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Property Rights: Kutaisi City Hall “Wants its Cake and to Eat it too!”

April 8, 2008

Shorena Kakabadze, Kutaisi

“Impunity of the Georgian government exceeds all boundaries. The society lives under constant tension. Today we might buy a house through all necessary legal procedures, register them but tomorrow they will come and then tell you  that you have purchased a pig in the poke – and to leave the area immediately – and on top of that – this house does not belong to your after all … Esma Norakia, a lawyer, based her  comments on the controversy between Kutaisi City Hall and the administration of the JSC Universal Stockbrokers Rioni”.

She claims the Kutaisi City Hall takes advantage of people’s property rights, which are in direct violation of the agreements drawn up between the parties several years ago, which also is a violation of one of the most fundamental rights  - the right to property. Current target for the city hall is the building located in Paliashvili Street which just happens to be located in the centre of Kutaisi. The building has been the property of the JSC “Universal Stockbrokers Rioni” since 1996.

In 1996 the JSC and Kutaisi City Hall signed an exchange contract based on which the building that was owned by the “Rioni” was to be transferred the state. In exchange Gelati Academy of Science was opened in the building. In exchange for the building handed over in a barter deal, “Rioni” then received the former building belonging to the Children’s Shopping Centre, which was in a dismal state of upkeep. It needed serious repairs and reconstruction. While the building of the Academy of Science was strong, and was historical building, administration of the Rioni still accepted the offer in good faith.  The City Hall set up a commission consumed of 11 people and they estimated the value of the property. They estimated the difference between the two buildings. The City Hall was then to have been responsible for paying the difference over time. Under the agreed terms, if the City Hall did not pay the estimated price of what was the building valued, they then had to forfeit a non-refundable deposit. Everything was agreed upon and signed according acting Georgian law,” explained Esma Norakia, the lawyer representing the JSC.

It came as a total surprise, as body could have expected that the agreement would be breached, and especially that the Kutaisi City Hall would like to find a scheme to squeeze more and more profit out of the completed deal. The rational was to make up for some shortfalls in the city’s budget. The property of the “Rioni” was thought to have been an easy target. 

Today Tato Dvalishvili is the chairperson of the Board of Trustees of the JSC. He recalls all details and the existing situation.  He remembers how the City government annulled the resolution of the Kutaisi City Hall # 625 dated by September 30 1996 and then refused to pay the non-refundable deposit. It also went another step to add insult upon injury, and demanded the board of the JSC to hand over shares in their company to the local government, which itself is a conflict of interest and illegal.

Reportedly, in 2003 the Western Georgia’s Regional Prosecutor’s Office also suddenly became interested in the difference between the prices of the two building. The staff started an investigation which concluded that the proprieties were no correctly valued at the beginning, and as a result that the local budget was damaged because of jacking up the price and exaggerating the value of the “Rioni.” property.

All this just happens to coincide with the time when the new reform minded government came into office in Georgia and they started to extract shares from various businesses. Consequently, in keeping up with the operating practice, a criminal investigation that was launched based upon an incorrect assessment of the properties. However, this did not proceed and the case was dropped because of the death of Tamaz Kebulia, a member of the commission. The Kutaisi City Court imposed the “Rioni” to pay 99, 488 GEL to the local budget. There was not any concern about the law and the breaching of the initial agreement. This was the timeframe when the prosecutor’s office and representatives of the police department were constantly raiding our office.  They were straight up in what they were demanding - shares of the company? Now I guess that we should not have given our old building to the government,” said Tati Dvalishvili.

Although initially the local government demanded the JSC to hand over  shares to them, albeit  unofficially, then the Kutaisi City Hall based on the decision of the City Court, ordered the “Rioni” JSC to pay 99 488 GEL in compensation.

“As governmental officials could not make any profit from the “Rioni”, the former director was charged under the law because he refused to register the alleged false stocks certificates (which in short meant that he refused to give shares to the government). At the first instance the director had a heart attack, on the second stressful period he had a cerebral stroke and currently he is paralyzed as a direct result. On January 16 2006 Kutaisi City Court took action and procedurally resigned him from his position based on condition. Now the local government continues to do its best to force the owners of “Rioni” to hand over their property. Meanwhile, they hope that soon the owners will grow tire of the constant struggle and will be forced out of desperation to leave the building and give up the fight,” said Esma Norakia.

Officials from the Kutaisi City Hall state that their demands are totally legal and the Rioni has problems because it was involved in the illegal registration of its property. However, the validity of the estimated price and the difference between the prices of two buildings was confirmed by the Georgian Supreme Court. Regardless, it has become only too evident that similar decisions do not mean anything for the local government. The main issue at stake is the building is located in the centre of the city and its prime location is too attractive for the government to resist - and the fight over it will continue all the way to the Strasbourg Court of Human Rights.

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