compensation which in event an the of expropriation.recover KardassopoulosMr. submits is for entitled to that he full reparation the loss his of invest (“ Justice International Judgment No. 13, 13 September 1928, Merits, 1928, PCIJ Ser. A, No. 17 (“ No. A, Ser. PCIJ 1928, Merits, 1928, September 13 13, No. Judgment

70 488. 486. 485. 487.

Chorzow and more recent case, he seeks to

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos arbitrations, which recognize recognize which arbitrations,

the PCIJ established two now PCIJthe established 72

be compensated according to a

”).

a reference to the compensation requirement.

Vivendi 158 - - Vivendi v. Argentina v. Vivendi

and and

71 Iran Claims Tribunal award in Amoco Claims award Tribunal Iran - ADC ,

which supersedes the principles articulated by the PCIJ in

. , Award (20 August 2007) (“ 2007) August (20 Award , 3 97/ such as the US ar, Mr.ar, Kardassopoulos that contends this provision spells out standard the which, in Mr. Kardassopoulos’ opinion, in Mr. – which, Kardassopoulos’ it not done. has damages for loss sustained which would not be covered by restitution in kind or or in byrestitution kind covered which wouldnot be sustained loss for damages …” it of in place payment

ple, of a of ple, discriminatory expropriation the should be same as compensation in due idely propositions: distinction is a lawfulidely accepted there (i) unlawful between and reates specialis a lex p. 47. p.

the possibility of higher recovery where the value of the investment has increased investment value has the the of where higher of recovery possibility the taking the following do not either the support they grounds on the inapposite as awards distinguish such expropriation cannotproposition unlawful that an Whilst Mr. Kardassopoulos recognizes the body of arbitral authority which expressed has authority of arbitral body the recognizes Whilst Kardassopoulos Mr. to this view Chorzów the of opposing Factory an interpretation applicable to “such compensation”, i.e. to “such applicable On a textual analysis of the ECT, Mr Kardassopoulos argues that a distinction may be distinction a that may argues Kardassopoulos ECT, Mr the of textual a On analysis out betweenmade a lawful an and unlawful expropriation in Article 13(1) Treaty. the of In particul w out the unlawful wipe an expropriation must for reparation expropriations; (ii) and than when illegalrather the and, awarded of in restitutionary monetary act consequences than higher for lawful be may due a expropriation.form, compensation 13Article neither expressly norrequires implies that compensation due in the event, for exam “conduct requirements”. Treaty’s the expropriation with that complies an of event the ECT that the to Respondent show the for Kardassopoulosit Mr. is that claims Moreover, c Chorzów Factory in Chorzów submits that Kardassopoulos Mr. Mr. Kardassopoulos contends that this textual conclusion is also supported by arbitral by is supported also textual contends this that conclusion Kardassopoulos Mr. authority, Factory decisions in Siemensdecisions the . at Ibid ICSID Case No. ARB/

71 72 492. 490. 489. 491.

prompt, prompt, - e from prompt, adequate and adequate prompt, , that is: the status quo prior the is: , that Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ediately prior to the prior ediately expropriation.

159 - - shed in Chorzówshed Factory ples, Mr.ples, Kardassopoulos he claims is entitled to damages hat should Tribunalhat the Kardassopoulos’ determine Mr.

joinder at para. 535]: para. at joinder The Respondent’s Position The Respondent’s

maker should only change the date of valuation where to do so would to do so would where change date valuation only the of should maker - b) accepted principles of remuneration, such an approach would not, and should should and not, would approach an such remuneration, of principles accepted further the goals of restitution, including to emphasize the consequence of of consequence the to emphasize including restitution, theof furthergoals the of the value assessing where However, justice. ial provide remed breach and well serve than rather trample would award of the date the of as investment Chorzów Factory makes apparent that the inquiry is a factual one, and a a and is one, a factual inquiry the that apparent makes Factory Chorzów decision “Nothing in Chorzów Factory can be interpreted to mean that international law law international that to mean interpreted can be Factory in Chorzów “Nothing award the of date to the mechanically moved datebe valuation the that requires languag cited above the Rather, expropriation. of unlawful in instances all measure of damages exceeding thetreaty standard or they simply do not deal with the of opposed unlawful lawful) an (as expropriation. to a case on theBased foregoing princi to his interest 25% equal of: thein greater the (1) of value GTI 1995, one 10 November at 477, passed, plus prior on was any GIOC, establishing Decree to date the the which day of it between Tribunal’s date the the by 1996 and earned been have that would profits date the of as the rights of under JVA Concession (2) the value GTI’s or the and award; award. Tribunal’s the of was expropriation alleged that the determines Tribunal even alternative, the if the In entitled to “ is nonetheless Kardassopoulos he Mr. claims lawful, time immediately the at the investment of the to FMV effective equal ” compensation the expropriation. before Respondent The agrees t is “ compensation of standard relevant the expropriated, lawfully investment was or and effective equal” Mr. payment toadequate the compensation of FMV investment imm date the Kardassopoulos’ at the the event Tribunal the Kardassopoulos’In was Mr. expropriation determines of rights in Respondent reparation the isunlawful, submits entitled to full Kardassopoulos that Mr. accordance with the principle establi The party. injured the enriching without unjustly ought restored to be act to wrongful the damages higher entitled to Kardassopoulos Mr. is proposition the that rejects Respondent [Am. Re case in this 493. 494. 495. 496.

”). Phillips Phillips

the normal the normal that is, the standard standard the that is,

Phillips Petroleum [Footnotes omitted.] [Footnotes d here – Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

eaty standard to withouteaty regard ”). e e asset toexpropriated both prior

Factory panel expressly held that that held expressly panel Factory Iran Claims Tribunal cases in - AIOC.

with a sufficient degree of certainty that a

i.e. should be followe should be

, as well as more recent awards in the arbitrations Middle East Cement Middle East 160 - nt value but it Kardassopoulos Mr. to would permit - 2 (Chamber Two) (29 June (“ 1989) June Two) (29 2 (Chamber Amoco 39- Middle East CementMiddle Shipping and Handling Co v. SA ed upon by Mr. Kardassopoulos, the Respondent further further Kardassopoulos, Respondent Mr. the upon by ed and and

and and 73

Phillips Petroleum

Tecmed , . The Respondent. The Claimantsthat the notes that the have conceded question of a party should not be entitled to more damages than it would have been able to to able been have would it than damages more to entitled be not should a party if that theheld of example, For panel its investment. control earn retained had it for required been have would fresh capital of an investment any award from deducted be should sums such of undertaking, the development of damages.” not, be required. It is telling that the Chorzów the that Chorzów telling is It required. not,be 74 Wena Hotels Wena U.S. Cl. Trib. Rep 79, Award No. 425- No. Award 79, Rep Trib. Cl. U.S. - of compensation is the same whether the the unlawful. is sameexpropriation or the is compensation whether lawful of realize the value of someone else’s labour, what standard will apply will that theto apply unlawful issue, arguing standard expropriations open iswhat an approach advocated in been made had profit while the control to under claimant’sand operational its ability produce profits in the particular circumstances it faced. Seizing on the deterrence aims of the tribunals in the cases reli made, Tramex that from investment the profit to seek not did Georgia that submits allowing Mr. therefore to value of investment as the Kardassopoulos of date the the would not only holdAward no deterre reasoning that the tribunal in that case denied recovery of the profits the by the of denied sought tribunal that the recovery inreasoning that case establish to it had failed because claimant and following expropriation.and likens Respondent The present the facts to in those Vivendi The Respondent Respondent The contends cases cited the that by KardassopoulosMr. turned on particular facts not present here, such as profitable operation of th Egypt The Respondent Respondent tribunalsThe reasons that numerous damages have calculated for an reference tr to applicable the expropriation by unlawful U.S. the citing law, international customary Iran Co. v. Iran Petroleum of 21 Iran (“ 2002) April (12 Award No. ARB/99/6, Case ICSID

73 74 498. 497.

”, which shall shall which ”, rtise and financial accompanied the by le damages, averringthat ged expropriation, i.e.ged ch its investment would would investment its ch

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

foreseeab effective compensation

the "Valuation Date"). "Valuation the 161 - - “Article 13 Expropriation “Article

prompt, adequate andprompt, adequate bunal’s Determination The Tri The

Such fair market value shall at the request of the Investor be expressed in a a in expressed be Investor the of the request at shall value market fair Such existing of exchange rate market of the the basis on Currency Convertible Freely include also shall Compensation Date. Valuation the on currency that for of date the from basis on a market established rate a commercial interest at of payment.” date the until Expropriation […] ofInvestment value the amount to fair market the shall Such compensation impending or the Expropriation before immediately time the at expropriated the in affect such of as value a way to the became known Expropriation to as referred (hereinafter Investment The Parties Parties toThe appear thatagree in the of lawful event a expropriation, applicable the compensation of standard is “ amount to the FMV of the investment as of the date immediately before the expropriation the expropriation before date of immediately the as the investment of FMV the to amount The Respondent concludes that the Claimants seek to use customary international law customary to use Claimants concludes that the Respondent seek The speculative and non- in order to recoup inappropriately The seek. Claimants the that the windfall allow not does law international customary investor, others an from where must distinguished be this explains case Respondent that in whi skill, situation or on a luck by happened whether not have occurred. expropriation had the if profits windfall necessarily yielded Here, the Respondent argues, the evidence shows that the Claimants’ investment was a fundamentally bad one: they lacked the requisite experience, expe any have not presented they and one investment profitable into to their turn a backing been substantially in a would have rights, they their they that, had retained evidence position the than they different one in priorwere to alle the apossession of failed investment. Moreover,have they not established thethat absent unlawful orwould have expropriation,they earned alleged sold rights to their third- claim. now they amounts the windfall for parties ECT 13(1) the of that any Article provides “ expropriation shall be of compensation prompt, adequate compensation which effective shall and payment ”, the consist of following: further 502. 499. 500. 501.

to theeffect

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Chorzów Factory Chorzów

rnationally wrongful act is under an is an act under wrongful rnationally value of property taken or destroyed as as destroyed or taken property of value

s established.” y, we are no longer in the realm of a lawful lawful realm a in the of no longer are we y, 162 - - hts have been infringed. This loss is usually assessed assessed usually is loss This infringed. been hts have

based valuation methods based on market data and the the and data on market based methods valuation based - standard is reflected today in the ILC’s Articles on State

75 es rely on esthe rely statementof the PCIJ in .” operties of the assets is relatively unproblematic, apart from from apart unproblematic, is relatively assets the of operties

The State responsible for an inte for The State responsible damage assessable financially any cover shall The compensation , at p. 47. p. at ,

physical pr the Where claims. outstanding long with associated difficulties evidentiary obligation to compensate for the damage caused thereby, insofar as such such as insofar thereby, caused damage the for compensate to obligation restitution. by good made not is damage the by the is suffered loss for purposes The reference valuation point “(21) rig property whose claimant capital for compensation (i) to relating of damage heads specific to by reference expenses. incidental and (iii) profits; of loss for compensation value; (ii) capital the reflecting Compensation (22) of basis on the is assessed act wrongful generally the of an internationally result “fair assess to used method lost. The property the of value” market the “fair Where concerned. asset of the the nature on depends however, value”, market freely is on an open traded properly comparable or inthe question property and choice the cases, such In determined. readily is more value market, application of asset “Article 36. Compensation “Article 1. 2. i it as insofar profits of loss including establish situation the existed which would,probability, in have all if that had act - reparation must, as far as possible, wipe out all the consequences of the illegal act illegal ofthe act all consequences the wipe out far as possible, reparation must, as Chorzów Factory The Commentary to Article 36 confirms that this to assessed Commentary Article on 36 confirms The is generally compensation of rights FMV the lost: the basis of the property The in intheir and ascompensation provides particular Responsibility, provision, which follows: became known so as to affect the value of the investment. However, consistent with the consistent investment. the of withthe However, value the to affect so as known became liabilit of respect in findings Tribunal’s expropriation. an compensation of for standard appropriate the of appreciation in their differ Parties The place. In their begin they in same analysis the expropriation, although unlawful both Parti particular, that “ that and re not been committed ów Factory ów Chorz

75 505. 504. 503.

ion

riated.” Id. Id. riated.” [Footnotes omitted.] [Footnotes Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

U.S. this Claims exposition of Tribunal’s .” -

y of payment). According to the Court, Court, the to According payment). y of he subject of frequent or recent market market recent or of frequent subject he assessed date the ofat expropriation the not and

163 - -

not necessarily limited to the value of the undertaking at the moment of of moment the at undertaking the of value the to limited necessarily not

, at p 47. at , ation. They rely on the on the rely ation. They Iran , which adopted proposition the PCIJ by the articulated in Chorzów bability, have existed if this act had not been committed.” Id. at 47. One One Id. at 47. committed.” not been had this if act existed bability, have aking at the moment of the dispossession, i.e., “the just price of what was whatwas “theof justprice i.e., of the dispossession, moment at the aking

: impossible, the payment of the monetary equivalent. In both cases the principle the principle cases In both equivalent. of monetary the payment the impossible, Restitutio is well defined by the Court. It means the restitution in kind or, if that that if or, kind in restitution the means It Court. the by defined well is Restitutio 76 is out wipe possible, as far as must, reparation “that same: the is lies it on which would, which situation the reestablish and act illegal the of consequences the all in pro all “ not “is compensation the is that this principle of consequence essential of moment the at undertaking the of value tothe limited necessarily the da of interest (plus dispossession” [the Government Polish the if only admissible be would limitation “this act and if its wrongful had the expropriate, right State] to had expropriating exprop was what of price … the paid having innot merely consisted compensation the that means It importance: is paramount of This last statement the lacks only a taking which of (or expropriation a lawful in of case to be paid is the limited the to of to value be lawful) a fair compensation payment of undert expropriated.” property interests in question are unique or unusual, for example, art works or or works art for example, or unusual, are unique question in interests property are not t or property, other cultural for true, be may This difficult. is more of value determination the transactions, concern, of going nature a inthe entities business of certain respect in example, traded regularly not are shares if especially nsation is awarded unlawful foran expropriation thanrather in monetary Parties part company in respect of how these principles apply to the present case.

”. Chorzów Factory at para. 196. para. at

The Claimants contend that this distinction does present a difference, because difference, when a because present that this does Claimants distinction contend The compe lawful a for the than due higher compensation be formmay it restitutionary the the where rights have as expropriation, expropriated increased since such in value the of expropri date The takes Respondent theThe position the that whether Tribunal treaty the standardapplies or present these standards two distinct international standard, a law customary the without a difference, as FMV must be the date of the Award, absent exceptional circumstances not present here. in Amocoprinciple Factory The PCIJ stated that damages are “ damages that The stated PCIJ Amoco,

76 77

507. 506. dispossession

standard required that required standard

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

U.S. Cl. Trib. Rep. at 121). Cl. 121). Trib.U.S. Rep. at 78

79 164 - - d by other tribunals, the in including tribunal ICSID .” applied. applied. tribunal The determined, further in uniqu the e , which found that the answer lies in the terms of the of lies in terms answer the the that found , which

ith damages for an unlawful expropriation. This would would This expropriation. an unlawful for damages ith ADC tribunal went on to clarify thatin oftribunal case on to clarify even went unlawful an

damage sustained is the measure of rep the isaration, no and there

the Chorzów Factory rules governing the issue of issue of the compensation unlawful rules in event an the of governing

ard of compensation that is payable in the case of a lawful expropriation, expropriation, lawful of a case the in payable is that compensation ard of

The law applicable to the determination of compensation for a breach of such such of a breach for compensation of determination the to law applicable The There is general authority for the view that a BIT can be considered as a lex lex a as considered be can BIT a that view the for authority general is There , which ventured explanation: , which following the provides only itself Treaty The law. international customary is obligations Treaty the of Treaty. terms the with accordance in expropriation for for compensation “ nal law law nal internatio customary of rules over willprevail provisions specialis whose - Iran Iran 21 Co. v. Iran, Petroleum e.g.(see Phillips to damages rules relating any stipulate not BIT does the case theBut in present the stipulates BIT only The unlawful expropriation. an the of in case payable stand the in case payable damages issue of the determine to be used and these cannot a for since this would be to compensation conflate of an unlawful expropriation w expropriation lawful but such for a position, this if provided expressly BIT have the been possible case in present the exist does not “ Siemens This approach has This followe approach since been Since the treaty in treaty the Cyprus)Since (the that case Hungary and between BIT did an not contain expropriation, “ indication that ‘punitive damages’ could be be could consideredindication.” damages’ that ‘punitive However, the Amocothe However, of compensation the standard the concerning applicable distinctionThis debate between in thecase of a lawful versus an unlawful expropriation was more recently summarized in tribunal the ICSID by lex specialis international that the standard law customary determined expropriation, tribunal the prescribed in circumstances of the case, that because the value of the rights had appreciated date Chorzów expropriation the the of since Factory considerably the rights be valued as of the date of the Award. applicable treaty: at para.at 481. . at para. 197. para. . at Ibid ADC,

78 79 511. 510. 508. 509.

at paras. at s precisely the have sold theirhave

ct would have been would have ct . See Vivendi,. See Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

165 - -

80 .” reparation for an expropriation will for unlawful require reparation

monstrated that themonstrated Claimants the would, but for taking, have clear thatclear restitution is possible.no longer Themust Tribunal

The key difference between compensation under the Draft Articles and the the and Articles Draft the under compensation between key difference The of the the is Treaty 4(2) case under that and Article formula, atFactory Chorzow assessable “all financially account into take must ensation comp former, to as opposed of illegal act” the all the or “wipe consequences out damage” the under investment” to ofthe value the expropriated “equivalent compensation the to just not entitled is Siemens la w international customary treaty. Under to also but expropriation, of date the 2001, 18, May of as enterprise its of value up to date has gained the of plus any this enterprise Award, greater that value damages any consequential ras. 349 and 352. This approach was also adopted by the tribunal in Vivendi in tribunal the by adopted also was approach This 352. and 349 ras. at pa

In In certain circumstances full damages to be awarded as of the date of the arbitral Award. mayIt be appropriate to value for compensate gained the between date of the theexpropriation and date the of award in cases where it is de their investment.retained For the reasons out set however, thisherein, is not on case the the facts of these arbitrations. on evidence recordThe the indicates that the Claimants would likely As may be seen from the cases above in which a higher recovery has been permitted the internation lawunder customary al standard of there must compensation, a be factual must, such recovery recovery. Any furthermore, higher such to award basis on which damage sustained the not impose punitive Respondent and on the measure State. damages In the present case, it is Kardassopoulos. to Mr. amount determinethe owing compensation of therefore in GTI to AIOC ashares (or member AIOC) of Georgia in 1995 had the affirmed argue they although this to proposition, concede appear Claimants The Claimants’ rights. that itis a conservative scenario [see Kaczmarek para. I, 127]. This i and with Energie Velt into negotiations in entering sought, however, they outcome some in the in game remain to preferred have may Claimants the While Perlite. United proje in GTI the shares their confirms record that selling the capacity, an entirely acceptable outcome, assuming a fair price for those shares could be obtained. 8.2.5. - Siemens,

8.2.2 80 514. 515. 513. 512.

