Box 16050, 103 21 Stockholm, Sweden
Phone: +46 8 555 100 00, E-mail: arbitration@chamber.se
www.sccinstitute.com
FINAL AWARD
Made on 10 March 2017
Seat of arbitration: Stockholm, Sweden
ARBITRATION CASE V 2014/181
CLAIMANT: ANGLIA AUTO ACCESSORIES LIMITED
Claimant’s counsel: Jaroslav Broz Jr., JUDr. Jaroslav Broz Snr, BROŽ BROŽ VALA
advokátní kancelář s.r.o. Marie Steyskalové 767/62, Brno 616 00,
Czech Republic
RESPONDENT: THE CZECH REPUBLIC
Respondent’s counsel: Dr. Alfred Siwy, Mr. Alexander Zojer, Zeiler.partners, Stubenbastei
2 // Eingang Zedlitzgasse 7, A-1010 Vienna, Austria
ARBITRAL TRIBUNAL: Dr. Yas Banifatemi, Chairperson
Prof. August Reinisch, Co-arbitrator
Prof. Philippe Sands QC, Co-arbitrator
2
TABLE OF CONTENTS
I. INTRODUCTION............................................................................................................................................. 4
II. PROCEDURAL HISTORY.............................................................................................................................. 4
A. Commencement of the Arbitration and Constitution of the Arbitral Tribunal ......................... 4
B. The Procedural Timetable and Conduct of the Arbitration .......................................................... 5
C. Further Developments Prior to the Hearing.................................................................................... 6
D. The Hearing........................................................................................................................................... 9
E. Developments Following the Hearing .............................................................................................. 9
1. Developments concerning the file of the District Court of Hodonin .......................... 9
2. Developments concerning the BIT’s travaux préparatoires..............................................10
3. Costs Submissions ...............................................................................................................11
4. Extension of the Time Limit for Making a Final Award and Closure of
the Proceedings ....................................................................................................................11
III. JURISDICTION OF THE ARBITRAL TRIBUNAL...............................................................................12
A. Whether the BIT Was Terminated Upon the Respondent’s Accession to the
European Union..................................................................................................................................12
1. Whether the BIT Was Terminated In Toto Pursuant to Article 59 of the
VCLT.....................................................................................................................................13
2. Whether Article 8(1) is No Longer Valid Pursuant to Article 30(3) of the
VCLT.....................................................................................................................................16
B. Whether the Claimant Made an Investment under the BIT........................................................18
C. Whether the Tribunal Has Jurisdiction to Determine Alleged Breaches of Article
2(2) of the BIT.....................................................................................................................................22
1. Whether the Tribunal Has Jurisdiction Pursuant to Article 3 of the BIT
and the Czech-Cyprus BIT.................................................................................................23
2. Whether Articles 8(1) and 2(3) May be Interpreted to Confer Jurisdiction
to Hear Claims for Breach of Article 2(2)........................................................................30
IV. MERITS ..............................................................................................................................................................31
A. Summary of the Parties’ Positions....................................................................................................31
B. Facts ......................................................................................................................................................31
1. Enforcement Proceedings No. 347/98 (Kyjovan’s bank account) ....................................32
3
2. Enforcement Proceedings no. 2029/98 (Kyjovan’s movable goods) ..................................35
3. Enforcement Proceedings no. 2576/98 (Kyjovan’s subdebtors)........................................37
4. Enforcement Proceedings no. 525/99 (additional Kyjovan’s subdebtors)..........................39
C. Analysis.................................................................................................................................................41
V. COSTS.................................................................................................................................................................51
VI. TRIBUNAL’S DECISION..............................................................................................................................55
4
I. INTRODUCTION
1. This matter arises under an Agreement between the Government of the United
Kingdom of Great Britain and Northern Ireland and the Government of the Czech
and Slovak Federal Republic dated 10 July 1990 (the “BIT”).
2. The Claimant, Anglia Auto Accessories Ltd., is a company incorporated in the United
Kingdom. The Respondent is the Czech Republic.
3. The Claimant’s claims concern its efforts to enforce an arbitral award that it obtained
in December 1997 in the sum of CZK 4.8 million against its business partner in the
Czech Republic, VDI Kyjovan. Although the Claimant was granted several of the
enforcement orders it sought, it argues that the courts unduly delayed in issuing these
and that during this time VDI Kyjovan became bankrupt. Accordingly, the Claimant
argues that it has been deprived of the value of the arbitral award by the courts.
4. The Claimant argues that the courts’ conduct amounts to expropriation in breach of
Article 5 of the BIT, and breach of the fair and equitable and full protection and
security standards found in Article 2(2) of the BIT
5. The Respondent objects to the jurisdiction of the Arbitral Tribunal to hear the
Claimant’s claims. The Respondent also denies any breach of the BIT and seeks a
dismissal of the Claimant’s claims on the merits. In particular, the Respondent denies
that there were any delays on the part of the Czech courts and argues that any delay to
the enforcement proceedings was caused by the Claimant itself and its debtor,
VDI Kyjovan.
II. PROCEDURAL HISTORY
A. Commencement of the Arbitration and Constitution of the Arbitral
Tribunal
6. On 6 May 2014, the Claimant and two other claimants filed a Request for Arbitration
with the Arbitration Institute of the Stockholm Chamber of Commerce (the “SCC”).
They nominated Professor August Reinisch as arbitrator.
7. On 10 June 2014, the Respondent filed its Answer to the Request for Arbitration. The
Respondent nominated Professor Philippe Sands as arbitrator.
8. The SCC divided the proceedings into two matters due to the different nature of the
claims and the fact that the claims were presented by different claimants. After the
claimants failed to pay the advance on costs requested by the SCC, the SCC decided to
dismiss the claims.
9. On 6 January 2015, the claimants wrote to the SCC advising that they wished to pursue
the claims and re-submitted the Request for Arbitration without amendment. At that
point, the claimants agreed that the proceedings should be divided into two matters
and that the seat of the arbitration should be Stockholm. The claimants nominated
Professor Reinisch as arbitrator in both proceedings and advised that they had no
5
objections to the appointment of Professor Sands as arbitrator by the Respondent in
both proceedings.
10. On 12 January 2015, Professor Reinisch confirmed his acceptance to sit as arbitrator in
the arbitration.
11. On 13 January 2015, the SCC transmitted the Request for Arbitration in this
proceeding to the Respondent.
12. On 2 February 2015, the Respondent filed its Answer to the Request for Arbitration in
this proceeding. The Respondent again nominated Professor Sands as an arbitrator,
and agreed that the proceedings be divided into two and that the seat of the arbitration
be Stockholm.
13. On 9 February 2015, Professor Sands confirmed his acceptance to sit as arbitrator in
the arbitration.
14. On 17 March 2015, the SCC wrote to Dr. Yas Banifatemi advising that it wished to
appoint her as chairperson in the arbitration.
15. On 24 March 2015, Dr. Banifatemi confirmed her acceptance to sit as chairperson in
the arbitration.
16. On 26 March 2015, the SCC referred the case to the Tribunal.
B. The Procedural Timetable and Conduct of the Arbitration
17. On 29 April 2015, the Tribunal invited the Parties to seek to agree a procedural
timetable for the conduct of the arbitration, in accordance with Article 23 of the
Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce
(“SCC Rules”).
18. On 11 May 2015, the Claimant advised the Tribunal that the Parties had been unable to
reach agreement on the procedural timetable and requested the Tribunal to set a
schedule to guarantee the issuance of the final award by 25 September 2015, in
accordance with the six-month time period prescribed in Article 37 of the SCC Rules.
The Claimant also proposed that the Tribunal hold a hearing and that this arbitration
and the related arbitration, 2015/014, be heard together.
19. On 15 May 2015, the Respondent replied to the Claimant’s proposals of 11 May 2015.
The Respondent indicated that it might request bifurcation of the proceeding and
proposed alternate timetables accounting for this possibility. The Respondent
submitted that this arbitration and the related arbitration, 2015/014, should be heard
separately.
20. On 1 June 2015, the Tribunal issued Procedural Order No. 1 by which it appointed,
with the Parties’ consent, Ms. Zoe Brentnall as the administrative secretary to the
Tribunal.
21. On the same day, the Tribunal issued Procedural Order No. 2, by which it confirmed
that the cases should be heard separately, as determined by the SCC. However, it
decided that the two cases should be conducted following the same procedural
6
timetable, with the hearings occurring sequentially. The Tribunal also invited the
Respondent to file a request for bifurcation of the proceedings by 22 June 2015 or to
notify the Tribunal and the Claimant that it would not seek bifurcation. The Tribunal
further advised that it would request the SCC to grant an extension of the time limit for
making a final award under Article 37 of the SCC Rules.
22. On 20 June 2015, the Respondent advised that it would not seek bifurcation of the
proceedings although reserved its right to raise jurisdictional objections to the
Claimant’s claims.
23. The Tribunal fixed the procedural timetable by way of Procedural Order No. 3 dated
28 July 2015.
24. On 18 August 2015, the Tribunal asked the Parties to reserve the period from 1 to 7
September 2016 for an oral hearing.
25. On 25 August 2015, the Tribunal asked the SCC for an extension of the time limit for
making a final award to 31 December 2016.
26. On 3 September 2015, the SCC granted the Tribunal an extension for making a final
award to 2 January 2017.
27. On 18 December 2015, the Tribunal advised the Parties that the commitments of one
of the Members of the Tribunal would require long-haul travel on the days immediately
prior to and on the morning of 1 September 2016. As a result, the Tribunal verified
with the Parties the possibility of hearing the matter on alternative dates in September
2016, including the period from 19 to 23 September 2016.
28. On 23 December 2015, the Claimant advised that it would be available during the
period from 19 to 23 September 2016.
29. On the same day, the Respondent advised that it would not be available during the
period from 19 to 23 September 2016, but that it could be available during the period
from 3 to 7 October 2016.
30. On 15 January 2016, the Tribunal requested the Claimant to advise whether it would be
available for a hearing from 3 to 7 October 2016, which the Claimant confirmed on 22
February 2016.
31. On 26 February 2016, the Tribunal confirmed that the matter would be heard from 3
to 7 October 2016.
C. Further Developments Prior to the Hearing
32. On 16 September 2015, the Claimant submitted its Statement of Claim with exhibits.
The Claimant did not file any witness statements or expert reports.
33. On 29 October 2015, the Claimant requested the exclusion of counsel for the
Respondent, Zeiler.partners, on the basis that the relationship between a lawyer at that
firm and the arbitrator appointed by the Claimant, Professor Reinisch, could give rise
to reasonable doubts regarding the impartiality and independence of Professor
Reinisch.
7
34. After hearing the Respondent on the issue, and receiving confirmation by
Zeiler.partners that the designated lawyer at the firm would not participate in the
present proceedings in any capacity, the Tribunal denied the Claimant’s application to
exclude Zeiler.partners in Procedural Order No. 4.
35. On 11 December 2015, the Respondent submitted its Statement of Defence and
Memorial on Jurisdiction with exhibits. The Respondent did not file any witness
statements or expert reports.
36. On 8 January 2016, the Respondent made requests for the production of documents by
the Claimant. The Claimant did not make any requests for the production of
documents by the Respondent.
37. The Claimant filed objections to the Respondent’s requests on 15 January 2016. The
Respondent filed responses to the Claimant’s objections on 22 January 2016.
38. The Tribunal directed the Claimant to produce documents by Procedural Order No. 5
dated 5 February 2016. The Claimant was ordered to produce documents by 19
February 2016.
39. On 15 February 2016, the Claimant requested an extension of the deadline for the
production of documents ordered to be produced.
40. On 17 February 2016, the Respondent advised that it did not object to the requested
extension.
41. On 18 February 2016, the Tribunal granted the extension.
42. On 18 March 2016, the Claimant wrote to the Tribunal advising of the status of its
production and that it had not located documents responsive to certain of the requests.
43. On that date, the Claimant also submitted its Statement of Reply and Countermemorial
on Jurisdiction with exhibits. The Claimant did not file any witness
statements or expert reports.
44. On 23 March 2016, the Respondent wrote to the Tribunal with respect to the status of
the Claimant’s document production. The Claimant, at the Tribunal’s invitation,
addressed the Respondent’s allegation by letter dated 25 March 2016.
45. On 13 May 2016, the Respondent requested a two-week extension of the deadline for
filing its Statement of Rejoinder and Reply on Jurisdiction, to 10 June 2016.
46. The Claimant objected to the extension sought by the Respondent on 17 May 2016.
47. On 18 May 2016, the Tribunal granted the extension requested by the Respondent and
pushed back, at the same time, the deadline for filing of the Claimant’s Statement of
Surrejoinder on Jurisdiction by two weeks, to 24 June 2016.
48. On 1 June 2016, the Claimant requested an extension of the deadline for the filing of
its Statement of Surrejoinder on Jurisdiction by one month, to 25 July 2016.
8
49. The Respondent advised that it did not object to the requested extension and this was
granted by the Tribunal on 8 June 2016.
50. On 10 June 2016, the Respondent submitted its Statement of Rejoinder and Reply on
Jurisdiction with exhibits. The Respondent did not file any witness statements or
expert reports.
51. On 25 July 2016, the Claimant submitted its Statement of Surrejoinder on Jurisdiction
with exhibits. The Respondent objected to part of the content of the Claimant’s
Statement of Surrejoinder on Jurisdiction on the basis that it addressed the merits of
the dispute.
52. After hearing the Claimant, by Procedural Order No. 6 dated 11 August 2016, the
Tribunal directed the Claimant to re-submit its Statement of Surrejoinder on
Jurisdiction, addressing issues of jurisdiction only.
53. On 11 August 2016, the Claimant re-submitted its Statement of Surrejoinder on
Jurisdiction. By letter of the same date, the Claimant set out the basis on which it had
included arguments on the merits in its initial Statement of Surrejoinder and requested
the Tribunal to advise when and how the Claimant could amend or supplement its
claim pursuant to Article 25 of the SCC Rules.
54. On 12 August 2016, the Respondent replied to the Claimant’s letter of 11 August 2016.
55. On 25 August 2016, the Tribunal reiterated to the Parties that the procedural timetable
had set a specific sequence of submissions such that the Claimant’s final submission on
the merits was its Statement of Reply. Further, the Tribunal noted that the Claimant
had not sought to amend or supplement its claim within the meaning of Article 25 of
the SCC Rules, such that further submissions on the merits were not justified at that
time. Finally, the Tribunal emphasised that the Claimant would have the opportunity
to further address evidentiary questions at the hearing if it so wished.
56. On 23 August 2016, the Tribunal invited the Parties to agree upon a protocol for the
hearing providing for the order of the appearance of the witnesses, the manner in
which the hearing should be structured given that this case and case 2015/014 were to
be heard in parallel, and the time set aside for opening and closing presentations.
57. The Parties set out their respective positions on these matters by correspondence dated
6, 8, 9 and 12 September 2016.
58. The Tribunal held a pre-hearing telephone conference on 26 September 2016 to hear
the Parties further on these matters.
59. On 27 September 2016, the Tribunal issued Procedural Order No. 7 by which it made
directions for the organisation of the hearing. Among other things, the Tribunal
directed the Claimant to submit a brief statement not exceeding 10 pages of the
evidence that Mr. Ivan Busta would give at the hearing by close of business on 28
September 2016.
60. The next day, the Claimant submitted a statement of the evidence that Mr. Busta would
give at the Hearing. In this statement, the Claimant requested that two new
documents be admitted to the record.
9
D. The Hearing
61. Following the Parties’ agreement contained in their respective emails of 1 March 2016,
the hearing took place at the offices of the Respondent’s counsel, Zeiler.partners, in
Vienna, between 3 and 6 October 2016.
62. In addition to the Members of the Tribunal and the Tribunal’s administrative secretary,
Ms. Zoe Brentnall, the following persons were present at the hearing.
For the Claimant:
Jaroslav Broz Jr.
JUDr. Jaroslav Broz Snr.
Ivan Busta
James Busta
For the Respondent:
Dr. Alfred Siwy
Alexander Zojer
Tomas Muzar
Anna Bilanova
63. Mr. Busta was examined on behalf of the Claimant.
64. The hearing was transcribed by Mr. Trevor McGowan of The Court Reporter Ltd.
Consecutive interpretation services were provided by Ina Maertens and Mojmir Kallus.
65. During the hearing, and after having heard the Parties, the Tribunal decided to admit
the two documents tendered by the Claimant through Mr. Busta’s statement of
evidence to the record (Exhibit C-58 and C-59). These documents had been obtained
from the court file of the District Court of Hodonin. The Tribunal gave each Party
two weeks, until 13 October 2016, to consult the file further and, if either Party wished
to file further documents, to make a reasoned request for leave to do so.
