ICSID Registration: On 20 February 2004, the Secretary-General of ICSID registered the Banks' Request pursuant to Article 36(3) of the ICSID Convention and, on the same date, notified the Parties of such registration.
Tribunal: The Request for Arbitration recorded under Section III, the Parties' written agreement regarding the constitution of the Tribunal, which was subsequently confirmed by the Respondent on 24 February 2004. The Parties agreed that the Tribunal was to consist of three arbitrators: Mr O.L.O. de Witt Wijnen, as the President of the Tribunal appointed by both Parties; Mr V.V. Veeder, Q.C., Co-Arbitrator appointed by the Banks; and Mr L. Yves Fortier, C.C., Q.C., Co-Arbitrator appointed by the Respondent. The Parties were notified on 8 March 2004 by ICSID that the Tribunal was constituted and that the proceedings had begun on that date in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (here called "the ICSID Arbitration Rules"). Pursuant to Regulation 25 of the ICSID Administrative and Financial Regulations, the Parties were also informed that Ms Martina Polasek, Counsel of ICSID, would serve as Secretary of the Tribunal.
Written Procedure: In accordance with the timetable agreed at the first session of the Tribunal, on 15 July 2004 the Banks filed their Memorial. Following the Respondent's indication that it intended to file jurisdictional objections, the Tribunal allowed the Respondent to join such objections to its Counter-Memorial on the merits to be filed by 17 November 2004. The Counter-Memorial, including jurisdictional objections and supporting documents, was filed on 19 November 2004. The Tribunal held a telephone conference with the Parties on 21 December 2004 to discuss the timetable and further procedure. It was agreed that the Respondent's jurisdictional objections would be joined to the merits of the case; that accordingly the Banks would submit their Reply on the merits and jurisdiction by 31 January 2005; and that the Respondent would submit a Rejoinder by 15 April 2005. The Banks filed their Reply on 31 January 2005; and the Respondent filed its Rejoinder on 29 April 2005, after an extension of time granted by the Tribunal.
Oral Procedure: On 10 June 2005, following submissions made by the Parties, the Tribunal issued directions regarding the oral procedure. With the Parties' agreement, the main hearing on jurisdiction and the merits was held in Paris from 16 to 21 October 2005 ("the Hearing"). This Hearing included the oral examination of witnesses and experts.
On 29 August 1991, the Supreme Council of the Respondent declared the property of any companies, associations or organisations in the territory of Estonia operating under the control or subordination of any Soviet administration as property of the Respondent. On 12 September 1991 the Government of the Respondent passed Decree No. 182 on the implementation of the Supreme Council's decision. An attachment to the decree listed the companies which (together with their assets) were declared to be the property of the Respondent. Amongst them was Eesti Kalatoostus.
Following the dissolution of the USSR and the dismemberment of its state planned economy, ESVA's operations faced economic difficulties. In particular, Eesti Kalatoostus was no longer able to provide the raw material, i.e. the fish, needed for ESVA's factory. ESVA asked the Banks for postponement of the payments due to them under the Loan Agreement.
On 18 November 1991, the Board of Eesti Kalatoostus decided to change the latter's name to Eesti Kalatoostus Rendikoondis "Ookean" (the Estonian Industrial Fishing Company "Ookean"). The new name was registered in the companies register by the City Government of Tallinn on 9 April 1992 with the existing registration number 01007501. This entity was referred to in practice as "RE Ookean", "RE" standing for the general Estonian term "state enterprise" (Riiklik Ettevote); and in this Award it is also called "RE Ookean".
In the Payment Agreement, RAS Ookean undertook (inter alia):
(1) To repay to the Banks the outstanding Loan, together with interest pursuant to the Loan, until the date of final payment. In consideration of this undertaking, the Banks' legal proceedings against Ookean in Tallinn and Helsinki and against ESVA in the Supreme Court of Estonia would be terminated;
(2) To sell six of its vessels, in order to raise funds for the settlement of the Loan6;
(3) To provide to the Banks, not later than 30 September 1993, as security for the Loan and for fulfilment of Ookean's obligations under the Payment Agreement first priority mortgages, in form and substance satisfactory to the Banks, on the vessels;
(4) To acquire all official, governmental or company consents or approvals required for the signing of the Payment Agreement and sale of the vessels; and
(5) To sell the vessels and repay the Loan fully as soon as possible and without any undue delay (but in any case by 31 December 1997), in accordance with a time schedule set out in the Payment Agreement.