- -

101]. This is

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos that AIOC’s shareholders would would shareholders that AIOC’s

h Tramex and purchase its interest rk togetherrk [Tr. D9:97- ion and liability (see apragraphs 241, 248 (see liability and ion

166 - - g g export of as rights) 10 November 1995. Whilst this pre ee 477 precisely to No. andfull ensure reparation to any avoid

The Claimant’s Position f the the f compensation process which Respondent the obliged to put inwas

a) The Applicable Standard of Compensation for Fair and Equitable Treatment Standard Equitable and Fair Applicable CompensationThe for of 50), the Tribunal shall in this part of the Award only consider only applicable the Award the this of part shall in Tribunal the 50), 3. ould have resulted if the Respondent’s legal, contractual and/or unilateral commitments unilateral commitments and/or contractual legal, Respondent’s the if resulted ould have In view of the Tribunal’s findings on jurisdict Tribunal’s the findings of view In and 449- and compensation the provision of of Georgia the breach FET standard / under BIT. for Israel Moreover, regardless of the Claimants’ preference to retain some interest in the Gachiani suggests Adams Mr. of evidence oral the Supsa pipeline, have viewed their presence as an irritant, being a smallvery company on the scale of the to negotiate purchase the sought technical expertise, and any not having consortium and shares their of in the than rather pipeline wo by confirmed both industry [Tr. experts, Mr. Beazley D10:71] Mr. and Effimoff [Tr. Government confirmed GTI’s Georgian the that had view the D10:127], expressed who wit sought to negotiate have would likely AIOC rights outright. in GTI TribunalThe therefore finds that the standard of appropriate compensation whichfrom to theapproach calculation damage the of sustained Mr. Kardassopoulosby is the ofFMV (includin rights oil early the Fuchs sub Mr. mits that no because compensation standard isprescribed afor breach of FETthe obligation in the / Georgia BIT, Israel international lawcustomary should apply. Fuchs therefore Mr. asserts that damages should investor the restore to the situation that w honoured. been had place promptly after the taking of the Claimants’ investment. investment. the Claimants’ of taking the after promptly place dates the expropriation the by dates No.Decree effected Tribunal 178, the considers that the investment Mr. it the to of value Kardassopoulos’ as this of require case circumstances day before passage of Decr diminution attributable to State’s value the of conduct up to the leading expropriation. should been Kardassopoulos that Mr. amount the have effect, is,This in compensation paid as a result o 518. 516. 517. 519.

(30 June 1995) mirrors mirrors 1995) June (30

where the tribunal awarded bursed underbursed applicable the Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

”. In Mr. Fuchs’ view, this this view, Fuchs’ Mr. In ”. ed against or denied such or such denied ed against 82 , t was defeated by the unfair and ian and customary international law law international customary and ian contained no compensation standard in in no compensation standard contained

legislation and applicable international international legislation and applicable thereby placing the present case squarely

83 orgia on Foreign Investments on Foreign orgia en has been denied access to a tribunal or an to or access an a tribunal been denied en has 167 - - ”). Casado Pey , in which the, in which tribunal awarded damages breach of for , among other similar authorities. similar other , among 81 Chile BIT (which (which Chile BIT the property rights of the Joint Venture are in rights property Venture the of Joint protected the

OEPC

”

alien and any other losses resulting directly from such proceeding or denial of of denial or proceeding such from directly resulting losses other any and alien access. “If … in any civil proceeding an ali “If civil … in proceeding any rendered been has judgment or decision adverse an or authority administrative shall damages by an alien, obtained recovery inadequate or an alien against an assess for amount wrongfully the include compensation at paras. 198ff. paras. at conventions of treaties and publication law international conventions Georgia in express commitment so doing, not and, an to expropriate represents by investment Georg under protections incorporates Pey Casado andalongside Mr. Fuchs recalls that Section 12.1 of the JVA and Section 21.1 of the Deed of of Deed the Section 21.1 of and JVA the of recalls that Section 12.1 Fuchs Mr. stipulateConcession that “ accordance withaccordance regulations of Georgian which require payment atleast of FMV, Mr. Fuchs takesposition the Fuchs damage in Mr. an FET that, in claim, quantifying must tribunal a the value the of quantify expectation protected tha Mr. Fuchs upon Draft 30(1)the Fuchs relies of Mr. Article on State Responsibility Convention provides which that: (1961), in award the highlights Fuchs Mr. this conduct. of support proposition inequitable In Victor Pey Casado et al. Chilev. provision in Spain the - FET the process State compensation fair a what to equivalent with this provision) connection Ecuador as in v. OEPC as awarded, well would have equal reim to amount the been damages that should have interest. plus laws VAT Law of the Republic of Ge of The Claimants Republic note the that of the Law ICSID Case No. ARB/98/2, Award (8 May 2008) (“ 2008) May (8 Award No. ARB/98/2, Case ICSID OEPC

customary international law in its Article 11.4, provideswhich that “The compensation is that paid to a foreign requisition.” the of [Cl. the moment investment at Post seized of the - value real the be to adequate shall investor Hearing Br. at para. 124, n. 222. 83 81 82 522. 521. 520.

approaches the

to have same the willing seller analysis, analysis, seller willing - s is the best approach. approach. best the s is ” [Tr. D11:63]. In the [Tr. D11:63].” In Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos report, plus interestreport, the from date

168 - -

the cost of the various the legal of cost the and advice. reports audit onable buyer believed that the Claimants were in breach and oject, including the value of his time put in to the project and and project the in to put his of time value the including oject,

The Respondent’s Position The Respondent’s

expropriation expenses, i.e. - The Respondent submits Respondent The to that, the extent same the damages claimedare in respect of “ inappropriate it is claim, expropriation as the claim FET Fuchs’ Mr. damage the when did to asset itself not the relate damages prescribed FET isclaim that to Fuchs’ applicable Mr. by standard the view, Respondent’s in been have would to him he restore to position the international namely law, customary had there been treaty no breach. the takes is Respondent positionThe that there to support no evidence proposition the of for FMV the compensation receiving expectation of legitimate a had Fuchs Mr. that 1995 September in received the Claimants advice legal the to pointing investment, his that they potentially in were breachtheindicating contract, of modest amount of commission the compensation of work 1995 construction done limited by andremit the in 1997. established Even applying hypothetical buyera willing Respondent the question that the explains is what would a buyer do if,reasonable after the diligence, reas due doing no had rights. therefore The second approach would involve awarding Mr. Fuchs a sum equivalent a Mr. would second all approach Fuchs The of involve awarding to half the after and before project, period in the with GTI the associated expenses Tramex’s of onexpropriation, based either the theNexia or Deloitte report. the of that the approach Fuchs contends Mr. expenses is Respondent’s to question of “totally the that explaining back is he to entitled he have spent aswrong”, has everything in Georgia pr GTI whole the of part post Mr. Fuchs submits that, applying these principles, these potential two are submits that, applying there Fuchs Mr. claim. in approach Mr. valuing first take would involve FET The may Fuchs’ Tribunal oil sum for early him the same awarded the to Kardassopoulos would be Mr. as awarding takes in 1995, plus interest. the rights Fuchs Mr. position that thi 526. 527. 524. 525. 523.

, it is it is ,

” and Order No. 84 No. Order and ”

shall cover any financially financially any shall cover Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

169 - - the standard of compensation applicable to breach of applicable compensation of to breach standard the in the context of a threat of legal action against against action of legal threat a of context the in cts the proposition that Mr. Fuchs could have had a a had proposition have the could cts Fuchs that Mr.

egitimate expectationegitimate compensation, Respondent of the he absence of specific treaty language to the contrary, find a decision acceptable tofind acceptable all a decision parties state for responsible an internationally wrongful is act under an f Concession would apply to commission’s work. compensation apply the would Concession f The Tribunal’s Determination

c) regardless of the nature of the illegitimate measure, the level of damages damages of level the measure, illegitimate of the nature the of regardless generally accepted today that, regardless of the type of investment, of type the of regardless that, and today accepted generally “Based on these principles, and absent limiting terms in terms the limiting treaty and these “Based relevant absent principles, on imants with an equity interest in GIOC, this claim must fail because there is no no is there because fail must claim this GIOC, in interest equity an with imants reliable evidence that Tramex was invited to participate in GIOC. participate to invited Tramex that was evidence reliable The Respondent Respondent The that for argues, greater certainty, to the extent request for Fuchs’ Mr. the to promise provide alleged Georgia’s from derives to FMV equivalent damages Cla isbasis,There no also in view, Respondent’s forthe Mr. Fuchs to expect that terms the of the JVA or Deed o Respondent the reje However, also President cumentation, do contemporaneous Shevardnadze’s including SakNavtobi, in note 1996 to “ handwritten this question. proposition compensation even into the commission,establishing brings extent the To Mr. Fuchs l any had But even ifBut JVA the or of ConcessionDeed did Respondent the apply, takes position the expenses. reimbursement of the provide for instruments only that these legitimate expectation that even his expenses would be reimbursed, submitting that when when that submitting reimbursed, wouldbe expenses his that even expectation legitimate inconsidered proper context, i.e. takes the view that he could at the very most only have expected that Georgia would them for reasonable, proven expenses. compensate The Georgia / Israel BIT on BIT silent is / Israel Georgia The Article 2(2). the 2(2). 36 of However, ArticlesArticle Article on State Responsibility, reproduced ILC provides that above, a “ is insofar not damage caused as such thereby, for damage the obligationte to compensa “ compensation that such and ” restitution good by made assessable damage, including damage, assessable loss as it of insofar is profits established.” this of provision, in effect t The was described by the by the described inwas tribunal ICSID Vivendi follows: as 528. 529. 530. 531. 532. 533.

law and public law public and [Emphasis added.] [Emphasis Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

D Case No. ARB(AF)/97/1, Award (30 August 2000), at at 2000), August (30 Award ARB(AF)/97/1, No. Case D 170 - he Respondent.he This argument is by thebelied

, ICSI 84 61. espondent’s submission espondent’s that Mr. Fuchs could have not even at paras. 359- paras. at

and the Tribunal finds no reason to depart from it in the it from in present to depart and finds no reason Tribunal the

hether the investment has merely been impaired or destroyed. Here, Here, destroyed. or impaired been merely has investment the hether 8.2.8. 8.2.8. state’s action. state’s awarded in international investment arbitration is supposed to be sufficient to to to besufficient supposed is arbitration investment international in awarded ofthe the consequences to and eliminate fully party affected the compensate however, we are not faced with a need to so differentiate, given our earlier our given earlier with are a need we not to faced however, so differentiate, Agreement, the Concession emasculated measures that the same finding 3 and 5 caused Articles of breaches differently, the Put itrendering valueless. harm.” equivalent less or more and equitable treatment standard could be different from a case where the same same the a case where from be different could standard treatment and equitable will generally difference The investment. foreign the expropriates government w turn on Of course, the level of damages necessary to compensate for a breach of the fair fair the of breach a for tocompensate necessary damages of level the course, Of at para. 238; Enron, 238; at para.

- 8.2.7 paras. at documentary evidence, as well as witness testimony. held legitimate not could have a Fuchs that Mr. contention rejects the also Tribunal The of the share expenses just than his more reimbursed be would expectation that he the expropriationfollowing GTI’s of rights. The is persuadedTribunal in this by regard submissions Fuchs’ Mr. with JVA the the in and Concession connection Deed of in and, particular, the effect of their respective invocation of Georgian law. international The Tribunal Tribunal The rejects the R case. There is no basis, in principle, on which to differentiate between damage the is There no basis, to differentiate on which case. in principle, their that, in case, each Mr. and Mr. between Fuchs given as Kardassopoulos caused lost. and entirely irretrievably was investment legitimately expected to be reimbursed his expenses through the compensation would have expected limitedthat reimbursement be could to or commission only process his “proven” expenses, as seen by t This approach has been endorsed by ICSID arbitral tribunals and other investment treaty investment treaty other arbitral by tribunals and been endorsed ICSID has This approach tribunals, arbitration Metalclad Corporation v. United Mexican States Mexican United v. Corporation Metalclad , UNCITRAL (NAFTA), Partial Award (13 November 2000), at paras. 311- paras. at 2000), November (13 Award Partial (NAFTA), UNCITRAL , Canada v. Inc. Myers, S.D. e.g. See Vivendi,

85 84 536. 535. 534. 315; 315; MTD, 122; para.

ly 19. 19.

, at pp. 18- pp. at ,

Supsa (early oil) (early Supsa - , at p. 216; Mark Mark 216; p. at , . 86 ounted Cash Flowounted l willing and able seller, seller, able and l willing NCITRAL, Award (14 March March (14 Award NCITRAL, and that the later operation later that the operation and

propriation claim. propriation Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 87

ceive any compensation orceive any a in GIOCstake length transactions in respect of the asset in asset the of respect transactionslength in -

length transac only tions, or executed whether - 171 - - Damages in International Investment Law Investment International in Damages

Williams, sit fees GIOC expected to collect from both the Baku the both expected from GIOC collect sit fees to The Market/Income Approaches

(1) to 349 above), only those quantum submissions related to the ear to quantum the those only submissionsto related 349 above), The Claimants’ Position

a) where those tribunals had recoursehad arms to tribunals those where

The Appropriate Methodology for Methodology for Claimants’ Claims Appropriate the Valuing The 62, 4. , U Republic v. Czech Republic BV Czech CME and 387, para. at ”) method or income approach, complemented by the market approach, should market be the approach, income complemented by method or approach, ”) DCF The Claimants assert that past arm’s past that assert Claimants The contemplated, represent strong evidence of an asset’s FMV GIOC,GTI’s successor, early oil the by valueof pipeline proof such constitutes ample of in this case. Accordingly, the Tribunal finds that the applicable standard of compensation to Mr. compensation of to Mr. standard applicable that the finds Tribunal the Accordingly, same 1995, the 10 November his of of investment as is FMV claim the FET Fuchs’ Mr. of in applied Kardassopoulos’as measurement respect ex Claimants’ the of in respect rights scope the above of light Tribunal’s the findings of In (see paragraphs 317 shall Award. the inexport this of considered (including rights) be oil part rights Claimants submitThe that FMV is price the at property would which hands change buyer and hypothetica able hypothetical a and a willing between arm’s at length acting open unrestrictedinan and neither market, when is under orcompulsion sell to buy when and both have knowledge reasonable relevant the of Disc the positionthat the take the Claimants Furthermore, facts. (“ used to arrive at the FMV of the Claimants’ 50% interest in GTI’s rights in GTI’s 50% interest Claimants’ the of FMV the at arrive to used Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence Expert and Methods Valuation Standards, Compensation Arbitration: for Valuation See e.g., Sergey Ripinsky and Kevin While the Claimants presented an alternative valuation intended to quantify the FMV of GIOC as of November

issue within proximity of the valuation date. - 514 paras. at 2003), Kantor, Enron, also See 540. 87 86 537. 538. 539. pipeline and the BTC and analysis predicated This also the onpipeline (Main that on Export) pipeline. is 15factual circumstance re not they would that the Claimants informed 1999 Georgia November the Claimants as expected.had The persuaded is Tribunal not is event in this any that alternative valuation appropriate valuing in the FMV of the Claimants’ interest in GTI. 1999, this analysis is based on the tran the on based is analysis this 1999,

Weighted Valuation $17,898,770 $10,596,643 $2,810,000 $31,307,413

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

Valuation $32,543,219 $30,281,837 $28,100,000

n order to arrive at proxy a for the FMV of

erest in GTI as at 10 November 1995 at 10 November as in GTI erest Weight 55% 35% 10% 100% Supsa pipeline to AIOC. These were, according were, These toSupsa pipeline AIOC. - 172 - - ordingly take the position that the Tribunal’s task of of take task ordingly positionthe Tribunal’s that the at the the at wouldGeorgian Government have acknowledged

r. para. at 117, n. 202]. Claimants any reject The further Supsa Assets Assets Supsa - ergie

three independent valuation sources of to the of theirFMV r deductionr taxes is for appropriate. Hearing B Supsa -

Supsa pipeline, Claimants the reduced average to this US $30.2 weighted Lease of Gachiani of Lease to AIOC Rights & Root Analysis of & Brown Gachiani En Velt from Offer Total - Valuation Approach

Fair Market Value of a 50 Percent Int Percent a 50 of Value Market Fair AIOC LeasingAIOC Transaction - These three transactions are each weighted i weighted the total estimated originally Mr. Kaczmarek GTI. in stake 50% Claimants’ the these 137, para. of comparables 10]: US$31.3 million [Kaczmarek table toaverage be I, the of to costs related operation security of adjustment deduction an the for Following Gachiani - Post [Cl. million thisadjustment of sum, such to take as account of or taxes, project country other risk or in event the Tribunal the figures adjusted provided has Kaczmarek Mr. risks, although determines a furthe valuing their investment is assisted in this case by the fact that the market for GTI’s rights GTI’s for market the that fact by the case this in assisted is investment their valuing buyers sellers, and relying but one rather actual one of hypothetical not a in 1995 was followingupon the theinvestment: transaction (1) leasing between andGIOC AIOC; the(2) Brown Root& (3) Velt United the and and offer. Perlite transaction; Industries Proceeding under the premise th Claimants’ quantum possessed, the interest Kaczmarek, Mr. GTI property and rights the Claimants’ the three of distinct valuations expert,established contemporaneous 50% acc Claimants The GTI. in interest the rights of leasing GIOC’s on based is Claimants the by identified comparable first The and assets associated with the Gachiani Decree taken 178. Mr. No. and by by GTI owned rights same the to Claimants, the 542. 543. 541. The GIOC 544.

risk, risk, - Supsa - et value of Supsa pipeline to - cost transactioncost GIOC, for - nes, the GIOC/AIOC GIOC/AIOC the nes, Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos r rights to construct and and toconstruct r rights year concession would have have would concession year as calculated using two key risk, low - able to conclude that GTI could could GTI conclude that to able

