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

Partial Award

A.Background of the Dispute

(1) The Parties

1.
The Claimant CME Czech Republic B.V. is a corporation organized under the laws of the Netherlands. The Respondent, the Czech Republic, is a sovereign governmental entity, represented in these proceedings by its Ministry of Finance.

(2) The UNCITRAL Arbitration Proceedings

2.
CME Czech Republic B.V. (CME) initiated these arbitration proceedings on February 22, 2000 by notice of arbitration against the Czech Republic pursuant to Art. 3 of the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

(3) The Netherlands / Czech Republic Bilateral Investment Treaty

3.
CME brought this arbitration as a result of alleged actions and inactions and omissions by the Czech Republic claimed to be in breach of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, executed on April 29, 1991 (hereinafter: "the Treaty"). The Treaty entered into force in the Czech and Slovak Federal Republic on 1 October 1992 and, after the Czech and Slovak Federal Republic ceased to exist on December 31, 1992, the Czech Republic succeeded to the rights and obligations of the Czech and Slovak Federal Republic under the Treaty.

(4) CME's "investments" under the Treaty

4.

CME holds a 99 % equity interest in Česká Nezávislá Televizní Společnost, spol. s r.o. ("ČNTS"), a Czech television services company. CME maintains that, among other things, CME's ownership interest in ČNTS and its indirect ownership of ČNTS' assets qualify as "investments" pursuant to Art. 1 (a) of the Treaty. CME and these investments, therefore, are thereby entitled to the protection and benefits of the Treaty.

(5) CME's shareholding

5.

CME acquired its 99 % ownership interest in ČNTS in steps. It acquired 5.8 % shares in 1997 by purchasing the Czech holding company NOVA Consulting, which owned these shares, and by purchasing, in May 1997, 93.2 % from CME's affiliated company, CME Media Enterprises B.V., which, in turn, in 1996 had acquired 22 % of the shares in ČNTS from the Ceská spořitelna a.s. (Czech Savings Bank) and 5.2 % from CET 21 Spol. s r.o. (CET 21).

6.
Earlier, in 1994, CME Media Enterprises B.V. had acquired a 66 % shareholding in ČNTS from the Central European Development Corporation GmbH ("CEDC"), a German company under the same ultimate control as CME and CME Media Enterprises B.V. of an American corporation in turn controlled by Mr. Ronald S. Lauder, an American businessman with domicile in the United States of America.
7.
CEDC (with a share of 66 %), CET 21 (with a share of 21 %) and the Czech Savings Bank (with a share of 22 %) were co-founders of ČNTS, formed as a joint venture company in 1993 with the object of providing broadcasting services to CET 21.

(6) The Broadcasting Licence

8.
CME's investments (its ownership interest in ČNTS and its indirect ownership of ČNTS' assets) are related to a Licence for television broadcasting granted by the Czech Media Council, empowered to issue licences by the Czech Republic's Act on the Operation of Radio and Television Broadcasting, adopted on October 30, 1991, Act No. 468/1991 Coll. (hereinafter, the "Media Law"). This Licence was granted to CET 21, acting in conjunction inter alia with CEDC, for the purpose of the acquisition and use of the Licence for broadcasting throughout the Czech Republic. CME's and its predecessors' investments in this joint venture, inter alia between CEDC and CET 21, are the object of the dispute between the parties.
9.
In late 1992 and early 1993, CEDC, on the invitation of CET 21, which was owned by five Czech nationals and advised by Dr. Vladimir Zelezny, a Czech national, participated in negotiations with the Czech Media Council (hereinafter: "the Council") with the goal of the issuance of the Broadcasting Licence to CET 21 with a participation therein, either directly or indirectly, by CEDC.
10.
The Council issued the Licence to CET 21 on February 9, 1993 to operate the first nation-wide private television station in the Czech Republic. The decision granting the Licence acknowledged CEDC's "substantial involvement of foreign capital necessary to begin television station activities" and the conditions attached to the Licence acknowledged CEDC's partnership with the holder of the Licence, CET 21.

(7) The Formation of CNTS

11.
Instead of CEDC taking a direct share in CET 21 (as initially contemplated), and instead of a license being issued jointly to CET 21 and CEDC (also so contemplated), the partners of CET 21 and Dr. Zelezny agreed with CEDC and the Media Council to establish CEDC's participation in the form of a joint venture, ČNTS. The Media Council was of the view that such an arrangement would be more acceptable to Czech Parliamentary and public opinion than one that accorded foreign capital a direct ownership or licensee interest.

(8) The CNTS Memorandum of Association

12.
The Memorandum of Association was made part of the Licence Conditions, defining the co-operation between CET 21 as the licence holder and ČNTS as the operator of the broadcasting station. CET 21 contributed to ČNTS the right to use the Licence "unconditionally, unequivocally and on an exclusive basis" and obtained its 12 % ownership interest in ČNTS in return for this contribution in kind. Dr. Zelezny served as the general director and chief executive of ČNTS and as a general director of CET 21. ČNTS' Memorandum of Association ("MOA") was approved by the Council on April 20, 1993 and, in February 1994, ČNTS and CET 21 began broadcasting under the Licence through their newly-created medium, the broadcasting station TV NOVA.

(9) CNTS' Broadcasting Services

(10) TV NOVA's success

14.
TV NOVA became the Czech Republic's most popular and successful television station with an audience share of more than 50 % with US $109 million revenues and US $ 30 million net income in 1998. CME claims to have invested totally an amount of US $ 140 million, including the afore-mentioned share purchase transactions for the acquisition of the 99 % shareholding in ČNTS, by 1997. The audience share, the revenues and amount of the investment are disputed by the Respondent.

(11) The Change of Media Law

15.
As of January 1, 1996, the Media Law was changed. According to the new Media Law, licence holders were entitled to request the waiver of licence conditions (and Media Council regulations imposed in pursuance of those conditions) related to non-programming. Most of the licence holders applied for this waiver, including CET 21, with the consequence that the Media Council lost its strongest tool to monitor and direct the licence holders.

(12) The Amendment of the Memorandum of Association

16.
As a consequence of certain inter-actions between the Media Council and CET 21, including ČNTS, the shareholders of ČNTS in 1996 agreed to change ČNTS‘ Memorandum of Association and replaced CET 21 ‘s contribution "Use of the Licence" by,,Use of the Know-how of the Licence". The circumstances, reasons and events related to, and the commercial and legal effects deriving from? this change are in dispute between the parties. In conjunction with the change of the contribution of the use of the Licence, CET 21 and ČNTS entered into a Service Agreement. That Agreement thereafter was the basis for the broadcasting services provided by ČNTS to CET 21 for operating TV NOVA.

(13) The 1999 Events

17.
In 1999, after communications between the Media Council and Dr. Zelezny, the character and the legal impact of these communications being in dispute between the parties, CET 21 terminated the Service Agreement on August 5, 1999 for what it maintains was good cause.
18.
The reason given for this termination was the non-delivery of the day-log by ČNTS to CET 21 on August 4, 1999 for the following day. CET 21 thereafter replaced ČNTS as service provider and operator of broadcasting services by other service providers, with the consequence that ČNTS' broadcasting services became idle and, according to CME, ČNTS' business was totally destroyed.

(14) The Prague Civil Court proceedings

19.
ČNTS sued CET 21 for having terminated the Service Agreement without cause. The Prague District Court on May 4, 2000 judged that the termination was void, the Court of Appeal, however, confirmed the validity of the termination, and the Czech Supreme Court decision was still pending when these arbitration proceedings were closed.

(15) CME's Allegations

20.
CME claims that ČNTS, the most successful Czech private broadcasting station operator with annual net income of roughly US $ 30 million, has been commercially destroyed by the actions and omissions attributed to the Media Council, an organ of the Czech Republic.
21.
CME claims, inter alia, that an already signed Merger and Acquisition Agreement between CME's interim parent company and the Scandinavian broadcaster and investor SBS was vitiated by these actions and omissions of the Media Council. CME accordingly suffered damage in the amount of US $ 500 million, which was the value allocated by that Agreement and by the joint venture partners to ČNTS in 1999 before the disruption of the legal and commercial status of ČNTS as a consequence of the Media Council's actions and omissions.
22.
The Czech Republic strongly disputes this contention and the purported underlying facts, maintaining that, inter alia, the loss of investment (if any) is the consequence of commercial failures and misjudgments of CME and, in any event, that CME's claim is part of a commercial dispute between ČNTS and Dr. Zelezny, for which the protection of the Treaty is not available.

(16) Investment Dispute and Breach of Treaty

23.
CME contends that the dispute between the parties is a dispute "between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter" as defined by Art. 8 (1) of the Treaty. As such, it is the position of CME that the dispute is subject to Arbitration pursuant to Art. 8 (2) through 8 (7) of the Treaty.
24.

CME alleges that the Czech Republic has breached each of the following provisions of the Treaty:

(a) "Each Contracting Party shall ensure fair and equitable treatment to the investments of investors of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those investors" (Art. 3 (1));

(b) each Contracting Party shall accord to [the investments of investors of the other Contracting Party] full security and protection which in any case shall not be less than that accorded either to investments of its own investors or to investments of investors of any third State, whichever is more favourable to the investor concerned" (Art. 3 (2)); and

(c) "Neither Contracting Party shall take any measures depriving, directly or indirectly, investors of the other Contracting Party of their investments unless the following conditions are complied with:

a) the measures are taken in the public interest and under due process of law;

b) the measures are not discriminatory;

c) the measures are accompanied by provision for the payment of just compensation" (Art. 5).

B.Relief Sought

25.
In its Notice of Arbitration, CME "requested the Tribunal to provide a relief necessary to restore ČNTS’ exclusive rights to provide broadcasting services for TV NOVA and thereby restore to CME the economic benefit available under the arrangement initially approved by the Council" (restitutio in integrum). During the proceedings, CME changed the Relief Sought and requested the Tribunal to give the following Relief to the Claimant. Both parties instructed the Tribunal that, if damages are to be awarded, the Tribunal shall not decide on the quantum at this stage of the proceedings.

(1) Relief Sought by CME Czech Republic B.V.

26.

Claimant seeks an award:

1. Deciding Respondent has violated the following provisions of the Treaty:

a) The obligation of fair and equitable treatment (Art. 3 (1));

b) The obligation not to impair the operation, management, maintenance, use, enjoyment or disposal of investments by unreasonable or discriminatory measures (Article 3 (1));

c) The obligation of full security and protection (Art. 3 (2)); and

d) The obligation to treat investments at least in conformity with the rules of international law (Art. 3 (5)); and

e) The obligation not to deprive Claimant of its investment by direct or indirect measures (Art. 5); and

2. Declaring that Respondent is obliged to remedy the injury that Claimant suffered as a result of Respondent's violations of the Treaty by payment of the fair market value of Claimant's investment in an amount to be determined at a second phase of this arbitration;

3. Declaring the Respondent is liable for the costs that Claimant has incurred in these proceedings to date, including the costs of legal representation and assistance.

27.

Claimant confirms that it has withdrawn its request for the remedy of restitutio in in tegrum.

28.
The Respondent sought the following Relief:

(2) Relief Sought by the Czech Republic

29.

The Czech Republic seeks an award that:

(1) CME's claim be dismissed as an abuse of process.

(2) And/or CME's claim be dismissed on grounds that the Czech Republic did not violate the following provisions of the Treaty as alleged (or at all):

(a) The obligation of fair and equitable treatment of investments (Art. 3 (1)).

(b) The obligation not to impair investments by unreasonable or discriminatory measures (Art. 3 (1)).

(c) The obligation to accord full security and protection to investments (Art. 3 (2)).

(d) The obligation to treat investments in accordance with the standard of international law (Art. 3 (5)).

(e) The obligation to not deprive investors directly or indirectly of their investments (Art. 5).

(3) And/or CME's claim be dismissed and/or CME is not entitled to damages, on grounds that alleged injury to CME's investment was not the direct and foreseeable result of any violation of the Treaty.

(4) And CME pay the costs of the proceedings and reimburse the reasonable legal and other costs of the Czech Republic.

C.Procedure

(1) Initiation and Conduct of Proceedings

30.
After having initiated the arbitration proceedings, the Claimant appointed Judge Stephen M. Schwebel, Washington, and the Respondent JUDr. Jaroslav Hándl, Prague, as party-appointed arbitrators. Both arbitrators appointed Dr. Wolfgang Kühn, Düsseldorf, as Chairman of the Arbitral Tribunal on July 19, 2000, which appointment was accepted by the Chairman on July 21, 2000.
31.
On August 4, 2000 the Tribunal issued a Procedural Order No. 1 setting dates for the parties for the Statement of Claim and the Statement of Defence, in accordance with Art. 23 of the UNCITRAL Arbitration Rules. The Tribunal requested the parties to annex to their statements the documents that the parties deemed relevant.
32.
In accordance with Art. 17 of the UNCITRAL Rules, the Tribunal determined the language to be used in the proceedings to be English and instructed the parties that any documents annexed to the Statement of Claim or Statement of Defence and any supplementary documents or exhibits submitted in the course of the proceedings, delivered in their original language, shall be accompanied by a translation into English.
33.
In accordance with Art. 16 of the UNCITRAL Rules, the place of arbitration was determined to be Stockholm. The Tribunal convened a meeting with counsel of the parties on November 17, 2000 in Stockholm in order to discuss further conduct of the proceedings and the parties were invited to give a short presentation of their case. The Tribunal also made a proposal with respect to the Arbitrators' fees.
34.
The Claimant by letter dated August 10, 2000 accepted the Tribunal's proposal in respect to costs and fees, whereas no answer was received from the Respondent within the specified time. The Tribunal therefore informed the parties by letter dated September 5, 2000 that the Tribunal will proceed on the basis that the parties accept the Tribunal's proposal in Order No. 1 dated August 4, 2000. By letter dated September 25, 2000 the Respondent requested that the whole amount of the costs for the arbitration should be borne by the Claimant and therefore declined to pay the advance payment, which was requested by the Tribunal by Order No. 2.
35.
On September 22, 2000 the Claimant submitted its Statement of Claim including exhibits, declarations and authorities. The Claimant made the required deposits for costs. By Order No. 3 the Tribunal requested the Claimant to make the required payment not made by the Respondent, which the Claimant did.
36.
By Court Order No. 4 dated October 24, 2000 the Tribunal changed the place of the hearing on November 17, 2000, due to accommodation problems in Stockholm, to Dusseldorf. The change of the place for the hearing did not change the seat of the arbitration, which still was denominated to be Stockholm.
37.
On November 9, 2000 the Respondent submitted its Statement of Defence including witness statements, exhibits and authorities. In its Statement of Defence the Respondent raised, inter alia, the defence of jurisdiction stating that the Tribunal lacks jurisdiction, or, in the alternative, CME's claim is inadmissible.
38.
On November 14, 2000 the Claimant submitted a Request for Production of Documents describing the requested documents broadly as Media Council's records related to the grant of the Licence to CET 21, the operation of TV NOVA, the administrative proceedings initiated by the Media Council against ČNTS in 1996 and the correspondence between the Media Council and CET 21, Dr. Zelezny, CME or ČNTS, including internal minutes for 1998, 1999 and 2000.
39.
On November 16, 2000 the Respondent requested the Tribunal to refuse the Claimant's Request for Production of Documents as being too broad and unsubstantiated and, therefore, not in compliance with the International Bar Association Rules on Taking Evidence in International Commercial Arbitration adopted on June 1, 1999 ("IBA Rules").

(2) The Procedural Hearing

40.
For the hearing of November 17, 2000, the parties jointly submitted an agenda. Under the first topic, CME suggested the co-ordination of these arbitration proceedings with the so-called Lauder vs. the Czech Republic arbitration proceedings. In the Lauder vs. the Czech Republic proceedings, the ultimate majority shareholder of CME advanced similar claims in a pending UNCITRAL Arbitration brought against the Czech Republic under a bilateral investment treaty between the United States of America and the Czech Republic. The Tribunal did not take a decision on co-ordination because the parties did not agree to co-ordination.
41.
The Claimant's proposal to have the two proceedings inter-linked in their timing was not pursued because the parties were in disagreement.
42.
In respect to jurisdiction, the Respondent requested that the Tribunal should hold summary threshold proceedings whereas the Claimant's position was that the jurisdictional issues should be considered in conjunction with the hearing of the merits after the Claimant's Reply Memorial, the Respondent's Sur-Reply and the issues (in substance) had been fully presented.
43.
In respect to this and other procedural issues the Tribunal, on November 17.2000, issued Order No. 5.
44.
The Tribunal decided that at this point of time no hearing on jurisdiction or the admissibility of the claim was to be held.
45.
In respect to Procedures for Taking Evidence, the parties proposed to apply the IBA Rules except as follows:

"(i) In interpreting Article 4 (7 and 8), the Arbitral Tribunal can decide, taking into consideration all circumstances, whether to accept or disregard a witness statement if the witness does not appear. The Arbitral Tribunal additionally can decide whether it wants to hear testimony from all witnesses who have previously submitted a witness statement, or only testimony from certain witnesses.

(ii) The Claimant did not agree to the adoption of Article 3 (2-7) (relating to requests to produce documents) or Article 3 (12) (relating to confidentiality of documents produced by a party). The Respondent, however, invited the Tribunal to adopt these articles.

(iii) The parties jointly agreed that witness statements and testimony provided in the arbitration between Mr. Lauder and the Czech Republic may be referred to in this arbitration."

46.
In accordance with Art. 15.1 of the UNCITRAL Arbitration Rules, the Tribunal decided to conduct the arbitration in the manner it considers appropriate. For this purpose, the Tribunal decided, to the extent appropriate, to apply the IBA Rules.
47.
In respect to the production of documents the Tribunal decided that the Claimant's Request for the Production of Documents dated November 14, 2000 was not in accordance with the IBA Rules. The Tribunal, by Order No. 5, instructed the Claimant and the Respondent to submit detailed requests for the production of documents, such documents to be produced in their original language and to be accompanied by an English translation.
48.
In respect to the Determination of the Amount of Any Damage Award, the parties jointly informed the Tribunal that they were in agreement that the hearing on the merits should be devoted to resolving issues of liability and the appropriate form of remedy. If the determination of a quantum of monetary damages was necessary - for example, because the Arbitral Tribunal were to order a remedy referred to in § 111 or § 112 of Claimant's Statement of Claim - that quantum should be established in further proceedings, so that the briefs and witness statements will not at this stage deal with the amount of monetary damages.
49.
In respect to Confidentiality, the parties informed the Arbitral Tribunal that they were in agreement that these proceedings should not be open to the public; however, the parties indicated that they were in disagreement as to whether they are required to keep the submissions in the proceedings confidential. The Arbitral Tribunal did not comment on this subject.
50.
Further, in accordance with the joint proposals of the parties, the Tribunal set dates for further submissions by the parties, for the Claimant for its "Reply" and for the Defendant for its "Sur-Reply", final witness statements to be filed and served by a set date thereafter. Further, the Tribunal set a date for a hearing from April 23, 2001 to May 2, 2001 and reconfirmed the legal seat of the arbitration as Stockholm.
51.
The parties complied with the dates set. The Chairman submitted its Reply Memorial on December 22, 2000 and the Respondent its Sur-Reply on February 14.2001.

(3) The Parties' Request for Production of Documents

52.
The Claimant submitted its Request for Production of Documents on December 1, 2000 invoking the Tribunal's procedural Order No. 5 and Art. 3 (3) of the IBA Rules. The Claimant requested the production of documents related to specific Media Council files related to the Licence, comprising 18 specifically described documents. The Claimant further requested the production of six further categories of documents related inter alia to CET 21. These categories of documents were all defined either by dates or by specific file numbers of the Media Council. Further, the Claimant asked for the production of eleven specific documents identified by date and a further description. The Claimant gave reasons in respect to relevance and materiality and also in respect to the possession of the documents.
53.
By Order No. 6 dated December 22, 2000, the Tribunal by majority-decision instructed the Respondent to produce the documents requested by the Claimant, however deleting certain documents from the list which were already in the possession of the Claimant, and further deleting a statement of the chief of the legal department of the Media Council dated July 22, 1996, which statement might have a status of privilege or confidentiality.
54.
On February 14, 2001 the Tribunal issued Order No. 7 on costs and proceedings. The Tribunal set the date for the hearing beginning on April 23, 2001 in Stockholm and set out a time schedule for the hearings.

(4) The Parties' Request for Interim Remedies or Similar Orders

55.
By submission dated January 30, 2001, the Respondent notified to the Tribunal "that the Respondent has been provided with copies of documents which indicate that Mr. Lauder/CME has been spying on the Media Council, immediately prior to this arbitration being commenced, if not earlier." The Respondent requested the Tribunal to issue an Order that Mr. Lauder/CME disclose immediately all copies of communications related to the Media Council, which have been provided by a source within the Media Council, copies of all communications from a certain investigation agency, copies of CME's instructions to this agency and further to order that Mr. Lauder/CME identify the name of the person(s) who has/have provided any communications referred to herein-above to the investigation agency. By a submission dated February 6, 2001, the Respondent extended the request for an Order and further requested the Tribunal to order that CME shall identify any other person(s) in Czech Government Departments who has/have provided, directly or indirectly, any communications of a similar nature to the investigation agency and/or CME.
56.
Further, the Respondent requested permission from the Tribunal to apply for an order securing the attendance before the Tribunal of a certain employee of the investigation agency in order to give oral testimony and to produce documents (pursuant to Section 43 of the English Arbitration Act 1996).
57.
By submission dated February 11, 2001, the Respondent extended its previous submissions and requested permission to subpoena the already mentioned employee of the investigation agency under Section 43 of the English Arbitration Act, should the Tribunal decide to hold a hearing in England and repeated the request under Section 26 of the Swedish Arbitration Act and Section 1050 of the German Arbitration Act.
58.
By submission dated February 12, 2001, the Respondent requested the Tribunal to issue an Order that the Claimant produce the following documents:

(1) All pleadings, submissions and evidence submitted by ČNTS in the Czech Court proceedings between ČNTS and CET 21, including both, the Prague Regional Court and Prague Czech Supreme Court (i.e. Appeal Court) proceedings.

