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Lawyers, other representatives, expert(s), tribunal’s secretary

Decision on Jurisdiction, Liability and Certain Aspects of Quantum

70.
The Parties filed simultaneous Submissions on Costs on 3 November 2017 and simultaneous Reply Submissions on Costs on 17 November 2017.

Frequently Used Abbreviations and Acronyms

I. INTRODUCTION

1.

This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre"), on the basis of the Agreement Between the Lebanese Republic and the Federal Republic of Germany on the Promotion and Reciprocal Protection of Investments dated 18 March 1997 (the "Treaty"), which entered into force on 25 March 1999, and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the "ICSID Convention"). The dispute relates to the investments that the Claimants contend they made in the Lebanese aviation sector.

2.
The Parties' specific requests for relief are set forth in Section V below, and a fuller summary of their positions is contained in Sections VI, VII, VIII, IX, and X below. In its analysis, the Tribunal has considered not only the positions of the Parties as summarised in this Decision, but also the numerous detailed arguments made in the Parties' written and oral pleadings as well. To the extent that these arguments are not referred to expressly, they have been considered and subsumed into the Tribunal's analysis.
3.
The Decision is divided into the following sections. Section II sets out the particulars of the Parties. Section III sets out the procedural history of the case. Section IV sets out the factual background to the dispute between the Parties. A summary of the Parties' claims and reliefs sought is set out in Section V. Section VI addresses the applicable law governing the merits of the dispute. Section VII addresses the jurisdictional objections raised by the Respondent and Section VIII addresses the merits of the Claimant's claims for Treaty violations. Section IX addresses the Claimants' claim for damages. Section X addresses the Claimants' claim for interest. The Tribunal's conclusions are set out in Section XI. The dispositif is contained in Section XII.

II. PARTIES

(1) The Claimants

a. The First Claimant

4.
The first claimant is Mr. Abed El Jaouni ("First Claimant" or "Mr. El Jaouni"), a natural person having the nationality of the Federal Republic of Germany.

b. The Second Claimant

5.
The second claimant is Imperial Holding S.a.l. ("Second Claimant" or "Imperial Holding"), a joint stock holding company founded and controlled by Mr. El Jaouni, incorporated under the laws of the Lebanese Republic. According to the Memorandum and Articles of Incorporation of Imperial Holding, its head office is located at:1

Adnan Hakim Str.
Dogmoch Building
Beirut
Lebanon

6.
The First and Second Claimants are hereinafter collectively referred to as the "Claimants".
7.
Imperial Holding was incorporated on 14 July 2005, and registered on 19 July 2005.2
8.
Imperial Holding was previously called Cirene Aviation S.a.l. (Holding). According to the Minutes of Meeting of the Extraordinary General Assembly of Cirene Aviation S.a.l. (Holding) on 3 March 2007, a resolution was passed to amend the corporate name from Cirene Aviation S.a.l. (Holding) to Imperial Holding S.a.l.3 An excerpt from the Beirut Commercial Registry further records that on 15 March 2007, Cirene Aviation S.a.l. (Holding) changed its name to Imperial Holding S.a.l.4 For convenience, the Tribunal shall refer to both Cirene Aviation S.a.l. (Holding) and Imperial Holding S.a.l. as "Imperial Holding" throughout this Decision.
9.
As at 14 June 2006, the Minutes of a Meeting of the Ordinary General Assembly of Imperial Holding show the division of shareholdings in Imperial Holding as follows:5

(i) Mr. El Jaouni – 14,400 shares (48%);

(ii) Mr. Kamal Bahamdan – 15,000 shares (50%);

(iii) Mrs. Jamal El Jaouni – 300 shares (1%);

(iv) Mr. Khalil Rachidi – 300 shares (1%).6

10.
Accompanying the Minutes of the 14 June 2006 Meeting is a "Letter of Release and Transfer of Shares" by Mr. El Jaouni in favour of Mr. Bahamdam, in relation to the 15,000 shares acquired by Mr. Bahamdam.7 Mr. Bahamdan is a Saudi national, and is the CEO and Vice-Chairman of the Board of Directors of the Bahamdan group, a worldwide institutional investor.8
11.
As at 30 December 2008, the Minutes of Meeting of the Annual Ordinary General Assembly of Imperial Holding show a different division of shareholdings in Imperial Holding as follows:9

(i) Mr. El Jaouni – 14,700 shares (49%);

(ii) Mr. Kamal Bahamdan – 15,000 shares (50%);

(iii) Mr. Mohamed Alem – 300 shares (1%).

12.

