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ECE v. Czech Republic

ECE Projektmanagement International GmbH and Kommanditgesellschaft PANTA Achtungsechzigste Grundstücksgesellschaft mbH & Co v. The Czech Republic, PCA Case No. 2010-05
Type of case:
Investor-State
Economic sector:
Real estate activities
Real estate activities
Date of introduction:
2009
Status of the case:
Decided in favor of State
Claimant’s country of origin:
Germany
Respondent:
Czech Republic
Institution:
PCA (Permanent Court of Arbitration)
Rules of arbitration:
UNCITRAL Arbitration Rules 1976
Seat of arbitration:
Paris
Applicable treaties:
Czech Republic - Germany...

Documents of the case

J. Christopher Thomas Appointed by the State
Andreas Bucher Appointed by the investor
Franklin Berman President

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

Final Award

Part I- Introduction

A. Introduction

1.1.
The present dispute arises under the Treaty between the Federal Republic of Germany and the Czech and Slovak Federal Republic concerning the Encouragement and Reciprocal Protection of Investments, signed at Prague on 2 October 1990 ("the BIT" or "the Treaty").

1. The Parties

a. The Claimants

1.2.
The Claimants are ECE Projektmanagement International GmbH ("ECE International") and Kommanditgesellschaft PANTA Achtundsechzigste Gründstücksgesellshaft GmbH & Co ("PANTA"), both of which form part of the ECE Group, the ultimate holding company of which is ECE Projektmanagement GmbH & Co. KG ("ECE or ECE KG").
1.3.
The first Claimant, ECE International, is a corporation incorporated and organized under the laws of Germany and a fully-owned subsidiary of ECE KG.
1.4.
The second Claimant, PANTA, is a limited partnership likewise organized under the laws of Germany. ECE International is the limited partner in PANTA, and holds all of the limited participation rights. The general partner in PANTA is PANTA Erste Grundstucksgesellschaft mbH, a company also incorporated under the laws of Germany.
1.5.
The Claimants have been represented throughout the course of the present proceedings by Dr [REDACTED] o. As at the date of the institution of proceedings, Dr [REDACTED] was a Partner in the Frankfurt office of White & Case LLP. During the course of the hearing, the Tribunal was notified that Dr [REDACTED] had left White & Case and had become a partner in the Frankfurt office of Norton Rose LLP.
1.6.
For the oral hearings in the present proceedings, the Claimants were also represented by Mr Arthur Marriott QC, 12 Gray’s Inn Square, London, and by Ms Mahnaz Malik.

b. The Respondent

1.7.
The Respondent is the Czech Republic.
1.8.
The Respondent is represented by Dr [REDACTED] a Partner in the Prague office of Squire Sanders, v.o.s., advokatni kancelar, and by Mr Stephen P. Anway, a Partner in the New York office of Squire Sanders LLP.

2. Brief Overview of the Dispute

1.9.
The Claimants, and the ECE Group of which they are subsidiaries, are involved in the business of property development, and in particular the construction, management and sale of shopping centres.
1.10.
The present dispute relates to the Claimants’ planned construction of a shopping centre in [REDACTED] a city of some [REDACTED] inhabitants situated in the north of the Czech Republic. [REDACTED] is some [REDACTED] of Prague, close to [REDACTED]
1.11.
The Claimants’ planned shopping centre, which has been referred to throughout the proceedings as GALERIE [REDACTED] ("Galerie" or the "Galerie project"), was to have been constructed on a sloping hillside site closely adjacent to the bus station in the centre of [REDACTED].
1.12.
Although substantial earthworks were conducted in preparation for the construction of Galerie (a matter in relation to which the Tribunal will have to return later in this Award), the Claimants’ project ultimately never progressed to the construction phase.
1.13.
In broad outline, the Claimants complain about the actions of the relevant city, regional and national Czech administrative authorities having responsibility for planning matters. They say that the conduct of these authorities in respect of permits required for the construction of Galerie resulted in delays to the planned construction of Galerie, and that, in the circumstances, the combined effect of these delays left them no choice but to abandon their investment.
1.14.
In the Request for Arbitration, the Claimants alleged breaches of "the Claimants’ right to fair and equitable treatment, protection against arbitrary measures, the right to admission of lawful investments, expropriation and non-discrimination".1
1.15.
As remedies for these breaches, the Request for Arbitration and Statement of Claim sought damages in the amount of "€70,289 million, plus moral damages",2 which the Claimants asserted were made up of "obsolete expenditure and lost profits"; these damages were stipulated to be in respect of:

a. the reduction in the value of the shares in Tschechien 7 and ECE Praha (including a claim for imputed interest that could have been earned with comparable alternative investments);

b. the obsolete expenditure of various entities within the ECE Group other than Tschechien 7 and ECE Praha (again including a claim in respect of imputed interest that allegedly could have been earned with comparable alternative investments).3

In addition, a further sum of imputed interest was claimed "based on the legal interest rate in the Czech Republic as of 31 May 2009 that exceeds the alternative investment yield".4

B. Relevant Provisions of the BIT

1.16.
As noted above, the present dispute arises under the BIT, and the jurisdiction of the Tribunal is derived solely from the dispute resolution provisions it contains.
1.17.
The original parties to the BIT were, on the one hand, the Federal Republic of Germany, and on the other, the Czech and Slovak Federal Republic. Following the separation of the latter the two successor States (one of which is the Respondent in this Arbitration) regulated between them succession to bilateral treaties concluded by the predecessor State. On the first day of the hearing in London on jurisdiction and the merits, in response to a question from the Tribunal, the representatives of both Parties confirmed that there were no issues resulting from application of the rules of State succession.5 The Tribunal has accordingly treated the BIT in the same way as if it had been from the outset a treaty concluded between Germany and the Czech Republic.
1.18.
It is useful to begin by setting out the pertinent provisions of the BIT laying down the standards on the basis of which the Tribunal is required to decide the dispute.
1.19.
The Tribunal notes that the BIT was concluded in the German and Czech languages, both being stipulated to be equally authentic. The BIT was accompanied by a Protocol ("the Protocol"), likewise concluded in both German and Czech, both texts being equally authentic. The Protocol contains additional provisions relating to Articles 1-5 of the Treaty itself, together with a further provision, not relevant to the present case, about the transportation of goods or persons connected with an investment.
1.20.
By its introductory provision, the Protocol is expressly made an integral part of the Treaty. This makes it unnecessary for the Tribunal to consider what status the Protocol might have for interpretative purposes under Article 3l(2)(a) of the Vienna Convention on the Law of Treaties, since the plain intention of the Contracting Parties was that the terms of the Protocol were to be treated as if they had been incorporated into the text of the BIT itself.
1.21.
It became apparent at an early stage in the proceedings (which by common consent were conducted entirely in English; see paragraph 1.44 below) that the translations into English of the BIT relied upon respectively by the Claimants and by the Respondent were not in all respects identical. The Tribunal directed the Parties in its Procedural Order No. 3 of 3 December 2010 to "consult over the possibility of providing to the Tribunal at some convenient point an agreed translation into English of the treaty (and, as the case may be, its Protocol) - or, if that proves not to be possible, a single text in English indicating where and in what respect differences remain between the Parties over the correct translation".
1.22.
The Parties, having proved unable to reach agreement on all points, in due course on 25 January 2011 provided to the Tribunal a joint translation which for the most part was agreed, but which indicated a certain number of remaining points of disagreement. In setting out the relevant terms of the BIT and Protocol below, the differences between the Parties as to the translation of particular words or phrases are indicated in square brackets, with an indentification of which translation is preferred by which of the Parties.
1.23.
The Preamble to the BIT is comparatively brief, recording the Parties’desire to intensify their mutual economic cooperation, their intention to create favourable conditions for reciprocal investments, and their recognition that encouragement and reciprocal protection of investments are apt to strengthen all forms of economic initiative, in particular in the area of private entrepreneurial activity.
1.24.
Article 1 contains definitions of certain defined terms, and provides as follows:

For the purposes of this Treaty

1) the term "investments" shall include every kind of asset [Claimants: which has been invested; Respondent: contributed] in conformity with domestic law, in particular:

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

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

c) receivables and claims to money which has been used to create an economic value or claims to any performance which has an economic value and which relates to an investment;

d) intellectual property rights, in particular copyrights, patents, utility models, industrial designs or models, trademarks, trade names, technical processes, know-how and goodwill;

e) business concessions under public law, including concessions to search for, extract and exploit natural resources.

2) the term "Returns" shall mean the amounts yielded by an investment, such as profit, dividends, interest, royalties or fees.

3) the term "investor" shall mean a natural person with permanent residence or a juridical person with its seat in the respective area of application of this Treaty, entitled to engage in investments.

1.25.
Paragraph (1) of the Protocol provides, Ad Article 1, as follows:

Receivables and claims to money under Article 1(c) include receivables and claims to money arising under loans that are related to the interest in a company and can be characterized as interest in companies based on their [Claimants: purpose and extent; Respondent: importance and extent) (loans similar to interest in companies). Third-party loans e.g. bank loans under banking conditions are not covered.

1.26.
Article 2 provides :

1) Each Contracting Party shall in its territory promote as far as possible investments by investors of the other Contracting Party and admit such investments in accordance with its legislation. It shall in any case accord such investments fair and equitable treatment.

2) Neither Contracting Party shall in any way impair by arbitrary or discriminatory measures the management, maintenance, use or enjoyment of investments in its territory’ of investors of the other Contracting Party.

3) Investments and returns of investment as well as [Claimants: in case of their re-investment the returns thereof; Respondent: reinvestments and returns thereof) shall enjoy full protection under this Treaty.

1.27.
Article 4(2) provides

Investments of investors of either Contracting Party shall not be expropriated, nationalized or subjected to any other measure the effects of which would be tantamount to expropriation or nationalization in the territory of the other Contracting Party except for public interest and against compensation. Such compensation shall be equivalent to the value of the expropriated investment immediately before the date on which the actual or threatened expropriation, nationalization or comparable measure [Claimants: has become publicly known; Respondent: was publicly announced). The compensation shall be paid without delay and shall cany the usual bank interest until the time of payment; it shall be effectively realizable and freely transferable. Provision shall have been made in an appropriate manner at or prior to the time of expropriation, nationalization or comparable measure for the determination and payment of such compensation. [Claimants: The legality; Respondent: The validity) of any such expropriation, nationalization or comparable measure and the amount of compensation shall be subject to review by due process of law.

1.28.
Paragraph (4) of the Protocol provides, Ad Article 4, that

An investor is also entitled to compensation where a measure set out in Article 4 (2) harms the investment by affecting an undertaking in which investor has an interest.

1.29.
Article 7 provides inter alia that

Each Contracting Party shall observe any other obligation it has assumed with regard to investments of investors of the other Contracting Party in its territory.

1.30.
The dispute resolution provision on which the Claimants found the jurisdiction of the Tribunal to hear the dispute is contained in Article 10, which provides, insofar as relevant:

1. [Claimants: Differences of opinion regarding; Respondent: Disputes relating to] investments between either Contracting Party and an investor of the other Contracting Party should as far as possible be settled amicably between the parties in dispute.

2. If a [Claimants: difference of opinion; Respondent: dispute] cannot be settled within six months of the date when it was [Claimants: raised; Respondent: notified] by one of the parties in dispute, it shall, at the request of the investor of the other Contracting Party, be submitted to arbitration. The provisions of paragraphs 3 to 5 of Article 9 shall be applied mutatis mutandis subject to the proviso that the appointment of the members of the arbitral tribunal according to Article 9(3) shall be made by the parties to the dispute, and that, if the periods specified in Article 9(3) are not observed, either party to the dispute may invite the Chairman of the Arbitration Institute of the Stockholm Chamber of Commerce to make the necessary appointments. This applies unless no other agreement applies between the parties to the dispute. The award shall be recognized and enforced under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958).

3. During arbitration proceedings or the enforcement of an award, the Contracting Party involved in the dispute shall not raise the objection that the investor of the other Contracting Party has received compensation under an insurance contract in respect of all or part of the damage.

1.31.
In the light of the terms of Article 9(2), paragraphs (3) to (5) of Article 9, governing inter-State disputes, are also of relevance; they provide:

[...]

3. The arbitral tribunal shall be constituted ad hoc as follows: each Contracting Party shall appoint one member, and these two members shall agree upon a national of a third State as their chairman, to be confirmed by the two Contracting Parties. Members of the arbitral tribunal shall be appointed within two months, and its chairman within three months from the date on which either Contracting Party has informed the other Contracting Party that it intends to submit the dispute to an arbitral tribunal.

4. If the periods specified in paragraph 3 above have not been observed, either Contracting Party may, in the absence of any other agreement, invite the President of the International Court of Justice to make the necessary appointments.

5. The arbitral tribunal shall reach its decisions by a majority of votes. Such decisions shall be binding. Each Contracting Party shall bear the cost of its own member and of its representatives in the arbitration proceedings, the cost of the chairman and the remaining costs shall be borne in equal parts by the Contracting Parties. The arbitral tribunal may make a different regulation concerning costs. In all other respects, the arbitral tribunal shall determine its own procedure.

C. PROCEDURAL HISTORY

1.32.
By letter dated 7 November 2008 pursuant to Article 10(2) BIT ("the Trigger Letter"),6 the Claimants gave notice to the Respondent of the existence of various claims of breach of the BIT relating to "the unlawful administrative procedure regarding ECE’s development and construction of a retail center in Libéréc".
1.33.
The present proceedings were formally instituted by a combined "Request for Arbitration and Statement of Claim" dated 31 July 2009, by which the Claimants alleged that the Respondent had violated Articles 2(1) and 2(2) and 4 of the BIT and sought the payment of compensation for the damage thereby suffered by the Claimants in the sum of € 70,289 million, as well as "moral damages to be determined by the Tribunal based on further submissions."

1. Constitution of the Tribunal

1.34.
In the Request for Arbitration and Statement of Claim, the Claimants noted that they had nominated Dr Andreas Bucher to serve as member of the Tribunal, and that he had accepted that appointment.7
1.35.
Subsequently, the Respondent nominated Mr J. Christopher Thomas QC to serve as member of the Tribunal. He likewise accepted his appointment.
1.36.
Following consultations between them, Professor Bucher and Mr Thomas jointly nominated Sii` Franklin Berman KCMG QC, to serve as the third member and Chairman of the Tribunal. By letter dated 15 December 2009, Sir Franklin Berman noted this nomination and, in light of the terms of Article 10(2) read with 9(3) of the BIT, requested the Parties to state their position as to whether any further steps were required in order to formalize his appointment.
1.37.
By letter dated 18 December 2009, the Respondent confirmed the appointment of Sir Franklin Berman KCMG QC as Chairman of the Tribunal for the purposes of Article 9(3) read with Article 10(2) of the BIT.
1.38.
Subsequently, as recorded in the approved Minutes of the Preliminary Procedural Meeting held on 2 February 2010, both Parties confirmed the appointment of Sir Franklin Berman as Chairman as well as the regularity of the appointment of all of the members of the Tribunal and the constitution of the Tribunal as a whole.

2. Preliminary Procedural Meeting

1.39.
As noted above, a Preliminary Procedural Meeting was convened by the Tribunal on 2 February 2010 at Essex Court Chambers, Lincoln’s Inn Fields, London, at which the representatives of the Parties attended.
1.40.
In advance of the Preliminary Procedural Meeting, the Parties had consulted and sought to reach agreement on procedural matters; the remaining matters, on which agreement had not been reached, were the subject of discussion at the Preliminary Procedural Meeting.
1.41.
Consequent upon the Preliminary Procedural Meeting, a draft Minute was circulated to the Parties for approval and comment, as was a th•aft of the Tribunal’s procedural order embodying the Parties’ agreements on procedural matters, and the Tribunal’s decision on those matters on which it had not been possible to reach agreement.

3. The Tribunal’s Procedural Order No. 1

1.42.
The Tribunal’s Procedural Order No. 1, as previously provided to and duly approved by the Parties, was issued on 19 March 2010. The Minutes of the Preliminary Procedural Meeting held on 2 February 2010, as likewise approved by the Parties, were annexed.
1.43.
Procedural Order No. 1, provided, inter aha, that :

a. save as otherwise agreed, and subject to the provisions of Procedural Order No. 1 and any subsequent Procedural Order of the Tribunal, the 1976 UNCITRAL Arbitration Rules were to govern the proceedings (Article 2);

b. without prejudice to the power of the Tribunal to meet or deliberate in any other place, the place of the arbitration was to be Paris, and that without prejudice to the power of the Tribunal, having consulted the Parties, to hold hearing elsewhere, the hearings would take place in London (Article 3);

c. a quorum for the Tribunal was to be constituted by all three members of the Tribunal; that, save for agreement to the contrary by the Parties, a quorum was required for all hearings and meeting of the Tribunal; and without prejudice to the power of the Tribunal to delegate decisions on purely procedural matters to the Chairman, the Tribunal was to make any Award or other decision by a majority of its members (Article 4);

d. the language of the arbitration was to be English (Article 5);

e. Mr Simon Olleson was to be appointed by the Tribunal to act as its Assistant and Secretary to the Tribunal, and was to undertake such tasks as in relation to the present proceedings as were directed by the Chairman or the Tribunal, as well as holding and retaining on behalf of the Tribunal a copy of all pleadings, documents and correspondence in the arbitration (Article 6);

f. the International Bureau of the Permananent Court of Arbitration was to be appointed to act as registry for the arbitration, its tasks to include, in particular: holding and administering the deposits made by the Parties by way of advance of the costs of the proceedings; undertaking the organisation and logistical preparations for all hearings and any meetings of the Tribunal; providing administrative support and performing such other tasks as might be required upon the request of the Tribunal; and maintaining an archive of all filings and correspondence in the proceedings (Article 7);

g. as to document production, the document production phase was to be conducted in accordance with the 1999 DBA Rules on the Talcing of Evidence in International Commercial Arbitration ("the 1999 DBA Rules") save insofar as inconsistent with the remaining provisions of Procedural Order No. 1. The timetable for the document production phase foreseen was that:

i. the Parties were to exchange Requests to Produce by 6 April 2010;

ii. production of any documents pursuant to a Request to Produce which the requested Party did not object to was to be made by 20 April 2010;

iii. where the requested Party objected to all or part of a Request to Produce, or to the production of particular documents or categories of documents, or if the requesting Party was of the view that the other Party had not complied with a Request to Produce, the Parties were to attempt to settle any disagreement by 23 April 2010;

iv. in the case any such disagreements could not be settled, the requesting Party could, by request in writing, submit the matter to the Tribunal for decision no later than 6pm on 23 April 2010;

v. the requested Party was required to file any submissions in reply by 6pm on 26 April 2010, with any submissions in rebuttal being filed by the requesting Party by 6pm on 28 April 2010;

vi. thereafter, the Tribunal would provide its ruling, if at all possible, by 3 May 2010, and in doing so would, subject to its residual discretion, apply the 1999 IBA Rules;

vii. any documents as to which the Tribunal ordered production were to be produced within fourteen days of the Tribunal’s ruling (Article 8);

h. as to the schedule for written pleadings, the timetable originally envisaged was:

i. the Claimants’ Request for Arbitration and Statement of Claim was to stand as the notice of arbitration for the purposes of Article 3(1) of the UNCITRAL Rules;

ii. by 15 March 2010 the Respondent was to file and serve an Answer to Statement of Claim, it being recognized that that document need not be a full pleading but should, on the basis of the documents then available to the Respondent, contain an outline of the nature of its substantive defences and of any objections to jurisdiction or admissibility;

iii. by 13 August 2010 the Claimants were to file and serve i) a "Memorial on the Merits" and ii) separate "Observations on Jurisdiction and Admissibility" dealing with any objections to jurisdiction or admissibility raised in the Respondent’s Answer to Statement of Claim;

iv. by 12 November 2010, the Respondent was to file and serve a "CounterMemorial on the Merits" as well as a "Reply on Jurisdiction and Admissibility;

v. by 10 December 2010, the Claimants were to file and serve a "Reply on the Merits" as well as a "Rejoinder on Jurisdiction and Admissibility";

vi. by 14 January 2011, the Respondent was to file and serve a "Rejoinder on the Merits" (Article 9);

i. the Parties were to attempt to produce an agreed Chronology, to be provided to the Tribunal not less than 30 days in advance of the scheduled start of the Hearing (Article 10);

j. the Hearing, which was to be held in London, and the scope of which was to extend to any objections to jurisdiction or admissibility raised by the Respondent as well as the merits of the Claimants’ claim, was provisionally scheduled for March 2011, with a time estimate of one week certain, with a further week held in reserve in case of need, the precise dates and venue to be fixed by the Tribunal subsequently (Article ID;

k. a pre-hearing review by telephone was to be scheduled on a date to be fixed but in any case no later than three weeks prior to the scheduled start of the hearing (Article 11.4);

1.44.
Detailed provision was made as to the form and content of the pleadings and the accompanying witness, expert and documentary evidence (Article 12), including specific provision that:

a. the written pleadings were to be accompanied by all evidence, including witness statements and expert reports, on which the submitting Party intended to rely (Article 12.1), and

b. the Parties’ respective Replies and Rejoinders on jurisdiction and admissibility and upon the merits were to be limited to responding to points raised in the other Party’s immediately preceding pleading (Article 12.2);

1.45.
In addition, detailed provision was made as to matters of evidence, it being specified, inter alia, that:

a. all evidence upon which a Party intended to rely was to be submitted with the Memorial or Counter-Memorial on the Merits, and that, save with the permission of the Tribunal the evidence to be filed with the Reply and Rejoinder was to be limited to evidence relating to points raised in and arising from the other Party’s preceding pleading, with the same applying mutatis mutandis to the Parties’ respective pleadings on jurisdiction and admissibility (Article 13.1 to 13.3);

b. all witness statements and expert reports relied upon by a party were to be submitted contemporaneously with the pleading to which they related, and were to stand as the direct testimony of the witness or expert, save that where a witness or expert was called to give oral evidence at the hearing, the Party calling them would be able to conduct a brief direct examination (Article 13.4);

c. witnesses or experts would not be permitted to testify at the hearing unless a written witness statement or expert report had been provided; that each Party had the right to cross-examine at the hearing any witness or expert whose statement or report had been submitted by the other Party and that, save with the leave of the Tribunal, the evidence of any witness or expert who did not appear for cross-examination at the hearing was to be disregarded.(Article 13.5);

d. the authenticity of documents was to be assumed unless expressly challenged by the other Party (Article 13.8);

e. as regards any question in relation to the taking of evidence, subject to the Tribunal’s residual discretion, the Tribunal could take guidance from the 1999 IBA Rules (Article 13.12).

