Attending on behalf of the Claimants:
Mr David Minnotte;
Mr Robert Lewis;
Mr Joseph M. Matthews, Colson Hicks Eidson, P.A.;
Mr David Baron, Greenberg Traurig LLP;
Mr Pawel Tatarczak, Greenberg Traurig LLP;
Mr Antoni Libiszowski, Greenberg Traurig LLP; and
Mr Zygmunt Niziol, PFL.
Attending on behalf of the Respondent:
Ms Katarzyna Szostak-Tebbens, State Treasury Solicitors' Office;
Mr Maciej Jamka, K&L Gates Jamka Sp.K.;
Dr Wojciech Sadowski, K&L Gates Jamka Sp.K.; and
Ms Anna Leszczynska, K&L Gates Jamka Sp.K.
In the course of the hearing, Mr Robert Lewis, Mr David Minnotte, and Mr Zygmut Niziol provided oral witness testimony on behalf of the Claimants.
NEDEPOL, although lacking its own technologies and experience, claims to be capable of constructing a processing plant based on its own capital, a credit line from Kredyt-Bank and technologies of KABI, BAXTER and NOVO NORDISK. NEDEPOL claims to be going [based on an oral declaration] to construct a plasma processing plant in Omsk.21
The analysis of tenders was conducted with consideration of the following criteria:
A - the construction should be entrusted to a counterparty being in possession of modern technology, without prejudice to viral inactivation methods in processed plasma, as well as experience in this field,
B - the construction should not take long and the modular production line should allow the enhancement of plasma processing proportionately to the amount of material obtained,
C - due to the risk, the State Treasury funds should neither be involved in the construction nor should Government loan guarantees be granted. The funds should come from foreign or Polish private investors,
D - the selected counterparty should ensure a sufficient amount of factor VIII whose yield per litre of FFP [ i.,e. Fresh Frozen Plasma ] is contingent upon technological procedures applied at the lowest possible prices,
E - the agreement should guarantee that the counterparty will comply with the policy of blood donation and blood transfusion in Poland.
|No.||Criteria - evaluation of conditions||NEDEPOL||MILES||TERPOL|
|1||Investment financed with extraGovernmental funds||Yes||No||Yes|
|2||Modern technology and experience||Yes||Yes||No|
|3||Double viral inactivation||Yes||Yes||Yes|
|4||Construction period (in months)||12-15||18-24||24|
|5||Annual output (in thousand liters per year)||50-150||400||50-200|
|6||Compliance with policy on blood donation and blood transfusion in Poland||Yes||No(1)||No(2)|
(1) guarantee as regards access to sufficient amounts of plasma and exclusive rights to the final product, at least for a certain period of time.
(2) priority in selling preparations
NEDEPOL Sp. z o.o in Warsaw was represented by its co-owner and Chairman Zygmunt Niziol, MSc. The company has been operating for 6 years. It deals in technology lines for infusion liquids manufacturing, according to Fresenius (Spencer Company, the Netherlands). NEDEPOL intended to build a turn-key plasma processing plant in Omsk in line with the modern technologies of BAXTER (USA), KABI (SWEDEN) and NOVO NORDISK (Denmark). These technologies would be applied in Poland. The investment in Poland would encompass a target processing module of 150 000 litres of FFP together with licences and transport.
The investment would be financed by shareholders of NEDEPOL and ZAM HOLDING Companies from Poland. Kredyt Bank S.A. confirmed its readiness for loan financing. The investment would start within 3 months following its confirmation and it would last for 12-15 months. Starting production after 15 months, with output at a level of 50% and its regular increase within the subsequent 4-6 months, all aimed at achieving an optimal processing result in the amount of 150 000 L of FFP per year. The investment implementation is in conformity with ISO standards, and the technology line will have a requisite certificate.
The Company suggests cooperation with the Institute of Hematology and Blood Transfusion and the Polish Red Cross. Locations in Warsaw, its vicinity, Gdansk or Mielec - special economic zone.26
The investment will be carried out by a company established for such purpose under a business name of Laboratorium Frakcjonowania Osocza Sp. z o.o. (LFO) with the following shareholders:
ZAN Holding BV (international partner; % of shares) and the following Polish companies:
NEDEPOL Sp. z o.o,
IMAR Sp. z o.o. [...]
