Plama Consortium Limited v. Republic of Bulgaria: Honesty is the best policy

By Elizabeth Whitsitt
30 September 2008

In a 27 August 2008 decision, a tribunal has concluded that Plama Consortium Limited (PCL), a Cyprus firm, was not entitled to protections afforded under the Energy Charter Treaty (ECT), given that it had fraudulently misrepresented itself when it invested in a privatized refinery, Nova Plama AD. In addition, the Tribunal found that even if PCL were entitled to certain ECT protections, the Republic of Bulgaria did not breach its treaty obligations. As a result, PCL was ordered to pay all the fees and expenses of the Tribunal and ICSID’s administrative charges, as well as USD$ 7 million in legal fees and other costs incurred by Bulgaria.

PCL had sought some USD$ 122 million in damages plus interest for alleged breaches of obligations under the ECT and Cyprus-Bulgaria bilateral investment treaty, after Nova Plama AD had its assets liquidated to meet creditors’ claims. Specifically, PCL argued that Bulgaria (i) failed to create stable, equitable, favorable and transparent conditions for the investment, (ii) failed to provide the investment with fair and equitable treatment, (iii) failed to provide the investment constant protection and security, (iv) subjected the investment to unreasonable and discriminatory measures, (v) breached its contractual obligations vis-à-vis PCL, and (vi) subjected the investment to measures having an effect equivalent to expropriation.

In defense, Bulgaria raised objections to the Tribunal’s jurisdiction over the admissibility of PCL’s claims by arguing that the company’s investment in Nova Plama AD involved misrepresentations in violation of Bulgarian law. As a result, Bulgaria asserted that the investment was void ab initio (from the beginning) under Bulgarian law and, therefore, not an “investment” as contemplated by the ECT.

While the Tribunal found that Bulgaria’s allegations of misrepresentation did not deprive it of jurisdiction to hear this case, they did bar PCL from seek protection under the ECT given that its investment in Nova Plama AD was obtained by fraud. The Tribunal concluded that “[t]he investment in Nova Plama was . . . the result of a deliberate concealment amounting to fraud, calculated to induce the Bulgarian authorities to authorize the transfer of shares to an entity that did not have the financial and managerial capacities . . .” required to continue with its operations.

Consequently, the Tribunal determined that PCL’s investment violated not only Bulgarian law but international law, including the principle of good faith, the principle of auditor propriam turpitudinem allegans—that nobody can benefit from his own wrong and international public policy—and that a contract obtained by wrongful means should not be enforced by a tribunal.

While the Tribunal went on to dismiss the PCL’s allegations against Bulgaria, the importance of this decision lies in the Tribunal’s unequivocal rejection of claims made by dishonest investors. Similar to the adage originating in the English courts of equity that “he who comes to equity must come with clean hands”, the Tribunal’s decision affirms that if investors want to seek refuge under international treaties, honesty is the best policy.

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