State Union of Serbia & Montenegro
Bulevar Mihajla Pupina
11070 New Belgrade
Serbia and Montenegro
Republic of Serbia
Serbia and Montenegro
hereinafter referred to as "Respondents" or "Serbia and Montenegro" and "Serbia" and, with Claimant, the "Parties".
The individual Agreements are as follows:
(i) General Cooperation Agreement : Claimant was to invest in a modern smelter plant which would increase RTB-BOR's efficiency. In addition, the General Cooperation Agreement provided that :
"(a) If RTB BOR is privatised, Mytilinaios [sic] will be given priority, within the possibilities offered by the Ownership Transformation Act.
(b) In case of privatisation Mytilineos shall have the right to convert any outstanding claims against RTB BOR to shares, according to the Ownership Transformation Act and the program of privatisation of RTB BOR."
(ii) Working Capital Agreement : Claimant agreed to make available to RTB-BOR a credit for an amount of US$ 10 million. This credit was to be secured by a bank guarantee.
(iii) Sale of Copper Agreement : RTB-BOR agreed to sell copper to the Claimant.
(iv) Spare Parts Agreement : Claimant agreed to sell spare parts to RTB-BOR. In addition, all amounts due to Claimant would be secured by a bank guarantee.
(v) Sale of Zinc Agreement : Claimant agreed to sell Zinc to RTB-BOR.
(vi) Copper Concentrates Agreement : RTB-BOR was to process Claimant's copper concentrates and deliver the resulting metal to Claimant.
(vii) Agreement for the Modernization of the Metallurgical Capacities in RTB-BOR : Claimant was to assist RTB-BOR in purchasing machinery to be used in Bor, at a total cost of US$ 44 million. This amount was to be secured by bank guarantees. In addition, Claimant was to retain ownership of the equipment until it had been repaid by RTB-BOR.
i. A bank guarantee for an amount of US$ 11 million (the "First Guarantee") was issued in favour of Claimant by Jugobanka. This guarantee pre-existed the Agreements and was initially intended to cover prior relations between Claimant, RTB-BOR and other parties. It was extended for the purpose of the Agreements and was to expire on 30 September 2001.
ii. A bank guarantee for an amount of US$ 4.5 million (the "Second Guarantee") was issued by Jugobanka in favor of Claimant. It was to expire on 31 December 2004.
By letter dated 22 November 2001, RTB-BOR informed Claimant that "at the moment, [RTB-BOR] is not able to return all debts including debt towards Messrs Mytilineos S.A." and suggested that continued cooperation between the Claimant and RTB-BOR would allow RTB-BOR to "pay regular interest rates and in minimum scopes reduce main debt".
By letter dated 28 May 2002, Respondents informed Claimant of "a few key viewpoints which are of the general character but can also be related to your Company". These points were related to the status and privatization of RTB-BOR. Claimant was invited to send a letter of intention to the Agency for Privatization of the Republic of Serbia, if it was interested in the privatization of "a certain RTB Company".
Respondents' first principal argument is that Claimant has not established a prima facie case that there has been a breach of Articles 2 and 4 of the BIT as asserted by Claimant.3 Respondents submit that Claimant must show conduct that is contrary to the relevant BIT standard and that ".... if facts are plainly incapable of supporting a finding of breach of the BIT, part or all of the claim might be struck".4
R-I (PCJ), paras. 21 - 22; R-II (ROJ), paras. 19 - 30; R-IV (PHB), paras. 13 - 14.
Respondents' second principal argument is that Claimant's commercial cooperation with RTB-BOR, formalized in the Agreements, does not constitute an "investment" within the scope of the definition in Article 1 of the BIT16, which extends the protections under the BIT to "every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party, in accordance with the latter's legislation".17 Respondents submit that this is a more restrictive definition than definitions typically found in bilateral investment treaties18 as the action of investing the assets referred to in Article 1 of the BIT must have taken place in order for them to qualify as investments.
R-I (PCJ), paras. 34 - 35.