Mr. Alem replaced both Mr. El Jaouni's sister and nephew as shareholder of Imperial Holding in December 2008.10 Mr. Alem, of Alem & Associates, is also the Claimants' co-counsel in these proceedings. According to the Claimants, Mr. Alem's shares are held in escrow on a fiduciary basis on behalf of Mr. El Jaouni.11 This is disputed by the Respondent. The Claimants further contend that on 29 December 2009, Mr. Bahamdan transferred to Mr. El Jaouni, 10% of the economic interest in the shares held by him in Imperial Holding.12 This is also disputed by the Respondent.13 Both these issues (i.e., the question of whether Mr. Alem's shares are being held in escrow on behalf of Mr. El Jaouni and whether a 10% transfer of economic interest of Mr. Bahamdan's shares to Mr. El Jaouni has taken place), are relevant for the purposes of examining the Tribunal's ratione materiae jurisdiction over Mr. El Jaouni and will be discussed in greater detail in ¶¶ 448 - 464 below.

(2) The Respondent

13.
The respondent is the Lebanese Republic and is hereinafter referred to as "Lebanon" or the "Respondent".
14.
The Claimants and the Respondent are hereinafter collectively referred to as the "Parties". The Parties' respective representatives and their addresses are listed above on page 1.

III. PROCEDURAL HISTORY

IV. FACTUAL BACKGROUND

A. Aviation Law and Practice

(1) Chicago Convention

(2) Freedoms of the Air

(3) Lebanese Laws and Regulations

(4) Registration of Aircraft

(5) Licence to Operate

(6) Post Holders

(7) Wet Lease and Dry Lease

(8) Scheduled and Non-Scheduled Flights

a. Scheduled Flights

b. Non-Scheduled Flights

(9) The "Open Skies" Policy

(10) MEA Operations in Lebanon

B. The Claimants' relationship with the "Imperial Group" and ImperialJet

(1) ImperialJet's Certificates and Licences in Lebanon

(2) ImperialJet's Aircraft

a. The Learjet 60

b. The Boeing 737-200

c. Other Aircraft

(3) ImperialJet's Relationship with JetAir Flug

C. Factual Background to the Claimants' claims

(1) Allocation of Space at the General Aviation Terminal

(2) GHS and GHC

(3) Grounding of ImperialJet's Boeing 737-200 in 2007

(4) Flights to Iraq

(5) Suspension of the Second AOC on 15 April 2008

(6) The 15-Year Policy

(7) Enrolment of Aircraft on ImperialJet's AOC

a. Challenger 600

b. Gulfstream III

c. Hawker 800

(8) Decisions Regarding the Boeing 737-200 of 21 July and 14 August 2009

(9) Lead-up to Suspension of the First AOC

(10) Post holders

(11) Austro Control and the Learjet 60

(12) Suspension of the First AOC on 11 May 2010

(13) Revocation of the AOCs and GHC on 23 June 2010

(14) Denial of Landing Permits

(15) Proceedings before the Shura Council

(16) Challenge to the Ban on Flying the Boeing 737-200 to Europe

(17) Challenge to the Mandatory Replacement of the Boeing 737-200

(18) Challenge to the Revocation of the AOCs and GHC

D. Events immediately preceding this arbitration proceeding

V. SUMMARY OF THE PARTIES' CLAIMS AND RELIEFS SOUGHT

306.
In their Memorial as well as in their Reply, the Claimants request the Tribunal to issue an Award:306

(a) DECLARING that Lebanon has violated the Treaty and general international law with respect to the Claimants' investment;

(b) ORDERING Lebanon to pay the Claimants compensation and/or damages within the ranges set forth in the FTI Report, so as to wipe out the consequences of Lebanon's wrongful actions and omissions;

(c) ORDERING Lebanon to pay the Claimants moral damages in an amount of USD 85 million;

(d) ORDERING Lebanon to pay interest on any amount awarded, based upon the rate of interest paid by Lebanon on sovereign bonds issued in USD, compounded annually, accruing from the date of the Award until payment in full;

(e) ORDERING Lebanon to pay all costs in connection with these proceedings, including the costs of the Tribunal and of ICSID, as well as legal and other expenses incurred by the Claimants including the fees of their legal counsel, experts and consultants and those of the Claimants' own employees; and

(f) ORDERING such other or additional relief as may be appropriate under the applicable law or may otherwise be just and proper.

307.
In the C-PHM, the Claimants request the Tribunal to issue an Award:307

(a) DECLARING that Lebanon has violated the Treaty and general international law with respect to the Claimants' investment;

(b) ORDERING Lebanon to pay the Claimants compensation and/or damages, as calculated by FTI, noting the Tribunal's Question No. 27 and the Claimants' reply thereto, so as to wipe out the consequences of Lebanon's wrongful actions and omissions;

(c) ORDERING Lebanon to pay the Claimants moral damages in an amount of USD 85 million;

(d) ORDERING Lebanon to pay interest on any amount awarded, based upon the rate of interest paid by Lebanon on sovereign bonds issued in USD, compounded annually, accruing from the date of the Award until payment in full;

(e) ORDERING Lebanon to pay all costs in connection with these proceedings, including the costs of the Tribunal and of ICSID, as well as legal and other expenses incurred by the Claimants including the fees of their legal counsel, experts and consultants and those of the Claimants' own employees; and

(f) ORDERING such other or additional relief as may be appropriate under the applicable law or may otherwise be just and proper.

