Leningrad militia Department, Leningrad, USSR, a legal entity by the soviet law, hereinafter referred to as "Soviet stockholder" on one side and "SGC International inc.", Munich, FRG1, a legal entity by the law of FRG, hereinafter referred to as "Foreign stockholder" on the other side, agreed on the following:
1.1 Soviet stockholder and Foreign stockholder establish a joint-stock company "Kammenij Ostrov" hereinafter referred to as "Company".
1.3 The Company location is 6, Polevaya alley, Leningrad, 197129, USSR.
1.4 The period of functioning of the Company is 25 years from the dale of its legal registration, and it is spontaneously extended for the same period of lime if no objections exist on the part of stockholders.
Article 2. Subject and. goals of the Company.
The subject and goals of the Company are the following:
- development, installation, production and repair service of police equipment;
- transportation services, protection services for foreign and soviet citizens;
- import - export operations, related with production and realization of electronic and other appliances, lighting, consumer goods, alcohol and non-alcohol drinks, vehicles, police equipment —
3.1 The investments of the stockholders constitute the Common stock of the Company.
3.2 The Common stock equals 1,400,000 roubles (one million four hundred thousand roubles).
3.3 The investment of the Soviet stockholder into the Common stock is 50 % - 700,000 roubles (seven hundred thousand roubles).
3.4 The investment of the Foreign stockholder into the Common stock is 50 % - 700,000 roubles (seven hundred thousand roubles).
1. The contribution by the Soviet Shareholder (the Central Interior Directorate of Leningrad Regional and City Executive Committees) to the Charter Fund consists in the building and structures of the residence, the adjoining buildings and garden, and the land site situated at Polevaya alleya 6, Leningrad 197129, USSR. The total value - 700,000 roubles.
2. The contribution by the Foreign Shareholder (SGC International Inc., USA) to the Charter Fund consists in the following:
2.1 Office equipment (a fax machine, a telex, a typewriter, two computers, a laser printer, a colour copying machine, a standard photocopier, a video cassette recorder, a colour TV-set, a telephone system, a washing machine, a drier, a stereo system, a satellite antenna and equipment for receiving TV-programs, office furniture, necessary office supplies and materials - at prices not exceeding the average German ones, as well as three cars. The total value - 325,001) roubles.
2.2 Payment for reconstruction of the building and structures, with necessary materials at prices not exceeding the average German ones, as well as the transportation costs, customs duties and charges for the imported construction materials and equipment, and installation costs according to a cost estimate approved by the Chairman of the Board of Directors. The total value - 295,000 roubles.
2.3 Equipment for a permanent exhibition centre for advertising and selling police equipment, to a total value of 50,000 roubles.
2.4 Foreign currency assets to be entered into the Joint Venture’s account, converted into the USSR roubles at the commercial exchange rate of the USSR Gosbank as of 01.09.91 - 30,000 roubles.
Altogether, the contribution by the Foreign stockholder shall amount to 700,000 roubles.
3. All the expenses incurred by the Foreign Shareholder while assembling his contribution to the Charter Fund shall be confirmed with respective documents issued by the sellers of the assets which are being contributed to the Charter Fund.
4. All the assets contributed by the Foreign Shareholder to the Charter Fund shall be handed over before 01.01.92. The above deadline may be revised by decision of a general meeting of the shareholders.
This property is estimated at 700,000 roubles according to foundation documents of JSC "Kammenij Ostrov". The transfer of the property to the balance of JSC "Kammenij Ostrov" is executed and valid for possession and use according to the foundation documents during the period of JSC activity. If the JSC will cease its activity the above mentioned property should be assigned to the balance of GUVD with all improvements and additions made there. The transfer of the above mentioned property is made as GUVD's contribution to the JV "Kammenij Ostrov" authorised fund.
In order to provide for the reception of foreign delegations coming on invitation from the President of the Russian Federation
1. The following will be transferred to the balance of the Procurement Department of the President of the Russian Federation according to the established order:
- the Residence "K-4" (St. Petersburg, Skvoznoy proyezd, dom 3), that is registered on the balance of the Administrative Department in the City Council of St. Petersburg, together with the adjoined territory which includes house No, 6 on Polavaya alleya,
In order to execute the Directive of the President of the Russian Federation of December 12, 1994, No. 633-rp:
The Head Department of the Internal Affairs in St. Petersburg and Lcningradskaya region will transfer the buildings and constructions with the address: St. Petersburg, Polevaya alleya, d. 6-8 with the adjoined territory to the balance of the Procurement Department of the President of the Russian Federation. The assignment of the buildings stated above will be registered within one week by an act that will be presented for approval to the State Committee for State Property in Russia.