4. The Respondent’s Answer to Statement of Claim and Objections to Jurisdiction

1.46.
By email sent on 15 March 2010, in accordance with the agreement reached at the Preliminary Procedural Meeting, as reflected in Article 9.3 of Procedural Order No. 1 (which at that point had been circulated to the Parties, but was still in draft form) the Respondent filed its Answer to the Claimants’ Statement of Claim ("the Answer to Statement of Claim") accompanied by a separate document containing an outline of its Objections to Jurisdiction ("the Objections to Jurisdiction").

5. The Document Production Phase and the Claimants’ Request for Extension of theDeadline for Filing of their Memorial on the Merits and Observations on Jurisdiction and Admissibility

1.47.
As noted above, Procedural Order No. 1 foresaw that the Parties could submit to the Tribunal for decision any matters in relation to their respective Requests to Produce on which they had been unable to reach agreement by 23 April 2010.
1.48.
By email dated 22 April 2010, subsequently confirmed by Counsel for the Respondent, Counsel for the Claimants wrote to the Tribunal noting that the Parties were still attempting to resolve some issues in relation to their respective requests for production, indicated that the Parties had agreed on a modified schedule for the submission of unresolved issues and the subsequent timetable of submisions, and requested that the Tribunal confirm those modifications.
1.49.
By email dated 23 April 2010, the Tribunal granted the joint request made by the Parties.
1.50.
Pursuant to the timetable as amended, the Parties submitted the matters relating to their respective Requests on which they had been unable to reach agreement on 26 April 2010, submitted their respective submissions in reply on 27 April 2010, and submitted their rebuttal submissions on 28 April 2010.

a. The Tribunal’s Guidance on Requests to Produce

1.51.
On 17 May 2010, in light of the several disputes which had arisen between the Parties in relation to their respective Requests to Produce, resulting in the referral of multiple issues for decision and extensive submissions from both Parties, the Tribunal provided the Parties with "Guidance on Requests to Produce" (the "Guidance"), in which it noted that the procedure laid down in Article 8 of Procedural Order No. 1 was not sufficient to deal with the situation which had presented itself, and invited the Parties:

a. in the light of the observations set out in the Guidance as to the principles governing the admissibility of Requests to Produce, to resume contact in particular as regards:

i. the relevance and materiality of documents or categories of documents requested (including the periods during which documents were likely to be regarded as being relevant or material);

ii. issues of privilege and confidentiality;

iii. the identity of the Parties, including issues as to the persons or entities from which documents could legitimately be requested;

iv. procedural issues relating to reformulation of certain requests, and objections taken thereto.

b. to file, by 31 May 2010, a joint report setting out the points on which they had been able to reach agreement, and those points on which agreement had not been reached, including a brief statement of the position of each party, as well as a joint Redfern Schedule.

1.52.
The Tribunal indicated that it expected both Parties to exercise restraint and discipline in resolving the continuing disagreement, and that it would provide a ruling on any remaining areas of dispute as soon as practicable following submission of the joint report.
1.53.
The Tribunal indicated further that the revised timetable for document production should not have any impact upon the timetable for pleadings contained in Procedural Order No. 1, and that the hearing schedule for March 2011 would be maintained. It would however be open to either Party to make a reasoned application for extension of the pleading deadlines should delay in the document production phase make that necessary.
1.54.
By email dated 28 May 2010 from Counsel for the Claimants, subsequently confirmed by Counsel for the Respondent, the Parties requested an extension to submit the joint report requested in the Guidance. By communication sent on behalf of the Tribunal on 31 May 2010, the Tribunal acceded to this request.
1.55.
In accordance with that short extension, the Parties submitted their joint report, accompanied b y a joint Redfern Schedule, on 4 June 2010.
1.56.
By letter dated 1 July 2010, the Claimants requested an extension of the deadline for submission of their Memorial on the Merits and Observations on Jurisdiction and Admissibility from 13 August 2010 to 15 September 2010. Pursuant to a request from the Tribunal, the Respondent provided its comments on the Claimants’ request on 7 July 2010. The Claimants submitted additional comments on 8 July 2010, including new matters relevant to its application for an extension, to which the Respondent responded on 9 July 2010. Counsel for the Claimants wrote to the Tribunal requesting a decision on its application for extension on 14 July 2010.

b. The Tribunal’s Ruling on Document Production

1.57.
On 15 July 2010, the Tribunal issued its "Ruling on Document Production", to which was annexed a consolidated Redfern Schedule, in which it provided its decision on the outstanding issues in dispute as submitted to it in the joint report filed by the Parties on 4 June 2010. The Ruling set a deadline of 29 July 2010 for production to the requesting Party of documents responsive to those Requests to Produce which it had upheld in whole or in part, or of confirmation that no responsive documents were in the possession, custody or control of that Party.

c. The Claimants’ Request for Extension of the Deadline for Filing of their Memorial on the Merits and Observations on Jurisdiction and Admissibility

1.58.
As noted above (paragraph 1.56), by their letter dated 1 July 2010, the Claimants requested an extension of the deadline for the filing of their Memorial on the Merits and Observations on Jurisdiction and Admissibility, and the Parties then exchanged submissions in that regard. By email dated 16 July 2010, Counsel for the Claimants wrote to the Tribunal providing further information relevant to their request, and modified the extension requested to eight weeks. The Claimants noted that that implied that it would not be possible to maintain the scheduled hearing date in March 2011.
1.59.
On 20 July 2010, the Chairman of the Tribunal held a teleconference with the representatives of the Parties to discuss the procedural timetable.
1.60.
In consequence of the agreements reached during the teleconference, as subsequently recorded in Procedural Order No. 2 dated 26 July 2010, the Claimants’ request for an extension was granted, and the timetable was modified to the effect that

a. the Claimants were to file and serve their Memorial on the Merits and Observations on Jurisdiction and Admissibility by 15 October 2010;

b. the Respondent was to file and serve its Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility by 11 February 2011 ;

c. the Claimants were to file and serve their Reply on the Merits and Rejoinder on Jurisdiction and Admissibility by 8 April 2011;

d. the Respondent was to file its Rejoinder on the Merits by 3 June 2011; and

e. the hearing period scheduled for March 2011 was vacated, with the hearing to take place after September 2011, at a date to be subsequently fixed, and consequential modifications were made to other procedural deadlines relating to preparation for the hearing.

6. The Claimants’ Memorial on the Merits and Observations on Jurisdiction andAdmissibility

1.61.
In accordance with the timetable as modified, the Claimants filed their Memorial on the Merits (incorporating their Observations on Jurisdiction and Admissibility) on 15 October 2010 ("the Memorial").

7. The Respondent’s Applications dated 26 November 2010

1.62.
By letters dated 26 November 2010, the Respondent:

a. drew attention to certain alleged deficiencies in the Claimants' document production and to the exhibits to the Expert Report of Deloitte & Touche filed with the Memorial;

b. requested leave to submit a new Request to Produce in relation to various categories of documents;

c. applied to the Tribunal to reject what it alleged were certain "new and amended claims", which it said had been raised for the first time in the Memorial ("the Respondent’s Application to Reject New Claims").

1.63.
The Claimants’ response was received on 1 December 2010. The Respondent replied by letter dated 2 December 2010, and the Claimants responded by email dated 3 December 2010.
1.64.
By letter from the Chairman dated 3 December 2010 constituting Procedural Order No. 3 (a corrected version of which was sent to the Parties on 8 December), the Tribunal:

a. as regards the alleged defective document production, directed that the Claimants were, by 15 December 2010, "to provide to the Respondent the requested documents or to lodge with the Tribunal the reasons for its inability or, as the case may be, its refusal to do so", and further directed that, from that point, the Respondent’s initial Request for the production of documents "will be considered as closed, and it will be open to either Party in its subsequent written and oral pleadings to invite the Tribunal to draw whatever inferences may be considered appropriate from the state of document production in connection with the Respondent's First Request";

b. as regards the Respondent’s request for leave to submit an additional Request to Produce, set a deadline of 8 December 2010 for the Claimants to provide any further observations as to whether the request should be granted, and indicated that it did not wish to receive any further submissions on the issue thereafter;

c. directed that the Claimants should submit, by at latest 15 December 2010, their submissions on the Respondent’s Application to Reject New Claims.

1.65.
The Tribunal further indicated that all other procedural time limits were maintained, and that it expected the Parties to abide by them.
1.66.
In accordance with Procedural Order No. 3, by letter dated 8 December 2010 the Claimants submitted observations on the Respondent’s request for leave to submit a further request for document protection, in which, inter alia, they indicated their own intention to submit a further request for document production in the near future.
1.67.
By Procedural Order No. 4, dated 13 December 2010, the Tribunal, recalling the procedure for document production set out in Procedural Order No. 1 and its Guidance (paragraph 1.51 above), and recalling further that document production could not be used for the purpose of developing new claims and defences, indicated that it was not prepared to entertain any further requests from either Party at that stage in the proceedings. It accordingly rejected the Respondent’s application for leave.
1.68.
Likewise in accordance with the directions contained in Procedural Order No. 3, by letters dated 15 December 2010 the Claimants submitted

a. their observations on the Respondent’s Application to Reject New Claims; and

b. their observations on the completeness of document production in the first round of document production. The Claimants proposed that certain missing documents be produced, or as the case may be, a confirmation that the documents requested did not exist be given, within a deadline of 30 December 2010.

1.69.
By email dated 23 December 2010, the Tribunal recalled the terms of Procedural Order No. 3 (paragraph 1.64a., above), noted the proposal made by the Claimants in their observations dated 15 December 2010, and directed that any further documents produced, and any confirmations given, by the Claimants by 30 December 2010 would be taken into account, without prejudice to the right of the Respondent to make whatever submissions it considered appropriate in that regard.
1.70.
By Procedural Order No. 5, dated 4 January 2011, the Tribunal rejected the Respondent’s Application to Reject New Claims (see below, paragraph 4,730). The Tribunal indicated in addition that the time Emits remained as fixed in Procedural Order No. 2, but that it would be willing to entertain a reasoned application by the Respondent for a short extension of the time for filing of its Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility, while making clear that any amendment to the timetable, including consequent amendment of deadlines for subsequent pleadings, would not affect other time Emits, including in particular the dates for the hearing (which in the meantime had been fixed for 19 to 30 September 2011).

8. The Respondent’s Application for Extension of the Deadline for Filing of its CounterMemorial on the Merits and Reply on Jurisdiction and Admissibility

1.71.
By letter dated 5 January 2011 the Respondent sought an extension for the filing of its Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility, which, pursuant to Procedural Order No. 2, was foreseen for 11 February 2011. No comment thereon was received from the Claimants.
1.72.
By letter from the Chairman dated 12 January 2011, constituting the Tribunal’s Procedural Order No. 6, the Tribunal

a. granted an extension for the filing by the Respondent of the Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility to 25 February 2011;

b. as a consequence modified the deadline for filing of the Claimants’ Reply on the Merits and Rejoinder on Jurisdiction and Admissibility to 26 April 2011, and the deadline for the filing of the Respondent’s Rejoinder on the Merits to 25 June 2011.

c. in the light of the Respondent’s indication in its letter of 5 January 2011 that it anticipated that it would have difficulty in producing translations into English of witness statements and expert reports within the deadline, provided for a further period of two weeks (ie. to 11 March 2011)) for submission of translations of any statements and reports which were submitted in original in the Czech language together with the pleading.

9. The Claimants’ Application for Leave to Submit Further Requests to Produce

1.73.
By letter dated 26 January 2011, the Claimants sought leave to make a further request for production of documents.
1.74.
By letter sent on behalf of the Tribunal dated 27 January 2011, the Tribunal recalled that in Procedural Order No. 4 (above, paragraph 1.67) it had already indicated that it saw no justification for deviation from the procedures and timetables previously already laid down, and that it was not therefore willing to entertain any further requests for document production at the present stage of the proceedings, and on that basis stated that it would take no further action on the Claimants request for leave for the time being. It further indicated that, should the Claimants wish to revert on the matter following the filing of the Respondent’s CounterMemorial on the Merits and Reply on Jurisdiction and Admissibility, foreseen for 25 February 2011, it expected that any such application would be made within the shortest time possible thereafter, and that the Tribunal, to the extent that it decided to permit any further requests, would lay down a short timetable for production so as to maintain the timelimit for filing of the Claimants’ Reply on the Merits and Rejoinder on Jurisdiction and Admissibility.

10. The Respondent’s Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility.

1.75.
In accordance with the revised time Emit set in Procedural Order No. 6 (above, paragraph 1.72), the Respondent filed its Counter-Memorial on the Merits and Reply on Jurisdiction and Admissibility ("the Reply") on 25 February 2011. By letter dated 11 March 2011, the Respondent drew attention to a number of minor modifications to the Reply which were required in order to correct erroneous references, and on 17 March 2011 provided a corrected electronic version of the Reply.
1.76.
Also pursuant to Procedural Order No. 6, on 11 March 2011 the Respondent filed English translations of the witness statements and experts report which had originally been submitted in Czech in support of the Reply.

11. The Claimants’ Request for Extension of the Deadline for Filing of their Reply on the Merits and Rejoinder on Jurisdiction and Admissibility

1.77.
By letter dated 10 March 2013, the Claimants requested an extension of the deadline for the filing of then- Reply on the Merits and Rejoinder on Jurisdiction and admissibility, scheduled for 26 April 2011.
1.78.
By email dated 11 March 2013, the Respondent indicated that it opposed that request (as well as the application made in the Claimants’ second letter dated 10 March 2013 (as to which, see below, paragraph 1.80), and that it proposed to file its observations on both matters by 18 March 2013 unless otherwise directed by the Tribunal.
1.79.
By letter from the Chairman of the Tribunal dated 13 March' 2013, constituting Procedural Order No. 7, the Tribunal

a. granted the Claimants request and extended the deadline for the filing by the Claimants’ of their Reply on the Merits and Rejoinder on Jurisdiction and admissibility to 27 May 2011;

b. as a consequence, extended to 25 July 2011 the deadline for the Respondent to file its Rejoinder on the Merits.

12. The Claimants’ Renewed Request for Leave to Submit Further Requests to Produce

1.80.
By a further letter dated 10 March 2011, the Claimants renewed then- request for leave to make further Requests to Produce.
1.81.
As noted above (paragraph 1.78), by its letter dated 11 March 2011, the Respondent had indicated that it opposed the Claimants’ request, and that it intended to file its observations in that regard by 18 March 2011.
1.82.
By letter of 13 March 2011, the Tribunal, in order to save time, and without prejudice to the issue of whether the Claimants had put forward good grounds to justify the grant of leave, invited the Respondent to comment on the individual requests, as well to provide its observations as to whether leave should be granted by, at latest, 18 March 2011.
1.83.
In accordance with the direction of the Tribunal, the Respondent provided its observations both on whether leave should be granted and on the individual requests on 17 March 2011.
1.84.
By letter dated 22 March 2011, the Claimants submitted (unsolicited) comments on the Respondent’s observations dated 17 March 2011.
1.85.
Also on 22 March 2011, by Procedural Order No. 8, the Tribunal

a. recalled the agreed parameters for document production contained in Procedural Order No. 1 ;

b. ruled that, in light of the fact that the Claimants had formally pleaded a claim of discrimination in their Memorial, the making of requests for document production in that regard was in principle admissible;

c. indicated that no production would be ordered upon matters covered by the witness statements submitted by the opposing Party if supporting documents had been submitted with the witness statement;

d. granted, on a limited basis, certain of the requests for document production made by the Claimants insofar as they related to the administrative proceedings relating to Multi’s applications for permits, recalling in that regard the position previously taken by the Respondent that any objection to disclosure based on the confidentiality of administrative proceedings under Czech law would be overcome to the extent that the Tribunal ordered production;

e. denied the Claimants’ remaining requests for production;

f. in accordance with the indication contained in its letter of 27 January 2011 (above, paragraph 1.74), ordered the Respondent to produce relevant documents by 4 April 2011.

