The Claimants argue that the loss of approximately two-thirds of the goods resulted from the failure of the Police to prevent the removal of the goods from the warehouse by Kyjovan, and the fact that they took custody of the goods "en bloc" without making an itemised list as required by Czech law. The Claimants claim that this constitutes expropriation under Article 5 of the BIT, and breach of the fair and equitable and full protection and security standards contained in Article 2(2) of the BIT by the Respondent.
In addition to the Members of the Tribunal and the Tribunal's administrative secretary, Ms. Zoe Brentnall, the following persons were present at the hearing.
For the Claimants :
Jaroslav Broz Jr.
JUDr. Jaroslav Broz Snr.
For the Respondent :
Dr. Alfred Siwy
(a) the BIT was terminated upon the Respondent's accession to the European Union in May 2004; and
(b) in any event, Article 8(1) of the BIT (the dispute resolution provision) only provides jurisdiction to determine the Claimants' claim for breach of Article 5 and not Article 2(2).
The Respondent argues that the BIT was terminated when it became a Member State of the European Union ("EU") on 1 May 2004 by virtue of Article 59 of the Vienna Convention on the Law of Treaties ("VCLT").2
Article 59 of the VCLT provides:
"A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-matter and: (a) it appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or (b) the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time."
The Respondent argues that the BIT and the EU Treaties relate to the same subject-matter, in that they protect investments made by the nationals of one Member State in the territory of another Member State.4 In particular, the Respondent points to:
(a) Article 49 of the Treaties on the Functioning of the European Union ("TFEU") et seq which provide the right of establishment and prohibit restrictions on the rights of nationals of a Member State in the territory of another Member State, and Article 16(2) of the Charter of Fundamental Rights which recognizes the freedom to conduct business in accordance with EU law and national laws and practices. The Respondent argues that these provisions are the equivalent of Article 2(1) of the BIT in that they create favourable conditions for investors of other EU Member States;5
(b) Article 18 of the TFEU which prohibits discrimination between nationals of Member States based on their nationality. The Respondent argues that this provision is equivalent to Articles 2(2) and 3 of the BIT;6
(c) Article 17 of the Charter of Fundamental Rights which provides that no one shall be deprived of his or her possessions. The Respondent argues that this provision is equivalent to Article 5 of the BIT;7 and
(d) Article 63 of the TFEU et seq which grants the freedom of movement of capital between Member States. The Respondent argues that this provision is equivalent to Article 6 of the BIT, which guarantees the unrestricted transfer of investments and returns.8
First, the Claimants point out that the process prescribed for termination of the BIT in Article 14 - notably written notice from one party to the other - has not been followed.10 The Claimants note that Article 65(1) of the VCLT contains the same notice requirement for termination.11 Therefore, the Claimants say, the BIT must still be effective.
Second, the Claimants submit that the TFEU does not regulate the "same subject-matter" as the BIT, as required by Article 59 of the VCLT.12 The Claimants submit that "same subject-matter" must be read strictly such that "same" should be treated as meaning "identical".13 The Claimants submit that the objects of the BIT and the TFEU are not the same: specifically, it cannot be said that the object of TFEU is the protection of foreign investment. In addition, the Claimants say that investor rights under the BIT are wider and more specific than under the TFEU. In particular, the Claimants deny that the TFEU protects against expropriation, and note that it does not provide an equivalent of Article 8(1) of the BIT, the dispute resolution clause.14
Fourth, the Claimants invoke Article 65(4) of the VCLT which provides that "nothing in the foregoing paragraphs shall affect the rights or obligations of the parties under any provisions in force binding the parties with regard to the settlement of disputes." They argue that this means that, even if the BIT has been terminated, the Tribunal's jurisdiction to determine claims for breaches of the BIT would remain intact.16
The Respondent submits that the requirement that the two treaties relate to the "same subject-matter" does not mean that the two treaties must be co-extensive in all respects.20 The Respondent concedes that the scope of the TFEU is substantially wider than that of the BIT, but maintains that it nevertheless has the purpose and effect of promoting and protecting investments of one Member State's investors in other Member States.
Finally, in its Statement of Surrejoinder on Jurisdiction, and at the Hearing, the Claimants referred to a further provision of the TFEU which they say supports their position. That is Article 351, which provides:
"The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties." 22
First, as a treaty law matter, assuming there is no incompatibility between the provisions of subsequent treaties, there are two conditions under Article 59 of the VCLT for a treaty to be terminated by the effect of the conclusion of a later treaty: the two treaties under consideration - here, the BIT concluded in 1990 and the TFEU which was acceded by the Czech Republic in 2004 - must "relat[e] to the same subject matter" and it must "appear from the later treaty or [be] otherwise established that the parties intended that the matter should be governed by that treaty".
Article 8(1) of the BIT provides:
"Disputes between an investor of one Contracting Party and the other Contracting Party concerning an obligation of the latter under Articles 2(3), 4, 5 and 6 of this Agreement in relation to an investment of the former which have not been amicably settled shall, after a period of four months from written notification of a claim, be submitted to arbitration under paragraph (2) below if either party to the dispute so wishes."
Article 3 of the BIT provides:
"(1) Each Contracting Party shall ensure that under its law investments or returns of investors of the other Contracting Party are granted treatment not less favourable than that which it accords to investments or returns of its own investors or to investments or returns of investors of any third State.
(2) Each Contracting Party shall ensure that under its law investors of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investments are granted treatment not less favourable than that which it accords to its own investors or to investors of any third State."
The Claimants observe that Article 8(2)(d) of the Czech-Cypriot BIT confers more favourable dispute resolution rights. In particular, they note that this provision covers, broadly, "any dispute which may arise between an investor of one Contracting Party and the other Contracting Party in connection with an investment". The Claimants also observe that, contrary to the BIT in this case, Article 8(3) of the Czech-Cypriot BIT provides that "arbitral awards shall be final and binding on both parties to the dispute and shall be enforceable in accordance with the domestic legislation".34 Accordingly, according to the Claimants, Article 3 of the BIT should operate to broaden the types of disputes that can be arbitrated under Article 8(1) of the BIT to include those that can be arbitrated under the Czech-Cypriot BIT.35
First, the Claimants argue that the words "enjoyment" and "treatment" in Article 3 must entail enforcement of an investor's rights, and therefore must cover dispute resolution.36 They further state that the term "most-favoured" must be given full effect such that every rule which is more favourable to nationals of a third State must be able to be relied upon by the Claimants.37
Third, the Claimants argue that the UK model BIT which was published shortly after the BIT was concluded suggests that the UK had always understood the mostfavoured-nation provision in the bilateral investment treaties it concluded as including dispute resolution.39 Article 3(3) of the UK model BIT of 1991 provided: "For the avoidance of doubt it is confirmed that the treatment provided for in paragraphs (1) and (2) above shall apply to the provision of Article 1 to 11 of this Agreement."
Fourth, the Claimants emphasise the "inextricable link" between access to arbitration and their substantive rights as investors.40 They say that neither diplomatic protection nor the domestic courts are viable means of resolving this dispute, and note that they have been litigating this matter for 20 years before the Respondent's courts. They submit that without access to arbitration, their substantive rights as investors are not real or effective.
First, the Respondent argues that the wording of Article 3 makes clear that it does not apply to dispute resolution.45 In particular, the Respondent makes the following points.
(a) Article 3 only applies to rights granted under the domestic law of the host State ("under its law"). The Respondent says that this means that all an investor can ask for is for the host State to not apply its domestic law less favourably to an investor than it does to investors of third States, or grant the latter rights under its domestic law that it does not grant to the former. Article 3 therefore does not permit the Claimants to invoke a right under an international treaty.
(b) The term "treatment" in Article 3 refers only to substantive rights and does not include the right to arbitration. The Respondent refers to Daimler v. Argentina in this regard.
(c) Article 3(2) refers to "management, maintenance, use, enjoyment or disposal of their investments" and therefore not to dispute resolution. This contrasts to other most-favoured-nation provisions which refer to treatment "in all matters" and which have, in limited circumstances, been found to apply to dispute resolution. The Respondent refers to Plama v. Bulgaria and Wintershall v. Argentina in this regard.
