(i) the language of the arbitration was to be English;
(ii) by 23 November 2012, Respondent was to submit its response to the request for a Separate Award;
(iii) by 14 December 2012, Claimants were to submit a Statement of Claim;
(iv) by 1 February 2013, Respondent was to submit a Statement of Defence;
(v) Claimants would be given the opportunity to submit a Rejoinder by 15 February 2013;
(vi) Respondent would be given the opportunity to submit a Rebuttal by 1 March 2013;
(vii) since Claimants had expressly requested an oral hearing, this would take place in Stockholm on 14 March,2013, and would continue on 15 March, If necessary
(i) pay the sum of 1524145 Moldovan Lei (MDL);
(ii) pay interest on the aforementioned amount in accordance with Art. 619 (2) of the Civil Code of the Republic of Moldova, such interest amounting to MDL 554 383,56 as per today's date;
(iii) carry the costs of the arbitration as well as Claimant's costs for legal representation and interest thereon in accordance with Section 18:8 of the Swedish Procedural Code
2.1 The profit of 2008 in the amount of 3 591 645 lei is the property of Bogdanov Yuri but remains at the disposal of the shareholder Bogdanov Yulia.
The mentioned amount of profit will be used for the procurement of row materials, replenishment of circulating assets and procurement of equipment for the continuation and extension of the company's activities in the year 2009 and in the forthcoming years.
If, after the conclusion of a commercial agreement with the participation of foreign or joint companies, any legislative acts are issued which worsen the economic position of the parties to such agreements, those agreements will nevertheless continue to be in force for the entire period of their validity, unless otherwise provided for by agreement between the parties.
Payment for placing goods, the use of which pollutes the environment, in the customs regime of import, shall be made by legal and natural persons who put such goods in free circulation on the territory of the Republic of Moldova, and such payment shall be made in accordance with existing law before or at the moment when such goods are placed in the regime of Import.
As an introduction to the Parties' discussion concerning my jurisdiction over this dispute, it is convenient to quote relevant parts of Articles 1 and 10 of the Treaty, which read as follows (in an unofficial English translation):
1. The term "investor" means in relation to each Contracting Party:
a. any physical person, being a citizen of the Contracting Party and legally qualified under its legislation to carry out investments in the territory of the other Contracting Party;
2. The term "investment" means ail kinds of property and intellectual values which are invested by an investor of one Contracting Party in the territory of the other Contracting Party under its legislation, including particularly:
b. monetary funds, as well os shares of stock, investments and other forms of participation;
c. a claim to money invested to generate economic values, or to services of economic value, related to an investment;
Resolution of disputes between a Contracting Party and an investor of the other Contracting Party
1. Any dispute between a Contracting Party and an Investor of the other Contracting Party arising in connection with an investment, including disputes concerning the amount conditions or procedure of payment of compensation pursuant to Article 6 of this Agreement, or procedure of payment of the compensation pursuant to Article 8 of the present Agreement, shall be subject to o written notification with detailed comments which the Investor shall send to the Contracting Party participating in the dispute. The Parties in dispute shall seek to settle the dispute amicably to the extent possible.
2. If the dispute cannot be settled amicably within six months of the date of the written notification referred to in Paragraph 1 of this Article, ft shall be submitted for resolution to:
(a) a competent court of general jurisdiction or arbltrazh court of the Contracting Party on the Territory of which the investment Is carried out;
(b) the Arbitration institute of the Stockholm Chamber of Commerce;
(c) ad hoc arbitration in accordance with the Arbitration Rules of the United Nations Commission on Trade Law (UNCITRAL).
3. The arbitral award shall be final and binding on both parties to the dispute. Each of the Contracting Parties shall undertake to enforce the award in accordance with its legislation.
Article 3.1 of the Treaty reads as follows (In an unofficial English translation):
1. Each Contracting Party shall ensure in its territory a fair and equitable treatment for investments carried out by investors of the other Contracting Party and for the activity in connection with such investments, excluding discriminatory measures which could impede the management and control of the investments.
Respondent has raised three objections concerning my jurisdiction: (i) The environmental charges paid by Grand Torg do not qualify as "Investments" and therefore are not protected by the Treaty; (ii) Claimants have lost access to arbitration because they already had their claims reviewed in one of the alternative fora listed in the Treaty; and (iii) Claimants did not exhaust all means available to them as prescribed by Article 10 (1) of the Treaty.
Many investment treaties, however, are silent as to the preclusive effect to be accorded to the different modes of dispute resolution afforded to the investor, and this obviously applies to the Treaty relied on by Claimants in this arbitration, in these cases, as a main rule, a preclusive effect cannot be assumed.
As I understand it, Respondent's position here Is that the pre-arbitration settlement of disputes provided for In Article 10 (1) of the Treaty should take place in the Moldovan courts. I cannot accept this argument The language of the Treaty is unequivocal in that It states that the parties should seek to settle the dispute "amicably" to the extent possible. This means a settlement by negotiation and surely as a rule must exclude the involvement of the courts.