E. Developments Following the Hearing
1. Developments concerning the file of the District Court of
Hodonin
66. On 20 October 2016, the Claimant made submissions on the significance of the two
documents admitted to the record during the hearing, Exhibits C-58 and C-59. The
Claimant also enclosed photographs of further documents from the court file but did
not seek leave to admit these to the record.
67. On 21 October 2016, the Respondent objected that the Claimant had not requested
leave to file further documents and took the position that the documents did not in any
event support the Claimant’s position.
68. On 31 October 2016, the Claimant replied to the Respondent’s letter, stating that it had
misunderstood the Tribunal’s direction and did not insist on its submission of
20 October 2016 being accepted. The Claimant requested that if the Tribunal was to
10
disregard its submission then the Tribunal disregard the Respondent’s submission of
21 October 2016 also.
69. On 31 October 2016, the Tribunal recalled its directions at the hearing, indicated that it
would revert to the Parties on the matter, and asked the Parties to refrain from making
further submissions unless and until they were specifically directed to do so by the
Tribunal.
70. On 19 December 2016, the Tribunal advised the Parties of its decision to admit to the
record the evidence filed with the Claimant’s letter of 20 October 2016, and the
Respondent’s further submissions on the matter contained in its letter of 21 October
2016. The Tribunal invited the Claimant to resubmit the evidence filed with its letter
of 20 October 2016 with exhibit numbers.
71. On 2 January 2017, the Claimant re-submitted that evidence as Exhibit C-61.
2. Developments concerning the BIT’s travaux préparatoires
72. On 19 October 2016, the Tribunal issued Procedural Order No. 8 whereby, referring
to the positions taken by the Parties at the hearing regarding the interpretation of the
BIT, it invited the Parties to search for the travaux préparatoires regarding Article 2(2) of
the BIT and, to the extent they could be located, to make them available to the
Tribunal by 11 November 2016.
73. On 8 November 2016, the Respondent advised that it had obtained relevant travaux
préparatoires in Czech, and requested until 22 November 2016 to have the documents
translated into English.
74. On 11 November 2016, the Respondent provided copies of the relevant travaux
préparatoires in Czech, and, on 22 November, provided English translations of those
documents.
75. On 28 November 2016, the Claimant advised that it had searched for travaux
préparatoires but had been unable to locate any. The Claimant argued that the
Respondent had submitted only travaux préparatoires that were advantageous to its
position and requested the Tribunal to request the United Kingdom to submit travaux
préparatoires and a statement of how the United Kingdom understands Article 2(2) of
the BIT.
76. On 5 December 2016, the Respondent asked the Tribunal to disregard the Claimant’s
request on the bases that there was no reason why the Claimant could not obtain the
travaux préparatoires, the Tribunal is not empowered to obtain a statement from the
United Kingdom and, in any event, such a statement would be irrelevant.
77. On 19 December 2016, the Tribunal advised that it had noted both Parties’
submissions concerning the travaux préparatoires, and that it would consider the weight
and relevance to be given to the material submitted by the Respondent.
11
3. Costs Submissions
78. On 6 January 2017, the Tribunal invited the Parties to file submissions on how costs
should be allocated in this matter, and the actual costs incurred.
79. On 20 January 2017, the Parties made their respective submissions.
80. On 24 January 2017, the Respondent requested leave to respond to the Claimant’s
submission on costs.
81. On 25 January 2017, the Tribunal granted the Respondent leave to respond by
27 January 2017, and granted the Claimant a right of reply to the response made by the
Respondent by 1 February 2017. The Tribunal also invited the Claimant to file the
invoices supporting the costs referred to in its submissions by 27 January 2017.
82. On 27 January 2017, the Respondent made submissions in response to the Claimant’s
submission on costs, in particular concerning the Claimant’s entitlement to recover a
contingency fee paid to its counsel for legal services.
83. The Claimant submitted the invoices in support of the costs referred to in its cost
submissions on the same day.
84. On 1 February 2017, the Claimant made submissions in reply to the Respondent’s
submissions of 27 January 2017.
85. The Parties’ respective costs submissions are discussed further in Part V.
4. Extension of the Time Limit for Making a Final Award and
Closure of the Proceedings
86. On 19 December 2016, the Tribunal wrote to the SCC explaining the developments
that had occurred since the Hearing and requesting an extension to the time for making
a Final Award to 17 February 2017.
87. On 20 December 2016, the SCC referred the Tribunal’s request to the Parties and
invited them to submit any comments by 23 December 2016.
88. On 28 December 2016, the SCC granted the Tribunal the requested extension of time
for making the Final Award to 17 February 2017.
89. On 9 February 2017, the Tribunal closed the arbitral proceedings.
90. On 10 February 2017, the Respondent advised the Tribunal that it had on that day
received a copy of an Award on Jurisdiction in the matter of A11Y Ltd v. Czech Republic
relating to the interpretation and scope of Article 2(3) of the BIT. The Respondent
requested the Tribunal to re-open the proceedings and grant the Respondent leave to
submit the decision as a legal exhibit in support of its case on the basis that Article 2(3)
of the BIT is one of the provisions relied upon by the Claimant in this proceeding.
91. At the Tribunal’s invitation, on 13 February 2017, the Claimant provided comments on
the Respondent’s request. The Claimant argued that there were no grounds for reopening
the proceedings, referring, among other things, to the fact that the matter had
12
been thoroughly addressed by both Parties in their submissions and that the Tribunal
remained obliged to reach a correct and just interpretation of the BIT irrespective of
the interpretation reached by the tribunal in A11Y Ltd v. Czech Republic.
92. On 13 February 2017, the Tribunal wrote to the SCC requesting a further extension of
the time limit for making a Final Award, to 10 March 2017, on the basis that the
Tribunal had been seized of additional requests by the Parties concerning costs and the
re-opening of the proceedings, and that the work schedules of its members had
compelled travel and thus timing difficulties.
93. The same day the SCC referred the Tribunal’s request to the Parties and invited any
comments by 15 February 2017.
94. On 15 February 2017, both Parties having agreed to the requested extension, the SCC
determined 10 March 2017 to be the time limit for rendering the Final Award.
95. On 16 February 2017, the Tribunal, having considered the Parties’ respective
submissions, declined to re-open the proceedings. As a result, it confirmed that the
Award of 9 February 2017, which was attached to the Respondent’s letter of the same
date, would not be considered by the Tribunal.
III. JURISDICTION OF THE ARBITRAL TRIBUNAL
96. The Respondent submits that the Tribunal does not have jurisdiction to determine the
Claimant’s claims for breach of the BIT. Specifically, the Respondent submits that:
(a) the BIT was terminated upon the Respondent’s accession to the European
Union in May 2004;
(b) in any event, the Claimant has made no investment under the BIT; and
(c) in any event, Article 8(1) of the BIT (the dispute resolution provision) only
provides jurisdiction to determine the Claimant’s claim for breach of Article 5
and not Article 2(2).
97. The Tribunal addresses each of these arguments in turn.
A. Whether the BIT Was Terminated Upon the Respondent’s Accession to
the European Union
98. The Respondent argues that the BIT was terminated when it became a member State
of the European Union (“EU”) on 1 May 2004 by virtue of Article 59 of the Vienna
Convention on the Law of Treaties (“VCLT”).1
99. In the alternative, the Respondent argues that, even if the BIT was not terminated,
Article 8(1) is no longer valid by virtue of Article 30(3) of the VCLT.2
1 Statement of Defence and Memorial on Jurisdiction, Section 2.4.
2 Statement of Rejoinder and Reply on Jurisdiction, Section 2.4.3.
13
1. Whether the BIT Was Terminated In Toto Pursuant to Article 59
of the VCLT
(a) The Parties’ Positions
100. Article 59 of the VCLT provides:
“A treaty shall be considered as terminated if all the parties to it conclude a later
treaty relating to the same subject-matter and: (a) it appears from the later treaty
or is otherwise established that the parties intended that the matter should be
governed by that treaty; or (b) the provisions of the later treaty are so far
incompatible with those of the earlier one that the two treaties are not capable of
being applied at the same time.”
101. The Respondent argues that the BIT and the EU Treaties relate to the same subjectmatter,
in that they protect investments made by the nationals of one Member State in
the territory of another Member State.3
In particular, the Respondent points to:
(a) Article 49 of the Treaties on the Functioning of the European Union
(“TFEU”) et seq which provide the right of establishment and prohibit
restrictions on the rights of nationals of a Member State in the territory of
another member State, and Article 16(2) of the Charter of Fundamental Rights
which recognises the freedom to conduct business in accordance with EU law
and national laws and practices. The Respondent argues that these provisions
are the equivalent of Article 2(1) of the BIT in that they create favourable
conditions for investors of other EU Member States;4
(b) Article 18 of the TFEU which prohibits discrimination between nationals of
Member States based on their nationality. The Respondent argues that this
provision is equivalent to Articles 2(2) and 3 of the BIT;5
(c) Article 17 of the Charter of Fundamental Rights which provides that no one
shall be deprived of his or her possessions. The Respondent argues that this
provision is equivalent to Article 5 of the BIT;6
and
(d) Article 63 of the TFEU et seq which grants the freedom of movement of capital
between Member States. The Respondent argues that this provision is
equivalent to Article 6 of the BIT, which guarantees the unrestricted transfer of
investments and returns.7
102. Accordingly, the Respondent argues, the protection offered by the EU treaties is
equivalent to that offered by the BIT and therefore the latter is no longer in force by
virtue of Article 59 of the VCLT.
3 Statement of Defence and Memorial on Jurisdiction, Section 2.4; Statement of Rejoinder and Reply on
Jurisdiction, Section 2.3.2.
4 Statement of Rejoinder and Reply on Jurisdiction, ¶ 133.
5 Statement of Rejoinder and Reply on Jurisdiction, ¶ 134.
6 Statement of Rejoinder and Reply on Jurisdiction, ¶ 135.
7 Statement of Defence and Memorial on Jurisdiction, ¶ 119; Statement of Rejoinder and Reply on
Jurisdiction, ¶ 136.
14
103. The Claimant submits that the BIT remains in force despite the Respondent’s
accession to the EU.8
104. First, the Claimant points out that the process prescribed for termination of the BIT in
Article 14 – notably written notice from one party to the other – has not been
followed.9
The Claimant notes that Article 65(1) of the VCLT contains the same
notice requirement for termination.10
Therefore, the Claimant says, the BIT must still
be effective.
105. Second, the Claimant submits that the TFEU does not regulate the “same subject-matter”
as the BIT, as required by Article 59 of the VCLT.11
The Claimant submits that “same
subject-matter” must be read strictly such that “same” should be treated as meaning
“identical”.12
The Claimant submits that the objects of the BIT and the TFEU are not
the same: specifically, it cannot be said that the object of TFEU is the protection of
foreign investment. In addition, the Claimant says that investor rights under the BIT
are wider and more specific than under the TFEU. In particular, the Claimant denies
that the TFEU protects against expropriation, and notes that it does not provide an
equivalent of Article 8(1) of the BIT, the dispute resolution clause.13
106. Third, the Claimant says that even if the BIT has been terminated, it would still be in
force pursuant to Article 14 which provides that its provisions will remain in effect for
fifteen years from the date of termination.14
107. Fourth, the Claimant invokes Article 65(4) of the VCLT which provides that “nothing in
the foregoing paragraphs shall affect the rights or obligations of the parties under any provisions in force
binding the parties with regard to the settlement of disputes.” It argues that this means that,
even if the BIT has been terminated, the Tribunal’s jurisdiction to determine claims for
breaches of the BIT would remain intact.15
108. Fifth, the Claimant says that the question of whether accession to the EU terminates
bilateral investment treaties entered into by Member States has already been considered
8 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 101-138; Statement of Surrejoinder, ¶¶ 45-
84. The Claimant argues that the Czech-Cyprus bilateral investment treaty also remains in force for the
same reasons. The Claimant relies upon the Czech-Cyprus bilateral investment treaty in arguing the
Tribunal has jurisdiction to determine their claims for breach of Article 2(2) of the BIT.
9 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 105-107.
10 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 108. Article 65(1) of the VCLT provides:
“A Party which, under the provisions of the present Convention, invokes either a defect in its consent to be bound by a
treaty or a ground for impeaching the validity of a treaty, terminating it, withdrawing from it, or suspending its operation,
must notify the other parties of its claim. The notification shall indicate the measure proposed to be taken with respect to
the treaty and the reasons therefor.”
11 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 112.
12 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 113-115; Statement of Surrejoinder, ¶¶ 61,
63.
13 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 119-120, 137; Statement of Surrejoinder,
¶¶ 66-68.
14 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 109, 138; Statement of Surrejoinder,
Section 3.4.
15 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 109.
15
and answered in the negative. The Claimant refers to Eastern Sugar and EUREKO v.
Slovakia in this regard.16
109. By way of reply, the Respondent submits that neither Article 14 of the BIT nor Article
65 of the VCLT apply in these circumstances.17
The Respondent argues that Article 14
only applies in the circumstances of ordinary termination following the procedure in
the BIT, which is not the case here.18
The Respondent says that Article 65(1) of the
VCLT only applies to disputes under Part V of the VCLT (which is not the case here),
and Article 65(4) does not apply in circumstances where the dispute settlement clause
itself is invalid.
110. The Respondent submits that the requirement that the two treaties relate to the “same
subject-matter” does not mean that the two treaties must be co-extensive in all respects.19
The Respondent concedes that the scope of the TFEU is substantially wider than that
of the BIT, but maintains that it nevertheless has the purpose and effect of promoting
and protecting investments of one Member State’s investors in other Member States.
111. The Respondent further concedes that EU law does not provide for an investor-State
arbitration mechanism, but argues that it nevertheless grants access to effective dispute
settlement before domestic courts of Member States and the EU courts.20
112. Finally, in its Statement of Surrejoinder on Jurisdiction, and at the hearing, the
Claimant referred to a further provision of the TFEU which it says supports its
position. That is Article 351, which provides:
“The rights and obligations arising from agreements concluded before 1 January
1958 or, for acceding States, before the date of their accession, between one or
more Member States on the one hand, and one or more third countries on the
other, shall not be affected by the provisions of the Treaties.”21
(b) The Tribunal’s Decision
113. The Tribunal was not convinced by the Respondent’s interpretation, which was barely
pursued at the Final Hearing.
114. First, as a treaty law matter, assuming there is no incompatibility between the
provisions of subsequent treaties, there are two conditions under Article 59 of the
VCLT for a treaty to be terminated by the effect of the conclusion of a later treaty: the
two treaties under consideration – here, the BIT concluded in 1990 and the TFEU
which was acceded by the Czech Republic in 2004 – must “relat[e] to the same subject
matter” and it must “appear[] from the later treaty or [be] otherwise established that the parties
intended that the matter should be governed by that treaty”.
16 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 111.
17 Statement of Rejoinder and Reply on Jurisdiction, Section 2.4.1.
18 Statement of Rejoinder and Reply on Jurisdiction, ¶ 118.
19 Statement of Rejoinder and Reply on Jurisdiction, Section 2.4.2.
20 Statement of Rejoinder and Reply on Jurisdiction, ¶ 137.
21 Statement of Surrejoinder, ¶ 77; Tr. 3 October 2016, 9:2-5.
16
115. The Tribunal does not find that the BIT and the TFEU have the same subject matter.
The object and purpose of the BIT is the “promotion and protection of investments”, whereas
the TFEU is concerned with the “functioning of the European Union”. Article 1(1) of the
TFEU further makes clear that it is designed to “organise[] the functioning of the Union and
determine[] the areas of, delimitation of, and arrangements for exercising its competences.”
116. Even assuming, as argued by the Respondent, a substantive overlap between certain
provisions of the TFEU and those of the BIT – the right of establishment under
Article 49 TFEU as the substantive equivalent of the promotion of investments under
Article 2(1) of the BIT; the prohibition of discrimination under Article 18 TFEU as the
substantive equivalent of Articles 2(2) and 3 of the BIT on fair and equitable treatment,
national treatment and most-favored-nation treatment; the prohibition of deprivation
of possession under Article 17 of the Charter of Fundamental Rights as the substantive
equivalent of prohibition of expropriation under Article 5 of the BIT; and Article 63
TFEU on the freedom of movement and capital as the substantive equivalent of the
repatriation of investment and returns under Article 6 of the BIT – the Tribunal does
not find that it appears from the TFEU itself, or that it is otherwise established that the
parties to the TFEU intended the promotion and protection of investments to be
governed by that instrument. In fact, the TFEU does not address the subject of the
promotion and protection of investments at all. In any event, the Tribunal is not
convinced that the above TFEU provisions are substantive equivalents of the
provisions of the BIT, in particular in light of the absence of an important substantive
protection in the TFEU, that of investors’ access to an international and neutral
dispute resolution forum in the form of international arbitration.