(2) All pleadings, submissions and evidence submitted by CME Media Enterprises B.V. in the ICC Arbitration proceedings between CME and Dr. Zelezny. The Respondent stated that the requested documents are relevant to the present Arbitration proceedings.

59.
By submission dated February 27, 2001, the Respondent notified to the Tribunal that, after having received from the Czech Civil Court copies of the Court file in the proceedings between ČNTS and CET 21, the request for the production of the respective documents was withdrawn, whereas the Respondent maintained its request for all pleadings, submissions and evidence "submitted by CME Media Enterprises B.V." in the proceedings against Dr. Zelezny.
60.
On the same day, the Respondent reconfirmed that it maintains its position that it should not have to pay for parallel arbitrations brought, in effect, by the same Claimant.
61.
By submission dated February 2, 2001 and submissions thereafter, the Claimant rejected the Respondent's request for an Order and accused the Respondent of unlawful use of stolen confidential documents, which allegedly had been taken from CME's offices in London in breach of English law. The Claimant requested the Tribunal to issue an Order that the Respondent be directed to cease its review of stolen CME documents and confidential CME arbitration records that have been improperly provided to it by Dr. Zelezny or its representatives.
62.
Further, the Claimant demanded that Respondent's request for the Orders related to further information be denied and that Respondent's request for permission to subpoena an employee of the investigation agency be rejected.
63.
By submission dated February 26, 2001, the Claimant further made the argument that the Respondent's request for disclosure of documents was untimely, as the subject was already substantially discussed between the parties six months prior to the first hearing of these proceedings. The Claimant further took the position that the pleadings and documents of the CME v. Zelezny ICC proceedings are irrelevant for this Arbitration.

(5) The Tribunal's Decision on Interim Remedies and Similar Orders

64.

On March 3, 2001 the Arbitral Tribunal decided not to take a decision on Interim Remedies or similar Orders at the present time. The Tribunal issued the following Order No. 8 on Interim Remedies or similar Orders:

1. The Tribunal rejects the Respondent's request that the Tribunal order the Claimant

I. to disclose

(a) Copies of all communications relating to the Media Council which have been provided by a source within the Media Council, including any reports of the Council's meetings;

(b) copies of all communications from Kroll to CME, relating to (a) above; and

(c) a copy of CME's instructions to Kroll.

II. to identify the name of the person(s) who has/have provided any communications referred to in (a) above to Kroll and the "intermediary" between Kroll and the informant;

III. to identify any other person(s) in Czech government departments who has/have provided, direct/y or indirectly, any communications of a similar nature to Kroll and/or CME.

The request by the Respondent for the arbitrators’ consent under Section 26 of the Swedish Arbifration Act of 1999 and/or other national laws to have Mr. Morgan-Jones testify before the respective countries’ civil courts is rejected.

The Claimant’s request dated February 8, 2001 that the Respondent to be directed "to cease its review of stolen CME documents and confidential CME arbitration records that have been improperly provided to it by Dr. Železný or its representative" is rejected.

The Tribunal is of the opinion that any flow of information between the Media Council and the Claimant and/or its intermediaries and its usage as alleged by the Respondent, and any flow of information from the Claimant to the Respondent and its usage as alleged by the Claimant are not subject of these proceedings and the respective Claimant’s and Respondent’s requests should be addressed to the appropriate authorities / courts of the countries involved.

2. In respect to the Respondent’s request regarding the disclosure by the Claimant of all pleadings, submissions and evidence submitted by CME Media Enterprises B.V. in the ICC Arbitration Proceedings between CME Media Enterprises B.V. and Dr.  Železný, the Tribunal is not in a position to order the requested discovery, as the Parties of the ICC Arbitration Proceedings are different from the Parties to these proceedings. The Tribunal understands, however, that the ICC Award of the afore-mentioned proceedings was published on the internet on the CME pages. The Arbitral Tribunal, therefore, instructs the Claimant to submit as soon as possible to the Arbitral Tribunal and to the Respondent the ICC Award to the extent available to the public on the internet. The Tribunal assumes that the Respondent’s demand for disclosure of the ICC proceeding will be sufficiently met by the disclosure of the ICC Award.

(6) Further Conduct of Proceedings

65.

The Claimant in accordance with Order No. 8 submitted to the Tribunal the ICC Award CME Media Enterprises B.V. vs. Dr. Železný

66.
By submission dated March 14, 2001 and upon receipt of Order No. 8 dated March 6, 2001 the Respondent maintained its position in respect to the Court Order requested and declared:

"The Czech Republic continues to participate in this Arbitration under protest and reserves all its rights, in particular its rights under Swedish Arbitration Act, Art. V (2) (b) of the New York Convention 1958 and principles of public policy generally."

67.
On March 19, 2001 the Respondent declared that without prejudice to its position that it should not have to pay for two parallel arbitrations brought in effect, by the same Claimant; and without prejudice to its protest communicated in its fax of March 14, 2001 the Czech Republic is willing to pay the requested down payment for costs of the Stockholm hearing.
68.
Thereinafter the Respondent complied with further Tribunal's request for down payments of costs equally with the Claimant.
69.
On April 16, 2001 the Claimant as requested by the Chairman submitted a chronological list of the executives of ČNTS, CEDC/CME and CET 21 and a diagram showing the sequence of shareholdings in ČNTS, including the dates of the share transfer and enclosed a similar diagram showing the sequence of shareholdings in CET 21.

(7) The Submission of Witness Statements

70.
In conjunction with their submissions, the parties have submitted to the Tribunal the following witness statements:

(8) Declarations in Support of the Statement of Claim

1. Declaration of Richard Bacek dated 22 September 2000 (without attachments)

2. Declaration of Laura DeBruce dated 22 September 2000

3. Declaration of Michel Delloye dated 20 September 2000

4. Declaration of Fred T. Klinkhammer dated 20 September 2000

5. Declaration of Martin Radvan dated 22 September 2000

6. Declaration of Jan Vavra dated 20 September 2000

7. Statement of Ing. Jiri Broz dated 5 December 2000

8. Supplemental Declaration of Laura DeBruce dated 15 December 2000

9. Declaration of Leonard M. Fertig dated 7 December 2000

10. Supplementary Declaration of Fred T. Klinkhammer dated 13 December 2000

11. Declaration of PhDr Marina Landová dated 15 December 2000

12. Supplemental Declaration of Martin Radvan dated 15 December 2000

13. Declaration of Nicholas G. Trollope dated 21 December 2000

14. Supplemental Declaration of Jan Vavra dated 15 December 2000

15. Declaration of Ing. Miroslav Pycha dated 21 December 2000

16. Second Supplemental Declaration of Laura DeBruce dated 27 February 2001

(9) Statements in Support of the Statement of Defence

1. Statement of Doc. Ing. Pavel Mertlík CSc dated 7 November 2000

2. Statement of Josef Josefík dated November 6 November 2000

3. Statement of RNDR. Josef Musil, PhDr. dated 6 November 2000

4. Statement of PhDr. Helena Halvíková dated 6 November 2000

5. Second Statement of Josef Josefík dated 28 February 2001

6. Statement of Mgr. Milan Jakobec dated 28 February 2001

(10) Documents and Authorities

71.
The parties attached to their submissions copies of some 300 documents comprising several thousand pages. They further attached binders comprising several thousand pages of authorities in support of their respective memorials.

(11) The Stockholm Hearing

72.

From Monday, April 23, 2001 to Wednesday, May 2, 2001 the hearing took place in Stockholm. At the beginning of the hearing, the parties' representatives submitted to the Tribunal the verbatim record of the examination of witnesses taken in London at the Lauder vs. Czech Republic UNCITRAL proceeding under US / Czech Republic BIT. At the Stockholm hearing the patties presented their case and the following witnesses were examined:

• Claimant's witnesses:

Laura DeBruce
Michel Delloye
Fred T. Klinkhammer
Martin Radvan
Jan Vavra
Leonard M. Fertig

Marina Landová

• Respondent's witnesses:

Josef Josefík
Josef Musil
Helena Havlíková

73.
At the end of the hearing, the parties' representatives summarized orally their respective positions. The Tribunal in agreement with the parties declared the hearing closed (Art. 29 UNCITRAL Rules). The Claimant submitted to the Tribunal Claimant's post-hearing brief on May 25, 2001. The Respondent submitted its written Closing Submissions on the same day.

D. Position of the Claimant

74.
CME's claims arise out of the Czech Republic's treatment of its investments in the first private nation-wide commercial television station in the Czech Republic. CME maintains that the Czech Republic breached its obligations under the Treaty by actions and inactions of the Media Council which destroyed the Claimant's investment in the Czech Republic.

I. The Claimant's Investment in the Czech Republic

75.
In 1992, the Czech National Council decided to issue a Licence for the first nation-wide commercial television station. The Licence was to be awarded through a tender process administered by the Czech Media Council which the Czech National Council had created in 1992 as a separate State agency, subject exclusively to the sovereignty of the Czech Republic, to be responsible for regulating the broadcasting industry and ensuring compliance with laws relating to radio and television broadcasting.
76.
The Media Law required the Media Council to take into consideration the extent of Czech ownership and management when considering a Licence application from a company with foreign equity participation, but no provision in the Media Law expressly barred (or now bars) foreign parties from holding television licences.
77.
CEDC, the Claimant's predecessor, pursued an application for the Licence.
78.
Initially, CEDC and CET 21 pursued a joint application for a Licence, contemplating that they would act together to administer the Licence. On January 5, 1993, CEDC and the Czech investors in CET 21 executed an agreement providing that upon the award of a Licence to CET 21, CEDC would "provide financing needed... to establish[ ] a commercial television station in Prague through an equity investment in CET 21," in return for a 49 % ownership share in CET 21, with the Czech investors in CET 21 holding 14 % and the remaining equity reserved for further investors.
79.
CET 21's Project Proposal, submitted to the Media Council as a centerpiece of the application, presented CEDC as a desirable "direct participant in CET 21's application for the Licence" on the basis that CEDC was "a quality foreign partner," which had "investment experience" in Central Europe, knew how to "advantageously combine[] a commercial... TV station with a programme of a higher standard, and with the participation of cultural foundations," offered "sensitive respect for local traditions and a well-qualified understanding of the needs of the Central European region," was financially supported by "prominent entrepreneurial personalities and groups (e.g. the Lauder group)," and offered valuable links to sources of programming. The minutes of a January 25, 1993 public hearing on the Licence application reflect the centrality of CEDC's role and the need for long-term foreign investments.
80.
The Media Council publicly announced on January 31, 1993, that after public hearings and full deliberation concerning the twenty-six candidates who had submitted applications for a Licence, it had determined to issue the Licence to CET 21, with CEDC as "a direct participant of the Licence application." In its letter to CET 21 announcing its decision, the Media Council similarly noted that CEDC was "a direct party to the application," listing the proposal's "adequate financing with capital about whose origin and reliability there can be no doubt" as one of the main factors in its decision. Likewise, in a public statement on February 1, the Media Council's chairman, Mr. Daniel Korte, repeated this language and stressed that the choice of the successful Licence applicant had taken into account that "‘the project has proved sufficiently financially backed by the capital whose origin and reliability cannot be doubted."'
81.
In the face of intense political pressure, though, the Media Council decided that it would not permit foreign ownership of the Licence. This requirement created a significant practical difficulty because foreign capital was plainly needed to fund the development of the station. As CET 21 had explained in the Project Proposal it submitted to the Media Council, "[i]t would be a... pretense to say that the financial funds in terms of millions and billions [of Czech crowns] which must be invested in relatively short time [to establish the station] are available in the Czech Republic, and that CET 21 (as any other starting TV station) will do without foreign partners."
82.
In close consultation with the Media Council, CEDC and the Czech investors in CET 21 sought to resolve this difficulty through the creation of ČNTS - an entity that would be jointly owned by CEDC (which would contribute the majority of the cash needed to fund the establishment of the station), CET 21 (as the party that would contribute the use of the Licence), and a Czech bank (as a third investor). Each contributor was to obtain an equity interest in ČNTS corresponding to the economic value of its contribution, and ČNTS was to establish and manage the television station. The Media Council participated actively in negotiating this solution that maintained domestic ownership of the Licence while providing for the obtaining of needed foreign capital from a desirable source.
83.
The Media Council openly acknowledged, prior to this dispute, that it had played a central role in directing the formation of ČNTS, and that its motivation for doing so had arisen from its determination that the Licence not fall directly into the hands of a non-Czech investor. In a January 31, 1998 report to the Czech Parliament, for example, the Media Council explained its 1993 insistence on the ČNTS structure, and the reasons for that insistence, as follows:

The reason why this model came into existence [was] the Council's fears of a majority share of foreign capital in the licence-holder's Company.

When granting the Licence to the Company CET 21, for fear that a majority share of foreign capital in the licence-holder's Company might impact the independence of full-format broadcasts, the Council assumed a configuration that separates the investor from the licence-holder himself. That is how an agreement came into existence (upon a series of remarks from the Council) by which the Company ČNTS was established the majority owner of which is CEDC/CME.

84.
The Media Council thus approved the arrangements between ČNTS and CET 21. It realized that direct foreign investment in television would be unacceptable. It, therefore, blessed a structure that gave the foreign investment the economic benefits of Licence ownership through carefully considered and negotiated contractual arrangements, in the formulation of which, leading to the approval it gave, it actively participated.
85.
CEDC was entitled to rely and did rely on the Media Council's strong official assurances that ČNTS's role and economic position would be closely integrated with that of CET 21 (as the nominal licence-holder) in the formation, management, operation and broadcasting of the new commercial television station.

II. The Role of CNTS

86.
On February 3 and 5, 1993, after CET 21 and CEDC had been informed of the award of the Licence but before the Licence was actually issued, they entered into a pair of nearly identical agreements describing their relationship and establishing the framework under which ČNTS would operate. Each of these agreements described CEDC as "a direct contractual participant within the terms and conditions of this Licence." The February 3 agreement, entitled "Overall Structure of a New Czech Commercial Television Entity," further stated:

1. CET 21 and CEDC will jointly create a new Czech company which will be the only Commercial Company to create and run the TV station. CET 21 and CEDC agree to allow the Commercial Company to have exclusive use of the Licence as long as CET 21 and CEDC have such a Licence.

2. CET 21 and CEDC confirm that neither party has the authority to broadcast commercial television without the other.

(Emphasis added)

87.
The February 3 agreement further provided that "[a]ll operating personnel [of the station] will be employees of the Commercial Company." The agreement stated that within two months following the execution of the conditions to the Licence, CET 21 and CEDC would enter into a more complete agreement respecting the organization of the "Commercial Company" that ultimately became ČNTS. This agreement was submitted to the Media Council which requested changes. It became part of the official file of CET 21's application. The February 5 agreement, entitled "Basic Structure of a New Czech Commercial Television Entity," substantially identical, contained the changes.
88.
After receiving the agreements setting out the terms of the ČNTS structure, the Media Council formally issued Broadcasting Licence No. 001/1993 (the "Licence") on February 9, 1993. The Licence documentation included the "Licence Certificate," the "Licence Decision" and the "Licence Conditions."
89.
Each of these documents expressly linked CEDC and ČNTS to the Licence grant. The Licence Certificate required CET 21 to "ensure that the broadcasting is in accordance with the information stated in the application on the basis of which this Licence was issued." That "information" included the terms of the arrangements between CET 21 and CEDC that had been described to the Media Council and had been specified in the February 5 agreement submitted to the Media Council before the Licence was issued. That "information" also included the Project Proposal that described CET 21 and CEDC as "partners" in the project.
90.
The Licence Decision observed once again the importance of CET 21's "contractual partner, the Company CEDC" to the Licence application process. In listing critical features of the winning applicant, the Media Council explained that the applicant had "demonstrated adequate financing with capital about whose origin and reliability there can be no doubt", and acknowledged with approval "the substantial involvement of foreign capital necessary to begin television station activities".
91.

The Licence Conditions which were labelled "Appendix to Licence" and were made a part of the Licence through the Licence Certificate's requirement that the licensee "observe the conditions stated in the appendix to this Licence", provided a more specific presentation of the rules under which the Licence would operate. Condition 17 expressly required that the Licence be used in accordance with the arrangements between CET 21 and CEDC that had been described to the Media Council during the application process and recorded in the February 3 and 5 agreements. In relevant part, it provided:

The licence-holder agrees:

"17/ that it will submit to the Council for its prior consent any changes in the legal entity that is the licence-holder, capital structure of investors and provisions of the business agreement between the licence-holder and investors. Parties to the business agreement are the licenceholder, CEDC and Ceská spořitelna, in the scope and under the conditions set by the business agreement which will be submitted to the Council within 90 days after the decision to issue the Licence takes legal effect; the business agreement will observe the provisions of the "agreement on the business agreement" between the licence-holder and CEDC [i.e. the February 3/5 agreements that had been submitted to the Council] which is an appendix to the Licence conditions."

"18/ that CEDC, as a party to the business agreement specified in the Licence conditions, and other investors specified by the business agreement, will not in any way interfere in the programming of the television station, and, in particular, will not interfere with the editorial independence of newscasting employees."

92.
With this language, the Media Council not only endorsed, but also made explicitly a part of its Licence grant, the basic contractual agreement between CEDC and CET 21, including the provisions that CET 21 would contribute the "exclusive use of the Licence" into ČNTS, that neither CET 21 nor CEDC would have "the authority to broadcast commercial television without the other," and that all business of the project would be transacted through ČNTS (which would employ all staff). Because the Licence Conditions expressly implicated the rights, obligations and interests of CEDC, and because CEDC was a "direct participant" in the application process, Mark Palmer, the president of CEDC, executed the Licence Conditions for CEDC.

III. The Memorandum of Association

93.
Over the next several months, CET 21 and CEDC negotiated a Memorandum of Association and Investment Agreement (the "MOA") to flesh out the February 3/5 agreements that the Media Council had incorporated into the Licence in Condition 17. The Media Council participated actively in this process, providing comments on drafts before the MOA was finalized to ensure that the MOA reflected the Media Council's views about how the ČNTS arrangement was to be structured. For example, on April 9, 1993, the Media Council wrote CET 21 to request (i) that CET 21 provide a final draft of the MOA for its approval by April 19, (ii) that "the final draft of the contract proposal be in accord with the effective legal status" (making particular reference to "certain comments in the Appendix" containing the Licence Conditions), and (iii) that the parties amend certain provisions of the draft to conform with the requirements of Licence Condition 18. Condition 18 provided that CEDC will not interfere in the programming of the television station with the editorial independence of newscasting employees.
94.

CET 21, CEDC and the Czech Savings Bank agreed upon the final terms of an MOA for ČNTS in April 1993 and submitted it to the Media Council for approval. The MOA provided that CEDC would contribute 75 % of ČNTS's capital and obtain a 66 % ownership interest in return, while the Czech Savings Bank would contribute 25 % of the capital and obtain a 22 % ownership interest. CET 21 contributed no cash, contributing instead "the right to use, benefit from, and maintain the Licence... on an unconditional, irrevocable and exclusive basis," in return for a 12 % ownership interest. ld. at art. 1.4.1. Dr. Vladimir Železný, a shareholder of CET 21, who would eventually become its 60 % shareholder and one of its Executives, was appointed to serve as ČNTS's General Director.

95.
Reflecting the parties' discussions with the Media Council, the MOA recognized that ČNTS would be the operating company for the new television station. Article 3.1 recited that ČNTS's business would include the "development and operation of a new, independent, private national television broadcasting station." Paragraph D of the Preamble similarly confirmed that the station would be "managed" by ČNTS.
96.
On April 21, 1993, the Media Council released a letter confirming that "in accordance with Article 17 of the Conditions to the Licence," it had approved "the submitted version of the Business Agreement between" CET 21, CEDC and Czech Savings Bank at its April 20 meeting. CEDC and the other parties executed the MOA shortly afterward, on May 4, 1993. The Media Council confirmed its official approval of the MOA and all its provisions on May 12, 1993, when it issued a decision changing the wording of the Licence to add, among other amendments, a new sentence in Licence Condition 17 expressly stating that the MOA "is an integral part of the Licence terms."
97.
As a result of its actions, the Media Council gave the imprimatur of the State to CME's investment. The Media Council, established by law to "su-pervise[] the observance of legal regulations governing... television broadcasting" (i) approved the ČNTS arrangement, by requiring in the Licence Certificate that the licensee act in accordance with the facts set forth in the application, (ii) required as a Condition to the Licence that CET 21 and CEDC operate in accordance with the February 3/5 agreements, (iii) expressly approved the MOA, including the provision in which CET 21 contributed the exclusive use of the Licence, and (iv) amended the Licence Conditions to make the MOA an "integral part of the Licence."
98.
The arrangement between ČNTS and CET 21 was thus known to and approved by the State organ responsible for administering television licences. No organ of the Czech Republic challenged it or asserted that it was illegal. Claimant's entire investment in ČNTS being based on this arrangement, it is legally entitled under the Treaty (and under Czech law) to rely on these approvals and to expect the Czech Republic to adhere to the legal arrangements that the Media Council had itself proposed and had formally and publicly endorsed.
99.
The Media Council documents clearly reflect not only substantial Media Council involvement in the negotiation and finalization of the MOA's terms, but also the Media Council's adherence to its original approvals of the ČNTS arrangement until changing political winds prompted a reversal in 1996. In a 1994 opinion responding to a challenge that it had acted improperly in approving the ČNTS arrangement, for example, the Media Council publicly stated:

ČNTS is, by duly registered Memorandum of Association, authorized by the holder of the Licence to perform all acts related to the development and operation of the NOVA TV television station. Participation of CET 21 in the company consists of a non-financial contribution, i.e., the financial valuation of the Licence. The Licence as such has not been contributed to ČNTS and is separate from all other activities of ČNTS.