308.
In its Counter-Memorial, the Respondent formulates the following relief sought:308 On the basis of the foregoing, and reserving all of its rights, Respondent respectfully requests that the Tribunal:

a. DECLARE that it does not have jurisdiction over either of Claimants and their claims;

b. In the alternative, DISMISS both of Claimants' claims in their entirety as lacking in merits;

c. In the further alternative, if, par impossible, the Tribunal finds that the Germany-Lebanon BIT has been breached by Lebanon on the basis any of either of Claimants' claims, DISMISS either of Claimants' claims for compensation as having failed to establish that Respondent has caused any loss and damage to either Claimant and/or as having failed to establish any loss and damage suffered by either Claimant; and

d. ORDER both Claimants to bear all the costs of these proceedings, including but not limited to their own costs, all costs and fees of the Tribunal and ICSID, and to pay to Respondent the costs it has incurred for its defence in this arbitration, including but not limited to, the fees and disbursements of its attorneys and experts and the disbursements of its witness and officials and employees incurred in connection with its defence in this arbitration on a full indemnity basis, plus interest thereon at a reasonable rate;

e. ORDER such other relief as the Tribunal deems appropriate.

309.
In its Rejoinder, the Respondent requests that the Tribunal:309

a. DECLARE that it does not have jurisdiction ratione personae over Imperial Holding and/or its claims;

b. DECLARE that it only has jurisdiction ratione materiae over Mr El Jaouni's 49% shareholding in Imperial Holding and 0.03% shareholding in ImperialJet and in the alternative with respect to Imperial Holding, DECLARE that its jurisdiction ratione materiae and ratione loci over Imperial Holding excludes the "Aviation Business" comprising "benefits received from offshore subsidiaries of Imperial Holding";

c. Further with respect to Mr El Jaouni and in the alternative with respect to Imperial Holding, DISMISS their respective claims as being unfounded in fact and/or law;

d. In any event, DISMISS either of Claimants' claims for compensation as having failed to establish that Respondent has caused any loss and damage to either Claimant and/or as having failed to establish any loss and damage suffered by either Claimant; and

e. ORDER both Claimants to bear all the costs of these proceedings, including but not limited to their own costs, all costs and fees of the Tribunal and ICSID, and to pay to Respondent the costs it has incurred for its defence in this arbitration, including but not limited to, the fees and disbursements of its attorneys and experts and the disbursements of its witness and officials and employees incurred in connection with its defence in this arbitration on a full indemnity basis, plus interest thereon at a reasonable rate;

f. ORDER such other relief as the Tribunal deems appropriate.

310.
In the R-PHM, the Respondent requests the Tribunal to:310

a. DECLARE that it does not have jurisdiction ratione personae over Imperial Holding and/or its claims;

b. DECLARE that it only has jurisdiction ratione materiae over Mr El Jaouni's 49% shareholding in Imperial Holding, his 0.03% shareholding in ImperialJet and his 49% shareholding in Aviation Plus Holding S.A.L., and in the alternative with respect to Imperial Holding, DECLARE that its jurisdiction ratione materiae and ratione loci over Imperial Holding excludes the "Aviation Business" comprising "benefits received from offshore subsidiaries of Imperial Holding";

c. Further with respect to Mr El Jaouni and/or in the alternative with respect to Imperial Holding, DISMISS their respective claims as being unfounded in fact and/or in law;

d. In any event, DISMISS both of Claimants' claims (depending upon the Tribunal's findings on jurisdiction and/or merits, as the case may be) for compensation as having failed to establish that Respondent has caused any loss and damage to either Claimant and/or as having failed to establish any loss and damage suffered by either Claimant; and

e. ORDER both Claimants to bear all the costs of these proceedings, including but not limited to their own costs, all costs and fees of the Tribunal and ICSID, and to pay to Respondent the costs it has incurred for its defense in this Arbitration, including but not limited to, the fees and disbursements of its attorneys and experts and the disbursements of its witnesses and officials and employees incurred in connection with its defense in this arbitration on a full indemnity basis, plus interest thereon at a reasonable rate;

f. ORDER such other relief as the Tribunal deems appropriate.

VI. APPLICABLE LAW

A. Relevant Provisions

311.

Article 9(4) of the Treaty is the dispute resolution clause and provides as follows in relation to the applicable law governing the Treaty:311

The arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement and the applicable rules and principles of International law.

