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Lawyers and other representatives

Partial Award on Jurisdiction




Mytilineos Holdings SA
5-7 Patroklou Street
15125 Marousi

hereinafter referred to as "Claimant" or "Mytilineos".

Mytilineos has its place of business at the above-mentioned address in Marousi, Greece, and is represented in this arbitration by its duly authorized attorneys, Mr. Nicholas Moussas and Mr. Efstratios Voulgaridis of Moussas & Tsibris, 34 Asklipiou Street, Athens 10680, Greece.


State Union of Serbia & Montenegro
Bulevar Mihajla Pupina
11070 New Belgrade
Serbia and Montenegro

First Respondent


Republic of Serbia
Nemanjina 11
11000 Belgrade
Serbia and Montenegro

Second Respondent

hereinafter referred to as "Respondents" or "Serbia and Montenegro" and "Serbia" and, with Claimant, the "Parties".

Respondents are represented in this arbitration by its duly authorized attorneys Mr. Radomir Milošević of Law Office Milošević, 9 Molerova Street, 11000 Belgrade, Serbia and Montenegro, and Dr. Miroslav Paunović of Law Office Paunović, 30 Knez Mihailova Street, 11000 Belgrade, Serbia and Montenegro.


These Proceedings concern a dispute that has arisen between Claimant and Respondents relating to the rights and obligations of Claimant concerning a series of seven contracts dated 19 February 1998 entered into between Claimant and RTB-BOR, a company organized under the laws of the then Federal Republic of Yugoslavia (together, the "Agreements"; a list of the Agreements is set out in Annex 1).
Claimant is a company incorporated under the laws of the Hellenic Republic and is engaged in the metallurgy, energy and defense sectors, including metals trading. The Agreements provided inter alia for general cooperation in the mineral extraction and metallurgy business operated by RTB-BOR, the provision of capital for updating of RTB-BOR industrial infrastructure, the supply of spare parts and for the sale and purchase of copper, zinc and copper concentrates.
On 27 January 2004, Claimant sent notice to Respondents pursuant to Article 9 of the 1997 Agreement between the Government of the Hellenic Republic and the Federal Government of the Federal Republic of Yugoslavia on the Reciprocal Promotion and Protection of Investments (hereinafter referred to as the "BIT" or "Treaty"; the text of the BIT is set out in Annex 2). On 8 April 2005, Claimant served Respondents with a Statement of Claim dated 30 March 2005 setting out its claims and submitting the dispute to ad hoc arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (the "UNCITRAL Rules") pursuant to Article 9(3)(b) of the BIT (the "Statement of Claim").
In its Statement of Claim, Claimant requests an award in the sum of US$ 31,327,530.38 together with costs and interest. Claimant alleges Respondents breached certain provisions of the Treaty by its interference with, or failure to protect Claimant's commercial interests with RTB-BOR under the Agreements and in respect of certain bank guarantees issued as security for the performance of RTB-BOR's obligations under those Agreements.
On 8 April 2005, Claimant appointed Professor Dr. Stelios Koussoulis as its arbitrator under Article 7(1) of the UNCITRAL Rules. Professor Dr. Christoph Schreuer was designated as an appointing authority by the Secretary-General of the Permanent Court of Arbitration (the "PCA") under Article 7(2)(b) of the UNCITRAL Rules on 30 June 2005.
On 1 August 2005, Professor Dr. Schreuer appointed Professor Dr. Dobrosav Mitrovic as second arbitrator on behalf of Respondents under Article 7(2)(b) of the UNCITRAL Rules.
In accordance with the list-procedure provided for in Articles 7(3) and 6(3) of the UNCITRAL Rules, during the process of which both parties expressed their preference for the same candidate, the appointing authority appointed Professor Dr. August Reinisch as presiding arbitrator on 20 September 2005 (together with Professors Koussoulis and Mitrovic, the "Tribunal").
Following consultation with the Parties, the Parties and the Tribunal signed Terms of Appointment on 8 November 2005.
On 30 November 2005, the Parties and the Tribunal attended a preliminary meeting convened in Zurich (the "Preliminary Meeting") in order to establish certain procedural and practical matters regarding the conduct of the arbitration. Respondents indicated at the Preliminary Meeting that they would contest the Tribunal's jurisdiction.
Following consultations with the Parties by written correspondence and at the Preliminary Meeting, the Tribunal issued Procedural Order No. 1 on 2 December 2005 ("PO 1") setting out a procedural calendar and certain practical matters concerning the conduct of the arbitration. The procedural calendar set out in Section 2 of PO 1 provided for a preliminary phase in which the Tribunal would make a determination in respect of its own jurisdiction. In addition, the Tribunal appointed as Secretary Mr. Guillaume Tattevin, of the International Bureau of the PCA, who was assisted during parts of the jurisdictional phase by Mr. Henry Warwick, also of the International Bureau of the PCA.
On 21 December 2005, the Tribunal issued Procedural Order No. 2 ("PO 2") which provided for the payment of a deposit sum by the Parties pursuant to Article 41(4) of the UNCITRAL Rules. The Tribunal circulated a report of the Preliminary Meeting in agreed form by letter of the same date.
On 20 January 2006, Respondents filed a Plea Contesting Jurisdiction of the Tribunal pursuant to paragraph 2.2(a) of PO 1 (hereinafter referred to as "R-I (PCJ)"). Following consultation with the Parties, the Tribunal issued Procedural Order No. 3 ("PO 3") on 9 February 2006, amending the procedural calendar for submissions on jurisdiction.
On 17 February 2006, Claimant filed Claimant's Answer to Plea Contesting Jurisdiction of the Arbitral Tribunal (hereinafter referred to as "C-APCJ"). Respondents filed their Replica on Jurisdiction of the Arbitral Tribunal on 7 March 2006 (hereinafter referred to as "R-II (ROJ)") and Claimant its Duplica on Jurisdiction of the Arbitral Tribunal on 22 March 2006 (hereinafter referred to as "C-DOJ"). A further document, entitled Respondents' Further Submission on Jurisdiction of the Arbitral Tribunal, was filed by Respondents on 31 March 2006 and a corrected version of this document was filed on 6 April 2006.
By letter dated 8 March 2006, the PCA informed the Parties of the Tribunal's decision, taken following consultation with the Parties, that a hearing on jurisdiction would take place in Zurich on 8 and 9 May 2006 (the "Hearing"). By letter dated 28 March 2006, and following a request for clarification by Claimant, the Tribunal established the procedural calendar for the Parties' submissions and certain practical matters concerning the Hearing.
An additional folder of supporting documents was filed by Claimant on 31 March 2006. On 6 April 2006, Claimant filed the Consolidated Bundle of Claimant's Documentary Evidence and Claimant's list of Witnesses, comprising Dr. Radoje Prica (expert) and Mr. Seraphim Abatzioglou (witness of fact). A Consolidated Bundle in Joint Chronological Order was filed by Respondents on 7 April 2006.
On 28 April 2006, the Tribunal convened a Pre-Hearing telephone conference, with representatives of both Parties, in accordance with paragraph 2.3(c) of PO 1 and 3(c) of the Tribunal's letter concerning procedural matters dated 28 March 2006. Minutes of the teleconference were circulated on 2 May 2006 outlining agreed practical matters concerning the conduct of the Hearing.
The Hearing took place before the Tribunal in Zurich on 8 and 9 May 2006 and was attended by representatives for both Parties and all witnesses called by the Parties. Both of Claimant's witnesses were questioned on their written evidence by way of direct, cross and re-direct examination and submissions were heard from both Parties concerning the Tribunal's jurisdiction under Article 9 of the Treaty.
Following receipt of submissions from the Parties at the Hearing, the Tribunal issued a Procedural Order No. 4 ("PO 4") on 12 May 2006, concerning the filing of PostHearing Briefs as contemplated under paragraph 8 of PO 1.
Claimant and Respondents simultaneously submitted Post-Hearing Briefs on 7 June 2006 (hereinafter referred to as "R-IV (PHB)" and "C-PHB" respectively).


