Clocked Out: How the Armenian Civil Code Sank a $331 Million Claim

Can a three-year deadline in Armenia’s Civil Code derail a $331 million funding arbitration? The current ICSID award in Rasia FZE and Joseph Ok. Borkowski v. Republic of Armenia says sure, exposing a vital spot in investor-state dispute settlement (ISDS): the quiet energy of home legislation to strangle funding claims.

The dispute stemmed from a grand infrastructure venture, a North-South railway hall meant to hyperlink the Persian Gulf to the Black Sea by way of Armenia. In 2012, Armenia signed two Concession Agreements with Rasia FZE, a Dubai-based funding automobile, to conduct feasibility research and venture growth. The Claimants asserted Armenia subsequently: (1) abruptly withdrew political backing; (2) failed to offer promised help; and (3) engaged with competing traders, actions they claimed constituted each contractual breaches and violations of the US–Armenia BIT’s FET ensures. Joseph Ok. Borkowski, Rasia’s US-national CEO, joined the arbitration in search of $331 million for the venture’s collapse.

On January 20, 2023, the Tribunal discovered that the three-year limitation interval below the Armenian Civil Code utilized. The award highlights the decisive function home statutes of limitation can play, serving as a cautionary reminder to traders of the potential impression nationwide legal guidelines could have on the result of funding disputes.

Treaty or Contract?

The Tribunal confronted a key problem in distinguishing between the totally different authorized bases for the claims. Mr. Borkowski, a U.S. nationwide, introduced claims below the US–Armenia BIT, counting on FET, expropriation, and umbrella clause protections. In the meantime, Rasia FZE, included within the UAE, pursued purely contractual claims primarily based on two Concession Agreements signed with Armenia in 2012 for railway and freeway initiatives. These agreements contained ICSID arbitration clauses and explicitly designated Armenian legislation as governing. This distinction between treaty-based and contract-based claims required the Tribunal to fastidiously delineate the scope of its jurisdiction over every claimant’s case.

The tribunal in the end held that the umbrella clause (Article II(2)(c) of the US–Armenia BIT) couldn’t elevate Rasia’s contractual claims into treaty breaches, as Borkowski lacked privity below Armenian legislation (para. 409). This introduced a classical subject of by-product standing. Whereas oblique traders typically depend on BIT protections like FET and expropriation, umbrella clauses are totally different. The Tribunal said they require a direct obligation “entered into” with the investor Had a UAE–Armenia BIT with a comparable umbrella clause been in power, Rasia might need had standing, however no such treaty utilized on the related time (para. 422). Thus, Mr. Borkowski remained the one claimant with treaty-based claims, and Rasia’s claims have been confined to the contractual area ruled by Armenian legislation. This reasoning aligns with SGS v. Philippines, the place the tribunal rejected the transformation of pure contract breaches into treaty breaches absent direct contractual relationships (para. 125).

Time Runs Out

A pivotal side of the Rasia case was the Tribunal’s evaluation of the relevant limitation interval below Armenian legislation. Article 332 of the Armenian Civil Code establishes a common statute of limitations of three years. Article 337 clarifies that the interval begins when the claimant knew or ought to have recognized in regards to the violation and the accountable celebration. Based on the Tribunal, Armenia’s alleged withdrawal of help and failure to cooperate came about no later than March 2015.

On this regard, the Claimants superior two core arguments. First, their March 2015 letter initiating contractual dispute decision proceedings had successfully interrupted the constraints interval. Second, Armenia’s conduct after 2015, together with conferences, correspondence, and expressions of cooperation, amounted to an acknowledgment of legal responsibility below Article 340(1) of the Civil Code, which might restart the limitation clock.

The Tribunal dismissed each arguments. On the primary level, it discovered that whereas the March 2015 letter could have been a step below the contractual dispute decision clause, solely a proper Request for Arbitration filed below the relevant procedural guidelines may successfully interrupt the limitation interval. Nonetheless, the Request was solely filed on 20 July 2018, greater than three years later (para. 454).

On the second level, the Tribunal dominated that Armenia’s post-2015 conduct didn’t rise to the extent of acknowledgment required below Article 340(1). Continued engagement between the events was not an admission of legal responsibility (para. 467). Consequently, by the point the arbitration proceedings have been formally launched, the claims below the Concession Agreements have been time-barred below Armenian legislation. This end result illustrates how home legislation can operate as a dispositive rule of resolution in funding arbitration.

Causation and Damages

Though the Tribunal in the end dismissed the contract claims on statute of limitations grounds, it additional addressed causation and damages to make clear that the declare wouldn’t have succeeded on the deserves both. Whereas not strictly crucial, this step underscored the Tribunal’s warning to resolve the dispute comprehensively, maybe to preempt any suggestion that the case was dismissed solely on a procedural technicality.