312.
Article 42(1) of the ICSID Convention states as follows in relation to the applicable law:

The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

B. The Parties' Positions

313.
The Claimants submit that the main source of law governing their claims for breaches of the Treaty, is the Treaty itself. The Claimants argue that general principles of international law are applicable in providing assistance in the interpretation and application of the Treaty, and in relation to the secondary rules of international law that apply in the event of a treaty breach.312
314.
According to the Claimants, the national legal framework of Lebanon (consisting of legislation, regulations, administrative acts and judicial decisions of governmental authorities of Lebanon and its subdivisions) is also relevant, to the extent that it forms the framework within which the Claimants' investment was undertaken and operated.313
315.
The Claimants rely on Articles 31 and 32 of the Vienna Convention on the Law of Treaties ("VCLT" or "Vienna Convention") for interpretation of the Treaty provisions.
316.
The Claimants argue that the Respondent has breached its obligations towards the Claimants' investment in the Respondent State, both under the Treaty and under general international law.
317.
The Respondent does not dispute the Claimants' afore-stated assertions on applicable law, but it denies that it has breached its obligations towards the Claimants' investment, either under the Treaty or under general international law.

C. The Tribunal's Considerations

318.
Having reviewed the Parties' positions above, and the relevant provisions of the Treaty and the ICSID Convention, the Tribunal considers the law applicable to the merits of the dispute to be the Treaty and general international law. In relation to Lebanese law, the Tribunal shall consider national legislation, regulations and administrative acts in Lebanon, as factually appropriate in the context of the dispute under the Treaty.
319.
For interpretation of the Treaty provisions, the Tribunal shall rely on Articles 31 and 32 of the Vienna Convention which codify customary international law.
320.
Article 31 of the Vienna Convention states as follows:

Article 31

General rule of interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relations between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

321.
Article 32 of the Vienna Convention states as follows:

Article 32

Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure; or

(b) leads to a result which is manifestly absurd or unreasonable.

322.
The Tribunal shall address the Parties' opposing positions regarding the Respondent's alleged breach of its obligations towards the Claimants' investment under the Treaty and under general international law, in Section VIII below, as appropriate.

VII. JURISDICTION

A. Relevant Provisions

323.

Article 1(1) of the Treaty defines "investor" as follows:314

1- The term "investor" refers with regard to either Contracting Party to:

a) natural persons who,

(i) in respect of the Federal Republic of Germany are Germans within the meaning of its Basic Law, and

(ii) in respect of the Lebanese Republic are considered nationals within the meaning of its applicable laws;

b) legal entities, including companies, corporations, business associations and other organizations, with or without legal personality, which are constituted or otherwise duly organized under the law of that Contracting Party and have their seat in the territory of that same Contracting Party. The provisions of this sub-paragraph apply to holding or offshore Companies registered in any of the Contracting Parties.

324.

Article 1(2) of the Treaty provides with respect to "investments":315

2- The term "investments" shall include every kind of assets and particularly, but not exclusively:

a) movable and immovable property as well as any other rights in rem, such as mortgages, liens, and pledges;

b) shares in companies and other kinds of interest in companies;

c) claims to money which have been used to create an economic value or claims to any performance having an economic value;

d) intellectual property rights, such as copyrights, patents, utility-model patents, industrial designs or models, trade or service marks, trade names, trade and business secrets, technical processes, know-how and goodwill, as well as other similar rights recognized by the laws of the Contracting Parties;

e) business concessions under public law, including concessions to search, for extract or exploit natural resources as well as all other rights given by law, by contract or by decision of the authority in accordance with the law.

Any alteration of the form in which assets are invested or reinvested shall not affect their character as investment.

325.

Article 9 is the dispute resolution clause and provides as follows:316

1. For the purpose of solving disputes with respect to investments between a Contracting Party and an investor of the other Contracting Party, the parties to the dispute will try to solve the case, as far as possible, amicably.

2. If these efforts do not result in a solution within six months from the date of written request for settlement, the investor may submit the dispute, at his choice for settlement to:

a) the International Center for Settlement of Investment Disputes (ICSID) provided for by the Convention on the Settlement of Investment disputes between States and Nationals of the other States, opened for signature at Washington, on March 18, 1965, in the event of both Contracting Parties having become Contracting States of this aforementioned Convention; or

b) an ad hoc' arbitral tribunal which, unless otherwise agreed upon by the parties to the dispute, shall be established under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL)

3. Unless the parties in dispute have agreed otherwise, the provisions of Article 10, paragraphs 2 to 9 shall be applied mutatis mutandis on the condition that the appointment of members of the arbitral tribunal in accordance with Article 10, paragraph 2 is effected by the parties in dispute and that, insofar as the periods specified in Article 10, paragraphs 3 and 4 are not observed, either party in dispute may, in the absence of other arrangements, invite the President of the Court of International Arbitration of the International Chamber of Commerce in Paris to make the required appointments.

4. The arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement and the applicable rules and principles of International law. The awards of arbitration shall be final and binding on both parties to the dispute. Each Contracting Party shall carry out without delay any such award and such award shall be enforced in accordance with domestic law.