There were further provisions for default, an escrow arrangement, insurance and transfer of the Banks' rights and obligations in ESVA's bankruptcy estate upon receiving payments in accordance with the Payment Agreement, together with a provision that a representative of Ookean would attend the creditors' meeting of the ESVA bankruptcy estate.
These vessels were named in the Payment Agreement (as later amended).
" Ookean Ltd is a state-owned limited liability company in good standing incorporated under the laws of the Republic of Estonia. It has full power and authority to enter the above agreement and to perform and to implement the same. All corporate acts and governmental approvals for signing and implementing the Agreement will be presented to the government of the Republic of Estonia.
 Ookean Ltd shall have all necessary permissions and approvals from the Estonian authorities, in form and substance satisfactory to the banks, to sell and pledge the vessels, listed in schedule no. 1 of the above agreement, and use all funds from the sale of these vessels for the purpose of repaying the ESVA Loan in accordance with the above agreement.
 The Board of Ookean shall through their capacity and the authority invested in them by the Ministry, exercise their rights and powers in such a manner as to ensure that Ookean Ltd complies with the obligations stipulated in this agreement."
Also in accordance with the Payment Agreement, RAS Ookean presented the Payment Agreement to the Tallinn City Court and requested the termination of the bankruptcy proceedings against it on the basis of the settlement reached with the Banks. The Court granted that request with the Banks' consent; and it confirmed the termination of the bankruptcy proceedings against Ookean on 25 November 1993 on the basis of the Payment Agreement. The legal proceedings in the Helsinki Court were also eventually withdrawn.
1996: The Banks appealed from this decision of the Tallinn City Court; and on 21 February 1996 the District Court revoked the decision of the City Court with regard to the deletion of the mortgages from the Ship Register. The Estonian Supreme Court upheld the District Court's decision on 22 May 1996, in favour of the Banks.
After legal proceedings in South Africa and negotiations held in London between the Banks and the RAS Ookean bankruptcy estate, the vessels named "Moonsund" and "Georg Lurich" were sold by a private sale confirmed by the Court. In response to the bankruptcy estate's demand, the proceeds from these transactions were frozen by a decision of the South African Court. Two other vessels, the "Stralsund" and "Eestirand II" were sold on 10 May 1996 and removed from the Estonian Ship Register on 14 May 1996.
According to the Banks' case, the Banks' investment was the aggregate of (i) the Loan initially extended to ESVA in 1989, (ii) the Guarantee issued by Estrobprom (of which RAS Ookean was the legal successor) which secured the payments under the Loan Agreement, (iii) the Payment Agreement and (iv) the Mortgage Contract, the last two rescheduling and further securing the payments due to the Banks.
After the Respondent's independence in August 1991, ESVA's operations faced difficulties because Eesti Kalatoostus was not able to provide the fish needed for its factory. ESVA asked the Banks for a postponement of its payment due under the Loan Agreement. The Banks then approached the Respondent's Department of State Property, expressing their concern over the situation at ESVA and Eesti Kalatoostus. The Banks indicated that, despite the reorganisation of Eesti Kalatoostus, the Respondent should ensure that the company was allowed to keep sufficient assets to support the Guarantee given to the Banks.
ESVA was declared bankrupt on 18 March 1993 by the Tallinn City Court. The Ministry of Economy appealed against the Court's decision on 29 March 1993 and requested that its enforcement be postponed. The grounds given for the appeal were first that ESVA had enough financial resources to avoid bankruptcy and, secondly, that Ookean had during the bankruptcy proceedings before the Court offered to sell six "Moonsund"-type vessels to cover the debts of ESVA. The Ministry of Economy stated that it had approved this proposal from Ookean.