Excerpt from the full text of Article 1 of the BIT.
R-II (ROJ), para. 4.2; R-IV (PHB), para. 3.
Respondents submit that the requirement for compliance with host State legislation is broader than Claimant's interpretation, which is that the investment need only be not illegal for "in accordance with the latter's legislation" to be satisfied.19 Respondents argue the protections the BIT affords extend only to those investments that have complied with host State legislation applicable to foreign investments, in this case including the requirement for approval of the investment.20 Respondents do not accept that some forms of investment from overseas into domestic enterprises could at that time have fallen outside of the applicable host State legislation.21 Respondents submit that, to fall within the BIT definition in Article 1, Claimant's assets would also need to be considered as investments according to international standards.22
R-IV (PHB), para. 3.
R-I (PCJ), para. 35; R-II (ROJ), paras. 5 - 10.
R-IV (PHB), para. 4.
R-I (PCJ), para. 35.
Respondents argue that Claimant's assets were not invested in accordance with the Yugoslav Law on Foreign Investments 1994 (as amended in 1996) (the "FIL"), which they submit was the applicable domestic statute.23 Respondents submit that the Agreements were in any event "regular commercial/trading contracts" rather than investment contracts, which they argue is apparent from a range of features of the Agreements.24
R-I (PCJ), para. 37; R-II (ROJ), para. 6.3.
These are listed at R-I (PCJ), para. 41 et seq.
Respondents submit the contribution made by Claimant under the General Cooperation Agreement was not considered by the parties to be Claimant's investment and that the Working Capital Agreement can be characterized as a "pure commercial loan/credit agreement" on its terms.29 Respondents submit that the Sale of Copper Agreement and the Sale of Zinc Agreement should be considered as sales contracts, as should the Spare Parts Agreement, which also contains terms relating to trade credit.30 Respondents regard the Copper Concentrates Agreement as a contract for the supply of services, which was also not intended as an investment contract.31
R-I (PCJ), para. 43.
R-I (PCJ), para. 46.
R-I (PCJ), para. 47.
Claimant submits that features of the "strategic alliance" embodied in the Agreements have the nature of investments as the Agreements and associated First and Second Bank Guarantees are contracts with "significant economic value".57 Claimant refers to its claims to money under the Agreements, which it submits fall within the scope of Article 1(1)(c) of the BIT, and its retention of ownership of machinery supplied to RTB-BOR, which it submits constitutes a right in rem over movables under Article 1(1)(a) of the BIT.58
C-APCJ, p. 7.
C-APCJ, p. 7.
Secondly, Claimant argues that the dispute concerns Respondents' own violations of obligations owed to Claimant under the BIT and that it has adequately established a prima facie case as to the breaches alleged.69 Claimant submits that the applicable test for determining whether a prima facie case has been made is "whether the factual allegations of Claimant are capable of constituting violation [sic] of Respondents' obligations under the BIT."70
C-APCJ, pp. 17 - 24.
C-APCJ, p. 17; for further submission on the applicable standard see C-DOJ, pp. 15 - 17.
The Tribunal notes that in the case of direct contractual relations between a private investor and a host State the characterization of a transaction as an "investment" carries particular weight for the purpose of establishing whether an "investment" took place. However, the situation where consent to arbitration is based on a contract is markedly different from treaty-based "arbitration without privity" as in the present situation. In the latter case of treaty arbitration, a host State has no direct control over what kind of disputes may be submitted to arbitration. In treaty-based investment arbitration the consent to jurisdiction, including ratione materiae, can only be found in the applicable treaty.
According to its Preamble, the BIT purports "to intensify th[e] economic cooperation to the mutual benefit of both countries on a long term basis". Both Countries indicated "as their objective to create favourable conditions for investments by investors of either Contracting Party in the territory of the other Contracting Party". It was also expressly recognized that "the promotion and protection of investments, on the basis of this Agreement, will stimulate the initiative in this field and thereby significantly contribute to the development of economic relations between the Contracting Parties".
