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.
For the Respondent:
Dr. Alfred Siwy
(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).
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."
(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
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.
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
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
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.
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
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".
Article 1 of the BIT defines "investment":
"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."
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.
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.
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.
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 the monetary value of the arbitral award, but its right to arbitrate has also been frustrated.
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."
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.
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.
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.
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.
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.
Article 8(1) of the BIT provides:
"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."
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.
(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."
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
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
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."
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.
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 resolution. The Respondent refers to Plama v. Bulgaria and Wintershall v. Argentina in this regard.
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.
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.
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 Czech-Cypriot BIT, and as a result the right to arbitrate is part of Czech domestic law.
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.
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).
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.
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.
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."
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.
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
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 says that due to this declaration of bias, it was unable to recover anything against the enforcement order.99
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
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 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
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
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
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
The subsequent delays, the Respondent says, were attributable to intervention by Kyjovan in persuading its subdebtors not to comply with the court order. The 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
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. [...]"
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.
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.
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
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.
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
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
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.
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.
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.
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.
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
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 closef connected to the historical origins of expropriation claims; [...] it further recognizes that for most tribunals an assessment of indirect expropriation in any of its forms has not somehow been disconnected from a requirement of State conduct of some sort."213
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
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:
■ 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.
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 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
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
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.
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
■ 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
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.
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.
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."
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."
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
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.
(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).
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. Homere);, 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%.".
(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.
(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.
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.
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