13. The Claimants’ Reply on the Merits and Rejoinder on Jurisdiction and Admissibility

1.86.
On 27 May 2011, in accordance with Procedural Order No. 7 the Claimants filed their Reply on the Merits and Rejoinder on Jurisdiction and Admissibility ("the Reply"). In the covering email, the Claimants requested leave to submit a second witness statement by Mr [REDACTED] as soon as was possible thereafter, as Mr. [REDACTED] had fallen ill and had therefore not been able to sign his witness statement prior to the deadline for submission.
1.87.
By email dated 31 May 2011 the Tribunal granted the Claimants’ request.
1.88.
On 13 July 2011, the Claimants provided an update in relation to the witness statement of Mr [REDACTED] noting that he had recoved, that his statement had been finalized, and that the Claimants were awaiting completion of its translation into English. They requested the leave of the Tribunal to submit the statement, together with a translation into English, by 20 July 2011.
1.89.
By email dated 14 July 2011, the Respondent requested that the Claimants immediately submit the original version of the statement of Mr [REDACTED] together with the original versions of any supporting documents on which he relied, with the translations to follow as soon as possible thereafter. Given the delay, it reserved its right to make procedural applications once it had had the chance to review the statement and to assess how disruptive the delay was for the preparation of its Rejoinder on the Merits and supporting witness and expert evidence.
1.90.
By email dated 14 July 2011, the Tribunal indicated that it wished to see Mr [REDACTED] statement, together with its translation into English, as soon as possible, and requested the Claimants to provide the finalized statement, as signed by Mr [REDACTED] in its original language version, to the Respondent at once.
1.91.
By email dated 19 July 2011, the Claimants provided to the Tribunal the Czech language original of the statement of Mr [REDACTED] together with annexes, accompanied by English translations.
1.92.
By letter dated 20 July 2011, the Respondent objected to the late submission of the statement of Mr [REDACTED] noting inter aha that, despite the Tribunal’s request contained in the email dated 14 July 2011, it was only on 19 July 2011 that it had been provided with the original of the of Mr [REDACTED] statement and annexes, together with the translations; the statement was however dated 6 July 2011 and was only six pages long, and at least two of the annexes had clearly been available to the Claimants prior to 6 July 2011. As the statement and annexes had been provided to the Respondent only shortly before the deadline for submission of its Rejoinder on the Merits, due to be filed on 25 July 2011, the Respondent requested that the statement of Mr [REDACTED] and its annexes be declared inadmissible.
1.93.
On 21 July 2011, the Tribunal requested the Claimants to explain, no later than 25 July 2011, why the statement of Mr [REDACTED] and annexes had not been provided to the Respondent immediately following the Tribunal’s communication dated 14 July 2011, and to make any other comments they wished on the Respondent’s request.
1.94.
By letter dated 21 July 2011, the Claimants apologized for the late submission and explained that the delay in providing the original statement and annexes had been due, amongst other things, to the absence of Counsel from the office.

14. The Respondent’s Rejoinder on the Merits

1.95.
By email dated 25 July 2011, and in accordance with the revised deadline set in Procedural Order No. 7 (above, paragraph 1.79) the Respondent filed its Rejoinder on the Merits ("the Rejoinder").

15. The Tribunal’s Ruling on the Respondent’s Request to Exclude the Second Witness Statement of Mr

1.96.
By letter dated 27 July 2011 the Parties were provided with advance notice of the content of the Tribunal’s ruling on the Respondent’s request to exclude the second statement of Mr [REDACTED]. That ruling was subsequently embodied in Procedural Order No. 9, also of 27 July 2011, in which the Tribunal:

a. noted the prejudice inevitably caused to the Respondent by the delay in provision of the statement of Mr [REDACTED]

b. observed that the Claimants had provided no satisfactory explanation for non compliance with the Tribunal’s direction of 14 July 2011, nor why it had not been possible to provide the Czech original of the statement of Mr [REDACTED] substantially earlier; but

c. declined to exclude the statement on the basis that the statement and its annexes were relatively brief, and the issues it dealt with were familiar, but instead granted the Respondent the opportunity to supplement its Rejoinder by responding to any points arising from the statement or annexed documents which it felt it had not had the opportunity to address adequately, such supplemental submission to be filed by 9 September 2011.

1.97.
In addition, the Tribunal fixed 15 August 2011 as the date for the notification by each Party of its intention to cross-examine the other Party’s witnesses.
1.98.
Notices were received from the Respondent on 15 August 2011, and from the Claimants on 17 August 2011.

16. Joint Chronology

1.99.
By email dated 19 August 2011, Counsel for the Respondent informed the Tribunal that the Parties had not been able to agree a joint chronology of events, as requested in Procedural Order No. 1 (as later modified), and forwarded its own chronology.
1.100.
By email dated 19 August 2011, the Tribunal reiterated its wish to receive an agreed chronology, and granted the Parties an extra week for that purpose, whilst making clear that it was acceptable that the joint chronology could indicate areas of disagreement between the Parties.
1.101.
By email dated 22 August 2011, Counsel for the Claimants made certain clarifications in response to the email from Counsel for the Respondent dated 19 August 2011.
1.102.
By email dated 26 August 2011, Counsel for the Claimants submitted the Parties’ joint agreed chronology, indicating areas of disagreement, in both list and table formats.

17. Pre-Hearing Review

1.103.
In accordance with Procedural Hearing No. 1, a pre-hearing review was fixed for 30 August 2011.
1.104.
In advance of the pre-hearing review, by letter dated 29 August 2011, Counsel for the Claimants:

a. submitted a revised list of the Respondent’s witnesses whom it wished to crossexamine;

b. withdrew the testimony of three of their own witnesses, noting that, in lieu, they would rely on the testimony of other witnesses, and invited the Respondent to indicate whether it wished to cross-examine those other witnesses;

c. made various proposals as to the conduct of the hearing, including as to the order of witnesses, joint conferencing of experts, etc;

d. noted that their witness Mr [REDACTED] had suffered an injury and would be unable to attend the hearing in London, although he would be available to testify via videoconference.

1.105.
By letter dated 29 August 2011, Counsel for the Respondent set out its views on the Claimants’ letter. As regards the withdrawal by the Claimants of certain of their witnesses, the Respondent stated that it understood that, in accordance with Article 13.5.2 of Procedural Order No. 1 (above, paragraph 1.45c, the statements of those witnesses were to be disregarded. As to the Claimants’ statement that they were relying on the evidence of certain other witnesses "in lieu", the Respondent requested a short period to consider whether it wished to cross-examine those witnesses.
1.106.
The Claimants also proposed that a core bundle should be prepared for use at the hearing, and that to that end a timetable should be set for the parties to designate the documents they wished to be included.
1.107.
On 30 August 2010, the Chairman held a pre-hearing conference with Counsel for the Parties at which various matters relating to the conduct and organization of the hearing were discussed, agreement was reached on a variety of matters (including that a core bundle would be prepared), and certain matters were left over for the subsequent decision of the Tribunal. In that last regard, in particular-, issues arose as to:

a. the Respondent’s representative and witness, Mr [REDACTED] of the Ministry of Finance, with the Claimants taking the view that he should not be present for the evidence of` any other witness prior to giving his own evidence;

b. the order in which the expert witnesses were to be heard; and

c. the manner in which the expert witnesses were to be heard, including whether there was to be witness conferencing, and if so, whether joint examination by the Tribunal was to precede, or follow, cross-examination of the individual experts by the Parties.

1.108.
By communication dated 31 August 2011, the Tribunal directed:

a. that Mr [REDACTED] evidence was to be taken first, immediately following the conclusion of opening statements, and prior to the Respondent’s cross-examination of the Claimants’ witnesses; Mr [REDACTED] would be permitted to be present for the opening statements of the parties, save that he would be required to withdraw if either Party made submissions addressing his involvement in the matters in dispute; once he had given his evidence, Mr [REDACTED] would be free to be present in the hearing;

b. that the Tribunal wished to hear the experts as to excavations before the legal experts and experts on valuation and tax, but that otherwise the Parties were to attempt to agree the order in which they and other experts as to factual matters were heard;

c. that the expert witnesses would first give any evidence in chief and then be cross-examined by the opposing Party, under the control of the Tribunal, following which there would be witness conferencing.

1.109.
By email dated 9 September 2011, the Respondent indicated that, in the light of the withdrawal by the Claimants of the evidence of the three witnesses, it wished to cross-examine one additional witness.
1.110.
By further email dated 9 September 2011, pursuant to the provision made in Procedural Order No. 9 (above, paragraph 1.96), the Respondent submitted an additional witness statement, accompanied by exhibits, in response to the late filing by the Claimants of the second statement of Mr [REDACTED] and its annexes.
1.111.
By email dated 12 September 2011, the Claimants took note of the Tribunal’s ruling that Mr [REDACTED] [REDACTED] was to give his evidence first, following the opening submissions, submitted that that option had not been canvassed during the pre-hearing review, and noted that if it had been, the Claimants would have opposed it. They nevertheless stated that they accepted the ruling, although they reserved the right to recall Mr [REDACTED] for additional questioning as the hearing progressed.
1.112.
By letter dated 15 September 2011, the Claimants indicated, inter alia:

a. that they had "been informed by Mr. [REDACTED] that he is not in a position to come to London", but that he "stands by and confirms" the witness statements submitted with the Memorial and Reply;

b. that notwithstanding his injury, it appeared that Mr [REDACTED] would be able to be present at the hearing;

c. that they intended to "ask Mr. [REDACTED] and Mr. [REDACTED] a few questions, independent of whether Respondent intends to cross examine them".

1.113.
By letter dated 16 September 2011, the Respondent:

a. expressed surprise that Mr [REDACTED] would not be attending, noting that he was a "very important witness", and observed that despite the Claimants’ assertion that Mr [REDACTED] had stated that he stood by and confirmed his witness statements, the Claimants had not sought the leave of the Tribunal that his witness statements should stand in spite of the fact that he would not be giving evidence, with the result that, in principle those statements should be disregarded. It observed, however, that this would be unfair given that Mr [REDACTED] had made important admissions in his witness statements, and asserted that the Czech Republic had not intended to cross-examine him on those admissions. It submitted that his non-appearance should not prevent the Respondent from relying on those admissions, whilst other aspects of his statements, on which the Respondent would not have the opportunity to cross-examine him, should be disregarded;

b. submitted that, given that the written statements of witnesses were to stand as their direct evidence, it was improper for the Claimants to seek to elicit further evidence from Mr [REDACTED] and Mr [REDACTED] by direct examination at the hearing; in that regard, they noted that the Claimants had not submitted a second statement by Mr [REDACTED] with their Reply.

18. The London Hearing

1.114.
A hearing on the objections to jurisdiction raised by the Respondent and the merits of the Claimants’ claims was held at the International Dispute Resolution Centre at Fleet Street, London between 19 and 30 September 2011 ("the London Hearing").
1.115.
On behalf of the Claimants, there attended:

Dr [REDACTED] (Partner, Norton Rose LLP), Counsel

Mr Arthur Marriott, QC, Counsel;

Ms Mahnaz Malik. Counsel

Mr [REDACTED] (Norton Rose LLP), Counsel

Mr [REDACTED] (Norton Rose LLP), Counsel

Mr [REDACTED] (Norton Rose LLP), Counsel

Ms [REDACTED] (Norton Rose LLP), Counsel

Mr [REDACTED] ECE

1.116.
On behalf of the Respondent, there attended :

Mr [REDACTED] Partner, Squire Sanders), Counsel

Mr Stephen P. Anway (Partner, Squire Sanders), Counsel

Ms [REDACTED] (European Partner, Squire Sanders), Counsel

Ms [REDACTED] (Associate, Squire Sanders), Counsel

Ms [REDACTED] (Associate, Squire Sanders), Counsel

Ms [REDACTED] (Associate, Squire Sanders), Counsel

Mr [REDACTED] (Partner, Hartmann Jelinek Fráña a Partneri), Counsel

Mr [REDACTED] (Senior Associate, Hartmann Jelinek Fráña a Partneri), Counsel

Mr [REDACTED] (Ministry of Finance, Czech Republic)

Ms [REDACTED] (Ministry of Finance, Czech Republic)

Ms [REDACTED] (Ministry of Finance, Czech Republic)

1.117.
The Tribunal heard the evidence of the following witnesses of fact on behalf of the Claimants, who were cross-examined by Counsel for the Respondent:

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Ms [REDACTED]

Mr [REDACTED]

1.118.
The Tribunal likewise heard the evidence of the following witnesses of fact on behalf of the Respondent, who were cross-examined by Counsel for the Claimants:

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

Mr [REDACTED]

1.119.
In addition, the Tribunal heard the evidence of the following expert witnesses, who were subject to cross-examination by Counsel for the opposing party, followed by witness-conference during the course of which questions were put to them by the Tribunal:

a. Dr Stanislav Kadecka (the Claimants’ Czech law expert) and Dr Soña Skulová (the Respondent’s Czech law expert)

b. Mr Tomas Drtina of Incoma (the Claimants’ Real Estate expert) and Mr Premysl Chaloupka and Mr Nick Powlesland of Knight Frank (the Respondent’s Real Estate experts)

c. Mr Thomas Griihn (Deloittes) (the Claimants’ valuation expert) and Mr Sirshar Qureshi (PwC) (the Respondent’s valuation expert).

In addition, by agreement of the Parties, the Tribunal conducted a session of witness conferencing involving Dr Dirk-Oliver Kaul (Deloittes) (the Claimants’ tax expert) and Mr David Borkovec and Mr Jürgen Scheidsteger (both of PwC) (the Respondent’s tax experts), without any prior cross-examination by the Parties.

19. Procedural Matters Arising During the London Hearing

1.120.
During the course of the London Hearing, various procedural matters arose, and the Tribunal rendered a number of procedural rulings.

a. The Claimants’ Request to Conduct Direct Examination of Certain Witnesses

1.121.
First, in relation to the Claimants’ indication contained in their letter of 15 September 2011 that they intended to ask Mr [REDACTED] and Mr [REDACTED] a number of questions by way of direct examination, and the Respondent’s observations in that regard contained in its letter of 16 September 2011 (see above, paragraphs 1,112 and 1,113), the Tribunal heard the submissions of the Parties on the first day of the hearing, 19 September 2011.8 In order to assist with its consideration of the Claimants’ proposal, the Tribunal invited the Claimants to provide as soon as possible a list of the issues which they were intending to cover with the witnesses.
1.122.
By email sent during the evening of 19 September 2011, the Claimants provided a list of the issues they intended to cover with the witnesses, and explained why.
1.123.
Counsel for the Respondent responded to the points made in the Claimants’ email at the beginning of the hearing on the morning of 20 September 2011, and indicated that the Respondent continued to resist the Claimants’ proposal.9
1.124.
The Tribunal provided its ruling orally, indicating that it was prepared to allow some direct examination of Messrs [REDACTED] and [REDACTED] but that any such direct examination was to be kept to an absolute minimum, and limited to the points which the Claimants had argued had been newly introduced by the Respondent in the material accompanying its Rejoinder.10

b. Treatment of the Statements of Mr [REDACTED]

1.125.
Second, as regards the approach to be taken in relation to the statements of Mr [REDACTED] given that he was not present at the hearing in order to be cross-examined (see above, paragraphs 1,112 and 1,113), the Tribunal likewise heard the arguments of the Parties on the first day of the hearing, 19 September 2011.11 By way of elaboration on the position set out in their letter dated 15 September 2011, Counsel for the Claimants explained that Mr [REDACTED] had stated that, although he confirmed the contents of his statements, the partners in his company had objected to his appearance, on the basis that if he were to give evidence it would risk damaging the company’s business.12 The Claimants took the position that the Tribunal should grant leave for the witness statements of Mr [REDACTED] to stand despite the fact that he would not appear. The Respondent initially took essentially the same position as it had taken in its letter of 16 September 2011, suggesting that admissions made by Mr [REDACTED] should be allowed to stand but that the rest of his statements should be excluded.
1.126.
The Tribunal expressed the view that the Claimants’ position in effect involved the making of an application, and invited the Claimants to make that application in writing.13
1.127.
By email sent during the course of the evening of 19 September 2011, the Claimants made a formal application for leave that the witness statements of Mr [REDACTED] should remain on the record, and argued that the Respondent’s position that only part of Mr [REDACTED] statements should be permitted to remain on the record should be rejected.
1.128.
By email sent prior to the start of the hearing on 20 September 2011, the Respondent modified its position, and argued that, for the sake of simplicity, the statements of Mr [REDACTED] should be excluded in their entirety.
1.129.
The Tribunal had decided that the witness statements by Mr [REDACTED] would be disregarded, for reasons set out by the Chairman orally during the course of the second day of the hearing.14

c. Issues Relating to the Evidence of Mr Drtina

1.130.
On the eighth day of the London hearing, 28 September 2011, during the evidence of the Claimants’ real estate expert, Mr Drtina, he produced and provided to the Tribunal copies of certain further materials relating to points raised by the Respondent’s real estate expert, Knight Frank, in their second report, as filed with the Rejoinder. His evidence at various points also touched upon the matters dealt with in those materials.
1.131.
After an initial discussion with the Parties, during which the Claimants indicated that they had no objection to the new material being introduced into the record, whilst the Respondent expressed its concern as to the late production of the material, which had not previously been provided to it, the Tribunal invited the Parties to revisit the issue during the course of the hearing on the next day.15
1.132.
Thereafter, on the ninth day of the London hearing, 29 September 2011, the Respondent orally made an application that the Tribunal not admit the new documents produced by Mr Drtina, and in addition that certain passages of his oral evidence, in which he made reference to and/or explained the contents of those documents, be struck from the transcript. The Claimants opposed that application. The Tribunal indicated that it would reserve its decision, and that it would communicate its ruling on the Respondent’s application to the Parties in due course.16
1.133.
By email dated 3 October 2011, the Claimants made further (unsolicited) submissions in relation to certain of the arguments canvassed at the hearing as to whether the new evidence should be admitted and the transcript redacted. Those submissions in turn provoked communications in response from the Respondent.
1.134.
By email dated 10 October 2011, the Tribunal communicated to the Parties its decision on the Respondent’s application. Recalling the procedures laid down in Procedural Order No. 1 for the orderly introduction of documentary evidence, the Tribunal indicated that it saw no exceptional reasons justifying the admission of the new documents provided by Mr Drtina, with the result that they were not admitted into the record. Conversely, it took the view that there existed no exceptional reasons requiring the exclusion from the record of evidence which related directly to the issues resulting from the Parties’ written pleadings, and on that basis declined to make any order varying the contents of the transcript of the evidence for the eighth day of the hearing on 28 September 2011.

d. Site Visit and Additional Hearing in Prague

1.135.
During the course of the London hearing, it was agreed that a further hearing would be convened in Prague on 13 October 2013 in order to hear the Parties’ closing submissions, in combination with which the Tribunal would undertake a site visit to Libéréc on 12 October 2013.

20. The Tribunal’s List of Issues

1.136.
By email dated 7 October 2011 from the Chairman of the Tribunal, the Tribunal circulated a list of issues as to which it would appreciate hearing the submissions of the Parties in their closing arguments. The issues identified were as follows:

"FACTS

A. In the light of the written and oral evidence, to what extent do either the Claimants or the Respondent maintain an allegation of corruption or similar wrongdoing, and if so in connection with what individual transactions and what relationships between specific persons?

B. To the extent that the Claimants’ case depends upon an assertion of the breach of legitimate expectations protected, by the BIT, what actions, by whom, and in what circumstances, are alleged to have given rise to such expectations? What actions, by whom, and in what circumstances, are alleged to have caused the failure of such expectations?

C. To the extent that the Claimants’ case depends upon a claim of unlawful discrimination, what specifically were the elements in the treatment of the Forum project, by comparison with the Galerie [REDACTED] project, that are alleged to constitute such discrimination?

D. Where does the burden of proof lie to establish, or to disprove, the factual basis for any of the above claims? Is more evidence required, and if so how much, to establish corruption or other wrongdoing? How should the Tribunal address allegations of wrongdoing against a private party (in casu Multi) which is not a. party to the arbitration and which therefore has not been in a position to adduce any evidence in relation to the allegations made against it?

LAW

E. What is the relationship (in the specific circumstances of the present case) between breach of treaty and breach of local law by (i) the Respondent or its agencies or officers; (ii) the Claimant(s)? What is the threshold standard (i.e. how serious must the breach be)? May the threshold standard be met by cumulating separate breaches that do not reach this standard individually? What is the impact of the existence of, or exhaustion or non-exhaustion of, local legal or other remedies? To what extent is the arbitral Tribunal itself a judge of local law? How is the Tribunal to deal with questions of local law that are unsettled or disputed?

F. How (if at all) do the actions of a private third party (in casu Multi) engage or affect the international responsibility of the Respondent State?

LIABILITY

G. What is the precise link between each of the above heads of claim and the specific protections guaranteed by the bilateral investment treaty?