While examining identical preamble wording in the Philippines-Switzerland BIT, the Tribunal in SGS v. Philippines stated that "[i]t is legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments."97 The Tribunal in Tokios v. Ukraine similarly found the same wording in the Preamble of the Ukraine-Lithuania BIT "as indicative of the treaty's broad scope of investment protection."98
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ARB/02/6, Decision on Jurisdiction, 29 January 2004; 8 ICSID Rep. 518 (2005), para. 116.
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, 20 ICSID Review—Foreign Investment Law Journal 205 (2005), para. 31.
The BIT contains a broad definition of investment. Article 1 of the BIT defines "investment" as "every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party." In its non-exhaustive list of examples, it includes "claims to money or any other claim under contract having an economic value."101
Article 1 (1)(c) BIT.
Such a definition, usually referred to as a "broad asset-based definition of investment,"102 follows a well-established pattern pursued by many other BITs.103 It combines a broad definition ("every kind of asset") with an illustrative list of assets categories that fall within the definition of investment.
UNCTAD Series on issues in international investment agreements, Scope and Definition (1999), p. 18. See also Noah Rubins, The Notion of "Investment" in International Investment Arbitration, in Horn (ed.), Arbitrating Foreign Investment Disputes (2004), p. 283, at p. 291.
Cf. UNCTAD, International Investment Agreements: Key Issues, vol. I, p. 119 (2004); Dolzer/Stevens, Bilateral Investment Treaties (1995), p. 229.
The fact that some investment treaties narrow the notion of what constitutes an investment reinforces the impression that a broad investment definition such as the one contained in Article 1 of the Greece-Serbia and Montenegro BIT may cover assets and activities that go beyond what is traditionally included in the notion of foreign direct and indirect investment. According to a recent UNCTAD study a BIT stating that "investment includes ‘every kind of asset' suggest[s] that the term embraces everything of economic value, virtually without limitation."107
UNCTAD, International Investment Agreements: Key Issues, vol. I (2004), p. 119.
In Bayindir v. Pakistan the tribunal found that a definition of investment corresponding to the one in Article 1(1) of the present BIT "is very broad" and cited a doctrinal thesis according to which "the reference to ‘every kind of asset' is ‘[p]ossibly the broadest' among similar general definitions contained in BIT's."108 Equally, the Tribunal in Fedax v. Venezuela found that the identical definition of investment in the Netherlands-Venezuela BIT "evidences that the Contracting Parties to the Agreement intended a very broad meaning for the term ‘investment'."109 The Tribunal also observed that this broad approach of investment is not at all an exceptional situation; it rather reflects " the standard policy of major economic groupings such as the European Communities."110
Ibid., para. 34.
a) The notion of investment disputes as developed by ICSID tribunals demonstrates that not all disputes are investment disputes.
b) The applicable BIT though including a broad asset-based definition of investments still requires that these assets must be "invested."
Cf. Ceskoslovenska Obchodni Banka, a.s. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, 14 ICSID Review—Foreign Investment Law Journal 251 (1999), para. 68: "A two-fold test must therefore be applied in determining whether this Tribunal has the competence to consider the merits of the claim: whether the dispute arises out of an investment within the meaning of the Convention and, if so, whether the dispute relates to an investment as defined in the Parties' consent to ICSID arbitration, in their reference to the BIT and the pertinent definitions contained in Article 1 of the BIT."
Ibid., paras. 50 ff.
Christoph Schreuer, The ICSID Convention: A Commentary (2001), p. 140; Emmanuel Gaillard, C.I.R.D.I. - Chronique des sentences arbitrales, JDI (1999) pp. 273, at p. 278.
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, April 29, 2004; 20 ICSID Review—Foreign Investment Law Journal 205 (2005), para. 75.
Article I(4)(iii) Treaty Between the United States and the Kingdom of Morocco Concerning the Encouragement and Reciprocal Protection of Investments, 22 July 1985, available at http://www.unctad.org/sections/dite/iia/docs/bits/us_marocco.pdf.