Since its creation in 1990, Claimant has engaged extensively in the business of metal trading within the Federal Republic of Yugoslavia (Serbia and Montenegro), from 2003 until 2006 officially called the State Union of Serbia and Montenegro.
In February 1998, Claimant and RTB-BOR, a socially-owned company organized and existing under the laws of the Federal Republic of Yugoslavia, concluded the Agreements listed at Annex 1. In general, the Agreements provided for cooperation in the mineral extraction and metallurgy business operated by RTB-BOR. These contracts between private parties all contain choice-of-law clauses providing for English law to govern and most of them include choice-of-forum clauses in favor of English courts.
These Agreements were negotiated and concluded as a package as is confirmed by the "General Cooperation Agreement" (Annex 1.1) of 19 February 1998. They were all concluded for a period of seven years. According to the General Cooperation Agreement, the parties had "agreed to form a strategic alliance" (Article 1) which was intended to lead to an equity participation of Claimant in RTB-BOR in the event RTB-BOR was privatized (Article 3).

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.

As provided by the Agreements, the following bank guarantees were issued:

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.

Performance of the Agreements did not proceed as planned. It is agreed by both Parties that RTB-BOR was not able to fulfill all of its contractual obligations.
As a result, by letters dated 1 October 2001, 11 October 2001 and 1 November 2001, Claimant requested that RTB-BOR extend the First Guarantee. RTB-BOR did not extend the First Guarantee, which lapsed.

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".


Claimant replied on 28 November 2001, stating that it was "ready to continue the cooperation with RTB BOR, but this cooperation must be based on mutual respect and fulfilment of contractual obligations, which are clear and simple".

By letter dated 13 February 2002, Claimant informed RTB-BOR that it considered it in " serious default " of its obligations under the Agreements, as a result of its failure to extend the First Guarantee.
Jugobanka, then renamed Borska Banka a.d., which still held the Second Guarantee, eventually went into bankruptcy.

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".


By letter dated 17 July 2002, Respondents once again informed Claimant they would like to "stress out several points of the general character which may be related to your Company". These points, as in the previous letter, were related to the status and privatization of RTB-BOR.

On 20 January 2004, Claimant brought a request for temporary measures and a motion for preliminary injunction before the Belgrade Commercial Court, requesting the Court to order RTB-BOR not to alienate its shares of the Majdanpek Copper Factory; and the Agency for Privatization of the Republic of Serbia not to hold an auction on 27 January 2004 for the sale of those shares. Claimant also requested that, should this auction be held, the Agency for Privatization of the Republic of Serbia keep on its account the purchase price of RTB-BOR's shares of the Majdanpek Copper Factory.
On 13 February 2004, the Belgrade Commercial Court denied Claimant's requests.

On 2 April 2004, RTB-BOR informed Claimant that "[...] the directors of RTB BOR will decide about continuation of our cooperation and you will be informed as soon as possible".

On 26 October 2004, the Agency for Privatization of the Republic of Serbia announced the initiation of the restructuring and privatization procedure of RTB-BOR, inviting creditors to declare their claims within 30 days.


A. Respondents' Submissions in Support of their Plea Contesting the Tribunal's Jurisdiction

Respondents submit that jurisdiction only extends to breaches of obligations arising under the BIT, and that investment disputes in general, or disputes arising out of commercial activity or business transactions alone cannot amount to breaches of BIT obligations.1 Respondents submit that the claims advanced by Claimant relate to commercial risks assumed under the Agreements, which are not the subject of protections given under the BIT.2
Respondents advance three principal arguments contesting jurisdiction: that Claimant has not established a prima facie case that obligations owed under the BIT were breached, that cooperation between Claimant and RTB-BOR under the Agreements does not constitute an "investment" or "investments" for the purposes of the BIT and that Claimant is required to exhaust contractual remedies under municipal law prior to commencing arbitration under the BIT. Respondents also submit that no claim can be brought against Second Respondent who is not a contracting party to the BIT.

