VZCZCXYZ0000
PP RUEHWEB

DE RUEHSF #0287/01 1630645
ZNR UUUUU ZZH
P 120645Z JUN 09
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6059
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SOFIA 000287 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV KIDE CASC PGOV BU
SUBJECT: BULGARIA: 2009 REPORT ON INVESTMENT DISPUTES AND 
EXPROPRIATION CLAIMS 
 
REF: A) STATE 49477 B) 2008 SOFIA 406 
 
¶1.  The United States government is aware of two (2) claims of U.S. 
persons that may be outstanding against the Government of Bulgaria 
(GOB), and one (1) that has been closed in the past one year. 
 
¶2.  This report is keyed to reftel instructions. 
 
CASE 1 
------ 
 
(A.)  Claimant A (ongoing case) 
 
(B.)  2000 
 
(C.)  In 1999, Claimant A, a U.S. fertilizer company, established a 
subsidiary in Bulgaria.  While Bulgaria was undergoing its 
privatization process, the subsidiary of Claimant A purchased a 
controlling interest in a Bulgarian fertilizer company and became a 
primary holder of the fertilizer company's shares.  Shortly 
thereafter, a Ukrainian partner in Claimant A's subsidiary acquired 
all the claimant's shares in the fertilizer company through a scheme 
involving a bogus loan.  The Ukrainian partner did this by utilizing 
a separate holding company that it controlled and which was 
registered in Cyprus.  Acting on behalf of the subsidiary of 
Claimant A, but without its consent or authority to act as power of 
attorney, the Ukrainian partner signed a loan agreement between the 
claimant's subsidiary (on behalf of the fertilizer company) and the 
separate holding company for USD 4 million in order to purchase 
pipes.  When, as expected, the fertilizer company could not repay 
the loan, the Ukrainian partner's holding company sued and gained 
control over Claimant A's subsidiary and consequently acquired all 
the subsidiary's shares of the fertilizer company. 
 
On August 30, 2000, Bulgaria's Regional Court in Vratsa issued a 
decision regulating the transfer of 86 percent of the shares 
(9,683,000 total) of the fertilizer company from Claimant A's 
subsidiary to the Ukrainian partner's holding company. 
 
Shortly after the holding company took over the shares of the 
fertilizer company, Bulgaria's Privatization Agency agreed to sell 
the remaining 14 percent of the shares still held by the Government 
of Bulgaria to the holding company. 
 
Since that time, Claimant A has been ensnared in a legal battle 
centered on questions of jurisdiction and reciprocity.  Bulgarian 
courts claimed that they did not have jurisdiction because the case 
is between two companies that were registered abroad.  When Claimant 
A won its case before the New York Supreme Court in June 2001, 
Bulgaria refused to recognize the New York court's decision because 
the United States and Bulgaria did not have a reciprocity 
agreement. 
 
On July 14, 2003, Sofia's City Court issued a decision ordering the 
Ukrainian partner's holding company to restore the shares it had 
acquired through the unauthorized loan to Claimant A's subsidiary. 
In response, the holding company submitted an appeal to the Sofia 
Appellate Court, and on December 18, 2003, it overruled the decision 
of Sofia's City Court. 
 
Following the above decision, Claimant A submitted an appeal before 
the Supreme Court of Cassation (SCC), which was heard by its 
Commercial Division (case No. 144/2004) on June 16, 2004.  This is 
Bulgaria's highest court and its decision was considered final for 
all parties concerned.  On September 10, 2004, a three-judge panel 
of the SCC upheld the decision of the Sofia Appellate Court in favor 
of the holding company.  On March 8, 2005, a five-judge panel of the 
Supreme Court of Cassation issued its final decision and turned down 
yet another appeal. 
 
Meanwhile, a separate case went forward in the Vratsa District Court 
based on a claim made by Bulgaria's state-owned natural gas company 
and Bulgaria's state-owned electric company to find the fertilizer 
company insolvent.  The court declared the fertilizer company 
insolvent on December 14, 2004. 
 