117. Second, in the absence of an automatic termination resulting from the operation of
Article 59 of the VCLT, the Tribunal notes that the parties to the BIT, the Czech
Republic and the United Kingdom, never sought to terminate the BIT following the
procedures set out by that instrument. In this respect, the Tribunal notes that
provisions such as the survival clause contained at Article 14 of the BIT show the
significance, for the parties to the BIT, of a lasting protection, over a period of fifteen
years, of investments made in reliance on the BIT’s regime. Against this background,
the notion that the provisions of the BIT would vanish by the effect of the mere
existence of the TFEU, without any of the treaty law safeguards and mechanisms being
triggered, can hardly be reconciled with the requirements of legal certainty and
transparency, or with the actual requirements of the VCLT.
118. The Tribunal concludes, on these bases, that the BIT was not terminated in toto
pursuant to Article 59 of the VCLT and the Respondent’s jurisdictional objection on
this basis is dismissed.
2. Whether Article 8(1) is No Longer Valid Pursuant to Article 30(3)
of the VCLT
(a) The Parties’ Positions
119. The Respondent argues that, even if the BIT was not terminated by its accession to the
EU, Article 8(1) is incompatible with the TFEU and is therefore no longer valid
pursuant to Article 30(3) of the VCLT.
120. Article 30(3) of the VCLT provides in relevant part:
17
“(1) […] the rights and obligations of States parties to successive treaties relating
to the same subject-matter shall be determined in accordance with the following
paragraphs […] (3) When all the parties to the earlier treaty are parties also to
the later treaty but the earlier treaty is not terminated or suspended in operation
under article 59, the earlier treaty applies only to the extent that its provisions are
compatible with those of the latter treaty.”
121. The Respondent argues that the dispute resolution provision in Article 8(1) of the BIT
is not compatible with Articles 344 and 267 of the TFEU.22
122. Article 344 of the TFEU provides that “Member States undertake not to submit a dispute
concerning the interpretation or application of the Treaties to any method of settlement other than those
provided for therein.” The Respondent says that Article 8(1) of the BIT is incompatible
with this provision because it stipulates an agreement of Member States to submit
disputes to arbitration and therefore provides a method of settlement other than those
provided by the EU treaties.23
123. Article 267 of the TFEU provides in relevant part:
“The Court of Justice of the European Union shall have jurisdiction to give
preliminary rulings concerning:
(a) the interpretation of the Treaties;
(b) the validity and interpretation of acts of the institutions, bodies, offices or
agencies of the Union;
Where such a question is raised before any court or tribunal of a Member State,
that court or tribunal may, if it considers that a decision on the question is
necessary to enable it to give judgment, request the Court to give a ruling thereon.
Where any such question is raised in a case pending before a court of tribunal of a
Member State against whose decisions there is no judicial remedy under national
law, that court or tribunal shall bring the matter before the Court. […]”
124. The Respondent argues that the survival of Article 8(1) of the BIT would mean that
Member States could erode the application of Article 267 of the TFEU by transferring
disputes from national courts to arbitral tribunals. To the extent the BIT would give
the Tribunal the discretion to decide on matters concerning EU treaties, this would be
incompatible with Article 267 of the TFEU.24
125. The Claimant responds that Article 344 of the TFEU only covers disputes among
Member States, and not individuals and Member States as is the case under Article 8(1)
of the BIT.25
Therefore, the Claimant says, Article 344 does not apply to the case at
22 Statement of Rejoinder and Reply on Jurisdiction, Section 2.4.3.
23 Statement of Rejoinder and Reply on Jurisdiction, ¶ 145.
24 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 146.
25 Statement of Surrejoinder, ¶ 56.
18
hand. The Claimant also argues that the EU has never had any competence, whether
exclusive or shared, in the field of arbitration as a dispute settlement method.26
(b) The Tribunal’s Decision
126. Given its earlier finding that the BIT and the TFEU do not have the same subject
matter (see supra, paragraphs 113-116), the Tribunal does not find that there is an
incompatibility between the dispute resolution mechanisms under Article 8(1) of the
BIT and Articles 344 and 267 of the TFEU.
127. The Tribunal further notes that Article 344 of the TFEU concerns EU Members
States’ undertaking to submit to the dispute resolution mechanism of the TFEU for the
“interpretation or application of the Treaties [namely, the TFEU and the Treaty on European
Union, as per Article 1(2) of the TFEU]”; likewise, Article 267 of the TFEU concerns
the exclusive jurisdiction of the EU Court of Justice for “the interpretation of the Treaties”.
The Tribunal notes, in this respect, that it is called to interpret and apply the BIT, not
the TFEU or the Treaty on European Union. Conversely, and subject to its
determination of the Respondent’s remaining jurisdictional objections, this Tribunal
has jurisdiction only to determine matters of interpretation and application of the BIT
between the disputing Parties and in relation to the present dispute.
128. As a result, this Tribunal having and exercising jurisdiction under the BIT does not
create an incompatibility with Article 267 of the TFEU and the EU Court of Justice’s
jurisdiction to interpret and apply the TFEU. The Respondent’s jurisdictional
objection on this basis is therefore dismissed.
B. Whether the Claimant Made an Investment under the BIT
(a) The Parties’ Positions
129. The Claimant’s claims arise out of its attempts to enforce an arbitral award obtained on
16 December 1997 against its former business partner, VDI Kyjovan (“Kyjovan”) in the
Czech Republic. After obtaining the award, the Claimant commenced various
enforcement proceedings in the Czech Republic, which it says were largely
unsuccessful as a result of undue delay or inactivity on the part of the Czech courts.
130. The Claimant submits that the Respondent, through the inactivity of its judiciary, has
unlawfully expropriated the Claimant of the value of the arbitral award, and breached
the fair and equitable treatment and full protection and security standards in Article
2(2) of the BIT.
131. The Parties dispute whether the Claimant has made an investment under the BIT.
132. The Claimant argues that the relevant investments for the purposes of the BIT are a
“contractual claim to damages confirmed by the arbitration award” and a “right to arbitrate”.27
133. Article 1 of the BIT defines “investment”:
26 Statement of Surrejoinder, ¶ 57.
27 Statement of Claim, ¶ 103.
19
“For the purposes of this Agreement:
the term “investment” means every kind of asset belonging to an investor of one
Contracting Party in the territory of the other Contracting Party under the law in
force of the latter Contracting Party in any sector of economic activity and in
particular, though not exclusively, includes:
movable and immovable property and any other related property rights including
mortgages, liens or pledges;
shares in and stock and debentures of a company and any other form of
participation in a company;
claims to money or to any performance under contract having a financial value;
intellectual property rights, goodwill, know-how and technical processes;
business concessions conferred by law or, where appropriate under the law of the
Contracting Party concerned, under contract, including concessions to search for,
cultivate, extract or exploit natural resources.”
134. The Claimant argues that a contractual claim to damages constitutes an investment
pursuant to Article 1(a)(iii) of the BIT, which defines as an investment “claims to money
or to any performance under contract having financial value.”28
The Claimant refers in this
respect to the decision in Saipem v. Bangladesh. The Claimant also invokes the Preamble
of the BIT, which states that one of its purposes is the “stimulation of business initiative”.
The Claimant argues that failure to accord protection to a claim recognised in a final,
enforceable arbitral award would conflict with this purpose.
135. In the alternative, the Claimant submits that an arbitral award may be considered a
right in rem.29
In this regard, the Claimant argues that arbitral awards are considered
property under international law and cites the Stran Greek case which was decided
before the European Court of Human Rights. In that case, the Court held that the
applicants’ right to the sums in an arbitration award constituted a “possession” within the
meaning of Article 1 of Protocol 1 of the European Convention on Human Rights.
The Claimant submits that it is entitled to rely on that Article by way of both the
VCLT and Article 11 of the BIT.
136. The Claimant argues that the right to arbitrate also constitutes an investment pursuant
to Article 1(a)(iii) of the BIT.30
The Claimant refers to the Preamble of the BIT which
provides that the contracting parties act “in the spirit of the principles of the Final Act of the
Conference on Security and Cooperation in Europe signed at Helsinki on 1 August 1975.” The
Claimant submits that the Helsinki Act referred to in the Preamble contains important
principles for the interpretation of the BIT and that it underscores the role of
arbitration as a method of settlement of international disputes.
137. In this regard, the Claimant refers to ATA v. Jordan in which the tribunal found that the
right to arbitration constituted a distinct “investment” pursuant to the BIT under
consideration in that case. The Claimant argues that it has been deprived of not only
28 Statement of Claim, Section VI.5.2.1.
29 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 198-199.
30 Statement of Claim, Section VI.5.2.2.
20
the monetary value of the arbitral award, but its right to arbitrate has also been
frustrated.
138. In addition, the Claimant argues that its right to damages arising out of Kyjovan’s
breach of its agreement with the Claimant represents a continuation of the Claimant’s
original monetary investment. The Claimant relies upon White Industries v. India in this
regard, in which the tribunal stated that “awards made by tribunals arising out of disputes
concerning “investments” made by “investors” under BITs represent a continuation or transformation
of the original investment.”
139. The Respondent denies that an arbitral award may constitute an investment as defined
in the BIT.31
The Respondent refers to Gea Group Aktiengesellschaft v. Ukraine which it
says has decided this issue.32
In that case, the tribunal distinguished between a
contract (which may or may not be considered an investment) and an award for
damages in favour of one party arising from breach of that contract by the other party.
The Respondent submits that the tribunal held that even if the contract could be
considered an investment, an award deriving from it cannot be considered an
investment simply by reason of the fact that it rules on rights in the contract. The
tribunal held that “the Award itself involves no contribution to, or relevant economic activity within
Ukraine [the host state in that case].” The Respondent argues that Gea Group is directly
analogous to the case at hand.
140. The Respondent also submits that several tribunals have refused to consider claims
from one-off commercial transactions as an investment even where the applicable BIT
included “claims for money” as a form of investment.33
The Respondent cites Joy Mining v.
Egypt and Romak v. Uzbekistan in this regard.
141. In addition, the Respondent argues that even if the Claimant made an investment, no
investment existed when the proceedings were initiated.34
The Respondent submits
that under international law, a claimant must meet the jurisdictional requirements for
its claim at the point in time when the proceedings regarding the dispute are initiated.
The Respondent cites the Arrest Warrant case, Vivendi II v. Argentina, Goetz v. Burundi
and LETCO v. Liberia in this regard.
142. The Respondent submits that even taking the earliest possible date for the
commencement of these proceedings – the date of filing of the Notice of Dispute,
being 1 March 2013 – the Claimant fails to meet this requirement as it no longer had
any claim against Kyjovan at that time. The Respondent notes that the insolvency
proceedings against Kyjovan were terminated on 6 May 2011 and Kyjovan was deregistered
from the commercial registry on 18 September 2012.35
The Respondent
submits that the Claimant’s investment ceased to exist on that day.
31 Statement of Defence and Memorial on Jurisdiction, Section 2.3; Statement of Rejoinder and Reply on
Jurisdiction, Section 2.3.1.
32 GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award, 31 March 2011 (Exhibit
RL-21).
33 Statement of Rejoinder and Reply on Jurisdiction, Section 2.3.1.
34 Statement of Rejoinder and Reply on Jurisdiction, Section 2.3.2.
35 Extract from the Commercial Register showing Kyjovan (Exhibit C-3); Section 68(1) of Act No.
513/1991, the Commercial Code (Exhibit RL-90).
21
143. The Respondent has taken no position on whether the right to arbitrate may constitute
an investment under the BIT, as advanced by the Claimant.
144. By way of reply, the Claimant concedes that there is no unanimity in the case law and
among commentators as to whether an arbitral award itself may be considered an
investment.36
However, it submits that the Gea Group decision should not be followed
and notes that it has been criticized by the tribunal in White v. India as an “incorrect
departure from the developing jurisprudence on the treatment of arbitral awards to the effect that
awards made by tribunals arising out disputes concerning “investment” made by “investors” under
BITs represent a continuation or transformation of the original investment.”37
The Claimant reemphasises
that the award is a continuation of its original investment, notes that the
purposes of the BIT is to promote and protect investment, and submits that there is an
“ever closer link” between arbitration and investments in host states.
145. The Claimant argues that its contract with Kyjovan was not a “one-off commercial
transaction” but was intended to be the basis for long-term cooperation between the
two.38
146. The Claimant rejects the Respondent’s argument that it had no investment when these
proceedings were initiated.39
The Claimant argues that the jurisdiction of the Tribunal
is established by Article 1 of the BIT (in that it defines “investment” to include “all
investments, whether made before or after the date of the entry into force of this Agreement”) and the
rule of “intertemporality” as stated in Las Palmas and codified in Article 28 of the VCLT.
In any event, the Claimant submits that the insolvency or liquidation of Kyjovan did
not extinguish its claim against Kyjovan, which it says had already been transformed
into the arbitral award.
147. Further, in its Statement of Surrejoinder on Jurisdiction, the Claimant has advanced an
alternative argument, namely that the Tribunal has jurisdiction to determine breaches
of Article 1 of Protocol 1 of the ECHR based on Article 8(1) of the BIT in connection
with Articles 5(1) and 11.40
The Claimant submits that breach of Article 1 of Protocol
1 may be considered as a measure having effect equivalent to expropriation, and
therefore the Tribunal has jurisdiction over the issue pursuant to Article 8(1).
148. The Claimant, however, “abstains from making any arguments on the substance of this claim,
noting that it has from the very beginning of the present dispute referred, besides the breaches of the
BIT, to the breaches of the ECHR by District Court in Hodonin.”41
(b) The Tribunal’s Decision
149. The Tribunal’s task is to interpret Article 1(a) of the BIT, which defines the term
“investment”.
36 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 195.
37 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 200.
38 Statement of Surrejoinder on Jurisdiction, ¶ 89.
39 Statement of Surrejoinder on Jurisdiction, Section 5.2.
40 Statement of Surrejoinder on Jurisdiction, Section 5.1.
41 Statement of Surrejoinder on Jurisdiction, ¶ 101.
22
150. As a preliminary matter, the Tribunal does not deem it necessary to inquire into the
question whether the requirements of a contribution, certain duration and an element
of risk are met in this instance, given that this arbitration was brought under the
SCC Arbitration Rules, not the ICSID Arbitration Rules under which the so-called
Salini test has been developed in arbitral case law in relation to Article 25 of the 1965
ICSID Convention.
151. The Tribunal notes that “investment” under the BIT is defined broadly, covering “every
kind of asset belonging to an investor of one Contracting Party in the territory of the other Contracting
Party under the law in force of the latter Contracting Party in any sector of economic activity”. Under
this definition, a final and binding arbitral award granting damages qualifies as an “asset
belonging to an investor”. This is further confirmed by the non-exhaustive list provided at
Article 1(a), which refers, under point (iii), to “claims to money or to any performance under
contract having a financial value”. In their ordinary meaning, the words “claims to money”
encompass a party’s right under an award to be paid a sum of money, a right that can
be pursued in enforcement proceedings. It follows that the Claimant, who prevailed in
the arbitration and who has an entitlement to the damages granted to it by the 1997
Award, has a “claim to money” which it was entitled to pursue before the Czech courts.
Likewise, the Claimant may be said to have a “claim to ... performance under contract having a
financial value”, by the effect of the 1997 Award which recognized its contractual rights.
152. The Tribunal notes that the Claimant’s debtor, Kyjovan, was put in insolvency and
ultimately de-registered from the commercial registry in September 2012 in the period
between 1997, when the award was rendered, and the initiation of this arbitration in
2015 (or, at the earliest, in 2013 with the filing of the Notice of Dispute). However,
the Claimant’s claim to money under the 1997 Award cannot be said to have
disappeared ipso facto by the effect of Kyjovan’s liquidation. That claim survived
through the 1997 Award, which is still in force. The Claimant’s entitlement under the
1997 Award is a question distinct from the question whether the Claimant would have
been able to enforce it against the assets of an entity other than Kyjovan following the
latter’s liquidation.
153. It follows from the above that the 1997 Award qualifies as a claim to money or to
performance under contract having financial value within the meaning of Article 1(a)
of the BIT, and that this Tribunal has jurisdiction over the present dispute. This
finding is distinct from the merits question of whether the Claimant was effectively
prevented from enforcing its title under the 1997 Award and whether its claim to
money, but for the Respondent’s actions or inactions, would have been satisfied.
154. Having found that the Claimant’s entitlement under the Award constitutes a claim to
money and, thus, an investment protected under Article 1(a) of the BIT, the Tribunal
does not find it necessary to address the Claimant’s additional argument relating to its
right to arbitrate.