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

Respondents argue that Claimant's allegations that Respondents directed RTB-BOR not to perform the Agreements, failed to exert pressure on RTB-BOR to honor its obligations and deprived Claimant of the First and Second Bank Guarantees are not substantiated by evidence.5 Respondents also argue that the level of connection Claimant asserts existed between Respondents and RTB-BOR cannot be sustained on the facts.6
Respondents also argue that there can be no breach of the BIT by Respondents for the non-performance by RTB-BOR of its contractual obligations.7 Respondents submit that at all relevant times RTB-BOR was a socially-owned enterprise under the Law on Enterprises of the Federal Republic of Yugoslavia8 and as such a commercial enterprise independent of Respondents and that Claimant would have been aware of this fact at the time of the conclusion of the Agreements.9
Respondents argue that acts of company management, such as appointment of the RTB-BOR board of directors by Second Respondent and other measures taken by it, cannot be regarded as sovereign acts and cannot give rise to breaches of BIT obligations accordingly.10
Respondents argue that privatization cannot be characterized as nationalization under Article 4 of the BIT, which Claimant argues Respondents breached by privatizing RTB-BOR, thereby expropriating aspects of Claimant's investment.11 Respondents submit that the key feature of nationalization, the taking of private property by a State, is not present and that Claimant had no ownership in the entity being privatized.
Respondents argue that any claim by Claimant that it suffered loss as a result of privatization is premature as the applicable restructuring procedure remains ongoing and Claimant's claims against RTB-BOR were reported to the Agency for Privatization as part of the process and could be compensated.12 Respondents submit that there was no obligation on First Respondent to secure preferential treatment to Claimant in this process under the BIT.13
Respondents also dispute Claimant's case that Respondents breached the BIT by initiating bankruptcy proceedings in respect of a bank providing a guarantee to Claimant can be sustained.14 They equally dispute Claimant's allegation that measures taken by Respondents in response to RTB-BOR's financial difficulties were taken in breach of the BIT can be sustained.15

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.


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


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

Respondents submit that the Agreements did not comply with a number of formalities found in Article 17 FIL, a requirement for registration in accordance with Article 26 FIL and a special procedure for federal government approval of investment contracts under Article 22 FIL. Respondents also refer to the treatment of contracts not meeting these requirements as null and void under Article 28 FIL.25
Respondents also argue that the Claimant and Respondents never intended transactions taking place under the Agreements to give rise to "investments" benefiting from the protections set out under the BIT.26 Respondents submit that the Agreements cannot be characterized as investment contracts whether taken alone or together27 and question whether Claimant's involvement with RTB-BOR was significant or beneficial for Serbia and Montenegro in any event.28

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

Respondents submit that no investment was made by Claimant under the Agreement for the Modernization of Metallurgical Capacities in RTB-BOR, and Claimant simply agreed to act as a seller, commission agent and creditor under that Agreement.32 Respondents also emphasize that the terms of the Agreement for the Modernization of Metallurgical Capacities in RTB-BOR were never carried out, being " the core arrangement in the complex business operation ".33
Respondents also argue that a loan provided under the Agreements cannot be characterized as an investment, in view of international standards,34 nor can the bank guarantees given to Claimant as security.35 It is also submitted that machinery intended for supply under the Agreements cannot be characterized as an investment as it was not delivered and title was retained.36
Respondents argue that the transactions under the Agreements cannot be characterized as investments under Article 1 of the BIT according to international standards in any event. Respondents argue awards concerning the definition of "investment" for the purposes of Article 25 of the ICSID Convention are not authoritative in the interpretation of the BIT.37 They argue that providing loans or credit is not sufficient to amount to an investment and that to constitute an investment, a participation in the profit and loss of an enterprise, typically by way of equity ownership, should be present.38
Respondents submit that the definition of "investment" in Article 1 of the BIT does not extend to Claimant's claims for money under the Agreements. It is submitted that claims to money can only be investments under Article 1 of the BIT where they are associated with an investment made in accordance with host State legislation.39 Respondents argue that any interpretation of Article 1 that includes all money claims under a contract within its scope would require the host State to guarantee all contractual claims under commercial contracts, which cannot have been the intention of the contracting parties to the BIT.40
Respondents' third principal argument is that Claimant is obliged to exhaust its rights under the Agreements and under municipal law before commencing arbitration under the BIT and that the claim is inadmissible as Claimant has not done so.41 Respondents refer to Claimant's conduct in refraining from calling in the First and Second Bank Guarantees or bringing its claims under the Agreements.42
Respondents submit that Claimant is estopped from bringing proceedings against Respondents while proceedings Claimant and RTB-BOR are party to concerning the insolvency of Borska Banka remain pending. It is submitted that there is a principle of international law requiring claimants to exhaust remedies available locally before referring claims to international tribunals and argued that the availability of recourse to the courts in Serbia and Montenegro render the claim inadmissible accordingly.43
Finally, Respondents submit that Second Respondent is not a proper respondent in these proceedings as it is not a party to the agreement to arbitrate in Article 9 of the BIT.44 Respondents submit that, as a general rule of international law, parties not signing arbitration agreements cannot be party to arbitral proceedings under them.45 Respondents also submit that, notwithstanding Second Respondent's constitutional competences, First Respondent remains the party responsible for implementation of the BIT as it retains competence for ratification and enforcement of international treaties in this field.46
Respondents refer to the availability of arbitration under the ICSID Convention47 as an alternative to ad hoc arbitration under Article 9 of the BIT and submit that Second Respondent, which has not been designated a "constituent subdivision" under Article 25 of the ICSID Convention, cannot be subject to the jurisdiction of this Tribunal as the parties to the Agreement would have intended both ICSID and ad hoc tribunals to have jurisdiction of a similar scope.48 Respondents submit that recourse is available against First Respondent in the courts of either of its federal parts and as such an effective legal remedy is available to Claimant for breaches of obligations owed to it under the BIT.49
The Tribunal is therefore requested by Respondents to decline jurisdiction over the claims advanced by Claimant, in view of the foregoing.