Supsa pipeline assets and rights. and rights. assets Supsa pipeline - [Footnotes omitted. Emphasis added.] Emphasis omitted. [Footnotes

he most certain and realistic projects GTI was was GTI projects realistic and certain most he 173 - - As such, we constructed a discounted cash flow flow discounteda such,constructed cash As we

barrel pipeline transit rate and the number of barrels expected to to expected of barrels the number and rate transit barrel pipeline - ransaction was foregoing the higher profits that GTI could have thathave could GTI the profits higher foregoing was ransaction cost t cost -

aimants would have transferred their GTI shares to AIOC for the same same the for toAIOC shares GTI their transferred have would aimants be shipped through the Western Route.” the Western through be shipped the pipeline tariff fees that GTI was expected to to expected was GTI that fees tariff the pipeline on model based valuation 1996 theperiod covers valuation flow cash discounted Our fromAIOC. receive - 30 the under rights GTI’s year the is which to 2023, w payments transit the of estimate Our expired. inputs: the per Claimants, as 50 percent owners of GTI, would have been entitled to half of the the to of half been entitled have would GTI, of owners 50 percent as Claimants, fair mark Thus, the to pay GIOC. agreed fees AIOC transit by bemeasured Datecan theas ofValuation GTI in investment Claimants’ agreement the of terms the under fees transit expected the of valuing half GIOC. and AIOC between earned by operating the pipeline. According to our extension of Brown & Root’s Root’s & Brown of extension our to According pipeline. the by operating earned 1.12 per barrel in tariffs of earned profits US$ net have could GTI forecasts, would have GTI stake in 50 percent rgia’s Thus, Geo 2023. 2002 and between fee GIOC transit the times three than more or barrel per 0.56 US$ yielded AIOC. with negotiated (as ratherthan GIOC with AIOC in GTI negotiations supported Georgia Had us it to has asked assume), Counsel is reason GIOC which that than deal favourable) more (or the same have negotiated the Gachiani for AIOC with negotiated Gachiani the leasing by received GIOC value the Accordingly, rights additional granted in of Georgia all plus the futureoperate all pipelines shares GTI Claimants’ valuing in However, Agreement. Venture the Joint under assumed conservatively have we transaction, GIOC/AIOC the utilizing Cl This rights to AIOC. assets and the for received leasing GIOC remuneration would buyer informed a reasonably that our view with is consistent assumption upon t based shares thevalue GTI and AIOC GIOC that to believe not unreasonable is It tolikely also undertake. had GIOC If as well. projects pipeline on future to cooperate had agreed pipeli future on potential to AIOC cooperation promised “ […] GIOC would collect transit fees for the oil AIOC would pump through the the through would pump transit the fees for AIOC oil […]“ would collect GIOC costs. or maintenance operating, any construction, incurring without pipeline this the low of cost [be] However, by AIOC. borne Allthese costs would of low GTI. of theto benefit accrued have could AIOC Gachiani the leased have could Claimants that note to important isIt just did, their AIOC, shares without selling as to GIOC assets and rights pipeline thei could retained have in Hence, Claimants GTI. receiving GIOC with shares of GTI sale a resemble closely more would deal potential future upside. 128]: Kaczmarek assessed the leasing transaction as low a explaining his methodology in respect of this comparable as follows [Kaczmarek I, paras. this in of comparable respect follows [Kaczmarek hisas explaining I, methodology 125-

tiplied by by tiplied between GIOC

Mr. Kaczmarek further

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos to the appropriateness relying of

s pointedalso out that in August 1995, AIOC

Supsa pipeline in 1995. 174 - - - barrel transit rate based on the PCOA - leasing the operations the leasing pipeline the of than it. rather operating the being risk of lender to AIOC. a

ikely be US prime. Given USthe prime interestrate of was 8.75 i.e. ower cash flow) isower cash minimal. flow) lending to risk of The was AIOC also k, Hearing Brief, the Claimant - he forecasted transit until each 2023, forecasted Deed rate for the he GTI’s rights the under year year Mr. Kaczmarek estimated the per for Claimants’ the to account 50% share. explained Kaczmarek Mr. 10% a that nominal discount rate, although lower the than rate in lower the below), toapplied corresponds & Brown Root significantly (see valuation a with associated profile risk leasing to pipeline By the only the AIOC, risk borne by the Claimants would potential be and AIOC expected oil than of by production by lower caused disruptions to throughput ris credit AIOC 8 to 10 times the to reach expected was ACG from production explained that annual level usedthroughput in his model, therefore the valuation lowerrisk of throughput (and l correspondingly oil consortium that the minimal to be given international of isconsidered composed with significant Thus, Mr. thatcompanies estimated resources. Kaczmarek lending the to wouldrate AIOC l in latepercent 1995, he 10% a considered discount rate (a spread of 1.25 over percent the throughput to for compensate above adequate risks. prime) Post their In In order to determine theIn flows Claimants cash the by selling their would have received to by in Kaczmarek GTI Mr. interest throughput 50% AIOC, multiplied forecasted the t real a (representing 10% of rate discount nominal expired. A would have Concession of result the and flows, mul future applied cash 7%) expected of was to these rate and AIOC, which set this rate at $0.17 per barrel beginning in 1996, adjusted for inflation for in beginning 1996, adjusted barrel per $0.17 at this set rate which AIOC, and in day per barrels 40,000 at throughput annual estimated further He per year. 3% at Root’s estimates wn & 2000, Bro on day by based per to barrels 100,000 1997, increasing for volume throughput Gachiani of the its Route modelled Western projections the betweenhad for on discount rates 5% and 307]. Tab 109, citing para. Bundle, Hearing Br. at [Cl.10% Hearing Post In response to several criticisms the by Respondent as the rights, GTI’s in interest Tramex’s 50% of value the estimate to transaction this on 545. 547. 548. 546. 549.

it's so so it's

mercially

80]: Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos t matter who GIOC was, was, GIOC who matter t s technically a lease, but it was was it but lease, a technically s

175 - - of the rights to AIOC in March 1996. He says, "Ah, two two "Ah, says, He 1996. March in to AIOC rights the of very low price, we say, because GIOC was basically just a a just basically was GIOC because say, we price, low very -- ject criticism by Mr. Lagerberg, the Respondent’s quantum expert, expert, quantum Respondent’s the Mr. Lagerberg, by ject criticism

I call it a sale loosely, obviously it' obviously loosely, sale a it I call

-- use it was an actual transaction, you don't go into the minutiae of what of what theinto minutiae go you don't transaction, an actual was it use

Look at the reasons he gives for why he rejected the comparable for the GIOC the GIOC for comparable the rejected he why for gives he reasons the at Look effectively a sale sale a effectively of kind a different was GTI the not same. they're why is this that, with problems 50 per was com cent GTI have been. would toseller what GIOC different they had so owned, per government cent 100 was and GIOC owned, the compare can't so you case: in respondent's the theme is a big This priorities". number. GTI what because different was model business "GTI's is: reason second His and themselves it runand pipeline existing an refurbish do was to going was the so what its own, to build going was AIOC whereas fees, transit then have I can't so different, very was rights the with do afterwards to going buyer was of what of understanding lack sons a complete show rea those Both of compare". the look what don't You at to the do. requires valuer analysis a fair market at look you strategies, their and intentions their and want seller and buyer doesn' It rights. same the are rights the whether of evidence actual it's because is transaction at that looking you're The reason because and 1996, March in market the in worth were rights transit what toplanning them. It exploit were they that matter to their build going doesn't whether they were government owned or whether they were a commercial commercial a theywere whether or owned government theywere whether enterprise. […] itbly deal, proba that a commercial wasn't, was whether lookingat So if you're value, at market justlooking you're if because that, tosay allowed not butwe're the were they same, the were rights the and real deal, a was It deal. a real it was was AIOC how matter doesn't and it route, western the rights transit through sale that assumption the make can you expropriation, for date evaluation the close to worth as it it have if soldit the been had been on about number would same was and veryan actual time. transaction, in close It's They're the date. valuation beca you iffact, in did, you if because deal, that reach to AIOC and GIOC motivated very a itfact, was in because favour, our to adjust would it analysis, the adjust a was low price. It for the desperate was power, Georgia had all bargaining the AIOC patsy. of price. cheap a very it's go through, to pipeline “ The Claimants also re also Claimants The Claimants observe that theClaimants JVA PCOA observe the overlap in and important respect,an in namely Concession. of Deed the 17 of under Article pipelines the to lease right the had GTI that the Claimants take The position do not need to prove they that that they builtcould have would that been rights have their but scenario, only on the leasing to pipeline rely the honoured. transaction leasing AIOC misconceived the [Tr. as of D12:78- 550.

selected the

” Mr. Kaczmarek rn Route project as of of as project Route rn

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

n his first expert report as follows follows as n his expert first report

e constructed by a willing buyer in the the in buyer by a willing e constructed deduction for payment of of incomededuction payment corporate for

own & Root’s analysis, we evaluated their their evaluated we Root’s analysis, & own 176 - -

pessimistic, expected and optimistic – optimistic and expected pessimistic, an individual buyer and an individual seller had a different game game a different had seller individual an and buyer individual an

late 1995, in our view it would be disingenuous to do so because it would would it do so because to would be disingenuous it our view late 1995, in relevant the after years 12 nearly prepared projections, own our that suggest Root’s to Brown & preferable be better or somehow date, would Root projections Brown Even the if & projections. prepared contemporaneously best the represent still projections the aggressive, too or conservative too were in However, time. at that project the of expectations the for evidence available Br understand better to an effort reasonableness.” for and assumptions projections course of its due diligence on an investment in GTI and represent the most most the represent and inGTI investment an on diligence due its of course to for us possible it is While view. inour at the time of the project view reliable Weste the for projections own our develop independently “Brown & Root created a number of detailed financial analyses and cash flow and cash flow financial analyses Root created of a number detailed “Brown & as of valuation GTI of for a DCF as basis a reliable can that serve projections wer analyses These Date. the Valuation own pipeline in the end and not use the existing one, because they decided to do do to decided they because one, existing the use not and end the in pipeline own It do. going doesn't to were thejob GTI that patch of Rollsjoba instead Royce that matter plan. price it's a and a price, had they and are same, the rights the is matters What date. valuation to the close very is that timeframe a at that's US$ 1,914,307, Mr. Kaczmarek adjusts to this US$ Kaczmarek US$ 30,628,912. Mr. 1,914,307, value middle ground expected scenario on which expected to base valuation. hisscenario DCF middle ground As Brown & Brown RootAs financial and the evaluated operational of scenarios the on transaction three different levels – Mr. Kaczmarek estimates the value of a interest 50% in GTI based on thistransaction at US$ Having a 32,543,219. conceded deduction US$ 0.01 perof barrel for security costs, i.e. the Tribunal the that a event In determines incomeand withholding taxes is also Mr.appropriate, offers Kaczmarek an alternative US$ Claimants’ 21,440,238, of the in for GTI assessed taxes having those stake value at 5]. 61, Table para. II, US$ 18,377,347 [Kaczmarek The second by the second Claimants comparable extended by Brown The is offer put the forward & stake Mr.Root 25% in GTI. in a 1995 to purchase explains Kaczmarek methodology the this value transaction a for i toat arrive applied [Kaczmarek I, para. 98] para. [Kaczmarek I, 554. 551. 552. Root Offer The Brown & 553.

ctions, Mr. ctions, Mr. is the the is evenues evenues year cash flow

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos million. As this $ 10 million thismillion As 10 $ million.

n its original analysis. Mr. Kaczmarek explains 120]: 177 - - -

arriving at a present value US$ 9,536,691. of kind” valuation. To extend the cash projeflow - in market status of Georgia at the time). the at Georgia of status market money” money” would analysis, accrue value additional based on Brown & - the same by rate used Brown Root & theto $10 million determine purchase kind contribution. – best reflection of how a third party viewed the risks of making an investment in in investment an making of the risks viewed party third a of how best reflection time. the at shares GTI to not was GTI exposed Thus, dollars. inUS tariffs earn to was Second, GTI r its with fact, In Georgia. in environment inflationary potential in Georgian denominated costs and its operating in dollars US denominated Lari the if future the in margins higher to experience likely more was GTI Lari, situation given unlikely a very not was dollar (which US the against lost value the emerging in venture. Any the participation of state’s benefit Third, the had the GTI itself. state the harm also would to harm GTI in resulting action political “ […] First, the discount rate was established by an informed buyer and and buyer informed an by established was rate discount the […] First, “ cond tranche reflects the 25% stake in GTI that the Claimants would have retained, but retained, that have Claimants the would in GTI stake 25% the reflects tranche cond With respect to the second tranche, Mr. Kaczmarek observes that Brown & Root had Root had & observes that Brown Kaczmarek Mr. tranche, to second With the respect its of projections on valuation tobased 2023, thereby opposed up toGTI 2006 as establishing a “pre- Root’s in- With respect to the first tranche, Mr. Kaczmarek observes ten that the TheClaimants’ 50% share ofGTI was then valued in two “tranches”. The first tranche The cash. for to purchase willing Root that was & Brown in GTI stake 25% the reflects se in a which, “post interest 25% offer in a GTI Root for cash to& support a Brown projections prepared US$ million in 11 a resulted the to This US$valuation. was 16.5 millionbasis on which &Brown Root to agreed cash consideration pay US$ 10 of (a 12% a applies discount rate Kaczmarek time,Mr. over in paid instalments to be was real rate) price for its shares in GTI – flows cash the Root to develop used & assumptions extends Brown same the Kaczmarek for the first ten of theyears project. discountTo cash flows to present value, Kaczmarek Mr. again applies a discount12% Root i & Brown by used same the rate, in his why, isconsideration, in an this the of rate acceptable measure investing risks of paras. 116 in 1995 [KaczmarekGTI I, 557. 556. 555. 558.

t ternational ternational itors on the transit transit the on itors

[Footnotes omitted.] [Footnotes Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos Soviet Union might well well might Union Soviet -

se rights had value in a different in had value se rights a different

178 - - 're ifbuying, that that'sbit's agreed, a very good market. If he's right, it means you can never have as a comparable a a have as a comparable youit can never If right, means he's market.

reason: the Brown & Root offer was too uncertain, because there were too there were too Root offer because too was & uncertain, Brown the reason: h, GTI’s core business was tied more closely to the global oil and gas gas and oil theto global closely tied more was business core h, GTI’s 84, 85]: amount to different buyers. Everybody might have wanted them for a different a different them for wanted have might Everybody buyers. different amount to that in had oil ex also the of AIOC competitor A reason. of the government, so that's a completely irrelevant consideration. Equally Equally consideration. irrelevant completely a that's so government, of the deal the that fact the account into take to supposed he's that idea this is irrelevant a been there would have been itif had but again consummated, been yet hadn't sale in the all that do valuers that cases the from know and we concluded almost that's sale the agreed actually someone's where agreement, of heads deals, Almost time. the they is it price, and what Mr to what contrary it matter, doesn't and value, a market indication of to buy wanted Root might have Brown that matter & doesn't it thinks, Lagerberg It later. project to a really get good construction to themselves the position rights to want you that just matters it something, to buy want you why doesn't matter it. pay for rights those wantto use you how plan game of different a you have factthat The the says, Mr Effimoff as because irrelevant, is compet their screw and rights pipeline the tobuy havewanted all There's out toSea market. oil Caspian getto their needed they fees when Mr And pipeline. this in interested been have could that people sorts of the market, in constituents different three of evidence got we've says Kaczmarek and rights, these buy to wanted each who motivations, different had whom of all them. with different very something done have eachwho would “First be could deal the before yet happened hadn't which variables many & Brown that fact the is mentions he variables those of one and consummated, would they that confirm government ian Georg the that a condition Root required happen. didn't that course and of rights, the honour Well, we if know all the valuing for you're one fact expropriation, the of purposes conduc theis expropriatory account into take to not supposed absolutely you're players, GTI’s concession eliminated competition in [the] Georgian pipeline [the] in competition eliminated players,pipeline concession Georgian GTI’s Accordingly, concession. of period the sector during and operation construction in of these projects for development did the GTI not anycompetition face Georgia. Fift would risk localeconomic Thus, economy. Georgian tothe than rather markets operations.” business on GTI’s effect have a minimal Fourth, although GTI would face competition from regional and in from competition would face GTI Fourth, although The Claimants reject Mr. Lagerberg’s criticisms of this comparable as misplaced, misplaced, as comparable this of criticisms Mr. Lagerberg’s reject Claimants The their summarizing responseto the reasons by Mr.given as follows [Tr.Lagerberg D12:82- Mr. Kaczmarek concludes Root that the of offer & Brown second the the tranche of FMV is US$ 20,745,146. 560. 559.

ts US$ 20 million for for million 20 ts US$ Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

” offer of US$ 50 million plus a 5 a 50 million plus US$ of offer

r that was offered by Brown & Root was Root was offered& was r bythat Brown

ion firm wanted to pay for these rights, here's here's rights, these for pay to wanted firm ion 179 - -

US$ 9,536,691 + US$ 20,745,146), unless an adjustment an unless US$ 20,745,146), US$ 9,536,691 +

i.e. he impact of corporate income taxes, which would reduce the

hat Velt Energie expressed a willingness to increase its offer to US$ 25 million. its offer a willingness to25 million. to increase US$ expressed hat Energie Velt the GTI shares held by them through Tramex. This offer was quickly rejected by by rejected quickly was This through offer Tramex. them by the held shares GTI with a counter responded who Claimants, meeting. this at parties the between reached was agreement final no Ultimately person (a Ataya Mr.Fayek to Patsatsia Minister Prime by sent letter a However, Georgia’s with offer Energie the Velt negotiate to authorized apparently “At the meeting, Velt Energie effectively offered Claiman offered effectively Energie Velt meeting, the “At understand we dinner, over Later project. pipeline AIOC’s the in stake percent t ers, Brown & Root did numbers, and to say, oh yes, it didn't get get didn't it yes, say, oh to and Root did numbers, & Brown ers, numb They did worked least at you've unless of agreement heads a sign don't you consummated, the as himself, frolic by all Mrwasn't Ferguson's and it out number, the numbe suggest; the seems to respondent So himself. Root by man the head & of Brown level highest the at approved to commit and agreement of heads sign Root don't & like Brown companies to buy going they're is what that out least worked at haven't they if numbers to prepared worthsomething what they're pay for it. what the producers in the Caspian wanted to pay for these rights, and look at the the at look and rights, these for pay to wanted Caspian the in producers the what to to a broker prepared get is was what offer, the thisVelt government Energie Tramex." of to rid for, get rights the and buy income for a number got you've payment, value nuisance the for number a got So you've somebody for a number got and you've construction, for it wants someone who valuable creates itvaluable, arethose of All transit. the want for it who them, you weight deal, and a hypothetical can create you fro which information m important the most right, he's and important, most the are ones which you say of evidence the at looked even hadn't Mr Lagerberg and one, AIOC the one is He number. the to got they how of 1995, of December in calculations AIOC's know to impossible it's if right, he's if Because evidence. that seen even hadn't could earth on how 1995, in November worth been have could rights what these threeAIOC, months later, have bought them? What you do is if you've got three different lots, then you can put them together, together, them put you can lots, then different three got you've if you do is What construct a what "Here's and say, nited Perlite Industries and Velt Energie for the Claimants’ interest in GTI. in GTI. interest the Claimants’ for Energie Velt and Perlite Industries nited Mr. Kaczmarek explains the approach taken to arrive at a value for this comparable as 135]: para. follows [Kacmarek I, is made to incorporate t to incorporate is made second the tranche of US$ 23,797,015. of tovalue US$ 14,260,325 for total FMV a the offer on meeting on an Claimants extended to a rely Tramex at 20 JuneFinally, 1995 by U Mr. Kaczmarek estimates the FMV of the Claimants’ 50% interest in GTI based on this this on based GTI in interest 50% Claimants’ the of FMV the estimates Kaczmarek Mr. US$ to 30,281,837 ( be offer 563. The Velt Energie Offer 562. 561.

