The largest-ever victory for Armenia in an international arbitration, (Rasia FZE and J. Borkowski v. Republic of Armenia) is unique in the practice of international investment arbitration. 

Armenia’s legal team managed to achieve full compensation of Armenia’s legal costs ordered by the Arbitral Tribunal incurred because of these claims, in the amount of 2.8 million USD.

The Office of the Representative of the Republic of Armenia on International Legal Matters managed to receive that amount because of the annulment proceedings against the judgment initiated by the claimants. The amount has been fully restored and paid to Armenia’s coffers. As a result, the investment company Rasia FZE and its American executive director Joseph Borkowski not only did not receive the requested claim of US$331 million, but also suffered losses, compensating Armenia for legal expenses.

Hetq has written about this dispute. The case was filed with the International Center for Settlement of Investment Disputes (ICSID) on August 3, 2018. It concerned the concession agreements signed between the Republic of Armenia and Rasia FZE, and the dispute between the parties regarding the construction of a railway and highway within the framework of the 1992 Treaty between the Republic of Armenia and the United States on the Reciprocal Encouragement and Protection of Investments.

It should be noted that according to the contract signed between Armenia’s Ministry of Transport and Communications and Rasia FZE, the latter had to carry out a feasibility study of the Southern Railway of Armenia and the Southern Highway of Armenia, and if economically justified, also to finance, design, build and operate it. At that time, the Minister of Transport and Communications Gagik Beglaryan even had meetings with the company's management.

The Southern Railway of Armenia was to pass through the regions of Syunik, Vayots Dzor and Gegharkunik. In 2014, the Ministry of Transport and Communications reported that the Southern Railway of Armenia project, as the missing key link in the North-South international transport corridor, would become the shortest route for transportation from the Black Sea ports to those of the Persian Gulf.

Later, however, Joseph Borkowski and his Dubai-registered company Rasia FZE demanded $225 million from Armenia and interest as damages caused to them because of Armenia’s alleged breach of contracts. In particular, the claimants accused Armenia of trying to replace them with partners from China after the feasibility studies for the construction of the roads were prepared.

On January 20, 2023, ICSID Tribunal dismissed the claim against Armenia, after which the claimants applied to ICSID to annul the Tribunal's award. Here too, they were unsuccessful.

“Armenia had a good faith basis to conclude in both instances that the Projects were not moving forward with Rasia. Its fault lay in failing to take the formal legal steps required under the Concessions to notify Rasia of these conclusions, and to terminate the Concessions as it could have done, before taking steps to explore alternative projects with third parties. While this does constitute a breach of contract, given that the Concessions remained legally in force, it does not represent the kind of fundamental repudiation necessary to establish frustration of legitimate expectations under the fair and equitable treatment standard. A party that fails to deliver its own promised performance under a contract does not have an internationally protected legitimate expectation that its counterparty will remember to execute the required contract formalities to bring the arrangement officially to an end.”

Hayk Hovhannisyan, member of Armenia’s external counsels’ team, told Hetq that he was extremely impressed by the mentioned interpretation of the law by the Tribunal arbitrators, which, according to Dr. Hovhannisyan best describes the entire spirit of the award. He expressed hope that one day Armenian judges will also dare to interpret laws with such wisdom and depth.

Hayk Hovhannisyan

As a result, the Tribunal dismissed Rasia’s claim in its entirety, finding that it was filed after the statute of limitations had expired. The Tribunal concluded also, that Borkowski, as an individual “investor” US citizen, has no right to assert claims under the contracts concluded between his company [Rasia FZE] and the Republic of Armenia and that Borkowski’s claims under the US-RA Bilateral Investment Treaty (fair and equitable treatment, discrimination, and expropriation) were unfounded. Finally, the Claimants’ submissions for damages were dismissed, as the legal team for Armenia managed, among other things, to substantiate and prove the absence of a causal link (quantum of damages) between Armenia’s conduct and the alleged damages of the Claimants.

It is worth mentioning that to achieve his aggressive goals, Borkowski attracted external funding, spending more than $10 million on the case.

The victory in the main dispute was made possible thanks to the resolute and competent work of the international legal team of the Republic of Armenia, led by Grant Hanessian, Victor Dumler and Hayk Hovhannisyan.

"The complexity of the matter was the necessity to substantiate Armenia's legal position both under Armenian and international law, in terms of facts, as well as in terms of technical and financial expertise. This was in parallel with the frequent and significant changes in the composition of the Government due to the events of 2018," notes Hayk Hovhannisyan.