B. Claimant's Submissions

Claimant asserts that the Tribunal has jurisdiction under Article 9(3) of the BIT. Claimant submits that it qualifies as an "investor" under Article 1(3)(b) of the BIT and that its Agreements with RTB-BOR give rise to "investments" under Article 1 of the BIT.50
First, Claimant argues that it has made an investment in the territory of Respondents within the scope of the definition in Article 1 of the BIT. Claimant argues that the term "investment" is given a broad definition in Article 1 of the BIT using wording that is typical of many contemporary bilateral investment treaties.51
Claimant submits that the ordinary meaning of the phrase " every kind of asset " in Article 1(1) of the BIT gives the definition an extensive scope, as does an interpretation of Article 1 in the light of the object and purpose of the BIT, which, Claimant argues, was to secure protection for the widest possible class of business activities.52 Claimant argues that the breadth of the definition is bolstered by the inclusion of an indicative list of items in Article 1(a) - (e) of the BIT.
Claimant submits that Respondents' interpretation of the requirement in Article 1 of the BIT for investments to be made in accordance with host State legislation would operate to exclude investments from protections under the BIT simply on the basis of errors and administrative defects, which would be inconsistent with the object and purpose of the BIT.53
Claimant cites the findings of arbitral tribunals constituted under the ICSID Convention as a source of reference for its view that where such requirements appear in investment treaties they should be interpreted so as to exclude only investments that should not be protected as they would illegal under host State legislation.54 Claimant argues this remains the case in circumstances where host State legislation requires registration and approval of foreign investments.55 Claimant submits that the Agreements were in compliance with host State legislation in any event.56

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

Claimant also argues that a number of other features distinguish the Agreements from general commercial trading agreements, such as a greater level of assumed risk, the duration of the Agreements and significance to Respondents' economy.59
Claimant submits that its involvement with RTB-BOR under the Agreements also constitutes an investment according to international standards. Claimant argues that certain awards rendered under the ICSID Convention and under the North Atlantic Free Trade Agreement, 1992 ("NAFTA"), in which the meaning of "investment" has been considered, offer guidance as to the types of asset considered investments according to international standards.60
Claimant refers to a series of ICSID and NAFTA awards and refers to the following forms of participation that have been found to constitute investments: financial instruments such as promissory notes, service-related investments, contracts for the provision of construction works and trade-related investments.61 Claimant refers in particular to certain criteria cited as features of investments in the award in Salini v. Morocco62 under the ICSID Convention.
Claimant argues that the arrangements made under the Agreements and the features of the economic cooperation between Claimant and RTB-BOR would constitute investments according to international standards,63 and submits that these cases offer guidance. Claimant also submits that claims in respect of those of the Agreements that were not fully realized including claims, in certain circumstances, for project expenses are also recoverable.64
Claimant submits that Respondents have acknowledged Claimant's participation under the Agreements as an investment in any event.65 Claimant reviews correspondence between Respondents and Claimant and argues the position of Respondents in communications assumed, and in some instances expressly acknowledged, Claimant's involvement to be an investment. Claimant also refers to correspondence to argue the existence of close management involvement by Respondents in RTB-BOR.66 Claimant also argues that its involvement with RTB-BOR under the Agreements played a significant economic and political role in Respondents' territory.67
In any event, Claimant submits it is entitled, under Article 3 of the BIT, to treatment that is no less favorable than that afforded to investors from third States by Respondents. Claimant submits that a BIT between The Netherlands and First Respondent contains a more favorable definition of "investment", which is not qualified by a requirement for investments to be made in accordance with host State legislation. Claimant submits that Article 3 of the BIT entitles it to benefit from protections afforded to the broader category of investments applicable in respect of Dutch investors.68