If ith

I believe it was t's coming out of of out coming t's -- offering another 5 5 another offering

[Emphasis added.] [Emphasis

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ally envisaged under the the under envisaged ally

if our GTI share valuation of share of ifGTI valuation our examined about that. And the the And that. about examined . Thus, the Prime Minister’s letter letter Minister’s Prime the Thus, . on, plus a 5 per cent interest in the the perinterest in cent a 5 on, plus

” the government of Georgia. the government

180 - -

ffer, and if you look at the same letter, I don't have it it have don't I letter, same the at look you if ffer, and out of the rights in mid 1995, and under the contract, and under contract, the in mid 1995, of rights the out - Georgian Pipeline Company, which was in discussions w in discussions was which Company, Pipeline Georgian - the Claimants took the position that this offer was effectively effectively was offer this positionthat the took the Claimants

So Georgia, through Professor Tevzadze, was there at the meeting, participated participated meeting, at the there was Tevzadze, Professor through Georgia, So (presumably reflecting the views of the Georgian government) corroborates the the corroborates government) Georgian the of views the reflecting (presumably two analyses.” first by our reached conclusions valuation and affirmed the opening o opening the and affirmed time too much to spend going I'm not timethe available, in and slide, up on the as Mr Ataya itthat see describes you'll tab, same the inyouif look on this, but of on behalf meeting the attending Velt and Perlite United that is this to background the of understanding Our called vehicle purpose special ina shareholders were Energie “ the ‘offer’ Prime Minister Patsatsia referred to in his letter is the US $25 million million $25 US isthe his letter toin referred Patsatsia Minister Prime the ‘offer’ and Velt Energie by extended verbally offer valuation two prior our upon (based correct is million $62 US approximately an believed Patsatsia Minister Prime that can conclude one then analyses), n) of $62 millio US 5% plus $25 million (US million $28.1 US of offer economic rights Claimant’s for ‘almost adequate’ was approval) subsequent to the meeting indicates that the Prime Minister felt Velt Velt felt Minister Prime the that indicates meeting the to subsequent approval) ‘almost the was in project, stake of 5 percent remaining a offer plus Energie’s In short, that it further. Atayaotiate appears Mr. to adequate’ neg and asked increased. be fairly could offer Energie theVelt felt Patsatsia Minister Prime per cent of the share capital in the way that Tramex has requested." has Tramex that the way in capital the share of cent per […] 28. at out comes offer that And called the called the Trans to a buy as SakNavtobi contract the of revenues the of share its of out back pay to have would Georgia to Tramex. paid was whatever tha offer an this is but offer, party third a only notis So this Georgia. by endorsed being and pocket Georgia's suggested you think the offer We information. detailed your received have "We by deal the sweeten to go on can you if adequate, almost was Mr Kardassopoulos has testified that the opening offer was raised to 25 million to 25 million raised was offer opening the that testified has Mr Kardassopoulos - cross wasn't he dinner, over subsequently milli 50 seeking by returned claimants they wanted statement, third at Mr Kardassopoulos' look If you entity. successor oil own their topump rather but fees transit for simply not interest cent per the 5 initi had they that way the in pipeline the through in 1992. model GTI original meeting: the of report Ataya's to Mr replies Minister Prime The

confirmed by Georgia, as evidenced by documentation by Georgia, by contemporaneous [Tr. evidenced D11:22- as confirmed 24]: During the Hearing, During 564.

ence s 77, 86]: ly at para. 205]. ly para. at ” [Rep Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos this case as basically a forensic forensic a basically as case this

ayment taxes, of estimating of a value US$

t the Respondent has effectively asked the step intostep shoes another’s 181 -

- reinforcing valuation techniques” is in keeping with keeping is in valuationreinforcing techniques” - The CostThe Approach

(2) AIOC leaving transaction). - , you realise that he was asking himself a different question, and had had and question, different a himself asking was he that realise , you aimants. That is the wrong question. It's not the test. And if you look at at look if you test.And the It'snot question. wrong isthe That aimants. Unfortunately, yesterday, it's pretty clear that experienced though he is, Mr Mr is, he though experienced that clear pretty it's yesterday, Unfortunately, asking the question, and he accepts that the right question is hypothetical is hypothetical question right the that he accepts and question, the asking try to and 1995, November valuation, of date the at as seller, buyer/hypothetical to gave he at answers the look you if on that, actually price and fix an objective the questions assumptions. of series a different only the that is it why toexplain want do I because numbers, the to turn I Before feel you and why sh ould our numbers, you are before you have viable numbers comfortable that, with I think it's important to very know itwhy is that Mr has asked he really In question wrong. fact,the terribly went so Lagerberg in is say of the rights what were to worth rights the these himself hands in valuing cl these "If said, essentially he's yesterday, questions tothe gave he answers of the some have there would them, exploit to tried and theto rights on held these claimants Lagerberg has approached the quantum issue in issue the quantum approached has Lagerberg to is way the proper say would we init what approached not auditor. He's very to be himself allowed He value. fair market of question the approach the to respondents, important very that's pattern the of some factual distracted by he has and of quantum, to the question irrelevant isand which say completely we fact alleged an it's and pattern, fact that by distracted being in himself, allowed he' says he and although questions, wrong the himself ask to actually pattern, “ The Claimants assert that the Respondent’s approach to valuation, which would ascribe a a ascribe would to which valuation, approach Respondent’s that the Claimants assert The ofvalue “nil” to Claimants’ the project rights and them award only their costs of the tha is misconceived, contending project, [Tr. answer arrived D12:76 has wrong questions” the at in- so doing, and, “wrong As with the above comparables, Mr. Mr. alternative comparables, an Kaczmarek calculation provided above withAs the has this comparablefor to take of account p the the for value alternative the US$ 42,880,476, of 5% plus 25 million (US$ 27,144,029 the under GIOC GTI the sources of and value contemporary three of use that the Claimants conclude The “mutually those of weighting theseof transactions is being proffered to show that terms the a buyer would havewilling to GTI, a offered the had willing JVAseller, honoured and been Concession is not, and as anto attempt alleges, “ Respondent the orthodox valuation methodology. They They thereject contentionorthodox Respondent’s above the that methodology. valuation evid the that insist Claimants The investments. their value to inapposite are sources 567. 565. 566.

l expenditure,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

1995 would be worth US$ 36,517,031, 36,517,031, US$ worth 1995 would be

such such approach provide reliablean could a sed sed at 1995. 10 November to According Mr.

182 - - of his expert report is completely useless to you in in toyou useless completely is report expert of his uncertainties and too many risks. These claimants [he says] I I says] [he claimants These risks. many too and uncertainties Supsa export system. On Kaczmarek’sMr. assessment under the

- ese rights work, but that is not the test. Mr Lagerberg has asked asked has Mr Lagerberg test. the is not that but work, rights ese The Respondent’s Position The Respondent’s

168]. been too many don't have money think made could from these rights". He might be right about that, it doesn't matter, because it's not the question. This This it's not question. the because doesn't matter, it about might that, He be right the tribunal an ICC to under you as are not We coming claim. is not a contract contract on behalf ofrather than the twoTramex that individual claimants you of lifethe for profit of loss want "We you, to saying not we're and have, actually made". have would think we what we is and this jointthe venture, is.” number what the tois determine case, which this in to do have what you […] comparables", no valid are "There sitthere and say, to for So I an expert think claimants these that notion this by distracted too has been he that just shows have couldn't they because value, any of number getto a deserve don't somehow thever made no question, wrong the yourself ask you if and questions, wrong the all himself So I am answer. wrong the are, you get respectable you how completely matter all virtually that say to sorry national law, the Claimants are required to prove their loss, and they not donehave loss, they their and to required prove Claimants the are law, national approximately US$ 18 million, net of interest, for each Claimant [Kaczmarek II, II, [Kaczmarek Claimant each for interest, of net million, 18 US$ approximately

not a cash flow flow cash analysis. not a and willing (i) a elements: five the following requires FMV submits that Respondent The market; unrestricted and open an (iii) in length; arm’s at acting (ii) seller; and buyer able so in this case. In the absence of of therefore submits Respondent the absence the reliable evidence, that so in thisIn case. to it valuation isapproach appropriate in thisbasis on the case historica of Nevertheless, Mr. Kaczmarek provides further Kaczmarek Mr. a of valuation Nevertheless, alternative GTI’s rights on the stating that based approach, cost customary under or Treaties the under that, whether position the takes Respondent The inter measure of the FMV of the Claimants’ interest in GTI if applied properly. Proper Proper properly. if applied GTI interest in Claimants’ of of the FMV the measure it determination what would, in involve a his of view, approach cost the of application the towould cost acquire posses rights GTI this includeKaczmarek, would valuing thenecessarily exclusive rights to build and operate the Gachiani in November GTI of share 50% a approach, cost i.e. 163- paras. 570. 568. 569.

rs Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos uyer scenario was not made

vis the claimants, in terms of asserting of asserting in terms the claimants, vis -

a -

183 - -

r have reasonable of theknowledge relevant facts; and (v) stances, the latter two elements (reasonable knowledge and was reasonably informed would reach a similar conclusion as this this as conclusion similar a reach would informed reasonably was

reading it, the Tribunal dealt with the issue of the validity of the claimants' dealt of validity of the claimants' the the with issue the it, Tribunal reading 01]: I don’t recall that Chee Jap ever told us that their rights were being attacked, attacked, being were rights their that ustold ever Jap Chee that recall I don’t In the jurisdictional award, and I'm glad to see some of the Tribunal membe ofsome Tribunal the see to and I'm glad award, In jurisdictional the …. I would have immediately gone to Larry Farmer Farmer to Larry gone immediately have …. I would question into called and being then. and there the plug pulled doubta he wouldhave without and toldand him, “ “ re- law, and under Georgian law, international law and Georgian both rights, under third any that believe we and void, were rights Tramex's that found thisTribunal who party Tribunal. was Georgia that determined Tribunal the while that add would only We law visestopped from evoking Georgian party third a how about it, could nor nothing, says that case, this in jurisdiction ” rights. the claimants' would view The Respondent further submits that the price that a third party buyer would been have third party a that submits further Respondent price The that the upon the rescission”, relying of impacted “risk by the would have to been pay willing [Hearing 142]Note Bundle, Tab and Co. Preliminary & in Paisner the provided advice to MacDonald, wit Mr. [Tr. of D7:12]: testimony the (iv) where(iv) both buyer and selle motivation or [Tr.no special D11:40]. circumstance an FMVassessment Furthermore, Respondent rights, the GTI’s valuing exist. actually In they conditions as assumes that,considers in the circum any particular, in Claimants the and, taken by approach the motivation) preclude special reliance on the three comparables. een willing to willing been buyer would have party third that a view, price Respondent’s the the In forpay GTI’s rights would have been impacted the by “lack of legal certainty” in respect rights. those Theof Respondent that if adds there is a basis thatreasonable to believe a b –willing seller willing hypothetical the in buyer willing aware of relevant facts, and would have acted differently in the face of those facts, then meaningful a would not be ignorance of state in while a offered value buyer the any of other in market the would any party how proxy act. on Decision in its finding Tribunal’s the highlights Respondent the this regard, In Jurisdiction, Tramex’s that to effect void rights the under were law Georgian [Tr. D12:200- 573. 571. 572.

” that

greater

sufficient probability sufficient threshold of evidentiary the marketthe Mr. approach,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

”. The Respondent agrees Respondent The ”.

dence valuation a for dence on this basis.

184 - - AIOC leasing transaction developed under income the transaction developed leasing AIOC - The Market/Income Approaches

(1) using DCF a model, Mr. thatconsiders immaturity the ofLagerberg the 99]. The Respondent cautions against accepting numbers proffered by the numbers against cautions Respondent accepting 99]. The i.e. i.e. We couldn’t afford to get involved in an argument between the government of of government the between argument an in involved get to couldn’t afford We ” of. thinking were we that entrepreneurs and Georgia regard, on the testimony of Mr. Ferguson and Mr. Farmer to the effect that Brown & & that Brown to effect the and Farmer Mr. Ferguson testimony Mr. on the of regard, the investment and AIOC with contracts engineering securing was interest main Root’s from recovered from profit been have proceeded investment could the if only would have 8]. and [Tr. engineering services provision D3:10;the of para. Farmer construction I, “ is analysis, a submits Respondent FMV there The an that, on it and is certainty must meet, that comparable any value “ it require does perfection, not require thiswhile does threshold In regard to the regard In fifth element the test, the of statesFMV Respondent that Brown the & Root “special had because & comparable Brown inappropriate is an Root offer Respondent in this The relies, GTI’s rights. in of respect deal a striking motivation” for [Tr. D12:198- the existed because period. relevant numbers those during Claimant simply considering mostIn the approach appropriate to Claimants’ valuing the rights, the takesRespondent position the cost that the approach is to be preferred over market the or income approach, because there is more reliable evi is out set below approach cost in Respondent’s V.E.4(b)(2). Part The the regards As income and market approaches deployed by the Claimants, Mr. Lagerberg produces that neither approach credibled that, a concludes an valuation while valuations using these approaches may be theoretically possible, they are not appropriate in the the because case valuations speculative and present highly are fundamentally resulting consideringunreliable. the proposedIn comparables under approach, approach, Lagerberg cautions that is offer mature that an tocompletionLagerberg close and “ has starting a the than more no might be offer that than an for valuation purposes credence Velt and Root & point of considers a negotiation Mr. Brown both”. the Lagerberg to [Lagerberg offers fall category 3.11]. para. in latter the Energie I, GIOC the considering In 575. 574. 576. 577. 578.

- is not

action duringaction ly unsound and unsoundand ly

US$ 801,985 (x 17.5%);

- 52]: Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos interest in GTI would worth be reserves in Azerbaijan) for number a of

; (b) GTI was a joint venture between Tramex 185 - - Supsa pipeline [Lagerberg I, para. 5.54]. para. [Lagerberg Supsa pipeline I, - AIOC leasing transaction ts of that deal should be used to value GTI because because GTI to be value used should ts deal that of -

US$ 4,974,177 (x + US$ 17.5%) 501,511 x the and 45%;

US$ 5.73]. para. 2,775,000 (x [Lagerberg 10%) I,

MR LAGERBERG: Without diving into detail, if, for example, you're looking at at looking you're example, for if, detail, diving into Without MR LAGERBERG: the leasing transaction between GIOC and AIOC, and you're by implication implication by and you're AIOC, and GIOC between transaction leasing the benefi economic thesaying the of the perspective from transaction that at look now comparable, they're value so you think there's and money, you Tramex, see you're if different players, value. the take we'll in that, “ AIOC LeasingAIOC Transaction - project and the absence of credible data for fundamental assumptions, such as tariff rates, expenditure, capital financing timescales, and meansrealistic that valuation the would be result the inherent speculation would be of degree high a on such based unreliable. Mr. Lagerberg also takes the view thatthe weightings assigned to each of the Claimants’ proposed comparables are arbitrary. However, to the extent these weightings are he“appropriate states inconsidered principle”, that 25% a to each ascribed to be value the of on his calculation adjusted US$ based 1.5 million, comparable respectively: GIOC Brown &Brown Root transaction - Velt Energie Offer - Mr. Lagerberg raises three main criticisms of this transaction: (a) the role of GIOC was different of that fundamentally from GTI state (c) GIOC a and was project; “BOO” or Build, Operate a Own for SakNavtobi and owned company with different priorities arrangement with different into leasing GTI entered company a than and owned (whowith AIOC had rights to throughput/ Gachiani notpipelines, limited to the about a hypothetical situation l exercise as a theoretica realistic positioned and should be of rather than the a meaningful assessment value of Claimants’ the interest in equity the 5.57]. para. of [Lagerberg as GTI at 1995.” I, elaboratedMr. basis for on the leasing his the Lagerberg rejection of trans follows [Tr. as witness conferencing procedure the D11:151- In Mr. Lagerberg’s view, a valuation of GTI based on the leasing arrangement “ based leasing on the GTI view, of valuation Mr. a Lagerberg’s In 579. The GIOC 580. 582. 581.

ng is ng is n the owned -

is 50 per cent cent per is 50 erefore oneerefore cannot stand

term, partnership, or or term, partnership, Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos nt away, does that make make that does nt away,

AIOC leasing transaction, asserting that itthat asserting transaction, leasing AIOC -

ty good indication of the value which the the which of value the indication ty good 186 - - IOC, but in principle, if you're dealing with a state with dealing you're if in principle, but IOC, at it from GIOC's perspective, Georgia's perspective, would it be be it would perspective, Georgia's perspective, GIOC's from at it

to simply say we must assume that whatever Georgia's position would would position Georgia's whatever that must assume we say to simply ” term, in any basis, with Tramex? with basis, in any term, your counterparty be able to to able be counterparty would your enterprise, and a commercial owned - - Youlook then deliver? Would the commercial enterprise to enterprise be able deliver? then deliver? commercial again, the Would And - long todeal want would they perspective, from Tramex's the same? Mr Kaczmarek has described accurately that the high value the value high that accurately has described MrtheKaczmarek same? your thing, maximise own operate, run and your the build was proposition operation. value lower a is leasing the then and revenue, of intention the purpose, primary the that the basis on GTI, looking at If we're scenario, a different about talking now we're and operate, to build was GTI one. So a leasing is which operation, different a very nature inherently by In the value operation. low to a a high down value Georgiafrom is going now partner. venture itsjoint from contribution an equal for looking it was BOO, It's now going to from a where there's no contribution venture its partner. is AIOC dealing transaction, in GIOC the e, perspectiv AIOC's from look If you to looking they're and government, sovereign state, sovereign the essentially with their From government. the sovereign of expect they what it todeliver which entity an with dealing logically, just perspective, a different is owned, privately commercial, cent per 50 owned, government You be aligned. not may which immediately interests You have proposition. many there weren't in that transaction then the be, and I may accept GIOC obligations on G to deliver. Georgia expect would they perspective, AIOC's from entity, a got has which an entity with dealing you're if that concerns be There might state short CHAIRMAN:THE Isn't that a pret rights? those to attached was recognised Georgia Republic of therefore deal a was it say simply to just easy too it's think I LAGERBERG: MR sayi I'm What got. have could GTI that value the be reference it by must of value the as same the is GTI of value the say that is do to trying what you're is out I'm pointing What comparable. they're because transaction, this GIOC two, the between and differences fundamental there significant, that are actually therefore is irrelevant. be, would position AIOC's be, whatever up giving so proposition, value low a for going they're Georgia, at look you So if ce 50 per giving they're and from a BOO, the value fact very the that saying just I'm but might, It Georgia? from sense economic make cannot you means cetera, et counterparty, nature, by different they're that i be to happen both they because simply B, equals A assumption, a simple universe. As a a As theresult, Respondent rejects the GIOC it rightsis because too GTI’s for value to establish a comparator inappropriate is an fromdifferent model the by thecontemplated GTI th project and 583.