5. The Contracting Party which is a party to the dispute shall, at no time whatsoever during the procedures involving investment disputes, assert as a defense its immunity or the fact that the investor has received compensation under an insurance contract covering the whole or part of the incurred damage or loss.

326.
The Claimants have invoked arbitration under the ICSID Convention in accordance with Article 9(2)(a) of the Treaty. Article 25 of the ICSID Convention provides with respect to the jurisdiction of the Centre, in relevant part:

(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

(2) "National of another Contracting State" means:

(a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and

(b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

B. The Parties' Positions

(1) The Respondent's Position

a. The Tribunal's jurisdiction Ratione Personae over Imperial Holding

327.
The Respondent submits that the Claimants bear the burden of proof to establish that the Tribunal has jurisdiction ratione personae over Imperial Holding, but that they have failed to do so.317
328.
Referring to the jurisdictional decision in Tokios Tokelés v. Ukraine,318 the Respondent argues that Imperial Holding is not a "foreign investor" in Lebanon. Therefore, it cannot be considered as a German investor under Article 1(1)(b) of the Treaty. Nor, according to the Respondent, does the Treaty contain a clear and unequivocal agreement of the Contracting Parties to treat a locally incorporated company controlled by investors of the other Contracting Party as an investor of the other Contracting Party for purposes of the dispute resolution provision under Article 9 of the Treaty.319

(i) The Dispute must be between a Contracting Party and the Investor and National of another Contracting Party

329.
According to the Respondent, it is the very purpose of the international investment regime to encourage foreign investments in a host State. This understanding is reflected in the Preamble of the Treaty. The Respondent argues that consequently, a fundamental jurisdictional prerequisite of international investment arbitration is that the dispute opposes a host State and an investor of another State, which is also reflected in Article 9 of the Treaty.320
330.
Relying upon the expert opinion of Professor Schill, the Respondent submits that the Second Claimant must satisfy two jurisdictional criteria: (i) the requirement in Article 25 of the ICSID Convention to be "a national of another Contracting State", i.e., a German national; and (ii) qualify as an "investor of the other Contracting Party", i.e., an investor of Germany. In the Respondent's view, neither of those two requirements is satisfied by the Second Claimant. Therefore, the Tribunal has no jurisdiction to hear the Second Claimant's claim.321

(ii) Imperial Holding does not qualify as an investor of Germany under the Treaty

331.
The Respondent submits that it is clear from the text of Article 1(1)(b) of the Treaty (see ¶ 323 above) that Imperial Holding does not qualify as an investor from Germany, but rather as an investor from Lebanon.322