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

Claimant argues that Respondents control RTB-BOR and have admitted this fact in writing,71 that as a socially owned enterprise RTB-BOR is controlled by the State,72 that Respondents fund and ultimately own the assets used by RTB-BOR,73 that the acts of RTB-BOR's management are acts of the Respondents74 and that Respondents were therefore responsible for the intentional non-extension of the First Bank Guarantee and the collapse of Jugobanka Bor, causing forfeiture of the Second Bank Guarantee.75 Claimant also argues that the restructuring and privatization of RTB-BOR amounted to expropriation76 and that these acts and omissions by the Respondents amounted to breaches of obligations owed to Claimant under the BIT.77
Claimant argues that the process of privatization amounted to the taking of property and as such to expropriation under the BIT. Claimant submits that the Agency for Privatization, a State entity, is responsible for the process of privatization in view of its role in the process78 and that the State is in control of the process of privatization and therefore in effect the subject of privatization proceedings.79 Claimant submits that enforcement measures are not effectively available against the subject of a privatization process in Respondents' jurisdiction, leaving limited prospects for debt recovery.80
Claimant also submits that, by initiating bankruptcy proceedings in respect of Jugobanka Bor, Respondents prevented Claimant from realizing its security.81 Claimant submits that these allegations are sufficient grounds on a prima facie basis for the Tribunal to accept jurisdiction over the dispute.82
Thirdly, Claimant argues that it is under no further obligation to exhaust rights and remedies under the Agreements or under host State municipal law prior to bringing its claims under the BIT.83 Claimant asserts that it has met all requirements of Article 9 of the BIT, having served notice under that Article and having subsequently attempted to reach amicable settlement. Claimant argues that Article 9 of the BIT does not provide any other condition for submission of a dispute to arbitration according to its terms.
Claimant argues that, absent an express requirement to do so, local remedies need not be exhausted prior to commencement of investment arbitration. Claimants refer to a number of ICSID awards where this position has been successfully argued.84 In addition, Claimant denies that it is estopped from bringing a claim under the BIT on account of the fact that proceedings remain pending in Serbia against RTB-BOR, as those proceedings, it submits, are in respect of breaches of obligations under the Agreements and not claims for breaches of BIT obligations as advanced in the present proceedings.85 Claimant also argues that Respondents are themselves estopped from raising this ground of objection to the Tribunal's jurisdiction on the basis of representations Claimant alleges demonstrate Respondents' recognition of the availability of recourse under the BIT.86 Claimant also invokes Article 3 of the BIT to avail itself of what it argues is more favorable treatment with respect to any such requirement under the Austria-Serbia and Montenegro bilateral investment treaty, which expressly excludes any requirement to exhaust domestic remedies.87
Finally, Claimant argues that the Tribunal has jurisdiction over claims brought against Second Respondent, which it submits is a proper party to these proceedings by reason of its status as a subdivision of First Respondent who was a signatory to the BIT.88 Claimant submits that Second Respondent has international legal personality for purposes that include, in certain circumstances, the conclusion of international agreements89 and capacity to be party to international proceedings. Claimant submits that at the time of its signature and ratification, the BIT became an integral part of a domestic legal system of both First and Second Respondent; this includes Article 9(3) of the BIT, the agreement to arbitrate disputes arising out of it.90
Claimant submits that Second Respondent is liable for effective implementation of the BIT on its territory and for the financial cost of implementation, that its laws regulate foreign investment on its territory and that it can be liable for breaches of the BIT accordingly.91 Claimant submits there would be no effective means of enforcement against Second Respondent without recourse to arbitration under the BIT in view of the scope of the jurisdiction of the courts of Second Respondent in the constitutional law of Serbia and Montenegro and that Second Respondent cannot be bound by provisions of the BIT selectively and must therefore be bound by Article 9.92
Claimant also argues in its Post-Hearing Brief, dated 7 June 2006, that Second Respondent was then due to become legal successor to First Respondent with full international legal personality following the public referendum under Article 60 of the Constitutional Charter of First Respondent that had then recently taken place.93
Accordingly, Claimant asserts that this Tribunal has jurisdiction over this dispute.


The jurisdiction of the Tribunal is challenged on a number of grounds. A detailed summary of the Parties' submissions as to the jurisdiction of the Tribunal is set out above in Part IV of this award. For the purposes of further consideration the Parties' arguments may be grouped in five major categories.
Firstly, the question arises whether the activities of Claimant do or do not constitute an "investment" under the BIT and therefore fall within or outside the material scope of application of the BIT. It must also be considered whether these activities constitute an "investment" in the usual practice of investment arbitration to be within the Tribunal's jurisdiction.
Secondly, the issue must be addressed whether an activity that may qualify as an investment but which was not approved by the host State's authorities, contrary to its legislation, was covered by the BIT and could give rise to investment arbitration under it.
Thirdly, the ratione personae jurisdiction of the Tribunal has to be verified. The fact that neither of the two Respondents was a party to the agreements entered into by Claimant and RTB-BOR, a private entity existing under the laws of the host State, has be assessed in this context. Equally, the fact that the Second Respondent, Serbia, has never ratified or acceded to the BIT must be analyzed with regard to the question whether it can be made a party to arbitration proceedings provided for under this Treaty.
Fourthly, Respondents' argument that Claimant failed to establish a prima facie case of its allegations must be addressed.
Finally, Respondents' assertion that the claims should be considered inadmissible because local remedies have not been exhausted will be analyzed.
In the following, the Tribunal will address each of these questions concerning its jurisdiction in turn.

A. Are Claimant's business operations protected by the BIT as an "investment"?

The seven agreements concluded with RTB-BOR in 1998 set out the core of Claimant's business activities in Serbia and Montenegro. It is this set of contracts between private parties that Claimant considers to constitute its "investment" for the purposes of the BIT, while Respondents assert that the Contracts are merely commercial contracts between private parties that are not to be regarded as "investments" for the purposes of the BIT.
The Parties exchanged views on the fact that not one of the seven agreements is expressly referred to as "investment" agreement. Respondents argued that this demonstrated prima facie that the contracts were never intended to be considered investments, while Claimant was of the view that the titles of the seven agreements were irrelevant and that in fact some of the agreements did contain express language referring to "investments".
In the view of the Tribunal, the definitions contained in various investment treaties as well as decisions in recent investment arbitrations amply demonstrate that the description of transactions and activities by private parties as investments is an important criterion but not a conclusive one for the purposes of their characterization as "investments" in the sense of the applicable investment treaty.94 The provisions of these treaties, and the BIT in the present case, are decisive for the qualification as an "investment." The express characterization of certain business activities as "investments" by the parties may be an indication of their intentions but cannot absolve the Tribunal from scrutinizing whether such activities are covered by the definition of "investment" under the BIT.

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.

For the purpose of interpreting the BIT, the Tribunal will be guided by the customary rules of treaty interpretation as codified95 in the 1969 Vienna Convention on the Law of Treaties.96 According to Article 31(1) of the Vienna Convention " [a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." Additionally, Article 31(2) thereof provides that, for the purpose of the interpretation of a treaty, the context shall comprise, among others, its preamble and annexes. Thus, a treaty must be interpreted autonomously, i.e. each notion used by the treaty must be given the content that better serves its purposes and implementation.

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

Despite sometimes tautological definitions of "investment" in some BITs (according to which "investment" is defined as "every kind of investment"99), investments are very frequently defined as "assets" for which specific demonstrative examples are usually provided.100 In arbitral practice shares, contracts, concessions, loans, and so on, have been qualified as investments regardless of whether they had been specifically designated as investments.

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


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.

