Clocked Out: How the Armenian Civil Code Sank a $331 Million Claim

Can a three-year deadline in Armenia’s Civil Code derail a $331 million investment arbitration? The recent ICSID award in Rasia FZE and Joseph K. Borkowski v. Republic of Armenia says yes, exposing a critical spot in investor-state dispute settlement (ISDS): the quiet power of domestic law to strangle investment claims.

The dispute stemmed from a grand infrastructure project, a North-South railway corridor meant to link the Persian Gulf to the Black Sea via Armenia. In 2012, Armenia signed two Concession Agreements with Rasia FZE, a Dubai-based investment vehicle, to conduct feasibility studies and project development. The Claimants asserted Armenia subsequently: (1) abruptly withdrew political backing; (2) failed to provide promised support; and (3) engaged with competing investors, actions they claimed constituted both contractual breaches and violations of the US–Armenia BIT’s FET guarantees. Joseph K. Borkowski, Rasia’s US-national CEO, joined the arbitration seeking $331 million for the project’s collapse.

On January 20, 2023, the Tribunal found that the three-year limitation period under the Armenian Civil Code applied. The award highlights the decisive role domestic statutes of limitation can play, serving as a cautionary reminder to investors of the potential impact national laws may have on the outcome of investment disputes.

Treaty or Contract?

The Tribunal faced a key challenge in distinguishing between the different legal bases for the claims. Mr. Borkowski, a U.S. national, brought claims under the US–Armenia BIT, relying on FET, expropriation, and umbrella clause protections. Meanwhile, Rasia FZE, incorporated in the UAE, pursued purely contractual claims based on two Concession Agreements signed with Armenia in 2012 for railway and highway projects. These agreements contained ICSID arbitration clauses and explicitly designated Armenian law as governing. This distinction between treaty-based and contract-based claims required the Tribunal to carefully delineate the scope of its jurisdiction over each claimant’s case.

The tribunal ultimately held that the umbrella clause (Article II(2)(c) of the US–Armenia BIT) could not elevate Rasia’s contractual claims into treaty breaches, as Borkowski lacked privity under Armenian law (para. 409). This presented a classical issue of derivative standing. While indirect investors often rely on BIT protections like FET and expropriation, umbrella clauses are different. The Tribunal stated they require a direct obligation “entered into” with the investor Had a UAE–Armenia BIT with a comparable umbrella clause been in force, Rasia might have had standing, but no such treaty applied at the relevant time (para. 422). Thus, Mr. Borkowski remained the only claimant with treaty-based claims, and Rasia’s claims were confined to the contractual domain governed by Armenian law. This reasoning aligns with SGS v. Philippines, where the tribunal rejected the transformation of pure contract breaches into treaty breaches absent direct contractual relationships (para. 125).

Time Runs Out

A pivotal aspect of the Rasia case was the Tribunal’s assessment of the applicable limitation period under Armenian law. Article 332 of the Armenian Civil Code establishes a general statute of limitations of three years. Article 337 clarifies that the period begins when the claimant knew or should have known about the violation and the responsible party. According to the Tribunal, Armenia’s alleged withdrawal of support and failure to cooperate took place no later than March 2015.

In this regard, the Claimants advanced two core arguments. First, their March 2015 letter initiating contractual dispute resolution proceedings had effectively interrupted the limitations period. Second, Armenia’s conduct after 2015, including meetings, correspondence, and expressions of cooperation, amounted to an acknowledgment of liability under Article 340(1) of the Civil Code, which would restart the limitation clock.

The Tribunal dismissed both arguments. On the first point, it found that while the March 2015 letter may have been a step under the contractual dispute resolution clause, only a formal Request for Arbitration filed under the applicable procedural rules could effectively interrupt the limitation period. However, the Request was only filed on 20 July 2018, more than three years later (para. 454).

On the second point, the Tribunal ruled that Armenia’s post-2015 conduct did not rise to the level of acknowledgment required under Article 340(1). Continued engagement between the parties was not an admission of liability (para. 467). Consequently, by the time the arbitration proceedings were formally launched, the claims under the Concession Agreements were time-barred under Armenian law. This outcome illustrates how domestic law can function as a dispositive rule of decision in investment arbitration.

Causation and Damages

Although the Tribunal ultimately dismissed the contract claims on statute of limitations grounds, it further addressed causation and damages to clarify that the claim would not have succeeded on the merits either. While not strictly necessary, this step underscored the Tribunal’s caution to resolve the dispute comprehensively, perhaps to preempt any suggestion that the case was dismissed solely on a procedural technicality.