money means a a means money - the propriety usingthe of this

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

rt V.E.4(c)(2)rt below. money” by Mr. approach taken - money valuation’ refer to refer to valuation’ money 32]: - ry attractive, that the Tribunal the that ry attractive, Tribunal

money/post ches is unsound for at least three reasons three least ches at is unsound for

- it was a project to build a pipeline when when pipeline a build to project a was it

187 - - of a contemporaneous valuation; and valuation; a contemporaneous of ollect transit fees and we want you to consent to to consent to you want we and fees transit ollect te. This flows from the definition of the ‘fair market market ‘fair the of definition the from flows This te. money valuation’ and ‘post and valuation’ money this is at a point where we have not constructed a pipeline a pipeline constructed not have we where atis a point this --

the joint venture agreement. Now what would have happened happened wouldhave what Now ventureagreement. joint the

didn't have the right to simply collect transit fees and to divorce that right right that divorce to and fees transit collect simply to right the have didn't we want to sell our right to c right our sell to want we We say this isn't Mr Lagerberg misunderstanding the position. The fact is that that is fact The position. the misunderstanding Lagerberg Mr isn't say this We

situations in which an investment is being made in an entity. Pre entity. in an is made being investment an in which situations “(a) There should not be a difference between the ‘fair market value’ of one one of value’ market ‘fair the between a difference be There not should “(a) stake) same the (i.e. rights same the given share equity another and share equity da a single at in an equity had in 1995 the claimant said to SakNavtobi, "We want to sell all our rights to to our all rights want to sell "We to said SakNavtobi, thehad in claimant 1995 fees transit receive - value’ […]; because Date Valuation the at of GTI a shareholder Root not was Brown & (b) it that assume not should valuation the Therefore, completed. not had deal the logic the breaches do so was; to - ‘pre terms The (c) GTI there is this morning, mentioned Lowe as Professor and from its obligations, assign to consent be to needs there 20, article under and consider, to 20 article under yourrights their rights, selling simply to them consented have wouldn't that"? SakNavtobi in go hand they time,the at same theirto obligations sell had have they would hand. contract, this of root whole the is This the right confer didn't contract This income. create to needed desperately it was this and claim, damages their valuing in claim to trying now are claimants the that analogy say they is a ve simple very analogy, “ that for entirely misconceived is leasing model, GIOC/AIOC look the should at, didn't they something right to the them having on based is it because reason, have.” transaction, he has put forward several specific criticisms in respect of the assumptions value the which reduce analysis, would substantially in Kaczmarek’s Mr. made in These considered Pa are to thisattributable comparable. Kaczmarek to value the offer in two tran para. 5.15]:I, [Lagerberg Notwithstanding Mr. Lagerberg’s general position Mr. concerning general Notwithstanding Lagerberg’s Mr. analysis, to may standIn whilst aLagerberg’s thispotentially as benchmark offer pre “the GTI in rights Claimants’ the value as a proxy for the other. The Respondent therefore defended Mr. Lagerberg’s position Mr. defended Lagerberg’s therefore Respondent other. the The for proxy a as the follows [Tr. D11:130 as explaining Hearing, during - The Brown & Root Offer The Brown & 584. 585.

51]: question ” forstarter non-

dity of rights s the valuation Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos money’ is applicable to to isapplicable money’ - money valuation plus the the plus valuation money - quently by Nabarro Nathanson. Nathanson. by Nabarro quently

money valuation i valuation money ” -

this is page 13, line 11: page 13, is – this

188 - -

examination, said said examination, -

which positions Brown & Root, and this is, I think, probably more Root, and this is, Brown I more think, probably & which positions

-- vent, the goal for Brown & Root was a set of construction contracts, a contracts, of construction Roota set was & Brown for goal the vent,

In any e In any Had Brown & Root known that there was a question mark over vali over mark a question there was that Root known & Brown Had an issue for an expert accountant, but it positions Brown & Root in a rather Root in a rather Brown & it positions but accountant, an expert an issue for very of potentially benefit a is toacquire seeking what it's where unique situation is unique. position its but it, to value significant […] Root had a & Brown that fact the that Are then you saying LOWE: PROFESSOR etical hypoth as a buyer? them discount to have we that means interest particular particular particular being granted to GTI, they wouldn't have proceeded. Chee Jap withheld from from withheld Jap Chee proceeded. have wouldn't they GTI, to granted being nottell she to decision Brown tookthe & a conscious ninja, Macdonald Faith Macdonald's Faith Macdonald, to Faith According was. position the Root what question were there that Jap Chee by informed not was she clear, is very evidence were claimants The possessed. GTI said Tramex which rights the about marks Root. & Brown with not open Faith Macdonald, on Faith Macdonald, cross mark. a question been have would there least At were hiding that information from us, what did it bode for the future? for future? did the bode it what from us, information that were hiding they "If as asfundamental something hiding they're if to hide, else they going were What that?" been have would counsel external in due course, that clear made She also say Root. that We & by Brown conducted process lin norma the instructed the assessed would have position the to consider in counsel brought external a reach and would granted been had which of rights validity the as to question subse that at from arrived no different conclusion “ the situation.” value of the investment. Brown & Root had not made an investment in GTI at at in GTI investment an made not Root had & Brown investment. the of value I thus do not term thinkthe ‘post Date and the Valuation “ after the investment is made and is equal to the pre the to equal is and made is investment the after valuation before the investment is made. A post A isinvestment made. the before valuation ” over validity the ” GTI’s would have rights, proceeded of they never with the Second, the Respondent submits that the Brown & Root transaction was motivated by motivated was Root transaction & Brown that the submits Respondent the Second, circumstances cannot [Tr. and for stand special proxy FMV therefore a D11:50- as The Respondent therefore describes the Brown & Root offer as a “ a as Root the offer & Brown describes therefore Respondent The Root had & insufficient reasons. First, Brown that claims Respondent the several to the satisfy the of knowledge requirements FMV upon the test, relying testimony “ a was there Root known & Brown that, had effect tothe MacDonald Mrs. mark [Tr. D11:52]:transaction 587. 586.

” [Tr.

died beforedied it Brown & & Brown

ed selling his ed selling his Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

” takes it outside of the process. But But process. the of outside it takes

189 - - in it. in e subject of a sober financial assessment exercise of of exercise assessment financial sober a of e subject ess to capital expenditure, significant advance to capital to capital advance significant to expenditure, ess capital

the evidence of those in the know has been consistent that throughput throughput that consistent has been know the in those of evidence the t inhis evidence.

Mr Kaczmarek relies on forecasts, figures that were prepared in June 1995. 1995. June in prepared were that figures forecasts, on relies Kaczmarek Mr liminary"Pre is entitled found tobe are figures those in which The document case. is Georgia's preliminary very preliminary, Proposal"; Plan Business no really are document that within contained figures the is that case Georgia's were They scenarios. case working hypothetical of examples than more acc without calculated of terms in data reliable without calculated were They figures. expenditure been had actually or negotiated, being were actually that agreements throughput entered into. th not were they say we So with, to work valuer for form an expert material the can that properly sort commercial in time the all appear that calculations financial of sort the they're and to party do something, e another to persuad is seeking party wheredeals, one these good how scenario, look case working a here's look, to issuggest, seeking in Clearly ambitious doing. was Mr Ferguson that's what and figures are, Root, which involv & within Brown project his to promote seeking the pushed that a fashion in project his and selling claimants, the to project in Georgia to given in presentations had done he accepted he just as envelope, that to something said He way? that done presentations all aren't September: effec important most single the information, of piece important most single the On commitment economics, pipeline considering you're where information, piece of agreements, throughput Without nothing. there's the pipeline, toactually use and throughput finance; without obtaining towards vital vital, are agreements piece of and a ground, the in of metal just a piece is pipeline the agreements, holes with thein ground metal “ Why should that be? Why should we not say that amongst the category of of category the amongst that say not we should Why be? that should Why ways of a range of would be with people different there buyers, hypothetical account? into them of all take we and buying, were they that rights the exploiting MAN: Because, as Mr Farmer said, it's likely that oil is going to to going is oil that likely it's said, Mr Farmer as Because, CHAIRMAN: THE driven, this is this Farmer Now isn'tflow Georgia. justFerguson through those yes, interests be to in may it acquire our saying, to Ferguson reacting rights. -- position is answer doesn't that to that Our that MR SAUNDERS: Root is not positioned as a fair market reference point. It is not operating in, I I in, is operating not It point. reference fair market a as is positioned not Root and that position, a particular desire, it particular a guess, has a fair market, takes it set rules, that from a valuation of territory. accounting expert into I'm straying again, Third, the Respondent contends that the Brown & Root offer was too uncertain, as a too as uncertain, was Root offer & Brown the that contends Respondent the Third, “sober” analysis of what the transaction was worth never took place; it “ ever got to that point,ever and it for that it died reasons meant was always going to fail D11:50]: 588.

er could

”

.” al proceedings. There There proceedings. al Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

ly no proof of any, and on a a and on any, of proof no ly

” [Tr.” D11:47]: line letter from Prime Minister Patsatsia Patsatsia Minister Prime from letter line

190 - - es at at es valueUS$ 801,985 for a of ina GTI. interest 25%

ecific the would reduce value a proxy risks, of ecific which to25% in GTI stake vague dinner vague conversation over . D12:201; see also Lagerberg . D12:201; see para. also 5.69]:Lagerberg I, We know by virtue of a letter between Velt Energie and United Perlite that that Perlite and United Energie Velt by between letter know virtue of a We ie offer, even Mr Kardassopoulos accepted that the the that accepted Mr Kardassopoulos even ie offer, Energ the at Velt look To Tramex assured Velt Energie that their legal position was a strong one, having a strong having was one, legal position their that Energie Velt assured Tramex leg previous by supported and confirmed repeatedly been just the is evidence fact, the in and by Tramex, this assertion for no basis was any not offer, made and we're certain Veltthat extentopposite. Energie the To off that of value the and one, informed an not was offer their did, they of damage measure appropriate an to be considered not be “ offer from Velt Energie was not to be taken seriously. At most, it's Georgia's it's Georgia's At most, seriously. taken to be not was Energie Velt offer from no due was diligence dinner, over a conversation case of a matter was it certain there's offer, the to relation in undertaken “ be to certainty sufficient lack it would analysis, contractual normal two - vagueA an offer. as characterised doesn't change that position. We say from that passed, after have We 14 years position. that doesn't change to than said can be that more little there's dinner, over conversation vague serious. very wasn't it that assessment Kardassopoulos' Mr endorse We say it's relevant that in this case, as was clarified yesterday, no sound cost cost sound no yesterday, clarified was as case, this in that relevant it's say We was there because at arrived never was it and at, arrived ever was estimate an in was pipeline the whether to test as advanced even test or final no actually ” needed. been have might repairs what and exactly condition, working adequate The Respondent submits that there is no evidence that the prospective buyer conducted buyer conducted prospective that the is submits no evidence Respondent The that there important an is which held, Claimants the that rights exact the g regardin diligence due to submitted offer, that this is therefore [Tr. It analysis D12:200]. FMV the of element such, inappropriate uninformed is as considered an and was measure be extentthe it may [Tr value of Apart from the above general criticisms of this comparable, Mr. proposes Mr. this criticisms of above an comparable, the Lagerberg from general Apart upward adjustment to the discount rate fromapplied to 36% 12% to reflect market risks sp project and little it as characterizing uncertain, as offer too Energie Velt the rejects Respondent The more than a “ US$ 4,974,177 [Lagerberg I, para. 5.30]. Alternatively, using Root’s 5.30]. & para. Brown Alternatively, I, US$ [Lagerberg 4,974,177 butassumptions, did Mr. as theseadjusting asKaczmarek, factors for well taxes, as Mr. Lagerberg arriv 591. 589. The Velt Energie Offer 590.

position that a positionthat

bility have existed if if existed have bility Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos he lack recordshe of accounting

egedly expendedegedly by the Claimants, only US$

191 - - As stated above, this standard is intended to eliminate eliminate intendedto is standard this above, stated As 88 ’s Determination ’s

ation Valu Appropriate Method The The CostThe Approach 32].

(1) (2) The Tribunal establish situation would, in the all proba which -

c) p. 47. , at that act had not been committed. The Tribunal finds the Claimants’ approach to valuing the Claimants’ 50% interest in to Claimants’ the in finds the interest Tribunal 50% valuing Claimants’ The approach GTI’s rights, based on the income market and approaches, to be compelling in this case. of their support in authorities several alsocited have Claimants The Mr. Lagerberg states that the cost approach is the only viable methodology to be used in methodology is viable the in that used states toonly be approach cost the Mr. Lagerberg 10 November of balance as 1995, and sheet GTI’s of assessment an Following this case. the Nexia and Deloitte reports, Mr. Lagerberg concludes that the Claimants expended US$ 5.5 million business of tobetween US$ in operations 6.2 million GTI’s the para. 7.25]. I, [Lagerberg that, due states to Mr. t then, principally Even Lagerberg source original and documents, is unable he to reach conclusion toa the as validity of all expenditures incurredthe Tramex by of GTI. on behalf Mr. Lagerberg therefore arrives the at that, ofconclusion totalthe amount all pipeline the of refurbishment or the to construction be tied directly may million 3.2 payment this of amount, and, US$ by 981,425 is supported documentation project only paras. 7.31- I, [Lagerberg of compensation standard law international customary that the recalls Tribunal The the possible, of as that reparation out consequences all the must, wipe far requires as re and act illegal not, does which State is the for responsible. theIt act of wrongful consequences the prescribehowever, the for method arriving at riatean value. approp The duty Tribunal’s the the of loss, the basis of that it on the amount of estimate best can the is to make evidence. there proof if is documentary no absolute ofThatavailable even must done be amount lost. precise the Chorzów Factory See See

88 595. 592. 593. 594.

ng US$ 28.1 length offer length

- i.e. i.e. 91

Willing sellers sellers Willing .” pert evidence concerning the aised are not are aised situated in an Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos The Arbitrator concluded, following an concluded, an The Arbitrator following

89 192 - - the solethe Arbitrator Pierre observed(M. Cavin) basis ofon the

90 ”

the tribunal determined that it could be assisted in assessing the FMV the FMV in assessing be it assisted that could determined the tribunal Enron

of the claimant’s participation in a natural gas transportation company (TGS), company transportation ain gas natural participation of the claimant’s

length, contemporaneous transactions (or potential transactions) to assist in valui potential transactions) transactions (or length, contemporaneous . se Brown Root& had a “special interest” in securing certain construction contracts - tion that has turned [out]turned in Tribunal’stion meaningful the that be findings has to at 161. at p. 189

at para. 387. para. at

It is not common in investment treaty arbitrations that a Tribunal has available to it three three it to available has Tribunal a that arbitrations treaty investment in common not is It arm’s Similarly, in Similarly, rights which the in issue by inof market several had transactions transpired considering respect namely a swap and a share sale transaction. The tribunal aptly noted: “ in the region. in region. the the As indicated theTribunal during it Hearing, sees no reason why, not be may there analysis, hypothetical buyers of FMV category willing in the an among different of range to exploitways buyers a rights such would seek [Tr. in which GTI’s completed or seriously contemplated transaction offers thebest evidence of an asset’s FMV. For example, in Sapphire, expert evidence that “the concessions which must appr be rights of where transactions. sale ofarea object extractionThe usual often the are applied.” be therefore … cannot method of assessment transactions territories in and neighbouring ex publications to from devoted oilgeographical Iran derived right to the extract of value and the Middle East generally, that an appraisal “such is from not free [of future profits] been proof other reasonably could what have see to it is But difficult uncertainty. plaintiff. the of required and willing in this buyers are case thus no hypothetical longer but real a enough, situa an investment, much less three that converge in a narrow range of value, by the Respondent’s not persuaded is Tribunal million US$ 30.6 million. The to may Brown Root not that the arm’s offer an & considered argument be becau at p. Ibid. Ibid. Enron, Sapphire,

90 91 89 598. 597. 596.

what the

view expressed by

oil [would] flow at “oil flow [would] vague conversation over vague mony concerning the Velt Hearing Br. at para. 103; Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos -

AIOC leasing scenario as a valid -

193 - - ”. [Hearing Tab [Hearing ”. Bundle, 280] 52]. - the buyer proposes to extract profit from an asset, but only asset, an from to profit extract proposes buyer the

ather, the Tribunal agrees with the Claimants and their expert, Mr. Mr. their expert, and Claimants with the agrees the Tribunal ather,

].” ts) 16 days the expropriation [Cl.after Post An intuitively appealing method of concluding the value estimate is for the the for is estimate value the concluding of method appealing intuitively An As a standalone, I would tend to agree with Mr Lagerberg. If that's all we had, had, we all that's If MrLagerberg. with agree to tend Iwould standalone, a As