DAMAGE

H. How are the damages claimed justified in relation to specific breaches of the specific protections guaranteed by the bilateral investment treaty? What principles of causation apply to link the specific damages claimed to the treaty’ breaches alleged? How in this connection should the Tribunal treat any delays that may be attributed to the Claimants in the permitting process?

I. What facts must be proved, by whom, and to what standard, in order to establish the specific damages claimed under each head?

J. What principles (if any) of mitigation of damage apply to the specific damages claimed? "

21. The Site Visit and Prague Hearing

1.137.
On 12 October 2011, the Tribunal, accompanied by representatives of the Parties, visited the planned site of the Galerie project, the Multi shopping centre, and various locations in the immediate environs selected and agreed by the Parties.
1.138.
On 13 October 2011, the Tribunal heard the Parties’ closing submissions at the offices of Counsel for the Respondent ("the Prague Hearing").
1.139.
During the course of the Prague Hearing, it was agreed that there would be no post-hearing briefs.

22. Correspondence Subsequent to the Prague Hearing

1.140.
Subsequent to the Prague Hearing, the Parties addressed correspondence to the Tribunal on a number of matters which will be dealt with, so far as required, later on in this Award.

23. Costs Submissions

1.141.
By letter dated 26 March 2013, the Tribunal requested the Parties to submit by 24 April 2013 schedules setting out the legal costs and disbursements claimed by them in the arbitration, gave directions as to the form and content of the schedules, and indicated that each Party would be provided the opportunity to submit comments on the other’s claim within a period of 10 days.
1.142.
The Parties filed their respective costs schedules on 24 April 2013.
1.143.
By email dated 1 May 2013, the Claimants requested an extension until 8 May 2013 for the filing of their comments on the Respondent’s costs schedule. The Tribunal granted the request.
1.144.
By email dated 3 May 2013, the Respondent indicated that it did not intend to present comments on the Claimants’ costs schedule, but sought the Tribunal’s leave to file a response to the Claimants’ comments on its own costs schedule.
1.145.
By email dated 6 May 2013, the Tribunal indicated that it saw no good reason to vary the procedure set out in its directions of 26 March 2013, provided that, should the position change, it would inform the Parties without delay.
1.146.
On 8 May 2013 the Claimants submitted their comments on the Respondent’s costs claim.
1.147.
By email dated 10 May 2013, the Tribunal authorized a further exchange of submissions limited to a number of specific points raised by the Claimants in their comments, with time limits of 17 May 2013 for the Respondent, and 24 May 2013 for the Claimants.
1.148.
On 17 May 2013, the Respondent submitted its reply to the Claimants’ comments.
1.149.
By email dated 21 May 2013, the Claimants requested an extension until 29 May 2013 for the filing of their rejoinder, which the Tribunal granted by email on 21 May 2013.
1.150.
By letter of 29 May 2013, the Claimants submitted their rejoinder to the Respondent’s reply.

Part II- Factual Background

A. Introduction

2.1.
The ECE Group, of which the Claimants form part, are in the business inter alia of developing shopping centres, an area in which they have had notable success. Of relevance for the purposes of the present dispute, they had previously developed a number of other shopping centres within the Czech Republic, including Arkády Pankrác (Prague) and Galerie Vañkovka (Brno).
2.2.
[REDACTED]
2.3.
Other entities within the ECE Group, in addition to the Claimants and ECE KG, also form a necessary part of the picture:-

a. Tschechien 7 Immobilienkommanditgesellschaft k.s. ("Tschechien 7") is a limited partnership incorporated under the laws of the Czech Republic. Tschechien 7 was the principal vehicle used by the Claimants for the purposes of the Galerie project. [REDACTED]

b. ECE Projektmanagement Praha s.r.o. ("ECE Praha") is a company incorporated under the laws of the Czech Republic. [REDACTED] The Claimants assert that ECE Praha acts as a service company for the investments of the ECE Group within the Czech Republic. As such it was responsible for development, planning, and pre-sales management, and for the conclusion of pre-lease contracts, for the Galerie Project. The Claimants further assert that had the Galerie Project come to fruition, and the shopping centre had been sold to investors, ECE Praha is the company which would have entered into the management agreement for Galerie [REDACTED].

c. EKZ Tschechien 3 Immobiliengesellschaft s.r.o. ("EKZ Tschechien 3") is a limited liability company incorporated under the laws of the Czech Republic. [REDACTED]

d. EKZ Prag 1 Verwaltungsgesellschaft s.r.o. ("EKZ Prag 1") is a limited liability company incorporated under the laws of the Czech Republic. [REDACTED]

B. Overview of the Planning System in the Czech Republic

2.4.
It should be noted at the outset that the applicable planning legislation changed during the course of the project. The 1976 Building Code ("the Old Building Code")21 was in force until 31 December 2006, whilst the new legislation which replaced it ("the New Building Code"), which for the most part entered into force from 1 January 2007.22
2.5.
Under the transitional clauses in the New Building Code, save for certain exceptions not relevant for present purposes, the provisions of the Old Building Code continued to apply to applications for planning permission that had been filed while the Old Building Code was still in force.23 The Old Building Code therefore applied to the application for planning permission for the Galerie Project filed on 28 December 2006 (see further below). Conversely, the provisions of the New Building Code applied to the applications for Building Permits in relation to Galerie filed between January and March 2008, and the resulting proceedings.

1. Planning authorities

2.6.
Under the Old Building Code, there were three relevant administrative levels for planning matters: in ascending order, municipalities, regions and, at the national level, the Ministry for Regional Development ("the Ministry").24 The position was maintained essentially unchanged under the New Building Code.25
2.7.
In the present case, the relevant authorities at sub-national level were, at the local level, the Building Office of the Municipal Authority of [REDACTED] ("the Building Office" or "MAL") and, at the regional level, the Regional Authority of [REDACTED] ("RAL"). MAL, although formally a part of the administration of the municipality of [REDACTED] is nevertheless regarded under the scheme of Czech administrative law as being part of the centralized administration, rather than part of the decentralized areas of self-governance. RAL was the body with principal appellate competence in relation to decisions of the Building Office in planning matters.
2.8.
As to the Ministry, although many of its functions may be exercised by officials, certain powers (in particular the final decision in relation to an appeal against a decision of a Ministry in an extraordinary review procedure (as to which see further below)) are, under the Code of Administrative Procedure ("CAP"), reserved to the Minister in person.26

2. Planning Permits, Building Permits and Occupancy Approval

2.9.
Under Czech planning and administrative law, the construction of a project such as Galerie Libéréc consists of a number of distinct administrative phases.
2.10.
First, it may be necessary as an initial step to apply for modification of the municipal zoning plan, so as to permit land use of the type required. Under the Old Building Code (which was still applicable at the relevant time for the present dispute), the zoning plan was maintained by the local municipality.27
2.11.
A planning permit is an administrative decision by which the competent authority approves the concept of a construction project, including its location and purpose, and verifies the feasibility of a project with respect to its access to utilities and roads; the planning permit may impose conditions as to the connection of the building to transport, energy, water, sewage, and other infrastructure, and as to the preparation of detailed construction plans required for the application for a building permit.28 In addition, under the Old Building Code, it appears that a planning permit could authorize an application to carry out certain ground formation works.29
2.12.
By contrast, under a Building Permit the relevant building office authorizes the construction of a building, and sets out specific terms and conditions as to the intended construction of the building and other constructions, for instance, roads, pavements and infrastructure connections.30 Complex projects may result in the issue of several different building permits relating to different aspects of the project. Compliance with any conditions contained in the Building Permit is monitored and enforced by the relevant building authority.
2.13.
Finally, once a structure is complete, it is necessary to apply for occupancy approval, which authorizes the intended use of the structure. The process consists of verification by the competent municipal building authority of compliance with applicable construction and safety regulations.31

a. Planning Permit Proceedings

2.14.
Under the Old Building Code, once a complete application for planning permission was received, "planning proceedings" were opened.32 Upon the opening of the proceedings, all participants in those proceedings were to be notified by the relevant authority.33 In the case of proceedings concerning "an especially extensive structure involving a particularly large number of parties" the opening of the proceedings was to be announced by a public notice.34
2.15.
So far as the location of a structure was concerned, participants in the planning proceedings included, in addition to the applicant and the municipality, "persons whose ownership or other rights to plots of land or structures located on them may be directly affected by such permission", including persons owning neighbouring (adjacent) plots of land and structures on them.35 Mere lessees of fiats,or non-residential premises could not be party to planning permission proceedings.36
2.16.
Any individual or entity which was deemed to be a participant in planning permit proceedings had the right to raise objections to the grant of the planning permission. The relevant authority was authorized to proceed without holding a hearing where it was possible to deal with the application on the basis of the documentation, provided that it set a time-limit within which participants could file such objections.37 Once the deadline for any objections had passed, the relevant authority proceeded to decide whether or not to issue a Planning Permit. A decision to grant planning permission was to be notified to the parties.38 The standard procedure for notification to participants of the grant of planning permission was by service by post. However, in cases of the kind described in paragraph 2.14 above, notification was by way of display of a public notice for a period of 15 days "in the manner which is usual in the locality", with the last day of the period of display being deemed to be the day of service.39
2.17.
Under the generally applicable rules contained in the CAP, a decision to grant planning permission would only become legally effective after service on all participants and expiry of the deadline for any appeals.40

b. Building Permit Proceedings

2.18.
Under the New Building Code, the procedure for Building Permit proceedings was substantially the same as for Planning proceedings under the Old Building Code, with proceedings being opened following receipt of a complete application; there was provision for participants to submit observations and objections, following which the Building Authority would proceed to issue its decision.41

c. Time Limits

2.19.
Under the CAP, decisions should, as a general rule, be issued within 30 days of the initiation of an administrative proceeding, although that period is extended to 60 days for complex matters.42 In addition, the time period is extended by the time required to prepare any expert report requested by the administrative authority.43 Issuance of a decision occurs either on the date of its dispatch to participants, or on the date of its display on the notice board of the relevant authority, as appropriate.44 The same period applies to the decision of appellate bodies, although time starts to run from the date on which the file is handed over to the superior administrative authority, which should occur within 30 days of receipt of an appeal by the lower authority.45
2.20.
Of particular relevance for the present dispute is the fact that administrative bodies have the power to stay proceedings. The effect of a stay is not entirely to suspend the proceedings, but rather to stop the running of time for the purposes of the time-limit within which the authority must reach its decision.46 The adoption of a stay also stops time running for the purposes of calculation of the time period of 15 days within which notification of the opening of proceedings has to be displayed, as well as the period of 15 days within which participants in the proceedings are able to submit theft comments and objections.

3. The System of Appeals in Planning Matters

2.21.
Under Czech law, participants in planning and building proceedings had (and have) a number of options for bringing a challenge to a decision (or the failure to take a decision). The principal remedies available in building matters are:

a. appeal to the superior administrative authority;47

b. the filing of a motion for extraordinary review proceedings with the superior administrative authority;48

c. the filing of a motion for failure to act under sectionf 80 CAP;49

d. judicial review.50

2.22.
An appeal to the territorially competent regional authority from a decision of a municipal authority has to be lodged with the municipal authority which adopted the decision within 15 days of delivery of the decision.51 The filing of such an appeal will generally have suspensory effect, such that the decision of the municipal authority would not enter into legal effect.52 The Old Building Code provided specifically that the suspensory effect of an appeal could not be excluded.53 Following receipt of the appeal, the municipal authority is required to notify all other participants and invite comments.54 Thereafter, the file is transferred to the relevant appellate authority; as noted above, transmission of the file should occur within 30 days of the receipt of the appeal.55
2.23.
The options open to the superior authority include upholding the challenged decision or modifying it; annulling the decision and remanding the case; and cancelling the decision and stopping the proceedings.56 The decision on an appeal in planning or building proceedings becomes effective following delivery to the appellant and participants in the underlying proceedings.57
2.24.
A further remedy exists against decisions which have become legally effective, in the form of an application to the superior administrative authority for extraordinary review. Under the Code of Administrative Procedure, extraordinary review proceedings are designed to correct a misapplication of the law,58 and can be initiated either sua sponte by the competent superior authority, or pursuant to a motion filed by a participant in the proceedings.59 A decision to commence extraordinary review proceedings is without any suspensive effect upon the validity of the underlying decision subject to review.60 The superior authority may either annul or modify a decision which it finds to be unlawful.
2.25.
However, under s. 94(4) CAP, a decision, even if found to be unlawful, cannot be annulled if the annulment would cause harm to rights acquired in good faith by any of the participants which would be disproportionate compared with the damage caused to other participants or to the public interest. If such disproportion is found, the administrative body is required to discontinue the proceedings.61
2.26.
Decisions in Extraordinary Review proceedings are subject to appeal; where the decision was by the Ministry, the appeal lies to the Minister.62
2.27.
The third available remedy is a motion for failure to act pursuant to section 80 CAP, and may be filed with the superior administrative authority, which, if it finds the motion to be well-founded, may either order the subordinate authority to take a decision within a deadline, or transfer the file to a different subordinate authority, or take the decision itself.63
2.28.
Finally, administrative decisions may be challenged before the administrative courts provided that the claimant has exhausted any administrative remedies available within the administrative proceedings.64 Actions may be brought either challenging an administrative decision,65 or challenging delay.66 The starting of proceedings challenging an administrative decision before the administrative courts does not have suspensive effect.67

C. Overview of the Envisaged Construction of the Galerie Project

1. The Planning Scheme for the Galerie Project

2.29.
The various elements which were to be undertaken for the construction of the Galerie project were divided into a number of "Constructions" for the purposes of making applications for building permits, some of which in turn comprised a number of discrete sub-elements:

a. Construction I related to the excavation of the site and construction of the main building; it also comprised:

i. Construction I.a relating to waste water infrastructure;

ii. Construction I.b, relating to internal roads within the Galerie site itself, and their connection to outside, public roads;

b. Construction II comprised works in relation to [REDACTED] a public road owned by the City

c. Construction III consisted of works changing the traffic layout on [REDACTED] Street, including works in relation to its intersection with [REDACTED] Street, both public roads owned by the City

d. Construction IV comprised works in relation to the intersection between a number of public roads, owned by the City [REDACTED] located in the area separating the proposed site of Galerie from the site of the Forum retail centre to be constructed by Multi and adjoining the bus station. Construction IV was sub-divided into a number of sub-elements:

i. Construction IV.a related to construction of a new intersection and modification of the road layout between [REDACTED] and involved the creation of a new intersection and crossings to replace the existing roundabout;

ii. Construction IV.b related to the construction of a new intersection of Street.

2.30.
The Parties were in dispute as to the cause of the decision to split the planning permission into various constructions, and to sub-divide them. This is again an issue to which the Tribunal will return.
2.31.
The traffic intersection which was the subject of Construction IV.b gave rise to a number of problems, and assumed a particular prominence in the building permit proceedings owing to the fact that the area which was to be modified overlapped with works in relation to the intersection to be undertaken as part of Multi’s project.

2. Acquisition of the project lands.

2.32.
All of the lands on which the GALERIE retail centre was to be built ("the project lands") had previously been owned by third parties.
2.33.
The actual transfer of title in the project lands to Tschechien 7 and other subsidiaries of the Claimants took place after the filing of the application for planning permission with MAL, although the evidence shows that sale and purchase agreements were in place at substantially earlier dates. In summary, the process of acquisition of the lands forming the main site on which the principal structure of the Galerie project was to be built was as follows:

a. [REDACTED]

b. [REDACTED]

c. [REDACTED]

d. [REDACTED]

2.34.
In addition, the application for planning permission and subsequently the applications for building permits related to a certain number of plots of land which were not owned by Tschechien 7. In particular, the City [REDACTED] owned the public roads which it was foreseen would be modified in order to integrate vehicle access to Galerie [REDACTED] into the public road system. As discussed further below, the City [REDACTED] substantially cooperated with Tschechien 7 in this regard, including by giving its consent to modification of the public roads. SIAL architektia inzenyri spol, s r.o. ("SIAL"), the firm of architects which acted on behalf of Tschechien 7 in the planning and building permit proceedings, in a number of instances also acted on behalf of the City [REDACTED] in filing applications for building permits in relation to land owned by the City [REDACTED] and in certain instances, filing appeals against decisions of MAL. [REDACTED]

D. ECE’s Application for the Planning Permit for Galerie and thePlanning Permit Proceedings (Including the Extraordinary Review Proceedings)

[REDACTED]

E. The Building Permit Proceedings

[REDACTED]

1. Applications fοτ Building Permits in Relation to the Galerie Project

[REDACTED]

2. The Building Permit Proceedings

[REDACTED]

F. Excavations on the Site of Galerie and the Ground Work Removal Proceedings

[REDACTED]

1. The Excavations οn the Site

[REDACTED]

2. Initiation of the Groundworks Removal Proceedings

[REDACTED]

G. The Abandonment of the Galerie Project and Subsequent Events

[REDACTED]

1. The Alleged Abandonment of the Project in October 2008

[REDACTED]

2. The Continuation of the Building Permit Proceedings

[REDACTED]

3. The Initiation of the Administrative Offence Proceedings and Subsequent Events in Relation to the Groundworks Removal Proceedings and Building Proceedings

[REDACTED]

Part III- The Jurisdiction of the Tribunal

A. Provisions of the BIT Relevant to Jurisdiction

3.1.
As set out above, Article 10 of the BIT, insofar as relevant for present purposes, provides (taking account of the competing translations into English advanced by the Parties):

1. [Claimants: Differences of opinion regarding; Respondent: Disputes relating to] investments between either Contracting Party and an investor of the other Contracting Party’ should as far as possible be settled amicably between the parties in dispute.

2. If a [Claimants: difference of opinion; Respondent: dispute] cannot be settled within six months of the date when it was [Claimants: raised; Respondent: notified] by one of the parties in dispute, it shall, at the request of the investor of the other Contracting Party, be submitted to arbitration [...]

3.2.
The definition of "investment" is contained in Article 1(1), which provides that it:

shall include every kind of asset [Claimants: which has been invested; Respondent: contributed] in conformity’ with domestic law, in particular:

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

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

c) receivables and claims to money which has been used to create an economic value or claims to any performance which has an economic value and which relates to an investment;

d) intellectual property rights, in particular copyrights, patents, utility models, industrial designs or models, trademarks, trade names, technical processes, know-how and goodwill;

e) business concessions under public law, including concessions to search for, extract and exploit natural resources.

3.3.
"Investor" is also a defined term, being stipulated by Article 1(3) of the BIT to mean:

a natural person with permanent residence or a juridical person with its seat in the respective area of application of this Treaty, entitled to engage in investments.