"This provision refers to the validity of the investment and not to its definition. More specifically it seeks to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal."144
The Salini tribunal thus rejected the argument of Morocco that the reference in the BIT to national law and regulations implied that its law should define the notion of investment, and that under Moroccan law the transaction in question was to be considered a contract for services and not an investment protected under the BIT. The tribunal, however, found that the service contract for the construction of a highway constituted a "contractual benefit having an economic value" as well as a "right of an economic nature conferred [...] by contract" which did not infringe the laws and regulations of the host State.145 Thus, the tribunal found that the contract in question was an investment within the meaning of the applicable BIT.
This interpretation was also followed in the Tokios Tokelés case.146 In that case the applicable BIT contained an investment definition that was almost identical to the one in the present case.147 The tribunal found that the BIT requirement "that investments be made in compliance with the laws and regulations of the host State is a common requirement in modern BITs."148 It further explicitly endorsed the Salini tribunal's interpretation that the purpose of such provisions was "to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal."149
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, 20 ICSID Review—Foreign Investment Law Journal 205 (2005).
Tokios Tokelés v. Ukraine, para. 74: "Article 1(1) of the BIT defines "investment" as "every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter.."
Tokios Tokelés v. Ukraine, para. 84.
Ibid., para. 86: "Even if we were able to confirm the Respondent's allegations, which would require a searching examination of minute details of administrative procedures in Ukrainian law, to exclude an investment on the basis of such minor errors would be inconsistent with the object and purpose of the Treaty."
"The Court recalls that, according to its settled jurisprudence, its jurisdiction must be determined at the time that the act instituting proceedings was filed. Thus, if the Court has jurisdiction on the date the case is referred to it, it continues to do so regardless of subsequent events. Such events might lead to a finding that an application has subsequently become moot and to a decision not to proceed to judgment on the merits, but they cannot deprive the Court of jurisdiction."153
"[t]he consequence of this rule is that, once established, jurisdiction cannot be defeated. It simply is not affected by subsequent events. Events occurring after the institution of proceedings (other than, in a case like this, an ad hoc Committee's Decision to annul the prior jurisdictional finding) cannot withdraw the Tribunal's jurisdiction over the dispute."155
In the Tribunal's view the jurisdictional provisions are fairly clear with regard to the issue of who may be a party to arbitration. While Article 8 of the BIT provides for inter-State arbitration in cases of "disputes between the Contracting Parties", Article 9 provides for, as indicated in its title, "Settlement of Disputes between an investor and a Contracting Party." Possible parties to such mixed arbitration are, on the one hand, investors of one Contracting Party and, on the other hand, "the other Contracting Party." The "Contracting Parties" of the BIT are the Hellenic Republic and the Federal Republic of Yugoslavia as is evidenced by the agreement's title and also by the signatures of the two government officials who clearly signed "for the Government of the Hellenic Republic" and "for the Governement [sic] of the Federal Republic of Yugoslavia." Since by the treaty's plain wording Serbia, as a constituent part of the Federal Republic of Yugoslavia (Serbia and Montenegro), is not a Contracting Party, it cannot be made the subject of arbitration proceedings under the BIT.
"The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central government or of a territorial unit of the State."