Despite the District Court's ruling, Bulgaria's Post-Privatization 
Agency (PPA) initiated legal proceedings against Claimant A for 
failing to meet commitments under its privatization contract.  In 
addition, on April 11, 2005, the PPA sent a letter requesting that 
Claimant A pay USD 7.4 million for non-performance under the 
privatization contract.  The U.S. Embassy asked the PPA to 
reconsider this in light of the Bulgarian Court's determination that 
Claimant A is not the owner of the plant.  The director of the PPA 
responded that it was her understanding that the privatization 
agreement allowed for 100 percent of the company shares to be 
transferred, while all liabilities for performance under the 
privatization agreement stayed with the buyer.  In June 2009 the 
attorney for Claimant A confirmed the company is waiting to see 
whether Bulgaria will seek to recover the aforementioned alleged 
damages in U.S. courts, and if so, they will likely counterclaim. 
 
 
CASE TWO 
--------- 
 
(A.) Claimant B (resolved) 
 
(B.) 1999 
 
(C.) In 2008 this case was settled to Claimant B's satisfaction when 
it agreed to enter into a Public-Private Partnership (PPP) with the 
Government of Bulgaria through which the state acquired 25 percent 
of Claimant B's project.  In return, Claimant B was able to carry on 
with its investment. 
 
CASE THREE 
---------- 
 
(A.) Claimant C. 
 
(B.) 2008 
 
(C.) On February 25, 2008, the largest Bulgarian law firms 
complained before the Sofia Bar Council and Supreme Bar Council 
about alleged breach of the Bar Act by eight international law firms 
on grounds that these firms provided legal services (attorney 
services, including litigation services) without registration as 
attorney companies with the local Bar Council.  Claimant C, a 
U.S.-UK law firm, was providing its services through a branch of an 
Austria-registered attorney company.  To comply with local law, 
Claimant C had registered the branch under the Commercial Act in the 
Commercial Register. 
 
In March 2008 the same Bulgarian law firms filed a complaint before 
the local Competition Commission for alleged breach of competition 
law by the eight international law firms, including Claimant C.  The 
local law firms argued that registering a local office with an 
original name was against the local Bar Act.  The local Bar Council 
sided with the local complaints and barred the foreign companies 
from registering a local office with their original names. 
 
The position of Claimant C is that the current Bar Act is not in 
compliance with EU law as it does not provide for the possibility 
for international firms to establish partnerships, branches, or 
agencies in Bulgaria.  Claimant C has attempted to explain this 
position in a letter to the Minister of Justice and a non-paper to 
the President, the Speaker of Parliament, and the Prime-Minister 
(PM).  Despite these efforts, in July 2008, the Competition 
Commission decided to impose fines on four of the foreign firms for 
violating the Competition Law.  In October 2008, Claimant C filed an 
official compliant before the EU Commission arguing obstruction of 
business by local law firms. 
 
In August 2008, Claimant C appealed the Competition Commission's 
decision before the Supreme Administrative Court (SAC).  On December 
1, 2008, the SAC had a public hearing during which Claimant C 
requested the SAC refer it to the European Court of Justice (ECJ). 
On January 19, 2009, the SAC ruled that it would not refer the case 
to ECJ.  During a second hearing in February 2009, the SAC decided 
to consider the case within the term prescribed by the law, but a 
final decision is still pending. 
 
After another attempt to register a local branch with the Sofia Bar 
in January 2009 failed, Claimant C appealed the decision before the 
Supreme Bar Council.  The case was heard on May 20, 2009, but it is 
still pending in anticipation of the decision of the Supreme Court 
of Cassation.  During a public hearing on May 20, 2009, Claimant C 
filed a request for referral to the European Court of Justice (ECJ) 
for a preliminary ruling, but the Supreme Court of Cassation refused 
to refer the case although as the court of final instance it is 
obliged to refer the case to the European Court of Justice. 
 
Embassy staff attended the public hearings at the Competition 
Commission and the Ambassador, Deputy Chief of Mission and Economic 
and Commercial Officers raised Claimant C's case with all levels of 
the Bulgarian Government.  In addition, Embassy Sofia included 
Claimant C's ongoing dispute in its submission to the State 
Department's 2009 National Trade Estimate. 
 
¶3.  Claimant reference list: 
 
Claimant A:  IBE Trade, U.S. Company 
Claimant B:  Dundee Precious Metals, Canadian-U.S. Company 
Claimant C: DLA Pipers, Law firm 
 
MCELDOWNEY