Nasib Hasanov v Georgia - ICSID Case No. ARB/20/44 - Decision on Claimant's Application for Provisional Measures - Redacted - 14 June 2022
Country
Year
2022
Summary
Reproduced from www.worldbank.org/icsid with permission of ICSID.
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(g) Conclusion - License Revocation/Suspension: The Claimant's Request for Provisional Measures
92. For the reasons discussed above, the Tribunal finds that, in relation to its First measure, concerning the issues of license revocation or suspension,85 the Claimant has established the elements that compose the provisional measures standard, with one important exception: the Claimant's proposed reformulated First measure is overly broad and vague. The Tribunal, exercising its authority under ICSID Convention 47 and ICSID Arbitration Rule 39(3), accordingly revises the First measure, as follows, and recommends this revised provisional measure be adhered to by the Parties - Pending the conclusion of this arbitration, the Respondent (including the GNCC and all other State entities) shall not revoke or suspend CO's authorization to operate. Further, the Respondent shall not seek to restore the shareholding of CO that existed prior to the time that Claimant obtained a purported indirect 100 percent shareholding in CO. This provisional measure may be modified or withdrawn upon a showing of good cause.
B. The Question of the Special Manager
93. The Claimant contends (Tr., pages 17-20) that unless the Second and Third measures are adopted by the Tribunal, CO will be prevented from carrying out its business plan to grow the company and the Claimant will be unable to "get a return on investment and survive and long-term finance itself." The Claimant cites, by way of example, CO's inability to negotiate properly with Amazon and the loss of a major contract with MagtiCom because of the Special Manager's alleged interference and day-to-day blocking of company activities. The Claimant relies, in particular, on the Venice Commission's review of the Special Manager's powers (C-44, Cl. Slide 1786), in view of her remit to reverse the Transaction, in which the Commission determined (Tr., p. 24) that the Special Manager's role "violated the right to property under Article 1, Protocol 1, of the ECHR." The Claimant asserts (Tr., pages 28-31) that the GNCC's October 1, 2020, decision (C-34: Cl. Slide 34) meant, in effect, that the Special Manager "was only required to reverse the Transaction," so that her further intention to operate CO in a way that she thinks is efficient is outside her remit (assuming that her appointment was valid, which the Claimant rejects).
94. The Respondent argues (Tr., p. 42) that the Special Manager is Georgia's protection against the Claimant's attempt to take control of CO in violation of Georgian law and to "use the company as a vehicle to carry out the Azerbaijan Digital Hub Project." The Second measure, if granted, would place CO, a company that owns critical infrastructure, "in a regulatory vacuum," and the Third measure "would effectively neutralize the powers of the Special Manager, given the breadth of the powers that would be vested in the management that Claimant installed in CO; in CO's supervisory board, composed of members selected by Claimant; and CO's shareholders' meeting, composed of Nelgado and ION, each controlled by Claimant" (Tr., pages 47-48). The Second and Third measures, according to the Respondent, would preserve none of Georgia's rights and would instead strip Georgia of its regulatory powers over CO (Tr., p. 48).
(a) Prima Facie Jurisdiction
95. As discussed above, paragraph 65 footnote 78, the Claimant has satisfied this element of the provisional measures standard for his Second and Third measures requests as well as for his First measure request.
(b) Preserving the Rights for Which Protection Is Sought
96. As discussed above, paragraph 68, the rights to be protected by provisional measures must be related to the specific disputes in the arbitration, which in turn derive from a Party's claims as well as its requests for relief. However, the applicant's purported rights are not the only ones to be considered; the potential effect of the provisional measures on the Respondent's purported rights must also be part of the decisional matrix.
97. The Claimant requests the Second and Third measures to protect the value of his purported investment - for which he seeks damages or compensation in this arbitration87 - and to proceed with the execution of CO's business plan, which the Claimant seeks to institute, presuming that his ownership interest is accepted, at least during the arbitration.88 The Second measure (Cl. Response, para. 143.2; Cl. Slide 39) would proscribe the Special Manager from "exercising any of the powers conferred on her" by the October 1, 2020, GNCC Decision, including, specifically (but non- exclusively), actions that (i) are adverse to CO; (ii) interfere with CO's day-to-day management and business activities; and (iii) are designed to procure the forced reversal of the Transaction. The Third measure would order the Special Manager to approve a Nelgado director's (Mr. Taghiyev) request that CO's governing bodies be empowered to carry out an array of managerial activities.