C. Whether the Tribunal Has Jurisdiction to Determine Alleged Breaches of
Article 2(2) of the BIT
155. Article 8(1) of the BIT provides:
23
“Disputes between an investor of one Contracting Party and the other Contracting
Party concerning an obligation of the latter under Articles 2(3), 4, 5 and 6 of this
Agreement in relation to an investment of the former which have not been
amicably settled shall, after a period of four months from written notification of a
claim, be submitted to arbitration under paragraph (2) below if either party to the
dispute so wishes.”
156. The Respondent argues that the Tribunal does not have jurisdiction to determine
claims for breach of Article 2(2) of the BIT. According to the Respondent, pursuant to
Article 8(1) the Tribunal may hear claims for breaches of Articles 2(3), 4, 5, and 7 of
the BIT only.42
157. Although implicitly admitting that Article 8(1), on its face, does not provide jurisdiction
to hear claims for breaches of Article 2(2), the Claimant argues that the Tribunal has
jurisdiction to determine alleged breaches of Article 2(2) through two avenues.43
158. First, the Claimant observes that the bilateral investment treaty between the
Respondent and Cyprus contains a more favourable dispute resolution clause which it,
as a company incorporated in the United Kingdom, may invoke by virtue of Article 3
of the BIT (the “most-favoured-nation” provision).44
159. Second, and in the alternative, the Claimant argues that Articles 2(3) and 8(1) of the
BIT, when read together, provide jurisdiction to hear claims for breaches of Article
2(2).45
160. The Tribunal considers below each of the arguments put forward by the Claimant.
1. Whether the Tribunal Has Jurisdiction Pursuant to Article 3 of
the BIT and the Czech-Cyprus BIT
(a) The Parties’ Positions
161. The Claimant argues that Article 3 of the BIT (the most-favoured-nation provision)
allows it to rely on the more favourable dispute resolution clause contained in the
Czech-Cypriot BIT.46
162. Article 3 of the BIT provides:
“(1) Each Contracting Party shall ensure that under its law investments or
returns of investors of the other Contracting Party are granted treatment not less
favourable than that which it accords to investments or returns of its own investors
or to investments or returns of investors of any third State.
42 Statement of Defence and Memorial on Jurisdiction, Section 2.1; Tr. 3 October 2016, 52:18-69:19.
43 Statement of Claim, Section IV.4.1; Statement of Reply and Counter-memorial on Jurisdiction, Part 1;
Statement of Surrejoinder, ¶¶ 39-43.
44 Statement of Claim, Section IV.4; Statement of Reply and Counter-memorial on Jurisdiction, Part 1; Tr.
3 October 2016, 6:21-8:23; Tr. 6 October 2016, 51:5-56:15.
45 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 92-100.
46 Statement of Claim, Section IV.4; Statement of Reply and Counter-memorial on Jurisdiction, Section 1.
24
(2) Each Contracting Party shall ensure that under its law investors of the other
Contracting Party, as regards their management, maintenance, use, enjoyment or
disposal of their investments, are granted treatment not less favourable than that
which it accords to its own investors or to investors of any third State.”
163. The Claimant observes that Article 8(2)(d) of the Czech-Cypriot BIT confers more
favourable dispute resolution rights. In particular, it notes that this provision covers,
broadly, “any dispute which may arise between an investor of one Contracting Party and the other
Contracting Party in connection with an investment”. The Claimant also observes that,
contrary to the BIT in this case, Article 8(3) of the Czech-Cypriot BIT provides that
“arbitral awards shall be final and binding on both parties to the dispute and shall be enforceable in
accordance with the domestic legislation”.47
Accordingly, according to the Claimant, Article 3
of the BIT should operate to broaden the types of disputes that can be arbitrated under
Article 8(1) of the BIT to include those that can be arbitrated under the Czech-Cypriot
BIT.48
164. The Claimant makes several textual and contextual arguments in support of this
interpretation.
165. First, the Claimant argues that the words “enjoyment” and “treatment” in Article 3 must
entail enforcement of an investor’s rights, and therefore must cover dispute
resolution.49
It further states that the term “most-favoured” must be given full effect such
that every rule which is more favourable to nationals of a third State must be able to be
relied upon by the Claimant.50
166. Second, the Claimant invokes the principle of expressio unius in support of its position.51
The Claimant notes that Article 7 of the BIT expressly excludes customs unions and
tax treaties from the scope of application of Article 3(2). The Claimant argues that if
the parties to the BIT had likewise intended to exclude the dispute resolution clause
from Article 3(2), they would have done so expressly. The Claimant notes that this was
the reasoning of the tribunal in RosinvestCo v. Russia in relation to similar clauses in the
UK-USSR bilateral investment treaty.
167. Third, the Claimant argues that the UK model BIT which was published shortly after
the BIT was concluded suggests that the UK had always understood the mostfavoured-nation
provision in the bilateral investment treaties it concluded as including
dispute resolution.52
Article 3(3) of the UK model BIT of 1991 provided: “For the
avoidance of doubt it is confirmed that the treatment provided for in paragraphs (1) and (2) above shall
apply to the provision of Article 1 to 11 of this Agreement.”
47 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 6-9.
48 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 5.
49 Statement of Claim, ¶ 89.
50 Statement of Reply and Counter-memorial on Jurisdiction, Section 1.4.1.
51 Statement of Reply and Counter-memorial on Jurisdiction, Section 1.4.2; Statement of Surrejoinder on
Jurisdiction, Sections 1.1 and 1.2.
52 Statement of Claim, ¶ 79.
25
168. Fourth, the Claimant emphasises the “inextricable link” between access to arbitration
and their substantive rights as investors.53
It says that neither diplomatic protection
nor the domestic courts are viable means of resolving this dispute, and notes that it has
been litigating this matter for 20 years before the Respondent’s courts. It submits that
without access to arbitration, its substantive rights as an investor are not real or
effective.
169. Fifth, the Claimant invokes Article 18 of the TFEU which imposes a duty on the
Respondent not to discriminate against nationals of EU Member States on the basis of
nationality.54
The Claimant argues that this must entail incorporation of the dispute
resolution clause from the Czech-Cypriot BIT into this BIT, since any other
interpretation would discriminate against UK citizens compared to Cypriots.
170. The Claimant affirms that its position is supported by the National Grid v. Argentina
decision, which was based on the UK-Argentina BIT. The Claimant states that the
most-favoured-nation clause in that BIT was identical to the Article 3 of this BIT, and
that the tribunal allowed extension of the clause to dispute resolution on the basis that
the investors’ substantive rights would not be enforceable.55
The Claimant also refers
to Gas Natural, RosinvestCo v. Russia, Maffezini, Impregilo and Siemens v. Argentina which it
says support the inclusion of dispute resolution in the most-favoured-nation clause.56
171. The Respondent argues that Article 3 of the BIT does not apply to the dispute
resolution provision in Article 8(1) for four reasons.57
172. First, the Respondent argues that the wording of Article 3 makes clear that it does not
apply to dispute resolution.58
In particular, the Respondent makes the following
points.
(a) Article 3 only applies to rights granted under the domestic law of the host State
(“under its law”). The Respondent says that this means that all an investor can
ask for is for the host State to not apply its domestic law less favourably to an
investor than it does to investors of third States, or grant the latter rights under
its domestic law that it does not grant to the former. Article 3 therefore does
not permit the Claimant to invoke a right under an international treaty.
(b) The term “treatment” in Article 3 refers only to substantive rights and does not
include the right to arbitration. The Respondent refers to Daimler v. Argentina
in this regard.
(c) Article 3(2) refers to “management, maintenance, use, enjoyment or disposal of their
investments” and therefore not to dispute resolution. This contrasts to other
“most-favoured-nation” provisions which refer to treatment “in all matters” and
which have, in limited circumstances, been found to apply to dispute
53 Statement of Reply and Counter-memorial on Jurisdiction, Section 1.3.
54 Statement of Reply and Counter-memorial on Jurisdiction, Section 1.4.3.
55 Statement of Claim, ¶ 81.
56 Statement of Claim, ¶¶ 81-83.
57 Statement of Rejoinder and Reply on Jurisdiction, Section 2.2.
58 Statement of Defence and Memorial on Jurisdiction, Section 2.2.1.2.1; Statement of Rejoinder and Reply
on Jurisdiction, Sections 2.2.1-2.2.3.
26
resolution. The Respondent refers to Plama v. Bulgaria and Wintershall v.
Argentina in this regard.
173. Second, the Respondent takes the view that the BIT’s travaux préparatoires and the treaty
practice of the parties to the BIT show that they did not intend for Article 3 in this BIT
to apply to the dispute resolution clause.59
174. As regards the BIT’s travaux, the Respondent argues that they show that
Czechoslovakia (as it was at the time) was hesitant to conclude BITs with broad
dispute resolution clauses at the time this BIT was negotiated. In addition, continues
the Respondent, the BIT’s travaux show that Czechoslovakia insisted on limiting the
wording of the broad most-favoured-nation clause of the UK model BIT to treatment
granted under domestic law.60
175. As regards the treaty practice of the parties to the BIT, the Respondent’s view is that it
confirms its position.61
The Respondent points out that after the publication of the
UK model BIT in 1991, the UK deleted Article 3(3) in subsequent treaties when it
agreed on a narrow dispute resolution clause.62
The Respondent also notes that both
parties had commonly used broad dispute resolution clauses and argues that they must
therefore be taken to have deliberately limited the dispute resolution clause in this
BIT.63
176. In this relation, the Respondent referred, during the Hearing, to the award in Venezuela
US SRL, in which the tribunal found that even if the most-favoured-nation clause does
refer to dispute resolution, that is not sufficient to substitute consent to arbitrate.64
177. Third, the Respondent argues that the context of Article 3 within the BIT shows that it
does not apply to dispute resolution.65
The Respondent points out that adopting the
interpretation advocated by the Claimant would mean that the limitation in Article 8(1)
would have no meaning or effect, which would be contrary to basic principles of treaty
interpretation.
178. The Respondent argues that, in light of the specific wording of Article 3, the expressio
unius principle should not apply to broaden the scope of the Article. In this regard, the
Respondent submits that the reasoning of the tribunal in RosinvestCo v. Russia is flawed
and should not be followed. The Respondent refers to Austrian Airlines v. Slovakia and
EURAM v. Slovakia in which it says that tribunals deciding very similar provisions held
that the narrowing of the dispute resolution provisions indicated that the parties to the
59 Statement of Defence and Memorial on Jurisdiction, Section 2.2.1.2.2; Statement of Rejoinder and Reply
on Jurisdiction, Section 2.2.5.
60 Tr. 3 October 2016, 59:1-17.
61 Statement of Defence and Memorial on Jurisdiction, Section 2.2.1.2.2; Statement of Rejoinder and Reply
on Jurisdiction, Section 2.2.6; Tr. 6 October 2016, 35:6-19.
62 Statement of Defence and Memorial on Jurisdiction, ¶ 91; Tr. 6 October 2016, 44:14-45:9.
63 Statement of Rejoinder and Reply on Jurisdiction, Section 2.2.6; Tr. 3 October 2016. 57:7-15.
64 Tr. 6 October 2016, 45:10-46:5.
65 Statement of Rejoinder and Reply on Jurisdiction, Section 2.2.4.
27
relevant BIT did not intend the most-favoured-nation clause to apply to it, and that the
application of expressio unius makes no sense.66
179. Fourth, the Respondent maintains that international arbitration practice underlines that
Article 3 cannot be used to import dispute resolution clauses.67
The Respondent
refers to Hochtief v. Argentina, Wintershall v. Argentina, Telenor Mobile v. Hungary and Plama
v. Bulgaria which it says established that, in the absence of a very clear indication in the
most-favoured-nation clause, it cannot be assumed that the clause was intended to
apply to substitute consent to arbitration when such consent was lacking in the basic
treaty.
180. According to the Respondent, the case law referred to by the Claimant does not assist
it. In particular, the Respondent argues that in none of these cases was the jurisdiction
of the tribunal based on the dispute resolution clause of a third treaty, and that the
tribunals merely found that procedural obstacles could be overcome by reliance on the
most-favoured-nation clause.68
181. The Respondent denies that the exclusion in Article 8(1) means that investors are left
without any means of enforcing the substantive rights not referred to in that Article.
In response to the Tribunal’s questions at the Hearing, the Respondent suggested that
investors could invoke diplomatic protection, or seek protection in another forum such
as the national courts.69
In any event, the Respondent argues that the enforceability of
certain substantive rights in the BIT is beside the point and cannot undo the plain
wording of Article 8(1).70
182. By way of reply, the Claimant makes the following points.71
183. First, it rejects the Respondent’s contention that the term “treatment” in Article 3 refers
only to substantive rights and not to procedural rights, including the right to arbitrate.
The Claimant argues that the term should be interpreted in accordance with the
purpose of the BIT to encompass the protection of investors and investments, and
thus also the procedural rights granted in the arbitration clause. It says that the
purpose of Article 3 is non-discrimination among the nationals of third States, and that
this calls for an extensive interpretation rather than a restrictive one.
184. Second, the Claimant argues that the application of the expressio unius principle is
required by the VCLT. Referring to Austrian Airlines and EURAM v. Slovakia
decisions, which have been relied upon by the Respondent, the Claimant maintains that
they did not follow the method of treaty interpretation mandated by Article 31 and 32
of the VCLT, and therefore do not represent good precedent.
66 Statement of Defence and Memorial on Jurisdiction, Section 2.2.1.2.3; Tr. 3 October 2016, 63:9-64:14.
67 Statement of Defence and Memorial on Jurisdiction, Section 2.2.1; Statement of Rejoinder and Reply on
Jurisdiction, Section 2.2.8.
68 Statement of Defence and Memorial on Jurisdiction, Section 2.2.2.1.
69 Tr. 3 October 2016, 54:10-18; Tr. 5 October 2016, 177:12-17; Tr. 6 October 2016, 49:16-50:12.
70 Statement of Rejoinder and Reply on Jurisdiction, Section 2.2.7.
71 Statement of Surrejoinder on Jurisdiction, Section 1.
28
185. Third, the Claimant submits that the travaux préparatoires of the BIT are of no or
minimal assistance in this case as they were not prepared by the Respondent but by its
predecessor, the Czech and Slovak Federal Republic.72
As far as the Respondent is
concerned, it maintains that, although the travaux were prepared in 1988 and 1989 by
the predecessor communist Government, it is unlikely that the BIT was negotiated by
the new non-communist Government that came into power at the end of December
1989 alone, with the BIT being signed in July 1990.73
The travaux can therefore serve
as an aid to interpretation of the BIT, continues the Respondent.
186. Fourth, the Claimant concedes that Article 3 is limited to rights granted by Czech law,
but submits that international treaties form part of Czech law pursuant to Article 10 of
the Czech Constitution which provides: “Promulgated treaties, to the ratification of which
Parliament has given its consent and by which the Czech Republic is bound, form a part of the legal
order; if a treaty provides something other than that which a statute provides, the treaty shall apply.”74
Thus, the Claimant says, Article 3(2) of the BIT applies to the provisions of the CzechCypriot
BIT, and as a result the right to arbitrate is part of Czech domestic law.
187. The Claimant also emphasises that Article 38 of the Czech Bill of Rights guarantees the
right to a “lawful” judge.75
It says that case law has established that a “judge” under
Article 38 includes an international judge. By analogy, the Claimant says, this must
extend to international arbitrators. The Claimant submits in this regard that the
Tribunal is the sole body which may provide legal protection to the Claimant’s
investment.
(b) The Tribunal’s Decision
188. Although it was impressed by the extensive and sophisticated character of the Parties’
arguments relating to the scope of Article 8(1) of the BIT, the Tribunal has found the
answer to this question to be straightforward, given the language used in the BIT.
189. Article 8(1) of the BIT sets out the types of disputes that can be submitted to
arbitration. These are “[d]isputes between an investor of one Contracting Party and the other
Contracting Party concerning an obligation of the latter under Articles 2(3), 4, 5 and 6 of this
Agreement in relation to an investment of the former”. Thus, Article 8(1) expressly provides
that only certain types of breaches can be submitted to arbitration: those concerning
Article 2(3) (the effect of specific agreements entered into by investors); Article 4
(compensation for losses, in situations of armed conflict, national emergency or civil
disturbances); Article 5 (expropriation); and Article 6 (repatriation of investment and
returns).
72 Statement of Reply and Counter-memorial on Jurisdiction, Section 1.4.4. The Claimant initially disputed
that, under Article 32 of the VCLT, recourse could be had to travaux where a meaning had already been
derived by interpretation in accordance with Article 31 of the VCLT. The Claimant subsequently
accepted that travaux “may serves as confirmation of the interpretation result under the general rule of interpretation.”
See Statement of Surrejoinder, ¶ 18.
73 Statement of Rejoinder and Reply on Jurisdiction, Section 2.2.5.
74 Statement of Surrejoinder, Section 1.4 (translation provided by the Claimant); Tr. 6 October 2016, 43:10-
21.
