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.
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).
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).
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.
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.
"(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."
(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.
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.
"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."
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
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
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:
Fred T. Klinkhammer
Leonard M. Fertig
• Respondent's witnesses:
D. Position of the Claimant
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.
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.
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."
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.
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].
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.
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....
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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."
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.
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.
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.
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.
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.
E. Claimant's Argument
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.
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.
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.
F. Position of the Respondent
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.
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.
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.
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."
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.
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)."
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;"
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.
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".
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."
"... 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."
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."
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.
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."
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.
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.
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.
"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]"
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.
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".
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.
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.
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.
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.
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.
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,...".
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.
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.
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.
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.
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).
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.
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."
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.
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.
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.
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.
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.
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."
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."
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."
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."
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.
(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.
"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".
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.
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.
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.
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.
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.
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.
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.
H. The Analysis of the Tribunal
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.
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.
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.