During these meetings the Banks learned that the assets of Ookean were constantly being transferred out of that company by the Respondent. The Banks sent a letter addressed to the Ministry of Economy and the Ministry of Transportation and Communication stating their concern over the draining of Ookean's assets and urging that the Respondent attend to the interests of the Banks, in accordance with the [REDACTED] Letter.
(1) The Parnu Fish Processing Factory was transferred out of RAS Ookean and later privatised;
(2) The Tallinn Sailors Hospital and Outpatient Department was transferred to the City of Tallinn; and
(3) The Kopli Port was transferred to the Port of Tallinn, a state-owned entity;
(4) The cold storage was also transferred to the Port of Tallinn; and
(5) The fleet of fishing vessels mostly vanished.
To the Banks' surprise, RAS Ookean was then declared bankrupt on 30 October 1995 within a few weeks after the Banks' meeting with Mr [REDACTED] The bankruptcy petition was filed by the Port of Tallinn; and RAS Ookean did not oppose that petition. Mr [REDACTED] was appointed assistant to the trustees of the bankruptcy estate (Mr. [REDACTED])
On 28 August 1996, the Tallinn City Court granted RAS Ookean's claim and declared the Payment Agreement and the Mortgage Contract invalid. The City Court further ordered the Banks to return the sale proceeds of the "Heinaste" in the sum of USD 2.8 million. In addition, the Banks were ordered to pay stamp duty in the amount of EEK 14.5 million (approximately EUR 1 million at that time).
The Tallinn City Court rejected the Banks' appeal with regard to unpaid stamp duty. The Banks appealed against the City Court's decision; but the District Court upheld the City Court's decision. The Estonian Supreme Court ruled that the dispute was in fact "non-valued" but ordered the Banks to pay stamp duty in the amount of 3% of the sale price of the "Heinaste" and returned the matter to the District Court. The District Court then ruled that the Banks were to pay a sum of EEK 994,703.00 (approximately EUR 63,000) as stamp duty. The Banks paid this amount and appealed to the District Court.
According to the Supreme Court's decision of 16 November 2001, the evidence on which the Banks based their arguments regarding legal succession from Estrobprom to Ookean was insufficient to conclude that the rights and obligations of Estrobprom/Eesti Kalatoostus were transferred to Ookean. The Supreme Court also stated, with reference to the District Court's decision, that the agreements between the Banks and RAS Ookean were invalid due to non-compliance with the law, which was the basis for the activities of a state-owned public limited company. RAS Ookean was, according to the Court, not permitted to enter into obligations for a third party's debt; and thus the agreements concluded with the Banks exceeded RAS Ookean's legal capacity. Regardless of the [REDACTED] Letter and the Government Order 204-k, the Supreme Court also concluded that the Government of the Respondent had not granted to RAS Ookean the requisite permission to conclude the disputed transactions. As regards the sale of the "Heinaste", the Supreme Court stated that the Government of the Respondent had indeed given its permission for the sale of RAS Ookean's vessels and for the use of the sale proceeds to pay the debts of RAS Ookean. However, according to the Supreme Court, it had not been ascertained that RAS Ookean was indebted to the Banks nor did the Government of the Respondent give its permission to use the proceeds of the sale to pay the debts to the Banks.
The Banks were accordingly ordered to return to the bankruptcy estate the monies received from the sale of the "Heinaste" in the amount of USD 2.8 million (thereby including the amount which had in fact not been paid to the Banks); to compensate the bankruptcy estate's expenses in the amount of EEK 90,000; and to pay state fees in the sum of EEK 386,603.35. The Banks complied with the Supreme Court's decision (with a statement indicating no waiver of its rights) and made the relevant payments on 20 February 2002.
The Banks submit that all the actions of the Respondent, either directly or through Ookean, led the Banks to postpone the collection of their debt for many years, drove the Banks to several court proceedings in Estonia and finally caused the Banks to lose a major part of their investment by, in reality, nullifying the Guarantee. At the same time the Respondent took the benefit of Ookean's substantial assets as Guarantor.