First, they reject the Respondent's contention that the term "treatment" in Article 3 refers only to substantive rights and not to procedural rights, including the right to arbitrate. The Claimants argue that the term should be interpreted in accordance with the purpose of the BIT to encompass the protection of investors and investments, and thus also the procedural rights granted in the arbitration clause. They say that the purpose of Article 3 is non-discrimination among the nationals of third States, and that this calls for an extensive interpretation rather than a restrictive one.
Fourth, the Claimants concede that Article 3 is limited to rights granted by Czech law, but submit that international treaties form part of Czech law pursuant to Article 10 of the Czech Constitution which provides: "Promulgated treaties, to the ratification of which Parliament has given its consent and by which the Czech Republic is bound, form a part of the legal order; if a treaty provides something other than that which a statute provides, the treaty shall apply."61 Thus, the Claimants say, Article 3(2) of the BIT applies to the provisions of the Czech-Cypriot BIT, and as a result the right to arbitrate is part of Czech domestic law.
The Claimants also emphasise that Article 38 of the Czech Bill of Rights guarantees the right to a "lawful" judge.62 They say that case law has established that a "judge" under Article 38 includes an international judge. By analogy, the Claimants say, this must extend to international arbitrators. The Claimants submit in this regard that the Arbitral Tribunal is the sole body which may provide legal protection to the Claimants' investment.
Given that the BIT expressly excludes Article 3 from the scope of investor-State arbitration, the majority of the Tribunal has found that the questions of the scope of Article 3 (the meaning of "treatment", "under its laws", or "management, maintenance, use, enjoyment or disposal"), the impact of the UK model BIT on the interpretation of this BIT, or whether access to arbitration is a procedural or substantive right become moot. The majority recognises, in the latter respect, that the exclusion of Article 2(2) from the scope of investor-State arbitration results in situations where an investor is not able to enforce the standards under that provision. On this issue, the Respondent pointed to the avenues of diplomatic protection or recourse to national courts during the Hearing. However, the text of Article 8(1) of the BIT does not set forth any such recourse, with the consequence that breaches of Article 2(2) cannot be remedied through judicial or arbitral proceedings. That said, the Tribunal is bound by the express language of the BIT, which reflects a choice made by its drafters, and cannot rewrite Article 8(1) or substitute provisions taken from other investment treaties for those that have expressly been included by the drafters of the BIT. In the majority's view, this ends this Tribunal's inquiry.
Professor Reinisch took the view that the fact that Article 8(1) does not encompass the BIT's most-favoured-nation clause does not, per se, exclude this Tribunal's jurisdiction (to the extent the most-favoured-nation clause were to be read to include access to dispute settlement). Because the effect of a most-favoured-nation clause is a question of how it is formulated, he noted that, in the present case, Article 3 of the BIT expressly relates the most-favoured-nation treatment to treatment "under [a Contracting Party's] laws", which implies that such treatment only concerns treatment under the domestic law of the Contracting Parties. Thus, investors are entitled to claim that under the host State's law they should receive the same treatment as investors from third countries; however, this provision cannot be understood as permitting an investor to demand treatment which the host State has promised to third party investors in any international agreement like a BIT with a third country.
Article 2(3) provides:
"Investors of one Contracting Party may conclude with the other Contracting Party specific agreements, the provisions and effect of which, unless more beneficial to the investor, shall not be at variance with this Agreement. Each Contracting Party shall, with regard to investments of investors of the other Contracting Party, observe the provisions of these specific agreements, as well as the provisions of this Agreement."
(a) The Respondent submits that the Claimants, as shareholders, do not have standing to bring claims for expropriation in respect of loss or damage suffered by the company in which they own shares.
(b) The Respondent notes that the company has commenced proceedings in the Czech courts seeking compensation for the same alleged loss suffered as a result of the same events. The Respondent requests the Tribunal to dismiss the Claimants' claims on the basis of the doctrine of lis pendens and submits that the initiation of proceedings in two fora constitutes an abuse of process. In the alternative, the Respondent requests the Tribunal to stay these proceedings pending resolution of the proceedings before the Czech courts.
The Claimants' claim for expropriation relates to the loss of goods which were owned by a company in which the Claimants were shareholders (Sprint CR spol. s.r.o. or "Sprint CR"). Specifically, the Claimants claim that the assets of Sprint CR were expropriated and seek compensation for the value of those assets.66 The Claimants do not claim that their shares in Sprint CR have been expropriated.
The Claimants take the view that they have standing to bring this claim under Article 5(2) of the BIT..67 Article 5(2) provides that the provisions of Article 5(1) "shall also apply where a Contracting Party expropriates the assets of a company which is incorporated or constituted under the law in force in any part of its own territory, and in which investors of the other Contracting Party own shares."
The Claimants urge the Tribunal to take a purposive approach to the interpretation of the BIT, and note that the express purpose of the BIT to create "favourable conditions for greater investment" and "the stimulation of business initiative" militates towards interpreting Article 5(2) in the way the Claimants advocate.68 The Claimants emphasise that together they own 100 percent of the shares in Sprint CR, and that the goods at issue were the only tangible property of Sprint CR.69 As such, the Claimants submit that "there is an inextricable link between their shareholding and the assets of the company" and that "this situation requires the individual consideration where legal formalism leading to separating shareholders and the assets of the company makes little sense. Thus, the economic reality should prevail of the legal form."70
At the Hearing, the Respondent accepted that, under its interpretation, Article 5(2) is not strictly necessary given that it is now established in international law that shareholders may bring claims for both direct and indirect expropriation.76 Therefore, maintains the Respondent, Article 5(2) functions as a "for the avoidance of doubt" provision.77 The Respondent takes the further position that Article 5(2) was included because, at the time the BIT was drafted, the ability of shareholders to bring claims for indirect expropriation had not yet been clarified in international law.78
Indirect expropriation is precisely the subject of Article 5(2) of the BIT, which recognises that the Treaty's substantive provisions of Article 5(1) apply to the expropriation of "the assets of a company which is incorporated or constituted under the law in force in any part of" of host State's territory, here the Czech Republic. As the Respondent has conceded, Article 5(2) functions as a "for the avoidance of doubt" provision, having been included in the BIT at a time when the ability of shareholders to bring claims for indirect expropriation had not yet been clarified in international law; as also conceded by the Respondent, arbitral case law has long accepted that shareholders may bring claims for indirect expropriation.
With respect to the third and fourth criteria, the Respondent submits that these should be applied pragmatically to avoid the prospect of double-recovery. The Respondent accepts that the claimants in each proceeding are legally distinct, although they are "economically closely connected" such that they should be considered the same party for the purpose of the doctrine. The Respondent contends that the "same legal order" criterion should not be applied formalistically, but that the Tribunal should look to the fact that the Claimants are seeking compensation for the same loss in two fora.
Third, the Claimants argue that, in any event, the test for lis pendens is not met.90 In particular, the Claimants take the view that:
(a) the "same legal order" criterion is not satisfied, these proceedings being before an international tribunal and the other proceedings being before domestic courts;
(b) the claimants in each case are not the same legal entity. The Claimants argue that the Respondent is seeking to conflate the legal identities of the Claimants and Sprint CR for the purposes of its lis pendens argument, while at the same time seeking to deny them for the purpose of its argument that the Claimants as shareholders do not have standing to claim for the loss suffered by Sprint CR; and
(c) the causes of action in each of the proceedings are different. More precisely, in the Czech court proceedings, Sprint CR alleges breach of Czech domestic law, while in the present arbitral proceedings the Claimants alleges breach of an international treaty.91
In reply, the Respondent submits that the doctrine of lis pendens is "predominantly acknowledged" in international law and cites several arbitral decisions in support of this.93 The Respondent emphasises that there is a genuine prospect of double compensation such that the criteria that the proceedings concern the same parties and be conducted in the same legal order ought to be applied pragmatically.94
Further, they argue that the Respondent's invocation of the national proceedings in these proceedings contradicts Article 27 of the VCLT, which provides that "a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty".97
Finally, the Claimants submit that the jurisprudence of the European Court of Human Rights ("ECHR") is instructive on this issue.98 Referring to Yukos v. Russia, they argue that the ECHR has found that parallel arbitration proceedings commenced by shareholders are no obstacle to deciding proceedings to which the company is a party, notwithstanding that both proceedings arise out of identical facts.
