{"id":3510,"date":"2015-11-26T13:49:49","date_gmt":"2015-11-26T19:49:49","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3510"},"modified":"2024-08-09T18:26:28","modified_gmt":"2024-08-09T16:26:28","slug":"energorynok-had-no-ownership-or-control-over-energy-related-economic-activity-ect-case-against-moldova-dismissed-state-enterprise-energorynok-ukraine-v-republic-of-moldova-scc-arbitration-v-2012-175","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/11\/26\/energorynok-had-no-ownership-or-control-over-energy-related-economic-activity-ect-case-against-moldova-dismissed-state-enterprise-energorynok-ukraine-v-republic-of-moldova-scc-arbitration-v-2012-175\/","title":{"rendered":"Energorynok had no ownership or control over energy-related economic activity; ECT case against Moldova dismissed"},"content":{"rendered":"

State Enterprise \u201cEnergorynok\u201d (Ukraine) v. The Republic of Moldova, SCC<\/span> Arbitration V (2012\/175)<\/em><\/h2>\n

A January 29, 2015 award by a tribunal under the Arbitration Institute of the Stockholm Chamber of Commerce has recently become public. The tribunal dismissed the claims by Ukrainian state enterprise Energorynok against Moldova under the Energy Charter Treaty (ECT<\/span>) for lack of jurisdiction.<\/p>\n

Background and claims<\/h3>\n

In February 1995, the energy ministries of Ukraine and Moldova concluded an Agreement on the Parallel Operation of the Energy Systems of Ukraine and Moldova (the APO), vesting its performance in two state enterprises: Ukrenergo for Ukraine, Moldtranselectro for Moldova.<\/p>\n

An overflow of electricity of 50,000,000 kWh occurred from Ukraine to Moldova in October 1998; under the APO, this overflow trigged Moldova\u2019s obligation to compensate Ukraine in the amount of USD 1,662,297.81. Ukraine\u2019s credit for the overflow was transferred from Ukrenergo to the claimant, Ukrainian state enterprise Energorynok, established in May 2000.<\/p>\n

After trying unsuccessfully to obtain payment from Moldtranselectro for five years, Energorynok initiated a lawsuit in 2002 against Moldova\u2019s energy ministry. This lawsuit resulted in a December 25, 2002 decision of the Economic Court in Kiev that ordered Moldova\u2019s energy ministry to pay Energorynok USD 1,745,412.71 and litigation costs.<\/p>\n

As Energorynok\u2019s efforts to enforce the 2002 decision also failed, it initiated arbitration against Moldova under the ECT in December 2012. In particular, it argued that its claim to money under the 2002 decision was an investment under the ECT and that, by failing to enforce the decision, Moldova expropriated Energorynok\u2019s investment and breached the fair and equitable treatment standard under the ECT. It sought compensation in the amount determined in the 2002 decision, plus interest, and arbitration fees and legal costs.<\/p>\n

Moldova objects to jurisdiction; Energorynok insists it had \u201cinvestment\u201d under ECT<\/h3>\n

According to the tribunal, Moldova objected to the tribunal\u2019s jurisdiction arguing that the 2002 Kiev court decision was \u201cillegally and fraudulently obtained\u201d and therefore did not deserve protection under the ECT, and that, even if this were not the case, Energorynok did not satisfy the criteria to bring an ECT claim (para. 77).<\/p>\n

The tribunal reasoned that whether Energorynok had obtained the 2002 decision illegally and fraudulently was a question for the merits. Leaving that question to the side, it set out to look instead at whether it had jurisdiction, analyzing whether Energorynok had an \u201cinvestment\u201d under the ECT.<\/p>\n

Relying on the definition of \u201cinvestment\u201d under ECT Article 1(6), Energorynok argued that its investment is a claim for money or the right to compensation for the overflow, and that this claim or right was an energy-related asset with an economic value. The claimant relied on\u00a0Petrobart v. Kyrgyz Republic<\/em>, which concluded that a contract, a court decision, and a claim to money concerning the sale of a gas condensate were \u201cinvestments\u201d under the ECT.<\/p>\n

Tribunal looks at Petrobart and Electrabel to clarify circular definition of \u201cinvestment\u201d<\/h3>\n

In interpreting whether Energorynok had an investment, the tribunal looked mostly to\u00a0Petrobart\u00a0<\/em>and to\u00a0Electrabel v. Hungary<\/em>, another ECT case. Both tribunals noted the ambiguous and unclear language in ECT Article 1(6)(c). In referring to \u201cclaims to money and claims to performance pursuant to contract having an economic value and\u00a0associated with an Investment<\/em>,\u201d the provision defines \u201cinvestment\u201d by resorting to a reference to \u201cinvestment\u201d\u2014a circular definition raising logical problems.<\/p>\n

The\u00a0Petrobart<\/em>\u00a0tribunal concluded that, since the gas condensate sold was an energy material qualified as an \u201cinvestment,\u201d the claimant\u2019s right to be paid for this gas condensate was also covered under \u201cinvestment.\u201d The\u00a0Electrabel<\/em>\u00a0tribunal indicated that interpreting ECT Article 1(6)(c) depended on an overall assessment of the investment.<\/p>\n

Energorynok failed to show ownership or control over energy-related economic activity<\/h3>\n

Applying these interpretations to the present case, the tribunal pointed out that the claimant, unlike\u00a0Electrabel<\/em>, was \u201cnot a shareholder in an entity directly or indirectly engaged in the underlying economic activities.\u201d Furthermore, it indicated that Energorynok, unlike\u00a0Petrobart<\/em>, did not have \u201cfull control over its own sales and deliveries,\u201d and was not \u201ca full party to the sale and delivery contract\u201d (para. 86).<\/p>\n

The tribunal agreed with Energorynok that \u201cECT Article 1(6) requires the investor to own or control the asset\u201d (para. 89). Yet the tribunal interpreted that, for the claim to money to qualify as an \u201cinvestment\u201d under Article 1(6)(c), the investor must also have ownership, control or a financial interest in the \u201cinvestment\u201d to which the claim was associated, that is, the underlying energy-related economic activity out of which the claim ultimately arose.<\/p>\n

Indicating that Energorynok was not a party to the APO and, accordingly, had no right, obligation or role under the APO, the tribunal found that the claimant, even though owning or controlling a claim to money, did not have any ownership, control or interest in the \u201cinvestment\u201d to which the claim to money was associated\u2014the transmission of electricity in Moldova. Accordingly, the tribunal found that Energorynok\u2019s claim to money did not constitute an \u201cinvestment\u201d under the ECT, and dismissed the case for lack of jurisdiction.<\/p>\n

The parties were ordered to bear arbitration costs equally, and each of them was ordered to bear its own legal costs and other expenses.<\/p>\n

Notes<\/em>: The SCC tribunal was composed of Nancy B. Turck (Chairperson appointed by the Arbitration Institute of the SCC), Joseph Tirado (claimant\u2019s appointee), and Rolf Knieper (respondent\u2019s appointee). The award is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw6299.pdf<\/a><\/p>\n

Martin Dietrich Brauch\u00a0<\/strong>is an International Law Advisor and Associate of IISD<\/span>\u2019s Investment for Sustainable Development Program, based in Latin America.<\/p>\n