This is a standard business procedure which was duly discussed and approved by the licensing body, i.e., by the [Media] Council, and does not violate any effective legal regulations. [The Media Council] consulted with a number of leading legal experts, both Czech and foreign [before approving the arrangement].

100.
Similarly, in a report to Parliament for the period from February 1-Sep-tember 30, 1996, the Media Council explained that it was fully aware of and accepted the ČNTS structure:

At the time when [the CET 21-ČNTS] arrangement was made, there were no doubts about its legitimacy; in regard to many related steps that were taken, the Council, as it was then constituted and based on its experience at the time, took a position of consent.

101.

The Media Council's January 1998 Report to Parliament equally acknowledged that it had intended for ČNTS to be a co-participant with CET 21 in all TV NOVA broadcasting:

July 1993: ČNTS... gets registered in the Companies register. It[s] general director is V. Železný. As its subject of activity, ČNTS states "full-format television broadcasts." Two Companies thus appear around one Licence; one that has obtained it, and another that is supposed to co-participate in implementing the broadcasts. The majority partner of ČNTS is CEDC/CME. This model later appears elsewhere too ... and the Council considers it to be legal, it raised legal doubt only later....

Thus, next to the licence-holder's Company, directly linked to it, a new Company was established which was to co-participate in implementing the broadcasts.

From the legal viewpoint, this construction did not and does not contradict any law, but it created a basis for problems....

(Emphasis supplied.)

102.
Given the Media Council's discriminatory position as to foreign investment and ownership of the Licence, neither CEDC nor CET 21 intended that ČNTS would hold the actual Licence. All recognized that the Licence would have to be held nominally by a company owned by Czech nationals. The parties nevertheless envisioned and sought to structure a symbiotic relationship in which the actual operations of TV NOVA, and all of its economics, would be centered in ČNTS, with the contributing partners enjoying the benefit of the station's success in accordance with their equity interests in ČNTS. The documentary record demonstrates conclusively that the Media Council participated substantively in developing this arrangement, formally endorsed its legality, and gave Claimant every reason to conclude that it could commit funds to the project based on this arrangement without fear that the arrangement would later be forcibly dismantled by Media Council actions.

IV. The Formation of TV NOVA

103.
Following the Media Council's approval of the ČNTS structure, CEDC provided capital to ČNTS for the formation and development of the new television station, TV NOVA. ČNTS registered in the Czech Companies Register in July 1993, indicating that one of its activities was "nation-wide television broadcasting," and in February 1994 ČNTS and CET 21 began broadcasting TV NOVA under the Licence.
104.
TV NOVA quickly became the Czech Republic's most successful and profitable private television station, with audience shares consistently above 50 %. In contrast to the experiences of most start-up television operations, TV NOVA became profitable within a year after beginning operations, and grew quickly. By 1995, ČNTS's net income was approximately US $ 23 million, on revenues of approximately US $ 98 million. ČNTS's net income climbed to nearly US $25 million, on revenues of approximately US $109 million, in 1996, and would ultimately exceed US $ 30 million on revenues of slightly under US $ 109 million in the year before ČNTS was shut down and destroyed.
105.

As provided by the MOA and contemplated in all of CEDC's dealings with the Media Council, ČNTS from the beginning performed all of the activities associated with operating and broadcasting TV NOVA. ČNTS acquired all programmes, or produced them in its TV NOVA studios and other facilities, and employed all the personnel needed to operate the station. Editorial decisions were made by CET 21 through Dr. Železný, who became its 60 % shareholder and Executive while also serving as ČNTS's General Director. Pursuant to a June 2, 1994 agreement, ČNTS was authorized by CET 21 to enter into an agreement with Czech Radiocommunications (Ceské radiokomunikace) which would perform the technical tasks of transmitting TV NOVA's signal. All other operational advertising and programming activities took place exclusively within ČNTS. ČNTS also gathered all revenues associated with the television station, using a portion of the revenues to pay all expenses of running TV NOVA and retaining the balance as profit and return on its members cash and non-cash investments. CET 21, meanwhile, had no separate operations. Its offices consisted of two rooms in a different building, i held no assets other than the Licence, and its only employee was a secretary whose compensation was paid by ČNTS

106.

As ČNTS grew and became a prosperous investment, its Czech investors began seeking to realize the profits from their investments by selling their ownership interests in ČNTS. On July 17, 1996, CME purchased the 22 % interest in ČNTS held by the Czech Savings Bank, at the Bank's request, bringing the bank a profit of well over US $ 30 million on an investment of slightly more than US $2 million over the 38 months of its participation in ČNTS, and raising CME's ownership interest in ČNTS to 88 %. In December 1996, CME acceded to a request from CET 21's shareholders that it purchase a 5.2 % interest in ČNTS from CET 21, to accelerate a portion of their return on the investment's success. This transaction raised CME's interest in ČNTS to over 93 %. The shareholders of CET 21 then arranged to pool all but 1% of their remaining interests in ČNTS in a special purpose entity wholly owned by Dr. Zelezny. At Dr. Železný's insistence, CME purchased this entity (and the 5.8% interest in ČNTS that was its only asset) on August 11, 1997, for US $28.5 million, thereby increasing its ownership interest in ČNTS to 99 %, while the local Czech investors retained only the remaining 1 %. As a result of these transactions, virtually the entirety of any gain or loss experienced by ČNTS belonged to CME.

V. The Media Council's Reversal of Position

107.
Three years after the Media Council mandated the creation of and gave express approval to the ČNTS structure, it abruptly reversed its position, repudiated the arrangement it had officially approved, and forced ČNTS to surrender the exclusive right to use the Licence that CET 21 had contributed in return for its equity interest. By a letter dated July 23, 1996, but not sent to ČNTS until August 30, 1996, the Media Council commenced administrative proceedings against ČNTS claiming that ČNTS was "operating television broadcasting without authorization."
108.
The Media Council founded its claim of unauthorized broadcasting on assertions that ČNTS had improperly arrogated power to itself by (i) participating in the "agreements" (and, particularly, the MOA) with CET 21, (ii) including "nation-wide television broadcasting" as one of its recited business activities in its Commercial Register entry, and (iii) entering into contracts with an authors' organization and Czech Radiocommunications in its own name. The Media Council claimed that the Czech Academy Institute of State and Law (the "Academy") had issued an opinion concluding that ČNTS was carrying out "unauthorized broadcasting" based on these three concerns, but the Media Council refused to provide that asserted opinion to ČNTS. The Media Council also indicated that the Czech police had launched a criminal investigation "for suspicion of committing the crime of ‘unauthorized conduct of business' and ‘distorting facts in economic and business records,"' that turned on the same determination as was presented in the administrative proceedings.
109.
The Media Council offered no reason why the activities of ČNTS that it had approved and had permitted to proceed for several years had suddenly become objectionable. While the Czech Parliament had amended the Media Law as of January 1, 1996, Act No. 301/1995 Coll., the Media Council identified no provision of the new law that could serve as justification for its reversal of position under Czech law.
110.
The central motivating concern behind the Media Council's action appears to have been that ČNTS was simply becoming too prosperous, and that Czech political circles looked with disfavour on permitting a company overwhelmingly owned by foreigners to obtain such substantial wealth from an investment in such a conspicuous Czech company using a broadcast Licence allocated by the State.
111.
ČNTS vigorously defended itself against the Media Council's proceedings, contending that it had been operating as agreed with the Media Council in 1993 and had violated no law. As part of this defence, ČNTS contacted the Academy to inquire about the opinion that the Media Council had indicated was a foundation for its proceedings. ČNTS was told that the Academy had not released an opinion at all, and that the Media Council had merely been inaccurately characterizing as an Academy opinion an expression of views by a single individual, Dr. Jan Bárta. In expressing these views, moreover, Dr. Bárta was responding to a hypothetical question put to him by the Media Council that took no account of the history or specific nature of the CET 21-ČNTS arrangements and was worded in conclusory terms calculated to solicit a response unfavourable to ČNTS.
112.
On August 13, 1996 the Academy released its only real opinion on the issues presented by the administrative proceeding which concluded that ČNTS's activities did not violate the Media Law. In direct rebuttal to the Media Council's contention that ČNTS's activities constituted unauthorized broadcasting based on the Licence that had been granted to CET 21 rather than ČNTS, the Academy Opinion asserted that the Media Law permitted a "broadcasting operator" as that term is used in the Media Law (such as CET 21) to use another party (such as ČNTS) to carry out broadcasting, stating:

The realization of broadcasting, through third parties is... not excluded by the [Media Law].... This means that also somebody else than the operator may ensure broadcasting by conclusion of contracts with third parties....

The relationship of [ČNTS] with the licence-holder is in our opinion just such ensuring of broadcasting through third persons.

113.
While the Academy explained that it was not authorized "to assess opinions prepared by [legal] experts" (id. at 2), it made clear that Dr. Bárta's opinion was not an expression of the Academy's views, was directed entirely to the Media Council's irrelevant hypothetical question of what rules should apply if a licence failed to broadcast and an unlicensed party did broadcast, and unwarrantedly failed to address whether a licensee could arrange to have a third party carry out the operational mechanics of broadcasting so long as the operating company did not interfere with the licensee's editorial functions (as had always been ČNTS's practice). ČNTS submitted the Academy Opinion to the Media Council, but that submission did not alter the Media Council's position or even prompt the Media Council to release the opinion by Dr. Bárta on which it had claimed to rely.

VI. The Council Compels CNTS to Alter the MOA

114.
In opposing the Media Council's proceedings, ČNTS had to weigh the risk that if it failed to dissuade the Media Council, ČNTS could face the fines authorized by Section 20 (5) of the Media Law, plus criminal charges against its statutory representatives and Executives, plus revocation of the Licence. Claimant's representatives recognized that while such actions by the Media Council or other Czech authorities might be subject to court challenges, TV NOVA could be destroyed by any such actions even before any such challenge could be resolved. Moreover, there was the risk, acute in light of the political pressures in the Czech Republic arising from the resentment of ČNTS's profitability, that the Media Council's reversal of position, although violative of the Treaty, might be found by a Czech court to satisfy Czech law.
115.
In these circumstances, ČNTS had no choice but to make changes to the MOA to obtain the termination of the administrative proceedings. CME and ČNTS capitulated to the Media Council because they quite reasonably believed they could not win if they opposed the Media Council. Thus, its hand forced by the Media Council, CME agreed to amend Article 1.4.1 of the ČNTS MOA, in which CET 21 had contributed the "right to use" the Licence on an exclusive basis, to provide that CET 21 contributed to ČNTS only the "know-how" connected with the Licence, albeit still on an exclusive basis. ČNTS also amended the description of its business activities in the Czech Commercial Register to delete the reference to "nation-wide broadcasting," again yielding to the Media Council's insistence that ČNTS could not be involved in broadcasting because that was the exclusive province of the licensee.
116.
As part of the package of contractual changes coerced by the Media Council, on May 21, 1997, ČNTS and CET 21 also entered into a new Agreement on Co-operation in Ensuring Service for Television Broadcasting (the "Co-operation Agreement", hereinafter also the "Service Agreement"). This agreement expressly identified CET 21 as the licenceholder and the "television broadcasting operator" of TV NOVA. It further provided that ČNTS had the "rights and obligations... to ensure, according to this contract, service for the television broadcasting that is conducted on the basis of the Licence issued to CET 21, and that ČNTS is authorized to keep an agreed income from this activity." An annex identified the "agreed income" as advertising and related revenues, less CZK 100,000 per month paid to CET 21. The Co-operation Agreement further addressed the Media Council's concerns by stating that ČNTS would enter contracts with the Czech Radiocommunications and authors' organizations on "behalf of CET 21 as the licence-holder and operator of television broadcasting" while providing that ČNTS would continue to pay all the costs of those contracts. Once again, the Media Council reviewed and approved this agreement which was a direct response to the administrative proceedings.
117.
The Media Council dismissed the administrative proceeding against ČNTS in September 1997. Its order of dismissal expressly declared that it had obtained the concessions it required from ČNTS. In a September 1999 opinion to the Czech Parliament, the Media Council made clear that the amendment of the MOA had been a primary condition for the Media Council's termination of the proceedings, stating that through the 1996 proceedings "the Council made the licence-holder to remedy certain legal faults in the Memorandum of Association." In connection with the resolution of the administrative proceedings, the Media Council cancelled Condition 17 of the Licence.
118.
The agreements for the creation of ČNTS that the Media Council originally approved had not characterized ČNTS as a mere provider of "services," but rather as the manager of the station and as a co-participant in broadcasting with exclusive rights to use the Licence. Nonetheless, at the time when ČNTS made the concessions compelled by the Media Council, Claimant's representatives were hopeful, and expected, that the resulting amendments to the MOA would not alter ČNTS's position as the exclusive manager of TV NOVA and as the economic and operational center-piece of the enterprise. They did not yet know that the changes that the Media Council had lawlessly extorted would become the basis for the destruction of ČNTS.

VII. The Destruction of Claimant's Investment

119.

The consequences to the Claimant of the Media Council's actions in 1996 and 1997 began to become apparent in 1998. At that time, CET 21 and Dr. Železný - having virtually no remaining economic interest in ČNTS - began taking steps to dismantle the exclusive arrangement between ČNTS and CET 21 that had been the foundation for CEDC's original investment in TV NOVA and had been in place since TV NOVA began operations. Those steps were made possible by the Media Council's prior actions, and were carried out with the Media Council's connivance and active assistance.

120.

In mid-1998 and continuing thereafter, Dr. Železný began to demand with increasing frequency and intensity that CME agree to fundamental changes in the arrangement between ČNTS and CET 21. While the specific changes Dr. Zelezny was demanding varied over time, all would have required CME to make substantial economic and contractual concessions to its great financial detriment. Various proposals would have required, for example, that CME agree to delete all references to exclusivity in agreements between CET 21 and ČNTS and permit CET 21 to obtain business from other providers, that CME pay a portion of TV NOVA's revenues to CET 21, and that CME agree to release all obligations from CET 21 to ČNTS at the end of the current Licence period, while surrendering its existing rights to participate in any Licence renewal.

121.

The Media Council's actions in 1996, along with the threat of future Media Council action against ČNTS, formed Dr. Železný's primary foundation for these demands. In discussions with Michel Delloye (then CME's President and Chief Executive Officer) and later with Mr. Delloye's successor, Fred Klinkhammer, Dr. Železný repeatedly insisted that the changes he demanded were needed because the Media Council's 1996 administrative proceedings and the resulting amendments to ČNTS's MOA had ended any contractual obligation of exclusivity in the relationship between ČNTS and CET 21. He also contended that the Media Council strongly disfavoured exclusivity, was continuing and would continue to pressure ČNTS to surrender all exclusive arrangements with CET 21, and would take further action if CME refused to make these changes. In late 1998, Dr. Železný caused CET 21, without CME's consent, to begin acquiring programming through sources other than ČNTS.

122.

The agreement between the parties that ČNTS would manage TV NOVA and gather all revenues, and the commitment that CET 21 would use its best efforts to obtain the renewal of the Licence in 2005 and to continue the relationship between CET 21 and ČNTS, had been the predicates for CME's investment. Therefore, CME could not let ČNTS be bullied by Dr. Železný into accepting an arrangement according to which CET 21 would elect whether to use ČNTS or some other service provider for each particular line of activity, and pay ČNTS only for the work CET 21 might ask it to perform. Likewise, it could not agree to a termination of the relationship between ČNTS and CET 21 at the end of the current Licence period which Dr. Železný was insisting on. Each of these changes would have had an enormously adverse effect on the value of CME's investment.

123.

Over time, Dr. Železný began to threaten that CET 21 would sever all relations with ČNTS if CME did not capitulate to his wishes, relying again on the Media Council's 1996 actions terminating CET 21's contribution to ČNTS of the exclusive "right to use" the Licence and on the continuing pressure assertedly being exerted by the Media Council to alter the relationship. At a February 24, 1999 ČNTS board meeting, for instance, Dr. Zelezny demanded that CME agree to pay CET 21 4 % of TV NOVA's gross revenues and replace the Co-operation Agreement with a collection of new agreements directed to separate areas of service being provided by ČNTS. These proposed new agreements would have permitted CET 21 to acquire services from sources other than ČNTS and to pay ČNTS only for particular services acquired from ČNTS, would have eliminated ČNTS's right to collect and keep all revenues from advertising, and would have provided that CET 21's relationship with ČNTS would extend only until the end of the current Licence period on January 30, 2005. These changes were needed, Dr. Zelezny asserted, because the Media Council continued to disapprove of any exclusive arrangement between CET 21 and ČNTS and would shortly issue a statement that the arrangement was "not correct." Dr. Zelezny threatened that if CME did not agree to this "ultimatum," CET 21 would hire another company to sell TV NOVA's advertising time and shift advertising revenues away from ČNTS - a step that Dr. Zelezny asserted CET 21 was free to take because the changes to the MOA mandated by the Media Council in 1996 had left CET 21 with no obligation of exclusivity toward ČNTS.

124.

The arrangements demanded by Dr. Železný in 1998 and 1999, based on the Media Council's past actions and threatened future actions, were a far cry from the original arrangement, in which (in the Media Council's words) "two companies" would "appear around one Licence," with ČNTS, as a "co-particip[ant] in implementing the broadcasts, "performing" all acts relat[ing] to the development and operation of the NOVA TV" in an exclusive bond with CET 21 that was to last as long as CET 21 held the Licence.

125.

In fulfilment of the threats by Dr. Železný, in early 1999 the Media Council went beyond its 1996 reversal of position leading to the forced amendment of the MOA. Now it provided active assistance to Dr. Železný in his campaign to eliminate ČNTS'S exclusive position respecting CET 21. On March 3, 1999, a few days after threatening CME that the Media Council would issue a letter supporting his position, Dr. Železný surreptitiously wrote the Media Council to solicit a declaration from it that exclusive relations between the licensee and service provider were legally impermissible, particularly as a result of the Media Council's 1996 action "withdrawing the use of the Licence from a service organization [ČNTS] and taking it back for the licensed holder". Dr. Železný's letter asked the Media Council to confirm in writing that:

Relations between the operator of broadcasting and its service organizations must be established on a nonexclusive basis, because exclusive relations between the licence-holder and the service organization may encourage the transfer of some functions and rights that are dependent on the Licence and that are not transferable by law.

126.

Dr. Železný further sought confirmation that "CET 21 s.r.o. will act, function, and proceed as an operator, and therefore, it has to carry out relevant managerial, administrative and accounting tasks, and must build up its own company structure" - an express request for a mandate that ČNTS should no longer perform the managerial functions it was created to perform. He additionally sought a declaration that revenues from advertisements "must be revenues of CET 21," although they had always been collected and, after payment of expenses, retained exclusively by ČNTS.

127.

Dr. Železný did not hide his motives for seeking these confirmations in the form of a Media Council declaration. He told the Media Council that "[w]e would like to use this opinion for discussions with our contractual partners, without disclosing other internal matters of our company." Brazenly, he explained that he wished to use the Media Council's declaration to restructure the arrangement with ČNTS in critical ways, including not only by "build[ing]-up" CET 21 to perform management functions previously performed by ČNTS and by having CET 21 rather than ČNTS collect all advertising revenues, but also by replacing existing contracts with ČNTS with new short-term contracts that would permit the use of new service providers other than ČNTS and would terminate all obligations to ČNTS upon any Licence renewal.

128.

Instead of refusing to make the proclamations Dr. Železný had proposed on the basis that they were flatly at odds with entitlements for ČNTS that the Media Council had expressly approved, the Media Council sent Dr. Zelezny a letter on March 15, 1999, parroting nearly verbatim from his request the language respecting exclusivity:

Business relations between the operator of broadcasting and service organizations are built on a nonexclusive basis. Exclusive relations between the operator and the service organization may result in de facto transfer of some functions and rights pertaining to the operator of broadcasting and, in effect, a transfer of the Licence.

129.

The Media Council also stated that CET 21 "operates, functions and acts as an operator, i.e., carries out relevant administrative and accounting tasks," and that all advertising revenues must be treated as revenues of CET 21. In issuing this letter, the Media Council did not disclose that it was adopting the language and the analysis Dr. Železný had proposed, or that it had received a letter from Dr. Železný asking it to express these views.