B. The Jurisdictional Basis Asserted by the Claimants in the Request for Arbitration and Statement of Claim

3.4.
In their Request for Arbitration and Statement of Claim, the Claimants dealt briefly with the jurisdiction of the Tribunal, asserting that:

a. both Claimants constituted German investors within the meaning of Article 1(3) of the BIT "as they have their seat in the Federal Republic of Germany, and are entitled to carry out investments";182

b. the direct and indirect shareholdings of ECE International and PANTA in the Czech companies Tschechien 7 and ECE Praha qualified as "investments" within the meaning of Article 1(1) of the BIT insofar as they constituted "shares of companies and other kinds of interests in companies"; the Claimants asserted that ECE International indirectly held 100% of the shares in ECE Praha and 99% of the shares in PANTA, whilst PANTA held 99,999% of the shares in Tschechien 7.183

3.5.
In addition, the Claimants also asserted that those investments were made "in accordance with Czech law", as required by Article 1(1) of the BIT,184 and sought, preemptively, to rebut arguments that had previously been raised by the Respondent in the context of the negotiations with a view to reaching an amicable settlement pursuant to Article 10 of the BIT which took place between the Parties in February and March 2009 following the sending of the Claimants’ Trigger Letter of 7 November 2008. The matters raised during the negotiations related to:

a. the scope of the groundworks carried out by Tschechien 7 at the project site following issuance of the Planning Permit;

b. certain issues relating to the involvement of Ms [REDACTED] as legal representative on behalf of the ECE companies in the various proceedings; and

c. the acquisition of certain of the project lands through the purchase by Tschechien 7 of the shares in Perstÿn Plus, the owner of the plots, from a company registered in Cyprus.185

3.6.
Although the Respondent did not pursue the second matter as part of its Objections to Jurisdiction, the closely-connected question of the propriety of the actions of Mr who by letter dated 13 February 2009 made a complaint to the Czech Bar Association, the relevant domestic professional body, in respect of the conduct of Ms [REDACTED] in the proceedings before MAL, was the subject of a number of procedural skirmishes between the Parties. Mr [REDACTED] was questioned on behalf of the Claimants on the subject at the hearing.186
3.7.
The Tribunal is of the view that the questions raised in that regard are of no relevance to the matters in issue in the present dispute, and no more needs to be said about them here save to record that the complaint against Ms [REDACTED] was rejected as unfounded by the Inspection Board of the Czech B ar Association on 10 June 2009.187
3.8.
To the extent that the Respondent has relied upon the first and third matters as part of its Objections to Jurisdiction, the position taken by the Claimants’ in theft Request for Arbitration and Statement of Claim is summarized in what follows.

C. The Respondent’s Objections to Jurisdiction

1. Procedural context

3.9.
As summarized in the Tribunal’s Procedural Order 1, dated 19 March 2010, at the Preliminary Procedural Meeting held on 2 February 2010 it was agreed that there would be separate parallel pleadings on the merits of the Claimants’ claims and on any objections to jurisdiction raised by the Respondent. It was further agreed, and Procedural Order No. 1 so recorded, that there would however be no bifurcation of the proceedings, and any objections to jurisdiction and/or admissibility raised by the Respondent would be heard together with the merits of the Claimants’ claims.188
3.10.
In addition, as noted above, it was agreed, and the Tribunal so directed, that by way of initial response to the Claimants’ Request for Arbitration and Statement of Claim, the Respondent should, in the first instance, file by 15 March 2010 an Answer to Statement of Claim, incorporating an outline of any objections to the jurisdiction of the Tribunal or the admissibility of the Claimants’ claims. Procedural Order No. 1 expressly stipulated that the Answer to the Statement of Claim:

need not be a full pleading, but must, on the basis of the documents currently available to the Respondent, contain an outline of both the nature of its substantive defences and of any objections to jurisdiction or admissibility.

3.11.
As noted above, provision was also made in Procedural Order No. 1 for the filing of further pleadings relating to any objections to jurisdiction or admissibility raised by the Respondent, it being stipulated that:

a. the Claimant would, if necessary, file Observations on Jurisdiction and admissibility in response to any objections raised by the Respondent together with its Answer to the Statement of Claim at the same time as its Memorial on the Merits;

b. thereafter, the Respondent would, if required, file a Reply on Jurisdiction and Admissibility at the same time as its Counter-Memorial on the Merits; and

c. again, if required, the Claimants would file a Rejoinder on Jurisdiction and Admissibility at the same time as its Reply on the Merits.

2. Overview of the Objections to Jurisdiction Raised by the Respondent

3.12.
In its Objections to Jurisdiction duly filed on 15 March 2010 in accordance with Procedural Order No. 1 together with its Answer to the Statement of Claim, the Respondent raised four objections to the jurisdiction of the Tribunal:

a. first, the Respondent argued that, to the extent that the Claimants made claims in respect of losses suffered by Tschechien 7 and ECE Praha, those claims did not relate to an "Investment" under Article 1(1) of the BIT, and were therefore outside the jurisdiction of the Tribunal ("the Respondent’s objection of no investment within the meaning of Article 1(1) of the BIT");

b. second, the Respondent argued that the underlying facts relating to the Claimants’ claims in relation to the abandonment of the Galerie Project "involved serious violations of Czech law". On the one hand it initially alleged suspected violations of Czech law as regards the manner in which Tschechien 7 acquired a portion of the lands on which Galerie was to be built (although the objection on that basis was subsequently abandoned), and on the other hand it pointed to violations by Tschechien 7 of the terms of the Planning Permit as a result of the extent of the groundworks carried out ("the Respondent’s objection of illegality of the investment");

c. third, the Respondent argued that the Tribunal did not have jurisdiction ratione materiae over the Claimants’ claims for damages in respect of losses allegedly sustained by companies other than Tschechien 7 and ECE Praha ("the objection to jurisdiction ratione materiae")',

d. finally, it was argued that the Tribunal did not have jurisdiction ratione temporis over any claims based on events which pre-dated the date of the making of the Claimants’ respective investments (the objection to jurisdiction ratione temporis).

3.13.
Although the form of several of the objections underwent substantial modification during the course of the exchange of pleadings, the Respondent has formally maintained each of those objections to jurisdiction, and made express reference to them in opening at the hearing held in London in September 2012.189

D. The Positions of the Parties

1. The Respondent’s Objection to Jurisdiction on the Basis of No "Investment" Within the Meaning of Article 1(1) of the BIT

3.14.
The Respondent’s first jurisdictional objection is based on the premise that the Claimant’s claims are outside the jurisdiction of the Tribunal because the claims for the alleged losses of Tschechien 7 and ECE Praha do not relate to an "investment" as protected by the BIT.

a. The Respondent’s Objections to Jurisdiction

3.15.
In their Objections to Jurisdiction, the Respondent pointed to the fact that the definition of "investment" in Article 1(1) of the BIT does not define an "investment" as comprising every kind of asset directly or indirectly owned or controlled by an investor, and on that basis argued that so-called "derivative" claims brought by the shareholder of a company in respect of loss caused to that company do not fall within the scope of the BIT.190
3.16.
Instead, the Claimant asserted that the definition of investment refers to assets "contributed" by an investor. It placed reliance on the fact that the Czech version of the BIT uses the term "vlozené", the correct translation of which it submitted is "contributed", rather than "invested", and noted that the equally authentic German text uses the term "angelegt", which can be translated as either "contributed" or "invested".191 In support of the assertion that the correct equivalent in Czech of the English term "invested" is "investované", it drew attention to two bilateral investment treaties entered into by the Czech and Slovak Republic roughly contemporaneously with the BIT at issue in the present case one of the authentic texts of which was, and which, in each case, render the term "invested" as some form of the verb "investované", rather than using the verb "vlozené", as used in the BIT.192
3.17.
In further support of this argument, it argued that the context of Article 1(1) also dictated such an interpretation, insofar as Article 1(2) of the BIT contains a separate definition of "returns", and pursuant to Article 2(3), both investments and returns are protected under the BIT.193
3.18.
On that basis, the Respondent argued that the rights and assets of Tschechien 7 and ECE Praha (including the project land owned by Tschechien 7, and its rights to due process in the planning and building proceedings) did not constitute "investments" within the meaning of the BIT. It further argued that the Claimants’ participatory rights in Tschechien 7 and ECE Praha likewise did not fall within the definition of protected investments under the BIT.194
3.19.
The Respondent emphasized that, despite the Claimants’ assertion in the Request for Arbitration and Statement of Claim,195 that their investments were constituted by their respective shareholdings in Tschechien 7 and ECE Praha, Tschechien 7 was in fact a limited partnership, such that PANTA could have no shareholding in it. Rather, the Respondent argued that PANTA was a general partner in Tschechien 7, PANTA was contractually entitled to 99,999% of Tschechien 7’s profit, and that, as a matter of Czech law, that right was regarded as contractual, rather than proprietary.196
3.20.
It further observed that, under Czech law, PANTA’s participatory rights in Tschechien 7 as general partner were not contingent upon any contribution of capital. As a consequence, the Respondent argued that PANTA’s participatory rights as general partner in Tschechien 7 did not constitute "contributions" for the purposes of the definition of "investment".197
3.21.
As for ECE International, the Respondent argued that the direct and indirect shareholding of that entity in ECE Praha had derived from a contribution of capital made by its legal predecessor, but that, given that the BIT does not contain a "change-of-form" provision, in the hands of ECE International the "the assets obtained in exchange for assets contributed" likewise did not constitute an investment within the meaning of Article 1(1) of the BIT.198
3.22.
The Respondent in any case observed that the Claimants’ claims on the merits related only to the rights and assets of Tschechien 7, and emphasized that no allegation was made that the Respondent had taken any measures directed against the Claimants’ contributions to Tschechien 7 and/or ECE Praha. The Respondent noted that, instead, the Claimants had alleged that the actions of the organs of the Respondent had violated the due process rights of Tschechien 7 in the building and planning proceedings, and that the Claimants’ claim was that those alleged violations had resulted in a loss of value of the project land owned by Tschechien 7.199
3.23.
The Respondent further noted that, although the Claimants had argued that the alleged violations of Tschechien 7’s procedural rights also caused actual damage and loss of profits to both Tschechien 7 and ECE Praha, as well as a number of other companies within the group, the Claimants did not specify what rights and assets of ECE Praha and those other companies had allegedly been affected.200 The Respondent observed that the Claimants asserted that the intention was that ECE Praha would become the management company for Galerie once it became operational, but that, since the project had been aborted prior to commencement of the construction phase, it appeared that ECE Praha had had no rights or assets in connection with the project, with the result that the dispute could not relate to the rights and assets of ECE Praha.201
3.24.
On that basis, the Respondent argued that the claims brought by the Claimants in relation to Tschechien 7 and ECE Praha fell outside the scope of its consent to arbitrate under Article 10 of the BIT. Specifically, the Respondent emphasized that, pursuant to Article 10, it had consented to arbitrate only "disputes relating to an investment", and that given the narrow interpretation which it said should be given to the definition of "investment" in Article 1(1) as being limited to "contributions", and the fact that the violations alleged by the Claimants related only to the rights and assets of Tschechien 7, the derivative claims brought by the Claimants did not constitute a dispute relating to the investment within the meaning of Articles 10 and 1(1) of the BIT.202
3.25.
In particular, the Respondent argued: i) that the claims made by PANTA relating to the damage allegedly sustained by Tschechien 7 were not claims relating to an investment because PANTA’s participation in Tschechien 7 did not constitute an "investment" within the scope of the BIT "because they were not contributed by PANTA"; and ii) that those claims in any event related to the rights and assets of Tschechien 7, which likewise did not constitute an "investment" as they had not been contributed by PANTA.203
3.26.
As regards the claims by ECE International in relation to the damage allegedly sustained by ECE Praha, the Respondent argued that those claims likewise did not constitute claims "relating to an investment" on the basis that i) ECE International’s shareholding in ECE Praha did not constitute an investment because it had not been "contributed" by ECE International; ii) the claims of ECE International did not relate to any existing rights or assets of ECE Praha; and iii) even if those claims did relate to existing rights or assets of ECE Praha, they would not constitute an "investment", as they were not "contributed" by ECE International.204

b. The Claimants’ Memorial

3.27.
In their Memorial (incorporating their Observations on Jurisdiction and Admissibility), the Claimants asserted that theft "direct and indirect shareholdings and other interests in Tschechien 7 and ECE Praha qualified as investments under Article 1(1)(b) of the BIT", disputed that the scope of the BIT was restricted by any requirement of a "contribution" by the investor; and argued that, to the contrary, the scope of the BIT was "very broad".205
3.28.
As to the first point, the Claimants noted that the Claimants held almost the full participatory rights in ECE Praha and Tschechien 7, and accordingly had assets in the form of shares within the meaning of Article 1(1)(b) of the BIT.206
3.29.
As regards the Respondent’s assertion that solely the rights and assets of Tschechien 7 had been affected, rather than the Claimants’ shareholdings or other interests in their other Czech subsidiaries, the Claimants noted that investors holding shares were permitted to bring a claim under investment treaties to recover losses due to the devaluation of the investor’s shares or participatory interests in the directly owned domestic subsidiary, and that such claims had been permitted even in the case of indirect shareholdings. The Claimants emphasized that they did not seek to recover the losses suffered by Tschechien 7, but rather the reduction in value of their shares and participatory interests in their Czech subsidiaries.207
3.30.
The Claimants dismissed the Respondent’s reliance on the inclusion of "returns" in Article 1(2) of the BIT and the separate mention of "investments" and "returns" in its Article 2(3) as "not convincing".208 They explained that "returns" constituted a "different protected value separate from the investment definition of Article 1(1)", and that the notion referred to "the revenue out of a properly operating investment in the future".209 On that basis, they explained the relevance of Article 2(3) as clarifying that both an investment and the returns to be derived from it enjoyed protection under the BIT, and argued that the provision should be understood as expanding the scope of protection available to investors, rather than limiting it.210
3.31.
As regards the Respondent’s suggestion, based on the supposedly different meaning of the terms used in the authentic Czech and German versions of the BIT, that Article 1(1) required a "contribution", the Claimants observed that the Respondent’s argument was unclear both as to what should be understood to constitute a "contribution", and as to why the Claimants’ shareholdings and interests in Tschechien 7 and ECE Praha did not in any case fall within that concept. The Claimants further denied that there was in fact any divergence in meaning between the two authentic versions of the BIT, and argued that even if there were, that divergence fell to be resolved by applying the general rules of interpretation.211
3.32.
As to the supposed divergence between the Czech and German texts of the BIT, the Claimants argued that the German version of Article 1(1) could only be understood as meaning "every asset invested in accordance with domestic law", and claimed, relying on a German-English dictionary, that the German word "angelegt" could only be translated as "invested". In support of that assertion the Claimants made reference to other investment treaties concluded by the Federal Republic of Germany for which "official" English translations exist, and in which the word "angelegt" was likewise translated as "invested".212 The Claimants asserted that the German wording and the translation into English they proposed "represent a well known and frequently used phrase, that the investment is encompassing every asset invested in accordance with host state law",213 observed that no justification had been put forward as to why Article 1(1) of the BIT should be understood as having the "exceptional" meaning of "contributed"; and referred to the rule of interpretation enshrined in Article 31(4) of the Vienna Convention on the Law of Treaties, observing that a special meaning was to be attributed to a term only if "the parties’ intention to derogate from the normal meaning is clearly established."214
3.33.
The Claimants’ further argued that the Czech word "vlozené" could be translated either as "contributed", or "invested", and that there was no reason to focus on the possible meaning "contributed" when the meaning of "invested" was capable of reflecting both the Czech and German versions.215
3.34.
The Claimants submitted that such an approach was consistent with the approach proscribed by Article 33 of the Vienna Convention on the Law of Treaties in respect of interpretation of a treaty authenticated in two or more languages, in particular the rule in Article 33(1) that where a treaty is authenticated in two or more languages, neither prevails over the other in case of a difference, and the general presumption contained in Article 33(3) that the terms of treaties authenticated in different languages have the same meaning in each authentic text.216
3.35.
In the alternative, on the hypothesis of a divergence of meaning, the Claimants referred to Article 33(4) of the Vienna Convention, and argued that "any difference should first be removed by interpretation in accordance with Articles 31 and 32 of the Vienna Convention to give each notion of the BIT the content that better serves its purpose".217 They Claimants submitted that the meaning "which provides a broad scope of protection to the investor" should take priority, postulating that, in signing the BIT, "the parties to it intended a very high level of protection".218 To that end, they relied on the "prominent" invocation at the beginning of the ' preamble of the BIT of the role of "foreign direct investment as part of a general strategy to enhance mutual economic relations", as well as the title of the BIT itself,219 as well as making reference to the historical context in which the BIT was concluded.220
3.36.
The Claimants further submitted that it would be contrary to the BIT’s purpose of guaranteeing "a high standard of protection" "to interpret the scope of jurisdiction restrictively by saying the investment has to be a contribution to Emit the wide definition of covered investments".221 They relied on certain observations of the tribunal in Saluka v Czech Republic in interpreting the definition of "investment" contained in Article 1 of the Netherlands-Czech Republic BIT applicable in that case, and in particular the tribunal’s rejection of the suggestion that the term "investment" should be given "the meaning which that term might bear as an economic process, in the sense of making a substantial contribution to the local economy or to the wellbeing of a company operating within it".222

c. The Respondent’s Counter-Memorial

3.37.
In responding to the Claimants’ arguments in the Counter-Memorial (incorporating its Reply on Jurisdiction and Admissibility), the Respondent reiterated its position that the BIT did not "enable shareholders’ derivative claims because it defines investments as assets ‘contributed’ rather than simply ‘owned or controlled directly or indirectly’ like most investment treaties, such as the Energy Charter Treaty".223
3.38.
Having reiterated its position that the English term "invested" should be translated into the Czech language as "investované", rather than the term "vlozené" used in Article 1(1) of the BIT, the Respondent apparently conceded that the German term "angelegt" was properly to be translated as "invested", and submitted that the first issue was rather "whether those terms are truly different".224 It submitted that the Claimants "essentially argue that the English expression ‘invested’ does not have any real meaning because it does not refer to an economic process", and argued that that position is incorrect insofar as tribunals interpreting the term "investment" in Article 25 ICSID Convention had stressed that the ordinary meaning of the terms "investment" and "invest" required various elements, including contribution.225 On that basis, the Respondent submitted that "[t]he real difference, therefore, is not between the ordinary meaning of ‘invested’ and ‘contributed’ but, rather, whether the word ‘invested’ has meaning (as the Czech Repub he says) or has no meaning (as Claimants say)."226
3.39.
The Respondent submitted that the second issue which arose was the reconciliation of the different meanings according to the rules of the Vienna Convention; in the Respondent’s view, the meaning which best reconciled the two versions was "contributed", as only that meaning was common to both the Czech and German versions of the BIT. The Respondent argued that having regard to the object and purpose of the BIT was circular and of no assistance given that the purpose of the BIT was the protection of investments as defined in the BIT.227
3.40.
The Respondent argued instead that the submitted divergence in meanings had to be resolved by reference to the context of Article 1(1), including in particular the fact that Article 1(2) immediately followed Article 1(1) and contained a separate definition of "returns". The Respondent noted that the Claimants recognized that "returns" constituted "a different protected value", and argued that that difference was confirmed by the fact that Article 2(3) expressly provided that both "investments" and "returns" were fully protected by the BIT. As a consequence, the Respondent argued that the notion of "investment" had to be interpreted as not including "returns", since otherwise Article 2(3) would be redundant, and that that conclusion was consistent with the narrower definition of "investment" as meaning assets contributed, rather than invested, by an investor.228
3.41.
On that basis, the Respondent maintained its position that the rights and assets of Tschechien 7 and ECE Praha, and the Claimants’ participatory rights in those companies, did not constitute protected investments. As to the respective participations of the Claimants in Tschechien 7 and ECE Praha, the Respondent repeated its arguments that they did not constitute investments because they were not contributions, and noted that the Claimants had not responded to those arguments in its Memorial.229

d. The Claimants’ Reply

3.42.
In then Reply (incorporating their Rejoinder on Jurisdiction), the Claimants maintained their position that their respective participations in Tschechien 7 and ECE Praha constituted an investment within the meaning of Article 1(1)(b) of the BIT.
3.43.
The Claimants observed that the Respondent had put forward no proof, including no citation to any dictionary definition, in support of its view that the German term "angelegt’ could be translated as "contributed", and argued that the German "angelegt" "does not mean contributed’.230 They dismissed the Respondent’s allusion to Article 25 of the ICSID Convention as misleading, given that the ICSID Convention was inapplicable in the present case.
3.44.
The Claimants further argued, ex abundanti cautela, that even if there were some requirement of "contribution", the participation of the Claimants in Tschechien 7 and ECE Praha was sufficient to meet any such requirement.231 They pointed to contributions by PANTA to the capital of Tschechien 7 both at the time it became general partner of Tschechien 7, and subsequently.232 As regards ECE International’s shareholding in ECE Praha and the Respondent’s argument based on the lack of any "change of form" provision in the BIT, the Claimants observed that "it remains unclear how this transfer of title should affect the qualification of an asset as an investment".233