Second, the claimants in each proceeding are distinct. There is no doubt that, in this arbitration, the claims are brought by two individuals, Messrs Busta, in their capacity as shareholders in Sprint CR. In the Czech proceeding, it is Sprint CR who is bringing the claim under Czech law. The Tribunal notes that the Respondent accepts that the claimants in each proceeding are legally distinct, but argues that they are "economically closely connected" and that, as a result, they should be considered the same party for the present purposes. In this respect, the Claimants have rightly pointed out that the Respondent cannot, at the same time, argue that the claimants in each proceeding should be assumed to be the same for the purposes of lis pendens while arguing, for purposes of their inadmissibility objection based on indirect expropriation, that they are distinct.
The Claimants request the Tribunal to dismiss the Respondent's request.104 They argue that they have brought these proceedings "as a last resort" because they have been unable to obtain justice at the national level. The Claimants note that the proceedings before the Czech courts have been ongoing for over 16 years, and that they have recently been returned to the court of first instance. They submit that there is no reasonable prospect of the proceedings before the Czech courts being concluded within any reasonable time and that staying these proceedings would be a denial of justice.
The Claimants argue that the failure of the Police to prevent the removal of the goods from the warehouse, and the fact that they took custody of the goods "en bloc" without making an itemised list as required by Czech law, resulted in the loss of approximately two-thirds of the goods, measured by value. The Claimants claim that this constitutes expropriation.
On 6 May 1996, the Claimants incorporated a further company in the Czech Republic, called SPRINT CR spol. s.r.o. ("Sprint CR").109 The Claimants were the sole shareholders of Sprint CR and one of the Claimants, Mr. Ivan Peter Busta, was its CEO.110 Sprint CR was also in the business of the wholesale of automobile accessories and tools.111
The Claimants argue that the property was intended to be owned by Sprint a.s. and point to the minutes of a general meeting of Sprint a.s. on 29 October 1992:116
"After detailed discussion both shareholders have approved that the joint stock company Sprint will continue its activities by leasing the technological equipment and storage areas. [...] The shareholder VDI Kyjovan declares that he considers its investment - manufacturing hall - included into property of the company Sprint a.s., incl. the land delimited on the geometric plan."
In response, the Claimants refer to the decision of the District Court of Hodonin dated 15 February 2000 as evidence of the legitimacy of Sprint CR's occupation of the warehouse as lessee.124 This decision was made at the application of Sprint a.s. in relation to a dispute with Kyjovan concerning the supply of electricity, water and gas to the property. In particular, the Claimants refer to the Court's statement that "there is no dispute between the parties that the Plaintiff [Sprint a.s.] uses the hall in the premises of the Defendant [Kyjovan] and that he rented this hall to the company Sprint CR spol. s.r.o."125
On 8 February 2000, Kyjovan applied to the District Court of Hodonin for an order that Sprint a.s. vacate the warehouse.127 Kyjovan sought the order on the basis that Sprint a.s. had no right to lease the warehouse to Sprint CR and on the basis that the roof had been damaged by weather conditions, which could pose a safety threat for which Kyjovan (as the claimed owner of the warehouse) considered it would be liable:128
"The inspection performed by the owner’s safety engineer - based on reaction of the staff and roof cracking - revealed damage of the roof due to climactic conditions and Ivan Peter Busta was asked by the written letter sent by Kyjovan, v.d.i. to adopt the relevant approach to this fact, because it is he who uses the hall illegally. The hall is owned by Kyjovan, v.d.i. and therefore responsibility for property and health or lives of the persons moving there is vested to its owner. Mr. Ivan Peter Busta did not respond to this call anyhow. With respect to the arisen situation the Board of the Plaintiff ordered elaboration of the expert report focused on technical state of the hall by the relevant specialist - expert - incorporated in the field in question in the relevant list of experts. As soon as the expert report is elaborated, it will be delivered to the court. Because the owner of the hall things [sic] justly that further realization of manufacturing, business or other activities can result in jeopardizing health and lives of the persons moving in the hall in question and with respect to the fact that the unauthorized user is not interested in cooperation concerning removal of technical defects and also with respect to the fact that the owner is obliged to ensure safety of the building (hall), the owner came to the conclusion that possible jeopardizing of health and lives of the persons must be avoided immediately."
On 22 February 2000, Kyjovan arranged to lease warehouses in Kelcany.129 The minutes of the meeting between Kyjovan and the owner of the warehouses record that Kyjovan was entitled to "bring in the goods" during the period of 1 March until 1 April 2000.130 Kyjovan entered into a formal lease agreement for the warehousing in Kelcany on 8 March 2000.131 This recorded that "the total area of the Subject of Lease amounts in total to 360m²" though it is not clear whether the lease was referring to one or two warehouses.132 Mr. Busta confirmed during the Hearing that the goods were moved to two warehouses in Kelcany, each being "roughly 300 metres square".133
Mr. Kubik, the warehouse manager employed by Sprint CR and one of the Claimants' witnesses, testified that on 5 March 2000, three "blocks or panels" appeared suddenly beside the warehouse.137 Mr. Kubik said that the panels were not owned by Sprint CR, and that he did not know why the panels were there.138 Mr. Kubik explained further that there was no obvious work going on which would require the panels to be present.139 Mr. Kubik testified that at that time the warehouse was in "excellent condition".140
According to Mr. Kubik, shortly after the panels appeared, the warehouse sustained surface damage to a wall.141 Mr. Kubik stated that he did not witness the damage occurring, but believed that the warehouse had been "hit" with the panels that had appeared next to it shortly beforehand.142 In Mr. Kubik's view, it was evident that the warehouse was damaged at that point, but not to such a degree that it would endanger its own construction or the surroundings, including the adjacent buildings.143 Mr. Kubik stated that the panels disappeared after the damage was sustained.144 His "personal belief" was that Kyjovan had intentionally caused the damage to the warehouse using the panels.145
The Respondent argues that the damage was caused "during preparatory works for the construction of a parking lot on the premises of Kyjovan".146 Specifically, the Respondent says that during the preparatory works "a sudden blow of wind caused several panels to fall from a crane, thereby damaging the supporting structure of the warehouse."147 The Respondent bases its account on a subsequent Police report dated 28 July 2000 closing an investigation into criminal activity by Kyjovan on 9 March 2000, which stated:148
"When panels were unloaded on 05/03/2000 during preparatory works for construction of a parking lot within the premises of VDI Kyjovan Kyjov, damaged was caused to the hall in which SPRINT CR, s.r.o., Sumavska 29, Brno, stored its goods. The damage was caused during a sudden blow of wind, when a panel suspended from a crane began rotating round its axis and hit with one of its ends the casing of the hall where one of the supporting structures columns is located."
The Police report stated that the circumstances surrounding the unloading of the panels had been investigated, including the "atmospheric situation" as described by the Czech Institute of Hydrometerology, the crane operator and Mr. Jelinek, a technician employed by Kyjovan:149
"Investigated in this context were also the circumstances preceding the unloading of panels; it was determined that the crane to unload the panels had been ordered by phone on 03/03/2000 from Pozemni stavitelstvi, spol. S.r.o., Rodinova 2, Hodonin; the work was reported in the record of vehicle operation, and the course of unloading and the atmospheric situation at the moment and place were described accordingly with the report issued by the Czech Institute of Hydrometerology also by the crane operator Karel Kopriva and by the investment technician Frantisek Jelinek."
On 6 March 2000, an engineer hired by Kyjovan, Vit Belik, inspected the warehouse.156 Mr. Belik's report of the inspection stated that it was conducted "in response to an incident which occurred when panels were being stored on 5 March 2000. A reinforced panel that was being moved by a crane hit the wall of the warehouse by the third pole from the north gable on the eastern wall."
