Gardabani Holdings B.V. and Silk Road Holdings B.V. v. Georgia

Case summary

At a glance

Parties: SCC arbitration: Gardabani Holdings B.V. (Netherlands), Inter RAO UES PJSC (Russia) and JSC Telasi (Georgia) v. Georgia, the Ministry of Economy and Sustainable Development of Georgia and State Service Bureau Ltd. The parallel ICSID arbitration is Gardabani Holdings B.V. and Silk Road Holdings B.V. v. Georgia.
Case no.: SCC Arbitration V2018/039, administered by ICSID as ICSID Case No. ADM/18/1; parallel ICSID Case No. ARB/17/29
Forum and rules: SCC Arbitration Rules, administered by ICSID; seat Stockholm, Sweden. Coordinated with an ICSID Convention arbitration.
Treaty: Arbitration clauses in the 2013 Memorandum (Clause 9.3) and the Khrami SPA (Clause 8.4). The parallel ICSID case is under the Georgia–Netherlands BIT (in force 1 April 1999).
Tribunal: Henri C. Alvarez (President), Stanimir Alexandrov, Zachary Douglas
Sector: Electricity generation and distribution
Outcome: Final Award (9 September 2022) on the remaining damages, interest and costs. The Respondents were ordered to pay damages to Gardabani and Telasi with simple post-award interest. The Tribunal set the remaining damages using the Respondents' expert's method, and the parties share the costs equally.
Amount: The awarded sums are redacted in the published text. Costs of the arbitration: SCC fees and expenses of EUR 77,760 and SEK 5,250.25, and direct expenses of USD 251,300 (hearing USD 41,300; ICSID fee USD 210,000), shared equally. Arbitrators' fees are redacted. Each side bears its own legal costs.

The dispute

Inter RAO, a Russian company, owns Gardabani and Silk Road, both Dutch companies, through indirect holdings. Gardabani owns the Georgian hydropower companies Khrami-1 and Khrami-2. Silk Road holds 75.11% of Telasi, a Georgian electricity distributor. The claimants alleged that Georgia breached its obligations under the Khrami SPA and the 2013 Memorandum on electricity tariffs, after the regulator (NERC) adopted new tariff methodologies. They brought contract claims in this SCC arbitration and parallel treaty claims at ICSID under the Georgia–Netherlands BIT. The Respondents defended the claims and brought counterclaims. The Tribunal had already issued a Partial Award on Liability and two Partial Awards on Damages. This Final Award decides the remaining issues: additional damages for Gardabani linked to exchange-rate tariff adjustments, Telasi's damages for the period affected by the Unbundling Regime in force from 1 July 2021, interest, and costs. Most figures and periods are redacted in the published version.

Key holdings

The Tribunal adopted Dr. Moselle's Scenario 1 to calculate Gardabani's additional damages from exchange-rate tariff adjustments. NERC is an independent agency not bound by the Award. The Tribunal therefore found it more prudent to assume that NERC would make the adjustments consistent with its directions as of 1 November 2022. The two press articles admitted late into the record were given no weight. ¶¶ 48–50
For Telasi's damages in the Unbundling Regime period, the Tribunal preferred Dr. Moselle's valuation date. That date is consistent with the valuations accepted in the earlier Partial Awards. It avoids double compensation and the biases of using different dates and sources for the But-For and Actual scenarios. It also avoids a complex recalculation of the But-For scenario. ¶¶ 59–66
Telasi's damages are calculated with Dr. Moselle's 'FCFF Components' approach, not Mr. Peer's 'Full FCFF' approach. This approach uses consistent sources of information and is more likely to avoid over-compensation for costs that the tariffs will also recover. ¶¶ 82–86
Pre-award interest was already built into the experts' calculations. Post-award interest runs from the day after the sums awarded in the Second Partial Award on Damages fell due, not from the assessment date. It is simple interest at the commercial rate the Respondents proposed, because the parties accepted that Georgian law does not provide for compound interest in these circumstances. ¶¶ 90, 99–100
Costs: the parties share the costs of the arbitration equally and each bears its own legal fees. The Tribunal took into account the mixed outcome across the liability and damages awards. It found that neither side's conduct exceeded the bounds of appropriate, diligent conduct. ¶¶ 120–122, 125(i)
In the operative part the Tribunal declares that the Respondents breached the Khrami SPA and that the Government breached the 2013 Memorandum. It orders payment to Gardabani and to Telasi on an after-tax basis, with an indemnity against Georgian tax. It also declares that the Government is entitled to a 50% share of an amount accumulated by Telasi; this share was netted against Telasi's award. ¶ 125
Zachary Douglas signed the Final Award subject to his partial dissenting opinion appended to the Partial Award on Liability. Signature page

Procedural history

19 April 2021Partial Award on Liability, with a partial dissenting opinion by Zachary Douglas.
30 July 2021First Partial Award on Damages: rules on the damages method and directs the experts to recalculate; interest and costs deferred.
23 November 2021Second Partial Award on Damages: awards compensation to Gardabani and part of Telasi's compensation; the Unbundling Regime period is deferred.
17 January 2022Claimants file a Claim for Additional Damages for Gardabani; their submission and Mr. Peer's fifth expert report follow on 7 March 2022.
24 March 2022Fourth Joint Expert Report (JER4) on Telasi's losses.
9 June 2022Fifth Joint Expert Report (JER5) on Gardabani's additional damages.
5 July 2022Parties file submissions on interest and costs.
9 September 2022Final Award dispatched to the parties.