2. The Respondent’s Objection to Jurisdiction Based on Alleged Serious Violations of Czech Law

3.45.
The Respondent’s second objection was that the Claimants’ claims are barred by the requirement of Article 1(1) of the BIT that any investment had to be made "in conformity with domestic law" because Tschechien 7 conducted the Galerie [REDACTED] project in violation of Czech law.

a. The Claimants’ Request for Arbitration and Statement of Claim

3.46.
As noted above, the Claimants anticipated certain of the Respondent’s objections in the Request for Arbitration and Statement of Claim.
3.47.
Specifically as regards the legality of the excavation work, the Claimants argued that the allegedly excessive and illegal scope of the groundworks carried out by Tschechien 7 "does not change the fact Claimants have invested assets in accordance with Czech law".234 They argued first, that the scope of the groundworks was "entirely irrelevant" because the investment at issue was the Claimants’ shareholdings in Tschechien 7 and ECE Praha, and not the operations carried out by them, and the Respondent had not taken the position that the fact of the shareholdings as such violated Czech law.235
3.48.
Second, the Claimants claimed that although the securing works carried out by Tschechien 7 had involved excavation in excess of the volume permitted under the Planning Permit, they had nevertheless been in accordance with Czech law as they had been required in order to secure the site. They submitted that following completion of the authorized volume of groundworks, it became apparent that the slopes thereby created were not stable, and that there was a risk of landslides capable of causing severe damage or casualties. They relied on the expert reports by Jokl Appraisal v.o.s. and [REDACTED]236 and noted that the Claimants had challenged MAL’s order of 15 August 2008.237
3.49.
The Claimants had earlier submitted that the risk of landslides had been aggravated by the delays in the course of the administrative proceedings, and that Tschechien 7 had therefore been obliged to resort to securing works "that explain the whole difference between the volume of groundworks permitted under the Planning Permit and the actual volume of groundworks".238
3.50.
Third, the Claimants argued that even if safety considerations had not justified the groundworks in excess of those permitted under the Planning Permit, in light of the object and purpose of the BIT, which they submitted included fostering and protecting investors and their investments, the BIT should be interpreted such that not every "formal breach of domestic law disqualifies an investment from BIT protection that it would otherwise have had".239 Rather, citing the decision in Desert Line v. Yemen, the Claimants submitted that it was only "fundamental breaches" of the law of the host State that should have such an effect,240 and noted that it had not been argued that the development of retail centres was per se unlawful,241 nor that the groundworks themselves were per se unlawful.242
3.51.
The Claimants argued that the volume of groundworks was permissible, and had in fact been permitted by MAL when it issued the Building Permit for the main construction on 26 November 2008.243 The Claimants had earlier relied on the fact that MAL itself had instructed Tschechien 7 to perform securing works on 19 September 2008,244 as well as suggesting that if, following the allegedly improper interference by the Ministry of Finance, MAL had not improperly stayed the appeal proceedings in relation to the building permit, the main building permit would have become final and Tschechien 7 would have become entitled to carry out the groundworks it had in fact performed.245
3.52.
On that basis, the Claimants submitted that the most that the Respondent could argue was that the Galerie project had been "temporarily in a formally unlawful status". However, the Claimants submitted that this would nevertheless not exclude theft investment from the scope of protection under the BIT.246
3.53.
As regards the anticipated objection to jurisdiction based on the manner in which Tschechien 7 had acquired certain of the project land previously owned by Perstyn Plus, the Claimants explained the mechanism by which Perstyn Plus was first purchased from the Cypriot company, Helier Trading Limited, and its assets merged into those of Tschechien 7.247 The Claimants argued that that process "obviously does not create any concerns with regard to the BIT protection of the Claimants’ investment".248

b. The Respondent’s Objections to Jurisdiction

3.54.
In the Objections to Jurisdiction, the Respondent relied on two matters as constituting illegality by Tschechien 7 which it argued deprive the Tribunal of jurisdiction over the Claimants’ claims.
3.55.
First, the Respondent set out its position (which, pending disclosure, it at that stage put as no more than suspicion) that the process by which Tschechien 7 acquired a substantial portion of the project land on which Galerie was to be built from Perstyn Plus had been in violation of Czech law. Given however, that this objection was not ultimately pursued,249 the Tribunal sees no reason to set out in detail the Respondent’s position in this regard.
3.56.
Second, the Respondent relied on the fact that Tschechien 7 had violated Czech construction and planning law, in particular insofar as it proceeded to excavate a quantity of earth and rock far in excess of the 170,000 m3 authorized in the Planning Permit. The Respondent alleged that, by November 2008, Tschechien 7 had in fact excavated more than 290,000 m3, some 80% more than was authorized under the Planning Permit.250
3.57.
As regards the Claimants’ argument made in the Request for Arbitration that the excess excavation had subsequently been authorized by the Main Building permit, and that consequently the project was only "temporarily in a formally unlawful status",251 the Respondent countered that the Main Building permit had not become legally effective because it was the subject of an appeal,252 and that in any case, the violation in question was far from being a mere formality, but rather breached the "fundamental principle [of] Czech construction law that construction work requires prior authorization".253
3.58.
In response to the Claimants’ argument that the requirement that an investment should be made "in conformity with domestic law" contained in Article 1(1) of the BIT related only to the acquisition of an investment, and that its investment was constituted by its participation in Tschechien 7, which it acquired prior to the excavation works, the Respondent responded that, all of PANTA’s claims were derivative claims for damage to Tschechien 7 allegedly arising in relation to the construction of Galerie, and that Tschechien 7’s first step in the realization of the project had been constituted by the excavation works, in violation of the planning permit. As a result, the Respondent took the position that "[t]he realization of the Galerie project thus was from the very beginning in severe violation of Czech law", and argued that "[t]he integrity of investment arbitration systems requires that the legality requirement in Article 1(1) be interpreted in a manner that bars claims for projects that violate the law of the host state regardless of whether the investor’s involvement in the illegality is direct or indirect".254

c. The Claimants’ Memorial

3.59.
At the outset of their Memorial, the Claimants emphasized that the Respondent had taken "advantage of Claimants’ good faith settlement negotiations under the BIT to gather data and evidence to influence the course of this arbitration",255 and submitted that the Ministry of Finance had improperly attempted to influence the Groundworks Removal Proceedings in order to create the impression that the Claimants had acted illegally. The Claimants concluded that as a result, the Respondent "should be precluded from raising an objection against the Arbitral Tribunal’s jurisdiction in that regard on the basis of the unclean hands doctrine".256
3.60.
As a general matter, the Claimants disputed that the alleged illegality of the Claimants’ actions in respect of Tschechien 7’s acquisition of the project lands and the alleged violation of the planning permit by reason of the volume of the excavation works affected the jurisdiction of the Tribunal. Rather, they argued that those issues of legality concerned "whether a Claimant is entitled to the substantive protections offered by a BIT",257 relying in that regard on observations of the tribunal in Plama v. Bulgaria, and the dissenting opinion in Fraport v. Philippines.258
3.61.
In that regard, the Claimants postulated that "[a]t least in a case as this, where the question of the legality of the excavation works is inextricably interwoven with questions of the merits, the problem must be dealt with in the merits", explaining that the question requires "profound knowledge of Czech administrative law".259 In that regard they relied upon observations of the tribunal in Phoenix Action v. Czech Republic, in which a distinction had been drawn between "obvious cases of illegality and less obvious cases of illegality, whereby the latter cases should be dealt with at the merits stage".260
3.62.
The Claimants disputed that they had violated Czech law. That position was taken on the basis, already anticipated in the Request for Arbitration and Statement of Claim, that until June 2008, the volume of the excavations had been within the amount permitted by the planning permit, and that from July 2008 it had become apparent that the geotechnical conditions of the site were complicated and that securing works had been required in order to protect individuals and property, such securing works being required under Czech law.261
3.63.
The Claimants further submitted that the Respondent should be barred from relying on any illegality which might have occurred insofar as the Respondent had taken advantage of the Claimants’ participation in good faith settlement negotiations in order to obtain data of any illegal behaviour by the Claimants, and that it had subsequently used that information in order to advance its claim of illegality.262 The Claimants submitted that the conduct of the Respondent in obtaining the evidence which it relied upon in alleging illegality "violates the unclean hands doctrine"263 and that as a consequence, the Respondent should not be permitted to rely on the fruits of its bad faith behaviour.264
3.64.
The Claimants further argued that the objective of the BIT meant that the relevant words of Article 1(1)265 should in any case be given a restrictive interpretation, such that only investments "that violate fundamental principles of law and that were made in bad faith" should be excluded from the scope of protection.266
3.65.
Although admitting that "the ordinary meaning of the words in the BIT connote that if an investment is made in violation of Czech law, such an investment is not entitled to protection",267 the Claimants argued that the object and purpose of the BIT of encouraging foreign investment and promoting economic cooperation had to be taken into consideration.268 On that basis, the Claimants argued that Article 1(1) was to be read restrictively and that as a result, only if three criteria were fulfilled should an investment be held to fall outside the scope of protection of the BIT, namely that:

a. first, on a subjective level, there had to be an element of intent or fraud on the part of the investor; the Claimants posited that only investments made in good faith could benefit from protection;269

b. second, from an objective perspective, only violations of fundamental principles of the law of the host State, if not criminal conduct or a violation of international public policy, would exclude protection, such that not every minor irregularity would deprive the investor of protection;270

c. third, only violations of the law of the host State concerning the establishment of the investment were relevant, insofar as the BIT imposed no ongoing obligation to comply with the law of the host State, a violation of which would result in loss of protection of the BIT.271

3.66.
The Claimants took the position that none of those three criteria were fulfilled. As regards the supposed "subjective" element, they argued that contrary to the situation in cases such as Phoenix Action, Inceysa, Fraport and Plama, in which the tribunals had found either bad faith or fraud on the part of the investor in reaching the conclusion that their investments were not protected by the applicable bilateral investment treaties, the Claimants in the present case had acted with "the best of intentions", and had not acted fraudulently, but in good faith.272 In particular, the Claimants argued that up until July 2008, the Claimants believed that the volume of excavation works was covered by the Planning Permit, whilst after July 2008, they acted to secure the site, referring in that connection to section 177 of the Building Act.273
3.67.
As regards the supposed "objective" element, the Claimants characterized the provisions which the Respondent alleged had been violated as a result of the groundworks as constituting "regular administrative law provisions", and argued that there had been no violation of any "fundamental principles" of Czech law, that no crime (whether fraud or corruption) had been committed by the Claimants, and that there had been no contravention of international public policy.274
3.68.
The Claimant further argued that even if the later stages of the groundworks were held to constitute a violation of the law, they could have been legalized by the issuing of the building permit itself, that the excavation would have been permitted under any building permit, that any violation which occurred was a question essentially of timing, and that the comparative lack of gravity of any violation was demonstrated by the fact that the fine imposed in the New Administrative Offence Proceedings had amounted only to approximately € 8,000.275
3.69.
As regards the question of the timing of any violation, the Claimants argued that the alleged illegality in relation to the excavation "did not occur until very late in the project and was not in the least related with the establishment of the investment",276 which, they reiterated, was constituted by the shares and other participatory interests of the Claimants in the project companies.277
3.70.
Finally, the Claimants argued that the Respondent was estopped from raising an objection based on alleged illegality in relation to the groundworks as it had waived its right to do so.278 First, the Claimants alleged that the Respondent itself had required further excavation works in order to secure the site, thus creating a legitimate expectation that further excavation works were legal; they submitted that, by issuing the order to conduct security works, the Respondent had "induced Claimants to rely on the legality of the excavation works".279
3.71.
Second, it was argued that by issuing the main building permit on 26 November 2008, the Respondent had legalized the excavation. The Claimants submitted, invoking the principle nemo auditu,r propriam turpitudinem allegans, that a State cannot take advantage of its own wrongful acts to exclude protection of an investment, and took the position that it was irrelevant that the main building permit was not legally effective, as, under Czech law, the relevant authorities were bound to issue a building permit without delay.280
3.72.
As regards the suspected irregularities raised by the Respondents in relation to the acquisition of the project lands, the Claimants in the Memorial on the Merits and Observations on Jurisdiction and Admissibility limited themselves to the observation that the Respondent had asserted those suspicions "without any evidence or facts".281

d. The Respondent’s Counter-Memorial

3.73.
At the outset, the Respondent made clear that it was no longer pursuing the objection based on illegality in the acquisition of the project land, and stated that it only maintained the argument as to lack of jurisdiction based on the "Claimants’ deliberate decision to violate the basic principle of Czech construction law that excavations require prior authorization."282
3.74.
In that latter regard, the Respondent asserted that the evidence showed that the Claimants had intentionally violated Czech construction law, and that the decision to continue excavations once the volume authorized by the Planning Permit had been reached had been deliberate;283 in particular, the Respondent pointed to the fact that in June 2008, the Board of ECE had more than doubled the budget for excavation works from €3.2 million to €7.8 million, a sum asserted to correspond roughly to the price for the entire volume of excavations, and at the same time had stated that the increased budget would permit Galerie to be opened early, in Spring 2010, rather than in Autumn 2010.284
3.75.
The Respondent alleged that the Claimants had been fully aware of the necessity that they be in possession of a Building Permit authorizing the additional excavations over and above the volume authorized by the Planning Permit and submitted that the Claimants had "wilfully and deliberately decided to violate an essential principle of Czech construction law".285
3.76.
On that basis, the Respondent disputed the veracity of the Claimants’ claims that excavation conducted after July 2008 was dictated by the need to carry out securing works, as well as the Claimants’ assertion that up until July 2008, the Claimants had believed that the excavation was covered by the Planning Permit, and that after July 2008, the Claimants acted with "good intentions" to secure the site.286 The Respondent highlighted that the decision to continue excavations was in fact made on 18 June 2008, that it was apparent from the site diary that the only securing works carried out in fact took place between 6 and 15 August 2008 in relation to 1,455m3 of rock on a plot next to the main construction pit, whilst excavation continued unabated in the main pit, and that no legitimate securing works could have required the excavation of the additional 120,000m3 of rock in excess of the authorized volume.287
3.77.
As to the effect of the alleged breach of Czech law, the Respondent argued that the requirement of "conformity with domestic law" in Article 1(1) of the BIT constituted a substantive element of the definition of an investment under the BIT, and that therefore legality was a jurisdictional matter.288 In response to the Claimants’ suggestion that legality was a matter for the merits, the Respondent sought to distinguish the decisions in Plama and Inceysa relied upon by the Claimants on the basis that the relevant instruments in those cases did not include the requirement of conformity with domestic law in the definition of investment,289 and relied on the assertion of the tribunal in Fraport that, where the requirement of legality is contained in the definition of "investment", illegal behaviour on the part of an investor goes to jurisdiction ratione materiae.290 As to the Claimants’ reliance on Phoenix Action for the proposition that, where the issue of illegality is inextricably interwoven with the question of merits, it should be addressed on the merits, the Respondent submitted that the Claimants’ argument confused two issues, and that what that tribunal in that case had in fact been discussing was whether, in such a situation, there should be bifurcation.291
3.78.
As regards the Claimants’ reliance on the doctrine of "unclean hands", the Respondent, in addition to disputing that the doctrine constituted an established doctrine of public international law, further submitted in reliance on the decision of the tribunal in the Guyana v. Suriname arbitration that the doctrine operated solely to prevent a party from claiming a breach of a party’s obligation if it had itself breached an identical obligation.292 By contrast, the Respondent characterized the objection raised by the Claimants as involving "at best, an issue of alleged inadmissibility of evidence".293 It submitted that it was telling that the Claimants had not identified the information allegedly obtained by the Czech Republic during the settlement negotiations, and further, that they had never explained what legal rule would prevent the Czech Republic from using that information.294
3.79.
Finally, the Respondent noted that the excessive excavation was an objective fact "that is readily apparent to the naked eye"; that it was noticed by MAL in July 2008; that it has been admitted at least in part by Tschechien 7; and that the Claimants’ intention to violate Czech law and the exact volume of unauthorized excavations were revealed by documents that the Claimants had been required to produce in the context of disclosure in the present arbitration, including in particular the site diary, and the Minutes of the Advisory Board of ECE.295
3.80.
As to the effect of the alleged breach of Czech law constituted by the excessive excavation, the Respondent observed that the Claimants’ argument that more than "simple" illegality was required was supported only by isolated dicta from a few awards under instruments which were differently worded, and argued that any such restrictive interpretation was inapplicable in relation to Article 1(1) of the BIT.296
3.81.
The Respondent noted that the Claimants accepted that, on the ordinary meaning of the text of Article 1(1), the words "in conformity with Czech law" were not qualified in any way, and took issue with the Claimants’ suggestion that the object and purpose of the BIT in some way required that the BIT should be held to apply to investments that were not in conformity with Czech law.297 The Respondent submitted that the Parties could "obviously have no interest in granting Treaty protections to investments that are not in conformity with their laws", and that "it cannot be seriously argued that the object and purpose of the [BIT] is to protect illegal investments".298 On that basis, the Respondent submitted that "even if considerations of the object and purpose of the BIT could prevail over the ordinary meaning of the text of Article 1(1), there is no reason why the requirement of legality should be interpreted restrictively".299
3.82.
As to the Claimants’ reliance on a "subjective" limitation, requiring conduct involving an element of intent and bad faith, the Respondent observed that that proposition was not supported by any authority, and in particular did not follow from the terms of Article 1(1) or any of the decisions relied upon by the Claimants.300 The Respondent disputed the correctness of the Claimants’ assertion that "only an investment made in bad faith is deprived protection under a BIT", and noted that the tribunal in Phoenix Action, in which the investment had been formally legal under Czech law but had been made in bad faith, had regarded bad faith as an additional bar to jurisdiction in addition to illegality.301 On that basis, the Respondent argued that "the clear disjunction between legality and good faith actually shows that the illegality requirement is an objective one and does not depend on the presence of bad faith or fraud.302 The Respondent similarly sought to distinguish the decisions in Inceysa, Fraport and Plama as all involving illegality that involved both intent and bad faith, such that the treatment of the issue in those cases was not apposite to the question of whether illegal conduct which was nevertheless committed in good faith might bar jurisdiction.303
3.83.
The Respondent in any case submitted that the issue was moot, in light of the clear evidence that the Claimants had acted intentionally and in bad faith insofar as the Advisory Board of ECE had deliberately decided to continue the excavations in full on 18 June 2008.304
3.84.
As to the "objective" limit submitted by the Claimants, namely that only a breach of fundamental principles of law would bar jurisdiction, the Respondent observed that any such Emit found no support in the text of Article 1(1) of the BIT.305
3.85.
The Respondent moreover submitted that the violation of the requirement of prior authorization of excavations, at least of such a volume, did constitute a breach of a fundamental principle of Czech construction law, which "protects a vital public interest and security in planning and construction and represents the raison d’être of construction permits306.
3.86.
The Respondent further disputed the Claimants’ suggestion that the requirement of authorization constituted a mere formality, as well as their suggestion that it did not matter whether the work was carried out before or after the issuance of the relevant permit, or that the volume excavated had to be permitted in any case.307 It observed that, if that were the case, Czech construction law would be unenforceable and noted that the Claimants had not put forward any expert witness who supported their theory.308 The Respondent further noted that the Claimants’ conduct had been inconsistent with the position they now took, insofar as they had applied for all permits required.309
3.87.
The Respondent also observed that the sanction for the illegality indicated the seriousness of the violation. It pointed to the order issued by MAL on 4 February 2010, by which the removal of the unauthorized works had been ordered, albeit also recognizing that the order had subsequently been quashed "on purely formal grounds".310
3.88.
As to the time element, the Respondent disputed the Claimants’ suggestion that the requirement of conformity with domestic law was limited to the establishment of the investment, again, arguing that the wording of Article 1(1) of the BIT provided no support for any such limitation.311
3.89.
The Respondent noted that the leading decision cited by the Claimants in support of their position was the decision in Fraport, but observed that the language of the treaty in issue in that case was different from Article 1(1) of the BIT, insofar as it referred to investments "accepted in conformity with" domestic law, and submitted that that fact should be taken as explaining the focus by the Fraport tribunal on the making of the investment.312
3.90.
In light of the different language contained in Article 1(1) of the BIT, the Respondent submitted that the appropriate conclusion was that an "investment" "must be in conformity with domestic law throughout its whole duration".313
3.91.
The Respondent also took issue with the Claimants’ suggestion that any illegality had to relate to the Claimants’ participatory interests in Tschechien 7 and ECE Praha as their purported investment, relying in particular on the Claimants’ own assertion in the Memorial that the development of the Project was an "inseparable part" of its investment.314
3.92.
The Respondent also relied upon the rejection by the ad hoc Committee in Fraport of the investor’s criticism of that tribunal’s decision, insofar as it had refused to accept the argument that its investment should be regarded as split,315 as well as the decision of the tribunal in AES Summit Generation v. Hungary.316 The Respondent submitted that, as a matter of economic reality, an investment "cannot be artificially separated into the moment of its making and its subsequent life because additional investments are made when additional funds are spent",317 and submitted that this was precisely what occurred in the present case, including in particular by reason of the authorization of additional funds by the Advisory Board on 18 June 2008.318
3.93.
On that basis, the Respondent submitted that even if the requirement of legality only applied to the making of the Claimants’ investment, the jurisdiction of the Tribunal would still be barred in relation to the period after 18 June 2008.319
3.94.
Finally, the Respondent disputed the Claimants’ assertion that it was estopped from raising the objection of illegality on the grounds that none of the requisites for an estoppel were present. In particular, it relied on the decision of the tribunal in East Kalimantan v. PT Kaltim in arguing that in order for an estoppel to arise: i) there had to be a clear and unambiguous statement of fact; ii) the statement of fact had to have been made voluntarily, unconditionally and to have been authorized; and iii) there had to be reliance in good faith upon the statement, involving either detriment to the party relying, or advantage to the party malting the statement. The Respondent further argued that the burden was on the Claimants to demonstrate that all those elements were present.320
3.95.
The Respondent first disputed that it ever told the Claimants, let alone told them clearly, unambiguously, voluntarily and unconditionally that the excavation works in excess of those authorized under the Planning Permit were legal.321 In particular, it disputed that MAL’s order or 19 September 2008 to carry out securing works fulfilled that test, and emphasized that the securing works permitted by MAL’s order were limited to those works up to 359m above sea level, whilst additional excavation was permitted only in the volume of 2,920m3.322
3.96.
Similarly, the Respondent disputed that the issuance of the building permits could result in the legalization of the excess excavation works which had been carried out by the Claimants, both on the basis that the building permits had still not acquired legal force, and on the basis that they were incapable of doing so. In that latter regard, the Respondent explained that as a matter of Czech law, excavation works could only be regularized in the Groundworks Removal Proceedings on the basis of an express request by the builder, including a detailed description of the scope of the unauthorized excavations. The Respondent noted that Tschechien 7 had neither filed any such request, nor provided detailed information as to the actual scope of the unauthorized excavations.323
3.97.
On that basis, the Respondent denied that MAL had ever assured the Claimants that the excess excavations were in compliance with Czech law, and emphasized that, to the contrary, MAL had taken enforcement action in the form of the Groundworks Removal Proceedings and Administrative Offence Proceedings in order to investigate the illegal conduct of the Claimants. Further, the Respondent argued that the various prior decisions relied upon by the Claimants (Fraport, ADC Affiliate and Kardassopoulos) were distinguishable as concerning completely different factual and legal issues, and were therefore of no assistance to the Claimants.324
3.98.
Second, the Respondent argued that even if there had been the necessary clear' and unambiguous representation, the Claimants had not alleged that they had relied in good faith upon that statement, either to their own detriment or to the advantage of the Respondent.325
3.99.
Finally, the Respondent argued that the Claimants’ invocation of the principle that a State may not rely on its own domestic law to escape its duties under international law was inapposite insofar as the Claimants appeared to be saying that the issuance of the building permit and the illegality of the excavation were two separate issues. The Respondent argued that the Claimants’ argument presupposed that the Respondent had an obligation under either Czech or international law to regularize the excessive excavation; the Respondent denied that any such obligation existed.326