75 Statement of Surrejoinder, ¶ 32.
29
190. The Tribunal finds, in light of the express language of, and comprehensive
enumeration under, Article 8(1), that the standards of fair and equitable protection and
full protection and security, which are contained in Article 2(2) of the BIT, are
excluded from the scope of the Respondent’s consent to arbitration and cannot,
accordingly, provide a basis for a claim under the BIT.
191. Likewise, the majority of the Tribunal has found it determinative that the mostfavoured-nation
provisions at Article 3 of the BIT are excluded from the scope of
Article 8(1), which defines the jurisdiction of this Tribunal. In the majority’s view, it
follows from this specific exclusion that an investor, such as the Claimant in this case,
cannot rely on Article 3 of the BIT to import more favourable dispute resolution
provisions found in another investment treaty.
192. Given that the BIT expressly excludes Article 3 from the scope of investor-State
arbitration, the majority of the Tribunal has found that the questions of the scope of
Article 3 (the meaning of “treatment”, “under its laws”, or “management, maintenance, use,
enjoyment or disposal”), the impact of the UK model BIT on the interpretation of this
BIT, or whether access to arbitration is a procedural or substantive right become moot.
The majority recognises, in the latter respect, that the exclusion of Article 2(2) from the
scope of investor-State arbitration results in situations where an investor is not able to
enforce the standards under that provision. On this issue, the Respondent pointed to
the avenues of diplomatic protection or recourse to national courts during the Hearing.
However, the text of Article 8(1) of the BIT does not set forth any such recourse, with
the consequence that breaches of Article 2(2) cannot be remedied through judicial or
arbitral proceedings. That said, the Tribunal is bound by the express language of the
BIT, which reflects a choice made by its drafters, and cannot rewrite Article 8(1) or
substitute provisions taken from other investment treaties for those that have expressly
been included by the drafters of the BIT. In the majority’s view, this ends this
Tribunal’s inquiry.
193. Professor Reinisch took the view that the fact that Article 8(1) does not encompass the
BIT’s most-favoured-nation clause does not, per se, exclude this Tribunal’s jurisdiction
(to the extent the most-favoured-nation clause were to be read to include access to
dispute settlement). Because the effect of a most-favoured-nation clause is a question
of how it is formulated, he noted that, in the present case, Article 3 of the BIT
expressly relates the most-favoured-nation treatment to treatment “under [a Contracting
Party’s] laws”, which implies that such treatment only concerns treatment under the
domestic law of the Contracting Parties. Thus, investors are entitled to claim that
under the host State’s law they should receive the same treatment as investors from
third countries; however, this provision cannot be understood as permitting an investor
to demand treatment which the host State has promised to third party investors in any
international agreement like a BIT with a third country.
194. It follows from the above that the Tribunal does not have jurisdiction to hear claims
based on Article 2(2) of the BIT through the operation of Article 3 of the BIT.
30
2. Whether Articles 8(1) and 2(3) May be Interpreted to Confer
Jurisdiction to Hear Claims for Breach of Article 2(2)
(a) The Parties’ Positions
195. The Claimant also argues that Articles 8(1) and 2(3) may be read together to confer
jurisdiction to hear claims for breach of Article 2(2).76
196. Article 2(3) provides:
“Investors of one Contracting Party may conclude with the other Contracting
Party specific agreements, the provisions and effect of which, unless more beneficial
to the investor, shall not be at variance with this Agreement. Each Contracting
Party shall, with regard to investments of investors of the other Contracting Party,
observe the provisions of these specific agreements, as well as the provisions of this
Agreement.”
197. The Claimant relies on the second sentence of the provision, and submits that “the
provisions of this Agreement” must include Article 2(2) of the BIT. It submits that this
provision, therefore, provides an alternative ground on which the Tribunal can hear
claims for breach of Article 2(2).
198. The Respondent argues that the Claimant’s interpretation of Article 2(3) is based on an
improper reading of the second sentence of the Article. 77
The Respondent notes that
all the first sentence does is to provide that investment contracts between an investor
and the host State cannot contain terms that are less beneficial for the investor than the
BIT itself. The Respondent submits that the second sentence is the necessary corollary
of the first, and provides that the host State shall observe the provisions of those
investment contracts that it concludes and the provisions of the BIT where they are
more favourable. Thus, the Respondent argues that Article 2(3) only applies to
situations where there is a specific investment agreement.
199. The Respondent further argues that the adoption of the Claimant’s interpretation
would lead to strange results. First, it would mean that the express limitation in Article
8(1) would have no meaning or effect. Second, Article 2(3) itself would be redundant
since all of the provisions of the BIT are already binding on the host State.78
(b) The Tribunal’s Decision
200. The Tribunal was not convinced by the Claimant’s interpretation of Article 2(3).
201. First, Article 2(3) of the BIT cannot provide an alternative basis for jurisdiction under
Article 2(2) where none otherwise exists. To the extent Article 8(1) of the BIT has
expressly excluded Article 2(2) from its scope, the Tribunal cannot, through Article
2(3), reintroduce into the scope of investor-State arbitration the provisions of Article
2(2).
76 Statement of Surrejoinder, ¶¶ 39-43.
77 Tr. 3 October 2016, 64:15-65.
78 Tr. 3 October 2016, 68:13-69:19.
31
202. Second, and in any event, the Tribunal does not find that Article 2(3) has the scope
which the Claimant suggests. The object of this provision appears to be to impose
upon the parties to the BIT an obligation to recognise the existence of specific
agreements benefiting investors and establish the principle according to which the
provisions of such specific agreements or the BIT apply, whichever are more
favourable. Any other interpretation would render meaningless Article 2(3) or the
exclusions under Article 8(1) of the BIT.
203. It follows that the Tribunal cannot have jurisdiction over breaches of Article 2(2)
through the operation of Article 2(3) of the BIT.
* * *
204. Having found that it has jurisdiction to hear this dispute, but only insofar as alleged
breaches of Article 5 of the BIT are concerned, the Tribunal will proceed to the merits
of the Claimant’s case on this basis.
IV. MERITS
A. Summary of the Parties’ Positions
205. In 1997, the Claimant obtained an arbitral award in the sum of approximately CZK 4.8
million against its business partner, Kyjovan (the “1997 Award”). The Claimant then
commenced various enforcement proceedings before the Czech courts, seeking to
enforce the 1997 Award against Kyjovan’s bank accounts, movable goods and
subdebtors. Although the Claimant was granted several of the enforcement orders it
sought, it argues that the courts unduly delayed in issuing these and that during this
time Kyjovan became bankrupt. Accordingly, the Claimant argues that it has been
deprived of the value of the 1997 Award by the courts. The Claimant argues that the
Czech courts’ conduct amounts to indirect, creeping expropriation, in breach of Article
5 of the BIT.
206. The Respondent denies that there were any delays on the part of the courts and argues
that any delay to the enforcement proceedings was caused by the Claimant and by the
intervention of Kyjovan. The Respondent argues that the conduct complained of by
the Claimant would not, in any event, amount to expropriation.
B. Facts
207. The Claimant is a company incorporated in the United Kingdom.
208. Following the collapse of the Soviet Union, the Claimant saw an opportunity in the
Czech Republic in the automobile accessories industries. For this purpose, it went into
business with a manufacturing cooperative in the Czech Republic, Kyjovan. In 1990,
the Claimant and Kyjovan entered into a joint venture agreement, pursuant to which
32
they incorporated a further company, Sprint a.s., registered in the Czech Republic.79
Sprint a.s. was in the business of the manufacturing of automobile accessories.80
209. A dispute arose subsequently between the Claimant and Kyjovan regarding Kyjovan’s
performance of its obligations under the joint venture agreement, in particular its
obligation to provide gas and electricity to the premises occupied by Sprint a.s.81
210. On 16 December 1997, the Claimant obtained an arbitral award against Kyjovan at the
Court of Arbitration of the Chamber of Commerce. The 1997 Award ordered
Kyjovan to pay damages of CZK 4,812,170 with six percent interest per annum from
16 July 1993.82
211. The Claimant subsequently commenced proceedings seeking to enforce the 1997
Award. Each of the enforcement proceedings is described in the following
subsections.
1. Enforcement Proceedings No. 347/98 (Kyjovan’s bank account)
212. On 24 February 1998, the Claimant commenced proceedings at the District Court of
Hodonin seeking enforcement of the 1997 Award by levy on Kyjovan’s bank
account.83
213. Following a complaint by the Claimant, on 2 September 1998 the Chairman of the
District Court wrote to the Claimant apologising for the delays to the proceedings.84
The Chairman stated that the Claimant’s complaint was justified and that it was evident
that there had been delays since the initiation of the proceedings. The Chairman
personally apologised to the Claimant for the delays and stated that he had taken steps
to ensure the immediate continuance of the proceedings.
214. The Claimant subsequently requested the Minister of Justice to intervene to accelerate
the proceedings. The Claimant received a reply on 1 December 1999, stating that the
District Court had “adopted corresponding organizational and staff measures and actions to
improve conditions of labour in the execution department which should contribute to quicker settlement
of the execution cases.”85
215. The Respondent says that on 23 November 1999 and 4 February 2000 the Claimant
supplemented its application by adding bank account numbers.86
The Claimant did
not respond to this assertion.
79 Extract from the Commercial Register showing Sprint a.s. (Exhibit C-1).
80 Statement of Claim, ¶ 13.
81 Arbitral Award dated 16 December 1997, Rsp. 94/93 (Exhibit C-7).
82 Ibid.
83 Petition commencing proceedings no. E 347/98 (Exhibit C-9).
84 Letter from Head of District Court of Hodonin dated 2 September 1998 (Exhibit C-51).
85 Letter from Minister of Justice, dated 1 December 1999 (Exhibit C-32).
86 Statement of Defence and Memorial on Jurisdiction, ¶ 174.
33
216. At this time, the Claimant and Kyjovan were engaged in a related dispute about the
right of Sprint a.s. to use a warehouse on land owned by Kyjovan. On 2 February
2000, Kyjovan, in the context of this dispute, issued an invoice to the Claimant for the
use of the warehouse.87
Kyjovan then alleged to have set-off its invoiced claim against
the claim deriving from the Claimant’s 1997 Award.
217. On 25 February 2000, Kyjovan applied for termination of the enforcement
proceedings based on this alleged set-off.88
218. On 30 March 2000, the Hodonin District Court stayed the proceedings pending the
outcome of Kyjovan’s application.89
The Claimant successfully appealed this decision,
however, and the same court reversed the stay and decided to continue the proceedings
on 14 April 2000.90
Kyjovan’s application was ultimately not granted.91
219. On 12 May 2000, the Claimant filed a further complaint regarding delays by the
Court.92
220. The Hodonin District Court subsequently granted the enforcement order on 14 August
2000.93
Kyjovan appealed this to the Brno Regional Court on 19 September 2000.94
The Respondent says that Kyjovan was then requested to file further evidence for its
alleged set-off, which it failed to do.95
221. On 18 August 2000, Mr. Ivan Peter Busta, a director and shareholder of the Claimant,
published an article in a Czech newspaper describing his negative experiences doing
business in the Czech Republic and seeking protection through the judicial system.96
222. In response to the article, on 21 September 2000, the judges of the Hodonin District
Court, including the judge appointed to the enforcement proceedings, signed a
collective declaration of bias against Mr. Busta and requested that his claims be heard
in another court.97
This was later found to have been a violation of Mr. Busta’s
constitutional rights by the Czech Constitutional Court, in July 2001.98
The Claimant
87 Invoice of 2 February 2000 (Exhibit R-19).
88 Submission of Kyjovan dated 25 February 2000 (Exhibit R-38).
89 Decision District Court Hodonín of 30 March 2000 (Exhibit C-10; Exhibit R-39).
90 Claimant’s appeal against decision of District Court of Hodonin of 30 March 2000 (Exhibit C-11)
Decision District Court Hodonín of 14 April 2000 (Exhibit R-40; Exhibit C-12).
91 Statement of Defence and Memorial on Jurisdiction, ¶ 176.
92 Statement of Defence and Memorial on Jurisdiction, ¶ 177.
93 Enforcement order, dated 14 August 2000 (Exhibit C-13; Exhibit R-41).
94 Kyjovan’s appeal against enforcement order dated 18 September 2000 (Exhibit R-42).
95 Statement of Defence and Memorial on Jurisdiction, ¶ 179.
96 Article dated 18 August 2000 (Exhibit C-36).
97 Letter from judges of the District Court of Hodonín dated 21 September 2000 (Exhibit C-37).
98 Decision of the Constitutional Court dated 3 July 2001 (Exhibit C-38).
34
says that due to this declaration of bias, it was unable to recover anything against the
enforcement order.99
223. The Respondent states that the enforcement order became “final and effective” on
22 September 2000.100
The entry into force, however, was not recorded on the order
until 15 March 2013, as shown by a stamp of that date.101
The Claimant maintains that
this stamp is significant, pursuant to section 307 of the Code of Civil Procedure:
“(1) Regarding the fact that the decision ordering the enforcement by the court
became enforceable the court shall inform the financial institution; this information
shall be delivered to the financial institution into own hands.
(2) After this the financial institution shall pay the claim from the account of the
obliged party.” 102
224. The Claimant submits that because the order was not recorded as entering into legal
force until 2013, it could not have been sent to Kyjovan’s bank, and therefore the bank
could not pay the Claimant.103
The Claimant has submitted the photographs of the
delivery notes attached to the order showing that they were sent to Kyjovan’s bank,
and other debtors, on 5 September 2000, before the stamp of legal force was applied.104
225. The Respondent points out that section 307 only requires the court to “inform” the
financial institution that the enforcement order has become enforceable, and does not
require the court to send a copy of the order itself, or to make any other record of the
notification.105
226. Further, the Respondent notes that the Claimant received payments of approximately
CZK 1.5 million from CSOB Bank.106
The Claimant does not deny this, but argues
that these were made by the bank voluntarily and not pursuant to the enforcement
order.107
The Respondent argues that the suggestion that the bank would make
payments voluntarily is absurd.108
The Respondent points out that it requested
correspondence between CSOB Bank and the Claimant, and that this request was
granted by the Tribunal, but that no documents were produced.109
The Respondent
99 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 160 (“The reason why not a single Czech crown
was not [sic] enforced from these accounts was that all judges of OS Hodonin court have declared themselves biased and
requested to be dismissed from hearing the cases on 21.9.2000.”).
100 Enforcement order, stamped as at 15 March 2013 (Exhibit C-58).
101 Ibid.
102 Section 307 of the Czech Code of Civil Procedure (Exhibit C-59).
103 Tr. 5 October 2016, 98:25-99:6.
104 Enforcement order showing delivery notes (Exhibit C-61).
105 Tr. 5 October 2016, 132:3-134:1; Letter from the Respondent to the Tribunal dated 21 October 2016.
106 Statement of Claim, ¶ 191; Statement of Reply and Counter-memorial on Jurisdiction, ¶ 162.
107 Ibid.
108 Tr. 5 October 2016, 133:5-134:2; Statement of Rejoinder and Reply on Jurisdiction, ¶ 201.
109 Tr. 5 October 2016, 133:20-134:2; Letter from the Respondent to the Tribunal dated 21 October 2016.
35
argues that the inference to be drawn from this is that these documents would confirm
that the bank made the payments as a result of the court order.110
227. On 31 March 2001, Kyjovan was declared bankrupt.111
The payments received from
CSOB Bank were received after this date, in June 2001 and December 2004.112
228. The Claimant argues that these enforcement proceedings were delayed by the Hodonin
District Court for 25 months between the time when they were initiated in February
1998 and the time when they were suspended in March 2000. The Claimant refers to
the Hodonin District Court’s apology of September 1998 as an acknowledgment of the
undue delays caused by it.113
The Claimant states that the Hodonin District Court then
wrongly suspended the proceedings, as it recognised by its reversal of that decision.
The Claimant also states that the Hodonin District Court delayed the entry into legal
force of the enforcement order for 13 years.
229. The Respondent argues that the Hodonin District Court was not inactive in these
proceedings and points out that it granted the enforcement order sought by the
Claimant, who was then able to recover “very significant” sums from CSOB bank.114
2. Enforcement Proceedings no. 2029/98 (Kyjovan’s movable
goods)
230. On 14 October 1998, the Claimant sought to enforce the 1997 Award against
Kyjovan’s movable goods.115
In particular, the Claimant sought an order in the
Hodonin District Court for the sale of goods and prohibiting their disposal.