ZAN Holding B.V. is an investment and financing company registered in the Netherlands. The company participated in financing and construction of a similar facility in Omsk. […]
IMAR Sp. z o.o. is a Polish company, which initiated the construction of Omsk facility. It is the owner of real property and co-owner and constructor of the plant producing glass fiber reinforced tanks and pipes, i.e. Nordcap Plastik Sp. z o.o. […]
At the same time we wish to underline that we will use licenses of the following companies in the project:
Factor VIII: NOVO NOROOISK Factor IX: CRTS LILLE
Viral inactivation: NYBC […]
Construction period of the project will be 12 - 15 months from the beginning of financing. The production will commence after the lapse of 15 months with the output of 50% which will be systematically increase within the next 4 to 6 months in order to achieve maximum capacity of 100%, i.e. 150,000 liters of FFP per year. […]
We focus on this issue because during the recent interview on January 24, 1995 in the Ministry of Health and Social Welfare one of the question (32) was as follows: Is the company aware of the fact that it cannot have exclusivity for collection of FFP in Poland? This kind of thinking simply scares us.27
4 September 1996 US$62,500 from Mr Minnotte
4 September 1996 US$62,500 from Mr Lewis
25 September 1996 US$75,000 from Mr Minnotte 25 September 1996 US$75,000 from Mr Lewis
21 October 1996 US$1,362,500 from Mr Minnotte
21 October 1996 US$1,362,500 from Mr Lewis
Article 2 - Documents
The agreement includes this document and all of the Annexes mentioned below
Annex 1 Copy of extract from the commercial register
Annex 2 Records of the departmental commissions and interdepartmental commissions in the PFL matter
Annex 3 Conditions for the delivery and monitoring of the plasma
Annex Resolution No 39/97 of the Council of Ministers dated May 27 1997
Article 3 - Obligations of PFL
3.1 PFL undertakes to build and equip the plant within period of 24 months from the date of signature of this agreement and will begin production of the products within period of 6 months from the date of completion of the construction.
3.2 PFL undertakes:
a. To accept plasma from organizational units of the public blood service at its own cost and to assume any risk connected with its care and transport and any liability for delay in the acceptance of the plasma and any damage that may result therefrom in which connection the conditions of acceptance -quantity quality prices time limits for the acceptance of the plasma and for the delivery of the products - shall be agreed upon directly between the suppliers of the plasma and the receivers of the product once during each calendar year in accordance with Article 6.
b. To provide the finished products at its own expense with the resources of the plant;
c. To offer the products at prices lower than global prices. Article 4 - Obligations of the MHaSW
4.1 The Ministry of Health and Social Welfare shall ensure that the organizational actions are taken for the supplying of plasma to PFL by organizational units of the public blood service giving due regard to the requirement specified by PFL for minimum quantity of plasma that is to say 150000 liters per year.
During subsequent years the Ministry of Health and Social Welfare shall endeavor to increase the deliveries of plasma to PFL with view to achieving Poland's ability to meet its own needs for plasma-derivative preparations
The prices of the plasma must not exceed global prices.
Article 5 - Duration of the Agreement
5.1 The agreement shall enter into force on the date of its signature and shall be valid for period of 15 years
Article 6 - Price time limits delivery and conditions of payment for the plasma and the products
6.1 The price of the plasma and the products shall be specified for given financial year before June 30 of the preceding financial year
6.2 Each party to the agreement shall before June 30 of the preceding financial year make its orders addressed to the other for the delivery of plasma and products for the following financial year in written form with due regard for:
a. The quantity of the plasma supplied
b. The quantity form and type of the products converted from the plasma supplied
c. The place and time for the acceptance of the plasma and the delivery of the products
6.3 The settlement and payment for the delivery of the plasma and the products in given financial year shall take place before the last day of the financial year
Article 9 - Arbitration
9.2 All disputes between the parties not amenable to amicable settlement which have arisen in connection with or on the basis of this agreement shall be settled by the Arbitral Tribunal at the National Economic Chamber Izba Gospodarcza in Warsaw in accordance with the rules of procedure of that Tribunal and on the basis of the provisions of Polish law
Article 10 - Miscellaneous provisions
10.1 The Annexes referred to in this agreement constitute an integral part thereof.
On October 1, 1997, the Minister of Health and Public Welfare signed an understanding with PFL, which included such items as the obligations of PFL and the Ministry of Health and Public Welfare with regard to the construction of the plasma fractionation plant and the provision of plasma by public healthcare facilities (The Covenant). [...]
