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Moldova: a Summary of Investment Arbitration History

The moldova_Clip_ArtRepublic of Moldova is a party to numerous multilateral investment treaties including the Energy Charter Treaty (“ECT“) and the ICSID Convention, which came into force for Moldova on 4 June 2011.

Moldova has also signed bilateral investment treaties (“BITs“) with 43 countries. This article presents a short overview of known investor-state cases brought against Moldova.

Cases initiated by Yuri Bogdanov 

Russian citizen Yuri Bogdanov initiated several claims based on the Moldova-Russia BIT concluded in 1998.

(1) Y. Bogdanov & Yulia Bogdanova v. Republic of Moldova (SCC case no.091/2012, final award of 16 April 2013). The claimants, who owned a paint-manufacturing company residing in the Free Enterprise Zone Expo Business-Chisinau, raised a claim regarding alleged tax and environmental policy modifications. They alleged that regulatory changes had adversely affected the claimant’s operations related to the production and sale of paints, varnishes and similar products in Moldova. The tribunal rejected all of the allegations and found that the respondent hadn’t breached any provisions of the BIT.

(2) Y. Bogdanov v. Republic of Moldova (SCC Case no.V 114/2009). Claims were brought by the Grand-Torg SRL (fully owned by Yurii Bogdanov) domiciled in the Free Enterprise Zone Expo Business-Chisinau, which arose out of alleged wrongdoing on the part of the Customs Service of Moldova. The claimant argued that Moldova had restricted the operations of the claimant’s company in a so-called free economic zone by unilaterally collecting from the claimant’s investment a fee for each customs declaration. The investor asserted that it amounted to creating a more onerous customs regime than that existing at the time of its registration. The award was issued on 30 March 2010 in favour of the investor, obliging the State to pay the claimant approximately 500K MDL.

(3) Y.Bogdanov, Agurdino-Invest LTD, Agurdino-Chimia J.S.C v. Republic of Moldova (SCC Case, final award of 22 September 2005). In fact, the local investment company, fully owned by Y. Bogdanov, purchased a majority shareholding of the share capital of a state-owned company as a part of a privatisation. The allegations related to the Moldovan Department of Privatisation’s refusal to fully compensate the value of the investor’s assets transferred to the State as a part of the privatisation. The tribunal denied all of the claims raised by the Claimant.

Energorynok and Energoalians – two similar ECT cases

The Moldovan history of investment arbitration knows two cases based on the Energy Charter Treaty.

Ukrainian company Energorynok filed a claim in December 2012 before the SCC against the Republic of Moldova. In 1995 Ukraine’s Ministry of Energy, Industry and Electrification and Moldova’s State Department of Energy Industry and Energy Resources entered into an agreement on the Parallel Operation of the Energy Systems of Ukraine and Moldova. Two state enterprises from each party of the agreement were responsible for its implementation.

In October 1998, an overflow of electricity occurred, triggering compensation of $1.6mln due under the agreement. The entire dispute is related to the non-payment of the debts by the state enterprise entity to the claimant, who is a successor of Urkenergo. Eventually, the tribunal by its award, issued on 29 January 2015, found that it does not have ratione materiae jurisdiction over the dispute.

Another case was Energoalians v. Republic of Moldova (under the UNCITRAL rules). The case arose out of a 1999 energy supply agreement from Ukraine to Moldtranselectro (a Moldovan state-owned entity). Moldtranselectro defaulted on its payments under the agreement, and Energoalians acquired the debts and attempted to collect them in the Moldovan courts. According to the claimant, during the course of protracted court proceedings, Moldova breached its obligations under the Energy Charter Treaty and denied Energoalias the benefits of its investment in the country.

The tribunal concluded that Moldova had improperly issued a decree stripping Moldtranselectro of its assets and transferring them to other entities. It also found that the respondent had engaged in quasi-judicial ex parte proceedings that provided the Moldovan courts with the purported grounds to deny Energoalians’s claims.

In contrast, tribunal chairman Dominic Pellew dissented from his colleague-arbitrators as to whether the tribunal had jurisdiction under the ECT to hear Energoalians’s claim. He disagreed as to whether the company had an “investment” for the purpose of ECT, saying the case raises the “fundamental question” as to whether a party that acquired a right to payment that originally arose under a contract for the supply of a good had made an investment.