231. A court fee was requested on 9 November 1998 and paid by the Claimant on
19 November 1998.116
232. The order was granted on 1 December 1998.117
The Claimant was requested in the
order to pay a further fee: “Note to counsel Dr. Broz on payment of cost of proceedings securing
the assets in the amount of 19 500 CZK.”118
233. The Claimant requested an explanation for this requested fee on 21 December 1998.119
The Claimant explained that there was genuine lack of clarity as to why the fee was
110 Letter from the Respondent to the Tribunal dated 21 October 2016.
111 Decision of the Regional Court in Brno declaring the bankruptcy of Kyjovan dated 30 March 2001
(Exhibit C-14).
112 Statement of Claim, ¶ 191; Statement of Reply and Counter-memorial on Jurisdiction, ¶ 162.
113 Tr. 5 October 2016, 102:3-103:17.
114 Statement of Defence and Memorial on Jurisdiction, ¶ 181.
115 Petition commencing proceedings E 2029/98, dated 14 October 1998 (Exhibit C-15).
116 Request for payment of court fee dated 9 November 1998 (Exhibit R-43); Payment receipt dated 19
November 1998 (Exhibit R-44).
117 Enforcement order, dated 1 December 1998 (Exhibit C-16).
118 This is visible on the translation of the enforcement order of 1 December 1998 submitted by the
Respondent as Exhibit R-45). The Claimant accepts that the order requested payment of CZK 19,500:
Statement of Reply and Counter-memorial on Jurisdiction, ¶ 164.
119 Letter from the Claimant to the District Court dated 21 December 1998 (Exhibit C-54).
36
payable.120
The Respondent argues that this fee was a deposit for the costs arising
from securing Kyjovan’s assets, and was clearly payable pursuant to section 327(2) of
the Czech Code of Civil Procedure which provides that “the court shall only secure the
property if the beneficiary makes an advance payment to such costs”.121
234. On 11 July 2000, the Claimant wrote to the Hodonin District Court, taking note that
the Court had clarified the reason for the requested fee in March 2000, namely an
“advance for the settlement of the costs connected with seizure of the things”,122
and paid the court
fee.123
The Respondent emphasises that the Claimant was completely inactive from 21
December 1998, when it requested clarification of the court fee, until 11 July 2000.124
235. In March 2000, Kyjovan had applied to have the 1997 Award set aside.125
In July 2000,
the District Court held a hearing to determine whether or not to stay the enforcement
proceedings, given the risk that they would have to be terminated depending on the
outcome of Kyjovan’s application to set-aside the 1997 Award. On 13 July 2000, the
District Court decided to stay the proceedings.126
236. The Claimant appealed this decision to the Brno Regional Court on 4 August 2000.127
Kyjovan was declared bankrupt on 31 March 2001, before the appeal was heard.128
In
view of Kyjovan’s bankruptcy, the Brno Regional Court held that the proceedings were
automatically stayed, and did not proceed to determine the merits of the Claimant’s
appeal.129
237. The Claimant argues that the enforcement proceedings were delayed by the Hodonin
District Court’s failure to respond to the Claimant’s request for clarification of the
court fee for 15 months, and the Hodonin District Court’s subsequent decision to stay
the proceedings which the Claimant says was unlawful. The Claimant also notes that
Kyjovan’s application to set-aside the 1997 Award was later found by the District
Court in Prague 7 to be “entirely unreasonable.”130
238. The Respondent argues that it was clear under the Court Fee Act precisely what fee the
Claimant was required to pay and why.131
Had the Claimant paid the deposit earlier, the
Respondent says that the Hodonin District Court would have made a decision whether
120 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 164.
121 Statement of Rejoinder and Reply on Jurisdiction, ¶ 206.
122 Letter from the Claimant to the District Court dated 11 July 2000 (Exhibit C-55).
123 Payment Receipt of 13 July 2000 (Exhibit R-47).
124 Statement of Rejoinder and Reply on Jurisdiction, ¶ 209.
125 Submission of Kyjovan of 11 March 1998, (Exhibit R-8).
126 Protocol of the Hearing of 13 July 2000 (Exhibit R-48); Decision District Court Hodonín of 13 July
2000 (Exhibit R-49).
127 Claimant’s appeal dated 4 August 2000 (Exhibit C-18).
128 Decision of the Regional Court in Brno declaring the bankruptcy of Kyjovan dated 30 March 2001
(Exhibit C-14).
129 Decision Regional Court Brno of 9 August 2001 (Exhibit R-50).
130 Decision District Court of Prague 7 of 19 March 2001 (Exhibit R-10).
131 Statement of Rejoinder and Reply on Jurisdiction, Section 3.2.1.4.
37
to stay the proceedings one and a half years earlier. By the time the Claimant took the
required steps, the Respondent says it was too late for the Brno Regional Court to
decide on whether the District Court’s decision to stay the enforcement proceedings in
view of Kyjovan’s setting aside application was legitimate or not.132
In any event, the
Respondent says that the Hodonin District Court’s decision to stay the proceedings
pending resolution of Kyjovan’s setting aside application was within its discretion as
afforded to the Court by Section 266 of the Code of Civil Procedure.133
3. Enforcement Proceedings no. 2576/98 (Kyjovan’s subdebtors)
239. On 30 November 1998, the Claimant commenced proceedings in the Hodonin District
Court seeking to enforce the 1997 Award against Kyjovan’s subdebtors, being the
tenants of a property Kyjovan owned.134
240. The Hodonin District Court requested payment of the court fee on 7 January 1999,135
and the enforcement order was granted on 5 March 1999.136
241. Kyjovan appealed against the order to the Brno Regional Court on 22 March 1999.137
The Brno Regional Court rejected Kyjovan’s appeal on 3 September 1999.138
242. On 29 September 1999, the Claimant applied to the Hodonin District Court to amend
the account number on the enforcement order.139
The Claimant says that this was a
“technical and easily solvable problem”, and had no effect on the enforcement given that the
subdebtors had been prohibited in the order from paying rent to Kyjovan.140
243. The Hodonin District Court amended the enforcement order on 20 December 1999 to
reflect the corrected bank account number.141
244. On 8 February 2000, Kyjovan applied to have enforcement proceedings discontinued
on the basis of its alleged claim for set-off in relation to the warehouse.142
This was
not granted by the Court, however.
245. On 14 March 2000, the Claimant again applied to amend the bank account number on
the enforcement order.143
The Hodonin District Court amended the enforcement
order on 19 April 2000 to reflect this144
132 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 214.
133 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 212
134 Petition for writ of execution on judgment, E2576/98 (Exhibit C-21).
135 Request for Court Fee of 7 January 1999 (Exhibit R-13).
136 Decision of the District Court Hodonín of 5 March 1999 (Exhibit R-14).
137 Appeal of 22 March 1999 (Exhibit R-15).
138 Decision of the Regional Court Brno of 3 September 1999 (Exhibit R-16).
139 Decision of the District Court of Hodonín of 20 December 1999 (Exhibit R-17).
140 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 169; Tr. 5 October 2016, 114:17-115:1,
156:17-157:22 (Mr. Busta).
141 Decision of the District Court of Hodonín of 20 December 1999 (Exhibit R-17).
142 Kyjovan’s motion to discontinue the enforcement dated 8 February 2000 (Exhibit R-20).
38
246. A few months later, on 27 June 2000, the Claimant informed the Hodonin District
Court that Kyjovan’s subdebtors were not paying the Claimant as ordered.145
247. According to the Respondent, on 4 July 2000 Kyjovan advised the Hodonin District
Court that it had assigned its contracts with the relevant subdebtors to a wholly-owned
subsidiary.146
The Respondent has produced a letter from Kyjovan addressed to its
tenant subdebtors advising of the assignment of the contracts,147
though no proof of
receipt of this letter by the District Court is on the record.
248. On 12 July 2000, the Hodonin District Court contacted the subdebtors.148
The
subdebtors advised the Court that they had been informed by Kyjovan about the
alleged set-off and therefore they did not consider themselves obliged to comply with
the enforcement order.149
249. The Claimant filed a criminal complaint against Kyjovan’s board on 21 August 2000 in
respect of the assignment of its contracts with its subdebtors,150
which was later
extended to the subdebtors.151
The investigation into this complaint was suspended on
9 January 2004.152
250. On 25 August 2000, the Hodonin District Court advised the Claimant that it could
seek a motion imposing fines on the subdebtors pursuant to section 315 of the Code
of Civil Procedure.153
251. The Claimant filed an application for the imposition of fines on 15 September 2000,
but it made its application pursuant to a different section, section 351 of the Code of
Civil Procedure.154
The Respondent points out that this section concerns
unsubstitutable obligations, and says that this was not applicable to the Claimant’s
situation.155
252. The judge assigned to determine the Claimant’s application for the imposition of fines
was among those who had issued a declaration of bias on 21 September 2000.156
Due
143 Claimant’s application to amend account number of enforcement order dated 14 March 2000 (Exhibit
R-21).
144 Decision of the District Court of Hodonín of 19 April 2000 (Exhibit R-22).
145 Claimant’s notice to the Court dated 27 June 2000 (Exhibit R-23).
146 Statement of Defence and Memorial on Jurisdiction, ¶ 161.
147 Letter from Kyjovan to the Court dated 4 July 2000 (Exhibit R-26).
148 Court enquiry to subdebtors, dated 12 July 2000 (Exhibit R-24).
149 Subdebtor replies (Exhibit R-25).
150 Claimant’s criminal complaint against Kyjovan dated 21 August 2000 (Exhibit C-28).
151 Criminal complaint against subdebtors dated 15 September 2000 (Exhibit C-29).
152 Letter from the Police to the Claimant dated 9 January 2004 (Exhibit C-31).
153 Internal order by the District Court of Hodonín including delivery receipt, dated 25 August 2000
(Exhibit R-27).
154 Claimant’s submission dated 15 September 2000 (Exhibit R-29).
155 Statement of Rejoinder and Reply on Jurisdiction, Section 3.2.1.1.
156 Letter from judges of the District Court of Hodonín dated 21 September 2000 (Exhibit C-37).
39
to this collective declaration of bias, the Claimant’s application for the fines was not
decided until after the bankruptcy proceedings were commenced against Kyjovan on
30 March 2001.157
No further steps towards enforcement of the Claimant’s claim were
made while insolvency proceedings were on foot.
253. In December 2008, once the insolvency proceedings were concluded, the Court finally
determined the Claimant’s application for the imposition of fines on the subdebtors.158
This was rejected on the basis that the provision of the Code of Civil Procedure on
which the application was based, section 351, was not applicable to subdebtors.
254. The Respondent argues that the Court took the steps requested by the Claimant within
a short time, and that the only reason why the Claimant was unable to recover its claim
was its own inability to provide the correct account number and Kyjovan’s interference
with the enforcement proceedings.159
The Respondent notes that one subdebtor had
tried to pay the Claimant but was unable to as the account number was wrong.160
4. Enforcement Proceedings no. 525/99 (additional Kyjovan’s
subdebtors)
255. On 17 March 1999, the Claimant initiated enforcement proceedings against several
additional subdebtors of Kyjovan in the Hodonin District Court.161
The Claimant did
not pay the court fee upon commencement of the proceeding, which the Respondent
argues it was obliged to pay pursuant to the Czech Court Fee Act.162
256. On 29 September 1999, the Claimant requested clarification of the court fee.163
The
Claimant says that it was not clear which proceeding the fee was requested for or
why.164
In particular, the Claimant said that these proceedings had been initiated to
extend the proceedings 2567/98 already on foot to other subdebtors, and on that basis
did not consider that an additional court fee should be payable.165
The Claimant
received no response from the Court to its request for clarification.
257. On 15 May 2000, the Court requested the Claimant to pay the court fee.166
The
Claimant says that this was incomprehensible and that it therefore again requested an
157 Decision of the Regional Court in Brno declaring the bankruptcy of Kyjovan dated 30 March 2001
(Exhibit C-14); Statement of Defence and Memorial on Jurisdiction, ¶ 164.
158 Decision of the District Court of Hodonin dated 15 December 2008 (Exhibit C-27).
159 Statement of Defence and Memorial on Jurisdiction, ¶ 166.
160 Decision of the District Court of Hodonín of 20 December 1999 (Exhibit R-17); Tr. 5 October 2016,
125:5-10.
161 Petition commencing proceedings 525/99, dated 16 March 1999 (Exhibit C-23).
162 Statement of Defence and Memorial on Jurisdiction, ¶ 182; Statement of Rejoinder and Reply on
Jurisdiction, ¶ 190.
163 Claimant’s letter dated 19 June 2000 (Exhibit R-32).
164 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 171.
165 Claimant’s letter dated 19 June 2000 (Exhibit R-32); Tr. 5 October 2016, 152:23-153:13.
166 Request for Court fees (Exhibit R-31); Statement of Defence and Memorial on Jurisdiction, ¶ 169.
40
explanation of why the court fee was payable.167
The Claimant says that it first
requested clarification of the court fee by phone, but that the court refused to supply
this information, and it therefore made the request for a second time in writing.168
Mr.
Busta confirmed at the Hearing that he resisted paying the fee for this period out of
principle, because he thought that the fee was not justified, rather than because he
could not afford it.169
258. The Claimant ultimately paid the court fee on 4 July 2000.170
259. The Court granted the enforcement order on 31 August 2000.171
However, Kyjovan
again informed its subdebtors that it had a claim for set-off and that they therefore did
not need to comply with the court order.172
260. In addition, on 18 September 2000, Kyjovan filed a motion against the enforcement
order based on its alleged set-off.173
On 1 March 2001, the Court asked Kyjovan for
further evidence in support of its motion.174
The motion was never granted and on 30
March 2001 Kyjovan was declared bankrupt.175
261. The Claimant argues that the delay to payment of the court fee was caused by the
Court itself in ignoring the Claimant’s requests for clarification of what proceeding the
fee was payable for, and why.176
The delays that resulted to the enforcement
proceedings are therefore attributable to the Court, according to the Claimant.
262. The Respondent argues that there was no delay on behalf of the Court in these
proceedings.177
The Respondent notes that it took the Claimant more than one year to
pay the required court fee for the proceedings to commence, and that once the fee was
paid the enforcement order was issued within a few weeks. The Respondent says that
court fees are set out clearly in the Czech Court Fee Act, and that the Claimant should
not have required clarification.178
263. The subsequent delays, the Respondent says, were attributable to intervention by
Kyjovan in persuading its subdebtors not to comply with the court order. The
167 Claimant’s letter dated 19 June 2000 (Exhibit R-32); Statement of Reply and Counter-memorial on
Jurisdiction, ¶ 171.
168 Claimant’s letter dated 19 June 2000 (Exhibit R-32).
169 Tr. 5 October 2016, 171:4-173:10.
170 Record of payment of court fee dated 4 July 2000 (Exhibit R-33).
171 Enforcement order dated 31 August 2000 (Exhibit R-34).
172 Debtor replies (Exhibit R-35).
173 Kyjovan’s appeal against enforcement order, dated 18 September 2000 (Exhibit R-36).
174 Court request to Kyjovan dated 1 March 2001 (Exhibit R-37).
175 Decision of the Regional Court in Brno declaring the bankruptcy of Kyjovan dated 30 March 2001
(Exhibit C-14).
176 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 172.
177 Statement of Defence and Memorial on Jurisdiction, ¶ 173; Statement of Rejoinder and Reply on
Jurisdiction, ¶¶ 191-192.
178 Statement of Rejoinder and Reply on Jurisdiction, ¶ 194.
41
Respondent says that the Claimant chose not to initiate third-party proceedings against
these subdebtors directly, but “remained passive” until the bankruptcy proceedings were
initiated.179
264. The Claimant argues that it subsequently filed a civil suit against 40 of Kyjovan’s
subdebtors claiming damages, two of which it recovered against in the sum of
CZK 542,944.50.180
C. Analysis
(a) The Claimant’s Position
265. The Claimant contends that the Respondent expropriated its right to contractual
damages – as provided for in the 1997 Award – in a manner that breached Article 5(1)
of the BIT.
266. Article 5(1) provides in relevant part:
“Investments of investors of either Contracting Party shall not be nationalised,
expropriated or subjected to measures having effect equivalent to nationalisation or
expropriation (hereinafter referred to as “expropriation”) in the territory of the
other Contracting Party except for a public purpose related to the internal needs of
that Party on a non-discriminatory basis and against prompt, adequate and
effective compensation. […]”
267. Specifically, the Claimant argues that the Respondent has expropriated its investment
through the inactivity of its courts.181
The Claimant submits that this took the form of
indirect “creeping expropriation”, i.e. expropriation through a series of discrete steps by the
Czech courts.182
268. In the Claimant’s submission, the Czech courts “placed excessive obstacles in the way of
enforcement of rights in the investment, with the final consequence that the investment was substantially
deprived of any economic value.”183
The Claimant refers to Loewen v. the United States, on the
basis of which, the Claimant submits, it can be inferred that the manifest denial of
justice by courts may lead to situations with consequences analogous to expropriation.