In the Covenant, the Minister of Health and Public Welfare stated that Poland needed a plasma fractionation plant and agreed to take organizational actions in order to supply PFL with 150,000 liters of plasma per year, via public blood service facilities. Plasma prices could not exceed world prices. […]
The Covenant of 10/1/97 between the Minister of Health and Public Welfare and PFL was actually an agreement establishing the terms and conditions of business between those parties in the area of plasma processing, made for the term of 15 years (a blanket agreement). […]
Said Covenant actually constituted giving PFL exclusivity to process a significant portion of the plasma obtained in Poland, for a term of 15 years, and thus constituted preferential treatment of that company on the Polish market.97
The Guarantee Department wishes to express our concern at the deterioration of economic and financial situation of "Laboratorium Frakcjonowania Osocza" sp. z o.o. At the same time, considerable delays in the project construction may shortly lead to the Company's loss of credit capacity. [...]
Till the present moment, the Shareholders have failed to make the supplementary payment in full amount, i.e. USD 12 million, to the reserve capital declared. […]
According to the Ministry of Finance information, considerable expenses not related with the project activities have been accounted as the project costs. […]
Under § 5 of the Guarantee Agreement of 1 July 1997 concluded between the Minister of Finance and Kredyt Bank PBI S.A., we request any and all explanations be provided and necessary documents presented to the fiscal control inspectors carrying their audit of reliability of the Bank supervision over utilization of the State-Treasury guaranteed credit given to "Laboratorium Frakcjonowania Osocza" sp. z o.o. and the credit security established by the Bank. Further refusal of cooperation with the fiscal control bodies will be deemed the breach of the terms of the Guarantee Agreement of 1 July 1997. […]
In view of the ensuing risk to the repayment of the investment credit by "Laboratorium Frakcjonowania Osocza" sp. z o.o., the Ministry of Finance, Guarantee Department requests the payment of the means from the State-Treasury guaranteed credit be suspended until the borrower has fulfilled all the obligations under the credit repayment security agreements and the Bank has provided the Ministry of Finance with comprehensive information. (emphasis added).116
considerable majority of its charges or claims bear testimony of your complete ignorance of the subject and of the documentation concerned by the State Treasury, or possibly show that your information has been acquired from an incomplete source which could not have been the Fiscal Audit Office […]
To sum up, we do not share your opinion on credit repayment by the borrower himself being at risk, since project execution does not show any symptoms to suggest that.