The changes made to Ookean's assets over the course of time are, however, not relevant to their dispute. What is relevant is that Ookean and its assets were at all times fully owned and controlled by the Respondent and that the Respondent exercised its control over Ookean actively, e.g. by negotiating with the Banks as to the obligations of Ookean under its Guarantee, by transferring Ookean's assets to other state-owned companies while at the same time refraining from repayment to the Banks and by causing Ookean to enter into agreements that were later treated as invalid by the Estonian Courts.
According to the Banks' case, all of the individual acts on the Respondent's side, both with regard to its own conduct and by its control of Ookean, in part and in aggregate whole, constitute breaches of several provisions of each of the two applicable BITs, notably those providing full security and protection and ensuring fair and equitable treatment to the investment, those forbidding nationalisation or expropriation without due compensation and those requiring that commitments made regarding the investment are honoured. In the same manner as the underlying facts constituting the Respondent's liability are intertwined and breach the BITs as a whole, the relevant provisions of the BITs apply to most of the actions and omissions of the Respondent during the disposal of Ookean's assets. This is notably true as regards Articles 3, 4 and 5 of the Estonia-Finland BIT and Articles 2, 4 and 8 of the Estonia-Germany BIT.
(1) In 1989 a modern factory was built using the Banks' monies;
(2) From 1989 onwards, the Banks participated in the project as financiers;
(3) From 1993 onwards, the Banks were majority owners of a major factory (first through the bankruptcy estate, then Paljassare);
(4) The Payment Agreement, the Mortgage Contract and both Guarantees were all integral parts of this overall operation.
This approach fits with the definition of an "investment" in the each of the two applicable BITs:
(1) Estonia-Finland: The definition in the Estonia-Finland BIT (Article 1(a)) provides (inter alia):
"(i) movable and immovable property and any other property rights such as mortgages, liens or pledges;
"(ii) shares, stocks and debentures of companies or interest in the property of such companies;" and
"(iii) title or claim to money or right to any performance having an economic value."
(2) Estonia-Germany: The definition in the Estonia-Germany BIT (Article 1) provides (inter alia):
"a) ownership of movable and immovable assets, and other material property rights such as mortgages and liens" and
"c) claims to money spent to create property holdings, or claims to benefits of economic value"
The annulment of the Payment Agreement and Mortgage Contract and the deletion of the mortgages are incompatible with the requirement of fair and equitable treatment required by the two BITs. This requirement is independent of any possible application of the notion of "denial of justice". The Banks recognize that it was not the Respondent as a party but RAS Ookean that pursued this annulment in Estonian legal proceedings. However, the Banks contend that these acts should be imputed to the Respondent as it controlled the Ookean bankruptcy estate. Before that bankruptcy, the Respondent had control of Ookean itself as well. In that capacity, the Respondent supported Ookean's non-compliance with its obligations under the Estrobprom guarantee.
(1) The major part of their original investment;
(2) The interest attributable to the investment according to the Loan Agreement;
(3) The costs and expenses due to the court proceedings in Estonia, and the additional sum returned to the bankruptcy estate in regard to the "Heinaste"; and
(4) The profit that the invested amount would have generated had it been repaid to the Banks in time.