This type of definition clearly distinguishes the present BIT from other more narrow approaches, containing either an "exhaustive list" of covered activities/assets or a list of activities/assets that are not included in the definition of "investment" or even a combination of both. Article 1139 NAFTA104 is an example of such a combined approach. It first lists a number of activities under the heading "investment means" and then states what "investment does not mean", including, claims to money arising from purely commercial sales and services contracts or from short term loan agreements.
In the most recent BITs to which the US is a party, which generally include a "broad asset-based definition of investment," the notion of investment is limited by means of explanatory notes which specify that any covered asset must be accompanied by a certain entrepreneurial commitment of capital, profit seeking and risk assumption in order to qualify as an investment.105 The 2005 US-Uruguay BIT further clarified that the definition of "investment" shall not include claims to payment that are immediately due and result from the sale of goods or services.106

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


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


It results that the definition of "investment" in the Treaty was deliberately very broad so as to cover the widest possible economic activities and to encourage economic cooperation between the two countries, as expressly stated in the BIT's Preamble.

Respondents claim, however, that it would be contrary to the object and purpose of investment law in general and of BITs in particular if investment dispute settlement were to be used to arbitrate purely commercial disputes. They refer to an underlying notion that investment disputes should be settled by investment arbitration which should not be open to disputes that do not concern investments. To support this argument they put forward a number of interrelated considerations, the two most important of which may be summarized as follows:

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."

(a) Are the agreements an "investment" under international law as defined in the jurisprudence of investment tribunals?

(b) Is the broad asset-based definition of investments in the applicable BIT limited by the requirement that these assets must be "invested"?

Thus, Claimant's contractual rights, qualifying as assets, constitute an investment under the BIT.

B. What is the jurisdictional relevance of the requirement that investments must be made "in accordance with the legislation" of the host State?

A similar approval requirement was applicable in the Gruslin case141 where an ICSID tribunal found that it had no jurisdiction over a BIT claim brought by a Belgian national who had indirectly (through a Luxembourg mutual fund) invested in Malaysian securities listed on the Kuala Lumpur Stock Exchange. The denial of jurisdiction resulted from the tribunal's finding that the portfolio investment -covered by the applicable BIT's broad definition of investments including "shares and other types of holdings" - was not approved in accordance with the approval proviso in the applicable Belgo/Luxembourg Economic Union-Malaysia BIT. The BIT qualified its investment definition in the following terms: "provided that such assets when invested: - (i) in Malaysia, are invested in a project classified as ‘approved project' by the appropriate Ministry in Malaysia, in accordance with the legislation and administrative practice, based thereon."142 The Gruslin tribunal rejected Claimant's contention that his securities acquisitions were lawful and in compliance with the law of Malaysia and should thus be regarded as approved activity. Instead, it held that "[w]hat is required is something constituting regulatory approval of a ‘project', as such, and not merely the approval at some time of the general business activities of a corporation."143
Two other ICSID cases, also relied upon in the Parties' pleadings, are more pertinent in the present context because they relate to BIT provisions corresponding to Article 1(1) of the Greece-Serbia and Montenegro BIT. In the jurisdictional decisions of both the Salini v. Morocco and the Tokios Tokelés v . Ukraine cases, ICSID tribunals had to address investment definitions in BITs which covered assets invested " in accordance with the laws and regulations " of the host State.
The purpose of such provisions, as explained by the Tribunal in Salini v. Morocco, is the following:

"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

It has not been argued by Respondents, nor is there any indication that any of the business transactions of Mytilineos, in particular concerning any of the Agreements, contravened the legal rules in force in Serbia and Montenegro or were illegal.
In the present case, even Respondents did not contend that Claimant's activities were illegal. In fact they expressly stated that "Respondents do not contend that the Agreements were not in compliance with the laws either - they only say that the Agreements were not registered as investment agreements, most certainly because the parties did not consider them as framing investments at all, but only as regulating long-term commercial transactions."151
Nevertheless, Respondents argue that "some aspects of the Agreements, and especially of the General Cooperation Agreement (preferential treatment of Mytilineos in eventual privatization of RTB-BOR, debt-to-equity swap), were at the time of conclusion of the Agreements, as of today, directly contrary to Serbian/Yugoslav legislation."152
This view, however, is not supported by Article 3 of the General Cooperation Agreement providing that, in case of Privatization of RTB-BOR Mytilineos (i) will be given priority within the possibilities offered by the Ownership Transformation Act and (ii) shall have the right to convert outstanding claims against BOR to shares according to the Ownership Transformation Act and the program of privatization.
The Tribunal thus concludes, by a majority, that for the purposes of the BIT the investment has been made in accordance with the laws of Serbia and Montenegro and is thus protected under the BIT.

C. Jurisdiction ratione personae

The Tribunal has taken note that in June 2006, well after the filing of Claimant's Statement of Claim in April 2005, Montenegro, a constituent unit of the State Union of Serbia and Montenegro, declared its independence. While the Tribunal has not been requested to rule on any ensuing State succession issues, it takes note that it appears uncontroversial that the Republic of Serbia will continue the legal identity of the State Union of Serbia and Montenegro on the international level.
For purposes of jurisdiction, however, the Tribunal will follow the well-established principle that jurisdiction is to be determined in light of the situation as it exists on the date the judicial proceedings are instituted. This principle has been recently confirmed by the ICJ in the Arrest Warrant case in which the Court held

"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

The principle has also been followed in investment arbitration. A number of tribunals have held that the decisive date for the participation in the Convention of the host State and of the investor's State of nationality was the date of the institution of arbitration proceedings.154
With particular regard to the nationality requirement under Article 25 of the ICSID Convention the Vivendi II tribunal confirmed the rule expressed in the Arrest Warrant case and held that

"[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

The Tribunal finds that the same rule also applies with regard to possible changes in the personality of respondents in investment cases. Though changes in the "identity" of States occur less frequently than changes of the nationality of natural or legal persons, there is no reason why the two should not be treated in the same way.
The Tribunal will therefore determine its jurisdiction ratione personae over the two Respondents on the basis of their existence on the date the arbitration proceedings were instituted on 8 April 2005.

(a) Are Respondents who are not parties to any of the "seven agreements" the proper parties to this arbitration?