However, in April 2016 the Paris Court of Appeal set aside a more than $46 million arbitral award issued to the Ukrainian energy company in this dispute, on the basis of the tribunal’s lack of jurisdiction over the dispute.

Charles Arif v. Republic of Moldova – the biggest arbitration against Moldova

One of the most famous investment cases for Moldova is Mr. Franck Charles Arif v. Republic of Moldova (ICSID Case no.ARB/11/23), decided under the ICSID rules.

The claimant alleged the breach of the BIT between the Republic of Moldova and France.  In particular, the claimant argued that Moldova’s domestic courts had annulled the exclusivity clause from the lease agreement signed between Le Bridge Corporation (a fully owned entity by the claimant) and the Customs Service of the Republic of Moldova.

As a result, the claimant lost the exclusive right to operate duty free stores at four border crossings. The claimant also alleged that the local courts had annulled the tender which the claimant’s company had won, depriving the claimant of the right to build and operate a duty free store in Chisinau International Airport. Other alleged breaches invoked by the claimant included expropriation of the store from Chisinau International Airport and unreasonable and arbitrary measures in relation to the stores from other border points.

The tribunal found that the respondent had breached only the legitimacy expectations as a part of the fair and equitable treatment standard only in relation to the airport store, which was completely evacuated due to the domestic court’s decision and replaced by a store of its competitor.

The claimant sought $50 million in damages for breaching the BIT’s provisions.  The tribunal issued the award which stipulated that if the respondent accepted the restitution of the claimant’s assets in Chisinau International Airport, the respondent would be obliged to pay to the claimant by way of damages for its breach of the BIT the sum of around 6.5 mln MDL. If the claimant rejected the restitution, the respondent would be obliged to pay damages of around 35 million MDL. The respondent has never restituted the claimant’s assets in the airport store. The enforcement of the award is in process.

Other cases

Link-trading J.S.C v. Republic of Moldova (ad hoc tribunal under UNCITRAL rules). In this case, a US-Moldova joint venture company engaged in the import of consumer products into the Free Economic Zone of Chisinau and resale to its customers. The claimant alleged that the changes in the rates of duties and VAT exemptions introduced by the 1998 Moldovan Law on the budget destroyed the economic viability of the claimant’s business. The award in this case was issued on 18 April 2002, in favour of the State.

Pending cases

In February 2016, an American investor commenced an ICSID arbitration proceeding, on the basis of the US-Moldova BIT. In Grot and others v. Moldova (ICSID case no.ARB/16/8) the claims arose out of the alleged unlawful termination of the lease agreements for agricultural land concluded by the claimant with the landowners of two Moldovan villages.

A year after the agreements had been concluded, the respective local authorities revoked the registration of the agreements due to the claimant’s alleged non-performance of their contractual obligations. They then registered lease agreements with a different lessee for the same land plot. The tribunal was constituted on 28 July 2016. Its members are: Phillipe Sands (president); Yves Fortier (appointed by the claimants); and Rolf Knieper (appointed by the respondent).

Currently at the SCC are pending two cases: Evrobalt v. Republic of Moldova and Kompozit v. Republic of Moldova. The claims arose out of the suspension of the claimant’s voting rights in a Moldovan bank and forced the sale of its shares within three months allegedly ordered by Moldova’s national bank. These cases are very similar to another case which commenced against Moldova (TSIK Invest v. Republic of Moldova) but which were stopped due to non-payment by the claimant of the SCC fees. That case stopped even before the tribunal had been constituted.

Conclusion

On a final note, political instability and a high rate of corruption may trigger other claims against Moldova. This will not miss the banking sector, where the National Bank of Moldova, after the infamous “$1bn theft” from three local banks, started to apply rigorous and restrictive policies regarding commercial banks and their shareholders.

Sorin Dolea

Sorin is a trainee lawyer at Schoenherr law firm (Chisinau office). He graduated with a bachelor degree from Moldova State University (with distinction), Arbitration Academy in Paris and the Hague Academy of International Law (course on international private law). 

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