In their Memorial of 15 July 2004, the Banks requested the Tribunal to decide that:
(A) The Respondent has breached its obligation to accord, to the investment of the Banks, treatment in accordance with the BITs and international law, including fair and equitable treatment, full protection and security and compliance with commitments made;
(B) The Respondent has directly or indirectly taken measures tantamount to expropriation or nationalisation of the Banks' investment;
(C) The Respondent's expropriation or nationalisation of the Banks' investment has been done without due compensation;
(D) Breaches of the Respondent's obligations, separately or in aggregation, have caused the Banks damage;
(E) The Respondent shall pay to the Banks:
(E1) Monetary damages in the amount of USD 7,159,186.45 and EUR 18,446,031.26 consisting of:
- the unpaid principal, interest and default interest as at 16 December 1992, according to the Loan Agreement, with the German marks converted to Euros; and
- default interest on the above in accordance with the Loan Agreement (until 16 November 2001) and at the rate of 6% (after 16 November 2001) compounded annually as per 15 July 2004 and with the German marks converted to Euros;
(E2) Alternatively and as a subsidiary claim, monetary damages in the amount of USD 7,276,207.81 and EUR 10,384,167.38 consisting of
- the unpaid principal, interest and default interest on 16 December 1992, according to the Loan Agreement, with the German marks converted to Euros; and
- default interest on the above amounts at the rate of 6% compounded annually as per 15 July 2004 and with the German marks converted to Euros;
(E3) Monetary damages in the amount of USD 622,143.32 and a maximum of EUR 1,200,000.00 due to the expenses of the Banks incurred prior to this Arbitration and the additional sum returned to the estate of RAS Ookean, consisting of:
- the expenses and costs of the Banks before this Arbitration, as per Section VI.3.3 of the Memorial and as specified at a later stage; and
- the additional amount paid to the bankruptcy estate of RAS Ookean due to the sale of Heinaste as per Section VI.3.5 of the Memorial;
(E4) Interest on the sums claimed above, at the rate of 6% compounded annually until the date of payment or, alternatively, default interest in accordance with what the Tribunal may consider appropriate;
(E5) The above sums be made payable to the Banks in equal shares to the Loan, i.e. one-third for each Bank within thirty days of the date of the Award;
(E6) Compensation for all the expenses and fees incurred by the Banks in connection with these arbitration proceedings together with interest; and
(F) the Respondent shall bear all the expenses and fees of the arbitration proceedings including the fees and expenses payable to the Arbitrators.
The Respondent submits first of all that the Tribunal has no jurisdiction in this matter to decide any of the Banks' claims on the merits. There is no "investment" within the meaning of the applicable BITs or under the ICSID Convention. The Loan is not an investment and the Payment Agreement is even less so. Far from contributing any value to the economy of the Respondent, the entire purpose of the Payment Agreement was to extract funds from RAS Ookean and thus from the territory of Estonia.
According to the Respondent's case, Estrobprom and its business were part of the old Soviet system implanted on Estonian territory. Estrobprom was not an independent legal entity: it was a Soviet instrumentality, established in Estonian territory but controlled from Moscow. It was a "socialist state production company", incorporated under Soviet law, under the direct command of the Soviet state organ Zapryba, the "West Basin Fisheries Production Association". It was also administratively subordinate to Sovrybflot, the All Union Fishing Fleet of the USSR. Both Zapryba and Sovrybflot were instrumentalities of the USSR Fisheries Ministry in Moscow.
After the Respondent's independence in August 1991, Estrobprom experienced great economic problems, lacking access to fishing grounds through Soviet fishing quotas. The main cause of ESVA's and Ookean's bankruptcy was the dissolution of the USSR. The business of these companies was based on the assumption that raw materials for the production of fish products would be supplied at low prices (in domestic currency) from the USSR and other countries, while the fish products could primarily be sold to western markets for valuable foreign exchange. By 1992, it was no longer possible to obtain such cheap raw material. As a consequence of these significant economic changes, the reduction in income could not service these companies' burden of debt.
The Respondent's independent auditors (the State Audit Office) performed a separate audit of RAS Ookean as a whole (i.e., not only the company's accounts), and their report dated July 1994, was scathing. It was noted that that Mr [REDACTED] with a few advisors had developed a "development plan" based on the idea that RAS Ookean would "reincorporate the [fishing] port [of] Kopli into [its] composition", but this plan was "focused on unsubstantiated prognostication, [unsupported] by a reliable frame of reference and concrete economic calculations". Finally, the State Audit Office identified several irregularities, including failures to comply with various regulations on the disposal of proceeds of State property.
The parties were the Banks and RAS Ookean, whose published Articles of Association left no doubt that it was "responsible" for its liabilities to the extent of property in its ownership; that the Respondent was not responsible for the company's liabilities; and that the company was not responsible for the Respondent's liabilities.