Mr. Belik proposed two measures, namely removal of the stored goods from the damaged sections of the warehouse, and an examination of the structural elements and joints:157
1. The stored goods must be removed from the damaged sections, as well as the racks, access by persons and employees must be prevented in order to ensure their safety and to prevent any further damage to property and to enable the building to be cleared immediately.
2. The supporting structure must be uncovered in all areas where the damage was discovered and check the geometry of the structural elements and the state of the structural joints. The exact method and extent of the repair work and a surveyors report will be drawn up on the basis of these findings." original).
Mr. Belik's report concluded that:158
"The extent of damage to the building warrants classification of an emergency situation. The problems identified pose a threat to human health and safety. Potential environmental risks - snow and wind - mean that the building must be cleared immediately, without undue delay, to prevent the building from collapsing. The Kyjov Building Authority must be informed of this situation, as well as the relevant public authorities and the occupational health and safety office, and the building must be cleared and restored immediately."
According to the Police report of 28 July 2000, Mr. Kubik was present during Mr. Belik's inspection.159 The report also states that "the executive of SPRINT CR" was informed about the situation by Mr. Kubik and Mr. Jelinek, a technician.160 Mr. Kubik did not provide any testimony on this question, and was not questioned about it at the Hearing.
In a criminal complaint he initiated on 9 March 2000, Mr. Busta stated that he was told about the damage to the warehouse on 6 March 2000 by Ms. Kunzova, the accountant employed by Sprint CR.161 He also stated that he contacted Mr. Jelinek and met with him on 7 March 2000. According to Mr. Busta's statement in the criminal complaint, Mr. Jelinek assured Mr. Busta that the warehouse would be repaired the following week commencing on 13 March 2000. Mr. Busta further stated that he asked Mr. Jelinek to remove the racks and calculate the damage to the goods.
(d) The Building Authority's Call for Repair
The following day, on 8 March 2000, the Building Authority conducted an inspection of the warehouse.163 It subsequently issued a "call" to repair of the warehouse to Kyjovan.164 The call to repair stated:
"The Kyjov Building Authority, as the competent building authority, calls on you, in accordance with Section 102 paragraph 1 of Act No. 50/1976 Coll. on town and country planning and building regulations (the Building Act) as amended - in the full wording published under no. 197/1998 Coll., to remove the damage to the industrial building located on lot no. 883/1, listed in the proposal for measures drawn up by Ing. Arch. V. Belik, authorized engineer and structural surveyor. On 7 March 2000, the Building Authority in Kyjov received from the owner of the Kyjovan v.d. Kyjov building a report which states that works involving a crane resulted in damage being done to the steel structure of a warehouse. On 8 March 2000, the Building Authority carried out an on-site inspection and subsequently called on the building owner to organize repairs, with the participation of the authorized engineer, as stated in the proposal for measures."165
"[G] iven the seriousness of the damage to the warehouse and the possible risk to the health and lives of individuals as set out in the Report drafted by Ing. Arch. Vit Belik dated 6 March 2000 and, in particular, with regard to the contents of the invitation by the Municipal Authority - Kyjov Building Authority, ref. no. 1765/2000 to immediately clear the premises and to restrict its further use during the period required for the repairs?
On 9 March 2000, Kyjovan issued a "notice of emergency condition" in relation to the warehouse. The notice stated that the warehouse had been damaged on 5 March 2000 "during manipulation with the crane", and referred to Mr. Belik's report of 6 March 2000, and the Building Authority's call to repair of 8 March 2000. The notice further stated that Kyjovan intended to comply with the call to repair on 9 March 2000:168
"By notice of 8 March 2000, the Building Authority in Kyjov had requested us, in accordance with § 102 para 1 of Act No. 50/1976 Coll. as amended, to arrange for removal of defects as stated in the record of authorized structural engineer Mr. Ing. Arch. Belik. We started preparations in order to comply with the notice which we wanted to put into realization on 9 March 2000."
The notice went on to record that Kyjovan had discovered on the evening of 8 March 2000 that the warehouse had started to collapse, and that the board had unsuccessfully sought to contact Mr. Busta:169
"At 17:30 on 8 March 2000 Mr. Ivo Drabek, a door guard in service at this time found out that the damaged warehouse was starting to collapse and notified Ms. Vladimira Chytilova, Kyjovan employee in charge of protection of health and safety at work, who immediately informed by telephone call chairman of the cooperative, Mr. Josef Pucek, who summoned board of directors for a meeting at 18.00. Board of directors tried to secure presence of the statutory body of the unauthorized lessee in the abovementioned warehouse, however it was not possible to get hold of him, therefore it decided based on the notice of Building Authority in Kyjov to request a cooperation of the representative of Municipal Office in Kyjov. In the presence of independent persons and independent agency CZ GUART, s.r.o., the warehouse was entered, the video recording and photo-documentation were made, the record concerning the storage of goods and materials was drafted, all of which is enclosed. Today, i.e. 9 March 2000, in the presence of Ing. Arch. Belik we want to continue with repair works that were started yesterday."
The Claimants also refer to a letter from the Czech Chamber of Chartered Engineers and Technicians Engaged in Construction dated 20 March 2001 issued in response to a complaint subsequently made by Sprint CR concerning Mr. Belik. It stated: "In case of any accident, when the persons are endangered and where there is risk of delay, the building authority can issue the order only and exclusively on the basis of the local investigation. It means that the minutes contested by you are not decisive for the building authority for issuing the call concerning removal of defects."172
The Czech Chamber of Chartered Engineers and Technicians Engaged in Construction, in responding to Sprint CR's complaint against Mr. Belik in March 2001, confirmed that the Building Authority's obligation is to perform an investigation before issuing a call to repair, but that the fact that it issued a call to repair "confirms seriousness of the situation and correctness of actions of Ing. arch. Belik."177
Mr. Kubik and Ms. Kunzova testified that they arrived at the premises in the early morning of 9 March 2000 for work and were prevented from entering the grounds.180 Ms. Kunzova said that she was told there was an emergency, although she could see that about 150 people were moving around inside the premises, some of whom were clad in black.181 She testified that she believed that those clad in black were security personnel and that the rest were Kyjovan's employees, based on how they were dressed and the fact that they had "employee cars".182 Ms. Kunzova also testified that she saw "big trucks laden with our [Sprint CR's] goods being taken out".183
At the Hearing, Ms. Kunzova testified that the two Police officers who were sent to the premises sat in their car and watched.192 Ms. Kunzova stated that she spoke with them and explained that she believed Sprint CR's goods were being stolen and that the Sprint CR employees also had personal belongings in the warehouse.193 She further testified that the Police responded that the matter would have to be investigated,194 and that her impression was that the Police were "not very eager to do anything" and that "their approach seemed to be very passive".195 Ms. Kunzova testified that she left at around 11.00 am.196
In his criminal complaint against the Police made on 20 March 2000, Mr. Busta said that he called Mr. Prochazka and asked him to intervene in the removal of the goods,203 but that Mr. Prochazka declined to intervene on the basis that Kyjovan had authorisation for its actions.204 Mr. Busta testified that he explained that he had a court judgment proving that he was legitimately occupying the property, and that Mr. Prochazka's response was that he could not decide what was or was not a legally valid document.205 In his statement of October 2000, Mr. Prochazka explained that "the decisive factor" fo r the Police was the decision by the Building Authority.206
The Respondent suggests that not all of the goods in the warehouse were removed on 9 March 2000.211 The Respondent points to Mr. Busta's letter of October 5, 2000 to the Regional Prosecuting Attorney, in which Mr. Busta, in complaining about the Police's conduct, stated: "The Police has again not proceeded transparently, because it has drawn up the minutes [...] that VDI Kyjovan again dictated the conditions that the Complainant represented by Ivan Peter Busta could not enter the Kyjovan premises where one part of the goods was stored".212
When questioned about this at the Hearing, Mr. Busta said that he did not know whether goods were left in the warehouse, and observed that "it would have been somewhat surprising if all had been removed to the last degree".213 Mr. Busta explained that he never accessed the warehouse again as he was afraid to return to it in light of the events that had taken place.214 Mr. Kubik and Ms. Kunzova also confirmed that no one had access to the warehouse from 9 March 2000.215
It is undisputed that, on 18 April 2000, Mr. Pucek, the Chairman of Kyjovan, handed to the Police the keys to the two warehouses in Kelcany containing the goods. He signed a delivery report describing what he had handed over.221 This stated:
" On 08.03.2000 the shown things were moved out of the hall as stated above, because the hall was in the emergency state with imminent loss of property values as well as jeopardy of persons. I am speaking about:
- video record made after opening the hall prior to start of clearing the hall (cassette BASF EQ 240)
- passenger car Peugeot 309 of cream colour', license plate D 213 BDX
- pickup DAF 400 of red colour, license plate H 811 HBJ
- pickup FORD transit of yellow colour, license plate C 32 LHJ
- remaining part of furniture and equipment from offices in the outbuilding
- all the goods moved out of the damaged hall.