a. Second Claimant as an Investor from Lebanon

332.
The Respondent refers to the first sentence of Article 1(1)(b) of the Treaty, providing that companies "constituted or otherwise duly organised under the law of" a Contracting Party, and which have their "seat in the territory of that same Contracting Party", qualify as investors of that Contracting Party.323
333.
The Respondent argues that since the Second Claimant is a company constituted and duly organised under the laws of Lebanon, with its seat in Lebanon, it only qualifies as a Lebanese investor. In the Respondent's view, the Second Claimant cannot qualify as a German investor because it is not constituted or duly organised under German law, and does not have its seat in Germany.324
334.
According to the Respondent, the ordinary meaning of the second sentence of Article 1(1)(b) of the Treaty, which states that "[t]he provisions of this sub-paragraph apply to holding or offshore Companies registered in any of the Contracting Parties", only confirms the Second Claimant's status as an investor of Lebanon.325 In its view, this sentence clarifies that the requirements contained in the first sentence of Article 1(1)(b), i.e., for incorporation or due constitution and seat, apply equally to holding and offshore companies registered in a Contracting Party.326 The Respondent submits that this view stands confirmed by Professor Schreuer's testimony during the Hearing. According to the Respondent, during the Hearing, Professor Schreuer confirmed the Respondent's reading that the requirements in the first sentence of Article 1(1)(b) apply equally to holding and offshore companies registered in a Contracting Party, to the extent that the second sentence does not vary those requirements.327 The Respondent argues that it has not been demonstrated that the second sentence of Article 1(1)(b) "varies" the requirements of the first sentence textually.328
335.
The Respondent relies on the Dolzer Legal Opinion to argue that if the ordinary meaning of the text of a treaty is clear, that meaning will prevail and there is no reason to make further inquiry. The Respondent also disagrees with the Claimants' effet utile argument and submits that the effet utile principle only applies when two or more potential interpretations compete.329
336.
The Respondent submits that its reading of the second sentence of Article 1(1)(b) of the Treaty does not render the sentence redundant, as argued by the Claimant. Rather, by relying on Professor Schill's testimony during the Hearing, the Respondent submits that the second sentence is an expression of abundant caution, in that it clarifies, for avoidance of doubt, that holding and offshore companies may also qualify as an "investor" of a Contracting Party in which they are registered, incorporated and seated.330
337.
The Respondent further submits that it has also not been demonstrated that it would be impossible or inconsistent to require that holding and offshore companies meet the incorporation or due constitution and seat requirements stipulated in the first sentence of Article 1(1)(b) of the Treaty. The Respondent contends in this respect that in fact "this is precisely what Lebanon has done in all BITs which refer specifically to holding and offshore companies".331
338.
Moreover, the Respondent argues, offshore and holding companies as separate company forms do not exist under German law.332 According to the Respondent, the reference to holding and offshore companies in the second sentence of Article 1(1)(b) of the Treaty was added to the treaty at Lebanon's request, merely to clarify that Lebanese-registered holding and offshore companies may enjoy the protection of the Treaty in respect of their investments in Germany.333
339.
The Respondent disagrees with the Claimants' argument that holding and offshore companies are a "further category of juridical persons" that will be treated as an investor under the Treaty, as if they were investors of one party with an investment in the territory of the other party. For the Respondent, holding companies do not constitute a different or separate category of juridical persons under Lebanese law. Rather, they are a type of joint-stock company, subject to the same requirements as all Lebanese334 companies.
340.
In support of its interpretation of the second sentence of Article 1(1)(b) of the Treaty, the Respondent relies upon: (i) the wording of Lebanon's Model BITs;335 (ii) the requirements in many of Lebanon's other BITs;336 and (iii) the evidence of Ms. Khouzami, a former UNDP Senior Legal Advisor at the Lebanese Ministry of Finance, that a Lebanese holding company cannot qualify as a German investor.337
341.
Furthermore, the Respondent disagrees with the distinction drawn by the Claimants between the registration requirement for holding and offshore companies mentioned in the second sentence of Article 1(1)(b) of the Treaty, and the incorporation requirement for other entities referred to in the first sentence of that Article. The Respondent argues that the reference to "registration" in the second sentence of Article 1(1)(b) does not turn it into a term of international law, as submitted by Professor Dolzer during the Hearing, since that sentence requires the application of all of the provisions of Article 1(1)(b) – i.e., the first sentence – to such holding and offshore companies.338 The Respondent submits, in this regard, that offshore and holding companies will only be registered in the Lebanese commercial register if they have been incorporated under Lebanese law, are duly organised under Lebanese law and have their seat in Lebanon. The Respondent submits that this is true for Imperial Holding, which is a holding company, incorporated and duly organised under Lebanese law, has its seat in Lebanon, and is also registered in Lebanon.339
342.
The Respondent submits that Article 1(1)(b), and particularly the second sentence of that article, is the result of the progressive evolution of treaty practice and text of Lebanese BITs, and is not reflective of the Parties' intention to create a separate regime for holding and offshore companies.340 The Respondent further relies upon the evidence of Ms. Khouzami, who states that no legal distinction was intended by the different terminology used in the Lebanese Model BITs when referring to registration of offshore and holding companies, as opposed to incorporation or seat.341
343.
The Respondent likewise dismisses the Claimants' suggestion that there is significance attached to the different wording found in Article 1(1) of the Treaty, that "[t]he term 'investor' refers with regard to either Contracting Party to […]", as opposed to "holding or offshore Companies registered in any of the Contracting Parties" in the second sentence of Article 1(1)(b) (emphasis added). For the Respondent, the use of the term "any" or "either" is of no legal or practical consequence for the definition of the protected investor.342 In particular, the Respondent contends that the Arabic and the German versions of the Treaty use the same terms to designate both.343 The Respondent cites the evidence of Ms. Khouzami and Professor Schill in support of its interpretation.344