130.
The Media Council stated in its March 15 letter that the fulfilment of these so-called "requirements" had been the "precondition" for its termination of the 1996 administrative proceedings against ČNTS, and that it believed these requirements had been "confirmed by changes in the Memorandum of Association." The positions set forth in the letter, like the 1996 administrative proceedings, were wholly at odds with the Media Council's 1993 approval of the MOA which gave ČNTS the exclusive right to use the Licence and established ČNTS as the manager of TV NOVA, and on the basis of which approval ČNTS had acted for years as the exclusive source of managerial, administrative and other business activity for TV NOVA. The issuance of the letter was also beyond the scope of the Media Council's authority under the Media Council Act which authorizes the Media Council only to adjudicate rights and obligations in the context of administrative proceedings - not to issue ex parte declarations in support of one party to a dispute.
131.

Dr. Železný used the Media Council's letter as conclusive proof that the existing exclusive arrangement between ČNTS and CET 21 had to be changed. Based on the letter, over the succeeding weeks he continued to take steps to destroy that exclusive arrangement. On April 19, 1999, CME concluded that given Dr. Železný's lack of loyalty - indeed, given his outright hostility to CME's essential interests and those of ČNTS - it had no alternative but to recall Dr. Železný from his position as General Director of ČNTS. Dr. Železný responded by publicly pursuing the development of entities whose mission was to replace ČNTS in the performance of the activities necessary to operate TV NOVA. Finally, on August 5, 1999, three and a half months alter his termination, Dr. Železný caused CET 21 to sever its dealings with ČNTS altogether, and to begin broadcasting TV NOVA using the services of new companies under his direction. Since that date, ČNTS has performed no services for CET 21 and has generated no revenues. It has been forced to lay off nearly all of its workforce. It has essentially gone out of business.

132.
The pivotal role that the Media Council played in bringing about this State of affairs is apparent from CET 21's August 16, 1999 letter to CME's shareholders. In it, CET 21 again pointed to the Media Council's actions in 1996 and 1999 as the basis for the August 5 termination of its dealings with ČNTS, echoing many of the statements in the Media Council's January 1998 report to the Czech Parliament. CET 21 recited, for instance, that the "partnership structure" that the Media Council approved in 1993 had been "consistently criticized" by "legislati[ve], regulatory and State bodies of the Czech Republic" in succeeding years, on the basis that it provided "excessive powers to foreign investors." These criticisms, CET 21 alleged, combined with the "serious political and social problems" caused by the perception of CME's "extraordinarily high revenues," were the forces that had prompted the Media Council to open the 1996 administrative proceedings against ČNTS and demand that ČNTS amend its MOA. CET 21 also asserted that it was not required to maintain the exclusive relationship with ČNTS, because the "exclusive link" between the two companies had been "terminated" with the 1996 amendment of the MOA. CET 21 additionally referred to the Media Council's March 15, 1999 letter as proof that the Media Council would not tolerate an exclusive arrangement, not only because of the Media Council's view of the Media Law, but also on the ground of CME's focus "on its immediate short-term profit."

VIII. The Media Council's Failure to Fulfil its Obligation to Protect Claimant's Investment

134.
CET 21's actions were in direct violation of the Licence which explicitly required CET 21 to broadcast in accordance with the premises described in its Licence application, and were in violation of the undertakings by CET 21 that the Media Council had expressly identified as a basis for issuance of the Licence in Condition 17. The statement of facts submitted with the Licence application included an explanation of the proposed "partnership" with CEDC in the Project Proposal. The same facts as to the arrangement between CET 21 and CEDC were addressed in discussion during oral hearings before the Media Council. The statement in the original version of Condition 17, that the February 3/5, 1993 agreements were attached as an appendix to the original Licence, makes clear that the agreement between CET 21 and CEDC was part of the set of critical "facts" on which the Media Council based its Licence grant. After CET 21 repudiated its exclusive relationship with ČNTS, it was no longer broadcasting through TV NOVA in compliance with the facts set forth in its application for the Licence. The Media Council consequently could and should have acted under the Media Law - even apart from its obligations under the Treaty - and forced CET 21 into compliance with its obligations under the threat of the revocation of the Licence.
135.

However, the Media Council has repeatedly refused to take such action, and other organs of the Czech Republic have equally refused to intervene, despite the pivotal role that the Media Council played in bringing about the loss of ČNTS's exclusive right to use the Licence. Since June 1999, ČNTS and CME have repeatedly asked the Media Council and other Czech bodies to redress these breaches of the Licence, the Media Law and the Treaty:

• In a June 24, 1999 letter to the Media Council, ČNTS identified the Media Council's approval of the ČNTS arrangement as the basis for the issuance of the Licence, and asked the Media Council to intervene against the unlawful actions by Dr. Zelezny and CET 21 to repudiate that arrangement. ČNTS followed this request with a letter specifically pointing out that ČNTS's continued participation in CET 21's broadcasting was a requirement of the Licence.

• On August 2, 1999, ČNTS and CME wrote to the Permanent Committee of the House of Representatives of the Czech Parliament ("Parliamentary Media Committee") challenging the Media Council's policy of passivity in respect to Dr. Železný's actions and asking that the Media Council (which is answerable to Parliament) be directed to take action. This letter was accompanied by a detailed factual summary with supporting documentation.

• On August 6, 1999, the day after Dr. Železný caused CET 21 to terminate all dealings between CET 21 and ČNTS, ČNTS asked the Media Council to commence Licence revocation proceedings against CET 21 "due to its... material breach of the conditions arising out of the decision granting the Licence, of the obligations stipulated by the [Media Law] and obligations stipulated by other above-stated legal acts."

• On August 13, 1999, ČNTS again asked the Media Council to address CET 21's breaches of the conditions to the Licence and the Media Law, including the failure "to perform the broadcasting in accordance with the facts which it stipulated in the application."

136.

In response to these repeated requests for action, the Media Council publicly characterized the actions of CET 21 and Dr. Železný as mere manoeuvres in a commercial dispute that should be resolved by the private parties, and not by State action. With its July 26, 1999 letter to ČNTS, the Media Council enclosed an excerpt from its most recent report to the Parliamentary Media Committee, in which it stated that the dispute between CME and CET 21 was of a "commercial nature," in which the Media Council had "no legal reason or right to interfere." The Media Council has continued to adhere to this position in subsequent public statements. Thus, the Media Council failed to take responsibility for the role it had played in igniting the dispute, ignored its own regulatory obligations to address the resulting violations of the Licence and the law, and has refused to fulfil its obligation, binding on all organs of the Czech Republic, to comply with the Treaty.

IX. The Czech Republic's Additional Continuing Violations of the Treaty

137.

Since this arbitration was filed, the Czech Republic has continued to breach its obligations to provide Claimant's investment full security and protection, and has continued to take actions (or has refused to act) in ways that, at Claimant's expense, improperly favour the Czech investors in CET 21. For example, the Media Council has affirmatively assisted Dr. Železný in evading the effectiveness of orders of an ICC arbitral tribunal. On November 10, 1999, CME obtained an order of interim measures in an ICC arbitration initiated against Dr. Zelezny, directing him to use his control over CET 21 as its Executive and majority shareholder to restore the partnership between CET 21 and ČNTS to its prior position of economic exclusivity. Dr. Železný refused to comply with this order.

138.

ČNTS gave the Media Council a copy of the ICC tribunal's order. Nevertheless, the Media Council approved, on December 21, 1999, a plan by which Dr. Železný, in a sham transaction, transformed his majority shareholding in CET 21 into a minority shareholding, so as to be able to foil the ICC tribunal's order by asserting that he could no longer exercise a 60 % shareholder's power over CET 21. The sham was apparent: Close associates of Dr. Železný agreed to contribute only CZK 4.8 million (less than US $ 150,000) to the capital of CET 21, paid nothing to Dr. Železný, and were issued large nominal interests in CET 21 designed to dilute Dr. Železný's interest to approximately 12 %. The Media Council had full knowledge of the ICC tribunal's order, and ČNTS explained the sham to the Media Council in a letter dated November 18, 1999. CET 21 was required to obtain the Media Council's approval for the transaction. The Media Council approved this recapitalization. The Media Council's approval brought Dr. Železný the goal he had sought: In an April 17, 2000 ruling, the ICC tribunal amended its order by withdrawing the directive that Dr. Železný use his control over CET 21 to restore ČNTS'S exclusivity, stating that Dr. Železný no longer possessed the majority control over CET 21 that he needed to comply with the order.

139.

In addition to helping Dr. Železný avoid his obligations to the foreign investors in ČNTS, the Czech Republic has disregarded criminal wrongdoing by Dr. Železný directed against CME's investment. On October 14, 1999, ČNTS filed a criminal complaint against Dr. Železný with the Prague State Attorney's Office. To date, neither the Czech police nor the City or State Attorney's Office has taken any action with respect to ČNTS's complaint.

X. Other Legal Actions by CME or CNTS Apart from this Arbitration

140.
Several actions have been brought in Czech court by both ČNTS and CET 21. On May 4, 2000, the Prague Regional Commercial Court held in an action initiated by ČNTS that CET 21 was obligated under the 1997 Co-operation Agreement to procure all services for the operation of TV NOVA exclusively through ČNTS.
141.
CET 21 has refused to comply with this decision. Despite a request by ČNTS, the Media Council has refused to take any action based on the Court's decision.
142.

CME's ICC arbitration against Dr. Železný alleges that he personally breached the August 11, 1997 Share Purchase Agreement pursuant to which CME acquired a 5.8% interest in ČNTS held by an entity that Dr. Železný owned. On February 9, 2001 the ICC International Court of Arbitration rendered the Award ordering Dr. Železný to pay US $23.35 million to CME Media against the return of the NOVA Consulting shares.

143.
Ronald S. Lauder, the ultimate controlling shareholder of CME, has himself brought an ad hoc arbitration against the Czech Republic pursuant to the bilateral investment treaty in force between the United States and the Czech Republic (the "US Treaty"). The factual predicate of the claims in that proceeding are virtually identical to the factual predicate of this action. An award in favour of Mr. Lauder restoring ČNTS to the exclusive position it held before Respondent's breaches and providing him damages for the losses he has suffered as a result of those breaches could be of substantial assistance to CME and reduce the damage suffered by CME as a result of Respondent's breaches. Such an award would not, however, make CME itself whole.
144.
Claimant, ČNTS and Mr. Lauder have properly taken multiple measures to seek to protect their interests and recover for the harm they have suffered in this matter. The existence of other claims neither erases Respondent's egregious violations of binding international obligations nor excuses Respondent from its obligation to remedy those breaches and their proximate results.

E. Claimant's Argument

I. CME's Entitlement to Assert a Claim under the Treaty

145.
As a "legal person[] constituted under the law" of The Netherlands, CME is an investor subject to the protections of the Treaty. Exh. Cl at art. l(b). CME directly holds a 99 % ownership interest in ČNTS.
146.
The Treaty protects "investments" in the Czech Republic that are made by Dutch investors. The Treaty defines "investment" broadly, to include "every kind of asset." Treaty at art. 1(a). Examples of protected investments enumerated in the Treaty include "movable and immovable property... rights," "shares... and other kinds of interests in companies and joint ventures, as well as rights derived therefrom," "title to... assets and to any performance having an economic value" and "intellectual property, also including technical processes, goodwill and know-how." Id.
147.
CME's ownership interest in ČNTS, and all that CME has directly or indirectly invested to obtain that ownership interest and cause it to grow, plainly constitutes an investment in the Czech Republic within the meaning of the Treaty. The investment assets of CME in the Czech Republic also plainly include ČNTS's tangible and intangible property - including its buildings, studio equipment, and intellectual property rights, such as its rights to air licensed programmes - and CME's and ČNTS's legal interest in maintaining the exclusive business arrangement between ČNTS and CET 21, all of which CME owns either directly or indirectly by virtue of its 99 % ownership interest in ČNTS.

II. The Czech Republic's Obligations under the Treaty

148.
The Treaty imposes five central obligations on the Czech Republic: (i) not to deprive investors of their investments, directly or indirectly, if such deprivation is unlawful or without compensation; (ii) to treat investments fairly and equitably; (iii) not to impair the enjoyment of investments by unreasonable or discriminatory measures; (iv) to provide investments full security and protection; and (v) to ensure treatment of investments that complies with the standards of international law.

1. The Obligation Not to Deprive Investors of Their Investments

149.
Article 5 of the Treaty provides that "[n]either Contracting Party shall take any measures depriving, directly or indirectly, investors of the other Contracting Party of their investments," unless the deprivation is "taken in the public interest and under due process of law," is carried out non-dis-criminatorily, and is accompanied by just compensation.
151.
The Treaty avoids any narrow definition of expropriation in part by avoiding the use of that word altogether. The Treaty focuses on the interference in the investor's ownership, rather than any transfer of the investment to the State, by prohibiting "deprivations" rather than "takings." Article 5 further expressly adopts the international rule against unlawful indirect expropriations (measures may not be taken "depriving, directly or indirectly," investors of their investments).
152.
A deprivation effected by coercing an investor's agreement to changes in its investment's status violates the Treaty in the same measure as a direct taking. Attempts by State defendants to use "consent" obtained from an investor on pain of administrative sanction to defend State conduct have a long pedigree in expropriation cases. States often "take the circuitous route of expropriation by consent," either due to a "recognition of the existence of an international [prohibition against expropriation] or out of a practical desire not to advertise their defiance of it."
153.
The Czech Republic's actions in this case - threatening destruction of CME's investment through regulatory proceedings once the foreign investor's profits appeared too large - fall within this recognizable pattern:
154.
The "expropriation by consent" that the Czech Republic extorted from ČNTS through its administrative proceedings is no more permissible under international law than the outright appropriation of an investment.

2. The Obligation of Fair and Equitable Treatment

3. The Obligation Not to Engage in Unreasonable and Discriminatory Treatment

4. The Obligation of Full Security and Protection

161.
The Treaty stresses the primacy of its "full security and protection" standard over domestic limitations by making clear that the more favourable of domestic or most favoured nation protections is a necessary, but not of itself sufficient, component of what must be accorded to investors of the other Contracting Party. Exh. Cl at art. 3 (2).

5. The Obligation of Treatment in Accordance with Standards of International Law

162.
The Treaty contains a broad provision requiring the Contracting Parties to treat investments at least as well as required by "obligations under international law existing at present or established hereafter between the Contracting Parties... whether general or specific." Treaty at art. 3 (5). In addition to all obligations under treaties or otherwise, general principles of international law require host States to provide certain minimum protections to international investments.

III. The Czech Republic Has Violated Its Treaty Obligations

1. The Czech Republic Is Responsible for the Media Council's Conduct

163.
The Media Council is an official organ of the Czech Republic established as an administrative body by the Media Council Act. The Czech Republic is responsible under the Treaty for the Media Council's conduct, based on the well-established principle that a State is responsible for the wrongful acts of its instrumentalities or agents.
164.
A State bears international responsibility for the actions of its instrumentalities or agents even if the conduct at issue was beyond the agent's authority under domestic law.
165.
The Media Council's official endorsement of the MOA and related agreements which led to Claimant's initial investment thus gave Claimant legally enforceable rights under the Treaty irrespective of whether the endorsement was valid under Czech law (as it was) or whether the Media Council's subsequent reversal of position and failure to intervene to protect ČNTS were valid under Czech law (as they were not).

2. The Media Council's Conduct has Violated the Czech Republic's Treaty Obligations

166.
Respondent has violated each of the foregoing Treaty obligations with respect to CME's investment. The 1993 structuring of the investment through ČNTS was the product of the Media Council's own instigation and approval. The Media Council's 1996 reversal of its own 1993 action approving the partnership between ČNTS and CET 21, as spelled out in the February 1993 agreements and the MOA, violated its obligations not to deprive Claimant of its investments, to provide fair and equitable treatment, not to take unreasonable and discriminatory actions, to provide full security and protection for Claimant's investment, and to act in compliance with principles of international law.
167.

The Media Council's continued connivance with Dr. Železný to destroy the exclusive relationship between ČNTS and CET 21 constituted a further breach of its Treaty obligations, including particularly its obligations to provide full security and protection to Claimant's investment. Indifferent to the Czech Republic's affirmative obligation of protection, the Media Council actively assisted Dr. Zelezny's efforts, most notably by issuing its March 15, 1999 declaration to support Dr. Železný's avowed effort to eliminate the exclusive economic relationship between ČNTS and CET 21 that had been the foundation of CME's investment. The Media Council's willingness to put forward Dr. Železný's views as its own was unambiguously calculated to gut the "partnership" that had been entered between ČNTS and CET 21 in 1993 at the Media Council's instigation and with its full support.

168.
Respondent further breached its obligation to provide full security and protection to Claimant's investments when both the Media Council and the Parliament refused all requests for intervention to protect ČNTS, although at the time of such requests ČNTS was being destroyed by the Media Council's reversal of its original approval of the exclusive arrangements it had brought about between ČNTS and CET 21.
169.

ČNTS did not lose its entire business and revenues simply as the result of market forces or a private business dispute, as the Media Council has asserted. The ground for Dr. Železný's termination of the relationship between ČNTS and CET 21 was laid by the amendments to the MOA that the Media Council coerced, since CET 21 could not have severed an arrangement in which ČNTS was entitled to the exclusive right to use the Licence. Even after that wrongful severance which the Media Council facilitated, ČNTS would not have been forced to discontinue its business operations if the Media Council had fulfilled its obligations under the Treaty and Czech law by restoring ČNTS to the exclusive position with respect to CET 21 that the Media Council had approved in 1993.

170.

The Media Council's course of dealings - including its initial requirement that the Licence be held by Czech nationals, its commencement of the unfounded administrative proceedings against ČNTS, its actions forcing ČNTS to weaken the contractual underpinnings that were the basis of Claimant's investment, its articulation of a policy disfavouring the exclusive economic relationship it had helped to structure and had approved, and its failure to act to protect ČNTS's interests - enabled Dr. Železný to take actions that have destroyed the value of Claimant's investment. The Media Council's actions and refusals to act have effected a deprivation of Claimant's investment by the Czech Republic that fails to meet the Treaty's requirements of public purpose, due process, non-discrimination and adequate compensation.

IV. The Czech Republic Is Required to Remedy Its Breaches of the Treaty

171.
The Czech Republic has an obligation under international law to remedy its Treaty violations. The Permanent Court of International Justice recognized more than seventy years ago that States must be required to remedy violations of international treaties, noting that "[i]t is a principle of international law that the breach of an engagement involves an obligation to make reparation" in an adequate form.

F. Position of the Respondent

I. Introduction

172.
The Czech Republic acknowledged its obligations under the Treaty and confirms that it is committed to providing fair and equitable treatment to investment by Dutch nationals and companies. The Czech Republic's position is, however, that it is an abuse of the protection afforded by the Treaty for CME to have brought this arbitration against the Czech Republic.
173.

The claims brought by CME relate to a private commercial dispute between the CME group and its former business partner, Dr. Vladimír Železný. The essence of CME's complaint is that Dr. Železný procured the wrongful termination of the contractual relationship between the broadcast licence-holder CET 21 and a provider of broadcast services ČNTS. The Czech Republic is not a party to any contract involving ČNTS. The Treaty is not intended as a means of resolving commercial disputes arising out of private contractual arrangements between two private parties.

174.

CME/ČNTS brought legal proceedings against Dr. Železný/CET 21 in the Czech courts alleging wrongful termination of this contractual relationship. In those proceedings, CME/ČNTS alleged that Dr. Železný/CET 21 deprived CME/ ČNTS of their investment in the Czech Republic.

175.

On 4 May 2000 the Regional Commercial Court in Prague has held that CET 21 wrongfully terminated the Service Agreement with ČNTS and that ČNTS is to be the exclusive service provider to CET 21. (The judgment was reversed in 2000 by the Court of Appeal). Dr. Železný/CET 21 caused the loss of which CME complains in this arbitration. Those proceedings confirm that there is no substance in CME's argument that it is the Czech Republic that has deprived CME of its investment. Those proceedings raise a res judicata and issue estoppel in respect of the issues pleaded and decided therein.

176.
The judgment discloses no wrongdoing by the Czech Republic which could give rise to a cause of action under the Treaty.
177.
As a further abuse of the Dutch Treaty, Mr. Lauder, who purportedly controls CME, has brought arbitration proceedings under the "US Treaty" in which Mr. Lauder makes identical allegations and seeks identical relief.
178.
CME fails to establish that the contractual relationship between ČNTS and CET 21 constitutes an asset of CME invested in the Czech Republic.
179.

The Czech Republic requests dismissal of CME's claims on grounds of lack of jurisdiction:

(a) CME has not established that it has an asset invested in the Czech Republic as defined in the Treaty;

(b) CME's claim is not an investment dispute as defined in the Treaty, but is of a private commercial nature with Dr. Železný/CET 21; and

(c) CME may not concurrently pursue the same remedies in different fora;

further and/or alternatively, on grounds of lack of admissibility:

(a) CME has pursued the same remedies in other fora; and

(b) CME has failed to plead any loss.

180.
The Czech Republic denies that there has been any breach of the Treaty or of Czech law by the State or any of its instrumentalities.

II. The Treaty

181.
The Czech Republic relies on the terms of the Treaty for its full terms and effect and agrees that it is bound by the Treaty as from 1 January 1993.

III. The Media Law

182.
The Media Law of 30 October 1991 provided, amongst other things, for the issuing of a Licence by the Media Council to a "broadcasting operator".
183.

