The Guarantee of Inviolability and Its Limits
Under the Georgian investment law, an investment in Georgia is fully and unconditionally protected by the legislation in force. Expropriation is admissible only in the cases directly established by law, by a court decision or in a state of urgent necessity defined by organic law, and only with appropriate compensation. A decision on the expropriation of an investment, as well as the terms of compensation, may be appealed in a Georgian court unless the parties have agreed otherwise or an international treaty of Georgia provides otherwise — and that last clause is precisely where international agreements on the protection of investments enter the picture.
The inviolability guarantee is remarkable in that it simultaneously defines the limits of state action and the legal stability of the investor. Expropriation outside the cases directly established by law is prohibited, and the institute of urgent necessity is defined by organic law, which means that an administrative decision as such is not a sufficient basis. The terms of compensation and the calculation of the amount are likewise subject to judicial control, so the investor has two separate directions of a dispute — the legality of the expropriation and the amount of the compensation, each with its own evidentiary basis and its own procedural path.
Bilateral investment treaties and multilateral conventions create an additional layer of protection: under many of them an investor may submit a dispute directly to international arbitration instead of national courts. The concrete mechanism, however, depends on the text of each treaty, so the analysis of the applicable agreement is always the first step in planning a claim, together with an examination of consent to arbitration, the scope of protected investments and the available remedies.
The Compensation Standard on Expropriation
The compensation paid to the investor must correspond to the real market value of the expropriated investment at the very moment the expropriation took place. It must be paid without any delay and must include the loss the investor suffered from the moment of expropriation until the payment of the compensation amount. A foreign investor has the right to convert the compensation in a banking institution at the market rate and to transfer it abroad freely and without hindrance.
The law thus combines three elements: an objective valuation of the asset, promptness of payment and compensation for the loss covering the entire waiting period. In international practice it is precisely these three elements that become the usual battlegrounds of a dispute, because the determination of the market value and the fact of delay are matters of separate proof in every case, often supported by valuation experts.
Investor Status and Core Rights
An investment is any kind of property or intellectual value or right used for profit in entrepreneurial activity carried out in Georgia. Investors are natural and legal persons and international organisations; a foreign investor is a citizen of another state, a stateless person not permanently residing in Georgia, a citizen of Georgia permanently residing abroad, and a legal entity registered abroad. The rights and guarantees of a foreign investor may not be less than those of persons of Georgia.
An investor may open accounts in any currency, take loans, acquire securities and property, and, after the payment of taxes, take profit abroad without restriction. Investment is possible in objects of any form of ownership unless prohibited, with special permits or licences required for particular categories of objects.
The list of investment values is broad: an investment may take the form of monetary funds, shares, stocks and other securities, immovable and movable property — land, buildings and equipment — the right to use land or other natural resources including a concession, as well as a patent, a licence and other intellectual values. Protection therefore extends to tangible and intangible assets alike, and the definition of protected investments in the texts of international treaties is construed separately in relation to this domestic concept.
Frequently Asked Questions
Can an investment be expropriated without compensation?
No. Expropriation is admissible only in the cases directly established by law, by a court decision or in a state of urgent necessity, and only with appropriate compensation.
How is the compensation amount determined?
By the real market value at the moment of expropriation, including the loss suffered until the payment is made.
Where is an expropriation decision challenged?
In a Georgian court, unless the parties have agreed otherwise or an international treaty establishes a different procedure.
What role do international agreements play?
They create additional protection and may change the dispute-resolution route where the treaty so provides; the concrete content depends on each agreement.
How We Help on Legal.ge
The Legal.ge team defends the interests of investors in cases of state interference: we assess the legality of expropriation, calculate and substantiate compensation, prepare court proceedings and work with the protection afforded by international treaties. Contact us: we will examine your situation and build a defence strategy for your investment.