(i) "[LFO] holds unlimited licenses in terms of their life span to fractionate Plasma and produce Derivatives issued by CSL A.C.N Limited with its registered office at 189 Camp Road Broadmeadows Australia under Licensing Agreements of January 31 1997 and May 1998 and that the rights under the licenses acquired thereunder have not been limited for the benefit of any third party" (Art. 3.1.b);
(ii) "[LFO] offers to produce the Derivatives and provide Plasma Fractionating abroad starting from January 1, 2001, and from July 1, 2001 the said operations shall be gradually transferred to the Plant" (Art. 3.1.d);
The agreement further specified the selling prices for plasma-derived products until 31 December 2004 (Art. 6.3), and contained an obligation by LFO to complete its production facilities within 36 months, i.e., by 14 June 2003. The agreement further contemplated that fractionation production was to reach full capacity within 12 months from the completion of the construction process (Art. 3.1.e).132
(i) the 2000 Fractionation Agreement was to be cleared by the Ministry of Health and the President of the Public Procurement Office; and
(iii) LFO was obliged to present to the Ministry of Health documents to evidence sufficient financial, organizational and technological support of LFO by an external investor.134
The reasons for the Debtors cessation in payment of the debts are circumstances independent of the Debtor, particularly the following:
1. the withdrawal of the strategic investor (CSL LTD in Australia) from entering the Company, which was supposed to be associated with a subsidy to the Company in a minimum amount of 10 million USD and assurance of credit resources;
2. the withdrawal of the financial investor (Credit Swiss First Boston LTD) entering the Company, which was supposed to be associated with a subsidy to the Company in the amount of USD 20 million (the SCFB board informed us of the decision to freeze all investments in relation to the loss of 500 million dollars on the international financial market);
3. the need to change the production technology at the design and construction stages, caused by the need to adapt the technology to the Union standards, entailing a growth in the necessary investment expenditures and the lengthening of the investment cycle."149
(i) decreased the share capital in LFO from PLN100,000 to PLN20,000, by way of redemption of 80% of existing shares (in proportion to the shareholding). The shareholding of the Claimants was thus diminished by 80%, i.e. it decreased from 33% shares to 6.6% shares in the share capital of LFO;
(ii) simultaneously increased the share capital of LFO from PLN20,000 to PLN400,000;
(iii) increased the nominal value of individual shares from PLN100 to PLN500, each;
(iv) issued 600 new shares, constituting 75% of the new share capital, which were offered to Mr Krzysztof Lysakowski, who was an employee of LFO; and
(v) 600 shares were given to Mr Lysakowski in consideration of a fuel tank valued at PLN300,000 (approximately US$87,000).168
(i) PLN8,207,371.26 were paid to Kredyt Bank S.A. w Warszawie;
(ii) PLN12,281,819.91 were paid to Bank Polska Kasa Opieki S.A.;
(iii) PLN12,281,824.85 were paid to ING Bank Slaski S.A.;
(iv) PLN12,272,095.78 were paid to Bank BPH S.A.;
(v) PLN15,838,927.25 were paid to Bank Zachodni WBK S.A.
The total amount paid by the State Treasury appears to have been PLN60,882,039.05.177
Settlement of Disputes Between a Party and an Investor of the Other Party
1. For purposes of this Article, an investment dispute is defined as a dispute involving (a) the interpretation or application of an investment agreement between a Party (including any agency or instrumentality of such Party) and a national or company of the other Party; (b) the interpretation or application of any investment authorization granted by a Party's foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by this Treaty with respect to an investment. A decision of a Party which denies entry of an investment shall not constitute an investment dispute within the meaning of this Article.
2. In the event of an investment dispute between a Party and a national or company of the other Party, the parties to the dispute shall initially seek to resolve the dispute by consultation and negotiation, which may include the use of non-binding, third party procedures. Each Party shall encourage its nationals and companies to resort to local courts, especially for the resolution of disputes relating to administrative actions. Subject to paragraph 3 of this Article, if the dispute cannot be resolved through consultation and negotiation, the dispute shall be submitted for settlement in accordance with previously agreed, applicable dispute-settlement procedures. Any dispute-settlement procedures, including those relating to expropriation, specified in the investment agreement shall remain binding and shall be enforceable in accordance with the terms of the investment agreement, relevant provisions of domestic laws and applicable international agreements regarding enforcement of arbitral awards.
3. (a) At any time after six months from the date on which the dispute arose, the national or company concerned may choose to consent in writing to the submission of the dispute for settlement by concilia~tion or binding arbitration to the International Centre for the Settlement of Investment Disputes ("Centre") or to the Additional Facility of the Centre or pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL") or pursuant to the arbitration rules of any arbitral institution mutually agree between the parties to the dispute. Once the national or company concerned has so consented, either party to the dispute may institute such proceeding provided:
(i) The dispute has not been submitted by the national or company for resolution in accordance with any applicable previously agreed dispute-settlement procedures; and
(ii) the national or company concerned has not brought the dispute before the courts of justice or administrative tribunals or agencies of competent jurisdiction of the Party that is a party to the dispute. If the parties disagree over whether conciliation or binding arbitration is the more appropriate procedure to be employed, the opinion of the national or company concerned shall prevail.
