The Svea Court of Appeal has ruled that the tribunal constituted in an investment arbitration brought by a dual Georgian-UK national against Georgia lacks jurisdiction to hear the case.

The court’s judgment of 12 November 2024 was issued following Georgia’s application under Section 2 of the Swedish Arbitration Act, seeking an independent and de novo review into the jurisdiction of a Stockholm-seated SCC tribunal to hear the dispute brought by Zaza Okuashvili against Georgia. By a partial award dated 31 August 2022, a tribunal majority composed of Georgios Petrochilos of Three Crowns and Giorgio Mandelli of King & Spalding had ruled that the tribunal had jurisdiction. The tribunal’s third member, Professor Rolf Knieper, dissented.
The dispute concerns claims brought by Mr Okuashvili under the Georgia-UK BIT. Article 8 of that treaty provides that investor-State disputes are to be referred to ICSID for adjudication. Given his dual nationality, Mr Okuashvili sought to circumvent the reference to ICSID through the treaty’s MFN clause, and instituted an SCC arbitration instead.

The case represents the first known instance of an investor attempting to use an MFN clause to invoke the jurisdiction of a forum not listed in the underlying treaty.

Georgia contested jurisdiction, arguing that SCC arbitration could not be invoked through the treaty’s MFN clause, that Mr Okuashvili was not covered by the personal scope of the treaty, and that the treaty’s investor-State dispute settlement clause was contrary to EU law.

Georgia is represented in both the arbitration and the Swedish court proceedings by Gaillard Banifatemi Shelbaya Disputes. Mr Okuashvili has used a range of counsel in both the arbitration, where he is currently represented by Boies Schiller Flexner, as well as before the Swedish courts, where a team from Westerberg & Partners Advokatbyrå appeared at the hearing before the Svea Court of Appeal.

In its judgment, the Svea Court of Appeal ruled that Mr Okuashvili could not use the MFN clause to circumvent the exclusive reference to ICSID in Article 8 of the Georgia-UK BIT. In doing so, the court confirmed that a State cannot be subject to a tribunal’s jurisdiction in the absence of its express and unambiguous consent.

Further, the court held that while Article 3(3) of the Georgia-UK BIT states that the MFN clause “shall apply to the provisions of Articles 1-11”, this provision does not provide carte blanche to amend the treaty’s dispute resolution clause. On the contrary, it was clear that Articles 1 to 11 contain a number of provisions to which MFN treatment could not apply, including Article 1, which concerns definitions, and Article 3, which contains the MFN clause itself.

Crucially, the court found that if the MFN provision was applied in the manner that Mr Okuashvili sought, it would render meaningless the distinction between the preferred version of Article 8 in the 1991 Model UK BIT (on which the Georgia-UK BIT is based), and the alternative version, which provides for a general consent to international arbitration not limited to ICSID dispute resolution. In doing so, it would deprive the preferred version of Article 8, expressly chosen by Georgia and the United Kingdom, of all effect – a conclusion that the court found “argues strongly” against the interpretation advanced by the claimant.

Having found that SCC arbitration could not be invoked through the treaty’s MFN clause, the court saw no need to rule on Georgia’s remaining jurisdictional objections.

Yas Banifatemi, founding partner of Gaillard Banifatemi Shelbaya Disputes and lead counsel for Georgia remarks that “there is no greater threat to the integrity of international arbitration than jurisdiction granted when there is none. The Svea Court of Appeal’s judgment is a welcome reaffirmation of the principle that jurisdiction is founded on consent, and that in the absence of consent, no jurisdiction can exist”.

Anders Junker-Nilsson, counsel at Gaillard Banifatemi Shelbaya Disputes, who appeared before the Svea Court added that “the judgment is clear-eyed, builds on first principles and further confirms the Swedish legal system’s reputation for excellence in matters of international arbitration”.

Link to GAR Article.

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Counsel to Georgia

In the Svea Court of Appeal

Partner Yas Banifatemi, counsel Anders Junker-Nilsson and senior associate Arianna Rosato in Paris, and senior associate Ashish Mitter in London

In the arbitration (SCC Case No. 2019/058)

Partner Yas Banifatemi, counsel Paschalis Paschalidis* and senior associates Arianna Rosato and Mariia Tsarova in Paris, and senior associate Ashish Mitter in London
*no longer at the firm