At the core of the causation analysis was the feasibility of the railway project. The Tribunal noted that the project faced significant financial, technical, and geopolitical challenges unrelated to any conduct by the Armenian government. These difficulties played a substantial role in the project’s collapse. (para. 683)

The Claimants had argued that Armenia’s engagement with third-party contractors caused Aabar Investments, a potential Emirati investor in talks to acquire Rasia’s shares, to abandon the deal (para. 480). The Tribunal found that Armenia breached the Road Concession by granting rights to third parties without first terminating the dormant agreement, and later breached the Railway Concession by pursuing an alternative project without coordinating with Rasia. Nonetheless, Rasia’s claims were time-barred under Armenian law and therefore inadmissible. (para. 709)

Mr. Borkowski’s BIT claims were similarly dismissed. The umbrella clause allegations were time-barred as well as inadmissible due to lack of standing. As for the remaining treaty claims, the Tribunal found that Armenia’s conduct did not violate the FET standard or amount to expropriation. There was no evidence that Armenia’s actions destroyed an investment of cognizable value. (para. 710)

The Tribunal also confirmed that, even if the contract claims had been timely, no damages would have been awarded. Armenia’s conduct was not the cause of the projects’ failure or Aabar’s decision to pull out. The Claimants offered no alternative damage theory and provided no proof of actual expenditures. Without causation or demonstrated loss, compensation was unwarranted (para. 711).

This reasoning demonstrates tribunals can explore causation and damages even when procedural issues are dispositive. While some might read the causation discussion as obiter, its functional role in reinforcing the award’s credibility cannot be overlooked.

Costs and the Caution in Victory

Although Armenia was the prevailing party, the Tribunal declined to award full costs. Instead, it ordered the Claimants to cover 75% of Armenia’s legal fees and all costs associated with the proceedings (para. 724), amounting to over $2.78 million.

This split followed the Tribunal’s acknowledgment that Armenia had breached the Concession Agreements in some respects. Its tempered approach departed from the standard “loser pays” model and reflected a degree of sympathy toward the Claimants, who had not abused the process or acted in bad faith. They advanced a complex claim at the intersection of treaty protections, contractual obligations, and national limitation rules. The claim failed, but not frivolously so.

This reflects a growing trend in investment arbitration toward context-sensitive cost apportionment, particularly in cases involving hybrid legal frameworks or jurisdictional close calls. The tribunal’s cost allocation rounds out a decision characterized by legal deference, cautious pragmatism, and an acknowledgment of the complexities that arise when international and domestic legal regimes converge.

Annulment and Finality

The Claimants initiated annulment proceedings under Article 52(1) of the ICSID Convention, invoking three grounds: (i) manifest excess of powers, (ii) a serious departure from a fundamental rule of procedure, and (iii) failure to state reasons. At the heart of their argument was a claim that the Tribunal had misapplied Armenian law and thereby exceeded its mandate as well as failing to provide adequate reasoning for key parts of the decision.

On November 5, 2024, the Annulment Committee dismissed all grounds for annulment. It reaffirmed that annulment is not a mechanism for appealing legal errors: even an incorrect interpretation of national law does not justify annulment unless the tribunal applied the wrong law entirely or exceeded its mandate. In this case, the Tribunal had applied Armenian law as required by the Concession Agreements, and while its conclusions may have been contested, they did not amount to a failure to apply the applicable law. (para. 169)

As for the alleged procedural breach, the Committee found no serious departure from procedural fairness that could warrant annulment. (para. 189) It also rejected the allegation that the Tribunal had failed to state reasons, holding that the award clearly articulated its reasoning on all key issues, including the statute of limitations and causation. (paras 252–253)

By refusing to annul the award, the Committee also ordered Rasia FZE and Joseph K. Borkowski to bear all costs of the annulment proceeding, amounting to $407,432.36, and to reimburse Armenia’s legal fees of $382,248.00, plus interest. (para. 276)

Conclusion

Rasia v. Armenia is a telling example of how investor-state arbitration can turn on the mechanics of domestic law. The Tribunal’s reliance on Armenia’s statute of limitations, and its firm rejection of causation and damages, illustrates how procedural timelines and evidentiary standards can shape outcomes in investment arbitration. But this was no mechanical dismissal: by addressing causation and valuation head-on, the Tribunal infused what might otherwise appear as obiter with functional significance. These findings ultimately informed a tempered but deliberate cost allocation, reflecting a pragmatic appreciation of the dispute’s complexity and the parties’ good-faith engagement. The Committee’s dismissal of all challenges under Article 52 of the ICSID Convention confirmed the Tribunal’s handling of substance and procedure, bringing the dispute to a definitive close. For investors, the lesson is clear – check the fine print of local limitation laws before the clock starts ticking.

Davit Khachatryan is an international lawyer and lecturer specializing in arbitration, investment law, and public international law. He teaches courses on investment law, alternative dispute resolution, and international legal frameworks.