Monetary claim as a protected investment under ECT: Energoalians v. Moldova case

CIS PictOn 28 March 2018, the French Court of Cassation reinstated a $49 mln Energy Charter Treaty (“ECT”) award against the Republic of Moldova, that was set aside by the Paris Court of Appeal on jurisdictional grounds in 2016. The Court of Cassation considered that the lower court violated the text of ECT by imposing a jurisdictional requirement not contained in the treaty, namely that the acquisition of a claim to money originating from an electricity supply agreement could not constitute an “investment” under ECT in the absence of economic contribution to the host state.

The case concerns the issue of interpretation of Art. 1(6)(c) of the ECT which says that “Investment means every kind of asset, owned or controlled directly or indirectly by an Investor and includes…claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment”.

The underlying dispute and setting aside proceedings

The case arose out of a 1999 energy supply agreement from Derimen to Moldtranselectro, which was at that time a Moldovan state-owned entity. Moldtranselectro defaulted on its payments under the agreement, and Energoalians (“Claimant”) acquired the right to claim a debt from Derimen, and attempted to collect them in the Moldovan courts. After an unsuccessful attempt to collect the debts by recourse to local courts, the Claimant brought an ECT claim. In meantime, Moldtranselectro was dissolved, and its assets were allocated to another state-owned entity.

The proceedings were conducted under the UNCITRAL Rules and the arbitration was seated in Paris. According to the Claimant, during the course of protracted court proceedings, Moldova breached its obligations under the Energy Charter Treaty and denied Energoalias the benefits of its investment in the country. The majority of the arbitral tribunal found that it had jurisdiction to hear the dispute, as the transaction qualified as an ‘investment’ under the ECT. The tribunal concluded that Moldova had improperly issued a decree stripping Moldtranselectro of its assets and transferring them to other entities. It also found that the respondent had engaged in quasi-judicial ex parte proceedings that provided the Moldovan courts with the purported grounds to deny Energoalians’s claims. The arbitral tribunal further decided that Moldova had breached its obligations under the ECT. It ordered Moldova to pay damages to Energoalians. 

The chairman of the tribunal, Mr. Dominic Pellew dissented from his colleague-arbitrators as to whether the tribunal had jurisdiction under the ECT to hear Energoalians’s claim. He disagreed as to whether the company had an “investment” for the purpose of ECT, saying the case raises the “fundamental question” as to whether a party that acquired a debt claim that originally arose under a contract for the supply of a good made an investment.

Setting aside proceedings and the proceedings before Court of Cassation.

The Paris Court of Appeal set aside the award in April 2016. It upheld arguments by Moldova that had been advanced by Pellew in his dissent. The court agreed that “investment” under the ECT generally requires a capital or economic contribution and that the acquisition of a debt arising under a commercial transaction was therefore not an investment because it did not involve a transfer of capital or resources. The court decided that, when interpreted in the context of the provisions of the ECT and in light of the ECT’s object and purpose, namely, to “catalyse economic growth by means of measures to liberalise investment and trade in energy”, a qualifying ‘investment’ generally requires a capital or valuable contribution to an economic entity within the territory of the host state.

The Court of Appeal concluded that the debt claims arose out of a commercial transaction, which had as its sole purpose the sale of electricity and did not involve a transfer of capital or other resources to Moldova. Accordingly, the supply of electricity could not be associated with an investment activity for purposes of the ECT and the arbitral tribunal did not have jurisdiction.

Overturning that decision, the Court of Cassation said the appeal court had introduced a condition not found in the treaty. It said the ECT does not specify the criteria that characterize an investment but only provides a non-exclusive list of the type of assets that can be considered an investment. Court of Cassation found that the ECT does not require that the investment “contributes to the host state economy” and therefore the Court of Appeal wrongfully added an additional element to the definition of investment.

Is the acquisition of the right to claim a debt an “investment” under ECT?

The Decision of the Court of Cassation remains in line with a previous ECT tribunal decision that claims to money arising from a long-term contract concerning the sale of gas are investments protected by the ECT (Petrobart Ltd. v. The Kyrgyz Republic, SCC Arbitration No. 126/2003, Award, 29 March 2005). Whilst the meaning of the term ‘investment’ must be interpreted in the context of each specific treaty, in accordance with the relevant principles of international law, the Court of Cassation’s decision shows that generally, a commercial transaction which has as its sole purpose the sale of a commodity will usually constitute a protected ‘investment’.

The issue raises the question of principle whether anyone who acquires the right of claim, which originally arose under the contract of supply of goods, to implement the “investment” for the purposes of the ECT. A more difficult question is whether the claimant’s right to claim is an “asset” covered by the rest of the definition in Article 1 (6) of the ECT. Art. 1(6)(c) of ECT provides that the claims to money under the contract can be investment only if the relevant contract is related to an investment. I am not convinced that in Energoalians v. Moldova case the claims arising out of the contract were “related to an investment” but rather arising out of a mere supply contract. Nevertheless, in order to determine whether the claims to money were related to an investment, it should be clarified the following issues.

First, whether the contribution to the host state economy is a required element of the investment under Art. 1(6). The agreement at issue constituted a mere agreement of goods supply between a foreign company and a state-owned company. The claimant had never conducted an economic activity in the territory of the host state in the energy sector. It seems that the relationship between the claimant and the state owned-entity was purely contractual arising out of a supply agreement.

Second, whether the “investment” should have been made through an investment process. It is necessary to consider not only whether the Claimant acquired “asset” when he acquired the right to claim a debt to the state-owned company, but also whether the Claimant performed an investment process. In addition, it is not clarified whether the “investment” was made by the claimant through acquiring the right to claim the debt to the state-owned entity, or it was made when the goods were supplied to the state owned-entity.

Finally, whether the durability constitutes an essential element of the “investment” under ECT. The usual meaning of the word “investment” is the investment of capital or effort in anticipation of receiving some income. Such effort implies a duration before income is realized. In the same context, the unclarified issue remains whether the acquisition of a claim to money presupposes durability, and therefore whether the “claims to money” relate to an investment.


Parties entering into international electricity, oil and gas sale and purchase agreements with foreign state-owned entities should be on notice that they might not benefit from investment treaty protections if the agreement’s sole purpose is to sell that commodity.

In any given transaction, the availability of investment treaty protection will likely depend upon the wider nature of the transaction and specific words employed in the relevant treaty. In structuring transactions that contain long-term sale or supply commitments involving a foreign state-owned entity, parties should consider whether it is necessary to provide for an alternative extra-contractual protection, particularly if the contractual arrangement in question with the foreign state does not involve an associated investment activity.

The case has been remanded to the Court of Appeal, which is now expected to consider other set-aside arguments by Moldova on which it did not rule in 2016.

About the Author:

Sorin Dolea is a Moldovan lawyer, who obtained Geneva LLM in International Dispute Settlement-MIDS. He graduated with a bachelor degree and LLM in International Law from Moldova State University, Arbitration Academy in Paris and the Hague Academy of International Law (course on the international private law). He specializes in international commercial and investment arbitration and has experience working in a major Austrian law firm for two years.

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