b. No Agreement to Treat Foreign-Controlled Local Companies as Foreign Investors

344.
The Respondent submits that Germany and Lebanon did not agree in Article 1(1)(b) of the Treaty to treat foreign-controlled local companies as foreign investors, nor can such an agreement be read into the text of the Treaty. The Respondent argues that whilst there is no specific form requirement for an agreement between Contracting Parties on "foreign control", such agreement has to be clear and explicit. The Respondent submits that for this purpose, the underlying treaty must contain either an express reference to foreign control or to Article 25(2)(b) of the ICSID Convention. The Respondent argues that this position stands admitted by Professors Schreuer and Dolzer during the Hearing.345 The Respondent maintains that a mere reference to Article 25(2)(b) of the ICSID Convention may only be sufficient in case of a contractual arbitration under ICSID and would not be sufficient in case of a treaty arbitration. The Respondent further contends that an implied agreement regarding foreign nationality or control will not suffice. The Respondent relies on the Schreuer Legal Opinion in this regard.346 With reference to the Germany-Lebanon BIT, the Respondent submits that there is no mention of the terms "control" or "foreign control" in the Treaty.347
345.
The Respondent argues that in concluding other BITs, Lebanon, at the request of the other Contracting Party, has used a "foreign control" provision to express an agreement to treat foreign-controlled local companies as "foreign investors" entitled to bring an investment claim against Lebanon. However, the Respondent states that it did not do so in its Treaty with Germany because Germany, consistent with its longstanding policy, and similarly to Lebanon, does not use the control criterion and has therefore not requested that a control clause be added in the Treaty text.348 The Respondent disputes the Claimants' assertion that Germany's participation in the Energy Charter Treaty means that Germany would have agreed to an implicit or implied foreign nationality requirement in its bilateral investment treaty with Lebanon.349
346.
Nor, in the Respondent's view, can any agreement to treat Lebanese holding companies under German control as investors of Germany be read into the text of the Treaty. In particular, the Respondent argues that: (i) the control test does not form part of customary international law;350 and (ii) the travaux préparatoires of the Treaty reveal that Lebanon did not see any important differences between the provisions of its Model BIT and those of the German Model BIT, neither of which envisaged the use of the foreign control criterion.351 The Respondent further argues that there is a difference between the rules applicable to contract-based arbitrations and those applicable to treaty-based arbitrations. According to the Respondent, while in a contract-based arbitration the reference to ICSID arbitration in the contract has been held to constitute a foreign control agreement for the purposes of Article 25(2)(b) of the ICSID Convention, the same is not true with a treaty-based arbitration.352
347.
In addition, the Respondent contends that German Model BITs, Germany's BIT practice, German public policy and the literature on German BIT practice each confirm that at least until 2008 the sole key requirement to qualify as an investor under Germany's BITs is the location of the seat, to the exclusion of the foreign control353 requirement.
348.
In the same way, the Respondent contends that no inference to include the control test can be drawn from Lebanon's Model BITs or BIT practice as: (i) none of Lebanon's eight Model BITs over the years contain a foreign control clause; and (ii) Lebanon only agreed to insert a foreign control clause in certain cases, which have been expressed in the clearest possible terms. The Respondent submits further that those Lebanese agreements that contain foreign control clauses are never limited to a certain company form, such as holding or offshore companies.354
349.
The Respondent thus disputes the Claimants' assertion that an implicit agreement on foreign nationality or control can be read into the Germany-Lebanon BIT. The Respondent relies on arbitral case law to argue that to read a "foreign control" agreement into the Germany-Lebanon BIT would be violative of the Treaty and the Parties' agreement thereunder.355
350.
The Respondent submits further that to read an implied agreement on foreign control, would result in the scope of protected investors under the BIT being different, depending on the arbitral forum chosen by the investor (i.e., UNCITRAL or ICSID), which could not have been the intention of the Parties.356

c. Principles of International Law

351.
The Respondent refutes the Claimants' allegation that the Respondent's interpretation of Article 1(1)(b) of the Treaty violates principles of international law, particularly those of mutuality and reciprocity, of effective interpretation or the principle that interpretation should not result in the rewriting of the treaty text.357
352.

Mutuality and Reciprocity: The Respondent argues that contrary to the Claimants' contention, its reading of the Treaty does not violate the principle of mutuality and reciprocity. While the Claimants argue that the second sentence of Article 1(1)(b) of the Treaty operates exclusively in favour of Lebanon, the Respondent submits that the text is drafted in reciprocal terms, de jure applying to companies of both Contracting Parties.358

353.
Nevertheless, according to the Respondent, as a matter of fact, the Treaty confers benefits on certain companies that exist under the national legal order of one Contracting Party, but not the other. For the Respondent, this is not problematic, but naturally arises from the specificities of the respective national company laws in Germany and Lebanon.359
354.
The Respondent submits that it is rather the Claimants' interpretation of Article 1(1)(b) of the Treaty which violates the principle of mutuality and reciprocity. According to the Respondent, the Claimants' interpretation would allow Lebanese holding companies to bring investment claims against Germany (based on the first sentence of Article 1(1)(b)), or against both Germany and Lebanon (based on the second sentence of Article 1(1)(b)), giving Lebanese investors a clear advantage.360 The Respondent emphasises that the two sentences of Article 1(1)(b) must be read together as a single, joint definition.361
355.
Effective Interpretation: The Respondent disagrees with the Claimants' allegation that its interpretation leaves the second sentence of Article 1(1)(b) of the Treaty redundant, in violation of the principle of effective interpretation. While a Lebanese registered holding company investing in Germany would already be covered by the first sentence of Article 1(1)(b), the Respondent submits that the second sentence was added for the purpose of clarity. In particular, Lebanon wished to avoid any confusion or dispute on the protection of Lebanese incorporated holding and offshore companies.362
356.
Rewriting of the Text: The Respondent denies that its interpretation of Article 1(1)(b) of the Treaty violates the principle that interpretation should not result in rewriting of the treaty text. In this connection, the Respondent refers to (i) Article 31 VCLT, pursuant to which the interpreter must ascertain the ordinary meaning of the terms used; (ii) the rule cited by the Claimants' expert Professor Dolzer, that "there is no need or space for a special meaning beyond the definition upon which the parties agreed"; and (iii) another rule emphasised by Professor Dolzer, that "there is no need or space to alter the agreed definitional terms by way of adding other terms or eliminating words agreed upon in the definition".363
357.
In the Respondent's view, the Claimants contravene these principles by interpreting Article 1(1)(b) of the Treaty as meaning that offshore and holding companies constitute a special category of investors. It argues that such a special meaning has no basis in the text of the Treaty. Furthermore, the Respondent contends that the Claimants read additional terms into Article 1(1)(b) of the Treaty in relation to foreign control.364

