A tribunal of distinguished arbitrators, sitting under the auspices of the International Centre for the Settlement of Investment Disputes ("ICSID"), recently dismissed all the claims brought by Plama Consortium Limited ("Plama") against Bulgaria under the Energy Charter Treaty ("ECT"). The tribunal found that the investor obtained its investment through misrepresentation, which the tribunal held to preclude relief under the ECT.

This case is significant as it provides guidance for investors who are contemplating bringing a claim under the ECT. Only four awards have been published in ECT cases to date, but with the large number of states party to the ECT and the proliferation of energy disputes, the number of claims is expected to rise. Already, fourteen cases are known to be currently pending.

The case was brought by Plama, a company registered in Cyprus but owned indirectly by a French individual. In December 1998, Plama purchased an insolvent refinery company, Nova Plama, in Bulgaria, with the consent of the Bulgarian Privatization Agency. After Plama purchased the refinery, it resumed operations for a matter of months, before falling back into insolvency and terminating operations.

Plama initiated arbitration at ICSID claiming that Bulgaria had caused the revival of Nova Plama to fail. It brought its claim under Article 10(1) of the ECT, which provides for the promotion, protection and treatment of investments: in particular, it obliges a State to create "stable, equitable, favourable and transparent conditions" for an investment, to provide "fair and equitable treatment" and to provide "constant protection and security".

In its defence Bulgaria alleged that:

  1. Plama had no activities in Cyprus and its owners were not nationals of a party to the ECT, which meant that Bulgaria could deny Plama ECT protection;
  2.  Plama had obtained the consent from the Bulgarian Privatization Agency through misrepresentation which caused its investment to be void from the outset and thus not an "investment" protected under the ECT; and
  3. Bulgaria had in fact not breached its Article 10 obligations.

As regards Bulgaria's first point, the tribunal concluded that Plama was ultimately owned by a French individual. As France is a party to the ECT, it therefore held that Bulgaria could not deny protection to Plama.

On Bulgaria's second point, the tribunal found that Plama had misrepresented itself to the Privatization Agency when the parties had negotiated the approval of the investment. Plama had held itself out to be a consortium of the firms which had been involved at an earlier stage. The Privatization Agency had clearly attached importance to the technical and financial capacity of the consortium members and Plama had done nothing to correct the Agency's misapprehension. The tribunal took the view that granting the protection of the ECT to Plama under these circumstances would be contrary not only to Bulgarian law but also to international public policy.

In examining Plama's claims, the tribunal concluded on each point that there was no substantial wrongdoing. In its analysis of the Article 10 protections, the tribunal sought extensive guidance in the published awards of investment treaty cases, including BIT and NAFTA cases. This demonstrates the importance of the existing investment arbitration jurisprudence in understanding the precise scope of the ECT, particularly since ECT jurisprudence is still in its infancy. Together with other recent cases such as AMTO v Ukraine, in which the investor also failed in its claim, these cases provide at least some guidance for investors to consider before bringing an ECT claim. (Final award in Plama Consortium Limited v Republic of Bulgaria, ICSID case No. ARB/03/24)