e. The Claimants’ Reply

3.100.
In the Reply, the Claimants maintained their position that any illegality related to the excavation did not affect the jurisdiction of the Tribunal, on the basis that the excess excavations were but a "negligible breach of the law", which had resulted in a comparatively small fine, and which could in any case have been legalized by the issue of the Building Permit.327 The Claimants noted that, as a precaution, they had in the meantime applied for legalization of the excavation works.328 They likewise maintained their position that the Respondent could not rely on the evidence produced in support on the basis that it had been obtained in bad faith, and that the Respondent was in any case estopped from raising any objection based on illegality due to the fact that it ordered securing works, and because of the issue of the Main Building Permit.329
3.101.
The Claimants first asserted that the alleged illegality constituted by the groundworks had no bearing on the Tribunal’s jurisdiction, and submitted that illegality should be resorted to as a ground for denying jurisdiction "only restrictively".330
3.102.
They argued that there was a "high threshold to deny jurisdiction" on the basis of breaches of domestic law by investors.331 They argued that the requirement that an investment be "in conformity with domestic law" in Article 1(1) of the BIT "works in a restrictive fashion. It does not lead to an exclusion of jurisdiction in cases of good faith violations, minor violations or violations after the initiation of an investment".332 Relying on the observations of the tribunal in Tokios Tokelés, the Claimants reiterated that that interpretation of Article 1(1) of the BIT was supported by the purpose of the BIT, in particular insofar as they argued that the BIT was intended to promote investment. For the Claimants, if the BIT was to be interpreted as resulting in the risk of loss of protection as a result of a minor breach of domestic law, that would not be conducive to the required security of investors, and therefore would be contrary to the purpose of the BIT.333
3.103.
In response to the Respondent’s argument that the wording of Article 1(1) did not support their position, the Claimants observed that tribunals "have regularly found that ‘in conformity with domestic law’ clauses do not cover all kinds of illegality".334
3.104.
As for the "objective" limitation upon the exclusion of jurisdiction on the basis of illegality, according to which minor breaches of the domestic law of the host State are irrelevant, the Claimants essentially reprised their previous arguments. They reiterated that the breach in question had been "minor" or "insignificant", again pointing to the fact that the fine imposed in the New Administrative Offence Proceedings amounted to only €8,000, adding that the relevant authorities had in fact invited the Claimants to apply for a permit.335
3.105.
As to the latter matter, the Claimants noted that on 17 January 2011, they had applied for a permit without admitting liability, and that the proceedings on that application were pending.336 The Claimants also added that there was no binding order to remove the allegedly excessive groundworks, insofar as the decision of MAL of 4 February 20 1 0337 had subsequently been quashed by RAL on 2 June 2010.338 They further disputed the Respondent’s assertion that that order had been quashed on "purely formal grounds", and noted that instead the basis for the quashing of the order had been RAL’s findings that MAL had not assessed, documented and appropriately justified the feasibility of returning the area to its previous state and had not addressed the objections made by the Claimants.339
3.106.
By way of supplement to the cases previously relied upon as supporting their position that jurisdiction was not affected in the case of a minor breach of the law, and that it was only breaches relating to fundamental principles of domestic law or international public policy which have a bearing on a tribunal’s jurisdiction, the Claimants also invoked the decision on jurisdiction in Metalpar S.A. and Buen Aire S.A. v. Argentina, that the failure by the investor in that case, in breach of the applicable domestic law, to register its investment did not preclude the jurisdiction of the tribunal.340 The Claimants noted that the tribunal in that case had held that it would have been disproportionate to punish the investor for its omission by denying jurisdiction, and in that connection had taken account of the fact that the applicable domestic law had provided for other sanctions to address the illegality.341
3.107.
The Claimants argued that, similarly, the relevant Czech legislation provided for sanctions of breaches of the type alleged, and noted that a fine had in fact been imposed, as well as observing that the Groundworks Removal Proceedings also addressed their allegedly illegal acts. On that basis they submitted that there was no need to punish them by denying protection under the BIT.342 Finally, the Claimants rejected the suggestion by the Respondent that their position was that there was no requirement to abide by Czech law, and affirmed that their position was that the excavation beyond the scope of the permission granted was not a sufficiently severe breach of Czech law to result in the denial of jurisdiction by the Tribunal.343
3.108.
The Claimants further relied on a temporal limitation on illegality, repeating their argument that the Tribunal should exercise jurisdiction on the basis that the alleged illegality occurred only after initiation of the investment, in particular insofar as the volume of the excavation exceeded the volume allowed under the Planning Permission only in June 2008, by which time they had already legally initiated their investment within the meaning of the BIT.344
3.109.
The Claimants referred in this connection to the decision in Saba Fakes v. Turkey, including the observation of the tribunal in that case, in relation to what the Claimants asserted was a comparably worded clause in the applicable Netherlands-Turkey BIT, to the effect that the clause required only "compliance with the host State’s domestic laws governing the admission of investment in the host State".345 In addition they invoked that tribunal’s reliance on the object and purpose of the BIT applicable in that case in support of its finding that "unless specifically stated" a State was not able to rely on violations of its own domestic law "beyond the sphere of investment regime" in order to escape the substantive obligations imposed upon it by the BIT.346
3.110.
The Claimants also placed reliance on the decisions of the tribunals in Fraport and Hamester in suggesting that a distinction was to be drawn between illegality in the initiation of an investment, and illegality in its subsequent life or performance, with the latter not affecting jurisdiction under a BIT, although they admitted that it could well be of relevance in relation to the substantive merits of a claim.347
3.111.
As to the Respondent’s attempt to distinguish the decision in Fraport on the basis that the relevant treaty provision had been differently worded, the Claimants observed that the Respondent had not explained why the difference in wording should dictate a different result in the present case, and in particular why Article 1(1) of the BIT should be interpreted as requiring that an investment be in conformity with domestic law throughout its whole duration.348 They invoked the observations of the Fraport tribunal, specifically endorsed by the tribunal in Hamester, to the effect that "the effective operation of the BIT regime would appear to require that jurisdictional compliance be limited to the initiation of the investment".349
3.112.
As to the Respondent’s arguments based on the continuous character of investments, the Claimants disputed that that implied that investments had continuously to comply with domestic law in order for a tribunal to have jurisdiction, on the basis that any other approach would mean that investors could not act safe in the knowledge that their investment was protected, and that this would inhibit investment. Whilst not as such disputing the continuous character of investments, the Claimants noted that no tribunal had ever relied upon that factor in order to hold that an investor had to comply with domestic law at all times in order for there to be jurisdiction, and emphasized that the tribunal in Fraport, in which a number of separate acquisitions over time had been held to constitute a single investment, nevertheless had held that it was sufficient that the overall investment had been in conformity with domestic law at its initiation.350
3.113.
As for the Respondent’s reliance on AES Summit Generation v. Hungary as authority for the continuous character of investments, the Claimants noted that the tribunal in that case had in fact relied upon a theory of discontinuity, and treated the investor’s related business activities as two separate investments, and that it had done so in the context of consideration of the investor’s asserted legitimate expectations, rather than as regards any issue of illegality. The Claimants further noted that if the Tribunal were to adopt an approach based on discontinuity of investments, that would not change matters insofar as all other parts of the Claimants’ investment activities not connected with the excavation would constitute separate investments which would be within the jurisdiction of the Tribunal.351
3.114.
On the basis of the decisions in Fraport and Hamester, the Claimants took the position that, at most, any illegality after the initiation of an investment could only be relevant as a substantive defence to the merits of a claim, and made the new point that the Respondent could not justify any of the alleged violations of the substantive standards of protection contained in the BIT asserted by reliance on the allegedly illegal acts of the Claimants. The Claimants argued that none of the matters in relation to which they made complaint had anything to do with the groundworks, in particular, asserting that none of the decisions adopted by the relevant authorities after June 2008, including in particular the various decisions to stay the Building Permit Proceedings, made any mention of the excavations; on that basis, argued that any excessive excavation could not serve as a defence to the merits of their claims.352
3.115.
The Claimants maintained their position that the Respondent was precluded from relying on the evidence in order to substantiate the illegality of the groundworks due to the fact that it had been obtained in bad faith during the course of the settlement discussions.353
3.116.
By way of supplement to the arguments previously raised in reliance on the principle of nemo auditur propriam turpitudinem allegans, which they asserted had been accepted by investment arbitration tribunals to constitute a general principle of international law,354 the Claimants asserted that the Respondent was precluded from relying upon the evidence obtained in the wake of the report by YBN Consult, as the Respondent would profit from its own bad faith if it were allowed to introduce it.355
3.117.
As a separate matter, the Claimants also maintained their argument based on the proposition that the "unclean hands" doctrine constituted a general principle of international law, arguing that the principle was not only applicable to substantive obligations, as had been submitted by the Respondent, but that it was also relevant to questions of procedure, including the admissibility of evidence.356
3.118.
The Claimants likewise maintained then argument that the Respondent was estopped from relying on the alleged illegality relating to the groundworks on the basis of the fact that MAL had ordered securing works, and the issue of the Main Building Permit, and asserted that they had relied in good faith upon the legality of the excavation works, such that the Respondent could no longer assert their illegality.357 In addition, as regards the Main Building Permit, they asserted that it had authorized the construction as planned, including the full extent of necessary excavations envisaged, and that "[consequentially, the Building Permit also incidentally contained the determination that the complete excavation works are legal".358
3.119.
The Claimants disputed that the fact that Building Permit had not become legally effective was of any relevance, and submitted that the Respondent in its Counter-Memorial had not addressed the Claimants’ arguments that the relevant authorities were legally obliged to issue the Building Permit, and that the Respondent could not rely on its own breaches of its own domestic law.359
3.120.
Finally, the Claimants argued that the Respondent’s understanding of the doctrine of estoppel, based on the decision in East Kalimantan v. PT Kaltim, was unduly narrow and was restricted to the situation where the estoppel arose on the basis of a prior statement of fact. The Claimants noted that in the Memorial they had relied on authorities, including in particular the observations of the tribunal in Fraport, which had espoused a more general understanding of estoppel and waiver, and that the Respondent had not sought to address those authorities.360

3. The Respondent’s Objection to Jurisdiction Ratione Materiae

3.121.
The Respondent’s third objection to jurisdiction was that the Tribunal does not have jurisdiction insofar as the Claimants make claims in relation to damages allegedly sustained by companies other than Tschechien 7 and ECE Praha.

a. The Respondent’s Objections to Jurisdiction

3.122.
In its Objections to Jurisdiction, the Respondent noted that the Claimants, in the Request for Arbitration and Statement of Claim, had made clear that their claim for damages included sums in respect of damages allegedly suffered by various companies within the ECE Group other than Tschechien 7 and ECE Praha, (namely EKZ Tschechien 3, EKZ Prag 1, EBP, Perstÿn Plus a.s. and ECE Projektmanagement), and observed that the Claimants "make no efforts and do not even allege that they constitute protected investments under Article 1(1) of the Treaty".361
3.123.
The Respondent further observed that the Claimants had not explained what rights or assets of those companies had allegedly been affected by the measures adopted by the Respondent, and argued that, as a consequence, the Tribunal lacked jurisdiction ratione materiae over the Claimants’ claims in respect of those companies.

b. The Claimants’ Memorial

3.124.
In response, the Claimants argued that whether or not they were to be compensated for the damages in the form of obsolete expenses was not a matter of jurisdiction, but a matter of the merits.362 They explained that they had not claimed damages as an investor in EKZ Prag 1, EKZ Tschechien 3, Perstyn Plus and EBP, but rather as investors only in Tschechien 7 and ECE Praha, and that the costs and expenses incurred by other companies in the •ECE Group "merely contribute to the loss which Claimants suffered as a consequence of their investment in Tschechien 7 and ECE Praha" as set out in the later section of the pleading on damages.363 The Claimants argued that "it is not necessary that the damage must itself constitute an investment" and that it was sufficient that "the injured party made an investment in the host state and that it had suffered loss by a breach of the BIT.364

c. The Respondent’s Counter-Memorial

3.125.
In its Counter-Memorial, the Respondent maintained in part its argument that the Tribunal does not have jurisdiction over the Claimants’ claims for obsolete expenses incurred by companies other than Tschechien 7 and ECE Praha, dealing with that argument in conjunction with its objection that the Tribunal does not have jurisdiction ratione temporis in relation to claims based on events that pre-dated the Claimants’ respective investments.
3.126.
As reformulated, the Respondent’s objection was that "the Tribunal does not have jurisdiction over Claimants’ claims for Obsolete Expenses incurred prior to Claimants’ respective investments in the Subsidiaries that incurred those expenses".365
3.127.
The Respondent submitted that, "[w]hen applied to the Claimants’ claims for damages, both objections relate to the same issue - Claimants disregard the limitations due to their relatively late and sequenced acquisition of the subsidiaries whose expenses they now claim".366
3.128.
In that connection, the Respondent relied on the decision in Saluka v. Czech Republic, in relation to what it asserted was a similar issue, explaining that "the Tribunal only has jurisdiction to hear and decide the Claimants’ claims for damages regarding expenses (or loss of value) that were incurred by Claimants’ subsidiaries - and not ECE International’s parent ECE KG - after then acquisition by Claimants".367 The Respondent took the position that the Tribunal only had jurisdiction with respect to claims relating to:

a. expenses (or loss of value) incurred by EKZ Tschechien 3 and EKZ Prag 1, after 10 July 2008;

b. expenses (or loss of value) incurred by Tschechien 7 and Perstyn Plus, after 1 July 2007;and

c. expenses (or loss of value) incurred by ECE Praha, after 11 January 2007;

those being the relevant dates on which the Claimants had acquired their interests in those companies.368

d. The Claimants’ Reply

3.129.
In response, the Claimants in their Reply maintained their position that the issue was not one which went to the jurisdiction of the Tribunal. They dismissed the Respondent’s reliance on Saluka v. Czech Republic as being of no relevance insofar as it had not concern the issue of whether damage suffered by an affiliate company were within the jurisdiction of the tribunal.369 In accordance with that position, the Claimants’ claims in respect of obsolete expenses incurred by companies other than Tschechien 7 and ECE Praha were dealt with later on in the Claimants’ Reply in the section relating to damages.