Article 10 set out the "Conditions for granting a Licence" and provided, inter alia:

"(1) A Licence authorizes its holder to broadcast in the scope and under the conditions set in it.

(2) A Licence is not transferable.

(4) In evaluating the application (§ 11), the licence-granting bodies give consideration to ensuring the conditions for plurality and balance in the programme services offered, especially local programme services, equal accessibility of cultural values, information and views, as well as ensuring the development of the culture of the nations, nationalities and ethnic groups in the Czech and Slovak Republic, and the extent of the applicant's previous business activities in the area of mass media.

(5) In evaluating the application, the licence-granting bodies see to it that none of the applicants will gain a dominant position in the mass media.

(6) In evaluating applications from companies with foreign equity participation, the licence-granting bodies take into consideration the applicant's contribution to the development of original domestic work, as well as the equity holdings of Czechoslovak natural persons and legal entities, and their representation in the company's bodies."

184.

Article 11 concerned the "Licence application" and provided, inter alia:

"(3) Only the person or entity who is applying for a Licence is a party to the Licence proceedings."

185.

Article 12 concerned the "Decision to grant a Licence" and provided, inter alia:

"(3) In addition to conditions stated in paragraph 2, the decision to grant a Licence also includes conditions which the licence-granting body will set for the broadcasting operator."

The power to impose conditions was, however, removed in 1996.

186.

Article 14 concerned "Changes in the licence" and provided, inter alia:

"(1) A broadcaster is required to notify the body which issued the Licence of all changes relating to the data stated in the application or the fulfilment of the conditions set in the licence and submit documentation of them within 15 days after these changes occur...

(2) On the basis of the notification under paragraph 1, the licence-granting body, depending on the circumstances of the case, will decide on a change in the granted Licence or will revoke the Licence (§ 15)."

187.

Article 15 concerned "Revoking a Licence" and provided, inter alia:

"(1) The body which granted the Licence shall revoke it from the licence-holder if:

(a) the licence-holder no longer meets the prerequisites for granting a Licence specified in § IO par. 6 and 7;

(c) changes have occurred concerning the licence-holder which do not permit fulfilment of the conditions set in the Licence [this provision was removed in 1996]

(2) The body which granted the Licence may revoke it if

(a) the licence-holder violates in a serious manner the conditions set in the Licence, duties specified by this Act or by other generally binding legal regulations;"

188.
Article 20 concerned "Fines" and gave the Media Council the power to impose fines if the licence-holder violated its duties set by the Media Law or the Conditions to the licence. In addition, Article 20 (6) provided that a fine will be imposed on anyone who broadcasts without being authorised to do so. The fine could be between CZK 10,000 and CZK 2,000,000.

IV. The Media Council

189.
On 21 February 1992, the Czech Parliament passed an Act (Act No. 103/1992 COll.) establishing the Media Council or "Council". The function of the Council was to supervise the observance of legal regulations governing radio and television broadcasting, including the observance of the Media Law.
190.
The Council has at all times been an autonomous body, independent of the Government and answerable to the Czech Parliament under Article 3 (5) of the Media Law and Article 29 of the Act on Competencies of State Institutions. It has nine members elected by the Czech Parliament. Members of the Council may not be

V. Grant of the Licence to CET 21

191.
In 1992, the Council commenced proceedings for the issue of a new Licence for broadcasting commercial television, pursuant to the procedures prescribed in the Media Law. The Council had special regard to the urgency and importance of such task at a time when no competition existed in Czech television broadcasting.
192.
The Licence was not to be issued through a tender process (in the sense that it would be awarded to the bidder with the most advantageous financial package to the Government). The Licence was to be issued after a public enquiry which examined the viability and suitability of all submitted bids.
193.

The Council invited bidders. Over 20 applications were received, one of which was CET 21, represented by Dr. Zelezny. In April 1993, Dr. Železný acquired a 17 % interest in CET 21. In August 1996 he increased his interest to 60 %.

194.
The Media Law did not bar foreign parties from effectively holding television licences. The Media Law merely stipulated, as many countries do, that a legal entity could only become a licence-holder if it had a registered office on the territory of the Czech Republic and was registered in the Commercial Register. CEDC never applied to the Media Council for a Licence. CME has failed to establish that it assumed the rights and obligations of CEDC as a matter of law.
195.
CEDC could have applied for a Licence on its own through a Czech registered company. CEDC chose not to. Neither CEDC (nor later CME) ever raised any formal complaint with the Council or the Government at the time. The Czech Republic has also no knowledge of whether CEDC and CET 21 contemplated pursuing a joint application for a Licence. In any event, only CET 21 submitted an application, dated 27 August 1992.
196.

CET 21's application was supported by a document entitled "Project for an independent Television Station". It explained that, inter alia, financial backing would be provided by CEDC, the shareholders of which were said to be part of the "Lauder group". CET 21 stated in the Project Proposal, submitted with its application, that CEDC was a "direct participant in CET 21's application for the Licence". However, neither the Media Law, nor Czech law in general, recognises any legal term or gives any legal definition to the term "direct participant ". The Project Proposal itself made clear that it was CET 21, and CET 21 only, that was applying for the Licence. The applicant for the Licence was named as CET 21.

197.
In mid January 1993, CET 21 provided the Council with a "business plan" which set out in detail the expected revenues and expenses of CET 21 and CNTS.
198.
The Council received assistance from a Council of Europe expert mission. It evaluated the business plans of the projects. CET 21 and two other companies had the best plans. The Council then had to choose one of the three shortlisted applicants, having regard to the criteria in Article 10 of the Media Law. CET 21 was chosen.
199.
The Council, by letter dated 30 January 1993, informed CET 21 that it had been granted a Licence for nation-wide broadcasting. It was clearly understood by Council members such as Dr. Josefík that the applicant for the Licence was CET 21 alone and that CEDC would be a future investor. The letter referred to CEDC being a "direct participant to the application". That reflected the understanding that CEDC would be an investor in the project, and this phrase had no legal significance under the Media Law. In addition to the financial considerations, members of the Council such as Dr. Josefík voted in favour of CET 21 because their broadcasting format appeared most likely to provide competition to the existing public television stations and to provide a plurality of views.
200.
Accordingly, as a matter of Czech law, any rights and obligations prescribed by the Media Law and the Licence are only given to and assumed by the party that made the application and is named in the Licence.
201.
The Council did not violate the Treaty including in particular by not permitting foreign ownership of the Licence. No political pressure took place. The Media Law does not preclude foreign investment in the broadcasting industry. It only requires that the broadcasting Licence be held by an entity which has a registered office in the Czech Republic and which is registered in the Commercial Register.
202.

After the announcement of the decision, CET 21 and CEDC entered into two agreements: the "Overall Structure of a Czech Commercial Television Entity" of 3 February 1993 and the "Basic Structure of a New Czech Commercial Television Entity" of 5 February 1993. Both agreements provided that CET 21 and CEDC would create a new company to manage the TV station, with investments to be made by CEDC and the Czech Savings Bank. The earlier agreement stated that CET 21 and CEDC agreed to allow the new company to have exclusive use of the Licence but this was omitted from the later agreement. The earlier agreement confirmed "that neither party has the authority to broadcast commercial television without the other" but in the later "CET 21 acknowledges that it is not entitled to carry on broadcasting without the direct participation of CEDC".

203.
The two agreements were different in certain material respects. Moreover, they were both significantly different from the "Terms of Agreement" between CEDC and CET 21 dated 5 January 1993 which provided that CEDC was to be a major shareholder of CET 21.
204.
The Council did not participate actively in negotiating a solution which led to the creation of CNTS. It did not play a central role in directing the formation of CNTS. It did not discriminate against foreign investors in Czech television. The Council did not bless the arrangements between CET 21 and CNTS or give its approval to those arrangements or actively participate in their formulation. The Council could not and did not provide any official assurances to CEDC.
205.
The Council's Decision and the separate Licence (containing 31 Conditions) were formally issued in writing to CET 21 on 9 February 1993. The Decision stated that the Council "awards a Licence for nation-wide television broadcasting on the territory of the Czech Republic to the limited liability company CET 21."
206.

The "Reasoning" referred to CET 21's "contractual partner, the company CEDC". The "Reasoning" stated that "the CET 21 proposal best suited the aim to create a project for television broadcasting by a private operator which respects the public interest, contributes to the creation of a democratic society, and reflects a plurality of opinion and will provide objective and balanced information necessary to form opinions freely."

It also noted that the proposal demonstrated adequate financing, but it added that "[d]espite the substantial involvement of foreign capital necessary to begin television station activities, the proposal clearly guarantees the intent to preserve the national character of programming."

It concluded:

"... Through the formulation of Licence conditions and through inspection of their observance, [the Council] intends to ensure that the aims stated in the proposal which convinced the Council that this proposal is the best, will be observed."

207.

The Licence itself named the "licence-holder" as "CET 27". It stated:

"The licence-holder is required to ensure that the broadcasting is in accordance with the information stated in the application on the basis of which this Licence was issued. It also agrees to observe the conditions stated in the appendix to this Licence."

208.
The Licence Conditions 17 and 18 (the complete wording already cited above) provided that "any change in the legal entity" of the licence-holder and the investors CEDC and the Czech Savings Bank required the prior approval of the Media Council (Condition 17) and that the investors shall not interfere into "the programming and the editorial independence of the newscasting employees" (Condition 18).
209.
The purpose of the Licence Conditions was, to monitor the business arrangements between CET 21 and the investors (CEDC and Czech Savings Bank) and to ensure that the investors actually became parties to the project. At that time (1992/93), many foreign investors promised to fund huge projects in the Czech Republic, but when it came to pay the money they disappeared. Condition 18 also emphasized the requirement of editorial independence (a key attribute of any Licence). Similar conditions were imposed upon other licence-holders. The Czech Republic contends that the wording of Condition 17 has very little legal significance as far as the investors were concerned. It conferred no right on the investors (or CNTS) vis-à-vis the Czech Republic. The legal effect of the Conditions was exactly according to their terms: they imposed obligations on CET 21. And the Licence and the Conditions were expressly accepted by CET 21, and only by CET 21.
210.
The specific reference to the MOA was recognition that the requirement in the original Condition 17 that CET 21 submit the MOA within 90 days had been fulfilled. It also identified the contractual structure which the licence-holder had entered into with its investors and over which the Council intended to exercise regulatory supervision (pursuant to Condition 17). The Council was concerned to ensure that the editorial independence of CET 21 was secured (Condition 18). The Council was responsible for ensuring that this independence remained intact, and it therefore imposed reporting requirements in Condition 17.
211.
Thus, the Council envisaged, as reflected in the Licence Conditions, that CEDC and Czech Savings Bank would be "investors" in a company established to manage and operate the television station. The Czech Republic contends that this terminology has no legal significance in the sense contended by CME and does not confer any rights upon CEDC, or the Czech Savings Bank, or CNTS. Such wording recognised the fact that the licence-holder, CET 21, intended to obtain funding and knowhow from CEDC; and that CEDC's rights vis-à-vis CET 21 were to be contractual. It does not elevate CEDC to the status of co-licence-holder. In the Conditions to the Licence, CEDC is referred to as an "investor".
212.
The Council did not contemplate that CET 21 would transfer the Licence to CEDC or any other entity or person. Indeed, the Media Law forbade it. Neither the Decision nor the Licence required CET 21 to enter into any relationship with CEDC or anyone else whereby it would lose control of broadcasting and programming, nor did the Decision or the Licence approve any such relationship made by CET 21.
213.
The Council did not take into account the February agreements when it issued the Licence. The Licence documentation did not link CEDC and CNTS to the Licence issued to CET 21 in any manner beyond acknowledging that CEDC was to be an investor in the project.

VI. The Formation of CNTS

214.
CET 21, Czech Savings Bank and CEDC established and became shareholders in CNTS.
215.
Condition 17 of the Licence Conditions required the submission to the Council of a Business Agreement (herein: the "MOA"). A text was submitted to the Council. By letter dated 21 April 1993 the Council notified CET 21 that the Council affirmed in its meeting of April 20, 1993 "in accordance with the Article 17 of the Conditions to the Licence" the submitted version of the MOA between CET 21, CEDC and the Czech Savings Bank.
216.
In respect to the formation of CNTS and its MOA, the Czech Republic's position is that the Council did not participate actively in the negotiation of the MOA. The Council did not have the power or authority to approve the MOA submitted to it. It simply acknowledged that Condition 17 of the Licence had been complied with. The Council did neither approve the arrangements between CNTS and CET 21, nor proposed them, nor publicly endorsed them. No actions of the Council could release CET 21 and CNTS from conducting their arrangements in compliance with the Media Law. The Council was not substantially involved in the negotiation and finalization of the terms of the MOA and the adherence to these arrangements until 1996. The Council was not influenced by "changing political winds".
217.
In 1996, the Council commenced administrative proceedings because there was clear evidence of a violation of the Media Law which CNTS was unwilling to remedy. The Council was not fully aware of and did not accept the CNTS structure. The Council never agreed that CET 21 could transfer the Licence to CNTS. The Council did not take a discriminatory position towards foreign investment and/or ownership of the Licence. The Council did not participate substantively in developing the arrangement between CET 21 and CNTS, did not formally endorse its legality and did not forcibly dismantle the arrangement.
218.
On 4 May 1993 CET 21, Czech Savings Bank and CEDC executed the "Memorandum of Association" (the MOA). CET 21 was to have a 12 % ownership interest in CNTS; Czech Savings Bank a 22 % ownership interest; and CEDC a 66% (and therefore controlling) ownership interest.
219.

The MOA recorded that the subject of CNTS's business activity was "the development and management of a new independent private, countrywide television broadcasting station in compliance with the Licence and the conditions attached thereto". The MOA noted that CET 21 had been "granted and became the holder of a Licence for nation-wide broadcasting" and referred to CEDC as an "investment company". In addition, the MOA provided (at para. 1.4.1):

"[CET 21] shall contribute to [ČNTS] unconditionally, unequivo cally, and on an exclusive basis the right to use, exploit and maintain the Licence held by [CET 27]."

The Czech Republic's position is that no specific legal entitlements derive for CNTS or CME from the MOA and in particular from CET 21's contribution of the use of the Licence to CNTS. The meaning and effect of the Memorandum of Association is a matter governed by Czech law. CME would have the Tribunal conclude that it allowed CNTS to broadcast without a Licence. The Czech Republic contends that the wording in the Memorandum of Association did not, and in any event could not, equate to a transfer of the Licence to CNTS, as that would have been in clear breach of Article 10 (2) of the Czech Media Law. CME may have had a different understanding or expectation: in its Statement of Claim, CME states that "... the Media Council expressly approved the agreement under which CET 21 assigned the exclusive right to use its Licence to ČNTS". That premise, namely that CNTS became assignee of all rights associated with the Licence, is an essential element of CME's case. But that premise is fundamentally wrong both in fact and law.

The Council's understanding of the contribution of the Licence to CNTS was explained in its Report of May 1994:

"The Licence as such has not been contributed to ČNTS and is separate from all other activities of ČNTS... The Memorandum of Association and the Licence terms specify the relationships between ČNTS and CET 21 and contain a number of mechanisms that prevent the potential non-permissible involvement of ČNTS in the rights and obligations of the licence-holder".

In the opinion of the Council, and contrary to CME's contention, the Licence Conditions and in particular, Conditions 17 and 18, were in fact intended to prevent CNTS becoming the broadcaster.

220.
CNTS was to have a Programming Council consisting of seven (7) members of whom three (3) were to be appointed by CET 21, two (2) by Czech Savings Bank, and one (1) by CEDC. The seventh was to be the Programming Director (para 8.1). This implied that CEDC would not control the programming (as required by Condition 18 of the Licence).
221.
At paragraph 10.4, CEDC, Czech Savings Bank and CET 21 expressly agreed "to be bound and to respect all of the conditions of fhe Licence, mandated by the Council. In particular, CEDC and [Czech Savings Bank] agree to abide by condition No. 18 not to interfere by any means with the programming of Television station and especially not to interfere with journalistic independence of the news department."
222.
The Council did not consider that it had the power to disapprove the wording of the commercial arrangements between the parties, including the words of CET 21's contribution to CNTS. But the Council was concerned as to how the arrangement between the various parties would be implemented in practice, and how CET 21 would perform its obligations as broadcaster under the Media Law. The Council understood that CNTS would provide services to CET 21, but the Council did not foresee that the scope of exclusivity between the licence-holder and the service provider would be so great that CET 21, far from being the broadcaster, would become a mere shell company, the entire operation lying in practice in the hands of CNTS. Even if the Council had been actively involved in drafting the MOA, that cannot be interpreted as approval of unauthorized broadcasting by CNTS.
223.

At the request of CET 21, the Council issued a Decision dated 12 May 1993 changing the wording of the Licence Conditions. The relevant Conditions which were changed were Conditions 17 and 18:

"The licence-holder obliges itself:

(17) to submit [to] the Council for approval any changes of legal person which has been the licence-holder, or of the capital structure of the investor which result in a change of control over their activities, and of the provisions of partnership agreement between the licence-holder and investors. The partnership agreement is an integral part of the Licence terms. The partners of this partnership agreement are the licence-holder, CEDC and Ceská spořitelna, in the scope and under the conditions stipulated by this Memorandum of Association.

(18) to ensure the CEDC specified as the partner to the partnership agreement in the Licence terms and other investors specified therein will in no way interfere in television station programmes, particularly in editorial independence of news service workers."

224.

CNTS was registered on 8 July 1993. CNTS entered in the Commercial Register that the subject of its business activity was "nation-wide television broadcasting under Licence no, 001/1993". This was unknown to the Council. Dr. Železný was appointed General Manager. TV NOVA commenced broadcasting in February 1994.

VII. The Unlawful Implementation of the Licence

225.
Soon after broadcasting commenced, the Council became concerned about the role of CNTS. The Council was contacted by an independent producer of programmes who complained that two television broadcasting licence-holders, TV NOVA and Premiéra TV, were only re-broadcasting existing programmes and not developing domestically produced programmes. It was also observed that the broadcaster was not clearly identified at the end of each TV NOVA programme. The Council started to investigate these issues.
226.
On 1 February 1995, the Council received a letter from a law firm claiming that their client believed his reputation had been damaged as a result of a programme broadcast on TV NOVA and intended to start defamation proceedings. They wanted to know the identity of the broadcaster. The letter also referred to a judgment of the Regional Commercial Court in Prague dated 13 September 1994 and a decision of the Municipal Court of Prague 1 which stated that CNTS was the actual operator of the broadcasting.
227.
Following this, the Council requested the Commercial Court to clarify the scope of the registered business activities of CET 21 and CNTS.
228.
Further, it came to the attention of the Council that CME had apparently replaced CEDC (in August 1994) as a party to the business agreement but that no approval had been sought from the Council as required by Condition 17 of the Licence.
229.
The Media Council also discovered that it was CNTS, rather than the licence-holder, CET 21, that had entered into agreements with Czech Radiocommunications which was transmitting the signal, and with OSA and lntegram which represented authors and producers respectively and protected their copyright. The Media Law required the broadcaster to enter into these agreements.
230.
It thus became evident to the Council that CET 21 was just an empty shell company performing none of the obligations of the licence-holder and that CNTS was in fact acting as licence-holder and receiving all the revenues therefrom. The Council concluded there had been a de facto transfer of the Licence to CNTS and that CNTS was broadcasting without a Licence, in breach of the Media Law.
231.
The Council sought an independent legal opinion from the Institute of State and Law of the Academy of Sciences (the "Institute") concerning the arrangements between CET 21 and CNTS. In February 1996, the Institute issued a legal opinion concluding that CNTS was not authorised to broadcast as the Licence was issued to CET 21 and therefore CNTS was in breach of the law. The opinion recommended that the Council initiate administrative proceedings against CNTS for unlicensed broadcasting and that the Council consider the revocation of CET 21's Licence.
232.
On 13 March 1996, the Council met CET 21 to discuss the issue of unlicensed broadcasting by CNTS and the changes to CET 21's shareholders which had not been notified to and approved by the Council. In April 1996, CET 21 provided the Council with two alternative draft agreements between CET 21 and CNTS regarding the services to be performed by CNTS for CET 21. The Council again referred the question of lawfulness to the Institute. On 2 May 1996, the Institute issued a further legal opinion commenting on the draft agreements.
233.

The Institute concluded that Draft No. 1 "basically correctly resolves the situation." In summary, the Institute found decisive not so much the text of the agreement but the factual fulfilment of two points:

(a) CET 21 (and not CNTS) was to become a party to the agreement with Czech Radiocommunications; and

(b) Advertising revenues were, in terms of "accounting and taxes, to be revenues of CET 21 (and not CNTS), and CET 21 was to pay fees to CNTS for its services.

234.
In its second opinion, the institute set out at some length the conditions which had to be satisfied for the issue of unlicensed broadcasting to be resolved. On 4 June 1996, the Council wrote to CET 21 requesting CET 21 to amend the description of the business activities of CET 21 and of CNTS, and commented on the two draft agreements submitted by CET 21 in April 1996, and requested CET 21 to notify properly the changes to its shareholders. On 27 June 1996, the Council was provided by CET 21 with a copy of an agreement between CET 21 and CNTS (in fact dated 23 May 1996). It was different to the drafts provided in May. The arrangements between CET 21 and CNTS still did not satisfy the concerns of the Council.
235.
The new Media Law entered into force on 1 January 1996. A licence holder could request the Council to delete those conditions of its Licence which did not concern control of the programming. On 2 January 1996, CET 21 had applied for the removal of most of the conditions to its Licence, including Conditions 17 and 18. If that were done, the Council would no longer be able to request information on the arrangements between CET 21 and CNTS, and thereby monitor those arrangements.
236.
During 1996, the Council had also been investigating Premiéra TV and Rádio Alfa, discovering that the arrangements between the respective licence-holders and their service providers were not as the Council thought they should be.