The fundamental basis of the claims in this arbitration is that the Republic of Moldova is in breach of its obligations under Article 3.1 of the Treaty; and this breach is asserted to relate to both those standards which are stipulated in the said provision; namely, to ensure a treatment of investments which is (i) fair and equitable and (II) non-discriminatory. I will now in turn discuss each of these specific assertions.
On this point, Claimants argue that the fair and equitable standard is violated if an investor is deprived of his legitimate expectations that the conditions existing at the time of the investment will remain unchanged and, since Claimants in this case were deprived of their legitimate expectations in this regard, the aforementioned standard was in fact violated.
The stabilisation clause provides in essence that, if new legislation is enacted which deteriorates the conditions of Free Zone residents' activities with regard to the customs and tax regime stipulated by Law 625, then such new legislation shall not apply to those residents for a period of ten years from its enactment. I agree that this certainly amounts to an assurance by the Republic of Moldova which must have led to legitimate expectations on the part of the residents of the Free Economic Zones, including Claimants.
On the other hand, as pointed out by the Parkerings tribunal quoted by Claimants above, "it is each state's undeniable right and privilege to exercise its sovereign legislative power...Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about an amendment brought to the regulatory framework existing at the time an investor made his investment"
According to Claimants, the imposition of environmental charges on finished goods is the measure which deprived them of their legitimate expectations in this case. Respondent has pointed out, however, that environmental charges are not customs duties or VAT and that, therefore, Claimants could have had no legitimate expectation that such charges would never be imposed.
I note here, first, that Respondent's position concerning the possible identity between environmental charges and customs duties has not been consistent throughout the proceedings. In its Answer to the SCC of 21 September 2012, Respondent clearly stated that environmental charges are not equivalent to customs charges and therefore are not comprised by the guarantees in the stabilisation clause. However, in its Statement of Defence, Respondent made certain statements which could be understood as a concession of Claimants' standpoint that the environmental charges were in fact customs duties. Subsequent to a request from me for a clarification on this point, counsel for Respondent submitted an explanation according to which the standpoint stated in the Answer of 21 September - in other words that environmental charges are not comprised by the stabilisation clause - is still maintained. My conclusion, therefore, is that the parties are still in disagreement on this point.
I understand this to mean that what deprived Claimants of their legitimate expectations was not the imposition of environmental charges in general; this measure did not as such fall within the scope of the stabilisation clause. It was only the imposition of environmental charges on finished goods (rather than on raw materials) which was counter to the assurances by the Republic of Moldova in the stabilisation clause.
I find this argument hard to accept. Law 1540 of 25 February 1998 (" Law 1540") introduced charges for the pollution of the environment. Appendix 8 to the Law (submitted by Claimants as evidence in this arbitration), issued on 14 December 2007, concerns "the import of goods, in the use of which the environment is polluted" and includes a tong list of substances and goods, the import of which is subject to payment of environmental charges. This list includes raw materials as well as finished goods.
Law 1540 targets substances and goods, "the use of which" causes pollution of the environment. Raw materials are used for the production of finished goods and presumably may pollute the environment in that process. But it must be assumed that finished products also, such as paints, may cause pollution of the environment when they are used, for instance by emitting harmful substances into the air, or because they contain components which may cause harm to the environment when the waste paint is disposed of. This, presumably, are some of the reasons for including such products in the list in Appendix 8.
Claimants also argue that the charges on finished goods have no relation to the environmental impact of one type of paint as compared with another, and that they do not relate to the impact of the various ingredients of the paint. This seems to me to be an argument insupport of the assertion that the different charges do not correspond very well to the environmental impact of the different products; but it appears to have no bearing on the question whether or not such charges serve an environmental purpose.
In summary, I find that the charges on the import of finished paints and varnishes were environmental charges. They fall within the same category as other environmental charges, including the charges on raw materials, which are accepted by Claimants as being legitimate. Consequently, the charges on finished goods were not customs duties or VAT.
Finally, Claimants assert that the imposition of the charges on finished goods also amount to a breach of Article 43 (3) of Law 998. This provision stipulates in essence that commercial contracts where one of the parties is a foreign investor will remain in force even if legislation is introduced which adversely affects the economic position of the parties.
In principle, this appears to be correct, but I fail to understand, and Claimants have not explained, how the introduction of the environmental charges could have had any influence on the agreement between Grand Torg and Midgard Terra. It appears that the validity of the agreement has never been called in question, and Article 43 (3) of Law 998 therefore cannot be applied in this case.
Article 3 (1) of the Treaty does not specifically provide for "national treatment", i.e. a treatment which is no less favourable than that accorded to domestic investors. Article 3 (2), however, contains language to this effect.