By its express terms, the Minister's letter (i.e. the [REDACTED] Letter) did not create any liability on the Respondent's part; indeed, that is precisely what the Banks attempted to procure but failed to acquire from the Respondent. Instead, the Banks received an unofficial letter merely expressing an intention not to interfere in any lawful transaction RAS Ookean might agree with the Banks; and indeed the Respondent did not interfere. The [REDACTED] Letter was not on its face a commitment letter and could not have been treated as a commitment letter for several fundamental reasons that Mr [REDACTED] RAS Ookean, the Banks and their advisors knew well at the time. The stated purpose of the letter was solely to "help you [the Banks] assess the merits" of the Payment Agreement. Such general and non-committal wording is routinely found in comfort letters issued in connection with such transactions. This is entirely consistent with the opening line: "Please be advised that we are aware and in support of the above agreement".
From early onwards in the spring of 1995, RAS Ookean's legal representative, Mr [REDACTED] took steps to protect RAS Ookean's rights, which he set out in detail in his written witness statement. In essence, Mr [REDACTED] adopted a twin strategy, warning from the outset that if no satisfactory settlement were reached, RAS Ookean would take legal action to protect its rights: (i) on the one hand, RAS Ookean explained to the Banks and Paljassaare that their actions were in breach of the Parties' understandings since 1993, and that RAS Ookean ought to be permitted to participate as a shareholder in Paljassaare; and (ii) on the other, RAS Ookean offered to pay to the Banks the sum of USD 6 million (to be obtained by selling three vessels), payable in 1995 and in addition to the "Heinaste's" proceeds, to settle the matter without further risks and costs of litigation.
Mr [REDACTED] did not consider that the Payment Agreement was binding on RAS Ookean on any other basis, including Ookean's status as successor to Estrobprom. He does not appear to have considered the relevance of the Respondent's stated policy not to accept any Soviet debt (including that of Estrobprom under the Guarantee), or the impact of the invalidity of the original Guarantee under Soviet law.
(a) The proceedings on the Payment Agreement and the Mortgage Contract;
(b) The proceedings on the discharge of the mortgages (or pledges, as described by the Respondent);
(c) The proceedings to admit the Banks as creditors in RAS Ookean's estate; and
(d) The proceedings to recover property of RAS Ookean.
The Respondent's primary submission is that the Banks' claims all fall outside the jurisdiction of this Tribunal under Article 25(1) of the ICSID Convention and the two BITs. In its Opening Statement at the Hearing, the Respondent also submitted that the claim of the Second Claimant was outside the Tribunal's jurisdiction ratione temporis because the relevant BIT (the Estonia-Germany BIT) entered into force only in 1997 and the events on which the Banks relied took place before such entry into force10.
Transcript p. 200.
In its Counter-Memorial of 17 November 2004, the Respondent also requested that the Tribunal:
(1) Dismiss all of the Banks' claims in their entirety; and
(2) Order the Banks to pay all of the costs and expenses of this arbitration, including the fees and expenses of the Tribunal, the fees and expenses of any experts appointed by the Tribunal and the Respondent, the fees and expenses of the Respondent's legal representation in respect of this arbitration, and any other costs of this arbitration.
Issue 1: Does this Tribunal have any jurisdiction over any of the claims advanced by any of the three Banks?
(This issue is addressed in Part VI of this Award).
Issue 2: If so, has any breach of either of the relevant BITs been established by the Banks?
(This issue is addressed in Part VII of this Award).
Issue 3: If so, is liability for such breach counterbalanced by any misconduct by the Banks, as contended by the Respondent?
(This issue is addressed in Part VIII of this Award).
Issue 4: If not, what damages and interest (if any) should be awarded to the Banks in respect of any liability for breach of the applicable BITs?
(This issue is addressed in Part IX of this Award).