"[u]nder international law, and for purposes of jurisdiction of this Tribunal, it is well established that actions of a political subdivision of federal state, such as the Province of Tucumán in the federal state of the Argentine Republic, are attributable to the central government."168
"[...] it must look firstly and only at the claim itself as presented to ICSID and the Tribunal in the Claimants' Request for Arbitration. [...] the Tribunal must not attempt at this stage to examine the claim itself in any detail, but the Tribunal must only be satisfied that prima facie the claim, as stated by the Claimants when initiating this arbitration, is within the jurisdictional mandate of ICSID arbitration, and consequently of this Tribunal."170
"[…] in considering issues of jurisdiction, courts and tribunals do not go into the merits of the case without sufficient prior debate. In conformity with this jurisprudence, the Tribunal will accordingly seek to determine whether the facts alleged by the Claimant in this case, if established, are capable of coming within those provisions of the BIT which have been invoked."171
"Do the facts alleged by [Claimant] fall within those provisions [conferring jurisdiction]; are the facts capable, once proved, of constituting breaches of the obligations they state?"175
In the recent Bayindir decision on jurisdiction, the test set forth in Salini and Impregilo was followed and the tribunal considered that it "should be satisfied that, if the facts or the contentions alleged by Bayindir are ultimately proven true, they would be capable of constituting a violation of the BIT."176
On this basis, the Tribunal will not ascertain whether the facts alleged by Claimant are true. This is a task reserved for determination of the merits of the case. Instead, it must satisfy itself that the alleged facts, if true, could constitute violations of the BIT. In other words, the Tribunal "must not make findings on the merits of those claims, which have yet to be argued, but rather must satisfy itself that it has jurisdiction over the dispute, as presented by the Claimant."177
Impregilio S.p.A. v. Islamic Republic of Pakistan, ARB/03/3, Decision on Jurisdiction, April 22, 2005, para. 237.
In its Statement of Claim Claimant alleged violations of Articles 2 ("Promotion and Protection of Investments") and 4 ("Expropriation") of the BIT. According to Claimant "Respondent breached its Treaty obligations by directing RTB BOR not to perform the Agreements with the Claimant."178 Claimant further argues that RTB-BOR should be considered an "instrumentality" or "alter ego" of Respondents, so that its non-performance of contractual obligations should be attributed to Respondents. It is further argued that this behavior constituted a breach of the fair and equitable treatment requirement as well as the full protection and security standard, and amounted to unjustifiable and discriminatory measures prohibited by Article 2(2) of the BIT.
C-Statement of Claim, p. 7.
Respondents refer to the 1989 judgment of the International Court of Justice in the Elettronica Sicula S.p.A case ("ELSI" case)185 which confirmed that the customary international law principle of exhaustion of local remedies could not be considered dispensed with unless such "dispensation" had been made explicitly. According to Respondents this "non-dispensation" rule found in the ELSI case with regard to the Friendship, Commerce and Navigation Treaty between Italy and the United States (the "FCN Treaty") would also apply with regard to the present BIT.186
Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ Report (1989) p.15.
R-II (ROJ), para. 32.1.
Claimant asserts that by international standards as evidenced in recent ICSID cases this "ELSI presumption" has effectively been reversed. According to Claimant, tribunals have held that unless the exhaustion of local remedies was specifically required it was in effect tacitly dispensed with.187
C-APCJ, p. 25.
There was some discussion of the local remedies rule in the NAFTA case of Loewen v. United States.196 In its decision on jurisdiction the tribunal, operating on the basis of the ICSID Additional Facility rather than the ICSID Convention, was faced with the jurisdictional challenge of a non-exhaustion of local remedies. It found that the "procedural" local remedies rule and a substantive rule of finality, according to which a State would not incur responsibility for lower court judgments, were "no different" because both intended to "ensure that the State where the violation occurred should have an opportunity to redress it by its own means, within the framework of its own domestic legal system."197 It decided to refer back to this issue in its decision on the merits.
The Loewen Group, Inc. and Raymond L. Loewen v USA, Case No ARB(AF)/98/3, ICSID Additional Facility Decision on Jurisdiction, 5 January 2001, 7 ICSID Rep . 421 (2005).
"[...] the investor and the enterprise waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred to in Article 1116 […]"200
This reading of NAFTA provisions as dispensing with the local remedies rule is confirmed by another NAFTA award. In Waste Management the tribunal held that "[i]t is true that in a general sense the exhaustion of local remedies is a procedural prerequisite for the bringing of an international claim, one which is dispensed with by NAFTA Chapter 11."201 Referring in particular to Article 1121, the tribunal found that "Chapter 11 of NAFTA does not require that a party should exhaust local remedies before bringing an international claim: rather it requires a waiver of remaining remedies."202
Though it was not explicitly asked to decide on the validity of the local remedies rule in the light of ELSI, the tribunal in Yaung Chi Oo v. Myanmar effectively abandoned the ELSI requirement that a dispensation of the local remedies rule must be express. The applicable investment treaty, the 1987 ASEAN Investment Agreement,203 did not expressly address the requirement of exhausting local remedies. Rather, it provided in its Article X for a choice between various international arbitration proceedings after a six-month waiting period.204
Agreement among the Government of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments (the ASEAN Investment Agreement), Manila, 15 December 1987, available at http://www.aseansec.org/12816.htm.
