International Investment Contracts and Their Legal Foundation
International investment contracts in Georgia rest on the law on investment activity, which defines the rights and guarantees of investors, the inviolability of investments, compensation upon expropriation, guarantees against legislative changes and the resolution of disputes. The law governs the balance between investor and state on which an international transaction rests: the rights and guarantees of a foreign investor may not be less than those enjoyed by physical and legal persons of Georgia, save for cases established by legislation. In practice this means the terms of an investment contract must meet that standard, and the investor in Georgia is entitled to open current and other accounts in Georgian banks in any currency, to take loans from banking and financial institutions in Georgia or abroad, to acquire shares, bonds and other securities and property both in Georgia and abroad, and to transfer, at its own decision and in the manner prescribed by law, the rights to possess, use and dispose of the results of the investment to another legal or physical person.
Inviolability of Investments and Expropriation
An investment is fully and unconditionally protected by the legislation in force in Georgia. Deprivation of an investment is admissible only in cases directly established by law, by decision of a court or in a situation of urgent necessity established by organic law, and only with appropriate compensation. A decision on deprivation, as well as the terms of compensation, may be appealed in a Georgian court unless the parties' agreement or an international treaty of Georgia provides otherwise. The compensation given to the investor must correspond to the real market value of the expropriated investment at the very moment of expropriation; it must be paid without any delay and must include the loss the investor suffered from the moment of deprivation until payment of the compensatory amount. A foreign investor is entitled to convert the compensation in Georgian banks at the market rate and to transfer it freely abroad — a guarantee that must be anticipated when negotiating international agreements.
The Guarantee Against Legislative Changes
A significant stability guarantee is also written into the law: a new legislative act that worsens the conditions of investment established by the law does not, for ten years from its entry into force, apply to an already implemented investment — in such a case the investor operates under the legislation in force before the new act entered into force. Moreover, subsequent legislative changes do not affect the provisions of the law governing inviolability, compensation, the resolution of disputes and other core guarantees. When concluding a contract this means the regime of an implemented investment is protected from worsening for ten years, and this guarantee deserves explicit reflection in the contract terms.
Resolving Disputes Between Investor and State
A dispute between a foreign investor and an enterprise registered in Georgia is resolved by the procedure established by the parties' agreement or in a Georgian court. A dispute between a foreign investor and a state body, unless its resolution is determined by their agreement, is resolved in a Georgian court or at the International Center for the Settlement of Investment Disputes. If the dispute is not examined at the Center, the investor is entitled to apply to the Additional Facility of the Center or to any international arbitration body under the arbitration and other rules established by the United Nations Commission on International Trade Law and by international treaty. The decisions of these bodies are final and not subject to appeal, and the state ensures their enforcement. In international contracts the arbitration clause is framed precisely within this framework, and its correctness is a decisive element of investor protection.
Frequently Asked Questions
Who enjoys the national-treatment guarantee?
Every foreign investor: their rights and guarantees may not be less than those of physical and legal persons of Georgia.
When may an investment be expropriated?
Only in cases directly established by law, by court decision or in urgent necessity, and only with compensation corresponding to the real market value.
For how long is an implemented investment protected from new laws?
An act worsening the conditions does not apply to an already implemented investment for ten years.
Where is a dispute with the state examined?
In a Georgian court, at the International Center for the Settlement of Investment Disputes, or by agreement in another international arbitration body; the decision is final.
How We Help on Legal.ge
On Legal.ge we assist in preparing and reviewing international investment contracts: we determine which guarantees apply to your investment, align the contract terms with the standard set by the law, and correctly draft the compensation, stability and arbitration clauses. The value of an investment transaction begins and ends in the text of the contract — reviewing it before signature is far cheaper than during a dispute. We check the agreement against every guarantee of the law — national treatment, inviolability, compensation, stability and arbitration — and formulate each clause so that the protection foreseen by the law is fully secured. Contact us before negotiations open.