Georgia is playing hardball with a pair of foreign businessmen who were early investors in the country’s post-Soviet energy sector.

In March last year, a panel of arbitrators at the World Bank ruled that Georgia was obliged to pay $90m in compensation to a pair of energy traders, namely Israeli businessman Ron Fuchs and his Greek business partner Ioannis Kardassopoulos, because their pipeline rights were held to have been expropriated by the Georgian authorities in the mid-1990s.

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The pair acquired the lucrative rights not long after the dissolution of the former USSR. However, they were quickly elbowed aside when Georgian officials cast their lot with a consortium of larger multinational energy companies looking to develop a more ambitious pipeline network to transport Caspian resources to Western markets.

Messers Fuchs and Kardassopoulos were promised compensation for their terminated rights, however the pair struggled for a decade, until a government commission ultimately rejected their claims. The two then turned to international arbitration, invoking legal protections owed under Georgian investment protection treaties with Israel and Greece.

In March of last year, a panel of three arbitrators at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) found in favour of the two businessmen. But that was only the beginning of a strange new chapter.

Georgia announced in July that it would try to appeal the arbitral ruling, invoking the limited ground available under the ICSID arbitration system. However, Georgian officials also held intensive settlement talks with the two investors. So intensive, in fact, that Mr Fuchs flew to Georgia in early October – thinking he was going to finalise a deal that would secure much (but not all) of the compensation awarded in the arbitration. Instead, he was placed under arrest for allegedly seeking to bribe public officials so as to facilitate a settlement. Authorities also accuse Mr Kardassopoulos - who did not fly to Georgia - of the same misdeed.

The pair deny these charges, and maintain that Georgia is using the corruption charges in an effort to pressure them into renouncing their claims altogether. Recently, they have hired prominent human rights lawyer Geoffrey Robertson QC to mount a case at the European Court of Human Rights in Strasbourg.

The strange developments in the case have led to raised eyebrows in the international legal community. States sometimes resist paying arbitration verdicts rendered in favour of foreign investors, but arresting successful claimants is highly unusual. Only time will tell whether the allegations against the two investors are substantiated.

In January, Georgia petitioned the original arbitration panel to reconvene to hear new evidence that bribes were allegedly paid at the outset of the whole saga. Lawyers for the two investors deny that they committed any impropriety when they acquired the pipeline rights in the mid-1990s. If Georgia could prove improprieties, then arbitrators might revise their original verdict. (International arbitration panels have dismissed other claims by investors, where the investor was found to have bribed government officials.)

Arbitrators now have the thankless task of deciding what weight should be attached to Georgia’s new evidence, which reportedly includes videos of Mr Fuchs recorded since he returned to Georgia in October of last year. Lawyers for the businessmen will surely argue that Mr. Fuchs is the victim of an entrapment scheme.

It falls to the three arbitrators to make sense of an increasingly ugly dispute that has befuddled international lawyers and journalists alike.

Luke Eric Peterson is editor of InvestmentArbitrationReporter.com, an electronic news service tracking lawsuits between foreign investors and their host governments. http://www.iareporter.com