The Contracting Parties,
Desiring to increase economic cooperation between them,
Endeavoring lo create conditions favorable to investments by each party in the territory of the other,
Recognizing that promotion and protection of such investments through this Treaty will stimulate business initiatives in this area,
Have agreed as follows:
1. For the purpose of this Treaty:
(a) the term "investment" means every kind of asset invested by an investor of one Contracting Party in the territory of the other Party in accordance with the latter's legislation, in particular:
- Property and other property rights such as usufructs, liens, and other comparable rights;
- Shares and other forms of participation in business enterprises and organizations;
- Claims lo money invested to create economic value or to any performance having an economic value;
- Copyrights, industrial property rights such as inventor rights, including patents, trademarks, industrial designs, brands, design patents, trade names, as well as technical procedures and know-how;
- Rights to a commercial activity, including rights to exploration, exploitation, extraction or production of natural resources, which are based on a concession granted in accordance with the legislation of the Contracting Party in the territory of which the investments are made, or in accordance with an approval contained in an applicable agreement;
(c)The term "investor’' means a natural person that has the permanent residence, or a legal entity that has its seat hi the respective territories to which this Treaty applies, and that has the right to make investments.
1. Each Contracting Party, in accordance with its legal provisions, shall encourage investments by investors of the other Contracting Party in its territory, admit such investments and, in all cases, accord them fair and equitable treatment.
2. Investments and earnings therefrom shall be accorded the full protection of this Treaty.
1. Investments of investors of either Contracting Party may be subjected to measures of expropriation, including nationalization, or other measures with similar effects in the territory of the other Contracting Party only if such expropriation measures are carried out for a public purpose in accordance with procedures established in accordance with the laws of that Contracting Party, and upon payment of compensation. Such measures may not have a discriminatory effect.
2. Compensation shall be equivalent to the actual value of the expropriated investment immediately before the actual impending expropriation became public knowledge. Compensation shall be paid without unwarranted delay and shall include interest at the rate that is in effect in the territory of the respective Contracting Party, accrued until the date of payment; it shall be effectively realizable and freely transferable.
3. An investor whose investment has been expropriated shall have the right to review, by the courts of the Contracting Party that carried out the expropriation, of all questions pertaining to the expropriation of his investment, including compensation procedures and amounts, in accordance with the laws of the latter.
In addition, he shall have the right to submit disputes concerning procedures and amount of compensation to an International Court of Arbitration as defined in Article 10 of this Treaty.
1. Disputes between the Contracting Parties regarding the interpretation or application of this Treaty should, if possible, be settled through negotiations.
2. If a dispute cannot this be resolved, it shall upon the request of either Contracting Party be submitted to an Arbitral Tribunal for decision.
3. The Arbitral Tribunal shall be constituted for each individual case, with each Contracting Party appointing one member and the two members, by agreement, selecting a chairman who is a national of a third country, and who shall be appointed by the two Contracting Parties. The members of the Arbitral Tribunal shall be appointed within two months and the chairman within three months from the date on which one of the Contracting Parties informed the other of its wish to submit the dispute to an Arbitral Tribunal for decision.
5. The Arbitral Tribunal shall reach its decision by a majority of votes. Such decision shall be binding. Each Contracting Party shall bear the cost incurred by its member as well as the costs of its representation in the proceeding before the Arbitral Tribunal; the cost of the Chairman and the remaining costs shall be borne in equal parts by the Contracting Parties. The Arbitral Tribunal shall determine its own procedure.
1. Disputes concerning an investment between one of the Contracting Parties and an investor of the other Contracting Party should, if possible, be amicably settled between the parties to the dispute.
2. If a dispute concerning the scope and the procedures of compensation pursuant to Article 4 of this Treaty, or the free transfer pursuant to Article 5 of this Treaty has not been settled within six months as from the date it was raised by one of the parties to the dispute, each of such parties shall have the right to submit the dispute to an international arbitral tribunal.
3. The provisions in para. 2 of this Article shall also apply to disputes concerning matters for which the parties to a dispute have agreed lo an arbitral procedure.