98. The Tribunal notes that, taken together, the Second and Third measures would completely erase the Special Manager's powers under the GNCC's October 1, 2020, Decision. The allegation is that unless these powers are removed, the Claimant will be prevented from enjoying the financial benefits he planned to derive from his purported investment (though, as pointed out above, the relief that the Claimant seeks in this arbitration is damages or compensation for the diminished value of his purported investment). The Claimant has not adduced (at least not at this stage) the particulars of CO's business plan, the further investments in CO that he planned to attract, and the revenue streams that he had projected for the company. The Claimant, instead, provides certain instances where, he alleges, the Special Manager has taken "detrimental actions towards CO" since her appointment and obstructed CO's business (e.g., Cl. Slides 18-25). There is no quantitative assessment of the losses allegedly suffered by CO if the Special Manager acts pursuant to the powers accorded to her by the GNCC. In particular, there is no showing by the Claimant that the Special Manager, acting pursuant to the powers accorded to her, would destroy CO as a going concern (see Request, para. 122). On this basis, the Second and Third measures can only be said to possibly to lessen the amount of damages that the Claimant may be entitled to if he prevails on liability at the merits stage of this arbitration.
99. Georgia's rights, on the other hand, are based on its position that the Claimant's investment is illegal. It argues that its regulatory powers over CO - including, in particular, its capacity to preserve Georgia's ability to compete with the Azerbaijan Digital Hub project - will be eliminated if the Second and Third measures are adopted as provisional measures. The Bakcell Report (R-32, Resp. Slides 25-27), according to the Respondent, demonstrates that unless Georgia can exercise regulatory control - through the Special Manager - over CO for the pendency of this arbitration, Georgia's political economy is at serious risk of grave damage. Thus, the broad wording of the Second and Third measures, whereby the Special Manager would have no substantive powers, would eliminate a regulatory right that Georgia is entitled to have protected until the conclusion of this arbitration. This right would be eliminated in circumstances where there has been no showing of a threat to CO's financial well- being.
100. The Respondent observes (Tr., p. 55) that even if the Claimant loses the arbitration, "the company would entirely change its strategy of provision of services and would change its strategic directions" - to the detriment of Georgia and in ways that Georgia could not correct "far beyond the completion of the arbitration." The Respondent adds (Tr., p. 98) that "the lawfulness of the decision on the appointment of the Special Manager is one of the core issues in dispute in this case"; it is a merits issues that has not yet been briefed and should not be prejudged by the Tribunal.
101. The Tribunal finds the Claimant has identified a number of potential risks to CO's economic attainments from the appointment of the Special Manager (with the powers accorded to her by the GNCC).89 Blocking the Special Manager's powers during the arbitration arguably may reduce the damages/compensation that the Claimant would otherwise seek to recover in a final award. From a related perspective, protection of the Claimant's purported ownership rights - which the Tribunal has granted through the revised First measure - would be of little value if the purported investment were at risk of dissolution and the Second and Third measures would preserve that investment. The record before the Tribunal, however, does not contain compelling evidence that the Special Manager's exercise of her October 1, 2020, powers would threaten CO as a going concern (see Tr., pages 96-102; Resp. November 18, 2021, Resp. Update Response, paras. 11-21). The thinness of the evidence of economic disruption due to the Special Manager's exercise of her powers must also be weighed against the Respondent's regulatory rights, and its specific right in this arbitration to have its position adjudicated - and not pre-judged - that the Claimant's investment was illegal and the Special Manager's appointment and powers were legal. The Tribunal's weighing of these issues leads it to conclude that the Second and Third measures are not necessary to preservation of the rights for which protection is sought by the Claimant. Further, the Tribunal credits the Respondent's argument concerning disproportionality (Tr., p. 103): "On the one hand, Claimant would suffer a compensable loss of a business opportunity: on the other hand, in a worst case scenario, Georgia would suffer very substantial economic harm, and potentially irreparable harm."
(c) Urgency
102. Along the lines of the Tribunal's discussion in paragraph 72, above, the relevant question under this heading is whether (a) the Claimant has demonstrated that there would be a genuine risk to CO as a going concern before the issuance of the final award, absent the Tribunal's adoption of the Second and Third measures as recommended provisional measures, or (b) even absent a bankruptcy risk, has the Claimant established that the Special Manager would seek to act in with the purpose of damaging the economic wellbeing of CO.90 As already considered in paragraph 101 above, the Tribunal finds that such a risk does not exist, and therefore the Claimant has not satisfied the urgency element.
(d) Narrow and Specific
103. The Second measure would, on its face, completely eliminate the Special Manager's powers and, in effect, overrule the GNCC's October 1, 2020 Decision for the duration of the arbitration. (The Third measure is a parallel provision whereby CO's director, supervisory board and shareholders would be expressly authorized to manage the company and take decisions without seeking the Special Manager's approval; see C-41, Letter from the Nelgado Director to the Special Manager, dated January 11, 2021.)