(b) Each Party hereby consents to the submission of an investment dispute for settlement by conciliation or binding arbitration:
(i) To the Centre, in the event that the Republic of Poland becomes a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States done at Washington, March 18, 1965 ("Convention") and the Regulations and Rules of the Centre, and to the Additional Facility of the Centre, and
(ii) to an arbitral tribunal established under the UNCITRAL Rules, as those Rules may be modified by mutual agreement of the parties to the dispute, the appointing authority referenced therein to be Secretary General of the Centre.
(c) Conciliation or arbitration of disputes under (b) (i) shall be done applying the provisions of the Convention and the Regulations and Rules of the Centre, or of the Additional Facility as the case may be.
(d) The place of any arbitration conducted under this Article shall be a country which is a party to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
(e) Each Party undertakes to carry out without delay the provisions of any award resulting from an arbitration held in accordance with this Article. Further, each Party shall provide for the enforcement in its territory of such arbitral awards.
4.181 In any proceeding involving an investment dispute, a Party shall not assert, as defense, counterclaim, right of set-off or otherwise, that the national or company concerned has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damages. However, to the extent that a Party succeeds to the rights or claims of the national or company concerned by reason of subrogation or assignment, the national or company concerned shall not continue to pursue such rights and claims in its own name unless authorized to do so on behalf of the subrogee or assignee.
5. In the event of an arbitration, for the purposes of this Article any company legally constituted under the applicable laws and regulations of either Party or a political subdivision thereof but that, immediately before the occurrence of the event or events giving rise to the dispute, was an investment of nationals or companies of the other Party, shall be treated as a national or company of such other Party, in accordance with Article 25(2)(b) of the Convention.
(1) The 'investment'
the contemporary documents originating from LFO demonstrate that the Claimants contributed to LFO only USD 1,980,000 each (totalling 3,960,000 USD) [Fn. 1998.10.20 Letter to Kredyt Bank, Exhibit R-141] . The Claimants have not proven that they committed any more funds to the LFO Project, except for the loan agreement for USD 180,000, produced by the Claimants as Exhibit C-22.183
(2) The 'investment dispute'
Nationals and companies of each Party in the conduct of commercial activities shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law. Neither Party shall in any way impair by arbitrary and discriminatory measures the conduct of commercial activities. Each Party shall observe any obligation it may have entered into with regard to the conduct of commercial activities.
Those claims were developed in the Claimants' written pleadings.
a) There is a legal dispute between a national of an ICSID Contracting State and a State party which is not an ICSID Contracting State, which arises directly out of an investment in accordance with Article 2(a) of the Additional Facility Rules. Messrs Minnotte and Lewis are nationals of the U.S., which is an ICSID Contracting State, while the Republic of Poland is not an ICSID Contracting State. As discussed above, the Tribunal is of the view that Messrs Minnotte and Lewis have made an investment for the purposes of the BIT and hence for the purposes of Articles 4(2) and 2(a) of the Additional Facility Rules. Further, the parties disagree about whether the Republic of Poland complied with its obligations under the BIT vis-à-vis LFO. Therefore, a legal dispute exists between the parties which arises directly out of an investment.
b) The parties have consented in writing to ICSID Additional Facility arbitration.207 The Respondent's advance consent is contained in Article IX of the BIT, the prerequisites of which are fulfilled, and the Claimants' consent is contained in the Request for Arbitration. Further, approval of access to the Additional Facility was granted by the ICSID Secretary-General on September 14, 2010.
a. Question 5.1.: Legitimate Expectations.
(1) That the Tribunal has jurisdiction to consider the Claimants' claims within the scope of the present proceedings, and that these claims are admissible;
(2) That the Respondent did not violate its obligations under the 1990 Treaty between the United States of America and the Republic of Poland Concerning Business and Economic Relations, as alleged by the Claimants;
(3) As a consequence, that all the Claimants' claims are dismissed;
(4) That the Claimants should bear all the ICSID arbitration costs and expenses, reasonable costs and expenses incurred by the Respondent in the preparation of its legal case, and their own costs and expenses; and
(5) As a consequence, that the Claimants shall pay US$1,217,741.29 to the Respondent.