All things except the video record are stored in two halls within the premises of the company Zemedelske stavby (Agricultural Structures) Kelcany, both halls are locked and secured against entering. I also deliver keys from both halls [...]
I state to the delivered things that they have been given into custody of the Police;
VDI Kyjovan Kyjov applies the lien to them through KOS Brno and has filed the motion to KOS Brno for issue of the payment order."
The Claimants argue that the Police failed to comply with the Czech Criminal Procedure Code in taking custody of the goods from Kyjovan in that they did not draw up an itemised list of the goods they were receiving. Instead, the Police received them en bloc, together with a statement from Mr. Pucek in his delivery report that this comprised "all the goods moved out of the damaged hall." The Claimants submit that the Police thereby destroyed the opportunity to establish whether all of the goods that had been removed from the warehouse were being returned, or whether some had been retained by Kyjovan.223
According to his testimony, Mr. Busta, his employees and the Police officers then went to the Police headquarters where they connected the computers. Four of the computers were damaged but the central computer was still functioning.227 This was the computer from which a list of goods dated 18 April 2000 was printed, in the presence of Mr. Busta and Ms. Kunzova.228 The value of the goods in the list was recorded to be CZK 99,067,410.229 The Police drew up a protocol recording this, which stated:230
"Investigator of the District Bureau of Investigation Hodonin conducts investigation of theft of the goods from the warehouse hall in Kyjov of the harmed organization SPRINT CR s.r.o. In the case above the list of goods stored and present in the warehouse at the moment of theft was printed from the delivered computers in presence of CEO of the company SPRINT CR s.r.o., Mr. Ivan Peter Busta and in presence of the accountant of the harmed company, Marketa Kunzova. List of goods was printed after connection of the computers, this operation was performed by the specialist of the analytical department of the District Bureau of Investigation, Mr. Oldrich Junec. The list of goods, where value of the goods in the warehouse is calculated, amounts to CZK 99,067,410 and is attached to the file material."
The Parties dispute who printed the list. The Claimants state that it was printed by the Police.231 This is corroborated by Ms. Kunzova who said that it was printed out "by an expert from the police" in her presence.232 The Respondent submits that it was printed by employees of Sprint CR in the presence of the Police.233
The Respondent submits that the list does not, and suggests the list also contains goods stored in other warehouses owned by Sprint CR.236 The Respondent points firstly to the fact that in the civil and criminal complaints filed by the Claimants following 9 March 2000, they stated a far lower value of the goods than CZK 99,067,410.237 In particular:
(a) On 9 March 2000, Mr. Busta filed a criminal complaint against Kyjovan in which he stated that the goods were worth CZK 40 million.238
(b) On 12 March 2000, Mr. Busta filed a further criminal complaint against Kyjovan in relation to the four cars belonging to Sprint CR, which he said were collectively worth CZK 325,000.239
(c) On 14 March 2000, Mr. Busta filed a request for an interim injunction against Kyjovan at the District Court of Hodonin, to which he appended a list of the inventory of the warehouse as at 11 February 2000, which amounted to CZK 23,228,430.93.240
(d) On 20 March 2000, Mr. Busta filed a criminal complaint against the Kyjovan Police stating that he had previously thought the value of the goods was CZK 40 million, but that he had "established that the standard list of the stock in the warehouse does not contain the goods which [are] kept un-packed or which [do] not need Czech manuals and printed labels" and that these items had an additional value of CZK 10 million.241
The Respondent also refers to the fact that the list of 18 April 2000 stated in the top left-hand corner that it showed goods stored in "all warehouses".242 The Respondent notes that Sprint CR had 70 sales outlets in the Czech Republic at this time,243 and suggests that the list of 18 April 2000 included goods stored in all of those warehouses.244
The Claimants say that the list of 11 February 2000 was "internal working material" produced "at a certain stage in the performance of the inventory process and is not therefore under any circumstances [a] list of goods that would include final amounts of goods in the warehouse."248 Ms. Kunzova testified that this list was produced during a sample stock-taking exercise which showed that the stock-keeping was in good order.249
The Claimants deny that the list of 18 April 2000 included goods stored in other warehouses owned by Sprint CR. The Claimants clarify that the 70 sale outlets referred to in their Statement of Claim were in fact 70 retail business partners of Sprint CR, i.e. places at which Sprint CR's goods were sold, and were not further warehouses. The Claimants state that Sprint CR also had a showroom in Brno, where negligible amounts of goods were stored for the purpose of display.253 The Claimants say that the indication of "all warehouses" in the top-left corner of the list of 18 April 2000 is the function of the computer software that Sprint CR was using, and indicated that they had not differentiated the list by suppliers or types of goods.254
After the list of goods was printed at the Police station, Mr. Busta says that he went with the Police to Kelcany where they met Mr. Pucek. Mr. Busta stated that "at first sight it was evident that all the goods could not have been there. They were spread in two small halls, each of them being roughly 300 metres square. And the halls included the four cars which were towed away."261
On 1 November 2000, the Police and Mr. Busta agreed on the procedure for returning the goods in Police custody to Sprint CR.262 In particular, they agreed that Mr. Busta would "engage the necessary number of employees so that the delivered goods may be accepted - item by item, in the kind and quantity, i.e. so that qualitative and quantitative acceptance may be performed duly."263 Any potential damage to the goods was to be analysed by an expert.264
The Respondent notes that the comparative list created by Mr. Busta indicates 32,866 items that were returned which were not on the 18 April 2000 list.270 The Respondent submits that this indicates that the list of 18 April 2000 is not a reliable record of what was in the warehouse on 9 March 2000. The Respondent put this to Ms. Kunzova at the Hearing, who explained that this may have been due to errors in the goods read out by the Police during the return of the goods to Sprint CR. Ms. Kunzova explained that "the codes were in many places damaged because the goods were stored in an inappropriate place, under inappropriate conditions; for instance, it was freezing. So the labels were damaged often."271 Ms. Kunzova explained that "there were different police officers, taking turns different days, and none of them actually was familiar with the structure of our codes; and neither did I know all the codes by heart. So in some cases there may have been mistakes made."272
Ms. Kunzova further testified that there were also some goods stored in the Kelcany warehouse without any codes and that this could also have led to discrepancies:273
"And the problem was that in some cases the goods were stored in that other warehouse without any codes. For instance, there were some nuts, and they all look alike, but they may have different codes. So while some of the nuts were reported on the one code, they in fact should have been registered under several different codes. So that's why the discrepancies could have occurred."
On 20 March 2000, Mr. Busta made a criminal complaint against the Police in respect of the events of 9 March 2000.277 Mr. Busta provided a detailed account of the events and alleged that the Police failed to prevent the theft of the goods in the warehouse by Kyjovan. In particular, Mr. Busta reported "abuse of authority by a public servant" and "obstructing the action of a public servant through negligence".