51]. The Tribunal agrees with the Claimants that it matters not to a hypothetical hypothetical a to not it matters that Claimants the with agrees Tribunal The 51]. tage decide on a percen and judgment to but use informed subjective (1) analyst: would all agree all would agree we think I more, nothing offer, Energie Velt the was have We have. we not all that's but exercised, to be ought caution considerable can that rights, these involving transaction actual an have do we and far more, approach my to weight cent 10 per a it ascribed I only again, So be valued. [… “ “ ”: Dr. Shannon Pratt in his treatise on valuation (relied upon also by the Respondent): the on valuation Shannon Pratt in hisDr. by treatise (relied upon also Although the proposed weighting of the proposed the the weighting of on the comparablesAlthough entirely professional is based Mr. his of team, Tribunal and in the isKaczmarek thisand not judgment scientific, sense that this the not consider notingdoes weightings the renders arbitrary, Kaczmarek, Tr. D11:151 Kaczmarek, whilst that theAdditionally, agrees Tribunal an transaction which or offer to is close completion has greater credence than an offer or transaction thatthe ha mature, s to yet relative the taken into maturity properly account Claimants finds that the have Tribunal of each transaction or offer by weighting the comparables as Mr. Kaczmarek proposed. thisIn connection, the Mr. notes Tribunal Kaczmarek’s testi as “ than Respondent the no more characterised offer, by Energie dinner The Tribunal is similarly Tribunal The on the not before persuaded evidence itany by the of grounds the RespondentGIOC rejecting by the for raised Kaczmarek, that it is difficult to conceive of clearer evidence of the likely value of an expropriated asset (and related rights) than a sale transaction involving the same asset (and righ comparable. R D11:50- how seller willing hypothetical buyer is willing to pay for the investment. The Tribunal also agrees that, in that, investment. also the Tribunal for to agrees The is pay willing buyer hypothetical on the it that Root’s based strategic value toevent, & have been appears any Brown offer attached to GTI’s rights, as evidenced Mr.by Farmer’s belief th somedaythrough Georgia 601. 600. 599.

ed.

th , 4

aczmarek. rrive at the FMV of dent’s expert has, with all with all has, expert dent’s

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

advocated by the Respondent. by the advocated The

ates an assumption that the pipeline pipeline the that an assumption ates ustments that, in its view, must be made in in made be must view, its in that, ustments

92 194 - -

Outages

(a) AIOC leasing transaction leasing AIOC the and Brown Root& in order offer Proposed AdjustmentsProposed to Value -

(2)

and (2) to base the final value estimate on a weighted average of the the of average a weighted on estimate final value the to base (2) and weight to assign to the indications of each meaningful valuation approach or or approach valuation meaningful each of indications the to to assign weight method indications ofindications various methods.” the Hill, 2000) at p. 445. 445. p. at 2000) Hill, - would operate at an average 83% of capacity to account for planned outages, as well as a a outages, as well as planned to account for capacity of average 83% an at would operate outages. for unplanned to account 1.5% of risk premium Accordingly, the TribunalAccordingly, finds it appropriate in the circumstances of this to case rely on by proposed Claimants, comparables, as the to a weighted three the due respect, asked the questions” the arrived “wrong and asked answers”.“wrong the respect, at Thisdue is not appropriate an incase to value Claimants’which the in GTI interest on basis of the a costs approach, much less the wasted costs approach Respondent’s arguments in this respect are therefore rejected. is 1995, which 10 November that at as value the in GTI interest Claimants’ 50% the formed point the forshould the have starting work the of commission;compensation and K by Mr. accordingly Tribunal methodology the the developed adopts the Respondent, by levied in the criticisms have several been above, specific noted As Mr. in of respect methodology, Claimants’ valuation the adopts Tribunal that the event Kaczmarek’s valuation model concerning adj of both the respect GIOC The GTI. in interest 50% Claimants’ the of value the of estimate reliable a at arrive to in. each turn shall consider Tribunal to take scenario with leasing the proposes adjustment in connection an Mr. Lagerberg of in the outages account by reducing the days pipeline of in number a that revenues year 365 to 355. from accrue confirms Kaczmarek Mr. that his model incorpor The Tribunal also agrees with the Claimants that the Respon the that Claimants the with agrees also Tribunal The Valuing a Business: the Analysis and Appraisal of Closely Held Companies Held Closely of and Appraisal Analysis the Pratt, & Reilly Business: Schneihs, a Valuing

(McGraw 92 603. 604. 605. 606. 602.

barrel from the initial initial the from barrel

ent was illustrative only, it only, illustrative was ent

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

195 - - the costssecurity of services provided Georgia,by

Security Costs Taxes

(b) (c)

offer be adjusted to take account of corporate tax account of income income be to and take adjusted withholding offer tment would take of tax intment 1995 would take prevailing onaccount 20% in Georgia of rates

Mr. proposesMr. Lagerberg deductionthat a be made to value the of the scenario leasing to security of costs, i.e. account take assuming assuming purposesfor “illustrative” deductiona US$ 0.01of per income corporate and on dividend income.10% Whilst originally Mr. Lagerberg that proposed an adjustment be also made to take account of profitsa “windfall tax”, he tax, arguing in respect of the leasing transaction that AIOC and GTI were very different This treatment. same the received have likely not GTI that would such entities adjus Mr. Lagerberg accepts Mr. Kaczmarek’s explanation concerning outages, but that asserts has in assumed Kaczmarek Mr. outages of level the whether question open an it remains is reasonable. his analysis Tribunal levelThe Mr. finds assumed Kaczmarek’s outages the of to and be reasonable proposed adjustment is therefore rejected. by Mr. assumed transit barrel Kaczmarek. US$ 0.17 per fee Mr. Kaczmarek accepts this proposed adjustment and has recalculated the value of the leasing scenario accordingly. adjustm this as that contends nevertheless Mr. Lagerberg be cannot considered an assumption.accurate Mr. not, does Lagerberg however, provide himself has he assumption one accurate the than more might a what be indication of any proposed. theIn absence of any further accurate evidence a more constitute of might what US$ adjustment of costs, proposed finds the security Tribunal the assumption regards as reasonable. to barrel be 0.01 per proposesMr. Lagerberg of valuations that the the transaction leasing and the & Brown Root 609. 607. 608. 610. 611. 612. 613.

free basis, the -

Brown & AIOC Brown and

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos o reduce damages basis on the o reduce to the extent it is maintained), maintained), it is extent the to another treaty and taxany benefits a violation international a of law.

Supsa export system on a tax on a Supsa export system -

Supsa i.e.export system, - 196 - - ”) clause in the Georgia / Greece BIT would the allow . 60] MFN -

y to have maintained propriety the of y adjustmentfor an income and dividend Mr. Kaczmarek states that he excluded taxes from his valuation methodology because Gachiani the of both potential operators withholding taxes.withholding appears onl appears Root, did not consider in their own analyses that they would be subject to Georgian taxes. to Georgian subject would be that they analyses own in their consider Root, did not while may Moreover, GTI have been subject to income taxes corporate dividend and se that counsel respectively, Georgia advised 10%, and becau taxes 20% withholding of had permitted AIOCto operate the Gachiani Although Mr. Kaczmarek has provided adjustments to reflect the payment of corporate corporate of payment the adjustments Kaczmarek to Mr. reflect provided has Although income and withholding income taxes, he rejects Mr. categorically third Lagerberg’s profit” adjustment for taxes “windfall proposed ( most favoured nation (“ most favoured been taxedwould not either have basis that GTI damages on the Claimants to recover [Kaczmarek paras.II, 59 foreign that several reasoning and unsound”, and it “provocative as characterising claiming that proceedings taxes arbitration windfall international brought have investors constitute by Mr. proposed those Lagerberg as such The Claimants add in respect of MFN treatment that, in circumstances where both of the and treatment ECT investments, provide the covered BITs MFN for it would be t to Respondent seek the impermissible for and inequitable that taxed never taxation was of exercising itsAIOC rights. given pipeline The for on theRespondent, other hand, that thecontends only MFN clauses permit Claimants the more of advantage rightsto take favourable granted by on AIOC werebestowed to not pursuant given Thea Respondent treaty. that thereadds MFN status law. under international obligation to accord is no general adjustments these tax, that, profits accepts windfall Tribunal a with exceptionThe the of be may in appropriate circumstances awhere cash flow so requires.analysis To the taxes, windfall adjustment for an regards as its’ position maintains Respondent extent the it. rejects Tribunal the 614. 615. 616. 617.

”. 10 November 1995, but

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

its Article 3(1), titled “Most Favored “Most Favored titled 3(1), Article its equired by international law, including law, international by equired

[n]either Contracting Party shall, in its territory, territory, its in shall, Party Contracting [n]either 197 - - cords tocords investments or returns of its own investors e particular provisions apply with the effect advocated by with effect the advocated provisions apply particular e OC was, of in taxes fact,application exempt the income from ”, treatment Party a Contracting being by the accorded “treatment ave been exempt from paying these taxes, Tribunal been the exempt paying finds it from ave helpful

The Georgia / Israel BIT similarly provides in provides similarly BIT / Israel Georgia The both would have entered the before intocompensation effect its commission work. began ECT The would have been provisionally duringapplicable both of these periods. The see no reasonwhy can Tribunal inry theo an MFN clause could not operate to secure to available was treatment such if investment of an respect in taxtreatment preferential foreign investors. other it is However, not necessary in this case the tofor Tribunal determine whether any of thes Claimants. the to reproduce the language of the Treaties. the of language the to reproduce It is not disputed that AIIt that and &Brown Root, hypothetical a willing buyer in the FMV analysis, didnot take these taxes into account in its cash flows analysis. In considering whether, as a matter of would h GTI law, Article 3(1) of the Georgia / Greece BIT provides that shall Party “[e]ach Contracting rs Contracting of other the made Party, in to its investments, investo territoryaccord by not favourable less treatment than that to which it investments accords of its own is more” favourable. or State, whichever investors to investments third of of investors any “ that Treatment”, National and Nation or returns Contracting other to investments Party treatment subject of of investors the than thatless favourable which it ac or third returns of ofor to investors any state. investments ” investments shall not that covered part, in relevant provides, ECT also the 10 of Article be accordedr than that less favourable “treatment obligationstreaty or to Investors own to Investors it its than accords thatfavourable which which is no less is most favourable the Contracting th other irdof or any any state, Party whichever The Tribunal recalls that the Georgia / Greece BIT entered into effect in August 1996, 1997. Neither would have in into February entered effect / BIT Georgia Israel the and binding on been the at Georgia time of valuation the i.e. date, 620. 618. 619. 621. 622.

fact - be no be the - Brown & Root’s & Brown

iscount rate applied applied iscount rate Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos propriate discount rate in this this in rate discount propriate

a country risk premium country 23%. a of

198 - - The Discount Rate Discount The

(d) rcent return on capital … the implicit indication is that the pipeline is likely to to likely is pipeline the that is indication implicit the … capital on return rcent “[i]f investing in an oil pipeline in the Caspian region indeed did require a 30 30 a require did indeed region in Caspian the pipeline an oil in “[i]f investing pe of use In his fact, through inoperability. periods of prolonged and suffer frequent the that suggesting implicitly is Mr. Lagerberg rate, a 30 percent discount

71] cost of debt, not the cost of equity to GTI. not cost debt, the of cost equity of With respect to the discount rate applied in the leasing scenario, Mr. Kaczmarek argues proposed the discountthat is so to high deter as international any oil companies from paras. II, Kaczmarek that [Kaczmarek Mr. considers Georgia. doing business in every 70- assessment of risk (that is a discount factor of 36%) of contentious in context the a of legal discountfactor is risk (that a of assessment proceeding. Moreover, Mr. Kaczmarek argues that the ap Root, i.e. to& money Brown must the reflect lending of cost scenario The Tribunal that Tribunal The considers expectations of the buyers tax to the as willing of treatment certainly would have been price tothey that relevant the GTI preparedwere for topay its to Claimants’ applicable the MFN clause an without of existence the Even rights. relevant a is AIOC of treatment tax the law, of matter a as time, critical the at investment should that there view the of This to in valuation tends support the GTI. factor no taxes because taxes been of in respect figure deduction have would valuation the from Tribunal the taxes. proposed rejects the adjustment for Accordingly, paid. to d the made be adjustment upwards that an proposes Mr. Lagerberg to reflect in order Root offer & Brown the transaction and both leasing the of in respect in 1995. Claimants the Mr. risks facing inLagerberg Georgia economic politicalthe and therefore proposes to increase theto discount scenario rate leasing associathe with ted Mr. 23%. 6.17% rate of of risk premium riskand country a a reflects free which 30% Root & to Brown the applicable discount rate the proposes also to increase Lagerberg addition which to the of valuation 36%, reflects also avers Root Kaczmarek Mr. valuation, & Brown in discount the the used rate regards As such as buyer by an experienced informed, developed estimate contemporaneous that a &Brown Root is (that discount) nominal 15% aa provides more accurate basis for an after than time the relevant at GTI in investing of the risk assessing 626. 623. 624. 625.

36 Supsa ex port - Mr. Lagerberg, oil oil Mr. Lagerberg,

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

l risk, country risk can be be can risk country risk, l 187]:

politica

199 - -

case, pipeline cashcase,pipeline depended extentflows to a large on the situation of the CMS

n additional for premium country risk and, in particular, a premium

oughput of the pipeline would have to be discounted by 76 percent discounted have pipeline to by the 76 percent be would of oughput

93 . ountry risk percentage that you have calculated now? Nothing to do with Nothing now? to do with that have calculated you risk percentage ountry “MR LAGERBERG: Country is risk -- up. risk went 1998, the in I think, Bank, the World by hammered Georgia was went I here, coming before and down, trended generally have risks political The What's now? looking risk numbers the are say, what to colleagues to my to get the c factored into a calculation in various different ways. Mr Kaczmarek mentioned mentioned ways. Mrin Kaczmarek various different into factored a calculation The method. that's debt, one denominated US on sovereign yield the differential out,came that the number was was cent per 23 here, for Georgia method used every of a matter routine, firm as do, and my we that does, based on an analysis the chaos, of sort the particular reflected time at that cent per 23 The quarter. uncertainty, huge, Huge, time. that at faced Georgia that difficulties particular political risk. If transportation risks were really as high as suggested by suggested as high as really were risks If transportation thein Caspian production oil in investment considered have would companies oil that international shows evidence But the to unattractive. region bevery in the of fields oil in development the investin an did interested were companies alone fact standing This Georgia. with business do did and region Caspian belies such that rate as anyhigh - suggestion discount an excessively 30 .” is appropriate percent expected thr expected over capacity its expected of 24 percent at operate only would pipeline (i.e. the . risk country to due concession) the of life the CMS The TribunalThe that both notes to experts appear thatagree risk may be accounted for either 129; para. at [Kaczmarek II, rate discount in the or analysis DCF a of flows in cash the 4.17]. para. at Lagerberg I, offered Mr. that proposed Mr. following of by the Lagerberg Lagerberg. in nature the ofexplanation [Tr. in his D13:185- defence proposal Mr. Kaczmarek also reasons that an appropriate assessment of the risks faced by GTI, is that not indicates business scenario, oil the leasing transportation a under especially was as the in Georgia, to macroeconomic the environment meaningful way tied in any case in the Hearing, the During sought further Tribunal experts’explanation the the of on view ofappropriateness a Mr. Kaczmarek notes that, in that, Mr. Kaczmarek the notes

93 628. 627. 629. domestic economy, as the pipeline in issue supplied gas to the people of Argentina for heating and cooking purposes purposes cooking and heating for Argentina of people the to gas supplied issue in pipeline the as economy, domestic and to Argentina businesses with fuel for power generation. By contrast, in this case, the Gachiani system did not distribute oil domestically to Georgians, but rather to a consortium of international oil companies, transitwith fees negotiated in U.S. dollars as opposed Georgian to Lari.

189]:

ry, people like to take like to take ry, people Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos projections. projections. year ten term - scount for that, but to take but that, for scount

200 - ted underground, being sold out into Western Western sold into out being ted underground, -

etween lending to governments and the risk is really risk is and the really to governments lending etween the evidence around there was that things were really really were things that was there around evidence the

the business's operations and what you would expect. Would you would expect. Would you operations and what the business's back in 1995, and I said, okay, how much of that represents Russia's Russia's of represents that much how okay, I said, and 1995, in back

OR ORREGO VICUNA:rate? Thatis ORREGO OR a discount

-- markets, how much does the political turmoil really affect that type of business of business type that affect really turmoil political the does much how markets, the to pipeline, a fewdisruptions potentially In much, view, my not operation? and I've I factored, think, a very di appropriate “MR KACZMAREK: I'll start by recalling the previous comment I made about about made I comment previous the recalling by start I'll “MR KACZMAREK: b spreads just are these cashflows. the into risk, political risk, this, as country such risks intoaccount I've business? this of operation daily the affect really to going this is How 5 1.2 increase; change cent per a 1.25 changes, small that demonstrated I 3.5, Now, reduction. good pretty a is which cent, per 13 throughput decreases so And I to think you think have on value. reduction think, had a 33 per cent rate the and adding to of discount applying what you're about the how quantity affects really to any sold being not underground, travelling is mostly really that expect oil Lari, the of Georgia in value currency upon the dependent not citizens, Georgian transi being literally know, you embedded in how the government runs its fiscal affairs. One needs to take take to needs One affairs. fiscal its runs government the how in embedded affect risk would of type particular that how as to caution exceptional indust energy the in especially and activity, commercial this arbitration. And they said that the risk figure as of the end of December this this the figure risk they December And asthe of that end of said this arbitration. treat well, said, They cent. per 10.8 year, last December cent, per 10.8 was year that PROFESS very, still but in1992 maybe were they than better Slightly uncertain. very very, that CRP you the justifying and therefore uncertain, very very dangerous, included in rate.” the discount MR LAGERBERG: That is the country risk premium that you would include -- include would you that risk premium the country is That MR LAGERBERG: VICUNA: But ORREGO PROFESSOR it reflect would the -- about 23 per and cent, with about 10.8 compared Yes, so MRLAGERBERG: half the risk know to difficult said, they and country, the of invasion country, the in intrusion has for Georgia risk premium country theis that happened what's because it was but cent, per 6.5 around was last year for average The doubled. almost uncertainty a combination, reflected which year, the end of the at cent 10.8 per markets, bond the in happening been what's generally but Russia, with to do you if regard bonds, quality to and the a flight quality, which essentially has seen and down going are bonds quality the on yields the quality, as UK and US therefore one, a temporary is 10.8 think the I up. going are the spreads therefore long for on it reliance too much place I wouldn't an youifsay now, premiums risk country you use premium, risk country Butthe was it what than lower substantially that's cent, per or 6.5 6 2008, for average to Russia, fact Georgia, that the subject reflects that and Iback think in 1995, than place backwas it in stable more developed the ina much 1995, days -- were things because In following view Kaczmarek the Mr. [Tr.reply, offered D13:187- In 630.