VIII. Administrative Proceedings Against CNTS

237.
At a meeting on 23 July 1996, the Council decided to commence administrative proceedings against the service providers involved in TV NOVA, Premiéra TV and Rádio Alfa.
238.
By letter dated 23 July 1996, the Council advised CNTS that, as recommended by the Institute in its Opinion, the Council was commencing administrative proceedings against CNTS seeking the imposition of financial sanctions for unauthorised broadcasting in breach of the Media Law. There were three grounds for such proceedings: (i) the incorrect description of the business activities of CNTS in the Commercial Register; (ii) that CNTS rather than CET 21 had entered into contracts with Czech Radiocommunications and OSA; and (iii) the lack of control by CET 21 over the disseminated programmes.
239.
Article 20 (5) of the Media Law provides for fines between CZK 10,000 (approximately US $ 250) to CZK 2,000,000 (approximately US $ 50,000). It is determined by the Council after a decision on liability is reached. In fact, the Council's intention was not to impose a fine, because that would not solve the problem, but to ensure that the relationship between the licence-holder and the service provider was corrected.
240.
It was not relevant to the Council whether the service provider (of TV NOVA, Premiéra TV or Rádio Alfa) was owned or controlled by a foreign entity. It was concerned only with the relationship between the broadcaster and the service provider. Its key concern was that the attributes of the licence-holder were not transferred to the unlicensed service provider. In fact, Premiéra TV a.s. which was a service provider similar to CNTS, had no foreign ownership (as far as the Council was aware).

IX. CME Takes Secret Control of CET 21

241.
About this time in 1996, no doubt aware that the arrangements between CET 21 and CNTS violated the Media Law and would have to be changed, CME secretly sought to acquire control of CET 21. CME provided a loan to Dr. Zelezny of US $4.7 million to enable him to buy an additional 43 % stake in CET 21 (from four of the original five shareholders) thus increasing his holding from 17 % to 60 % which he did. The loan agreement, dated 1 August 1996, provided that Dr. Zelezny would exercise his voting rights only as directed by CME. The secret control by CME of CET 21 was in clear breach of the requirements of the Media Law and the Licence. The Council was not informed either of Dr. Zeleznÿ's acquisition of a controlling interest in the licence-holder, or of the terms of the loan agreement giving voting control over CET 21 to CME. Condition 17 of the Licence required the Council's prior approval of both arrangements.
242.

Upon discovering in late 1996 the Loan Agreement between CME and Dr. Železný, the Council initiated a meeting with CET 21 and Dr. Železný in order to find out more about the loan agreement. Dr. Železný assured the Council that the Agreement was not going to be fulfilled. In fact, as appears from an Amendment to the Loan Agreement, dated 11 March 1997, the Conditions of the original Loan Agreement had been fulfilled and Dr. Železný was released from the obligation to repay the loan.

X. Change of Memorandum of Association of CNTS and Service Agreement

243.
By letter dated 4 October 1996, CNTS and CET 21 made a joint proposal to the Council involving a sequence of several steps which it hoped would resolve the Council's concerns over the CET 21/CNTS relationship. CNTS and CET 21 asked that the proposal be taken as "an expression of our goodwill, openness to discussion, and forthcoming attitude." CET 21/CNTS offered, inter alia: to submit to the Council for their information a new business agreement between CET 21 and CNTS; that CNTS would conclude in the name of CET 21 agreements with Czech Radiocommunications and agencies representing authors and performing artists (i.e. OSA and Intergram); to change the description of CNTS's business activities in the commercial register; and to submit for approval by CNTS's General Assembly a change to Article 1.4.1 of its Memorandum of Association whereby CET 21 contributed the Licence on an exclusive basis. CNTS and CET 21 also sought the cancellation of Condition 17 of the Licence. These proposals were in principle agreeable to the Council.
244.
CNTS provided the Council with a copy of an agreement between CET 21 and CNTS, dated 4 October 1996 which was said to govern the relationship between them.
245.
In November 1996, the MOA of CNTS was amended to read that CET 21:

"contributes to [CNTS] unconditionally, irrevocably and on an exclusive basis, the right to use, make a subject of [CNTS'S] benefit and maintain, know how related to the Licence, its maintenance and protection".

246.
In December 1996, Condition 17 was removed with legal effect from February 1997.
247.

In February 1997, the change of business activities of CNTS was registered with the Commercial Register. CNTS deleted "nation-wide television broadcasting pursuant to Licence no. 001/1993" from its activities.

248.
On 15 May 1997, the investigation by the State Prosecution Office which had commenced in April 1996, was stopped.
249.
In May 1997, the 4 October 1996 agreement between CET 21 and CNTS was superseded by a further agreement dated 21 May 1997 (which was stated to reflect the changes in the Commercial Register). An Addendum to that Agreement was also agreed on the same date. These became known as the "Services Agreement" or "Co-operation Agreement". This new agreement provided:

"The patties confirm that the holder of Licence 001/1993 and operator of television broadcasting with the Licence under Act no. 468/1991 Co/l., as amended, is CET 21 and that the Licence is non-transferable. [Art. I]

The parties have agreed that from prior agreemenfs ČNTS has authorization to arrange, under this agreement, services for television broadcasting which is operated on the basis of the licence issued to CET 21 and that ČNTS is authorized fo keep an agreed profit from this activity. [Art. 2 (I)]

ČNTS shall conduct the activity stated in para. 1 in accordance with generally binding legal regulations, as well as with the content of the Licence whose holder is CET 21. [Art. 2 (3))]

If broadcasting on TV NOVA violates obligations to which CET 21, as the licence-holder and broadcasting operator, is bound by law or the Licence, CET 21 is authorized to interfere with programming through persons named by the general assembly of CET 21 and whose names CET 21 will announce to the company ČNTS immediate/y after their appointment [Art. 5]"

250.
Also during this period, CET 21 concluded agreements with Czech Radiocommunications, OSA and Intergram.
251.
The formal arrangements between CET 21, CME and CNTS were now considered to comply with the Media Law. Accordingly, the Council stopped the administrative proceedings by its Decision dated 16 September 1997.
252.
Premiéra TV and Rádio Alfa eventually made similar changes to their arrangements and the administrative proceedings against their respective service providers stopped on 14 December 1998.

XI. The Media Council did not reverse its Position

253.
The Council did not abruptly reverse its position or repudiate the arrangement it had officially approved or force CNTS to surrender the exclusive right to the use of the Licence.
254.
The Council became concerned that there had been a de facto transfer of the Licence to CNTS in violation of the Media Law. Such violation could not and was not approved by the Media Council. When it discovered the violation, it first held negotiations with CET 21 and CNTS in an attempt to persuade them to change their arrangements. When this was unsuccessful, the Council commenced administrative proceedings against CNTS for unlawful broadcasting. Similar proceedings were commenced against the service providers to Premiéra TV and Rádio Alfa. CET 21 and CNTS subsequently proposed changes to their arrangements and relationship which appeared to comply with the Media Law.
255.

The activities of CNTS were in violation of the Media Law. They had never been approved by the Council. They did not "suddenly become objectionable". The Council had been concerned for many months that there may have been unlawful broadcasting by CNTS, and had raised its concerns with CET 21 and CNTS. The relevant legislative provisions were those in the original Media Law which forbade a transfer of the Licence. Political factors did not motivate the Council.

256.

The Council did receive an Opinion from the Institute, not from Dr. Bárta in his individual capacity. Dr. Jan Bárta was the head of the public law Section at the Institute and thus had to issue legal opinions on Institute letterhead on behalf of the Institute. The Institute's letter dated 13 August 1996 relied on by CME does not support its assertion that the institute disowned the Opinions of Dr. Bárta. The letter addressed to Dr. Železný dated 13 August 1996 was not the Institute's "only real opinion".

XII. The Media Council did not Compel CNTS to Alter the MOA

257.
The Council did not "force" CNTS and CET 21 to amend the Memorandum of Association. CNTS and CET 21 no doubt "capitulated' because they recognised that their implementation of the Licence did, in fact, violate the Media Law. The Council did not insist that CNTS "could not be involved in broadcasting" but rather, the Council insisted that CNTS could not be the de facto licence-holder.
258.

The contractual changes were not "coerced" by the Council. This assertion is contradicted by CNTS's pleadings in the recent Czech Court proceedings against CET 21 in which CNTS relied on the validity of, inter alia, the amended Memorandum of Association and the Service Agreement dated 21 May 1997.

259.
The Czech Republic relies on the "Reasoning" which is included in the "Decision" of the Council dated 16 September 1997. The Czech Republic is not responsible for the consequences of changes to commercial arrangements required to be made by the parties thereto in order to comply with Czech law.
260.
CNTS could have contested the Council's interpretation of the Media Law through the administrative proceedings or through the Czech courts. Alternatively, it could amend the business arrangements with CET 21 and have the proceedings dropped. It chose voluntarily to amend the business arrangements, and has since relied in the Czech courts upon those amended agreements as a valid expression of the clear will of CNTS and CET 21.

XIII. March 15,1999 Letter

261.

In response to a request by CET 21, the Council met with Dr. Železný on 2 March 1999 which was in compliance with a licence-holder's right to request a meeting with the Council in order to discuss issues relating to its Licence. They discussed a number of matters relating to CET 21, including its relationship with its service provider.

262.

The Council's policy in connection with the arrangements between licence-holders and service providers was discussed. This was a topic of public debate. The Council had expressed its views at meetings of a special Media Panel which had been set up by a number of broadcasters to discuss a new Media Law then being drafted by the Ministry of Culture. Dr. Železný and his lawyer had attended most of those meetings. It was a matter of public record that the Council did not favour exclusive relationships between licence-holders and service providers because that might lead to a de facto transfer of the Licence. That policy was based on its experience with TV NOVA, Premiéra TV and Rádio Alfa.

263.

The next day (3 March), Dr. Železný wrote to the Council, setting out his summary of the Council's policy and asking for confirmation. The Council replied by letter dated 15 March 1999. Dr. Železný's summary was generally an accurate summary of the Council's policy, as expressed at the 2 March meeting and elsewhere. The Council wrote a similar letter to at least one other licence-holder.

264.
This letter represented the Council's policy and applied to all licenceholders. However, since the Council no longer had the power to impose conditions through which it could monitor the arrangements between the licence-holder and its service provider(s), the Council could not enforce this policy.

XIV. The Dispute Between CET 21 and CNTS

265.

In or about October 1998, CET 21 had informed CNTS that activities performed by CNTS would in future be performed by a company called AQS a.s. The effect of this on the relations between CNTS and Dr. Zelezny is not known, but on 19 April 1999, CME dismissed Dr. Železný from his position as General Manager of CNTS. Then on 5 August 1999, CET 21 withdrew from the Services Agreement (of 21 May 1997), on the ground that CNTS's failure to provide daily broadcasting schedules constituted a material breach of contract, and stopped using the services of CNTS.

266.

On 9 August 1999, CNTS commenced proceedings against CET 21 in the Regional Commercial Court in Prague. The Court decided:

"[CET 21] is obligated to procure all services for television broadcasting performed on the basis of Licence No. 001/1993 for the operation of a full-coverage television broadcasting station granted to him by the Council exclusively through [ČNTS], and by means of services provided by [ČNTS], in accordance with the terms and conditions of the [Services Contract] concluded between [ČNTS] and [CET 21] on 5/21/1997,...".

267.
The Court stated that the arrangements between CET 21 and CNTS had been voluntarily amended.
268.

The Services Agreement was not "part of the package of contractual changes coerced by the Media Council". On the contrary, CNTS relied upon the Services Agreement as the basis of its claim against CET 21. The Regional Commercial Court recorded that CNTS had submitted that "[t]he change in the definition of the contribution to the capital stock was not understood by [ČNTS] and [CET 21] as a change altering their legal relationship, but only as a change meeting the requirements of the Council and resulting in staying the administrative proceedings." The Court noted that, "[a]ccording to an expert opinion [of ČNTS] valuating this non-monetary contribution [of the Licence know-how], the value of this contribution remain unchanged."

The Court stated that CET 21 was not entitled to withdraw from the Services Agreement. The judgment was reversed by the Court of Appeal.

269.
The proceedings before the Prague Regional Commercial Court deprive this Tribunal of jurisdiction. CME must be assumed to have elected to pursue CNTS's commercial rights before the Czech courts. CME cannot refer that same dispute to arbitration under the Treaty. Moreover, the pleadings and judgment in those proceedings confirm that the Czech Republic is not responsible for any harm which CME may have suffered to its alleged investment.

XV. The alleged Destruction of Claimant's Investment

270.

The Council is not responsible for the actions of private parties in their dealings with their contractual partners. The steps taken by Dr. Železný and CET 21 were not taken with the Council's "connivance and assistance".

271.

The Czech Republic cannot comment on the dealings between Dr. Železný and CNTS/CME. Any action taken by Dr. Železný in relation to CNTS/CME is part of their private commercial dispute. It is irrelevant to the Czech Republic's obligations under the Treaty. The Council did not threaten further action. The dispute escalating between Dr. Železný and CME has led to any "investment" by CME being harmed.

272.

The Council did not provide "active assistance to Dr. Železný in his campaign to eliminate ČNTS’s exclusive position respecting CET 21". All actions of the Council, including responding to Dr. Železný's request in his letter of 3 March 1999, were carried out in fulfilment of its role of broadcasting regulator. The Czech Republic cannot comment on Dr. Železný's motivations or intentions in writing to the Council.

273.

In the Council's letter of 15 March 1999 to Dr. Železný, the Council reiterated its policy concerning the relationship between licence-holders and service providers. That policy had been expressed publicly in meetings of the Media Panel and in its submissions to the Ministry of Culture on the proposed new Media Law. The Council wrote a similar letter to at least one other licence-holder.

274.
The Council's policy in early 1999 as reflected in its letter of 15 March 1999 was not in conflict with its previous practice. The Council's policy was consistently not to favour exclusive relationships between licence-holders and service providers because that might lead to a de facto transfer of the Licence. The Council's experience with TV NOVA, Premiéra TV and Rádio Alfa was evidence that this might happen. However, the Council had no power to intervene unless a violation of the Media Law occurred.
275.
The 15 March 1999 letter did not go beyond the scope of the Council's authority under the Council Act. The Council, as broadcasting regulator, was not only entitled to, but obliged to, respond to queries from licenceholders. The Council was not issuing an ex parte declaration in support of one party to a dispute.
276.

The Council did not play a negative role in the events leading to the estrangement of Dr. Železný/CET 21 and Mr. Lauder/CNTS/CME. The Council was to monitor and enforce the Media Law, as it was empowered and obliged to do under Czech law.

XVI. The Media Council did not Fail to Protect Claimant's Investment

277.
The Council does not have the power to police and enforce private commercial contracts. Nor can it dictate to a licence-holder whom it should choose as a service provider.
278.

The Council and other organs of the Czech Republic did not fail to respond as appropriate to complaints made by CNTS and CME. The Council, inter alia, reported to the Permanent Commission for Media of the House of Deputies of Parliament concerning the dispute between Dr. Železný and CNTS, and wrote to CNTS and CET 21 (letters dated 26 July and 29 July 1999).

279.

The actions of CET 21 and Dr. Železný of which CNTS had complained in its letters in June, July and August 1999 to the Council were part of a commercial dispute that should be resolved by the parties concerned, with resort to the courts, if necessary.

280.
The Council is not responsible in any way for the dispute between CET 21 and CNTS. It did not ignite the dispute, ignore its own regulatory obligations, or refuse to comply with its obligations under the Treaty.

XVII. The Czech Republic's Alleged Additional Continuing Violations of the Treaty

281.

The Czech Republic did not continue to breach its obligations under the Treaty since the instigation of this arbitration. It did not favour the Czech investors in CET 21. The Council has not "affirmatively assisted Dr. Železný in evading the effectiveness of orders of an ICC arbitral tribunal". The Czech Republic has enacted legislation relating to the recognition and enforcement of arbitral awards in accordance with its obligations under the New York Convention.

282.
The Council considered the request to increase the share capital of CET 21 and to transfer certain shares. The Council concluded that there was no legal obstacle preventing the transactions and therefore gave its approval.
283.

The Czech Republic did not disregard criminal wrongdoing by Dr. Železný directed against CME's investment. Respective complaints have been properly investigated by the Czech police authorities.

G.The Respondent's Argument

I. The Interpretation of the Treaty and Burden of Proof

284.
The Treaty must be interpreted according to the ordinary rules of treaty interpretation as established by State practice and as codified in Article 31 of the Vienna Convention on the Law of Treaties (1969).
285.
In respect to the breach of the Treaty as alleged, the burden of proof is on the Claimant to demonstrate that both the breach and the responsibility of the Czech State is engaged: a "[p]arty having the burden of proof must not only bring evidence in support of his allegations, but must also convince the Tribunal of their truth, lest they be disregarded for want, or insufficiency, of proof".

II. The Governing Law

286.

Article 6 of the Treaty provides:

"The arbitral tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:

the law in force of the Contracting Party concerned;

the provisions of this Agreement, and other relevant Agreements between the Contracting Parties;

the provisions of special agreements relating to the investment;

the general principles of international law."

287.
The Respondent's view is that Czech law should be given primacy in determining whether or not the Czech Republic has breached its obligations under the Treaty.

III. The Tribunal Lacks Jurisdiction

288.
The Tribunal has jurisdiction in respect of "All disputes between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter" (Art. 8).
289.
"Investment" is defined as "every kind of asset invested either directly or through an investor of a third State..." (Art. 1 (a)).
290.
The Tribunal lacks jurisdiction, on the grounds that:

(i) CME has failed to establish that it has an asset invested in the Czech Republic;

(ii) CME's claim is not an investment dispute under the Treaty; and

(iii) CME may not concurrently pursue the same remedies in different fora.

1. CME has Failed to Establish that It has an Asset Invested inthe Czech Republic

291.
The Claimant's assertion of a claim under the Treaty is unclear and unparticularized. CME is not entitled to bring a claim under the Treaty.
292.
CME fails to identify the "investment" which it alleges gives rise to rights under the Treaty. CME failed to identify, whether CME's "investment" is its alleged shareholding in CNTS or some contractual right allegedly enjoyed by CNTS or some right conferred on CEDC.
293.
Further, CME fails to establish that it has assumed the rights and obligations of CEDC.

2. CME's Claim is Not an Investment Dispute under the Treaty

294.
CME'S claim demonstrates a fundamental misunderstanding of the purpose and ambit of the Treaty (and, indeed, BITs in general). The Czech Republic considers that the attempt to use the dispute settlement provisions of the Treaty in order to settle private disputes in the manner sought by CME distorts the Treaty and if successful would represent a grave threat to the stability of the entire network of BITs.
295.
This is a private commercial dispute and not an investor-host State dispute.
296.

CME seeks to utilise the Treaty regime as an alternative or additional means for the resolution of a dispute arising from a falling out between two business partners, CME/ CNTS and Dr. Železný/CET 21. The contractual rights and legal rights referred to are exclusively those made between CNTS or CME and CET 21 or Dr. Zelezny. The Czech Republic is a party to none of them.

297.
It is the contractual arrangements between CET 21 and CNTS, and not the Licence, upon which the claimed exclusivity that CME seeks to secure in these proceedings is based. The Council did not impose the claimed exclusivity arrangement, and had no power to do so. The grant of the Licence signified no more than that the Council considered, on the basis of the information then available to it, that CET 21 was a proper recipient of the Licence. The Council attached conditions to the Licence that required CET 21 to advise the Council of the business arrangements it entered into with CEDC and the Czech Savings Bank but the Council did not have the power, nor did it, approve or endorse those arrangements.
298.

The dispute between Mr. Lauder (and his companies including CME) and Dr. Železný (and his companies) has already been, and is still being, pursued through various courts and arbitral tribunals. The Czech Republic is not a party to that dispute, and it takes no position on the merits of the arguments advanced on either side in the continuing litigation (save as articulated in judgments of the Czech courts). But it is clear from CME's own Statement of Claim that Mr. Lauder's claim against the Czech Republic relates to the withdrawal by Dr. Železný and his companies from various contractual arrangements to which the State was not a party. The Prague Commercial Court has upheld CNTS's claim that Dr. Železný/CET 21 wrongly withdrew from those arrangements. It is therefore Dr. Železný / CET 21 that has allegedly injured CME's interests within the Czech Republic. The Czech Republic is not responsible for the actions of private parties.

299.
In the relief originally sought, CME asked the Tribunal to restore the exclusivity of the relationship between CNTS and CET 21. CME dropped this request during the proceedings. The relationship of exclusivity is a contractual one for which the parties must bargain and agree, within the limits of the law, and which they must enforce using the procedures of the law. The courts may uphold and enforce such contractual relationships (and it is to the courts which CNTS has turned to obtain such relief). But contractual relationships between a licence-holder and service provider(s) cannot be imposed or enforced via the licensing procedures of the Czech Republic.
300.
This is not a dispute concerning the treatment by the Czech Republic of an investment: it is a dispute concerning an alleged breach of a commercial contract made by private parties. That dispute should be settled either according to procedures agreed by the parties (such as arbitration), or through courts in the Czech Republic or some other State within the jurisdiction of whose courts the dispute falls. Treaty procedures were not intended to be used in these circumstances. If they were allowed to be so used, every commercial dispute involving a foreign investor could be elevated to the level of a dispute within the Treaty procedures. That is plainly not the intention of the Treaty.
301.
CME's claim must be dismissed on grounds that CME's claim is not an investment dispute within the scope of the Treaty.

