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Foreign Investments in Moldova under Protection of ECHR

By Alexei Ghertescu

Last week the European Court of Human Rights pronounced its judgment on one of the biggest cases against Moldova. The Moldovan Government was obliged to pay to "Bimer" SA company EUR 520,000 (five hundred and twenty thousand euros) in respect of pecuniary damage.

What differs this case from the others against Moldova except the enormous (at least for Moldova) amount of the award?

The particularity of the present case is that the ECHR recognized the breach by Moldovan authorities of the guarantees to foreign investors in Moldova provided by Moldovan law, and as a result the breach of Article 1 of Protocol No. 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms (the ECHR's judgment on the present case is available in English here).

The Bimer company was owned by Moldovan, American and Bahamian investors. Its main activity was trade activity at duty free shop and bar at the Leu?eni Customs Office. The licences to operate the bar and the shop were issued in accordance with the Presidential Decree of 1994 and they did not contain any provisions as to their duration.

In 2002 the Parliament made an amendment to the Customs Code by which duty free sales outlets were thenceforward restricted to international airports and on board aircraft flying international routes and following these amendment the Customs Department ordered the closure of all duty free outlets outside the area of the international airport.

The issue the parties to the dispute mostly argued about was the way the art. 43 of the former Law on foreign investments (now abrogated) providing to foreign investors the guarantees in case of changes in legislation to be applied. In particular art. 43 of the Law provided to companies with foreign capital the right to follow the legislative rules that had been modified during the 10-years period from the moment of such modification.

The Government argued that the duty-free regime enjoyed by the applicant company under the terms of its licences did not constitute ?customs, tax or other incentives?, for which the 10-years favourable term applied. The European Court relying on an earlier decision of the Chisinau Court of Appeal on another case admitting the applicability of the incentives provided by law to duty free shops owned by foreign investors found "no grounds in the present case to call into question the view of the Court of Appeal ... that section 43 was applicable to the case of the present applicant and that the Order which required the immediate closure of the applicant's duty-free business at the Leu?eni Customs Office was not lawful under domestic law" (para. 58 of the judgment).

And following the previous statement the ECHR ruled that there was the violation of the Article 1 of Protocol 1 of the Convention...

So, as follows from the present ECHR's judgment the violation of guarantees provided to foreign investors may constitute the breach of the European Convention provisions and consequently may lead to BIG awards to foreign investors. And I think that the present case may be a very important signal to Moldovan authorities.

Another issue that may be of a significant interest is the applicability of advantages and guarantees provided by the Law that has already been abrogated. But I think, it is a good topic for a separate post...

Full post as published by LAW IN MOLDOVA on July 20, 2007 (boomark / email).