While Respondents do not contest that Claimant is a national of a Contracting Party of the BIT, they contest Claimant's assumption that this Tribunal has jurisdiction over the latter's claims. Rather, they consider these claims to be merely contractual disputes between private parties in Serbia and Montenegro. According to their Plea Contesting Jurisdiction, the Tribunal's jurisdiction "is limited only to claims alleging a violation of the Treaty itself, and does not extend to investment disputes in general, or even less to disputes arising out [of] or in connection with any commercial activity or business transaction of persons of one Contracting Party's nationality in the territory of the other Contracting Party."156 According to Respondents, the claims brought before this Tribunal are essentially claims for contractual defaults by RTB-BOR which is an entity distinct from both the First and the Second Respondent.
Claimant, on the other hand, alleges that acts by RTB-BOR may be attributed to Respondents on the basis of their control and funding of the company. Claimant further contends that Respondents' laws leading to the restructuring and privatization of RTB-BOR constituted an indirect expropriation, and that various other acts to its detriment constituted violations of other BIT obligations.157 In Claimant's view "[t]he social program which resulted in the admission of Respondents' strategy not to have RTB BOT [sic] settle its debts to Claimant, the ongoing privatization of RTB BOR along with the machinery owned by Claimant are indicia of ‘property taking'."158
With regard to the expropriation claim concerning the lapse of the bank guarantees, Claimant alleges: "Respondents deprived Claimant of the bank guarantees by causing their lapse. This occurred by (a) the deliberate failure of Respondents, acting through RTB BOR, to extend the term of validity of the first bank guarantees, despite Claimant's repeated requests the bankruptcy, and (b) the bankruptcy of Jugobanka which caused the lapse of the Second Guarantee."159
It is clear that this Tribunal does not have jurisdiction over mere contract claims between Mytilineos and RTB-BOR, such as the latter's default on payment obligations. The jurisdiction of this Tribunal is limited to treaty claims. Mytilineos does, however, allege BIT violations on the part of Respondents.
While acknowledging that RTB-BOR and Respondents are different parties, Claimant asserts that the acts of RTB-BOR may be attributable to Respondents. Claimant argues, inter alia, that RTB-BOR as a socially-owned entity may not be State-owned, but that the State might be the ultimate owner; that there is a de facto influence over or control of RTB-BOR; that Serbia appoints members of the RTB-BOR board of directors, and so on.
While actual attribution to Serbia and Montenegro still has to be proven, it is clear that Serbia and Montenegro, as the treaty partner of Greece, is the correct respondent with regard to alleged BIT violations. The Tribunal thus unanimously finds that it has jurisdiction ratione personae over the First Respondent, Serbia and Montenegro.

(b) Is Second Respondent who is not a party to the BIT a proper party to this arbitration?

According to Respondents' brief, the Second Respondent, Serbia, is not a party to the BIT.160 In their view, any consent to arbitration contained in this treaty does not cover Serbia. The consent only binds the Federal Republic of Yugoslavia (Serbia and Montenegro). Thus, Serbia cannot be a party to the arbitration.
Claimant contends that Serbia, as a constituent subdivision of Serbia and Montenegro, is bound by treaties entered into by the State Union which, according to the federal constitution, even take precedence over the law of Serbia. Because Serbia is bound by the BIT in its entirety, Claimant argues, it is also bound by the arbitration clause of Article 9.161

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.

This finding is confirmed by the practice of international investment arbitration. Claims against sub-State entities or constituent parts of a State party to an investment agreement are only exceptionally permissible. One such possibility is provided for in the ICSID Convention which contemplates claims against "constituent subdivisions or agencies of a Contracting State" under the condition that such entities are "designated to the Centre by that State."162 Such a possibility is not, however, provided for in the applicable BIT. Since the present arbitration is brought under the UNCITRAL Rules and not under the ICSID Convention, the latter's exceptional possibility of instituting proceedings directly against designated constituent subdivisions or agencies is not available.
As a result, the Tribunal unanimously finds that it does not have jurisdiction over claims brought against Serbia.
This finding is without prejudice to the fact that Serbia and Montenegro may be held internationally responsible for acts of its constituent unit Serbia. According to general principles of the law of State responsibility, acts of Serbia may be attributed to Serbia and Montenegro. Article 4(1) of the ILC Articles on State Responsibility163 provides:

"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."

In its commentary to this provision the ILC clarifies that the " principle in article 4 applies equally to organs of the central government and to those of regional or local units."164 According to the ILC this principle of attribution of acts of constituent parts of a State to the State is a principle of customary international law applied in international arbitral practice165 as well as by the ICJ.166
Also investment tribunals have applied this rule. In Metalclad Mexico was held to be internationally responsible for acts of its States.167 Similarly, in Vivendi an ICSID tribunal held:

"[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

Since these rules of attribution can only lead to the international responsibility of the First Respondent, Serbia and Montenegro, they cannot be relied upon in order to establish the Tribunal's jurisdiction over the Second Respondent, Serbia.

D. Does the need for a prima facie case constitute an obstacle to the jurisdiction of the Tribunal?

For jurisdictional purposes in a BIT investment arbitration, treaty claims have to be alleged by the claimant and the allegations, if proven to be true must be capable of constituting violations of the BIT. This jurisdictional requirement can be found in the general jurisprudence of international courts and tribunals. It has particular relevance in the context of investment arbitration where treaty claims have to be separated from contract claims.
Since Respondents argued that Claimant failed to state valid prima facie claims in its Statement of Claim,169 the Tribunal has to address this jurisdictional challenge. Before doing so it will describe the jurisdictional test it will apply in accordance with international practice.
In Amco Asia v. Indonesia an ICSID tribunal held that:

"[...] 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

This so-called prima facie test has been used by various international tribunals including investment tribunals. Recently, it has been forcefully restated in Salini v. Jordan :

"[…] 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


The need for a prima facie case alleging BIT violations has also been reaffirmed in the Plama case in which the tribunal held that for jurisdictional purposes "the claimant must show that the alleged facts on which it relied were capable of falling within the provisions of the treaty."172

Based on this precedent, the United Parcel Service tribunal considered the following two questions crucial for a jurisdictional prima facie test:

"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


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.