3. CME May Not Concurrently Pursue the Same Remedies in Different Fora

302.

It is an abuse of the Bilateral Investment Treaty regime for Mr. Lauder, who purportedly controls CME, and, subsequently, CME to bring virtually identical claims under two separate treaties. The Czech Republic does not consider it appropriate that claims brought by different claimants under separate Treaties should be consolidated and the Czech Republic asserts the right that each action be determined independently and promptly.

As recognized by CME in its Statement of Claim, the action commenced by Mr. Lauder "may not provide the full relief to which CME is entitled because it is brought on behalf of only a single controlling ultimate shareholder of CME... Only this Tribunal can declare that the Czech Republic has breached its Treaty obligations to [CME] and can provide full relief to [CME] for those breaches". In these circumstances, it is an abuse for Mr. Lauder to pursue his claim under the US Treaty and the Czech Republic is fully entitled to insist that CME make good its claim under the Dutch Treaty in separate proceedings.

303.

The dispute between CME/CNTS and Dr. Železný/CET 21 has been conducted as a private dispute. Several actions, in courts and arbitral tribunals, have according to CME itself, already been instituted, including one ICC arbitration and ten law suits at the Regional Commercial Court in Prague.

304.
In particular, CNTS has sought a ruling from the Czech Court upholding its claim to exclusivity under the Services Agreement made with CET 21. That is essentially the same remedy as is sought in the present proceedings. Thus, CME/CNTS has already taken the present dispute before a competent court. The Regional Commercial Court has ruled in CME/CNTS's favour and upheld the claim to exclusivity in relations between CNTS and CET 21, precisely in terms that "restore the initial economic and legal underpinnings of [CME's] investment", as those underpinnings were set out in the Services Agreement. The Prague Court of Appeal meanwhile reversed the judgment. The lawsuit is pending at the Czech Supreme Court. That Services Agreement was said by CNTS itself to be "the expression of a clear will of both contractual parties to determine the mutual relationship on an exclusive basis" between them. CME/CNTS is seeking at the Prague Civil Courts the remedy that it seeks from this Tribunal. Seeking the same remedy again is a plain abuse of process; and it conflicts with the spirit, if not with the letter, of the res judicata principle.
305.
The Regional Commercial Court found that CET 21 had acted in breach of the contract, and whatever losses might have been suffered by CNTS clearly derive from CNTS's departure from the exclusivity arrangement. There is no suggestion, in the present claim or elsewhere, that there is any compensable loss that is not attributable to the breakdown of the exclusivity arrangement.
306.
If a Claimant chooses to pursue a contractual remedy in the local courts or private arbitral tribunals, he should not be allowed concurrently to pursue a remedy under the Treaty.
307.
The claims by investors under a BIT depend upon assertions that the State has treated the investment in a manner incompatible with the treaty. "The State" includes also the State's courts. If an investor takes the complaint of mistreatment before the State's court, it cannot be determined how "the State" has treated the investment until the State's courts have finally disposed of the case initiated by the investor. There can be no complaint that "the State" has mistreated the investment until the litigation has run its course.
308.
An investor should not be allowed to switch to a treaty procedure which has the result of depriving the other party to the proceedings in the local court of the opportunity of arguing its case before the treaty tribunal.
309.

The Tribunal is faced with the danger of incompatible and ostensibly "final" decisions being made not only in the various Czech court proceedings but also by another tribunal set up under the US Treaty and by the ICC arbitral tribunal ruling between CME and Dr. Železný. This is precisely the prospect of disorder that the principle of lis alibi pendens is designed to avert.

310.
Therefore, the Tribunal lacks jurisdiction, or in the alternative, CME's claim is inadmissible.

IV. CME Czech Republic B.V. has no claim in substance

311.
CME invested in CNTS only after the broadcasting of TV NOVA commenced in February 1994. CME must have considered the commercial risk of investing in CNTS as well as the legal framework in which this investment would be made, when it decided to acquire CEDC's rights and obligations in the Memorandum of Association to CME. This assignment was not notified by the Council as required by Condition 17.

V. The Czech Republic's Obligations under the Treaty

312.
CME's claim should be dismissed on grounds that its Statement of Claim does not disclose a prima facie case that the Czech Republic has breached the Treaty having regard in particular to Czech law.
313.

Essentially, CME claims that a Czech public body having granted a licence and had filed with it a contractual scheme which on its face did not infringe the law, may not take action when implementation of the Licence clearly does infringe the law. That proposition is patently incorrect, and must be clearly rejected if the entire balance of international instruments for the protection of foreign investment is to be maintained. The Czech Republic owes duties to investors, foreign and domestic, other than CME and Dr. Železný, and to the Czech people. The Czech Republic, like other States, must have the power to enact laws and regulate industries, such as broadcasting, pursuant to those laws, for the good order of the State and its economy. The Treaty was not intended to remove that power and does not remove that power.

314.
The very core of the argument advanced by CME is fundamentally misconceived, because it denies the right of States to regulate their own economies, and to enact and to modify the laws, and to secure the proper application of the law. It is no exaggeration to say that CME's argument involves a repudiation of the Rule of Law.
315.
The facts show that the Council consistently applied the Media Law (in particular Article 10 (2) which proscribes the transfer of a Licence) and took action when the implementation of the Licence by CET 21 and CNTS infringed the law. It took similar action against Premiéra TV and Rádio Alfa. Its position remains the same today: The transfer of a broadcasting Licence to a service provider is contrary to the Media Law. The Czech Republic has done no more than regulate its economy in a normal and entirely proper way. The impact of that regulation upon private contractual relations between investors is solely a matter for such investors.
316.
The Czech Republic accepts its obligations under the Treaty.

1. The Obligation Not to Deprive Investors of Their Investments

317.

The Treaty provides at Article 5 that "[n]either Contracting Party shall take any measures depriving, directly or indirectly, investors of the other Contracting Party of their investments unless the following conditions are complied with:

(a) The measures are taken in the public interest and under due process of law;

(b) The measures are not discriminatory;

(c) The measures are accompanied by provision for the payment of just compensation."

318.
In accordance with customary international law, the Treaty does not provide that the deprivation (or expropriation as it is often referred to) of investments is unlawful per se. Such deprivation is unlawful only if certain conditions are not met. It is acknowledged that the Treaty includes both "direct" and "indirect" forms of deprivation: however, no deprivation in either form has taken place in this case. There has been no taking attributable to the State.
319.

Deprivation or expropriation clearly involves a "compulsory transfer of property rights ". It is said to occur if a State interferes with property rights "to such an extent that these rights are rendered so useless that they must be deemed to have been expropriated".

320.
In the legal literature, it is said that, the essence of the matter is the deprivation by State organs of a right of property either as such, or by permanent transfer of the power of management and control. State measures, prima facie a lawful exercise of powers of government, may affect foreign interests considerably without amounting to expropriation. Bona fide regulation must also be distinguished from expropriation or deprivations of property.
321.

The meaning of deprivation may be drawn from the Convention Establishing the Multilateral Investment Guarantee Agency. Article 11 (a) (ii) defines that expropriation is not given by "non-discriminatory measures of general application which governments normally take for the purpose of regulating economic activity in their territories."

322.
The Council's actions do not fall within the definition of deprivation or expropriation of investments.
323.
The Czech Republic's involvement in this dispute was as follows: (i) the Council issued a Licence to CET 21 in light of the information provided to it; (ii) it reviewed compliance with the Media Law; (iii) the Council commenced administrative proceedings against CNTS on the basis of unlawful broadcasting in breach of the Media Law; (iv) it withdrew the administrative proceedings in light of the amended arrangement between CNTS and CET 21; (v) the jurisdiction of Czech courts have been invoked in respect of disputes arising out of the arrangements between CNTS and CET 21.
324.

In addition, a deprivation requires that there has been governmental interference with a property right of CME. It is not enough for CME to say that it is less well off than it thinks that it should be because CNTS changed its arrangements with CET 21 at the insistence of the Council. The Respondent refers to the Permanent Court of International Justice stated in the Oscar Chinn Case :

"The Court, though not failing to recognize the change that had come over Mr. Chinn's financial position, a change which is said to have led him to wind up his transport and ship-building businesses, is unable to see in his original position - which was characterised by the possession of customers and the possibility of making a profit - anything in the nature of a genuine vested right. Favourable business conditions and good-will are transient circumstances, subject to inevitable changes."

325.
CME's complaint is this. CME had an initial arrangement with CET 21 which, it says, gave CNTS the arrangements of an exclusive supplier to CET 21. That arrangement was amended at the behest of the Council. The amended arrangement, CME fears, does not give CNTS the rights of an exclusive supplier. But what CME says it has lost is not property, nor even rights under the initial or amended contracts. What CME says it has lost is the measure by which the business advantage to it of the initial agreement exceeds that of the amended agreement. That is not a property right. The law recognises and upholds rights created by contract, but there is no legal concept of a separate property right to the maintenance of a particular balance of commercial power.
326.
The Council's actions have been the lawful exercise of the power of Government, carried out as part of the regulation of economic activity in the Czech Republic.
327.
The Czech Republic has taken no property of CME, of CNTS, or of any company owned or controlled by Mr. Lauder. The only property right granted by the Czech Republic, the Licence issued to CET 21, remains in the hands of CET 21 as it has done at all material times.
328.
The Czech Republic did not agree, and could not agree, to CET 21 transferring the Licence to CNTS. The Czech Republic did not create or confirm any rights for CNTS. CNTS's rights, and CME's alleged interests, arose solely under contracts made with CET 21. The rights asserted by CME in this case were created and defined by those contracts and were necessarily constrained by Czech law: those rights could not amount to a transfer of the Licence to CNTS. CNTS is correct to look to CET 21, rather than the State, as the source of any remedy for unlawful injury to its rights.
329.
The authorities cited by CME do not support the case it has advanced. The Czech Republic denies that it had any intention of injuring CME or its investment.
330.
There is no a priori limit on the kind of State measure or action that may amount to deprivation or expropriation. CME has, however, entirely failed to explain why it considers that the actions of the Czech Republic do so.
331.
Although in some circumstances a coerced capitulation may constitute an expropriation, a review of the authorities indicates that there is no solid or wide consensus on coercion outside of the cases dealing with physical force.
332.

Far from maintaining that CNTS was coerced into the making of a new agreement with CET 21 in 1997, in the proceedings in the Prague Commercial Court, CNTS stated, "that the Services Agreement as well as the agreements previously concluded between [ČNTS] and [CET 21] on 6/2/1994, 5/23/1996 and 10/4/1996 determining the rights and obligations relating to operating the television broadcasting facilities, have always been the expression of a c/ear will of both contractual parties to determine the mutual relationship on an exclusive basis."

333.

CNTS makes no suggestion that the Services Agreement, described in CME's Statement of Claim as "part of the package of contractual changes coerced by the Media Council," was coerced or was invalid. On the contrary, it was used as the basis of CNTS's claim; and the Regional Commercial Court upheld its validity (meanwhile reversed by the Court of Appeal).

CME has failed to establish a prima facie case of deprivation or expropriation.

334.
The Respondent's position is that expropriation has not occurred due to the fact that

(1) the Claimant invested in CNTS after the 1996 changes had been made; therefore, it cannot have lost the 1993 safety net by expropriation;

(2) it is a matter of pure speculation, whether the 1996 safety net was materially better or more effective than the 1993 safety net;

(3) that, in any event, the 1996 changes were voluntarily, if reluctantly, made by CNTS; and

(4) that the institution of the 1996 administrative proceedings could not, in the absence of proof of abuse of power or mala fides, or some such defect, amount to coercion. In essence, it is not established that anything was taken from the Claimant or that the Respondent forced the Claimant to give anything up.

2. The Obligation of Fair and Equitable Treatment

335.
The Treaty provides that investments shall be accorded fair and equitable treatment (Art. 3 (1)). The support given for this principle in its Preamble provides:

"Recognising that agreement upon the treatment to be accorded to such investments will stimulate the flow of capital and technology and economic development of the Contracting Parties and that fair and equitable treatment is desirable".

336.
There is no precise definition of the requirement contained in Article 3 (1) of the Treaty to provide investments with "fair and equitable treatment". What is fair and equitable is an issue to be interpreted on the facts in each individual case.
337.
CME does not point to the facts relied upon in order to support the allegation that this obligation has been breached. No case is made out to which the Czech Republic can respond.
338.
It is denied that the Czech Republic treated CME's alleged interests less than fairly and equitably. The Media Law has been applied according to its terms. Unlawful broadcasting by CNTS has been treated in the same way as that by other service providers, in particular Premiéra TV and Rádio Alfa. Due process has been respected.
339.
CME has failed to establish a prima facie case that the Czech Republic breached its obligation of fair and equitable treatment.
340.

In particular in respect to the March 15, 1999 letter addressed by the Media Council to Dr. Železný, the Czech republic is of the opinion that there is no unfair or non-equitable treatment. The Council could not ignore Dr. Železný's request for giving guidance and had to consider CET 21's right to be heard. Further, the letter was addressed to TV NOVA, being also represented by Dr. Železný at that time. The letter itself had no legal effect. No proceedings were connected to it. The Media Council explained its general policy.

341.
Also, the 1996 administrative proceedings did not breach the obligation on fair and equitable treatment as other broadcasters were treated in the same way. Until 1996, both, CET 21 and CNTS were joined in a continuing duty to comply with the terms of the Media Law, and that included a duty not to effect a de facto transfer of the Licence. CNTS appeared to be breaking that obligation. The Media Council simply tried to bring it back into line with the law.

3. The Obligation Not to Engage in Unreasonable and Discriminatory Treatment

342.

The Treaty provides that a State party shall not "impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal" of investments (Art. 3 (1)).

343.
The term "unreasonable" is not defined in the Treaty. It is insufficient to show discrimination; unreasonable conduct must also be demonstrated. In any event, the actions of the Czech Republic have been neither unreasonable nor discriminatory.
344.
CME's claim fails at two levels.
345.
First, CME does not explain why it considers that the Czech Republic behaved unlawfully. In the view of the Czech Republic, the Council acted at all times in conformity with Czech law. The Czech Republic notes that CME did not seek to raise in the Czech courts at the time of the administrative proceedings, or subsequently, arguments that the Council had violated Czech law. Second, CME does not explain what unreasonableness it finds in the allegedly unlawful conduct of the Council.
346.
The term "discriminatory" is not of itself defined in the Treaty.
347.
The complete failure to indicate what facts are alleged to amount to discrimination prevents a reasoned response by the Czech Republic. The Czech Republic notes, that it cannot be seriously suggested that administrative proceedings to stop unlicensed broadcasting lacked any legal basis in Czech law or bona fide governmental purpose. It should also be noted that CNTS and CET 21 were treated in accordance with the Media Law, and in the same manner as Premiéra TV and Rádio Alfa were treated in similar proceedings at the same time.
348.
CME's assertion that the requirement that the licence-holder had to be Czech is a violation of the Treaty's prohibition against discrimination, is wrong, It is routine in international practice that foreign investors invest in the State through the medium of a locally incorporated company, which is a regulation stipulating how foreign investment is to be organized.
349.
CME's Statement of Claim refrains from any explaining as to why the Council's reconsideration of the initial arrangement and agreement with CNTS and CET 21 of the amended arrangement might be thought unreasonable and discriminatory.
350.
CME has failed to establish a prima facie case that the Czech Republic breached its obligation not to engage in unreasonable and discriminatory treatment.

4. The Obligation of Full Security and Protection

351.

The Treaty provides that "each Contracting Party shall accord to such investments full security and protection" (Art. 3 (2)).

352.

The phrase "full security and protection" has received attention in both arbitral and judicial bodies. The cases indicate that CME must demonstrate both that the standard contained in the phrase "full security and protection" has been breached; and that the breach is the result of the actions of the Czech Republic.

353.
The requirement to provide constant or full security and protection cannot be construed as the giving of a warranty that property shall never in any circumstances be occupied or disturbed. Similarly an obligation to provide the nationals of the other Contracting State to a BIT with "full protection and security" is not an absolute obligation in the sense that any violation thereof creates automatically a ‘strict liability' on behalf of the host State. A government is only obliged to provide protection which is reasonable in the circumstances.
354.
CME asserts a failure to provide full security and protection for its investment. CME is arguing that it was the responsibility of the Czech authorities to maintain and enforce the contractual arrangements into which CNTS entered with CET 21. That is absurd. The obligation of "full security and protection" is an obligation of due diligence relating to the activities of the State. No Czech authority was a party to the contracts between CNTS and CET 21. It was for CNTS to enforce its rights under those contracts, as it is doing through the Czech courts.
355.
Also, CME's argument that the alleged change of position of the Council in 1996 deprived CNTS of benefits that it had enjoyed by virtue of the alleged previous position of the Council in 1993, is untenable. The Council did not change its position between 1993 and 1996. At all times the Council has taken the view that the Media Law forbids the transfer of licences, and has sought to apply that law. What changed was the nature of the relationship between CET 21 and CNTS. On the basis of facts discovered in 1994 - 1996, the Council reacted so as to ensure that CET 21 and CNTS complied with Czech law.
356.
CME contradicts the position that CNTS has taken in its successful litigation in the Czech courts. It cannot be argued that investors have any right to suppose that positions taken by State authorities and provisions of State law are forever unalterable. Nor can it be argued that every regulatory change made by a State in accordance with its laws must be accompanied by compensatory payments to anyone whose profits are adversely altered by the change. There can be no legitimate expectation that provisions and laws become frozen the minute that they touch the interests of a foreign investor.
357.
CME fails to identify any factual circumstances that could support its allegation that the Czech Republic failed to provide full security and protection for its investment, or that the Czech Republic breached the obligations of full security and protection.
358.
Further, it should be noted that the Media Council simply had no competence to act outside administrative proceedings. Condition No. 17 of the Licence was to be lifted under the new Media Law as of January 1, 1996; the Media Council had no influence any more on the relationship between CET 21 and CNTS. There was and is full protection and security for CNTS's legal rights available under the Czech legal system provided by Czech courts.

5. The Obligation of Treatment in Accordance with Standards of International Law

359.
The Treaty provides that if "obligations under international law... entitling investments by investors... to a treatment more favourable than is provided for by the present Agreement, such rules shall to the extent that they are more favourable prevail over the present Agreement," (Art. 3 (5)).
360.

CME has quoted from the decision in the International Court of Justice in the Barcelona Traction Case to affirm that "[w]hen a State admits into its territory foreign investments,...it is bound to extend to them the protection of the law and assumes obligations concerning the treatment to be afforded them." The judgment in the Barcelona Traction Case continues with the sentence, "These obligations, however, are neither absolute or unqualified." The Court's comment was made in the quite different context of a State's right to provide diplomatic protection to shareholders of entities incorporated in a third State. The Court did not set up absolute standards for treatment of foreign investment.

361.
No argument is presented to indicate why it is thought that the Czech Republic has violated its obligations to treat CME in accordance with general international law. CME mentions this obligation, but it is not possible to discern what, if any, argument CME seeks to make in relation to it. This obligation has not been breached.

VI. The Czech Republic has not Violated its Treaty Obligations

1. The Czech Republic is Responsible for the Media Council's Conduct

362.
The Czech Republic accepts responsibility for the actions of the Council for the purposes of this case. The Czech Republic does not accept the characterisation of the Council activities made by CME, and denies any breach of the Treaty by reason of the Council's actions.

2. The Council's Conduct did not Violate the Czech Republic's Treaty Obligations

363.
CME must demonstrate that the State has acted in breach of its Treaty obligations, i.e. unlawfully, so as to harm its "investment". Here, nothing that the State has done, through the Council or the Institute or the courts, can be described as unlawful or otherwise a breach of the Treaty. On the contrary, the Council has sought to uphold the law by ensuring that the implementation of the Licence was in accordance with the Media Law; and that it was the licensee, CET 21, not the unlicensed CNTS which controlled broadcasting by TV NOVA.
364.
The administration of the law or insistence upon compliance with the law cannot be described as "unreasonable" or "discriminatory" conduct by the Council. Neither can they be characterised as actions "tantamount to deprivation" by the Czech Republic.
365.
CME knew the Media Law from the start of its involvement in the Czech Republic. CME cannot complain about the consequences of its acting unlawfully. CME's own case and the facts known to the Council suggest that CME was fully aware of the legal conditions under which television broadcasting was licensed; and sought by various means to ensure its control over the Licence despite the provisions of the Media Law and of the Licence itself.
366.
CME abandoned its attempts to circumvent the Media Law in 1997, when CNTS voluntarily agreed new contractual terms with CET 21. Subsequent events have shown that CME's loss of control of the Licence and TV NOVA may have harmed its investment in CNTS. But this cannot be attributed to the Czech Republic.
367.
CME now claims that the actions of the Council in addressing the ways in which CET 21 and CNTS were implementing the Licence, and in bringing administrative proceedings against CNTS for unlawful broadcasting in 1996, constitutes an unlawful deprivation and otherwise breaches the obligations of the Czech Republic under the Treaty. This ignores the fact that the response of CET 21 and CNTS was voluntarily to agree between themselves to change their relationship so as to comply with the law. The Media Law, in common with the laws and procedures of many other nations, licences scarce broadcast spectrum on the basis of prudential and public interest considerations; and does not permit unlicensed broadcasting. Under no circumstances can it be held that the conduct of the Council gave rise to any breach by the Czech Republic of the Treaty.
368.

