A 20-Year-Old Tale

The Republic of Moldova v. Komstroy case highlights the contradicting approaches to the notion of investment under the ECT of the French Courts.

This is a two-decade-old tale that takes us back to the late 1990s, when Ukrainian company Energoallians (Komstroy’s predecessor-in-interest) concluded two tripartite contracts for the supply of electricity. The contracts provided that Energoallians would purchase electricity from Ukrenergo and resell it to Moldtranselectro, the Moldovan State-owned company in charge of operating the Moldovan power grid, via Derimen, a British Virgin Islands company.

Shortly afterwards, Moldtranselectro defaulted, and Derimen ultimately assigned the contractual claim against Moldtranselectro to Energoallians.

A dispute arose between the parties regarding the payment of Moldtranselectro’s debt, with Energoallians considering that certain actions taken by the Republic of Moldova constituted a violation of the State’s obligations under the ECT, as well as under the 1996 Ukraine-Moldova BIT.

Energoallians commenced Paris-seated UNCITRAL arbitration proceedings and in 2013, co-arbitrators Mikhail Savranskiy (Russia) and Viktor Volchinskiy (Moldova) rendered a majority award dismissing the Moldovan State’s jurisdictional objections and ordering it to pay US$46.5m. Quite uncommonly, the dissenting arbitrator was the chair, Dominic Pellew (UK). In his view, in order for assets to qualify as “investments” within the meaning of the ECT, they must have characteristics of “investments” in the ordinary sense. Turning to Energoallians’ debt assignment, he concluded in his dissenting opinion that it did not constitute an investment in the ordinary sense, due inter alia to the lack of contribution of capital or effort by the investor.