104. While the Second and Third measures certainly convey clarity to the Respondent (and the Tribunal) about enjoined actions, the problem with these requested measures is that they would enjoin all actions; i.e., these measures would nullify a regulatory decision of the State in its entirety; as the Respondent argues, this would effectively amount to a prejudgment that the Special Manager's appointment was illegal. In circumstances where the Claimant has not sought to identify specific powers of the Special Manager that might arguably be enjoined as a provisional measure and would not amount to a prejudgment of illegality, the Tribunal considers that the clarity of the requested measures - an elimination of all powers of the Special Manager - is outweighed by the Claimant not having proposed the minimum step necessary to protect the disputed right. (See above, paragraph 80, including the reference to RL-5, Nova Group v. Romania.)
(e) Preserving the Status Quo and Preventing Aggravation of the Dispute; Improving the Claimant's Position
105. The Claimant's status quo difficulty is that the GNCC's October 1, 2020 Decision, in which the Special Manager is accorded the powers that the Claimant seeks to block with the Second and Third measures, pre-dates the filing of the Request for Arbitration (October 19, 2020). As a practical matter, then, preserving the status quo would appear to entail preserving the Special Manager's October 1 powers. The Claimant's counter- argument focuses (C-34, C-44, C-57, Cl. Slides 17, 34-35, Tr., pages 29-31, 79-89) on the purpose of the Special Manager's appointment (Cl. Slide 34) - "The Special Manager shall be in charge of ensuring restoration" of CO's pre-acquisition shareholding, and shall exercise her powers with the "belief that each of her actions/omissions will best ensure the fulfillment" of the restoration obligation. On this basis, the Claimant asserts (Tr., p. 30) that the GNCC's Decision does not give the Special Manager "a mandate" to operate CO or to interfere in its day-to-day management. Along these lines, by seeking to interfere in the company's management (C-57, Cl. Slide 35), the Special Manager has misinterpreted her remit. Accordingly, (Tr., p. 31), to preserve the status quo would mean to prevent the Special Manager from exercising her powers and interfering in the business of the company.
106. The Claimant reiterates (Tr., pages 79-80) that the status quo was "a Special Manager in place with a remit to reverse the Transaction"; nothing more. For support, the Claimant refers to the Venice Commission (C-34), which found that the Special Manager Law violates the European Convention on Human Rights because "it gives powers that have nothing to do with the purported goal" - which, moreover, was a goal that the Special Manager could not achieve in any event. The Claimant rejects the notion (Tr., pages 82-84) that the Special Manager's understanding of her powers, as expressed, e.g., in R-79, has any bearing on what the GNCC actually authorized her to do; her actions are "simply not a legally protected right," since she is "trying to do more" than her legal authorization would permit.
107. The Respondent's status quo position focuses (Resp. Reply, paras. 187, 193-195) on "prejudgment": i.e., absent a finding that the Special Manager's appointment was unlawful, the Special Manager has the power to manage CO. Thus, to grant the requested Second and Third measures would require the Tribunal to prejudge a merits issue. Further, as a factual matter, the appointment of the Special Manager was part pf the status quo and the dispute submitted to the Tribunal - indeed, the Claimant's own case is that he lost "all control over CO" by virtue of the October 1, 2020 GNCC Decision (Request, para. 89). To restore the Claimant's unlawful (as the Respondent sees it) control over CO would be to "impermissibly improve Claimant's situation" and to impose on Georgia the Claimant's "attempted investment in CO as a fait accompli" (Resp. Reply, paras. 194-195).
108. The Tribunal cannot simply adopt, and at this stage of the arbitral proceedings takes no view on, the finding of the Venice Commission (C-44, Cl. Slide 17). The Tribunal has not heard full evidence and submissions on the proper interpretation under the applicable law of the GNCC's October 1, 2020 Decision, and the alleged disjuncture between the Special Manager's mandate and the powers accorded to her. The Tribunal observes that Special Manager Miriam Sulaberidze made the following comments in her Report (October 1, 2020 - February 28, 2021, R-79), which the Tribunal is not now in position to question:
My powers and mandate as a special manager are determined by the decision of the Commission. My main task and function is to enforce the decision of the Commission and to neutralize the risks set out in the decision of the Commission, in particular, as a result of illegal alienation of the share of Caucasus Online Ltd. Illegal alienation of shares must not threaten the competitive environment in the relevant segment of the Internet service delivery market in Georgia and must not harm the users of Internet services in Georgia and the regional competitiveness of Georgia.