The Council in its letter of 15 March 1999 was not supporting Dr. Železný's effort to eliminate the exclusive economic relationship between CNTS and CET 21; it did not put forward Dr. Železný's views as its own. The Council was stating the policy which it had publicly declared in the meetings of the Media Panel and in submissions on the proposed new Media Law, as well as to individual licence-holders.

369.

CME does not indicate what specific obligations it considers the Council and Parliament to have in respect of CNTS's requests. The Czech Republic notes that three of the four requests were made in the fortnight preceding the filing of Mr. Lauder's Notice of Arbitration in midAugust 1999, and the fourth some six weeks before that. Under no circumstances is it reasonable to expect a Parliamentary Committee to take action within two weeks on the basis of "a detailed factual summary with supporting documentation". The requests were intended to establish a record for the purpose of the dispute which had by then broken out between CME and Dr. Železný.

370.
The Council did not fail to fulfil its obligations under the Treaty and the Council did not cause CNTS's business operations to be discontinued. The Council only ever took action to ensure that broadcasting was conducted in accordance with the Media Law.
371.

The Council's course of dealings did not enable Dr. Železný to take actions that may have affected CME's investment. The Council was merely fulfilling its obligations under Czech law by requiring that the Licence not be transferred and by commencing the administrative proceedings against unauthorised broadcasting. The Council's actions did not force CNTS to weaken the contractual arrangements under which CME's investment was made. The Council did not adopt a policy disfavouring the exclusive economic relationship between CET 21 and CNTS. The Council did not fail to act to protect CNTS's interests.

VII. CME Failed to Plead Any Loss

372.
The Czech Republic has an obligation under international law to remedy any violations under the Treaty for which it is responsible. However, CME failed to plead any loss. CME must demonstrate that it has in fact suffered damage. No plea has been made addressing questions of the nature of the loss, causation, the identity of the specific companies or individuals that are alleged to have suffered loss, the ownership and control of the companies at the material times and of the heads of damages.
373.

The remedies which the companies owned or controlled by Mr. Lauder, allegedly including CME which may be obtained in the various fora in which his dispute with Dr. Železný/CET 21 is being fought out, may compensate for any losses which such entities may be found to have suffered. It may be found that no damage has been suffered by any of the entities involved in this affair, including CME. Thus the failure to plead that CME has suffered damage not only strikes at the heart of the claim, but is an inevitable consequence of the realities of the dispute. If CME has suffered no damage, this claim fails in limine. CME must show that it has suffered damage for the claim to be admissible under the Treaty.

VIII. Respondent's Conclusion

374.
The Czech Republic requests that CME's claim be dismissed on grounds of lack of jurisdiction; alternatively on grounds of lack of admissibility; alternatively on grounds that CME has failed to establish any breach of the Treaty; alternatively on grounds that CME has failed to plead any loss.

H. The Analysis of the Tribunal

I. Jurisdiction

(1) The Claimant's Investment

(2) The Claimant's 1997 Share Acquisition

381.
Therefore, the Respondent's argument that the investment of the Claimant in the Czech Republic was not made until May 21, 1997 must be dealt with by the Tribunal in accordance with the Respondent's express pleadings as a substantive defence, not as a defence to jurisdiction.

(3) The Claimant's Predecessor's 1994 Share Acquisition

382.
The Respondent in its Statement of Defence dated November 9, 2000 raised the defence of lack of jurisdiction in respect to the Claimant's predecessor's share acquisition. The Respondent claimed inter alia that CME has failed to establish that it has an asset invested in the Czech Republic as defined under the Treaty. The Respondent's position is that the Claimant did not sufficiently identify its investment by leaving open whether CME's investment "is its alleged shareholding in CNTS or some contractual right allegedly enjoyed by CNTS or some right conferred on CEDC". According to the Respondent, CME fails to establish that it has assumed the rights and obligations of CEDC as a matter of law. This defence of lack of jurisdiction, even if accepted as sufficiently specified, is not justified. The Claimant's investment is vested in its shareholding in CNTS which is an investment covered by Article 1 (a) (ii) of the Treaty.
383.
As recounted in Section A. 5 of this Award, CME acquired its 99 % ownership interest in CNTS in 1997, an acquisition which, in respect to jurisdiction is not in dispute between the Parties (as described above). CME's predecessor, its parent company, Czech Media Enterprises B.V., had acquired in 1994 66 % of CNTS from CEDC, a German company under the same ultimate control as CME of an American corporation, in turn controlled by Mr. Ronald S. Lauder. The transfer document done in Prague on July 28, 1994 between CEDC and CME Media Enterprises B.V. gives sufficient proof that CME Media Enterprises B.V. acquired CEDC's 66 % shareholding in CNTS. Under this Assignment Agreement and Declaration on Accession to Memorandum of Association of CNTS, the Claimant's predecessor CME Media Enterprises B.V. acquired CEDC's shares in CNTS, comprising all rights and obligations thereto.
384.
The acquired shares, including all rights and legal entitlements, are protected under the Treaty. Upon the acquisition, the Claimant's predecessor became owner of the investment in the Czech Republic. The Treaty does not distinguish as to whether the investor made the investment itself or whether the investor acquired a predecessor's investment. In this respect, Article 8 of the Treaty defines an investment dispute as existing, if a dispute concerns an investment of the investor. Article 1 of the Treaty clearly spells out that an investment comprises every kind of asset invested either directly or through an investor of a third State, which makes it clear that the investor need not make the investment himself to be protected under the Treaty.

(4) The 1994 Share Assignment not notified

385.
The Respondent did not expressly argue in these arbitration proceedings that the assignment of the 66 % CNTS shares from CEDC to CME Media Enterprises B.V. was void. The Respondent stated, however, that the assignment was not notified to the Media Council which, in the view of the Respondent, was necessary under Condition 17 of the Licence.
386.
The non-notification of the assignment did not remove the Claimant's protection under the Treaty. Under Section 12.1 of the MOA, the assignment of shares to an affiliated company was permitted without requesting the Media Council's approval. Under Condition 17 of the Licence as amended as of May 12, 1993, the Media Council stipulated that the partnership agreement (the MOA) is an integral part of the Licence terms. Further, the Media Council prescribed that the partners of the MOA are the licence-holder (CET 21), CEDC and the Czech Savings Bank in the scope and under the conditions stipulated by the MOA.
387.
CET 21 was obligated to submit to the Council for approval any changes of the legal person which has been the licence-holder, or of the capital structure of the investor which results in a change of control over the activities and of the provisions of the partnership agreement between the licence-holder and investors (the MOA). The change-of-control clause of the MOA (Section 12.1) linked the shareholding in CNTS to the Licence. Article 12. 1 of the MOA stated that, in accordance with the terms and conditions of the Licence, CEDC, CET 21 and the Czech Savings Bank cannot and shall not assign their shares to any third Party without obtaining in advance the express consent of all partners and the Council, which would be given after a full disclosure of the intended transaction.
388.
However, this provision does not apply to any "direct family member or associated persons". An associated company was defined as an entity controlled by the same last partner of the shareholders. Therefore, the MOA, being an integral part of the Licence, did allow a change of control without having obtained in advance the express consent of the Council.
389.
The Council requested by its resolution of April 9, 1993, the submission of the final draft of the MOA for approval and by its resolution of April 9, 1993, requested final changes. At the Council Meeting on April 20, 1993, the Council approved the final wording of the MOA which was implemented accordingly. On May 12, 1993, the Council approved Licence Condition 17 which referred to the amended MOA as approved by the Council. This sequence of events is not in dispute between the Parties, although the Parties interpret these facts differently.
390.
In respect to jurisdiction, it is clear that CEDC's investment in CNTS could be assigned to CME Media Enterprises B.V. without requesting prior approval from the Council. On the contrary, it is clear that CEDC's investment in CNTS included the right to freely transfer this investment to an affiliated company. The assignment by CEDC of its shares in CNTS to CME Media Enterprises B.V. was made with express reference to the MOA. It is therefore clear that CME Media Enterprises B.V. (as a permitted successor under the MOA, which was approved by the Council), when acquiring CEDC's investment in the Czech Republic, acquired full protection for this investment under the laws of the Czech Republic which include the bilateral investment treaties the Czech Republic had entered into, including the Treaty.

(5) The Claimant's Predecessor's 1996 Share Acquisitions

391.
The acquisition of 22 % of the shares in CNTS by CME Media Enterprises B.V. in 1996 from the Czech Savings Bank also qualifies as an investment under the Treaty. The same applies to the acquisition of 5.2 % shares in CNTS from CET 21, also in 1996. These further acquisitions were not the subject of any judicial dispute by the Parties in these arbitration proceedings. These shares were part of the same initial investment made by the founding shareholders, CEDC (with a share of 66 %), CET21 (with a share of 21 %) and the Czech Savings Bank (with a share of 22 %) as co-founders who formed the joint venture company CNTS in 1993.

(6) CME's Predecessor's Original 199311994 Contributions qualify as Investment under the Treaty

393.
The original contributions by CEDC, the Czech Savings Bank and CET 21 were made on the basis of the Memorandum of Association and Investment Agreement (the MOA) notarized in front of a Czech notary on/or about May 4, 1993 and submitted for registration on/or about July 8, 1993. The registered capital of CNTS was 148 million Czech Crowns. CET 21's non-monetary contribution, evaluated at 48 million Czech Crowns, was to contribute to CNTS "unconditionally, unequivocally and on an exclusive basis the right to use, exploit and maintain the Licence held by CET 21." The Czech Savings Bank contributed 25 million Czech Crowns and CEDC contributed 75 million Czech Crowns. The ownership interests were allocated as follows: CEDC 66 %, Czech Savings Bank 22 %, CET 21, 12 %.
394.
According to Sec. 2 of the MOA, CEDC and the Czech Savings Bank agreed to provide additional financing to CNTS as additional contributions to the registered capital of up to 400 million Czech Crowns. Thereafter, the shareholders agreed to provide additional financing up to 900 million Czech Crowns as needed through bank loans. This obligation to provide additional financing either by share capital or by bank loans was secured under Section 2.5 of the MOA by 20 % interest on the debt sum in respect to which a shareholder was in default. CEDC, therefore, and the Czech Savings Bank obligated themselves to make substantial contributions for the future of CNTS, dedicated for "the development and management of the Television Station".
395.
The Claimant's predecessor's investments, by acquiring in 1994 and thereafter CNTS' founders' shares and by consummating their obligations under the MOA, qualify as an investment under the Treaty.
396.
The Respondent, in this context, raised the defence that the Claimant exercised some kind of (unacceptable) forum shopping. The Respondent characterized the initiation of parallel treaty proceedings by Mr. Lauder and by the Claimant as an abuse. In respect to jurisdiction, this defence is not persuasive. CEDC, when making the investment in CNTS in 1993/1994, was under the protection of the German-Czech Republic Investment Treaty which, in essence, provides a similar protection as the Treaty. The assignment of the investment in CNTS from a German corporation to a corporation having its legal seat in the Netherlands does not have, on the face of it, the stigma of an abuse. The Respondent characterized the initiation of parallel treaty proceedings by Mr. Lauder and by the Claimant as an abuse.
397.
The Arbitral Tribunal's view is that the contribution made by CEDC and the assignment thereof in compliance with the investment structure approved by the Media Council to CME Media Enterprises B.V., qualifies as an investment under Article 8 of the Treaty. The Respondent's argument in respect to an alleged forum (or treaty) shopping is not sustainable.
398.
In this context, the Tribunal refers to the FEDAX Award on jurisdiction dated July 11, 1997, an ICSID arbitration (37 I.L.M. 1378/1998). In that case, the FEDAX tribunal accepted ICSID jurisdiction for a claim under promissory notes which had been transferred and endorsed to subsequent holders and to the claimant outside of the host country of the original investment. The FEDAX tribunal rejected the argument that the foreign owner of the promissory notes did not qualify as an investor, because it has not made an investment in the territory of the host country and accepted that, although the identity of the investor will change with every endorsement, the investment itself will remain constant, while the issuer of the notes will enjoy a continuous credit benefit until the time the notes become due.
399.
In the Claimant's case, the situation is even clearer. CEDC made the investment by making its shareholder's contribution at the formation of CNTS in 1993. CNTS enjoyed the benefit of the investment during its corporate life-time. TV NOVA started broadcasting in February 1994 by using CEDC's invested funds (together with the funds invested by the Czech Savings Bank). By mid-1994, when the Claimant's predecessor acquired the investment, the investment was at full risk and it was not until one year later that the investment turned out to be a success for the investors.
400.
Further, CEDC's investment in CNTS must be seen in its legal entirety as approved by the Media Council. A company affiliated to the investor, being an acknowledged (permitted) successor under the investment structure approved by the Media Council, is protected by the investment protection laws of the host country. Article 8 of the Treaty does not set specific requirements related to the circumstances under which an investment can be regarded as belonging to the investor protected by the Treaty. This is in accord with the great majority of modern bilateral investment treaties (see Antonio R. Parra in "Economic development, foreign investment and the law", published by Kluwer 1996, page 35). In respect to jurisdiction, therefore, the Claimant enjoys the full protection of the Treaty, having acquired through its predecessor CEDC's investment 66 % shareholding in CNTS in 1994. The same applies to the further shareholding in CNTS acquired thereafter by the Claimant and the Claimant's predecessor.

(7) The Investment Dispute under the Treaty

401.
The dispute between the parties as alleged by the Claimant derives from the destruction of the joint venture's assets and the devaluation of its factual and legal position connected with the use of the broadcasting Licence, contributed by CET 21 to CNTS as a founding shareholder of CNTS. This dispute qualifies as an investment dispute within the meaning of Article 8 of the Treaty. In particular, it is not disqualified as an investment dispute because it is not, as alleged by the Respondent, a private commercial dispute but an investor-host State dispute.
402.

CNTS' disputes and legal proceedings with CET 21 and Dr. Železný also do not transform the dispute between the Claimant and the Czech Republic into a commercial dispute unrelated to the Treaty. Commercial disputes and proceedings between private parties, though one party be the investor and/or his joint venture company, do not per se exclude the existence of an investment dispute under the Treaty.

403.

The investment dispute under the Treaty and the commercial dispute between the investors' joint venture company in the Czech Republic and its shareholders and/or business partners must be distinguished. The Claimant's position is that the Czech Republic, represented by the Media Council, violated its duties under the Treaty in various ways. The Arbitral Tribunal has jurisdiction over such an investment dispute, whereas jurisdiction over private commercial disputes between CNTS and CET 21 / Dr. Železný is vested in the Czech Republic's courts or in arbitration as the case may be.

404.
The private commercial disputes in question are different in respect to the parties, certain basic facts and underlying legal rights and obligations. This Tribunal has jurisdiction in respect to the dispute concerning the alleged violation of the Treaty by the Czech Republic. The Tribunal has no jurisdiction related to commercial disputes, regardless of whether the respective civil court proceedings, in particular as initiated by CNTS vs. CET 21, may provide a remedy to CNTS (depending on the final judgment of the Czech Supreme Court). These civil court proceedings may effect the quantum of the damage as claimed by CME in these arbitration proceedings. The civil court proceedings, however, have no effect on the jurisdiction of this arbitral Tribunal under the Treaty.
405.
Although the contractual arrangements between CET 21 and CNTS could be decisive for the Claimant's claim under these arbitration proceedings, this does not take away jurisdiction from this Tribunal. The Claimant's claim is based on the Czech Republic's interference and nonprotection of the Claimant's and its predecessor's investment which is clearly an investment dispute and not a private commercial dispute. The fact that a contractual arrangement between CET 21 and CNTS is also the basis for civil law proceedings between these contractual parties does not deprive the Claimant of its claims under the Treaty deriving from the alleged breach of the Treaty committed by the Czech Republic acting through the Media Council.
406.
The Czech Republic's position that the grant of the Licence signified no more than the Council considered, on the basis of the information then available to it, that CET 21 was a proper recipient of the Licence, is irrelevant for the qualification of these arbitration proceedings as investment treaty proceedings.
407.
Whether the Media Council, as the Czech Republic stated, did not have the power to approve or endorse the business arrangement between CEDC, the Czech Savings Bank and CET 21 is a question of the substance of the claim and not a question of jurisdiction.
408.

Furthermore, the Respondents position, according to which the prejudice to the Claimants and its predecessor's investment was caused not by the Media Council but by Dr. Železný, is a matter of substance and not of jurisdiction. Decisive for the matter of jurisdiction is only the issue of whether the Czech Republic by the Media Council's action breached the Treaty and caused injury to the Claimant's and/or its predecessor's investment. The Arbitral Tribunal is aware that it may well be that a variety of circumstances may have caused the debasement of the Claimant's investment. That will not take away jurisdiction from this Tribunal, which is obliged to investigate and adjudicate the case restricted to the investment treaty dispute, whereas civil law claims might be sorted out between the respective parties in other proceedings.

(8) Parallel Proceedings

409.
The Czech Republic's view that Treaty procedures were not intended to be used in these circumstances is not sustainable. Treaty proceedings are barred by civil law proceedings only if the respective investment treaty contains such a provision. Modern bilateral investment treaties usually do not contain judicial limitations like that. Modern investment treaties tend to allow a broad and extended access in the same way as modern treaties avoid any kind of restrictions which may provide uncertainties for the identification of the protected investment (Giorgio Sacerdoti "Bilateral Treaties and Multilateral Instruments on Investment Protection" in Recueil des Cours 1997).
410.
The Respondent's contention that the Claimant exploited a dispute under a commercial contract to pursue Treaty proceedings must be rejected. The Claimant based its claim on the alleged breach of the Treaty. In parallel the Claimant's subsidiary in the Czech Republic has pursued its civil law claims in front of the Czech Civil Courts. The fact that the object of the two proceedings, compensation for injury to the Claimant's investment, is the same, does not deprive the parties in the Treaty proceedings nor in the civil court proceedings of jurisdiction. An affirmative award and/or judgment may have impact on the quantum of the damages adjudicated in the proceedings or give the right to the respective defendant to raise legal defences in the respective enforcement proceedings with the argument that the adjudicated damage claim has been already remedied under the award and/or judgment of the respective other proceeding. However, jurisdiction is not affected by this incidence of parallel proceedings.
411.
The Respondent's defence that the Claimant may not concurrently pursue the same remedies in different fora is, therefore, rejected. Further, it is understood and agreed between the Parties that the Claimant is not obligated under the Treaty to exhaust local remedies in the Czech Republic.

(9) No abuse of Treaty Proceedings

(10) Outcome of Civil Court Proceedings have no Effect on Jurisdiction

413.
Moreover, the Respondent's further contention that the outcome of the civil court proceedings between CNTS and CET 21 will finally determine whether the Claimants shareholding in CNTS was prejudiced, is not conclusive. The final judgment by the Czech Supreme Court may reinstate the Czech Regional Commercial Court judgment which ruled that CET 21 did not validly terminate the Service Agreement and that CET 21 is obligated to exclusively have broadcasting services supplied by CNTS. The outcome of the civil court proceedings was open at the closing of the hearing of these proceedings. The civil law suit was still pending at the Czech Supreme Court. However, even if the Czech Supreme Court were to reinstate the Regional Commercial Court judgment, this would not remedy the harm to the Claimant's investment.
414.
On the contrary, the dependence of the Claimants investment on the contradictory Civil Court judgments clearly shows how fragile the Claimant's investment is (the alleged consequence of the Czech Republic's breaches of the Treaty). Even if the regional Commercial Court's judgment is reinstated by the Czech Supreme Court, this will not remedy the Claimant's investment situation. CET 21 may well, at any time, terminate again the Service Agreement for good cause, whether given or not, thereby recurrently jeopardizing the Claimant's investment.
415.
The Claimant was, therefore, not obligated to wait for the Czech Supreme Court's decision before instigating Treaty proceedings. The outcome of the civil court proceedings is irrelevant to the decision on the alleged breach of the Treaty by the Media Council acting in concert with the Respondent. It may affect the quantum of a damage claim which, pursuant to agreement between the parties, is not a subject of this Partial Award.

(11) Respondent's Defence that no Loss Occurred

416.
The Respondents' argument that under the Claimant's pleadings there is no suggestion that there is any compensable loss that is attributable to the breakdown of the exclusivity arrangement should be dealt with on the merits of the claim, not in respect to jurisdiction. The Respondents' position that an investor's complaint of a mistreatment in investment proceedings cannot be determined before the State has treated the investment finally including through judicial process, is a position which is not sustainable. It is generally accepted that claims under investment treaties can be and shall be dealt with separately from the judicial process in local courts, unless otherwise specifically provided for in the respective Treaty. Such a requirement to exhaust local remedies is not found under this Treaty and the initiating of a judicial process in the Czech Republic does not bear upon proceedings under the Treaty. This is the understanding also of the Respondent, as specifically stated by Prof. Lowe, the Respondent's representative at the Stockholm hearing, when he said that there was plainly no requirement under the Treaty for the Claimant to exhaust local remedies.