(iii)Imperial Holding Does Not Qualify as a National of Germany under the ICSID Convention

358.
According to the Respondent, two conditions must be cumulatively fulfilled under Article 25(2)(b) of the ICSID Convention in order for standing to be granted to a locally incorporated company. These conditions are: (i) there must be an agreement with the host State that reflects the host State's undertaking to treat a foreign controlled local company as a national of the home State when a national of the home State controls the local host State company; and (ii) the local host State company must be effectively controlled by nationals of the home State. In the Respondent's view, neither of these elements is satisfied in the present case.365

a. No Agreement by Lebanon

359.
The Respondent argues that Lebanon did not agree to treat a locally incorporated company, such as Imperial Holding, as a "national of another Contracting State" for the purposes of Article 25(2)(b) of the ICSID Convention. The Respondent submits that since it is an exception to Article 25 of the ICSID Convention, a BIT must contain a clear and unequivocal agreement of the Parties to treat a foreign-controlled local company as a "national of another Contracting State". The Respondent relies upon the drafting history of the ICSID Convention and arbitral case law in this respect, as well as the reports of the Claimants' experts Professor Schreuer and Professor Dolzer, and its own expert Professor Schill.366
360.
In the Respondent's view, the Treaty does not contain a clear and unequivocal agreement by which Germany and Lebanon have agreed to treat a Lebanese registered holding company, such as the Second Claimant, as a foreign national. To the contrary, the Respondent argues that under the Treaty the Second Claimant qualifies as a national of Lebanon and not of Germany.367
361.
Further, the Respondent contends that the Treaty contains no implied agreement on foreign nationality either. The Respondent relies upon the wording of the Treaty, German and Lebanese BIT practice, and Lebanon's Model BITs in this respect. In any event, an implied agreement would, in the Respondent's view, be insufficient to establish jurisdiction under Article 25(2)(b) of the ICSID Convention.368

b. No Control by Mr. El Jaouni

362.

The Respondent contends that the Claimants have not established that Mr. El Jaouni controlled Imperial Holding within the meaning of Article 25(2)(b) of the ICSID Convention.369

363.
Specifically, the Respondent argues that the Claimants have failed objectively to establish Mr. El Jaouni's control of Imperial Holding as at the date of the Request for Arbitration, i.e., 23 December 2014. According to the Respondent, the little evidence that the Claimants do produce shows that Imperial Holding was at all relevant times controlled by Mr. Bahamdan, a Saudi national.370
364.
The Respondent submits that under Article 25(2)(b) of the ICSID Convention, either a holding of the majority of voting rights or the ability to dominate the decision making of the company is required. According to the Respondent, however, Mr. El Jaouni had only 49% of the shares and voting rights in Imperial Holding.371
365.
The Respondent argues, based on Imperial Holding's Articles of Incorporation, that as a minority shareholder Mr. El Jaouni could not exercise control over the Ordinary General Assembly in relation to important strategic decisions concerning the company's future.372
366.
For the Respondent, this conclusion is not altered by the Claimants' allegation that Mr. Alem held his 1% stake in Imperial Holding in escrow on behalf of Mr. El Jaouni. The Respondent argues in this respect that: (i) fiduciary escrow over shares does not exist under Lebanese law; (ii) the document relied upon by the Claimants (Exhibit C-171)373 does not create any fiduciary escrow as it is no more than a unilateral agreement by Mr. Alem to transfer his shares. The Respondent further argues that the Claimants have not evidenced the impact, if any, that such escrow would have had on Mr. El Jaouni's voting rights and control; (iii) Imperial Holding's Articles of Incorporation recognise only one owner for each share; and (iv) Mr. Alem participated and voted as a shareholder in the Ordinary General Assembly of 19 December 2014 and the meeting of the Board of 22 December 2014.374
367.
Likewise, the Respondent rebuts the Claimants' contention that two powers of attorney granted by Mr. Bahamdan in favour of Mr. El Jaouni conferred legal or factual control upon him. In this respect, the Respondent contends, inter alia, that (i) the powers of attorney do not constitute a permanent transfer of voting rights; and (ii) the powers of attorney require Mr. El J