Article X ASEAN Investment Agreement provides:
"1. Any legal dispute arising directly out of an investment between any Contracting Party and a national or company of any of the other Contracting Parties shall, as far as possible, be settled amicably between the parties to the dispute.
2. If such a dispute cannot thus be settled within six months of its being raised, then either party can elect to submit the dispute for conciliation or arbitration and such election shall be binding on the other party. The dispute may be brought before the International Centre for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL), the Regional Centre for Arbitration at Kuala Lumpur or any other regional centre for arbitration in ASEAN, whichever body the parties to the dispute mutually agree to appoint for the purposes of conducting the arbitration."
"The 1987 [ASEAN] Agreement nowhere provides that a Claimant must exhaust domestic remedies, whether against the host State or any specific entity within the host State, before proceedings are commenced under Article X. Conceivably the existence of a local remedy in Myanmar might be relevant to the question whether there had been a breach of Article IV of the 1987 Agreement. But that is a matter going to the substance of the claim and not the Tribunal's jurisdiction."205
In the CME, Final Award the local remedies rule was also considered inapplicable even though it had not been expressly dispensed with in the applicable BIT. This case is particularly relevant because it was an ad hoc arbitration under the UNCITRAL Rules on the basis of a BIT which was silent on the question of exhaustion of local remedies. Without explicitly addressing the ELSI presumption, the tribunal rejected an "injection" into the applicable BIT of a requirement to exhaust local remedies.206 In effect, the tribunal exercised its jurisdiction without requiring the exhaustion of local remedies.
"[t]he requirement of exhaustion of local remedies as a condition of implementation of an obligation to arbitrate is not admissible unless the arbitration agreement provides otherwise."207
FOR THE FOREGOING REASONS, the Tribunal, after having met for deliberations in Zurich, renders the following decisions:
The Arbitral Tribunal:
(1) DETERMINES, by a majority, that the business activities of Claimant constitute an investment under the BIT;
(2) FURTHER DETERMINES, by a majority, that the broad "investment" definition of Article 1(1) of the BIT referring to "every kind of asset" is not limited by an additional requirement that such assets be "invested";
(3) FURTHER DETERMINES, by a majority, that for the purposes of the BIT Claimant's investment has been made in accordance with the law of Serbia and Montenegro and is thus protected under the BIT;
(4) FURTHER DETERMINES unanimously that it has jurisdiction ratione personae over the First Respondent;
(5) FURTHER DETERMINES unanimously that it does not have jurisdiction ratione personae over claims brought against the Second Respondent;
(6) FURTHER DETERMINES, by a majority, that Claimant has not failed to state a prima facie case;
(7) FURTHER DETERMINES unanimously that the BIT does not require the exhaustion of local remedies before the institution of arbitral proceedings under Article 9 of the BIT. Thus, any alleged non-exhaustion cannot deprive the Tribunal of its jurisdiction over the present dispute;
The Arbitral Tribunal therefore:
(1) Decides that the dispute between Claimant and First Respondent is within its jurisdiction;
(2) Further Decides that any claim for arbitration costs, legal fees and other expenses in connection with the issue of jurisdiction shall be addressed in the Award on the Merits.
1. General Cooperation Agreement
2. Working Capital Agreement
3. Sale of Copper Agreement
4. Spare Parts Agreement
5. Sale of Zinc Agreement
6. Copper Concentrates Agreement
7. Agreement for the Modernisation of the Metallurgical Capacities in RTB-BOR