Respondents allege that the true nature of the dispute is one about the non-fulfillment of contractual obligations between Claimant and a private party in Serbia and Montenegro.181
Claimant does not appear to dispute that RTB-BOR is an entity under the laws of Serbia and Montenegro and is legally distinct from both Respondents and that its claims against RTB-BOR are contractual ones. However, Claimant has chosen to pursue treaty claims arising under the BIT for which it must show that there was a violation of the BIT attributable to Respondents. For that purpose, it is irrelevant whether there was (also) a breach of contractual obligations owed to Claimant or not.
According to well established rules of State responsibility, acts of private parties may under certain circumstances be attributed to States and may ultimately trigger their international responsibility. Direction and control, as alleged by Claimant, may lead to such attribution and it will be for the merits phase of the arbitration proceedings to decide whether there is sufficient ground to prove this.
Further, if such an attribution can be established, it is not automatically excluded that the behavior complained of may infringe the fair and equitable treatment obligation as well as the other treatment standards under Article 2 of the BIT and the expropriation prohibition under Article 4 of the BIT.
The Tribunal is of the opinion that the dispute does not merely concern the existence of contractual relations between Claimant and RTB-BOR and the determination of the outstanding contractual liability. Such allegation might indeed fail to state a prima facie BIT claim.182 In the present case, however, Claimant has alleged treaty violations which, if ultimately proven correct, may lead to Respondents' international responsibility.
Though the Tribunal notes that Claimant's submissions concerning alleged BIT violations on the part of Respondents are not in all respects clear, it does not believe that it must rule out that the alleged facts, if established, may constitute breaches of the BIT from the outset.183
The Tribunal thus, by majority, holds that Claimant has not failed to state a prima facie case.

E. Is the principle of the exhaustion of local remedies a bar to the jurisdiction of this Tribunal?

As a further jurisdictional objection, Respondents argue that, before referring the case to an international arbitral tribunal, local remedies should be exhausted first. In their plea contesting jurisdiction Respondents invoked the "principle in international law that local remedies should be exhausted first (the "exhaustion of local remedies rule"), before referring the case to international courts or tribunals."184

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


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

The Tribunal considers that the so-called "non-dispensation" rule found in the ELSI case is indeed relevant for purposes of dispute settlement in international economic law in general188 as well as investment law in particular. This relevance manifests itself in the discussion of the rule's meaning and its impact on investment arbitration in a number of awards and decisions.
In the ELSI case, the International Court of Justice stated that it was unable to

"[...] accept that an important principle of customary international law should be held to have been tacitly dispensed with, in the absence of any words making clear an intention to do so."189

At issue in the ELSI case was whether the United States could exercise diplomatic protection by instituting proceedings before the ICJ without the prior exhaustion of local remedies by the company on behalf of which the United States was willing to intervene. The ICJ denied this possibility. In particular, the Court found that the FCN Treaty between Italy and the United States did not dispense with the exhaustion of local remedies requirement. However, the Court found that the local remedies rule had in fact been complied with.190
Although the ICJ's holding expressly relates to the FCN Treaty, ICSID and other investment tribunals have also considered its impact on modern BITs which, in many respects, can be regarded as successor agreements to the older FCN treaties.
It is less clear, however, whether the dispensation with the exhaustion of the local remedies rule can be equally taken for granted outside the context of the ICSID Convention.
Tribunals in BIT arbitrations operating outside the ICSID framework, such as ad hoc tribunals under the UNCITRAL Arbitration Rules, have not yet expressed themselves on this matter as clearly and explicitly as ICSID tribunals. Nevertheless, their views are generally interpreted as permitting direct arbitration without any prior exhaustion of local remedies.195

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.

In the final award the Loewen tribunal did not entertain any jurisdictional challenge to the claim brought against the United States. Rather, it found that there was a substantive obligation incumbent upon claimants to challenge lower court judgments in order to invoke the international responsibility of the forum State for a denial of justice. According to the tribunal "[…] a court decision which can be challenged through the judicial process does not amount to a denial of justice at the international level […]."198
Neither the decision on jurisdiction nor the award explicitly addressed the procedural issue whether a NAFTA claim may be brought without the prior exhaustion of local remedies. The fact that the tribunal addressed it as a substantive rule on the merits indicates, however, that the exhaustion of local remedies was not considered to be a jurisdictional requirement.
Since the Loewen tribunal expressly endorsed the ELSI presumption199 its rulings must have relied, at least implicitly, on a waiver of the exhaustion of local remedies requirement. This could be seen in Article 1121 NAFTA which provides that a claim may only be brought if:

"[...] 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

In the section of its award dealing with jurisdictional issues the Yaung Chi Oo tribunal held:

"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

Thus, in Yaung Chi Oo an investment agreement providing private investors with direct access to arbitration against a host State has been interpreted to tacitly dispense with the requirement to exhaust local remedies.

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.

This consideration is also reflected in the 1989 resolution of the Institut de droit international on "Arbitration Between States, State Enterprises, or State Entities, and Foreign Enterprises". It found that:

"[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

This result is in line with a fundamental difference between the type of treaty at issue in the ELSI case, giving rise to the above-cited presumption in favor of requiring the exhaustion of local remedies, and modern BITs. While treaties of friendship, commerce and navigation provide for inter-State dispute settlement as means of last resort dependant on the espousal of private party claims by the home State, BITs provide for direct access to dispute settlement.
The Tribunal decides unanimously that the BIT does not require previous exhaustion of local remedies. Thus, any alleged non-exhaustion cannot deprive the Tribunal of its jurisdiction over the present dispute.



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.


List of Agreements between the Claimant and RTB-BOR dated 19 February 1998

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

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