to the to the

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 80%. Mr.80%. therefore Lagerberg -

before you just carte blanche apply apply blanche just carte you before

201 - -

Project Risk Premium Project

(e) Supsa export built system operational,would be and not “if” the -

point of this range, 25%, to this discount 25%, of comparable. point this value of the range, 30% of the value it would be once completed. In other words, the words, other completed. In it once of30% would be value the - e Brown Root Mr.e & Brown value the offer, of earlyLagerberg stageconsiders an he mid he THE CHAIRMAN: Because it has, and it still does, flow through the pipeline. the through flow does, still and it has, it Because CHAIRMAN: THE MR KACZMAREK: Yes, absolutely right.” that spread. PROFESSOR ORREGO VICUNA: wasWhich what? ORREGO PROFESSOR Root perspective, & Brown the from it at looking Well, MR KACZMAREK: about 3.5 per cent in running it, and looking at it from the transaction AIOC project the puts and value eviscerates just really cent per 36 1.25. perspective, that through oil flow reliably going to ison a basishardly as you if, know, it So in to view, my you bring have think that's realistic. I and pipeline, just don't timethe all context commercial todown a to be a realistic one as of the valuation date. Mr. Lagerberg therefore proposes valuation therefore proposes one the of a realistic as date. a Mr. to be Lagerberg stify application of a risk premium of 23% to either valuation. It is further satisfied that that satisfied further is It valuation. either to 23% of premium risk a of application stify The Tribunal is satisfied that GTI was not exposed to significant country to risk so as to was significant not exposed is that GTI satisfied Tribunal The ju methodology takes Kaczmarek’s adequateMr. of the account risks involved ineach of as scenario valuation date.valuation Mr.the proposed Lagerberg’s adjustment As regards the leasing scenario valuation, Mr. Lagerberg considers that there are even leasing the considered not had Claimants the as in this scenario uncertainties greater option a it is, in figure his view, verified this a that while is not averring 80%, discount of assumption. realistic Mr. Kaczmarek rejects these proposed adjustments for several reasons. First, regards as the leasing scenario, Mr. Kaczmarek considers any execution risks to be relegated to “when” the Gachiani would builtsystem be and successfully, stating operate that AIOC needed an export route valuation of this should of valuation offer 70 discounted further be by discount rate is therefore rejected. & Brown the to both applied be proposes risk premium additional that an Mr. Lagerberg execution risk. as valuations project leasing Root account of the Specifically, to and take regards th 20- to be project t proposes 631. 633. 634. 632.

he has s view, s view,

g theg cash also because

a 3.25%a addedpremium

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos this is better captured through the through this captured is better

202 - -

offers a simple analogy in response to Mr. Kaczmarek’s comments on his in response Kaczmarek’s to Mr. simple analogy a offers

ct will not be completed but also because little value has yet been created. Offering to be able to achieve to achieve value able the outany toof be that ACG noting event in and any field takensystem were the into account operating delay and of in building considerations of throughput. use of a projection conservative through Kaczmarek Mr. Second, that the contends 80% discount in results double counting, the of discount often to value the a at projects are stage priced early that while explaining receivin in delay time the represents generally discount this project, operating in operating the stage. one phase projectIn and in construction a the between flow thatassuming cash flows in 1997 would begin at per 40,000 barrels day and gradually in per 2000, 100,000 peak day of reasonsa Kaczmarek Mr. reach barrels that 8.75%. of to US the Prime lending rate Mr. Lagerberg proposed adjustment, pressing his point that an early stage project contains stage relatively a his adjustment,point early pressing that an proposed the that risks the inherent reflect to partly project, to completed a compared value low proje examplethe of a baking bread operation, Mr. reasons thatLagerberg flour is less valuable of not bread of because risk that loaf only a but than it oven willin an burn taken this intotaken account. that Mr. claims Lagerberg’s Kaczmarek Mr. Root valuation, & to Brown the With respect to probability isapproach significantly flawed. while hisIn view, there some was risk planned, proceeded as would not have project the Root, Mr. which & to Brown money lending of to cost the premium a addition of incorporated has Kaczmarek into his proposed discount rate, i.e. process to valuable. the According through make ingredients the to go has someone yet which bread, baker the the to make expend will time labour and spend to Mr. Lagerberg, bread. the in price of the value adds that is reflected then process this Applying to analogy Mr.GTI, suggests Lagerberg that GTI was at stagea in which it did GTI the or oven. notan have flour dough in even 1995, let alone did not have in Lagerberg’ Mr. it had, What labour. much expended skills, it had nor required on study thishow might feasibility level high a as well as the to bake bread rights the was agreement an with a seeking was that GTI notes also Mr. Lagerberg accomplished. be 635. 637. 636. 638.

ge GTI would GTI ge receive cash Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos the Tribunal conclude that GTI Tribunal the : Should

aimants’ arguments concerning any future rights. future any concerning arguments aimants’

e conclusions compensatione regards in as their 203 - -

94 nevertheless accountnevertheless unlawful for Georgia’s by conduct

The Claimants’ Position

a) Brown & Root,Brown has who of certain theappropriate skillsd an and equipment

The Amount of Compensation Owing to the Claimants to the Compensation Amount Owing of The i.e. 5. Hearing Brief [at para. 118]. - would have been required to dispose of its early oil rights at the end the 1995, the at of oil rights required its been to dispose of early would have “ it should that submit Claimants ia obtained through of ‘free its Georg the loan’ consequences the wiping out in be denial of view, compensation. Thisexpropriation and subsequent may, their ” accomplished by awarding a commensurate interest rate (see Part V. F.1(a) below). . If the Tribunal concludes that GTI would have been required to divest to been divest required would have that GTI Tribunal the concludes 1995 valuation. If Claiman then the region, the in forces geopolitical larger to due rights its of itself Interest to reflect Georgia’s to reflect Interest unlawful conduct “baker”, a bread the willingness indicated ofwho to 25% in bake loaf. exchange the for However, not could so GTI bread, the even to or bake price, committed not a had to yet this “baker” sta At some bread. the from economic gain the of certain be but, bread infor 1995, there nowas and money GTI not, “withoutcould even flour”, of entitled it value claim a bread. was of load to cash sensibly the evidence on the based that, submissions these decided and considered has Tribunal The that and scenarios, into valuation the risk is of incorporated level it, appropriate an before adjustment is no further necessary. The Claimants provide several alternativ Post that GTI would concede have been requiredlikely oil to sell its rights early in November US$ 15.1 million, GTI’s a of for of interest, 25% value 1995. This excluding would yield rights. oil early As stated above, the Tribunal does not here consider the the Cl consider Tribunal here does above, the not stated As

94 641. 642. 639. 640.

50% US$ of

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

oot’s offer. When this is oot’s offer. analysis Hearing 82]. para. Br. at Hearing -

ate to ate only aaward sum equivalent to sunken 204 - Hearing Br. at para. 81]. - es described described weightedes and above, the properly adjusted,

ion with his interest in an alleged loan to the Batumi Oil Refinary. Refinary. Oil the loan to Batumi in an alleged interest ionhis with The Respondent’s Position The Respondent’s The Tribunal’s Determination

estimate amount that should the been basis of the of decision the have of

’ plea.’ b) c) ndent’s failure to fulfil its duties under international law to pay compensation. to to fulfil pay law failure international itsndent’s duties under The Respondent states that states Respondent The it is appropri costs in this case, because of the express contractual limitations contained in the JVA and the Deed of Concession, and because this is the only reliable measure of damages on the facts of these cases. Sunken in the costs would result amount award in US$ an 3.1 of - Post [Resp. Claimant each million for claims Respondent the on market to transactions, rely were Tribunal the if Alternatively, to Brown should look Tribunal only that the & R Respondent the that claims practices”, valuation in accordance with “proper conducted isthis [Resp. limited 4,974,177 value to Post US$ By using the using three comparabl By in amount the US$ 15.1 of is entitled to damages Kardassopoulos finds that Mr. Tribunal This rights. early oil GTI’s in interest quarter of one his the value reflects which million, is Tribunal’s the commission taking effected by Decree the compensation the No. up after set it 178; and is the of reason by lost Claimants the what assessing starting point the for accordingly Respo decided in thisHaving that thecase same standard of is compensation toapplicable the is Fuchs that Mr. finds also Tribunal the claims, respective Claimants’ the of valuation US$ 15.1 million. in amount of the entitled to damages further to a support record on the evidence is insufficient finds that there Tribunal The damages of award to Mr. Kardassopoulos in the amount US$ 750,000, i.e. of 1.5 million, in connect with concerning agrees are allegations Tribunal that the Respondent this the The “loan” insufficiently clear or supported by documentary evidence and therefore rejects Mr. Kardassopoulos The Tribunal also rejects the Claimant’s plea for reimbursement of Tramex’s expenses to pursuit related the totalling of commission US $275,803.compensation process, The 643. 644. 645. 646. 647. 648.

that these

LIBOR plus four The Claimants therefore Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos 95

” [Tr. D12:90].”

as theas “absolute to apply minimum” that ought evious arbitral tribunals, this rate falls short of of short falls rate this tribunals, arbitral evious 38), the Claimants asserted that while LIBOR + that LIBOR while asserted the 38), Claimants - 205 - - terest fault rates not their it is number, up the “bump

t the arbitral tribunal must apply a rate of of “ rate a apply must tribunal arbitral t the

.” [Hearing Bundle, Tab 286]. This same rate was applied in the the in applied was rate This same 286]. Tab Bundle, [Hearing .” The Claimants’ Position

Award Interest a) - Hearing Brief (paras. 137 - Pre

Interest 1.

contend that the best indicator of a commercial indicator best that the contend rate is the rate agreed to in the PCOA, that Section 5.6 by PCOAnoting in the (relating payment toof to GIOC) delay AIOC forprovides a rate of + 4%. LIBOR Section Similarly, 18.4(f) of PCOA the stipulates, in of dispute, tha event a the over thepercent (4%) period of date the from or the other breach violation the to date the in full paid award is theHGA and PSA 274 285 and 12.4(d)(iii))]. Tabs [Hearing (Art. (Art. Bundle, 13.3(f)) contrary, to the evidence any of absence in the not consider, does Tribunal would haveexpenses been recoverable the from compensation commission. other In thewords, Claimants could not have had ato expectation legitimate recover such expenses. F. is must LIBOR, rise interest which above floor the that the position take Claimants The rate prescribedthe in the / Georgia [Tr.BIT D11:37].Italy the During the Hearing, 2% that + w Claimants contended LIBOR + and oil 2% that US PrimeLIBOR rights, + observing for early sum the awarded to any expropriation [Tr. to analysis D12:89]. the lawful open also in are a The 4% Tribunal in the while that out point Claimants to Claimants the has bean not paidthat one Respondent the Post their In pr of in awards the adopted been has 2% The Tribunal shall next address the appropriate interest rate. the commercial rate required Articleby 17(1) of the ECT, as welltherate as of interest Concession. of in Section for Deed the provided 18.3 of Article 18.3 of the Deed of Concession stipulates a rate of LIBOR + 2.5% had Transneft wished to repurchase + 2.5% Transneft of a rate had wished LIBOR Deed of 18.3stipulates Concession the of Article

95 650. 651. 649. assets from GTI at the end of the concession period. the concession of GTI end the from at assets

annually, - ully. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ve kept that money, and if if and ve money, that kept test requires that a becla imant

year U.S. government bonds is a more bonds more is a U.S. government year

97]: 206 - - principle in international law, relying upon relying law, the in international principle ICSID hearing submissions, semi interest compounding - ccepted . The Claimants offered interest multipliers for for interest multipliers offered Claimants The . Santa Elena and opriate date on which interest should begin to accrue in respect of in respect to accrue should begin interest on which date opriate The Respondent’s Position The Respondent’s rberg’s Respondent by the analysis, risk premia that the sought claims

b) ” Tecmed d to be in 2004, a process fair compensation was torequired interestaward to aczmarek, those rates, significantly more than LIBOR plus 4. If they had had had had they If 4. plus LIBOR than more significantly rates, those aczmarek, […] Instead of paying Tramex the 30 million, they ha they the 30 million, Tramex […] paying Instead of “ they wanted to borrow that money at the time, what would they have been been have they would what time, the at money that borrow to they wanted by have I the out saved we of fact we're at? them that pocket? What borrowing unlawf behaved at someone's if of it way looking an appropriate think is that They've got a lot to gain by not giving us anything, because if they had to loan ifhad to they got loan They've because to not a lot gain giving us anything, by their high, very is rate interest the rate, sovereign their time, the at that money, Mr by out set all are they rates, provable all are these and rates, bill Treasury K borrow a bank and had had to intoto go Georgia go to a bank, SakNavtobi if one that the was SakNavtobi that tobeenhad payit determined us, if the money the fact in that inGeorgia then high so were rates interest the out, us pay had to 413 by now have become would Mr to Kardassopoulos they 15 million owed million. for Mr. Fuchs’ claim, the Claimants reason that even if the date of Treaty breach is awards in several start dates in their post appr that the noting 1996. As Mr. dies the is and both Kardassopoulos’ claim regards 20 February Mr. Fuchs’ a quo determine from date expropriation. the of Fuchs Mr. submits Respondent The Claimantsthat the seek an interest. rate of inappropriate On the Mr. basis of Lage case, this of the in circumstances inappropriate is rate the free risk above Claimants the on 3- benchmark that the reasoning yield The Claimants also submit that compound interest is necessary to compensate them fully fully them compensate to necessary is interest compound that submit also Claimants The that this a and is an now appropriate rate. In response to the Claimants’ request for response of to Claimants’ request inIn the for higher the interest a rate event a of finding unlawfulof expropriation, Respondent the argues that it is not the function the of to punishTribunal the State. The Chorzów Factory In demandingIn a higher interest rate, the Claimantscontend that Georgia has effectively loan them free from a had [Tr.- D12:96 654. 653. 655. 652.

e date shall also shall also Lagerberg Lagerberg

t to begin is lessis t begin to Mr. ts that should the

96 .” Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos , should be the date the , should when be the 97

established on a market basis of date from the established on a market .” (emphasis.” 2(2) Article added). / Georgia the of

207 - - [w]here an owner of property has at some earlier time time earlier at some has of property an owner [w]here that “ that

commercial rate

The Tribunal’s Determination

c) erest at a

, Damages and Valuation in International Investment Law” (Nov. 2007) Dispute 4:6 Transnational at para.at 104.

expropriatory breach,expropriatory Respondent the notes datethat the for interes at p. 47.

he FET obligation. FET he Israel isBIT Israel silent on the interest applicable to an of award breach compensation of for t The Tribunal Tribunal The recalls that 13(1) of Article ECT the that compensation requires “ state becomes aware or should have become aware that a serious treaty breach exists. As Mr. regards FETFuchs’ in claim particular, submi Respondent the ruleTribunal there has breachbeen a of the FET standard, interest should not to begin until 2004. accrue int include Expropriation until of date payment the lost the value ofhis lost asset value the but has not received monetary the equivalent that became then additional the at least should inreflect, part, of to amount compensation him, the due had it, generated earned, wouldit, income that and the sum been by have hismoney reinvested each year at generally prevailing rates of interest the of respect a In dies submits Respondent , the quo to 38(2) of Article that, according th on starts obligation interest a state’s State Responsibility, on Articles the ILC awarded the damages suffered and, in the Respondent’s view, an excessive interest rate it unenforceable. that would punitive element render a to award the would add tound compo opposed as simple of interest, submits also Respondent award that an The would more compensateinterest, appropriately Claimants, on the relying reasoning the of Elena in tribunal Santa the paid sum principal the been and, expropriation, when should in context have the an of the context a of date expropriation. the In of as been interpreted this traditionally has non- to but, Thomas according clear Walde and Borzu Sabahi nevertheless presents basis. his on a compounding calculations nevertheless interest Santa Elena, Santa “Compensation

96 97

658. 657. 656. Management

. %

erest for damages ll be

. Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

.” [Emphasis added.] [Emphasis vis the investments of both vis investments Mr. of the - à -

208 - -

tribunal applied compound interest as a mechanism to ensure that the mechanism a to as ensure tribunal interest compound applied

Interest runs from Interest runs from the the when sum date have should principal Interest on any principal sum due under this chapter sha this chapter due under sum any principal Interest on for the competing propositions that any award of interest either should interest or of award either any propositions that competing the for

unal unal to in the fullfinds that in reparation of order achieve circumstances these 1. 2. fulfilled is been paid until the date to pay obligation the “ The interest order reparation. in to full ensure necessary when payable result that to achieve as so set shall be calculation of and mode rate Santa Elena bunal decides that it is appropriate to award interest at the rate of LIBOR + 4 The claimant received the full present value of the compensation that it should have received cases, the PCOA rate (see paragraph 651 above) provides the best available evidence of what constitutes a fair commercial rate in the present context, and accordingly the Tri The Trib The The Commentary to Article 38 notes that the awarding of interest depends on the depends on the interest of awarding to Article that the 38 notes Commentary The circumstances of each case and, in particular, whether an award of interest is necessary in to ensure full reparation. order However, in view of the Tribunal’s findings above in respect of the unlawful character of unlawful of the of the findings of above in character in view respect Tribunal’s However, vis conduct Government’s Georgian the As regards compound interest, both Parties to these proceedings rely upon the award in upon award the rely proceedings to both these Parties interest, compound regards As Santa Elena ultimately tribunal That awarded interest, compound should compounded. not be punish, but to is or not interest blame purpose to compound that the attribute of observing is simply a mechanism to ensure that the compensation awarded to a claimant is riateapprop in the circumstances. Kardassopoulos and it Mr. alsoKardassopoulos is that int appropriate Fuchs, to consider full discretion to so ensure as the with necessary the awarded Tribunal by be may 38 Articles on State this Article the of regard, reparation. ILC’s Responsibility In provides: ILC Commentary, Article 38, para. at 7. Commentary, Article ILC , para.at Elena 104. Santa

98 99 663. 661. 660. 659. 662.

he 100 2004 than 2004 than that applicable - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos tate is not entitled unjustly to enrich enrich to unjustly entitled not is tate

the takingthe s

209 -

- 101 t its investment. compensation expropriated for um a certain on date in the past, in circumstances where Rather, the determination of interest is a product of the the of product is a interest of determination the Rather,

ound interest certainly is not unknown or excluded in international law. No law. No in international excluded or is unknown not certainly ound interest

[W]hile simple interest tends to be awarded more frequently than compound, compound, than frequently more be awarded to tends interest simple [W]hile exercise of judgment, taking into account all of the circumstances of the case at of case the into at the of all circumstances taking account of exercise judgment, law the of part form must which fairness of considerations especially hand and ” this Tribunal. by to be applied “ comp as arbitration international in practice the from emerged has law of rule uniform appropriate or interest is simple of compound whether theregards determination case. given inany pensation that should have been paid at the end of 2004 should itself have included included have 2004 should of itself end the at paid been have that should pensation e Parties do not appear to dispute that the relevant date for the calculation of interest in interest of calculation the for date relevant the that dispute to appear not do Parties e Th date the 1996, the on which February Kardassopoulos’ Mr. of is claim 20 respect Kardassopoulos’ Mr. expropriation of investment other t the crystallized. On hand, from interestdate which this is Award under payable must the be date breach, the of thewhich Tribunal having as regards occurred definitivewith the repudiation the of in liability said,Respondent’s December 2004. That and amount of November the com an element in respect of interest from the date of the taking (1996) to the date of the the of to date the (1996) taking the of date the of from interest in respect element an commission’s Accordingly, award. compensation Tribunal the not as does any good see for applying a interestreason different 1996 rate for period the the Claimant could have invested an equivalent sum, or could only have borrowed an an have borrowed only sum, could or equivalent an invested Claimant have the could of sum, on termscompound interest,equivalent compound is award of the interest view Tribunalth e that The takes ofappropriate. award compound an is interest in in principles the so comfort articulated finding, it takes in this case. appropriate In , whichSanta Elena apply equally here: at the time of the taking, noting that “ that noting taking, the of time the at long of.” compensation that of fact hasitself been payment reason the the delayed by it that case, tookIn almost time the from 20 taking the of years to date the the of award claiman the to pay State host the for combined simplicity often it is but a of simplicity; advantage the has great interest Simple being Claimant the lostamount has by question When is, the what with arbitrariness. s a of denied payment wrongly , para.at 101. Ibid. , para.at Elena 103. Santa

100 101 665. 664.