This complaint was dismissed by the Brno Investigating Authority on 21 November 2000.278 The Investigating Authority concluded that "there is no suspicion that the criminal act has taken place" and therefore "there is no reason to deal otherwise with this case." The Investigating Authority noted that during its investigation "a number of actions were taken to clarify the matter, the victim, the suspected culprits and other witnesses were questioned, an expert report was requested, documentation and written evidence was procured, the police and investigative files were applied for and verified."
In its report, the Investigating Authority cited the statement of Major Prochazka, in which he explained that for the Police on 9 March 2000 "the decisive factor was the decision by the Building Authority [...] the police officers acted in accordance with the law and with all appropriate regulations." The Investigating Authority also considered the statement of Mr. Susak, the Director of the Kyjov Building Authority, who stated that "the clearance of the building as a result of damage caused by an accident was authorized."
The Investigating Authority's decision to set aside the complaint was upheld by the District Prosecutor's Office in Hodonin on 23 March 2001.279 This decision again referred to Major Prochazka's statements, "who points at the fact that it is generally known that Sprint CR s.r.o. and VDI Kyjovan Kyjov have been in dispute for many years and, given the seriousness of the situation, he concluded that any decision could only be taken after a full investigation of the entire incident".
On 30 October 2000, the Regional Prosecuting Attorney's Office agreed that the Police had proceeded contrary to the Rules of Criminal Procedure in taking custody of the goods without establishing an itemised list: "It has been established that delivery of the things in question was accompanied by two Protocols which do not contain description of the delivered things so that they may be identified in quantity in kind. The investigator has thus proceeded contrary to provisions of §79(5) of the Rules of Criminal Procedure."281 The Police were directed to "hand over all delivered things to the harmed person and their acceptance by the harmed person shall be subject to the protocol with precise identification of the kind and quantity of the things in question."282
(a) On 12 March 2000, Mr. Busta reported the theft of the four cars that had been on the premises on 9 March 2000.287
(b) On 14 March 2000, Sprint CR and Sprint a.s. made their own criminal reports against Kyjovan in respect of the events of 9 March 2000.288
(c) On 19 March 2000, Mr. Busta made a criminal report against Mr. Pucek.289
(d) On 25 May 2000, Mr. Busta made a further criminal report stating that the office used by Sprint CR had also been robbed and accounting documents, computers, and other office equipment had been stolen.290
In response to the article, the judges of the District Court of Hodonin made a collective declaration that their attitudes had been "affected" by the article "to such an extent that [they were] no more able to decide impartially".302 Accordingly, the judges asked for "exclusion from hearing of all cases and for assigning the case to another court."303 The Regional Court of Brno agreed that the judges' ability to make impartial decisions in the circumstances had been put into doubt and that the matter should be head by the District Court of Jihlava.304
The Claimants take the position that the Respondent expropriated Sprint CR's goods, in breach of Article 5(1) of the BIT. Article 5(1) provides in relevant part:
"Investments of investors of either Contracting Party shall not be nationalized, expropriated or subjected to measures having effect equivalent to nationalization or expropriation (hereinafter referred to as "expropriation") in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation. [...]"
The Claimants submit that the Tribunal should consider the conduct of the Respondent as a whole. In particular, the Claimants ask the Tribunal "not to look on each omission or interaction individually, but in their complexity, in the fullness of time of the undertaking of Mr. Busta in the Czech Republic."308 The Claimants submit that, viewed as a whole, it is clear that the Respondent's "organs have failed to protect [the Claimants'] property, with the consequence of expropriation."309
The Claimants submit that expropriation may occur through both acts and omissions.310 In support of this, the Claimants cite the statement of the arbitral tribunal in EUREKO v. Poland that "it is obvious that the rights of an investor can be violated as much by the failure of a Contracting State to act as by its actions. Many international arbitral tribunals have held so."311 The Claimants also emphasise that the intention of the Respondent is immaterial to determining expropriation and that what matters is the effect of the measures taken by the host State.312 They cite Biloune v. Ghana Investment Centre and Generation Ukraine v. Ukraine in this regard.
The Claimants argue that the Respondent indirectly expropriated the Claimants' investment through the "acquiescence of the Police" in Kyjovan's removal of the goods owned by Sprint CR from the warehouse on 9 March 2000, and the "lack of any protection to the property and due care in taking and returning of the goods by the Police", i.e. the taking of the goods from Kyjovan en bloc without establishing an itemised list.313
With respect to the taking of the goods from Kyjovan on 18 April 2000, the Claimants submit that the Police failed to act in accordance with Section 79(5) of the Criminal Procedure Code,322 which provides that: "The report on the surrender and seizure of a thing shall give also an accurate description of the thing surrendered or seized which is sufficient to identify such thing."323 The Claimants say that the Police ought to have created a list describing each of the goods that was being handed over, and that the delivery report signed by Mr. Pucek stating merely that "all goods moved out of the damaged hall" were being handed over was insufficient.324
The Claimants also rely upon the finding of the District Investigator's Office of 30 October 2000 according to which: "It has been established that delivery of the things in question was accompanied by two Protocols which do not contain description of the delivered things so that they may be identified in quantity and kind. The investigator has thus proceeded contrary to provisions of § 79 para. 5 of the Rules of Criminal Procedure Code."329
The Claimants say that the Police's failure to abide by Section 79(5) "created an entirely undesirable state of affairs in which Kyjovan VDI formally handed over "all goods", which surrender the Police officially (legally) approved in the form a report on the handing over (taking) of the goods, although it is not possible to determine, from the receipt of "all goods" in such an unidentified state, the actual extent of the goods handed over."330
The Claimants also submit that the Police's protocol of the handing over of the goods
"exonerated Kyjovan, VDI of its liability for the difference between the amount of the goods it took control of and what it declared to the Police that it handed over 'en bloc'."331 They say that this foreclosed the possibility of them pursuing civil or criminal action against Kyjovan.
The Claimants submit that the Czech courts subsequently failed to provide any compensation to the Claimants, despite numerous actions by Mr. Busta. On this basis, the Claimants submit that the Police and courts in relation to the recusal of the judges "created only mere illusion of the performance of their power, and became themselves intervenors into the property of the Claimants."336
The Claimants argue that the Respondent's conduct caused the loss of around two- thirds of the value of the goods owned by Sprint CR, and that this constituted a "substantial part" of the "key assets" of Sprint CR.337 The Claimants submit that expropriation can be made out where the investor has been deprived "totally or in a big part" of its investment.338 They submit that it is not necessary to show that all of the goods owned by Sprint CR were lost by the Respondent.
Dr. Grivna explained at the Hearing that his opinion that the Police's conduct was reasonable was based solely on the documents that he understood were received by the Police on 9 March 2000349 - namely Mr. Belik's report of 6 March 2000350 and the Building Authority's call to repair of 8 March 2000.351 On the basis of these documents, Dr. Grivna considered that a state of "necessity" had arisen such that, under Section 14 of the Criminal Code, removal of the goods from the warehouse, even if ordinarily unlawful, would not be considered a criminal act.352
In any event, the Respondent denies that the Police "exonerated" Kyjovan in taking custody of the goods and argues that it remained open to the Claimants to bring civil action against Kyjovan for any goods it believed were not returned.361 The Respondent says that the protocol of the handing over of the goods to the Police makes clear that it is merely a record of what Mr. Pucek stated to the Police (i.e. that he was handing over "all goods"), and that the Police have taken no position on its accuracy.
Third, the Respondent submits that the Claimants' claim is based upon an omission, and that it is "very doubtful" that a mere omission can constitute expropriation by a State.362 The Respondent cites in this regard Eudoro Armando Olguin v. Paraguay :
"For an expropriation to occur, there must be actions that can be considered reasonably appropriate for producing the effect of depriving the affected part of the property it owns, in such a way that whoever performs those actions will acquire, directly or indirectly, control, or at least the fruits of the expropriated property. Expropriation therefore requires a teleologically driven action for it to occur; omissions, however egregious they may be, are not sufficient for it to take place."