4. The Respondent’s Objection to Jurisdiction Ratione Temporis

3.130.
The Respondent’s fourth objection to the jurisdiction of the Tribunal was an objection that the Tribunal has no jurisdiction over the Claimants’ claims to the extent that they are based on events pre-dating the date of their respective investments.

a. The Respondent’s Objections to Jurisdiction

3.131.
In its Objections to Jurisdiction, the Respondent asserted that it was clear from the Czech Company Register that PANTA had become the general partner in Tschechien 7 on 1 July 2007, and submitted that the Claimants had asserted that the conduct of the Respondent prior to that date resulted in a violation of the BIT.370 It argued that an investor could only raise claims based on events occurring after the making of its investment, and that any dispute relating to events prior to that date would not constitute a dispute relating to an investment within the meaning of Article 10 of the BIT. On that basis, the Respondent took the position that, even if the Tribunal were to conclude that PANTA’s participation in Tschechien 7 qualified as a protected investment, any claim by PANTA based on conduct of the Respondent in relation to Tschechien 7 prior to PANTA’s acquisition of Tschechien 7 on 1 July 2007 would be outside the Tribunal’s jurisdiction ratione temporis.371
3.132.
The Respondent further observed that PANTA made claims for the alleged loss of value of the project land owned by Tschechien 7 as constituting an asset of Tschechien 7, rather than in respect of PANTA’s participation in Tschechien 7. On that basis, it likewise argued that, even if the Tribunal were to find that the land acquired by Tschechien 7 constituted a protected investment of PANTA, given that Tschechien 7 acquired the land between August 2007 and March 2008, its claims for alleged loss of value insofar as they were based on events pre-dating the acquisition of the land by Tschechien 7 would also be outside the scope of the Tribunal’s jurisdiction ratione temporis.372

b. The Claimants’ Memorial

3.133.
The Claimants observed that the Respondent’s objection to jurisdiction on the basis that, in order to be protected, an investment must have been made before the breach of the BIT "states the obvious", but submitted that "it remains unclear- how this finding should relate to the present case".373
3.134.
In the Claimants’ submission, although the Respondent had submitted that the Claimants had no standing in relation to breaches committed prior to 1 July 2007 (the date on which the Claimants’ investment in Tschechien 7 was made), they had not alleged any breach before that date and "the first in the series of wrongs committed by Respondent in the administrative proceedings occurred on 6 July 2007, when the planning permit should have been issued [...]"374
3.135.
As for the Respondent’s argument that the Tribunal had no jurisdiction to hear claims with respect to land acquired after the alleged chain of violations of the BIT had commenced, the Claimants countered that the argument was flawed, insofar as it presupposed that the relevant investment for the purposes of Article 1(1) of the BIT was the purchase of the land itself. The Claimants reiterated that theft investment was constituted by the participation of the Claimants in Tschechien 7 "and the other subsidiaries set up" for the purpose of the Galerie project.375

c. The Respondent’s Counter-Memorial

3.136.
As noted above, in its Counter-Memorial the Respondent dealt with its objection to the jurisdiction ratione temporis of the Tribunal in the context of its discussion of its objection to jurisdiction in relation to claims in respect of damage alleged suffered by companies other than Tschechien 7 or ECE Praha prior to the Claimants’ investments.376
3.137.
In addition, in the light of the position taken by the Claimants in theft Memorial, the Respondent noted that there was agreement between the Parties that the Claimants "cannot claim based on events pre-dating theft respective investments," and noted the Claimants’ affirmation that the first violation of the BIT alleged had taken place on 6 July 2007, and acknowledged that this addressed its objection to jurisdiction ratione temporis as regards conduct affecting Tschechien 7.377

d. The Claimants’ Reply

3.138.
The Claimants made no separate mention of the Respondent’s objection to jurisdiction ratione temporis in their Reply.

E. The Tribunal’s Findings on the Respondent’s Objections toJurisdiction

3.139.
By way of introduction to the Tribunal’s consideration of the issues relating to its jurisdiction to hear the current dispute, the Tribunal notes that Article 10 of the BIT confers jurisdiction upon it in relation to "differences of opinion regarding investments" (Claimants’ translation) or "disputes relating to investments" (Respondent’s translation) "between either Contracting Party and an investor of the other Contracting Party". As noted above at paragraph 1.17, it is not in dispute that the Respondent succeeded to the rights and obligations under the BIT as originally entered into by the Czech and Slovak Federal Republic and that ECE International and PANTA each constitutes a juridical person with its seat in the area of application of the BIT as those terms are used in Article 1(3) of the BIT.
3.140.
The Respondent’s objections to jurisdiction differ in their character. Whilst the first and second objections based, respectively, on no investment within the meaning of the BIT, and on illegality under Czech law, are presented as going to the jurisdiction of the Tribunal to hear the dispute as a whole, the third and fourth objections (i.e. the objections ratione materiae and ratione temporis) do not have such a far-reaching effect. Rather, in the case of the objection ratione materiae, its effect if established, would be to exclude certain of the claims for damages made by the Claimants on behalf of subsidiaries of the ECE Group. Similarly, the objection ratione temporis has as its aim solely to exclude claims based on events prior to the date of the making of the Claimants’ respective investments.

1. The Respondent’s Objection to Jurisdiction on the Basis of "No Investment" Within the Meaning of Article 1(1) of the BIT

3.141.
As regards the Respondent’s objection to jurisdiction based on the asserted lack of any "investment" on the part of the Claimants, within the meaning of that term as defined in Article 1(1) of the BIT, it is useful to set out again the terms of that provision. Article 1(1) of the BIT provides:

the term "investments" shall include every kind of asset [Claimants: which has been invested; Respondent: contributed] in conformity with domestic law, in particular:

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

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

c) receivables and claims to money which has been used to create an economic value or claims to any performance which has an economic value and which relates to an investment;

d) intellectual property rights, in particular copyrights, patents, utility models, industrial designs or models, trademarks, trade names, technical processes, know-how and goodwill;

e) business concessions under public law, including concessions to search for, extract and exploit natural resources.

3.142.
The Claimants allege that the relevant investment is comprised of their shareholding or other form of participation in companies incorporated under Czech law: Tschechien 7 (in the case of PANTA) and ECE Praha (in the case of ECE International). Although also making claims in respect of the obsolete expenses incurred by other companies within the wider ECE Group, they put forward their claims for damages primarily on the basis of the reduction of value of their shareholdings or other participation in those companies.
3.143.
Article 1(1) defines "investments" as including "every kind of asset" invested/contributed in conformity with domestic law, and provides a non-exhaustive list of the types of assets which are to be regarded as constituting "investments".
3.144.
The Tribunal is of the view that, other things being equal, and leaving to one side for one moment the question of the correct translation of the word rendered by the Parties as "contributed" and "invested", respectively, on the ordinary meaning of the terms of Article 1(1) the shareholding or participation of the Claimants in Tschechien 7 and ECE Praha, respectively, qualify in material terms as ‘investments’ inasmuch as they clearly fall within the literal meaning of "every kind of asset... in particular... shares of companies and other lands of interest in companies".
3.145.
The dispute between the Parties as to whether the Claimants can be held to have an investment thus turns exclusively on the correct interpretation of Article 1(1) of the BIT, and in particular of the words "vlozené" and "angelegt" used respectively in the Czech- and German-language versions of Article 1(1) of the BIT.
3.146.
The question which arises is whether the concept those two words are intended to represent is to be understood as limiting the scope of application of the BIT solely to assets "contributed" by an investor, as is submitted by the Respondent.
3.147.
As became clear during the exchange of written pleadings between the Parties, that question in fact breaks down into two questions, namely, first: whether the concept denoted by the words vlozené/angelegt in the Czech and German languages is properly to be translated into English as having the meaning "contributed", rather than "invested"; and second, whether, as a result, the relevant term is to be understood as imposing any requirement that assets otherwise falling within the terms of the definition must have in fact have been "contributed" by the investor in order to qualify as an investment.
3.148.
As to the first question, the Tribunal notes that the Respondent initially asserted in its Objections to Jurisdiction that the Czech word "vlozené’ in the Czech version of the BIT was to be translated as "contributed", and that the German word "angelegt" could be translated as either "contributed or invested".
3.149.
The Tribunal regards it as significant that the Respondent did not dispute the Claimants’ assertion in its Observations on Jurisdiction that "vlozené’ is capable of being translated either as "contributed" or as "invested". Further, the sole basis put forward by the Respondent for its assertion that the Czech-language word "vlozené" is to be translated as "contributed" in response in its Reply on Jurisdiction remained the argument that in other treaties concluded contemporaneously by the Czech and Slovak Federal Republic, and which had an authentic English text, the Czech-language counterpart for the word "invested" was the different term "investované".
3.150.
The Tribunal is of the view that little assistance as to the meaning of the word "investované" can be derived from the bilateral investment treaties entered into by the Czech and Slovak Federal Republic with the Netherlands and Canada roughly contemporaneously with the BIT at issue in the present case. The fact that the English word "invested" in the authentic English version of those treaties is rendered as "investované" in the equally authentic Czech-language version sheds little light upon the correct interpretation of the different term "vlozené" used in the authentic Czech version of the BIT at issue, which has no authentic English language version. It is often the case that a number of synonyms, whether or not having subtle differences or shades of meaning, may be used to translate a single word from one language into another. The fact that in these treaties "investované’, rather than "vlozené" is used as the counterpart of the English word "invested" is not determinative of the question of whether the term "vlozené' is properly translated as "invested" or "contributed".
3.151.
The Tribunal also regards it as significant that in its Reply on Jurisdiction the Respondent did not seek to counter the assertion made by the Claimants in their Observations on Jurisdiction, in reliance on a German-English dictionary, that the German word "angelegt" was properly translated as "invested", and indeed appeared to accept that the Claimants’ position was correct insofar as they stated that the term could not be translated as "contributed". Rather than maintaining its position that the proper translation of the word "angelegt" could be either "contributed" or "invested", the Respondent instead queried whether the meaning of the two terms "are truly different",378 and submitted that the real question was whether "the word ‘invested’ has meaning".379
3.152.
Again, an issue arises as to the reliance by the Claimants on the bilateral investment treaties entered into by the Federal German Republic with the Socialist Federal Republic of Yugoslavia and the Republic of Poland. However, the issue is a slightly different one than that just discussed in relation to the Respondent’s invocation of bilateral investment treaties concluded by it with third States: although the term "angelegt" is translated as "invested" in what the Claimants referred to as the "official" English versions of the treaties invoked by them, in the case of neither of the treaties does the translation relied upon constitute an authentic version of the relevant treaty. Rather, the authentic texts of the treaties were in German and Serbo-Croat in the case of the treaty with the SFRY, and German and Polish in the case of the treaty with Poland. The supposedly "official" English translations relied upon by the Claimants are those published in the United Nations Treaty Series. However, in the absence of it being established that the Parties to those treaties agreed that those English translations were to be regarded as authentic,380 the Tribunal is of the view that those texts can be of only marginal relevance in interpreting the provisions of the BIT at issue in the present case, and in identifying the meaning of its terms.
3.153.
The BIT stipulates in its final clause that it was authenticated in both the Czech and German languages. The Tribunal is thus faced with two versions of the same term in the two authentic language versions of the BIT which, on the positions adopted by the Parties, are capable of meaning both "invested" and "contributed" in the case of the Czech-language word "vlozené", and solely "invested" in the case of the German word "angelegt".
3.154.
Article 33 of the Vienna Convention on the Law of Treaties makes specific provision as to the basis on which the interpretation of treaties authenticated in two or more languages is to be approached; it provides :

Article 33

Interpretation of treaties authenticated in two or more languages

1. When a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.

2. A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an authentic text only if the treaty so provides or the parties so agree.

3. The terms of the treaty are presumed to have the saine meaning in each authentic text.

4. Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.

3.155.
In accordance with Article 33(1), the two authentic texts are thus to be regarded as equally authoritative. Further, in accordance with the rule of interpretation embodied in Article 33(3), the terms of the treaty are to be presumed to have the same meaning in both authentic texts. Finally, under Article 33(4), when comparison of the authentic texts reveals a difference in meaning that cannot be resolved through application of the normal methods of interpretation contained in Articles 31 and 32 the solution is to be found in the meaning which, in the light of the object and purpose of the treaty, best reconciles the texts.
3.156.
Approaching the question on that basis, the two terms are to be presumed to have the same meaning. In light of the fact that, in the end, the Respondent did not dispute that the German word "angelegt" can only properly be translated as "invested", whilst the Parties appeal- to be in agreement that the Czech-language term "vlozené’ can bear the meaning either of "invested" or "contributed", in application of the presumption contained in Article 33(3) VCLT, and in the context of the surrounding provisions of Article 1(1), the Tribunal concludes that the appropriate translation into English is that, in order to constitute an "investment", an asset must have been "invested" in the ordinary sense of that term. •
3.157.
As to the second question, the Respondent appeared to suggest in its Reply on Jurisdiction that, even if the word "vlozenélangelegt" was properly to be understood as having the meaning in English of "invested", rather than "contributed", nevertheless there was still a requirement that the relevant assets had been "invested" in some meaningful sense by an investor, and that this was not the case in the present case insofar as neither of the Claimants could be taken to have "invested" in their shareholding or participatory rights in Tschechien 7 and ECE Praha.
3.158.
The Tribunal does not believe that the Respondent’s reliance on the fact that the BIT makes separate provision as regards "returns" as forming part of the context for the interpretation for Article 1(1) is of any assistance in determining the scope and meaning of the term "investment" in the BIT. Whether or not separate provision is made in relation to "returns" and particular protections are provided in that regard does not govern the scope of the meaning of "investment".
3.159.
Conversely, the Tribunal does not consider that the Claimants’ invocation of the Preamble to the BIT, as containing an indication that the BIT’S object and purpose was to promote foreign investment, takes matters much further. It agrees with the Respondent that this argument begs the question of whether or not a particular asset constitutes a protected investment.
3.160.
Rather, the question is whether, in light of the Tribunal’s conclusion that Article 1(1) of the BIT is to be properly translated as encompassing every kind of asset which has been "invested", the Claimants’ shareholding or other participatory interests in Tschechien 7 and ECE Praha are properly to be regarded as falling within that definition.
3.161.
The Tribunal has no doubt that this is indeed the case, and that, on the ordinary meaning of the terms of Article 1(1), in particular given its express reference to "shares of companies and other kinds of interest in companies" in Article 1(1)(b), the Claimants’ shareholdings or other participatory interests in Tschechien 7 and ECE Praha do indeed constitute "assets", and therefore "investments" within the scope of that provision, and sees no basis for imposing a requirement that those assets should in some additional way have been "contributed".
3.162.
Further, the Tribunal sees no basis for excluding "derivative claims" by shareholders or other participants in companies which constitute investments, not least for the reason that the Protocol states Ad Article 4 that "An investor is also entitled to compensation where a measure set out in Article 4(2) harms the investment by affecting an undertaking in which the investor has an interest"
3.163.
On that basis, the Tribunal rejects the Respondent’s objection that the Claimants do not have an "investment" within the meaning of Article 1(1) of the BIT.

2. The Respondent’s Objection to Jurisdiction Based on Illegality

3.164.
As to the Respondent’s objection to jurisdiction based on the illegality of the Claimants’ conduct, the Tribunal notes that although originally put forward on the basis of both the suspected illegality in the acquisition of the plots of project land and the illegality of the groundworks conducted by the Claimants, in its Counter-Memorial the Respondent disclaimed any reliance on the former, and the objection was based solely upon the alleged illegality of the groundworks (above, paragraph 3.73). The Tribunal need not therefore address any further the circumstances of the acquisition of the project land, and whether it involved any illegality.
3.165.
The Tribunal notes that the definition of "investment" in Article 1(1) of the BIT expressly requires that the assets constituting the investment should have been invested "in conformity with domestic law". As such, the Tribunal is of the view that under the BIT applicable in the present case compliance with domestic law constitutes an express requirement of an investment.
3.166.
However, on the ordinary meaning of the terms, whatever the position may be under other, differently worded BITs, the Tribunal agrees with the Claimants that that requirement cannot be interpreted as conditioning the existence of an investment within the meaning of Article 1(1) upon compliance by the investor with all applicable rules of domestic law throughout the life of the investment. This should not however be taken as denying the obligation of an investor to comply with domestic law during the lifetime of an investment, or as implying that a failure to do so may have consequences for the merits of that investor’s claim.
3.167.
Further, the Tribunal does not accept the Respondent’s argument that the making of the investment in this case was an ongoing process, and that, given the illegality of the excavations after 18 June 2008, the Tribunal’s jurisdiction is in any event excluded after that date. The Tribunal notes in this regard that the "investment" relied upon by the Claimants is their shareholding or other participatory interests in Tschechien 7 and ECE Praha.
3.168.
The Tribunal is therefore of the view that the assessment of whether the Claimants’ investment was made "in conformity with domestic law" for the purposes of Article 1(1) of the BIT falls to be made at the inception of the investment, i.e. at the point at which the Claimants acquired their relevant rights in the project companies, and is limited to whether the way in which the Claimants acquired their investment was in conformity with Czech law. The Respondent raised no criticism that the acquisition by the Claimants of theft investment was not in all material respects in conformity with Czech law, and as noted above, in the event further disclaimed any reliance on the suggestion that the manner in which the project lands had been acquired by Tschechien 7 involved any illegality.
3.169.
The Parties debated at some length the extent to which illegality connected with an investment might affect the jurisdiction of a Tribunal to rule upon a claim more generally, even in the absence of express language in the relevant bilateral investment treaty requiring compliance with domestic law. However, the cases in which tribunals have found that they are without jurisdiction on the basis of illegality, on analysis, have all concerned illegality of a particularly serious nature connected with the initial making of the investment, such as corruption, or fraud.
3.170.
In the present case, the relevant illegality relied upon by the Respondent consists of a violation of Czech administrative law relating to excavations in excess of the amounts permitted by the planning permit obtained in relation to the Galerie project. Although the Tribunal does not doubt that the rules of Czech law relating to planning and pre-authorization of construction work are of central significance in the overall scheme of Czech planning law, those rules cannot be characterized as being of the same order of gravity as the rules outlawing corruption or fraud.
3.171.
In these circumstances, the Tribunal is of the view that breach of those provisions, even if established, and even if committed deliberately by an investor (a question to which the Tribunal will return later in the context of its discussion of the merits of the claims), is incapable of affecting its jurisdiction. At most, the breach by the Claimants of the relevant rules of Czech law is relevant to the merits of the Claimants’ claims.
3.172.
On that basis, the Tribunal is of the view that whatever illegality may have occurred in the context of the excavation works connected with the Galerie project does not affect the jurisdiction of the Tribunal to rule on the Claimants’ claims, and on that basis rejects the Respondent’s objection.
3.173.
In these circumstance it is not necessary for the Tribunal to address, for the purposes of establishing its own jurisdiction, either the argument that the Respondent is precluded from relying on the alleged illegality in consequence of what is alleged to be its improper conduct in gathering evidence in relation to the alleged illegality of the groundworks following the sending of the Trigger Letter by the Claimants, or in the alternative that the Respondent is estopped from relying on the illegality of the excessive groundworks.

3. The Respondent’s Objections to Jurisdiction Ratione Materiae and Ratione Temporis in Respect of Obsolete Expenses

3.174.
Given the manner in which the Respondent reformulated its objections to jurisdiction ratione materiae and ratione temporis in relation to obsolete expenses in its Counter-Memorial, it is convenient to deal with the two objections together.
3.175.
The Tribunal notes that, as originally formulated, the objection ratione temporis consisted of a general objection that the Claimants were not entitled to raise a complaint under the BIT in respect of any action of the Respondent occurring prior to the Claimants’ acquisition of their respective investments consisting of their shareholding or other participation in Tschechien 7 and ECE Praha.
3.176.
Had the Claimants sought to rely on any conduct prior to acquisition of their respective investments as constituting a breach of the BIT, the objection would in principle have been well-founded; however, in light of the Claimants’ confirmation that they did not in fact rely on any conduct of the Respondent prior to their acquisition of their investments in Tschechien 7 and ECE Praha as constituting a breach of the BIT, the objection to jurisdiction becomes moot. It retains its life only to the extent that the Tribunal will, in its treatment of the merits, pay particular attention to assuring itself that the claims for adjudication do relate exclusively to conduct falling properly with the scope of the BIT ratione temporis.
3.177.
As reformulated, the objection to jurisdiction ratione temporis seems to the Tribunal to be closely connected to the objection to jurisdiction ratione materiae. Both objections are of limited scope, and go to the question of the extent to which the Tribunal has jurisdiction over the claims made by the Claimants in respect of losses allegedly suffered as the result of obsolete expenses incurred by subsidiaries of the Claimants within the ECE Group other than ECE Praha and Tschechien 7.
3.178.
As explained by the Respondent, the point arises due to the "relatively late and sequenced acquisition" by the Claimants of the subsidiaries whose obsolete expenses it claims.381 In its ratione materiae form, the objection is that the Claimants cannot claim for damages in respect of obsolete expenses incurred by subsidiaries except to the extent that those subsidiaries were owned by the Claimants, and therefore constituted their investments within the meaning