4. Unless otherwise agreed by the parties to the dispute, the provisions of Article 9(3) to (5) of this Treaty shall apply mutat is mutandis with the provision that the members of the arbitral tribunal shall be appointed by the parlies in dispute and that, if the time limits referred to in Article 9(3) of this Treaty are not complied with, each of the parlies in dispute may, in the absence of other agreements, invite the Chairman of the International Court of Arbitration at the Chamber of Commerce in Stockholm to make the necessary appointments.
The arbitral award shall be recognized and enforced in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958.
In signing the Treaty concerning the promotion and reciprocal protection of investments between the Federal Republic of Germany and the Union of the Soviet Socialist Republics, the Contracting Parties have agreed on the following provisions, which shall form a part of the Treaty:
3. Re Article 4:
An investor shall also be entitled to compensation if the other Contracting Party interferes with the economic activities óf an enterprise in which he is participating, if his investment is significantly reduced by such interference. In case of dispute regarding such matters between the investor and the other Contracting Party, the provisions of Article 10 shall apply mutatis mutandis.
(Í) to order the Respondent immediately to pay to the Claimant USD 7,649,637.61, an amount equivalent to the value of certain expropriated investments and property in St. Petersburg (inter alia law enforcement equipment, office equipment, vehicles, investments in the Premises and loss of the right to use the Premises), plus interest on such amount, at a rate of 30 per cent per annum, alternatively 12.18 per cent per annum, from November 25, 1996, i.e. two weeks after the Statement of Claim was sent to the Respondent, alternatively from the date of the Arbitral Award, until full payment is made to the Claimant;
(ii) to order the Respondent immediately to pay to the Claimant DEM 494,430, an amount equivalent to the value of certain expropriated property in St. Petersburg (mostly vehicles), plus interest on such amount, at a rate of 30 per cent per annum, alternatively 12.18 per cent per annum, from November 25, 1996, alternatively from the date of the Arbitral Award, until full payment is made to the Claimant; and
(iii) to order the Respondent immediately to pay to the Claimant compensation for 50 per cent of the fees and costs incurred by the Chairman of the Tribunal and 100 per cent of the fees and costs incurred by Professor Zykin, alternatively, to compensate the Claimant for his costs in this arbitration in the amount of SEK 1,570,275 plus interest and, as between the parties, to bear responsibility for payment of the compensation to the arbitrators.
In kind contribution of chattels to KOC’s capital USD 1,714,405.88
Vehicles and certain Law Enforcement Equipment USD 1,003,914.43 / DEM 489,120
Investments in the Premises and loss of the right to use the Premises USD 4,839,317.30 / DEM 5,310
Personal belongings USD 88,000
3.2 Mr. Sedelmayer's investments constitute investments in the meaning of the Treaty
4.6 The Procurement Department, cannot represent the Russian Federation
The Respondent has submitted the following grounds for its position concerning the Tribunal's jurisdiction: (1) Mr. Sedelmayer is not an investor under the Treaty, (2) There have been no investments covered by the Treaty, (3) There has been no expropriation, (4) The Tribunal cannot try this dispute due to lis pendens, (5) The Claimant has not addressed the proper Respondent, and (6) The Claimant has failed to comply with the stipulations in the Treaty concerning pre-arbitration procedure and the setting-up of the Arbitral Tribunal.
2.1.1 Positions taken by the Parties
The Claimant has also referred to (i) a publication called "Die Entwicklung der diplomatischen Protektion für juristische Personen" by Professor Ignaz Scidl-Hohenveldcm of the Institute for Public International Law of the University of Vienna, (ii) an article in Journal du droit International, 1990, 117:3-4, by Professor Brigitte Stem of the University of Paris and (iii) an article in "Selected Problems of Private International Law", Academie de Droit International, Recueil de Cours 1968:3 (pages 316-317) by Professor Hakan Nial, former President of the University of Stockholm. The Claimant has, furthermore, submitted a copy of the Judgement in the Elsi Case.
2.1.4 Evidence submitted by the Respondent
2.2.2 Evidence submitted by the Respondent
2.2.4 The Tribunal's conclusions
2.3.2 Evidence submitted by the Claimant
2.4 Is the Tribunal prevented from trying this dispute because of lis pendens?
It follows from the Treaty (Article 4.3, first subparagraph) that an investor whose investment has been expropriated shall have the rights to review, by the courts of the State that carried out the expropriation, of all questions pertaining to the expropriation of his investment. However, in the second subparagraph of Article 4(3) it is stated that the investor, irrespective of such action, shall have the right to submit disputes concerning procedures and amount of compensation to an International Court of Arbitration.