The Respondent states that this position is supported by scholarly commentary, notably in McLachlan, Shore & Weininger :364
"[...] the Olguin ‘teleologically driven’ test is to be preferred: the Olguin test is more closely connected to the historical origins of expropriation claims; [...] it further recognizes that for most tribunals an assessment of indirect expropriation in any of its forms has not somehow been disconnected from a requirement of State conduct of some sort."
The Tribunal further notes that, for an expropriation to occur, in the form of direct or creeping expropriation, there must be a permanent and irreversible deprivation. The Tribunal refers in this respect to consistent arbitral case law which establishes that an expropriation takes place where an investor has been permanently deprived of the value of its investment in whole or in significant part.365 This is reflected in the Plama v. Bulgaria decision, which has set out the decisive elements in the evaluation of allegations of expropriation: "(i) substantially complete deprivation of the economic use and enjoyment of the rights to the investment, or of identifiable, distinct parts thereof (i.e., approaching total impairment); (ii) the irreversibility and permanence of the contested measures (i.e., not ephemeral or temporary); and (iii) the extent of the loss of economic value experienced by the investor."366
The Tribunal further notes that, while the Respondent has focused on the accuracy of the April list,369 other points have remained obscure and unexplained. For example, the Respondent did not seem to take note of Mr. Busta's testimony that, when he went to Kelcany, he found that "all the goods could not have been there", with the goods dispatched between two small halls, each "being roughly 300 metres square" and containing the four cars that had been towed away by Kyjovan.370 This seems to correspond to the fact that the lease document for the warehouses leased by Kyjovan in Kelcany in February 2000 records them as having an area of 360 square metres (see supra, paragraph 257). Although the overall size of the Kelcany warehouses more or less corresponds to the area of the Kyjov warehouse used by Sprint CR, which was 860 square metres (see supra, paragraph 252), it was not clear to the Tribunal whether all the goods stored in the Kyjov warehouse could likewise have been stored in the Kelcany warehouses, bearing in mind that, in addition to the goods themselves, Kyjovan had taken and transferred other property such as a car and pickups, as well as office furniture and equipment (see supra, paragraphs 301 and 304, and record regarding handing over of items, dated 18 April 2000 (Exhibit C-24)). In particular, the Parties did not elucidate whether, between the time when the goods were taken by Kyjovan on 9 March and their hand-over to the Police on 18 April, there were circumstances in which the goods may have been partly dispatched to the Kelcany warehouses, which were put under Police custody on 18 April, and partly stored in other locations not under Policy custody. This may have explained the discrepancy in the missing goods which the Claimants argue represent over CZK 63 million in value, as between the Police protocol of 18 April 2000 established on the basis of the content of Sprint CR's computers, and the list of physical goods returned by the Police on 8 August 2001.
The Tribunal further notes that it is undisputed between the Parties that a State's police authorities are organs of that State.372 On this basis, the Tribunal does not find any obstacle, from an international law perspective, for the Respondent's responsibility to be engaged for the actions or inaction of its Police forces. Whether or not such actions or inaction are factually established is another matter.
(1.) Police conduct during Kyjovan's removal of the goods from the warehouse
The Tribunal first notes the suspicious nature of the circumstances preceding and immediately following the removal of the goods by Kyjovan. The Tribunal notes in particular the following circumstances:
■ On 8 February 2000: Kyjovan applied to the District Court of Hodonin for an order that Sprint a.s. vacate the Kyjov warehouse, alleging that Sprint a.s. had no right to lease the warehouse to Sprint CR and that the roof had been damaged by weather conditions which could pose a threat to safety (see supra, paragraph 256);
■ On 22 February 2000: Kyjovan agreed to lease two warehouses in Kelcany, a mere 2 weeks before it removed Sprint CR's goods from the Kyjov warehouse on 9 March 2000. Kyjovan agreed with the owner of the warehouses that Kyjovan would be entitled to "bring in the goods" during the period of 1 March until 1 April 2000 (see supra, paragraph 257);
■ On 3 March 2000: Kyjovan ordered by phone the delivery of a crane to unload the panels (see supra, paragraph 264);
■ On 5 March 2000: three panels suddenly appeared next to the Kyjov warehouse, while there were no apparent reasons for them to be there (see supra, paragraph 261);
■ Shortly thereafter, although no eye witness seemed to have noticed this, the Kyjov warehouse was damaged as if "hit" by panels (see Mr. Kubik's testimony, described supra paragraph 262); in the arbitration, the Respondent took the view, based on a July 2000 Police report, that the damage was caused by "preparatory works for the construction of a parking lot on the premises of Kyjovan" (see supra, paragraph 263);
■ On 6 March 2000: Kyjovan asked Mr. Belik, an engineer, to inspect the Kyjov warehouse; following his inspection, Mr. Belik recommended the removal of the goods from the damaged sections and the clearance of the building; Mr. Jelinek, a technician employed by Kyjovan, assured Mr. Busta that the repairs would commence the following week (see supra, paragraphs 267 to 271);
■ On 7 March 2000: Kyjovan sent to the Building Authority a report on the damage (see supra, paragraph 272);
■ On 8 March 2000: the Building Authority conducted an inspection of the Kyjov warehouse and issued a call to repair to Kyjovan (which the Claimants say did not include an instruction to clear the warehouse); the same day, Kyjovan's Board resolved to empty the Kyjov warehouse (see supra, paragraphs 273 to 277);
■ On 8 March 2000: Kyjovan entered into the formal lease agreement for the warehouses in Kelcany, one day before it removed Sprint CR's goods on 9 March 2000 (see supra, paragraph 257);
■ On the evening of 8 March 2000: Kyjovan started removing the goods;373
■ On 9 March 2000: Kyjovan issued a "notice of emergency condition" and continued the removal of goods from the warehouse early in the morning, with the assistance of private security personnel and without Sprint CR having been notified (though the "notice of emergency condition" recorded that Kyjovan sought to contact Mr. Busta the prior day) (see supra, paragraphs 276 to 277);
■ On 13 March 2000: Kyjovan agreed with the Kelcany lessor that only four persons would have access to the warehouse, and withdrew its court application for Sprint a.s. to vacate the Kyjov warehouse (see supra, paragraph 266).
Given that the Claimants take issue with the circumstances in which the Police witnessed and then decided not to intervene in the removal of the goods from the Kyjov warehouse, the Tribunal has carefully considered those circumstances:
■ The removal of the goods was reported to the Police on the morning of 9 March 2000 by either or both of Ms. Kunzova, the company's accountant, and Mr. Busta. Ms. Kunzova testified that she called the Police, told them that she believed theft was taking place and asked them to come to the premises.374
■ Ms. Kunzova testified that the two Police officers sent to the premises sat in their car and watched the removal of the goods.375 Ms. Kunzova testified that she spoke to them and explained that she believed Sprint CR's goods were being stolen and that the Sprint CR employees also had personal belongings in the warehouse.376 According to Ms. Kunzova, the officers responded that the matter would have to be investigated.377
■ The Police officer in charge, Mr. Prochazka, sent two Police officers to the warehouse to investigate. In a statement given in October 2000, Mr. Prochazka said that the two officers returned approximately one hour later and reported that Kyjovan had been moving items from the warehouse since the previous day and that it had authorisation for this from the Kyjov Building Authority as the building was damaged.378 Mr. Prochazka stated that he sent the officers back to Kyjovan for a copy of the documents authorising the removal of the goods, which they did (see supra paragraph 290).
■ The Police were given a copy of the Kyjov Building Authority’s call to repair the warehouse, addressed to Kyjovan.379 This called on Kyjovan, as the registered owner of the property, to "remove the damage" to the warehouse. It stated specifically: "On 8 March 2000, the Building Authority carried out an on-site inspection and subsequently called on the building owner to organise repairs, with the participation of the authorised engineer, as stated in the proposal for measures." The "proposal for measures" referred to in the call to repair can reasonably be assumed to be the report prepared by the engineer Mr. Belik on 6 March 2000, which Kyjovan had sent to the Building Authority on 7 March 2000, and which contained a sub-heading "Measures proposed".380 The Tribunal has been unable to determine whether the Police were also given a copy of Mr. Belik’s 6 March 2000 report.
