Case Note of Plama v Bulgaria

Case Note: Plama Consortium Ltd. (Cyprus) v. Bulgaria ICSID Case No. ARB/03/24

Introduction Plama Consortium Ltd. (Cyprus) v. Bulgaria is under the auspices of ICSID, and is the third investment disputed case ever in the history of ECT. It is an investment arbitration initiated by Plama Consortium Ltd. against Bulgaria, with the claimant alleging that Bulgaria has violated its obligation under ECT which resulting in the failure of claimant’s investment. ECT, is a multilateral treaty regulating issues of energy international cooperation, aiming at promoting the protection of foreign investments in the energy field among its signatories. Article 17 of ECT is so-called ‘denial-of benefit’ clause that enables each contracting party to reserve the right to deny the advantages of Part III in certain circumstances, including the circumstance in which the entity has no substantial business activities in the area of contracting party or citizens or nationals of a third state own or control the entity. However, even if the circumstance is satisfied, although it is not stated in the ECT, under the consideration of good faith and international public policy, misrepresentation may lead to the denial of benefit. Article 13 of ECT stipulates contracting parties’ obligation to promote, protect foreign investment and its treatment of investment, especially fair and equitable treatment. In El Paso Energy International Co. v. Argentina, a balanced interpretation was adopted about the standard of fair and equitable treatment, which means both sovereign and states’ responsibility to create a framework for the development of economy, and the need to protect foreign investment and its continuing flow, should be taken into consideration. Facts 1

Plama AD, which later changed its name to Nova Plama AD, is a former State-owned joint stock company that owned a refinery in Bulgaria. After several transfer of shares, Mr. Vautrin, a French national, directly or indirectly held most of the shares of Plama eventually. However, the company failed to operate and was finally shut down for good in December 1999. Claimant deems that the failure of Plama is attributable to the unlawful actions of Bulgaria, who has violated its obligation of fair and equitable treatment under ECT.

Issues of law There are two documents released including two phases of the arbitration. One is decision on jurisdiction, and the other is final award. Both of jurisdiction and merits was discussed. The issue of jurisdiction is discussed in both phase. In the first phase, the Tribunal holds that the first limb of ECT 17(1) regarding ‘no substantial business activities’ is satisfied. In the second phase, the second limb of ECT 17(1) regarding the claimant’s ‘ownership’ and ‘control’ is discussed, and the tribunal concludes that claimant is a national of ECT contracting party, namely France, while claimant may not be granted substantial protection of the ECT due to the its misrepresentation. Merits is discussed in the award, and the Tribunal holds that even if claimant would have had the benefit of the substantive protections of the ECT, its claims on the merits would have failed, basing on the consideration that the failure of claimant is not attributable to the unlawful actions of Bulgaria.

Decision In regard of jurisdiction, the Tribunal holds that even if investor of Claimant, Mr. Vautrin, is a national of contracting party, the investment in Plama was a deliberate 2

concealment amounting to fraud and lead to the Bulgarian authorities to authorize the transfer of shares. Thus, Plama may not be protected substantially under ECT. Nevertheless, even if claimant would have had protections of the ECT, claimant’s claims would have been failed. The accusation against respondent was examined literally, and none of them was confirmed to be unlawful action or violation of obligation under the ECT. Finally, the Tribunal arrived to the conclusion that the failure of claimant is attributable not to Bulgaria, but to claimant itself. Mr. Vautrin’s action to invest in Plama is more of a speculation, which means he should burden commercial risk himself.

Conclusion In international investment arbitration, procedure issue counts equally to merits, and jurisdiction is the first issue to solve. In this case, we can see that not only international treaty, but also international public policy and basic principle, such as good faith principle, were taken into consideration to settle this problem. Thus, the legal text itself is not enough to determine the case. As a lawyer, we need to have a wider horizon to include relevant universal legal principles to our consideration. Considering merits, there are several points we can extract from the case. First, the subject in dispute need to be clear. Nationality of investment relates to the judgement of whether the investment is entitled of protection under a certain treaty, when whether the subject of a certain action can be attributed to signatories’ authorities determines whether the contracting party is responsible to make compensation. Second, when it comes to fair and equitable treatment under ECT, both of state sovereign and benefits of investors need to be taken into account. A balanced standard of interpretation of fair and equitable treatment may better solve this problem.

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