(1) It is the Russian Federation, acting through its President and through other administrative organs of the Russian Federation, which has caused the damages to the Claimant.
(2) The Russian Federation is responsible for its actions and cannot avoid such responsibility by trying to shroud that main issue behind internal Russian regulations concerning who has - and who has not - the right to represent the Russian Federation in international arbitrations.
(3) The sovereign character of a state does not per se relieve such state from responsibility for actions affecting other states or their nationals.
(4) The fact that the Procurement Department alleges that it does not have the authority to represent the Russian Federation in this arbitration does not mean that the Russian Federation is not the proper party to this dispute. If the Procurement Department does not have such right, then it should hand over the case to the governmental authority authorised under Russian internal rules to represent the Russian Federation.
(5) The Procurement Department is a federal organ of executive power directly subordinated to, and thus also reporting directly to the President of the Russian Federation, Being subordinated to the ultimate representative of the Russian Federation, it does not have the corporate freedom normally attributed to separate legal entities.
(6) The Request for Arbitration and the Statement of Claim have been sent to the Russian Federation, addressed to the Procurement Department. In addressing the correspondence to the Procurement Department, the Claimant was guided by the fact that the Procurement Department had acted as the only federal representative of the Russian Federation in its dealings with the Claimant concerning the expropriation during 1994 and 1995. The Procurement Department has never referred the Claimant to any other governmental agency or organ for discussions concerning the expropriation.
(7) The Procurement Department has in fact acted as the representative of the Russian Federation in this arbitration. The objection that the Department does not have such authority has not been presented to the Claimant and to the Tribunal until more than one year after the arbitration was initiated.
(8) It is a well-established principle of customary public international laws that a country cannot rely on internal rules - for example who has the authority to represent the country in arbitrations - as a defence against liability under international law.
In the Tribunal's opinion, the Treaty must be interpreted so that, if there has been an expropriation in the territory of one of the Contracting Parties giving rise to compensation, such compensation shall be paid by that Party (see for instance Articles 4.3 and 10). That means that, as far as the present dispute is concerned, it is for the Russian Federation to pay compensation to the extent such compensation is justified under the Treaty. That also means that the Russian Federation is the proper Respondent in this arbitration.
(1) The amount claimed exceeds significantly SGC international's contribution to the charter capital of KOC as determined in the Shareholders Agreement. No amendments to this agreement have been made. Moreover, any action to increase the charter capital unilaterally is illegal and, therefore, such investments are not protected by the Treaty. Thus, even if a compensation is justified under the Treaty, this amount can not exceed the charter capital agreed on, íc. RUR 700,000.
(2) The Claimant's business activities ran counter to the Russian Law on Joint Stock Companies of 1995. Instead of seeking profit for KOC, the Claimant only looked after the interests of SGC International.
(3) The Claimant has no evidence that any investments have been properly contributed to the charter capital. If any property was imported above the amount decided in the Shareholders Agreement in order to obtain some customs benefits, this would constitute an infringement of Russian laws.
(4) Pursuant to the Regulations of Joint-Stock Companies, at least 50 per cent of the charter capital must be paid within 30 days after the registration of the company and the remaining part within one year. These regulations have not been met by the Claimant.
(5) The documents - bills, invoices, etc. - that have been provided as evidence can be questioned for several reasons. There are doubts about the authenticity of these documents, it is not clear whether they are related to investments or not, and the documents do not prove that the goods have been delivered or seized. Nor do the documents provide proper justification of the prices of the goods.
(6) All documents have to do with relationships between SGC International and other companies and it is not clear what the documents are made out for.
The Tribunal is of the opinion that, even if valuables were invested into the operations of KOC without formally increasing the amount of the charter capital, this can not be considered as illegal under Russian law. Thus, the additional investments would not, for this reason, fall outside the scope of application of the Treaty.
(1) At the time of the expropriation, SCC Intetrnational maintained six vehicles (4 Ford Explorer and 2 Ford Econoline) at a total value of USD 317,000 in the Russian Federation. The cost for the transport of the vehicles to St. Petersburg was approximately USD 10,340. All these vehicles were expropriated.