■ The Police were given, by Mr. Busta when he arrived at the premises, a copy of the 15 February 2000 court judgment as proof that he was authorised to use the warehouse and offices.381 This stated: "there is no dispute between the parties that the Plaintiff [Sprint a.s.] uses the hall in the premises of the Defendant [Kyjovan] and that he rented this hall to the company Sprint CR spol. s.r.o.". The Police were thus aware that Mr. Busta considered Kyjovan’s removal of the goods to be unauthorised, and were also aware that Kyjovan and Sprint CR had a history of disputes (see supra paragraph 294).
■ Mr. Prochazka stated in his October 2000 statement that he called Mr. Pucek, the Chairman of Kyjovan, and requested him to stop moving the goods until the Police had verified that Kyjovan’s actions were authorised.382 It is not clear whether this took place before or after the Police received the copy of the Kyjov Building Authority’s call to repair. Nor is it clear what Mr. Pucek’s response was.
■ According to Mr. Prochazka’s October 2000 statement, the "decisive factor" in the Police’s decision not to intervene was "the decision by the Building Authority".383
■ Mr. Prochazka further stated that a "Warrant Officer" came from Hodonin "to investigate the whole matter" and that the Police then "invited Mr Busta and Mr Pucek to sign the official reports in accordance with Section 158/3 of the Criminal Code and began to investigate the matter."384 No further evidence of such "official reports" has been submitted by the Parties, however.
In view of these circumstances, the Tribunal will consider: (i) first, whether, as the Claimants contend, the Police decision not to intervene in Kyjovan's removal of the goods was a breach of Section 158(1) of the Czech Criminal Procedure Code; and, (ii) second, whether, as the Respondent contends, the removal of the goods was justified due to a "state of necessity" having arisen under Section 14 of the Czech Criminal Code.
The text of Section 158(1) has not been submitted as an exhibit by either Party, although it was summarised by the Claimants' legal expert, Dr. Nett, in his report. The Tribunal has relied on the following English translation of Section 158(1):385
"The Police authority is obliged, based on their own findings, criminal reports, and incentives from other persons and authorities, which may lead to conclusions on a suspicion that a criminal offence has been committed, to make all necessary investigations and take measures to reveal the facts indicating that a criminal offence has been committed and aimed towards identifying the offender; they are obligated to take the necessary measures for prevention of criminal activity. The appointed authorities of the Prison Service of the Czech Republic shall inform the General Inspection of Security Forces without undue delay after they initiate such investigation."
This is consistent with the summary given by Dr. Nett:386
"Pursuant to § 158(1) of the Rules of Criminal Procedure the police authority shall undertake - following from its own findings, information of the crime and instigations by other persons and bodies, on the basis of which suspicion of committing a crime can be concluded - all necessary investigations and measures to reveal the facts indicating that a crime has been committed and to identify the offender, and shall also take the necessary measures to prevent the criminal activity."
The first question is whether Section 158(1) is engaged only when the Police in fact suspect that a crime has taken place, or whether it is also engaged when the Police are in possession of information which is capable of giving rise to suspicion of a crime, whether or not the Police in fact hold that suspicion. In the Tribunal's view, the latter is indicated by both the wording of Section 158(1) itself - "based on their own findings, criminal reports, and incentives from other persons and authorities, which may lead to conclusions on a suspicion that a criminal offence has been committed" - and the summary given by Dr. Nett - "following from its own findings, information of the crime and instigations by other persons and bodies, on the basis of which suspicion of committing a crime can be concluded".387 In other words, the enquiry is whether a crime could have been suspected on the basis of the information available to the Police, at the time the events occurred as well as later.
The second question is whether the obligations described in Section 158(1) - "to make all necessary investigations and take measures to reveal the facts indicating that a criminal offence has been committed and aimed towards identifying the offender" and to "take the necessary measures for prevention of criminal activity" - only applies ex post facto, i.e. upon receipt of a criminal complaint regarding past events, or whether it also requires the Police to halt conduct that is alleged to be criminal. Dr. Nett has not specifically opined on this. His view was generally that the Police did not take the "necessary measures for prevention criminal activity" on 9 March 2000.388 At the Hearing, Dr. Nett explained that:389
"In this particular instance, the police should have taken measures aimed at preserving the status quo, which means that they should document the condition at the time of their arrival, and document this by drawing up a written protocol. The Criminal Procedure Code valid at the time provided also for the possibility to invite a consultant, which could be helpful in assessing the damage to the building. In this case under review, the police did not avail themselves of this opportunity to invite a consultant. Likewise, they did nothing to properly document the condition at the time of the incident."
First, it is common ground between the Parties that the Police had the following information on 9 March 2000:
■ The Building Authority’s call to repair the warehouse, issued to Kyjovan as the registered owner of the property. This noted that the Building Authority had requested Kyjovan to "organise repairs, with the participation of the authorised engineer, as stated in the proposal for measures."
■ The statements of Mr. Busta and Ms. Kunzova that they believed theft of Sprint CR’s goods was occurring,
■ Knowledge that Sprint CR had not consented to the removal of the goods,
■ A 15 February 2000 court judgment stating that "there is no dispute between the parties that the Plaintiff [Sprint a.s.] uses the hall in the premises of the Defendant [Kyjovan] and that he rented this hall to the company Sprint CR spol. s.r.o.",
■ Knowledge of the history of disputes between Kyjovan and Sprint CR.
In relation to the Building Authority's call to repair, the Tribunal notes the Building Authority's clarification issued to Sprint a.s. on 9 October 2000 that "the Building Authority never issued direction for the removal of your company from the building, issued was only a request for repair of the damaged place."390
Second, the Tribunal notes the following circumstances, which occurred after 9 March 2000 but which are relevant in considering the Police's conduct in relation to the events of 9 March 2000:
■ According to Mr. Prochazka's October 2000 statement, following the removal of the goods, the Police "invited Mr Busta and Mr Pucek to sign the official reports in accordance with Section 158/3 of the Criminal Code and began to investigate the matter." Section 158(3) provides "the Police authority shall draw up a record about initiation of acts of criminal proceedings for clarification and verification of the facts reasonably implying that a criminal offence has been committed, which shall state the matters of facts, for which the proceedings is being initiated, and the manner of their discovery."391
■ The Police subsequently contacted Kyjovan, determined that the goods were located in two warehouses in Kelcany and took custody of them from Kyjovan (see supra paragraphs 302 and 303). In the circumstances, it cannot be said that the Police were inactive following the removal of the goods.
■ The Police also commenced an investigation into whether Kyjovan had committed a crime in the removal of the goods, after Mr. Busta initiated a criminal complaint against Kyjovan on 9 March 2000. This investigation was closed on 28 July 2000 when it was concluded that there was no basis at that time on which to suspect that Kyjovan had committed a criminal offence.392 This was based on the finding that Kyjovan sought neither to appropriate the goods nor to use them.
■ On 20 March 2000, Mr. Busta made a criminal complaint against the Police in relation to their failure to intervene to prevent Kyjovan's removal of goods on 9 March 2000.393 This was dismissed by the Brno Investigating Authority on 21 November 2000.394 The Authority concluded that "there is no suspicion that the criminal act has taken place" and therefore "there is no reason to deal otherwise with this case."395 The Authority noted that during its investigation "a number of actions were taken to clarify the matter, the victim, the suspected culprits and other witnesses were questioned, an expert report was requested, documentation and written evidence was procured, the police and investigative files were applied for and verified."396 The Authority's report further stated that the statements it obtained, including from the Building Authority's Jiri Susak, "are identical in that they confirm that the clearance of the building as a result of damage caused by an accident was authorised."397
■ The Investigating Authority's decision to set aside the complaint was upheld by the District Prosecutor's Office in Hodonin on 23 March 2001.398 This decision again referred to Major Prochazka's statements, "who points at the fact that it is generally known that Sprint CR s.r.o. and VDI Kyjovan Kyjov have been in dispute for many years and, given the seriousness of the situation, he concluded that any decision could only be take