One such resident in another economic zone appears in the ruling of the Court of Appeal of Chisinau of 21 May 2009, submitted by Respondent (the "Tagros Lux" case). In this case, the company Tagros Lux, operating in a free economic zone other than Expo-Business Chisinau, had brought a claim for the annulment of the order issued by the customs authorities on 15 October 2008, according to which environmental charges on goods exported from free economic zones to Moldova were to be levied on the costs of the raw materials used for the production of the finished products.
This assertion was confirmed by the Court, which found that the order issued by the customs authorities was counter to the Customs Code and Law 1540 on environmental pollution. The Court clearly established that all goods crossing from free economic zones into the Republic of Moldova are to be considered as "foreign goods" and environmental charges are to be calculated on the basis of the price of such goods
This, however, does not change the fact that Tagros Lux and Grand Torg both operated in free economic zones which were subject to the same customs regime which differed from that which applied to entities operating on the territory of Moldova. In this regard, Grand Torg and Tagros Lux operated under similar circumstances.
The fundamental reason why environmental charges were levied on the price of the finished goods appears to be that, at least from 2008 and onwards, the economic zones in reality were situated outside the customs border of Moldova. This meant that no charges were levied on any goods which were imported from abroad to the zones. This, in turn, meant that such charges had to be levied on all goods which crossed from the zones into Moldova. If these goods were finished goods, they were treated as such.
This was a principle which, according to the Court of Appeal of Chisinau, should be applied to all residents of the economic zones. I fail to see any discriminatory element in the fact that Grand Torg was treated equally with other entities which imported raw materials to the zones, produced finished goods there and then exported these goods to Moldova.
It is true that the system described above had certain slightly surprising consequences. For instance, Claimants correctly state that a producer of environmentally hazardous goods in the zones paid environmental charges on the cost of the finished goods when these were exported. A domestic producer paid charges on the import of the raw materials. In this regard, residents of the zones and domestic producers were treated differently.
On this particular note, Claimants have argued that Grand Torg is disproportionally and discriminatory affected since the charges on finished goods are higher than on raw materials. But at least on the basis of the facts presented in this arbitration I cannot find that Claimants have demonstrated that this assertion is correct. The reasons for levying a certain charge on a specific commodity may be very diverse and I do not find the analysis of these reasons which has been presented in these proceedings to be sufficient to warrant the conclusion suggested by Claimants.
Claimants say that the fact that environmental charges came to be imposed on finished goods rather than on raw materials was due in important respects to changes in customs legislation. This was inevitably so, because the charges on the import of environmentally hazardous goods were, for obvious reasons, collected by the customs service and were therefore subject to the customs legislation with regard to the customs regime applied.
But the stabilisation clause in Law 625 did not protect Claimants against changes in customs legislation in general; only against changes in the customs regime stipulated by Law 625. In fact, Claimants have pointed out that the introduction of the new customs regime In 2005 was undertaken at the initiative of the United Nations which had developed a customs programme for developing countries. This is hardly a measure which in itself could be seen as discriminatory, particularly since it treated all residents of the economic zones equally.
Claimants also find objectionable the changes in the environmental legislation which took place in 2008 and made it possible to levy the charges when the goods were placed in the customs regime of imported goods rather than when they crossed the national border (see Section 122 above). However, changes in the environmental legislation, including the manner in which the charges were collected, did not fall within the scope of the stabilisation clause and consequently were comprised by the Republic's right to exercise its sovereign legislative power. Moreover, these changes applied equally to all residents of the free economic zones and therefore were not discriminatory.
The Costs of the Arbitration have been determined by the SCC as specified below. The parties are jointly and severally liable to pay these arbitration costs. As to the apportionment of the costs between the parties, the issues in this arbitration have not been uncomplicated, and Claimants, although ultimately unsuccessful, had good reasons to bring the dispute to arbitration. As a matter of principle, therefore, an apportionment on the basis of equality between the parties would be reasonable. However, with regard to the Separate Award made on 6 December 2012, Claimants were successful and should be compensated additionally for their costs In that respect.
1. Yuri Bogdanov's and Yulia Bogdanova's claims are denied.
2. The fee of the sole arbitrator is fixed at EUR 10 898. The Administrative fee of the Arbitration Institute of the Stockholm Chamber of Commerce is fixed at EUR 3 449. The expenses of the sole arbitrator are fixed at SEK 4 518. Thus, the total Costs of Arbitration are EUR 14 347 and SEK 4 518.
3. As between the parties, the Costs of Arbitration shall be apportioned so that the Republic of Moldova shall bear EUR 8500 and Yuri Bogdanov and Yulia Bogdanova shall bear EUR 5847 and SEK 4518. Since the entire amount of the Advance on Costs was paid by Claimants, the Republic of Moldova is ordered to reimburse Yuri Bogdanov and Yulia Bogdanova, jointly and severally, EUR 8500. Against this amount, the Republic of Moldova is entitled to set off any amount which has been paid pursuant to the special Award made on 6 December 2012.
A party who is dissatisfied with this Award insofar as the fees of the sole arbitrator are concerned may bring the matter before the District Court of Stockholm by commencing proceedings within three months from the receipt of this Award.