(2) In 1995, the Claimant bought six vehicles (all of them of the model Ford Econoline) from the American company Kie Consulting, in the amount of USD 423,990. Two of these vehicles were delivered to St. Petersburg and were confiscated. The remaining four vehicles are in the Claimant's possession but are of no value to him, since they were specially equipped for use in St. Petersburg and had KOC logos printed on the sides.
(3) In September 1995, the Claimant bought two vehicles of the model Ford Victoria from the American company SCC Incorporated, at a total value of USD 119,843.38. These vehicles were confiscated in March 1996.
(4) In 1995, the Claimant bought one Renault truck, re-modeled into a disaster relief vehicle, and two trailers at a total value of DEM 489,120. These vehicles were transported to St. Petersburg and subsequently confiscated in connection with the take-over in January 1996.
(1) According to the Claimant, the vehicles and equipment in question were intended for use in KOC's operations. It may, therefore, be assumed that these deliveries were not directly related to investments. "
(2) The documents that the Claimant rely upon do not serve as proper proof that the goods have been imported to the Russian Federation.
(3) The documents record that the goods could only be delivered on a license issued by the US authorities to Germany, and a transshipment thereof was banned by US laws.
(4) Under Russian legislation, foreign trade deals must be made in writing. Unless this requirement is met, any deal shall be void.
(5) The Claimant has not submitted adequate written proof of the customs laws having been complied with, i.e. that the goods have been lawfully imported to Russia.
(6) As the Claimant himself admits, some vehicles and equipment have not been imported to the Russian Federation at all. They could not, therefore, be confiscated, and there is no ground for compensation under the Treaty. Besides, these goods could not be depreciated completely, as the Claimant contends.
3.2.2 Evidence submitted by the Claimant
(1) An Invoice dated September 20, 1994, and Bills of Lading, dated September 27 and October 14, 1994. According to these documents, two vehicles of the model Ford Explorer were shipped from Baltimore to Bremerhaven and from there to Helsinki. The consignee is SGC International.
(2) Bills of Lading, dated July 24 and September 25, 1994. According to these bills, two vehicles of the model Ford Econoline were shipped from Baltimore to Bremerhaven and one vehicle of the model Ford Explorer was shipped from New York to Bremerhaven. The consignee is SGC International and Mr. Sedelmayer, respectively.
(3) An Invoice from Kie Consulting Network to Mr. Sedelmayer, dated January 9, 1966. In this invoice six cars of the model Ford Econoline are listed. It is stated that two of these cars had been delivered to St. Petersburg. The invoice also states that the total price (including a Procurement Fee of USD 20,190.00) is USD 423,990.00 and that the price was prepaid in 1995.
(4) An Invoice dated November 6, 1995, and a Shipping Advice, dated November 6 and 8, 1995. According to these documents, two of the cars mentioned under 3 were shipped first to Bremerhaven and then to Helsinki. The consignee is Belmonte Ltd.
(5) An Invoice, dated September 23, 1995, from SGC Incorporated to Mr. Sedelmayer. It is stated in the invoice that two vehicles of the model Ford Crown Victoria had been sold and shipped to Helsinki via Bremerhaven. The total price is USD 119,843.38.
(6) An Invoice from Sedelmayer, München, to Mr. Sedelmayer, dated December 8, 1995. It is stated in the invoice that one truck and two trailers had been purchased. The total price, including costs for freight to St. Petersburg, is DEM 489,120.00.
(7) An Invoice from SGC Incorporated to Mr. Sedelmayer, dated December 3, 1996, In the invoice, a number of jackets, shirts, holsters etc, are listed. The total price is USD 132,741.05.
However, in the Tribunal’s mind, it is not necessary to state how many vehicles were used by KOC and how many were sold to customers. In both cases, there are reasons to conclude that the import of vehicles was closely related to KOC's activities.
It remains, furthermore, to discuss whether, to the extent vehicles belonging to KOC were confiscated, this can be regarded as an expropriation under the Treaty. Here again, it should be born in mind that, as far as has been shown by the documents submitted, including the Presidential Directive of December 1994, the purpose behind the measures taken by the Russian authorities was to get hold of the Premises and that nothing indicates that the measures taken aimed at confiscating any movable assets from KOC, at least not primarily. That also goes for vehicles.