The Zhinvali case was submitted on the basis of the Georgian Investment Law N° 473-1S of 12 November 1996, which provides a general offer of ICSID arbitration in its Article 16(2). The Tribunal consisted of Davis R. Robinson as President, with Andrew Jacovides and Seymour Rubin as Members. The dispute arose out of pre-investment expenditures incurred by the Zhinvali Development Ltd, an Irish company, in connection with the proposed rehabilitation of a hydro-electric power plant and its tailrace tunnel located near Tbilisi. Negotiations between the claimants and the Georgian Government spread over a three year period. After receiving pressure from the World Bank to establish and maintain a competitive and transparent bidding process for the project, no agreements were concluded, and Zhinvali was ultimately excluded from its project. The firm initiated an ICSID arbitration in order to reclaim expenses incurred during negotiations for feasibility studies, consultancy costs, travel expenses and legal fees plus lost profits on the abandoned project.
… [T]he arbitral Tribunal decided that development costs did not qualify as an investment under either the 1996 Georgia Investment Law or Article 25(1) of the ICSID Convention.
In determining whether the pre-investment expenditures constituted an in investment within the meaning of Georgia's Investment Law, the Tribunal based its conclusions on the following grounds. First, the tribunal insisted on the notion of territorial presence for every protected investment required by Articles I & II of Georgia's Investment Law. The Tribunal noted that this condition covered only territorial expenditures. Second, the Tribunal added that Article 3(6) that describes certain financial rights of foreign investors did not enumerate any right for recovery of development costs in failed transactions. Third, the Tribunal rejected any claims of reimbursement of development cost based on Georgia's Civil Code (breach of a preliminary agreement, violation of the principals of unjust enrichment and promissory estoppel). According to the Tribunal, any right of recovery under the Civil Code for development expenditures did come from some Statute other than that dealing with the investment.
Finally, the Tribunal dismissed the Claimant's assertion that the draft concession term sheet and the content of the different documents shared with the Respondent created an intellectual value or right within the meaning of Georgia's Investment Law. The Tribunal noted that the claimant had failed to produce the necessary evidence of the monetary worth of any supposed “intellectual property” benefit received beyond publicly available standards prior to the commencement of the arbitration.
In the absence of Georgia's express or implicit consent to the treatment of the claimant's development cost as an investment, the Tribunal concluded that Zhinvali's expenditures did not fit within the confines of the 1996 Investment Law and as a result, they could not be considered as an investment within the meaning of Article 25(1) of the ICSID Convention.
The award was rendered by the Majority. The arbitrator appointed by Zhinvali, Mr. DL Jacovides, submitted a separate opinion in which he disagreed with the Majority finding that there was no investment within the meaning of Georgia's Investment Law. Mr. Jaccovides considered that in the circumstances of this case, there was a basic agreement between Zhinvali and Georgia and that there were a number of documents that constituted protected intellectual property within the meaning of the applicable Investment Law. He argued that grounds based upon Georgia's Civil Code (preliminary contract, promissory estoppel, unjust enrichment) could have also been validly argued.
Source:
Chapter
4: Forums for Resolving Foreign Investment Disputes in R. Doak Bishop , James
Crawford , et al. (eds), Foreign Investment Disputes: Cases, Materials and
Commentary, 2 (© Kluwer Law International; Kluwer Law International 2014)
pp. 281 – 380, http://www.kluwerarbitration.com/CommonUI/document.aspx?id=KLI-KA-Bishop-2014-Ch04&query=AND(ONEAR/0(content:%22definition%22,content:%22of%22,content:%22investment%22),content:%22loan%22)#match0
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