269. The Claimant argues that the expropriatory measure in the present case was “the failure
to enforce an arbitral award by OS Hodonin, in an arbitrary, discriminatory and unreasonable
fashion.”184
In particular, the Claimant points to the collective declaration of bias made
by the judges of the Hodonin District Court, and the Czech Constitutional Court’s
finding that this was a violation of the Claimant’s constitutional rights.
179 Statement of Rejoinder and Reply on Jurisdiction, ¶ 193.
180 Statement of Claim, ¶¶ 35(8), 191; Statement of Reply and Counter-memorial on Jurisdiction, ¶ 178.
181 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.1.
182 Tr. 5 October 2016, 100:18-101:5.
183 Statement of Claim, ¶ 145.
184 Statement of Claim, ¶ 146.
42
270. In short, the Claimant submits that the District Court “by its unconstitutional, abusive,
arbitrary and unprecedented manner of proceeding, carried out in bad faith, attained such a level of
intensity of interference with the investment of the Claimant” that it constitutes a measure having
the effect equivalent to expropriation under Article 5 of the BIT.185
The Claimant
urges the Tribunal to consider the conduct of the Respondent as a whole, including
that complained of in the proceedings brought by Mr. Busta relating to the goods of
Sprint CR.186
271. The Claimant argues that indirect expropriation may take the form of omission.187
In
support of this, the Claimant cites the statement of the tribunal in EUREKO v. Poland
that “it is obvious that the rights of an investor can be violated as much by the failure of a Contracting
State to act as by its actions. Many international arbitral tribunals have held so.”188
The Claimant
submits that Olguin v. Paraguay, which is cited by the Respondent as authority that
omissions cannot constitute expropriation, is a “fact-specific case” and an exception to
the “general rule in international law” that an omission can constitute expropriation. The
Claimant submits that the other authorities referred to by the Respondent are of
limited application.
272. In addition, the Claimant submits that the reference in Article 5 of the BIT to “measures
having effect equivalent to nationalisation or expropriation” would include omissions in
protecting the property, given that the effect of them is equal to taking of the property.
The Claimant urges the Tribunal to focus on the effect of non-enforcement of the
award by the courts, which was that the Claimant was deprived of the entire value of
it.189
273. The Claimant submits that expropriation may occur as a result of the lack of legal
protection on the part of the national courts, and cites Amco v. Indonesia in which the
tribunal stated that “expropriation in international law also exists merely by the state withdrawing
the protection of the courts from the owner expropriated”. The Claimant says that this has been
confirmed by Rumeli v. Kazakhstan, in which the tribunal stated that “a taking by the
judicial arm of the State may also amount to expropriation.”190
274. The Claimant argues that it is not necessary for it to show that the deprivation was
“irreversible”, only that it was “not merely ephemeral”.191
The Claimant cites Middle East
Cement and Wena Hotels in support of this. In any event, the Claimant says that due to
Kyjovan’s bankruptcy, the effect of the measures was the irreversible deprivation of its
rights.
275. The Claimant submits that there is no requirement to establish denial of justice or
exhaustion of local remedies in cases of judicial expropriation under this BIT. The
185 Statement of Claim, ¶ 150.
186 Tr. 5 October 2016, 120:24-121:21.
187 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.2.
188 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 230.
189 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.3.
190 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.2.1.
191 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.4.
43
Claimant cites Jan de Nul v. Egypt and Saipem v. Bangladesh, and the commentaries by
Paulsson, Greenwood and McLachlan, Shore and Weiniger in this regard.192
276. Nevertheless, the Claimant argues that it has exhausted its local remedies, and been
denied justice in this instance.193
The Claimant argues that the only way it could
enforce the arbitration award was via the courts and that there was no other remedy
when the courts refused to act.194
It notes that it turned to the Constitutional Court in
respect of the collective declaration of bias and obtained a ruling in its favour. It also
says that it has negotiated in good faith with the Czech Ministry of Finance, to no avail.
277. Nor, the Claimant submits, is it necessary to establish abuse of rights in cases of
judicial expropriation.195
Nevertheless, the Claimant argues that the behaviour of the
courts in this case was abusive and unconstitutional.196
In particular, it points to: (i) the
courts’ postponement of the enforcement against Kyjovan’s movable goods;197
(ii) the
courts’ general inactivity, for example its 15-month delay in the sale of Kyjovan’s
movable goods due to an issue of a court fee;198
(iii) the collective declaration of bias by
the judges, which the Claimant describes as the “crowning abusive conduct.”199
The
Claimant argues that the courts acted not only illegally, but in contravention of the
Constitution, as recognised by the Constitutional Court.
278. The Claimant submits that, as a result of the Respondent’s conduct, it has been
deprived of the entire value of the arbitral award.200
The Claimant states, however, that
it has recovered CZK 1,959,444.50 from Kyjovan’s subdebtors and CZK 1,774,765.30
during the insolvency proceedings.201
It has therefore excluded these sums from its
damages claim.
(b) The Respondent’s Position
279. The Respondent argues that the Claimant’s claim for expropriation must fail for the
following reasons.
280. First, the Respondent argues that the effect of the alleged omissions by the courts was
not expropriatory.202
The Respondent argues that expropriation requires that an
investor be deprived of the value of its investment in whole or at least significant part,
192 Statement of Claim, Section IV.5.1; Statement of Reply and Counter-memorial on Jurisdiction, Section
4.2.5.
193 Statement of Claim, Section IV.5.1; Statement of Reply and Counter-memorial on Jurisdiction, Section
4.2.5.
194 Tr. 5 October 2016, 101:14-21.
195 Statement of Reply and Counter-memorial on Jurisdiction, ¶¶ 306-310.
196 Statement of Reply and Counter-memorial on Jurisdiction, Section 4.2.6.
197 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 298
198 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 301.
199 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 303.
200 Statement of Reply and Counter-memorial on Jurisdiction, ¶ 251.
201 Statement of Claim, ¶ 191.
202 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.2.
44
and that the Claimant has failed to establish that this is the case here. In particular, the
Respondent notes that the Claimant says that it has recovered approximately
77 percent of the principal amount of the award.203
281. Further, the Respondent argues that it was Kyjovan’s bankruptcy that was the reason
the Claimant was unable to satisfy its claim.204
The Respondent says that for its claim
to succeed, the Claimant would have to demonstrate that the alleged omissions of the
courts rendered the award a “nullity”. The Respondent submits that case law has
established that an award has to be set-aside for a taking to have occurred, and that
delays in enforcement of even as long as ten years are not sufficient to establish
expropriation. Since the award remained in legal force, the Respondent argues that no
expropriation has occurred.
282. Second, the Respondent argues that expropriation by courts requires the abusive
application of the law by the courts and that the Claimant has failed to establish this.205
The Respondent cites Saipem v. Bangladesh in which the tribunal found that for an act of
the judiciary to be considered expropriatory, the courts have had to have acted illegally.
The Respondent says that the mere misapplication of the law is not sufficient.
283. The Respondent submits that none of the instances of allegedly abusive conduct by the
courts meets this threshold.206
In response to the examples of abusive conduct alleged
by the Claimant, the Respondent argues that:
(a) The Court’s decision to postpone the enforcement proceedings against
Kyjovan’s movables was justified under the Code of Civil Procedure;
(b) The Court’s alleged “inactivity” with respect to the enforcement against
Kyjovan’s movables was due to the Claimant’s failure to pay the deposit, rather
than any failure of the Court;
(c) The Court’s suspension of the enforcement proceedings against Kyjovan’s
subdebtors between 30 March and 14 April 2000 was inconsequential given
that it was only suspended for two weeks. Since the Court quickly reversed its
initial decision, this cannot be considered to have been abusive;
(d) The Constitutional Court’s decision regarding the collective declaration of bias
by the judges of the District Court shows that the declaration did not constitute
abusive conduct. The Respondent submits that the Constitutional Court had
merely exercised the discretion afforded to it under the Code of Civil
Procedure in a direction different to that of the Regional Court of Brno, which
had confirmed the judges’ request to have the proceedings transferred to
another forum.207
At the most, the Respondent submits, the Constitutional
Court’s judgment showed merely that the judges had not been in line with
Czech law, which in the Respondent’s view is not sufficient to establish
expropriation.
203 Tr. 5 October 2016, 140:3-24.
204 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.2.2; Tr. 5 October 2016, 140:25-141:19.
205 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.3; Tr. 5 October 2016, 142:5-24.
206 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.3.2.
207 Tr. 5 October 2016, 139:14-24, 144:7-25.
45
284. Third, the Respondent submits that the Claimant must establish that it has exhausted
its local remedies, in addition to having been denied justice.208
The Respondent cites
ATA v. Jordan, AFT v. Slovakia, Pantechniki v. Albania and Toto Costruzioni v. Lebanon in
support of this. The Respondent argues that there was no denial of justice, and, in any
event, the Claimant has failed to show that it exhausted its local remedies.
285. Fourth, the Respondent submits that expropriation requires an “irreversible and permanent
deprival of the economic use of the investment”.209
The Respondent argues that the alleged
delay in the proceedings does not meet this requirement as this would only ever have
been temporary. Further, the Respondent argues that the fact of delay on a claim does
not impact the existence of the claim itself.
286. The Respondent argues that the cases cited by the Claimant in support of a more
lenient application of this requirement either concerned very significant measures taken
against the investors which had effects also after they had been revoked, or were lasting
at the time the award was rendered. The Respondent submits that the rationale in
those cases does not apply here.
287. Finally, the Respondent argues that the Claimant’s case is one of omission and that
omissions of a State are not sufficient to constitute expropriation.210
The Respondent
cites Olguin v. Paraguay which stated:
“For an expropriation to occur, there must be actions that can be considered
reasonably appropriate for producing the effect of depriving the affected part of the
property it owns, in such a way that whoever performs those actions will acquire,
directly or indirectly, control, or at least the fruits of the expropriated property.
Expropriation therefore requires a teleologically driven action for it to occur;
omissions, however egregious they may be, are not sufficient for it to take place.”211
288. The Respondent also cites Sea-Land Service Inc. v. Iran, in which it says that the Iran US
Claims Tribunal held that the inaction of a State even if it was aware of the
circumstances having a severe impact on the investor’s investment “can hardly justify a
finding of expropriation.”212
289. According to the Respondent, this position is supported by scholarly commentary,
notably by McLachlan, Shore & Weininger who write that:
“[…] the Olguin ‘teleologically driven’ test is to be preferred: the Olguin test is
more closely connected to the historical origins of expropriation claims; […] it
further recognizes that for most tribunals an assessment of indirect expropriation
208 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.4.
209 Statement of Rejoinder and Reply on Jurisdiction, Section 4.1.5.
210 Statement of Defence and Memorial on Jurisdiction, Section 4.1.3.
211 Olguin v. Paraguay ICISD Case No. ARB/98/5, Award, 26 July 2001 (unofficial English translation) (RL-
31), ¶ 84.
212 Statement of Rejoinder and Reply on Jurisdiction, ¶ 411.
46
in any of its forms has not somehow been disconnected from a requirement of State
conduct of some sort.” 213
(c) The Tribunal’s Decision
290. For the following reasons, the Tribunal finds that there has been no expropriation of
the Claimant’s investment through the inaction of the Czech Courts.
291. The Claimant’s expropriation case is premised on the deprivation of its contractual
right to damages through the Czech Courts’ alleged inactivity resulting in the nonenforcement
of the 1997 Award.
292. For an expropriation to occur, in the form of direct or creeping expropriation, there
must be a permanent and irreversible deprivation. The Tribunal refers in this respect
to consistent arbitral case law which establishes that an expropriation takes place where
an investor has been permanently deprived of the value of its investment in whole or in
significant part.214
This is reflected in the Plama v. Bulgaria decision, which has set out
the decisive elements in the evaluation of allegations of expropriation: “(i) substantially
complete deprivation of the economic use and enjoyment of the rights to the investment, or of identifiable,
distinct parts thereof (i.e., approaching total impairment); (ii) the irreversibility and permanence of the
contested measures (i.e., not ephemeral or temporary); and (iii) the extent of the loss of economic value
experienced by the investor.” 215
293. On this question, the Tribunal notes that the Claimant has, over the years 2001-2004,
managed to recover a substantial portion of the sums due to it under the 1997 Award,
either through civil court proceedings against Kyjovan’s subdebtors (CZK 542,944.0)
or through successful enforcement proceedings against Kyjovan’s bank accounts (CZK
1.5 million).216
The Respondent referred in this regard to the recovery of 77 percent of
the principal amount under the Award (see supra, paragraph 280). The Claimant did not
challenge this statement.
294. In the circumstances, it cannot be said that the Claimant was deprived of its claim to
money as recognised by the 1997 Award. To the contrary, the 1997 Award was the
very premise for the payments received by the Claimant in the civil suit and
enforcement proceedings:
213 Statement of Defence and Memorial on Jurisdiction, ¶ 233; McLachlan, Shore, Weininger , International
Investment Arbitration – Substantive Principles, OUP 2007, p. 291 (Exhibit RL-33).
214 For example: Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB
(AF)/00/2, Award, 29 May 2003, (Exhibit RL-39), ¶ 116; Wena Hotels Ltd v Egypt 41 ILM 896 (2002)
(Exhibit Rl-128), ¶ 99; Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16
September 2003, (Exhibit RL-40), ¶ 20.32.
215 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, ¶
193.
216 The Tribunal notes the Respondent’s request for adverse inferences to be drawn from the Claimant’s
failure to produce correspondence between CSOB bank and the Claimant showing that the bank made
payments as a result of the Court’s enforcement order, not voluntarily. The Tribunal notes that it would
have been helped by such correspondence in its inquiry of the basis on which payments had been made
under the 1997 Award. While it does not draw adverse inferences from the absence of such
correspondence on the record, the Tribunal does note that the contrary proof was not presented by the
Claimant, namely proof that CSOB’s payments were made voluntarily.
47
 The enforcement order granted by the Hodonin District Court in the
Enforcement proceedings E347/98 in respect of Kyjovan’s bank accounts
was expressly made “pursuant to the decision issued by the Arbitration Court at the
Chamber of Commerce of the Czech Republic and the Agrarian Chamber of the Czech
Republic in Prague, with reference Rsp 94/93, dated 16 December 1997”, i.e. the
1997 Award.217
 The enforcement order granted by the Hodonin District Court in the
Enforcement proceedings E525/99 (in respect of Kyjovan’s subdebtors)
was also expressly made “in accordance with the arbitral award of the Arbitration
Court attached to the Economic Chamber of the Czech Republic and Agricultural
Chamber of the Czech Republic in Prague, file no. Rsp 94/93 dated 16 December
1997.” It was the subdebtors’ failure to pay pursuant to this enforcement
order that formed the basis the Claimant’s civil suit against those
subdebtors, through which it recovered CZK 542,944.
295. Nor was the 1997 Award set aside by the Czech Courts. As noted by the Claimant,
Kyjovan’s application to set aside the Award was found, in a decision rendered on
19 March 2001 by the District Court for Prague 7, to be “entirely unreasonable”.218
296. This is not to say that the Claimant did not have difficulty enforcing the 1997 Award,
or that such enforcement did not involve a lengthy period. However, on the facts of
the case, the Tribunal is not convinced that the deficiencies in the enforcement process
could be said to be systematically attributable to the Czech Courts.
297. The history of enforcement court proceedings shows that the Claimant itself made
procedural decisions that did not assist in the timely advancement of its position in the
court proceedings. Thus, the Claimant:
 failed to pay court fees for a period of 19 months, between 1 December
1998 and 11 July 2000, instead requiring the Court to provide an explanation
as to reason underlying the fee before a payment was made (Enforcement
proceedings No. 2029/98);
 failed twice to provide accurate account numbers, with the result that the
Claimant had to apply to amend its account number on 29 September 1999
and 14 March 2000; this resulted in unnecessary delays in the enforcement
proceedings, and one subdebtor indicating not being able to proceed with a
payment (Enforcement proceedings No. 2576/98);
 failed, when prompted by the Hodonin District Court to seek a motion
imposing fines on the recalcitrant subdebtors, to file an application on the
basis of the accurate section of the Code of Civil Procedure (invoking
section 315 instead of section 351 of the Code) (Enforcement proceedings
No. 2576/98); this ultimately resulted in the application being rejected;
 failed to pay court fees, between 17 March 1999 and 4 July 2000, instead
requiring the Court to provide an explanation for the reason underlying the
217 Enforcement order, dated 14 August 2000 (Exhibit C-13; Exhibit R-41).
218 Decision District Court of Prague 7 of 19 March 2001 (Exhibit R-10).
48
fee (Enforcement proceedings No. 525/99). At the Hearing, counsel for the
Respondent clarified that the “Claimant was required, in accordance with Czech
law, to pay a court fee, exactly as it was in the first proceedings, where it paid this court
fee. The court fee amounted to CZK 37,500. Just to give you perspective, at today's
conversion rate that's about €1,400.”219
This was not disputed by the Claimant.