ANNEX B - JOINT PROPOSED LIST OF POINTS FOR THE TRIBUNAL'S DECISION IN THE CASE OF
A. Jurisdiction and admissibility
[Counter-Memorial, paras. 266-283 and Rejoinder, paras. 168-170]
Additional comments to Part A (Jurisdiction and admissibility)
a. Jurisdictional objection against Mr. Lewis has been withdrawn by the Respondent:
[Transcript, Day 3, p.96, lines 9 to 11]
b. Admissibility objection of the Respondent against the Claimants' claim concerning the conduct of criminal proceedings in Poland became moot after the Claimants withdrew the claims without prejudice to raising them in a separate proceeding and the Tribunal took the decision to leave them outside the scope of the proceedings:
[Transcript, Day 1, p. 35 line 20 to p. 36, line 13, and the Respondent's position in Transcript, Day 3, p.96, lines 12 to 21]
4.1. Alleged pressure on Kredyt Bank to cease funding LFO's line of credit, based on the Claimants' allegation that this led to acceleration of the loan repayment and Kredyt Bank's motion to institute LFO's bankruptcy proceedings?
4.2. Alleged failure to supply blood plasma under the 1997 Fractionation Agreement?
4.3 Alleged action by Respondent, through the Institute of Haematology inducing CSL to back out of the LFO Project?
5.1. Alleged failures to meet legitimate expectations of the Claimants related to their investment?
5.2. Alleged pressure on Kredyt Bank to cease funding LFO's line of credit?
5.3. Alleged failure to supply blood plasma under the 1997 Fractionation Agreement?
5.4 Alleged interference with CSL?
5.5 Alleged interference with the Octapharma contract?
Additional comments to part B (Merits)
I. The Claimants' claims for violation of the fair and equitable treatment and full security and protection, related to the conduct of the criminal proceedings in Poland have been withdrawn by the Claimants without prejudice to being raised in a separate proceeding.
[Transcript, Day 1, p. 35 line 20 to p. 36, line 13, and the Respondent's position in Transcript, Day 3, p.96, lines 12 to 21]
II. The parties also agree that the following issues could require determination by the Tribunal, for purposes of the analysis whether the alleged violations of the Treaty, referred to in points 4-6 above, occurred:
Whether either of the following acts alleged by Claimants were an exercise of puissance publique by Respondent:
i. Alleged pressure on Kredyt Bank to cease funding LFO's line of credit (based on Claimants' allegation that there were acts of puissance publique through repeat tax audits that Claimants allege were referred to in the Ministry of Finance letters to Kredyt Bank contained in Exhibit C-17).
ii. Alleged failure to supply blood plasma to the LFO Project.
III. The Claimants propose that within the analysis of the issue in para. 5.3 above, the Tribunal should consider as sub-issues to the alleged failure to supply blood plasma under the 1997 Fractionation Agreement, the following matters:
(a) testing of LFO's processes and products,
(b) Registering of LFO's processes and products as drugs for use in Poland, and
(c) obtaining of authorizations from the Respondent to register and use its processes and sell its products to the Respondent in Poland.
[Claimant's Initial Memorial at para. 21, 52(ii); Claimant's Counter-Memorial at paras. 99 - 102 & nn.69-70; Niziol Witness Statement at para. 30; Niziol Supplemental Witness Statement at 814; Transcript Day 1, page 67, line 23-page 68, line 4; Transcript Day 2, page 90, line 2-page 92, line 4; Transcript Cay 2, page 159, lines 9-19; Respondent's Position at Transcript Day 3, page 87, lines 1-24.]
The Respondent's position is that the distinction and corresponding arguments were for the first time developed by the Claimants during the Merits Hearing and therefore they are late. It is also the Respondent's position that under the 1997 Fractionation Agreement there were no separate and differentiated conditions for delivery of blood plasma for each of the purposes indicated by the Claimants. Therefore, according to the Respondent, it would first be artificial to split the issue in para. 5.3 into these three sub-issues. Moreover, the determination need not at all be necessary, as the claim may fail on the lack of the puissance publique element.