On the core of the causation evaluation was the feasibility of the railway venture. The Tribunal famous that the venture confronted important monetary, technical, and geopolitical challenges unrelated to any conduct by the Armenian authorities. These difficulties performed a considerable function within the venture’s collapse. (para. 683)

The Claimants had argued that Armenia’s engagement with third-party contractors triggered Aabar Investments, a possible Emirati investor in talks to amass Rasia’s shares, to desert the deal (para. 480). The Tribunal discovered that Armenia breached the Street Concession by granting rights to 3rd events with out first terminating the dormant settlement, and later breached the Railway Concession by pursuing an alternate venture with out coordinating with Rasia. Nonetheless, Rasia’s claims have been time-barred below Armenian legislation and subsequently inadmissible. (para. 709)

Mr. Borkowski’s BIT claims have been equally dismissed. The umbrella clause allegations have been time-barred in addition to inadmissible as a consequence of lack of standing. As for the remaining treaty claims, the Tribunal discovered that Armenia’s conduct didn’t violate the FET normal or quantity to expropriation. There was no proof that Armenia’s actions destroyed an funding of cognizable worth. (para. 710)

The Tribunal additionally confirmed that, even when the contract claims had been well timed, no damages would have been awarded. Armenia’s conduct was not the reason for the initiatives’ failure or Aabar’s resolution to tug out. The Claimants provided no various harm principle and supplied no proof of precise expenditures. With out causation or demonstrated loss, compensation was unwarranted (para. 711).

This reasoning demonstrates tribunals can discover causation and damages even when procedural points are dispositive. Whereas some may learn the causation dialogue as obiter, its practical function in reinforcing the award’s credibility can’t be neglected.

Prices and the Warning in Victory

Though Armenia was the prevailing celebration, the Tribunal declined to award full prices. As an alternative, it ordered the Claimants to cowl 75% of Armenia’s authorized charges and all prices related to the proceedings (para. 724), amounting to over USD 2.78 million.

This cut up adopted the Tribunal’s acknowledgment that Armenia had breached the Concession Agreements in some respects. Its tempered strategy departed from the usual “loser pays” mannequin and mirrored a level of sympathy towards the Claimants, who had not abused the method or acted in unhealthy religion. They superior a posh declare on the intersection of treaty protections, contractual obligations, and nationwide limitation guidelines. The declare failed, however not frivolously so.

This displays a rising pattern in funding arbitration towards context-sensitive value apportionment, significantly in circumstances involving hybrid authorized frameworks or jurisdictional shut calls. The tribunal’s value allocation rounds out a choice characterised by authorized deference, cautious pragmatism, and an acknowledgment of the complexities that come up when worldwide and home authorized regimes converge.

Annulment and Finality

The Claimants initiated annulment proceedings below Article 52(1) of the ICSID Conference, invoking three grounds: (i) manifest extra of powers, (ii) a critical departure from a elementary rule of process, and (iii) failure to state causes. On the coronary heart of their argument was a declare that the Tribunal had misapplied Armenian legislation and thereby exceeded its mandate in addition to failing to offer enough reasoning for key components of the choice.

On November 5, 2024, the Annulment Committee dismissed all grounds for annulment. It reaffirmed that annulment just isn’t a mechanism for interesting authorized errors: even an incorrect interpretation of nationwide legislation doesn’t justify annulment until the tribunal utilized the incorrect legislation totally or exceeded its mandate. On this case, the Tribunal had utilized Armenian legislation as required by the Concession Agreements, and whereas its conclusions could have been contested, they didn’t quantity to a failure to use the relevant legislation. (para. 169)

As for the alleged procedural breach, the Committee discovered no critical departure from procedural equity that would warrant annulment. (para. 189) It additionally rejected the allegation that the Tribunal had didn’t state causes, holding that the award clearly articulated its reasoning on all key points, together with the statute of limitations and causation. (paras 252–253)

By refusing to annul the award, the Committee additionally ordered Rasia FZE and Joseph Ok. Borkowski to bear all prices of the annulment continuing, amounting to USD 407,432.36, and to reimburse Armenia’s authorized charges of USD 382,248.00, plus curiosity. (para. 276)

Conclusion

Rasia v. Armenia is a telling instance of how investor-state arbitration can activate the mechanics of home legislation. The Tribunal’s reliance on Armenia’s statute of limitations, and its agency rejection of causation and damages, illustrates how procedural timelines and evidentiary requirements can form outcomes in funding arbitration. However this was no mechanical dismissal: by addressing causation and valuation head-on, the Tribunal infused what may in any other case seem as obiter with practical significance. These findings in the end knowledgeable a tempered however deliberate value allocation, reflecting a realistic appreciation of the dispute’s complexity and the events’ good-faith engagement. The Committee’s dismissal of all challenges below Article 52 of the ICSID Conference confirmed the Tribunal’s dealing with of substance and process, bringing the dispute to a definitive shut. For traders, the lesson is obvious – test the high-quality print of native limitation legal guidelines earlier than the clock begins ticking.