During the Hearing, Mr. Busta, a director of the Claimant, conceded that the
court fee “wasn’t a significant amount of money”, that “[n]othing was preventing
[him] from paying that amount”, and that he had the means to pay it.220
298. The delays resulting from the above conduct cannot be said to have been caused by the
inaction of the Czech Courts. As noted by the Hodonin District Court in its Corrected
Resolution of 20 December 1999, when amending the Claimant’s account number for
purposes of enforcement, “it is not the court’s fault that [the account] is incorrect, but the
entitled entity’s fault when originally it stated an incorrect account number”.221
299. Further, in Enforcement proceedings No. 2576/98 and No. 525/99, the reason why
certain of Kyjovan’s subdebtors did not comply with court enforcement orders appears
to be the obstruction caused by Kyjovan, the Claimant’s debtor who alleged a right to
set-off to avoid payment to the Claimant. When asked by the Chairperson about
Kyjovan at the Hearing, Mr. Busta referred to it as the “Manufacturing Union of Invalids”,
a profit-making company receiving “heavy subsidies” from the State, but there was no
suggestion by the Claimant that Kyjovan was a company owned or controlled by the
Respondent, or that Kyjovan would have collided with the Czech Courts or Czech
authorities to prevent the Claimant from receiving payment under the 1997 Award.222
The actions of Kyjovan – including its resistance to the enforcement of the 1997
Award through the initiation of setting aside and its defense of enforcement
proceedings – remain those of a private entity acting as such.
300. Finally, the Tribunal notes that, throughout the years, the Claimant enjoyed a number
of successes in enforcement proceedings before the Czech Courts. The Tribunal refers
in particular to:
 The 2 September 1998 letter from the Head of the Hodonin District Court,
apologising for the 6-month delay in the enforcement proceedings;223
 The enforcement order issued on 1 December 1998 by the Hodonin District
Court (Enforcement proceedings No. 2029/98); 224
 The enforcement order issued on 5 March 1999 by the Hodonin District
Court (Enforcement proceedings No. 2576/98); 225
219 Tr. 5 October 2016, 129 :7-12.
220 Tr. 5 October 2016, 170 :24-173 :10.
221 Exhibit R-17, Decision of the District Court Hodonín of 20 December 1999.
222 Tr. 5 October 2016, 89:9-12 and 90:15-19.
223 Letter from Head of District Court of Hodonin dated 2 September 1998 (Exhibit C-51).
224 Enforcement order, dated 1 December 1998 (Exhibit C-16).
225 Decision of the District Court Hodonín of 5 March 1999 (Exhibit R-14).
49
 The Brno Regional Court’s dismissal of Kyjovan’s appeal on 3 September
1999 (Enforcement proceedings No. 2576/98); 226
 The Hodonin District Court’s dismissal of Kyjovan’s application of 8
February 2000 to have enforcement proceedings discontinued on the basis
of its alleged claim for set-off in relation to the warehouse (Enforcement
proceedings No. 2576/98);227
 The Hodonin District Court’s amendments of the enforcement order on
20 December 1999 and 19 April 2000 (Enforcement proceeding
No. 2576/98); 228
 The Hodonin District Court contacting subdebtors in July 2000 to inquire as
to the reason for their non-compliance with its enforcement order
(Enforcement proceeding No. 2576/98); 229
 The enforcement order issued on 14 August 2000 by the Hodonin District
Court (Enforcement proceedings No. 347/98). 230
This order was sent to
CSOB bank on 5 September 2000,231
and the Claimant subsequently
recovered approximately CZK 1.5 million. In light of this, the Tribunal is
not persuaded that the fact that the stamp of entry into force was not
applied to the order until March 2013 adversely affected the Claimant’s
ability to recover monies pursuant to the order;
 The Hodonin District Court advising the Claimant on 25 August 2000 that it
could seek a motion imposing fines on the recalcitrant subdebtors
(Enforcement proceeding No. 2576/98); 232
 The enforcement order issued on 31 August 2000 (Enforcement proceeding
No. 525/99); 233
 The Czech Constitutional Court’s decision of 3 July 2001, finding that
Mr. Busta’s constitutional rights had been violated by the decision of
21 September 2000 rendered by the judges of the Hodonin District Court
signing a collective “declaration of bias” (Enforcement proceedings No.
347/98).234
226 Decision of the Regional Court Brno of 3 September 1999 (Exhibit R-16).
227 Exhibit R-20; Statement of Defence and Memorial on Jurisdiction, ¶ 158.
228 Decision of the District Court Hodonín of 20 December 1999 (Exhibit R-17); Amended Decision
District Court Hodonín of 19 April 2000 (Exhibit R-22).
229 Court Enquiry 12 July 2000 (Exhibit R-24).
230 Enforcement order, dated 14 August 2000 (Exhibit C-13; Exhibit R-41).
231 Enforcement order showing delivery notes (Exhibit C-61).
232 Internal order by the District Court of Hodonín including delivery receipt, dated 25 August 2000
(Exhibit R-27).
233 Enforcement order dated 31 August 2000 (Exhibit R-34).
234 Decision of the Constitutional Court dated 3 July 2001 (Exhibit C-38).
50
In this respect, the Tribunal noted, with serious concern, the unprecedented
step taken by the Hodonin judges in issuing a declaration of bias. At the
Hearing, the Respondent justified this action by Mr. Busta’s declarations in
the press and his accusations of corruption brought against the Hodonin
judges; the Respondent further expressed surprise at the Claimant’s
dissatisfaction with the fact that, as a result of this declaration, the case was
transferred to another court.235
However, and notwithstanding the unique
nature of such a step, the Claimant did not provide adequate explanations as
to why a transfer of the case file to another court was not an appropriate
remedy to address the Claimant’s perception of bias in the circumstances.
At the same time, the Czech Constitutional Court found the declaration of
bias to constitute a violation of the Claimant’s constitutional rights, thereby
ensuring that the Claimant’s rights would be protected within the Czech
judicial system.
Regardless of the foregoing, the Tribunal is not persuaded that the
declaration of bias prevented the Claimant from recovering sums that it
otherwise would have. Enforcements orders in the E347/98, E2567/98, and
E525/99 proceedings were granted before the declaration of bias was made.
The Claimant argues that its application to impose fines on Kyjovan’s
subdebtors for failure to comply with the enforcement order granted in the
E2567/98 proceedings was delayed by the judge assigned to the matter
declaring himself biased, and was not finally determined until December
2008 due to Kyjovan’s intervening bankruptcy. However, the Claimant’s
application was ultimately rejected on the basis that it had been brought
under the wrong provision of the civil code. It therefore appears, on the
evidence before the Tribunal, that the application would have failed for that
reason, even if the judge had not declared himself biased.
301. In light of this procedural history, which shows not only that the Czech Courts did not
sit inactive in this matter, but also advanced the Claimant’s case and provided remedies
for deficiencies in the proceedings, the Claimant cannot complain of “excessive obstacles”
in its enforcement attempts, or “arbitrary, discriminatory and unreasonable” conduct by the
Respondent’s courts, or a sweeping refusal to act.
302. Having so found on the facts of the case, the Tribunal does not deem it necessary to
make a determination on the specific legal standards that apply to creeping
expropriation or to the actions or inactions of State organs for purposes of the
international responsibility of States for an expropriation that might be said to be
“creeping”. It is plain on the evidence before the Tribunal that no creeping
expropriation occurred, by reference to any of the standards invoked by the Claimant.
303. The Tribunal thus finds that the Respondent did not expropriate, through its courts,
the Claimant’s right to contractual damages under the 1997 Award.
235 Tr. 5 October 2016, 138:18-25.
51
V. COSTS
304. Article 44 of the SCC Rules provides as follows in relation to the costs incurred by a
party:
“Unless otherwise agreed by the parties, the Arbitral Tribunal may in the final
award upon the request of a party, order one party to pay any reasonable costs
incurred by another party, including costs for legal representation, having regard to
the outcome of the case and other relevant circumstances.”
305. As regards the costs of the arbitration, Article 43(5) of the SCC Rules further provides:
“Unless otherwise agreed by the parties, the Arbitral Tribunal shall, at the
request of a party, apportion the Costs of the Arbitration between the parties,
having regard to the outcome of the case and other relevant circumstances.”
306. Pursuant to Article 43(4) of the SCC Rules, the Tribunal hereby includes the Costs of
the Arbitration as finally determined by the Board:
Dr. Yas Banifatemi:
 Fee: EUR 51 563
 Expenses EUR 650
 Per diem allowance EUR 1 000
Prof. August Reinisch:
 Fee EUR 30 938
Prof. Philippe Sands:
 Fee EUR 30 938
 Expenses £ 384,91
 Per diem allowance EUR 1 000
Stockholm Chamber of Commerce Administrative fee: EUR 16 313
307. On 6 January 2017, the Tribunal invited the Parties to file submissions on how costs
should be allocated in this matter, and the actual costs incurred.
308. On 20 January 2017, the Parties made their respective submissions.
(a) The Claimant’s Costs Submissions
309. The Claimant submits that the principle that the party against whom the award is made
should bear the costs of the other party should not apply to the Respondent given that
it is a sovereign State and “hence has sufficient staff as well as material background to defend itself
especially when it has specialized department for dealing with international arbitrations.” The
Claimant did not explain what standard of allocation of costs should apply more
generally in this case.
310. The Claimant claims the following costs and expenses:
52
(a) 10 percent plus VAT of the amount awarded to the Claimant as its legal fees;
(b) costs of external consultations regarding international law, amounting to
CZK 235,500 or EUR 8,715;
(c) Advance on costs paid by the Claimant in the amount of EUR 73,925 and
EUR 14,536;
(d) 50 percent of the cost incurred by the Claimant in travelling from Brno to
Vienna and back, in the amount of 2,827 CZK or EUR 104 (the other 50
percent being claimed in the 2015/014 proceeding);
(e) 50 percent of the cost incurred by the Claimant for accommodation, in the
amount of EUR 420 (the other 50 percent being claimed in the 2015/014
proceeding);
(f) 50 percent of the cost incurred by the Claimant for the court report, being
EUR 4,581.36 (the other 50 percent being claimed in the 2015/014
proceeding); and
(g) 50 percent of the cost incurred by the Claimant for interpreters, being 6,750
CZK or EUR 2,498 (the other 50 percent being claimed in the 2015/014
proceeding).
311. The Claimant provided invoices for the claimed expenses on 27 January 2017.
312. On 24 January 2017, the Respondent requested leave to respond to the Claimant’s
submission on costs. The Tribunal granted this leave on 25 January 2017, and granted
the Claimant a right of reply to the response made by the Respondent.
313. On 27 January 2017, the Respondent submitted that the Claimant’s counsel had
rendered legal services on the basis of a contingency fee arrangement that is prohibited
by Article 3.3 of the Code of Conduct of Lawyers of the EU, which is incorporated
into the Czech Code of Professional Conduct by Article 2(2). The Respondent thus
submitted that the Claimant cannot recover any contingency fee paid to its counsel for
legal services as costs in the arbitration.
314. The Claimant replied on 1 February 2017, and made the following points.
(a) The Claimant referred to the 10 percent fee arrangement in its Statement of
Claim. This, however, is the first time the Respondent has argued it is not
recoverable. The Respondent should be taken to have waived its right to file
this objection by Article 31 of the SCC Rules, which provides that: “A party,
who during the arbitration fails to object without delay to any failure to comply with the
arbitration agreement, these Rules or other rules applicable to the proceedings, shall be deemed
to have waived the right to object to such failure.”
(b) The fee arrangement is permitted under Article 10(5) of the Czech Code of
Professional Conduct, which it says provides: “The lawyer shall be entitled to
negotiate a contractual fee determined by a share of the value of the case or result of the case if
the level of such a negotiated fee is adequate under the provision of paragraphs 2 and 3.
However, a contractual fee determined by a share of the result of the case may not be usually
considered appropriate if this share is higher than 25%.”.
53
(c) The Code of Conduct of Lawyers of the EU only applies where a lawyer of one
member State is providing professional services in a member State other than
his or her own, and therefore does not apply in this case.
(d) The fee arrangement was the only way that the Claimant could have afforded to
proceed with the arbitration.
(b) The Respondent’s Cost Submissions
315. The Respondent claims reimbursement of its full costs and expenses in the sum of
EUR 93,231.63 or CZK 4,557,430.73. Like the Claimant, the Respondent has not set
out the standard applying to allocation of costs.
(a) The Respondent’s costs and expenses comprise the following:
(b) The advance on costs paid to the SCC in the sum of EUR 90,336;
(c) Costs and disbursements incurred for legal representation in the amount of
CZK 4,329,800.60 (fees excluding VAT);
(d) Costs of co-counsel who provided advice on matters of Czech national law, in
the amount of CZK 120,852.85;
(e) Internal costs incurred in translating Czech documents into English, in the
amount of CZK 99, 861.85;
(f) Additional costs incurred through an external translation agency, in the sum of
CZK 6,915.61;
(g) One quarter of the total costs incurred by the Respondent for the court
reporter in both this case and the 2015/014 case, being EUR 2,290.68; and
(h) 50 percent of the travel and accommodation expenses for the oral Hearing
incurred in relation to both this case and the 2015/014 case, being
EUR 604.95.
316. The Respondent’s statement of costs was accompanied by the relevant invoices.
(c) The Tribunal’s Decision
317. The Tribunal notes that both Parties have sought the full reimbursement of their costs
and expenses, without setting out the applicable standard in light of the circumstances
of the case.
318. The Tribunal has considered all of the circumstances to determine the most
appropriate allocation of costs in this arbitration. The Tribunal has in particular been
mindful of the following factors: the complexity of the legal and factual issues which
the Tribunal was called to determine; the reasonableness of the positions taken by both
Parties in relation to the legal issues at stake; the fact that the Parties have had to
investigate and present underlying facts that go back 20 years; and the highly
professional, graceful and helpful manner in which counsel on both sides acted
throughout the arbitration proceedings.
319. The Tribunal also notes that each Party has partly prevailed and partly failed on its
contentions: the Claimant has prevailed on two out of three of the Respondent’s
54
jurisdictional objections, whereas the Respondent has prevailed partly on jurisdiction
and fully on the merits.
320. In the circumstances, the Tribunal finds that the rule according to which the losing
party should bear the entire costs of an arbitration, which is not the only accepted rule
on allocation of costs, should not apply in this matter.
321. Accordingly, given the balance in the Parties’ conduct, positions and outcome, the
Tribunal decides that each Party should bear its own costs, including the costs of legal
representation, and half of the costs of the Arbitral Tribunal and of the Arbitration
Institute of the Stockholm Chamber of Commerce.
322. To the extent it has decided that each Party should bear its own costs, the Tribunal
does not need to determine the question whether the Claimant may recover any
contingency fee paid to its counsel under the Code of Conduct of Lawyers of the EU.
* * *
*
55
VI. TRIBUNAL’S DECISION
323. For the reasons set out above, the Arbitral Tribunal:
(1.) Rejects the Respondent’s objections to jurisdiction based on the termination
of the BIT upon the Respondent’s accession to the EU in May 2004 and on
the existence of an investment made by the Claimant, and decides that it has
jurisdiction to determine the present dispute;
(2.) Decides that its jurisdiction extends solely to alleged breaches of Article 5 of
the BIT;
(3.) Dismisses the Claimant’s claims on the merits;
(4.) Decides that each Party shall bear its own costs;
(5.) Decides that the Parties are jointly and severally liable to pay the costs of the
Arbitration, namely the costs of the Arbitral Tribunal and the Arbitration
Institute of the Stockholm Chamber of Commerce, which have been set as
follows:
 The Fee of Dr. Banifatemi amounts to EUR 51,563 and
compensation for expenses of EUR 650 as well as per diem
allowance of EUR 1,000, in total EUR 53,213.
 The Fee of Prof. Reinisch amounts to EUR 30,938.
 The Fee of Prof. Sands amounts to EUR 30,938 and compensation
for expenses of £ 384.91, as well as a per diem allowance of EUR
1,000, in total EUR 31,938 and £ 384.91.
 The Administrative Fee of the SCC amounts to EUR 16,313.
These amounts are to be borne by the Parties in equal shares.
324. Pursuant to Section 41 of the Swedish Arbitration Act, a party may bring an action
against the award regarding the decision on the fees of the arbitrators within three
months from the date when the party received the award. This action should be
brought before the Stockholm District Court.
Done in: Stockholm
Date: 10 March 2017
56
Prof. August Reinisch (arbitrator) Prof. Philippe Sands QC (arbitrator)
____________________________ ______________________________
Dr. Yas Banifatemi (Chairperson)
___________________________