During the reporting period, my main activities were to study the situation of the company in order to plan further decisions to implement the decision of the commission....
Every decision made by me was dictated by the belief and motives that it is the best decision for enforcing the Commission's decision. The main goal of my activities was distancing the person who illegally acquired the shares of Caucasus Online Ltd., as much as possible, from the company's activities and agreeing in advance with the existing management decisions of the company. As a Special Manager, I assisted the CEO of the company in the smooth running of the day-to-day operations of the company. During the reporting period, the company did not have any delays in its normal business activities. In addition, during the reporting period, I did not consent to any activities that were inconsistent with the decision of the Commission, the execution of which is the responsibility of the Special Manager. I did not consent to the following issues: [e.g., an MOU with certain companies, since CO was mentioned as a subsidiary of NEQSOL Group]....
109. The Tribunal's recommendation of the revised First measure prevents what the Claimant states that the Special Manager herself could not (and cannot) achieve, though the State might otherwise seek to achieve - the reversal of the Transaction.
However, the Tribunal deems it inappropriate to consider whether, at this time, the Special Manager's determination "to neutralize the risks set out in the decision of the Commission, in particular, as a result of illegal alienation of the share of Caucasus Online Ltd." is improper and should therefore be enjoined, particularly since her determination was apparently the approach taken before this arbitration commenced.
Further, when the Special Manager reports that the "main goal of my activities was distancing the person who illegally acquired the shares of Caucasus Online Ltd., as much as possible, from the company's activities," the Tribunal cannot now determine whether this approach constitutes action outside the Special Manager's mandate. The Special Manager's approach supports Georgia's position that, without the Special Manager's exercise of the powers accorded to her by the GNCC, Georgia will be unable as a practical matter to preserve its challenge to the legality of the Claimant's purported investment and the implications of his disputed ownership interest.91
110. In view of the Tribunal's finding that (a) the Special Manager's powers predated the commencement of this arbitration, and (b) it would be inappropriate at this stage of the proceedings to adjudicate the Special Manager's legality in exercising those powers, the Tribunal considers that the status quo and "aggravation of the dispute"
elements weigh in the Respondent's favor.
(f) Irreparable Harm
111. The Tribunal has found (see paragraph 101 above) that the Claimant has not adduced compelling evidence showing that the Special Manager's exercise of her October 1, 2020, powers would threaten CO as a going concern. See, for example, the Respondent's arguments (Tr., pages 67-68 and 97-98), which indicate that the Special Manager's exercise of her powers has not damaged CO. In considering the balance of harms, the Tribunal also credits the Respondent's contention (Tr., p. 48) that the Second and Third measures "would strip Georgia of its regulatory powers over CO, prohibit from addressing serious and deliberate violations of its laws, and cause it substantial and potentially irreparable harm." The Respondent adds (Tr., p. 103) that the Georgian courts "have identified that there is substantial harm to the Georgian telecommunications market in terms of competition, in terms of the risk of a change in strategy in a manner that would negatively affect retail subscribers and Georgian public agencies and, third, the harm to international competitiveness."
(g) Conclusion - The Special Manager: The Claimant's Request for Provisional Measures
112. For the above reasons, the Claimant's requested Second and Third measures (Cl.
Response, paras. 143.2 and 143.3) do not satisfy the elements that compose the provisional measures standard. The Tribunal therefore declines to recommend these measures. Upon a showing of good cause, the Claimant is at liberty to apply for significantly more limited measures that would not, inter alia, entail a prejudgment of the legality of the GNCC's October 1, 2020, Decision.
IV. RECOMMENDATION UNDER ICSID CONVENTION ARTICLE 47;
ICSID ARBITRATION RULE 39(3)
113. The Claimant's requested First measure is recommended in revised form as follows:
Pending the conclusion of this arbitration, the Respondent (including the GNCC and all other State entities) shall not revoke or suspend CO's authorization to operate. Further, the Respondent shall not seek to restore the shareholding of CO that existed prior to the time that Claimant obtained a purported indirect 100 percent shareholding in CO. This provisional measure may be modified or withdrawn upon a showing of good cause.
114. The Claimant's requested Second and Third measures are denied. Upon a showing of good cause, the Claimant is at liberty to apply for significantly more limited measures that would not, inter alia, entail a prejudgment of the legality of the GNCC's October 1, 2020, Decision.
115. Costs are reserved.
[signed]
Stanimir Alexandrov, Arbitrator
J. William Rowley, Arbitrator
Laurence Shore, President of the Tribunal
Footnotes omitted