American investor declares against Georgia

Maka GHaniaSHvili

Another infringe on a private property in Georgia became a subject matter of international arbitrage.

In settlement of a dispute between Georgian government and American- Georgian businessmen, our budget can suffer damage in amount of 12 million dollars. American company “Easy Enterprise” and Georgian business group owning “Laser 2 Tbilisi”, “Tbilisi Sony Center” and “Café Rustaveli” have already claimed a compensation against government by international arbitration.
This is an unprecedented case in Georgian history when American businesspersons have arbitration proceedings with Georgian government. Complainant claims compensation of 12 100 000 million dollars. Arbitration is quite expensive and it costs complainant half a million dollars. However, representatives of an American business company declare that if they were unsure of winning, they never would have filed an action. They emphasized the fact that it is impossible in Georgia to obtain justice. Seventeen months passed since filing an action and no judicial sitting has been conducted in Tbilisi civil court yet. Matter has been submitted to arbitration in accordance with agreement signed between American and Georgian governments about encouraging and protecting investments and in accordance with UNO international trade law committee’s arbitral rules. Claiming parties are American company “Easy Enterprise”, “Laser 2 Tbilisi” and “Café Rustaveli”.
As stated in arbitration case, dispute was started partially with regard to three lease agreements signed between “Laser 2 Tbilisi”, “Café Rustaveli”, “Tbilisi Sony Center” and Citizen Mzia Kakabadze. The matter of dispute is bilateral investment agreement between Georgia and US. Complainant declares that defendant infringed the above-mentioned agreement by annulling lease contract, illegally evicting complainant and confiscating their property. Plaintiff also asserts that company has suffered material and property damage and; government has decreased value of their investments. Complainants declare that government totally neglects supreme law and uses state police forces for confiscating privately owned properties in order to gain profit.
According to the claim, Government and Ministry of Economics after having interests in Mzia Kakabazde’s property, instead of offering to sell the property at an acceptable price demanded from her to present own property to the state. In case of refusal, they threatened her with detriment to the family. In October 2006, financial police in Tbilisi arrested Mzia Kakabadze together with her husband. In November 23, 2006, under the multiple threats Mzia Kakabazde surrendered and signed the contract about gratis property disposal. The next day she wrote a notarized statement asserting that she was forced to sign an agreement under the threat of danger for her family.
After receiving property disposal contract, officials from the Ministry of Economics demanded from leaseholders to withdraw from occupancy, undeterred by the fact that lease agreement was signed up to 2015-2019 years. These companies invested mint of money for the reconstruction of the premises and for starting the business there. Taking into consideration that business location was essential for the success.
The company representatives repeatedly reminded the government that according to Georgian legislation government is obliged to respect lease agreements. In response to this, Ministry of Economics sent 200 police officers in order to evict leaseholders by force. Police officers destroyed and confiscated expensive office inventory and equipment. Few days after this raid, Ministry of Economics officially informed the companies about lease contract cessation. In spite of clear definition in Georgian legislation, that if lessor sells the premises “purchaser should undertake lessor’s obligations and rights”.
Companies that suffered damage filed an action to Tbilisi civil court in August 2007. However, ampliation has taken place, in spite of clear indication in Georgian legislation that hearing and determination of such claims must be done in 5 months term.
Georgian ombudsman declared in the report that annulling lease contract, evicting companies, and showing inactivity on their claims is a violation of Georgian legislation and international law. Georgian government refused to negotiate with the companies prior to the end of law proceedings at Tbilisi civil court. At the same time, it was asking to postpone the action on the score of negotiating with the complainants. By gaining time and acting dishonestly, government won a post. In spite of complainants’ all the endeavors there is no progress up to now.
As stated in the claim, after the multiple attempts of reaching an agreement on the mentioned matter, complainants submitted the question to international arbitration, due to abuse of their loyalty by the government.
In accordance with bilateral agreement between Georgia and US paragraph III, the parties must not expropriate or nationalize guaranteed investments in a direct or indirect way, unless it is done for public purposes in a non-discriminative manner. Defendant violated obligations of the mentioned paragraph. Due to7th August events “Laser 2” and “Café Rustaveli” suffered damage in amount of 2 400 000 dollars. The losses are still increasing. Complainants demand lease restoration and damage compensation. They demand from arbitration officially declare that Georgian government infringed bilateral agreement between Georgia and US and violated international and Georgian legislations.
President Mikhail Saakashvili, Prime Minister Grigol Mgaloblishvili, Minister of Justice Zurab Adeishvili and Minister of Economics Eka Sharashenizde have been informed concerning commencement of action.
We remind our readers that this is not the only time when Georgian government trespassed upon private property. This action toward American company can cost Georgia 12 million dollars and tarnish its reputation.