- - has yet to

annually to the annually - Award interest of US$ - month term LIBOR rate rate LIBOR term month - month LIBOR rate in effect effect in rate month LIBOR - Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

confined to the FET provisions, provisions, to FET the confined

20 February 1996, compounded semi 20 February

annually the six at annually -

Award interest to both Claimants at the of the rate at both to Claimants interest Award 210 - - Award interest rate of LIBOR + 4% is too low, as it is 4% + it too low, as of interestAward LIBOR rate - Award interest to the date of payment of damages any payment of to date the interest Award -

month period from 1 July 1996 to the date present 1996 to date the the of 1 July from period month -

The Claimants’ Position

Award Interest - a)

he Tribunal awards pre- . 28 February 2010, resulting in the total28 February in the sum pre of 2010, resulting

Post i.e. 2. rd, rd, from 2004 onwards, 2004 to the Mr. from due + interest Kardassopoulos be will in effect LIBOR February 1996. 20 from 4% being different, claim Fuchs’ Mr. is somewhat Though Respondent’s the of result a as Mr. Fuchs by lossthat the suffered considers Tribunal the that as same the is Claimants the to compensation pay to liability any of repudiation Kardassopoulos. by Mr. suffered t Accordingly, on the to Kardassopoulos Mr. shall sum accrue Thisawarded interest 4%. + LIBOR date the of as expropriation, i.e. of beginning post Claimants request also The annually to date the annually of Award. This same rate of interest shall also accrue on the sum 1996, semi compounded also 20 February of as to Fuchs Mr. awarded this during period. apply Debt should Sovereign Rate Georgian that the sum, submitting not punitive”, that whilst is Claimants “compensatory, interest acknowledge The been has Claimantscompensation the withheld from 13 Georgia for and years it. against outstanding award an pay ICSID post a Claimants’ view, the even In [Cl. indefinitely Post compensation withholding to Georgia continue “incentivises” date of Award deposits Wall U.S. dollar the for published by Journal, (4%), Street percent plus four 20 from February 1996 and reset to thereafter the sixcurrent 142]. para. Br., Hearing The Tribunal The has compounded interest semi at the beginning of of sixeach beginning the at Awa each to Mr. Kardassopoulos and Mr. Fuchs. to Mr. Fuchs. Mr. Kardassopoulos30,024,736.83 each and 666. 667. 669. 670. 668.

that year

–

102 y toy assess the , the purpose, the of award interest or, in award in or, interest - First ppropriate to apply U.S.ppropriate toa apply award interest. contrast, By Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos - (Kluwer Law International, 1998), Chapter 3, 3, Chapter 1998), International, Law (Kluwer award interest on all damages at the

award and pre and award -

t taking into account that the Claimants still face face still the Claimants that intoaccount t taking 211 - -

ghs the value of the Claimants’ the investment. the Accordingly, in of the value actual ghs The Respondent’s Position The Respondent’s

plemental Damages in Private International Law International Private in Damages plemental , the Respondent’s position improperly presupposes that the principal sum is principal the that presupposes position Respondent’s , the improperly overnment bonds. , the Republic of Georgia’s sovereign default risk is viewed by the market as being being the as market by viewed sovereign default risk is Georgia’s of Republic , the Claimants reject the Respondent’s submission that interest should be applied at the the at applied should the be that interest submission Claimants Respondent’s reject appropriate rate ofappropriate interest, that the concluding Claimants’ request is, a in essence, The Respondent further further Respondent pointed to no arbitral ClaimantsThe that the notes have in awards tribunal the which has Respondentexamined a payment State’s histor The Respondent submits that an order for post for order that an submits Respondent The Third higher the that of than States, therefore it United far is ina post any not to award ought Tribunal the submission, Respondent’s observes Respondent The Claimants the that provide or no legal other rationale for awarding different a rate of interest for post the Claimants, as businessmen, would have simply into money put would have Claimants, their businessmen, the as U.S. bonds and investment. more a remunerative not sought Second withou hands, the in Claimants’ already that recovering Respondent. the of sum task the from treasury rate. interest of and Rate award in inequitable would result an Sovereign would be Georgian that greatly outwei the alternative, ought to award interest in accordance with the benchmark yield on 3 U.S. g The free” rate for“risk threeatreasons [Reply principal 401]. para. damages is to compensate the Claimants. It is commercially unrealistic to suppose to unrealistic commercially is It Claimants. the compensate to is damages distinguish between do not tribunals “[m]ost [international] that notes Respondent the rate. and moratory at same the interest and award together ” compensatory them

J. Gotanda, SupJ. Gotanda,

102 676. 674. 673. 675. 672. 671. Sec. 3.1.Sec.

- ll as ll as month month (1) the -

based recovery - were “unarguable or “unarguable were

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos annually to the current six to current the annually - until such time as the Award is satisfied satisfied is Award as the time until such

compliance, whichcompliance, punishment is prohibited

212 - -

annually annually thefrom dateissuance of of the Award at the -

LIBOR in effect as at the date of issuance of this Award plus four that interest isto be awarded at such a rate so as to achieve full

The Tribunal’s Determination

i.e. c) sees no reason in this case to depart from its conclusion in respect of pre of respect its toin depart from conclusion case no reason inthis sees

The Claimants’ Position Claimants’ The %), compounded semi 1. Costs

tion to pay is fulfilled. is pay tion to month term LIBOR rate for U.S. dollar deposits published by the Wall the Journal, Street deposits U.S. published by dollar for rate LIBOR term month -

their share of all arbitration costs already paid or payable to ICSID. paid or payable already costs arbitration of all share their outcome towards trend an is increasing there that submit Claimants The as liability on prevailed have will that they anticipating arbitration, treaty investment in of Claimants the facts particular event, that the did on jurisdiction.any contend they In these arbitrations present a “compelling case” for an award of costs, identifying eight full costs award: a in of favour which, weigh view, in their factors primary contest decisionto Georgia’s (2) and liability; jurisdiction on prevailed have Claimants liability and its strategy of raising “every conceivable defence”; (3) Georgia raised factual Georgia’s of arguments many (4) false; to it be objections knew irrelevant” to an investment treaty claim; (5) Georgia was given every opportunity to the Claimantscompensate 1996 between and 2004; (6) insisted Georgia that Mr. The Claimants request that they be awarded their costs in these proceedings, including their be proceedings, costs in awarded these that they Claimants request The disbursements, representation, fees legal experts’ their related costs of the and we as request torequest punish for Georgia (alleged) non- law. international under Tribunal The Award interest, reparation and runs from the date when the principal until the paid sum the should when from have runs date the and reparation obliga The Tribunaltherefore determines that the sum awarded to each Claimant shall bear interest at the rate of percent (4 six semi reset rate and interest such (4%), percent plus four LIBOR LIBOR rate in effect each January 1 July 1 and in full. G. 680. 679. 677. 678.

f fold, fold, - 06, though even ting in less than full full than less in ting

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos ₤ 343,919.84 on account of ICSID

213 -

- expenses of the Tribunal and the Centre. The Respondent Respondent The Tribunal Centre. the the expenses of and

₤ 3,075,844.22 and total other fees and disbursements at ₤ es at

t the Claimants are successful in all or any of their claims, the Respondent Respondent the claims, their of any all in or successful are Claimants t the ₤ 475,759.90 on account of expert fees and disbursements; ₤ 151,881.17 on The Respondent’s Position Respondent’s The 2.

ommenced arbitration proceedings, which caused Georgia to undertake “factual which a Georgia caused arbitration proceedings, ommenced The Respondent requests that it be awarded its costs incurred in connection its costs incurred with these requests Respondent awarded that it be The proceedings, including Georgia’s legal fees, experts’ fees and other costs, as well as Georgia’s share of the fees and Kardassopoulos file a full merits memorial and witness statements in 20 in statements and witness memorial a file full merits Kardassopoulos its confined to jurisdictional net were objections that points law of beencould have set facts not coststhe as on any out in Kardassopoulosresolved that are (7) Request; the borne Georgia by will reduce theClaimants’ net recovery, resul the will that Claimants recover entire the of amount no assurance (8) they have recovery; awards. Tribunal’s the their Claimants assess The total US$ fees at 6,235,429.15 4,779,745.50 (US$ on account Kardassopoulos claim the of US$ 1,455,683.65 and the on account of Fuchs and claim), the of 173,607.53 on account US$1,706,868.41 (US$ total at disbursements 1,449,070 US$ claim; and Fuchs the of account claim; US$ on 84,190.88 Kardassopoulos costs on th of e arbitration). advances of expert fees and on account fees). the tha event In account of otheraccount disbursements and expenses; and the the costs of to appropriate Georgia bear or for fair be submits would not that it the that noting representation, legal the Claimants’ of the costs and/or arbitrations prevale pays” “loser to the in avoid investmentnt approach arbitration been has treaty principle. Among identified the by thereasons in Respondent support itsof argument Claimants the which with delay the (1) it are: against awarded be not ought costs that c in of discipline” “lack Claimants’ the (2) nature”; historical unusually of an investigation pleading their case which has needlessly complicated the case; (3) the application o assesses its total legal fe legal total its assesses 941,560.91 ( interest rates by Mr. Kardassopoulos which increased his claim by almost ten yielding an excessive damages claim; (4) conduct the by Claimants which increased costs 682. 681. 683.

nable

rs there isrs no recognized Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos nts certain abandoned prior claims

that costs follow the event, the Claimants’ Claimants’ the event, the follow that costs

214 - -

cheduled submission on costs, the Claimants wrote to the Tribunal Tribunal the to Claimants costs, the submission wrote on cheduled to be material in exercising its discretion as to costs under Article 61(2), 61(2), Article under costs to as discretion its exercising in material be to d allocating costs ofthe an arbitration proceeding. 61(2) providesArticle as roceedings, and shall decide how and by whom those expenses, the fees and fees and the expenses, those whom and by decide how shall and roceedings, The Tribunal’s Determination Tribunal’s The In the case of arbitration proceedings the Tribunal shall, except as the parties the parties as except shall, the Tribunal proceedings arbitration the of In case

otherwise agree, assess the expenses incurred by the parties in connection with with inconnection parties the by incurred expenses the assess agree, otherwise the p of and the the of for the the charges use expenses of Tribunal members the .” the award of form part shall decision Such be paid. shall theof Centre facilities “ 3. e Claimants’ costs have been borne in part Claimants’ costs have been e by it investor is third party a questionable Prior to their first s first their to Prior the between “without exchanged Parties right to the submit requesting correspondence save toprejudice costs”.as The theif Claimants that reasoned Tribunal suchconsidered correspondence itthen would be appropriate to render an onaward and liability quantum, by followed a Article 61(2) of Convention 61(2) confers in the broad discretion Tribunal Article on the ICSID an assessing follows: unnecessarily, such disclosure documents the pursuit the of as and delayed unnecessarily, “unte of applications” in respect to Georgia’s August 2008 request for August 2008 in for adjournment respect the an of applications” request to Georgia’s the issues, including provisional (5) and case novel the and complex raised legal Hearing; ECT. the of application Respondent The submitsalso the that because Claima expropriation claim umbrella Kardassopoulos’ Mr. and such Fuchs’ Mr. as to hearing, the clause claim, Georgia has incurred unnecessary costs in relation to these claims. As a to Tribunal the if consider were even result, should Party its bear is mixedsuccess that each costs. such own of associated with recovery costs likely to the to Claimants’ submissions the regard as In amount by thisany Tribunal,awarded the Respondent ave party policy forcosts a any an costs as that legal insurance awarded principle should be perceives it may incur in an enforcement action. Finally, the Respondent claims that the Claimants’ legal costs are excessive and because th whether such costs are properly recoverable. 688. 687. 684. 685. 686.

. In that that . In 103 ” point that the ue and had acted party concerning the - he investor has received no option but to bring this no option but to bring this Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

to fromthe depart starting 104 ”, thereby ordering”, Respondent the to bear

215 - - [t]o had they justice, obtain found nofound reason “

ADC

The Tribunalnot does the find Claimants’ proposed approach to be

, while the claimants were only partially successful on the merits of their claim, claim, their of merits the on successful partially only were claimants the while , at at para. 352.

PSEG ould not be allowed to recover their reasonable costs. The Tribunal observes that observes Tribunal reasonable their costs. The recover to ould allowed not be 65% of the costs associated with the arbitration. costs associated with the the of 65% among those factors those among identified by the Respondent itsin support of submissions on costs is the fact that the Claimants have an arrangement with a third arbitration to related incur forwardcosts and cases that these of Claimants the in circumstances the is not Tribunal persuaded The sh the tribunal noted that in order “ that in noted order tribunal the In necessary in exercising its discretion as to costs and the Claimants’ application is is application Claimants’ the and costs to as discretion its exercising in necessary therefore denied. arbitrationICSID tribunals have exercisedtheir to awarddiscretion costs which foll separate award on costs. award to disclosure Respondent such the separate of The objected correspondence. in a of event the number demonstrating that is cases, no there in reason principle a why For its costs. arbitration should paid not be investment treaty in an claimant successful in tribunal the example, party unsuccessful reimbursement from the should party receive successful case, the tribunal found relevant to its costs award the fact that the respondent State had in iss BIT the under its obligations no attempt to honour made the of financial with callous claimants’ and contractual throughout disregard rights. these of proceedings. Tribunalfinancing The knows principle no of why third such any financing arrangement takenparty should be the in determining into consideration recovery by theamount of Claimants their of costs. this connection, the notesIn Tribunal that, while not directly applicable, the Georgia / Greece and Georgia / Israel BITs both in theirprovide respective dispute settlement provisions Contracting that a shall Party not raise as an objection at any stage of the proceedings the fact that t the all of in of respect part or contract insurance under an indemnity an or compensation at para.at 553.

PSEG ADC See

103 104 691. 690. 689.

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos party arrangementfinancing shouldparty be

216 - the fair and equitable treatment standard applicable -

over Mr. Fuchs’ fair and equitable treatment claim under the over Mr. Kardassopoulos’ expropriation claim under the Georgia Georgia the under expropriation claim Kardassopoulos’ Mr. over

US $6,235,429, total as well as assessed, that is disbursements US

i.e. OPERATIVE PART investmentto Fuchs’ Mr. Article 2(2) under of the / Georgia andBIT Israel failed him of compensation the his taking investment; to on the pay due The TribunalThe sustains the Respondent’s objection to Tribunal’s the jurisdiction ratione temporis / Greece BIT; objection dismisses jurisdiction Tribunal Respondent’s the to Tribunal’s The the ratione temporis Georgia Israel / BIT; claims Claimants’ the to objection Respondent’s the dismisses Tribunal The of prescription; equitable grounds investment unlawfully Kardassopoulos’ has Mr. Respondent expropriated The his of investment, in taking on the due him compensation the to pay failed and breach of Article 13(1) of the ECT; breached has Respondent The

For the reasons set out above, the Tribunal awards awards reasons out set the above, Tribunal follows: the as For $1,706,868. damages incurred (Georgia /Greece BIT, Article 9(5) and Georgia / Israel BIT, Article third a case this in why see to difficult is It 8(3). the of purpose awarding the for contract differently insurance any an than treated recovery. full Claimants their the Claimants award to case this in fair and appropriate it is that finds Tribunal The the fees and administrative fees, experts’ fees, legal including theitrations, costs of arb of Tribunal. the fees The Tribunal totalthe finds Claimants fees assessed the by to be reasonable, (a) (b) (c) (d) (e) PART VI. 693. 692.

- month - and Mr.and Fuchs

LIBOR in effect as month term LIBOR term month - %), compounded semi %),

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

annually to the annually sixcurrent - he Wall Journal, Street plus four nts their costs of these arbitration arbitration of these costs nts their

US$ 45,124,736.83; 217 - - principal sums interest at the rate of of rate the at interest sums principal The Respondent is Respondent The liable to the pay for losses by caused its said breaches of the to each sums US$15.1 million of in principal / the BIT Georgia Israel ECT and Fuchs; Mr. Kardassopoulos and Mr. The Respondent is liable to pay from interestcompound compensation is 20 to Respondent on such liable pay The to 1996 to 2010 in amount 28 the US$February 30,024,736.83 each of February Kardassopoulos andMr. Fuchs, total for Mr. a sumto Mr. payable each of Mr. and Fuchs Kardassopoulos RespondentThe is liable to pay to Mr. Kardassopoulos and Mr. Fuchs, respectively, on the said (4 percent of plus four this issuance of Award date the at six the at Award the of issuance of from date the annually for U.S. dollarrate deposits t published by percent (4%), and such interest rate reset semi LIBOR LIBOR rate in effect each January 1 and July 1 until the time as such is Award full; in satisfied RespondentThe is to pay liable Claimathe the between allocated to be in total the sum US$ 7,942,297, of proceedings Claimants consistent with their respective share of fees and disbursements, as set inrespect d advances and expert an of outexpenses incurred above, fees on the to be them; among arbitration divided equally costs of shall Respondent The costs ofall the bear these arbitration proceedings in full, Claimants; the of to either recourse without shall Respondent toThe forthwith Mr. pay Kardassopoulos respectively all amounts which it is liable hereunder to pay; and to pay; hereunder liable is it which amounts all respectively Claimants by the aforesaid, claims as all other Respondent inSave the and made these arbitration proceedings are hereby dismissed.

(f) (g) (h) (i) (j) (k) (l)

Kardassopoulos / Fuchs v. Georgia v. Fuchs / Kardassopoulos

23 February 2010] 23 February ] signed Date: [ ______Q.C. Vaughan Lowe, Prof. [

218 - -

[26 February 2010] [26 February

______] signed Mr. L. C.C., Fortier, O.C.,Yves Q.C. Mr. L. Date:

[ ary 2010] ary

r [28 Feb ] signed [ ______Vicuña Orrego Francisco Prof. Date: