Issue 5, 2013. October-November



Thousands of people have accused the former government of Georgia of forcing them to "gift" their assets to the state. Prior to the parliamentary election, the Georgian Dream Coalition vowed to remedy these alleged property rights abuses. However, current Georgian law does not allow for easy remedy of these disputes in the courts, none of the proposed legislation seems likely to fix the problem and most of the claims, currently with the prosecutor's office, are frozen.

Eva Anderson, Irakli Sokolovski, AmCham's CLT Committee

There is no clear solution to this problem. Any resolution creates huge challenges for the national budget as compensation claims could be onerous, but to ignore the claims will create political problems and may undermine trust in the rule of law. To facilitate the process of public debate on this issue, the AmCham Commercial Law and Tax Committee Project is analyzing the legal situation facing individuals seeking restitution and the challenges facing the government in trying to deal with this thorny political issue.

Following the electoral victory of the Georgian Dream coalition in the parliamentary elections of 2012, Archil Kbilashvili, the newly appointed Chief Prosecutor, addressed the public on national television, and stated that "if you have a complaint, if your rights have been infringed by the UNM government, apply to me." According to the Prosecutor's Office, following this statement they received 20,000 complaints in three months, including 9,350 claims seeking the return of property or assets.

Generally claimants allege that they were forced to transfer assets to the state. Most often property was allegedly transferred as a result of a plea bargain arrangement, dictated by the prosecutor, in return for a lesser criminal sentence or dismissal of the charge. Other forms of state pressure were also allegedly used.

There are two main reasons why these cases cannot be easily remedied under current legislation. First, many of the cases operate under a statute of limitations, and too much time may have passed to look for restitution in the courts. For example, those whose property titles were deprived by virtue of a civil agreement (as opposed to a plea bargain arrangement) may seek to argue that these contracts should be declared void by the court because they resulted from duress by state officials. However, the Georgian civil code sets a strict one-year limit on the time period it allows claimants to bring their claims in the courts, and this excludes the vast majority of claimants.

Another hurdle under the current law is that if a claimant tries to claim that his or her property was misappropriated due to an illegal criminal prosecution, he or she needs to overturn the original verdict of that prosecution in order for compensation to be possible. However, a general principle of legal due process (res judicata) requires that the final verdict of a court is rarely open to legal reconsideration. To do so, in a Georgian context, it is usually necessary to bring forward new evidence. This new evidence is usually lacking. In the light of these existing legal constraints, many claimants have been searching for alternative legal methods to gain restitution of property. In the analysis that the Commercial Law and Tax Committee team conducted for this article, we identified four main avenues through which claimants are currently seeking restitution of their assets.

The majority of claims are simply being sent to the Prosecutor's Office in the hope that the prosecutor will investigate, unilaterally reopen the cases and provide mechanisms for overturning "res judicata." However, most of these cases are frozen as the prosecutors office waits for a political decision regarding how to proceed. In addition, the restitution of title, which could potentially be obtained from these actions, entails a lengthy and expensive legal process and multiple layers of court proceedings.

A second avenue for gaining restitution, particularly in cases claiming duress, is to seek an interpretation of the law views the duress as a continuing wrong, thereby circumventing the statute of limitations and allowing cases to be considered for longer.

For example, the Georgian Young Lawyers' Association (GYLA), are representing the former shareholders of JSC Tbilaviamsheni (TAM), a major Georgian aerospace development and manufacturing company. The shareholders claim that they were forced to gift their shares to the state, under conditions of duress, in June 2010. Under a standard interpretation of the statute of limitations one might expect that they could not pursue a claim as more than one year has passed since the original duress. However, GYLA will assert that duress exerted against former TAM shareholders only ceased in October 2012 with the change in government.

This case is particularly important because, if the shareholders represented by GYLA win, then they would set a legal precedent for a broader interpretation of duress which many other claimants could also use. Third, many claimants are waiting for changes in the law to provide them with a mechanism for redress. Two different legislative drafts are under consideration. One proposal on restitution was put forward by Paata Kiknavelidze, a majoritarian MP from the Georgian Dream coalition, and comes before the Parliament this fall. This law would provide restitution or compensation in any situation where the claimant could show that he or she had transferred the asset to the government free of charge. This law, however, faces gloomy prospects of successful adoption. Government representatives, including Alexander Baramidze, a Deputy Minister of Justice, and Dimitri Kumsishvili, a Deputy Minister of Economy and Sustainable Development ,say the draft is too wide, unclear and unworkable and its current form would be very dangerous to the interests of justice. Lawyers for Transparency International (TI) Georgia, Eka Bokuchava and Gia Gvilava, have also pointed out that the draft does not take into account the complexities of the existing situation and so will actually create more cases than it resolves.

A different mechanism for correction of alleged former-government wrongdoing is the draft law on a Temporary State Commission on Miscarriages of Justice proposed by the Ministry of Justice of Georgia, with assistance from the Council of Europe. This has received the backing of the ruling coalition. Some government officials view this law as pivotal in curing the miscarriages of justice. They assert that the proposal entails effective remedy for those seeking restitution redress. But, in its current form, this draft applies exclusively to criminal cases, and will not provide restitution for pending civil and administrative claims. Fourth, if no effective restitution mechanism is forthcoming then this may also force many claimants to seek a remedy from the European Court of Human Rights (ECtHR). This could be damaging to the reputation of the country, particularly at a time when Georgia is highlighting a renewed interest in judicial and legal reform. If there are sufficient cases it could even risk Georgia's suspension from the Council of Europe. Underpinning all of these issues is a set of problems faced by the state. While the Georgian Dream coalition has committed in its election manifesto to the concept of restitution, it faces a range of practical hurdles. Properly investigating all of these cases would place a huge burden on the Prosecutor's Office, which, according to Archil Kbilashvili, simply lacks the manpower to do this work. In addition, an independent criminal investigation of these claims will be difficult, as Kbilashvili admits that nearly all prosecutors are themselves implicated in the alleged misappropriation of assets.

Another problem is what to do if the property was subsequently sold or transferred to a third party. The ownership entitlement of the new owner, if acquired in good faith, may prevail over the title of the original owner and the original owner would be forced to seek damages from the state. This also highlights the fact that the biggest problem with any restitution remedy is the cost to the state of making restitutions and paying compensation. The Ministry of the Economy has estimated that the claims could total $3 to $4 billion. If direct restitution is no longer possible, then the government would be forced to pay compensation. This could be a huge burden on the state.

Even if direct restitution is possible then it would interfere with the current use of the asset. This could also be disruptive to the government and the economy. Balancing the needs of justice, practicality and the economy will be difficult. To ignore these claims risks political retribution at the ballot box, could create negative decisions of the European Court of Human Rights, and perhaps more importantly, could ensure continued distrust and dissatisfaction with due process and the rule of law in the country. Conversely, full investigation of the cases could be financially crippling to the state, could undermine trust in government property transactions and could mire the government in disputes of historic proportions. But, whichever direction it chooses to take, how the new administration resolves this issue will be one of the key standards by which it will be judged.

This report is made possible by the generous support of the American people through the United States Agency for International Development (USAID), EWMI and EPF, within the Judicial Independence and Legal Empowerment Project. The contents are the responsibility of AmCham and do not necessarily reflect the views of USAID, the United States Government, EWMI or EPF.