Procedural Background

This Final Award resolves an ad hoc arbitration conducted under the 1976 UNCITRAL Arbitration Rules and the 2008 Agreement Between the Government of the Republic of Lithuania and the Government of the Kyrgyz Republic on the Promotion and Protection of the Investments (the "BIT"). The Claimant, UAB Garsu Pasaulis, a Lithuanian security printing company, initiated proceedings against the Kyrgyz Republic following the State's failure to execute a public procurement contract for the manufacturing of biometric e-passports. The Claimant had been declared the winner of the 2018 Tender, but subsequent criminal investigations by the State Committee for National Security (GKNB) and a media campaign effectively prevented the finalization of the contract. The Claimant sought declarations of breach of the Fair and Equitable Treatment (FET) standard, full protection and security, and expropriation, alongside claims for lost profits and moral damages for reputational harm.

Jurisdictional Objections

The Respondent raised two primary jurisdictional objections. First, it argued that the Tribunal lacked jurisdiction ratione materiae because the Claimant's mere selection as the winning bidder did not constitute a protected "investment" under the BIT, characterizing it as a pre-investment activity lacking a finalized contract. The Tribunal rejected this argument, holding that the broad asset-based definition in Article 1(1)(f) of the BIT, which protects "any right to engage in economic activity under contract," encompassed the legally recognized right to execute the e-passports contract acquired upon winning the tender.

Second, the Respondent contended that the Claimant's claims were inadmissible because the tender victory was allegedly procured through corruption and bribery of Kyrgyz officials. Applying a "Red Flags" methodology to assess the circumstantial evidence of corruption, the Tribunal concluded that the Respondent failed to meet the requisite evidentiary threshold. The Tribunal found the evidence, largely derived from domestic criminal investigations targeting State officials, insufficient to establish that the Claimant actively participated in or directed any bribery scheme. Consequently, the Tribunal upheld its jurisdiction over the dispute.

Merits and Liability

On the merits, the Tribunal determined that the Respondent's conduct violated the FET standard under Article 3(1) of the BIT. The Tribunal found that the Claimant harbored a legitimate expectation that the 2018 Tender would be conducted fairly and that, having won, it would be permitted to execute the contract in accordance with Kyrgyz law. The Respondent frustrated these expectations through the arbitrary and discriminatory actions of the GKNB, whose sudden criminal investigation and subsequent pressure effectively silenced the State Registration Service (SRS) and prevented the contract's execution. The Tribunal noted that these actions appeared to stem from conflicting political motivations within the Kyrgyz government rather than legitimate legal grounds.

Furthermore, the Tribunal held that the Respondent's actions constituted an indirect expropriation of the Claimant's investment in violation of Article 4 of the BIT. The cumulative effect of the GKNB's investigation, government press statements, and the SRS's refusal to proceed deprived the Claimant of the economic benefit of its acquired rights without prompt, adequate, and effective compensation. However, the Tribunal dismissed the Claimant's requests for moral damages and compensation for alleged destruction of its international business reputation, finding an absence of sufficient causation linking the Respondent's actions to the termination of the Claimant's other global contracts.

Quantum and Costs

In assessing damages, the Tribunal applied the customary international law standard of full reparation. Rejecting the Claimant's primary valuation date of December 31, 2020, the Tribunal adopted February 22, 2019—the date the GKNB announced its investigation—as the date of breach. The Tribunal awarded the Claimant EUR 1,257,910 in lost profits, adopting the Respondent's expert's methodology which applied a 17% historical profit margin and a 21.46% discount rate. The Tribunal also awarded pre-award interest at the US Prime rate plus 2%, compounded annually from the date of breach until full payment. Finally, exercising its discretion to apportion costs based on relative success, the Tribunal ordered the Respondent to reimburse 60% of the Claimant's legal costs (EUR 985,006.33) and to bear its own legal expenses, while splitting the arbitration costs equally between the Parties.