Hassan Awdi, Enterprise Business Consultants, Inc. and Alpha El Corporation v. Romania, ICSID Case No. ARB/10/13
In an award dated March 2, 2015, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) found Romania violated the fair and equitable treatment (FET) standard under the 2012 Romania–United States bilateral investment treaty (BIT). The tribunal awarded the claimants over €7.7 million in compensation and legal fees and costs, plus interest, dismissing expropriation claims of more than €400 million.
The proceeding was initiated in 2010 by Hassan Awdi (a U.S. national) and two U.S. companies controlled by him. They alleged Romania breached the BIT in its treatment of their investments, namely Rodipet S.A., a formerly state-owned press distribution and retail company acquired by them through a privatization process, and Casa Bucur, a historic property acquired from Romania and remodelled by them into a luxury hotel and restaurant.
In particular, the claimants challenged two Romanian court decisions. First, a decision by the Romanian Constitutional Court, declaring Law 442 unconstitutional. Law 442 granted Rodipet the right to long-term concessions over the land housing its 1,400 existing news kiosks across the country and future kiosks it established. Second, a decision by the Romanian Supreme Court determining that Casa Bucur should be returned to its original owners.
At the outset of the proceeding, Romania challenged the tribunal’s jurisdiction and the admissibility of the claims on several bases. Rejecting all of the jurisdictional challenges, the tribunal held Romania liable for breaching FET standards in two separate occasions, but rejected the claimants’ expropriation and denial of justice claims.
“Investment” under ICSID Convention revisited
Romania challenged the jurisdiction of the tribunal claiming the alleged investment by Mr. Awdi and the group of companies directly and indirectly owned by him (Awdi Group) was “a dizzying carousel of transactions” intended to “to strip Rodipet of its business and assets” (para. 137). Romania further complained that, during Rodipet’s privatization, none of the claimants made any active contribution in the country and alleged that their practice were divestment rather than investment.
The tribunal rejected Romania’s contention that the Salini criteria, in particular, the requirement of a contribution to the development of the host state, should be read into the term “investment” under the ICSID Convention. It noted that, instead, the meaning of ”investment” should be determined exclusively and strictly as set forth in the BIT, with no room for additions or subtractions. It went on to hold that the open-ended asset-based definition under the BIT made the mere existence of an economic linkage between the claimants and the investments sufficient for purpose of jurisdiction.
Romania also challenged the jurisdiction on the basis that Mr. Awdi only owned a minority interest in Rodipet through some indirect arrangement. Noting that the BIT covered investments “owned or controlled directly or indirectly by nationals or companies of the other Party,” the tribunal rejected Romania’s objection. Recognizing minority shareholders and indirect shareholders both have rights to “bring investment treaty claims […] within the limits of their shareholding” (para. 194), the tribunal found Mr. Awdi, although a minority shareholder, dominated the decision-making structure of the entity that acquired Rodipet and, thus, gained de facto control sufficient for establishing jurisdiction.
Ongoing criminal proceedings insufficient for inadmissibility challenges
Romania objected to the admissibility of the claims, alleging that the claimants investments were illegal and made in bad faith. Mr. Awdi was subject to three different criminal investigations and proceedings in Romania. He was acquitted by the trial court in one of the proceedings relating to human trafficking charges, but convicted in a separate proceeding, confirmed by an appellate court. The third proceeding was still pending. The tribunal found the diverging outcome of those investigations and proceedings rendered it impossible to draw any convincing evidence to make out Romania’s case.
Fork-in-the-road challenge dismissed due to lack of parallel litigation
Romania also raised admissibility objections on the basis that the claimants has sought to resolve the Casa Bucur–related dispute in Romanian courts and, thus, should be barred from submitting it to the tribunal, as the BIT contained a fork-in-the-road provision. Noting that the local proceeding was annulled due to the claimants’ failure to pay court fees and was never heard by the courts, the tribunal rejected Romania’s challenge and found there was no parallel litigation, hence no room for application of the fork-in-the-road provision.
Repeal of Law 442 amounted to FET breach, but not expropriation or denial of justice
Turning to the merits, the tribunal rejected the claimants’ argument that Law 442 itself constituted a land concession, but sided with Romania’s contention that the law merely gave them a right to negotiate such concession, which was not covered by the BIT as an investment and, thus, not subject to expropriation claims. In addition, the tribunal rejected the claimants’ contention that the Romanian Constitutional Court’s proceeding repealing Law 422 was “so egregiously wrong under international law” that would warrant a finding of a denial of justice or of an arbitrary or discriminatory treatment (para. 326).
Even so, the tribunal considered that the repealing of Law 442 coupled with Romania’s failure to provide any alternative measures to remedy the situation constituted a breach by Romania of its commitment made in Rodipet’s Privatization Contract to make “all reasonable efforts” to facilitate Rodipet’s land concessions, which was relied upon by the claimants when making the investment. According to the tribunal, such failure to act, after the enactment of Law 442 had created relevant legitimate expectations, resulted in the breach of the FET standard under the BIT.
Restitution of Casa Bucur to its original owner did not amount to expropriation, but Claimants had a legitimate expectation for the return of the purchase price
The tribunal also found Romania liable for a separate FET breach in relation to the Casa Bucur dispute. The purchase of Casa Bucur was completed when Romania was reforming its property law and restituting many state-owned historical buildings to their original owners. Evidence showed that Casa Bucur’s title had long been contested by different parties. It also showed that the claimants were aware of and expressly assumed the uncertainty regarding the title and the risk of restitution when purchasing the property. The property was eventually taken and returned to its original owner pursuant to a ruling by the Romanian Supreme Court. The claimants argued that the result was a “text book example of an expropriation” (para. 426).
The tribunal disagreed. It found that the claimants were indeed fully aware of the risks and uncertainties when purchasing the property. However, the tribunal did note that the claimants had a legitimate expectation that, if the risk materialized, the purchase price of the property would at least be returned. Thus, the tribunal held that Romania’s failure to return the purchase price to the claimants constituted a breach of the BIT’s FET standard.
The tribunal awarded the claimants approximately €7.5 million as compensation for the FET breach regarding Rodipet and approximately €147,000 for the breach regarding Casa Bucur. Both amounts were based on documented sunk cost suffered by the claimants. In addition, the tribunal also ordered Romania to reimburse the Claimants US$ 1 million for part of their legal fees and costs as well as awarded approximately €482,000 to the claimants as half of the cost incurred to gaining access to documents seized by the government. All other bases for compensation, as requested by the claimants, including loss of profit and possible future sales, were rejected by the tribunal.
Notes: The Tribunal was composed of Piero Bernardini (President appointed by agreement of the co-arbitrators, Italian national), Hamid Gharavi (claimants’ appointee, French and Iranian national), and Rudolf Dolzer (respondent’s appointee, German national). The award is available at http://www.italaw.com/sites/default/files/case-documents/italaw4208.pdf.