Article 8(1)(a) and (b) of this BIT reads as follows, as regards investor-state arbitration:11
"(1) Any legal dispute between an investor of one Contracting Party and other Contracting Party concerning an investment of the former in the territory of the latter which has not been amicably settled during three months from written notification of a claim may, at the request of either Party to the dispute, be submitted either to:
(a) the International Centre for Settlement of Investment Disputes (hereinafter called "the Centre") having regard to the applicable provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington D.C. on 18 March 1965, in the event both Contracting Parties shall have become party to this Convention;..."
Articles 8(2) and (3) are not relevant for the present dispute
"(1) Investment-related disputes between one Contracting Party and the citizens or companies of the other Contracting Party shall if possible be settled amicably between the parties to the dispute.
(2) If a dispute is not settled within six (6) months from the point of time at which settlement was demanded by one of the parties to the dispute, it shall, at the request of the citizen or the company of the other Contracting Party, be subjected to arbitration. If the parties to the dispute do not agree otherwise, the provisions of Article 10, Section 3 to 5, apply in that the members of the court of arbitration, as specified in Article 10, Section 3, shall be appointed by the parties to the dispute. Furthermore, if the time-limits referred to in Article 10, Section 3, are not adhered to and no other solution has been reached, each party to the dispute shall be entitled to turn for the necessary appointments to the President of the Court of Arbitration of the International Chamber of Commerce in Paris. Arbitral awards are enforced according to intrastate law.
(4) If both Contracting Parties have entered into the Convention on the Settlement of Investment Disputes between States and Citizens of Other States, of 18 March 1965, disputes existing between the parties as specified under this Article shall be subjected to arbitration within the above Convention, unless the parties to the dispute agree otherwise. Both Contracting Parties declare hereby their approval of such a procedure. "
In this case, the issue whether there is an investment under these two BITs raises four separate questions: (i) Was there any investment at all? (ii) If so, was this investment made in Estonia? (iii) Does the definition of such an investment apply to investments made before the respective dates of the two BITs' entry into force? and (iv) Was such investment validly made, within the meaning of the two BITs? It is appropriate to consider each question in turn.
Article 1(a) of the Estonia-Finland BIT provides:
"investment" means every kind of asset connected with economic activities and in particular, though not exclusively, includes:
(1) movable and immovable property and any other property rights such as mortgages, liens or pledges;
(2) shares, stocks and debentures of companies or interest in the property of such companies;
(3) title or claim to money or right to any performance having an economic value;
(4) copyrights, industrial property rights (such as patents, trade marks, industrial designs) technical processes, know-how, business names and goodwill;
(5) business concessions conferred by law or under contract, including concessions to search for cultivate extract or exploit natural resources."
Article 1 of the Estonia-Germany BIT provides:
"For the purposes of this Agreement
The expression "Investments" has the meaning of property holdings of any type, especially, however, of:
[a] ownership of movable and immovable assets, and other material property rights such as mortgages and liens;
[b] shares in companies and any other types of holdings;
[c] claims to money spent to create property holdings, or claims to benefits of economic value;
 intellectual property rights, such as copyrights, patents, utility models, commercial designs and models, marks, trademarks, business secrets and company secrets, technical applications, know-how and goodwill;
 licenses under public law, including search and utilization licenses.
Changes in the type of an investment do not in any way affect the nature of the asset as an investment."
In the Tribunal's opinion, the rights enjoyed by the Banks qualify as an "investment" within the meaning of these broad definitions, subject to other questions considered below. The investment includes the rights and obligations under the Loan Agreement with its associated Guarantees, all related to the original financing of the ESVA joint venture, as continued thereafter. Under the Estonia-Finland BIT, these rights and obligations constitute a "...kind of asset connected with economic activities....". These rights and obligations would also qualify as an investment in the light of the more specific provisions of Article 1(a)(i) and (iii) of the Estonia-Finland BIT. Under the Estonia-Germany BIT, these rights and obligations likewise qualify in the light of the (non-exclusive) general description. It is also significant that the recitals to the two BITs suggest a broader interpretation of all these concepts: both refer to the desire to intensify the economic cooperation of the two countries beyond August 1991. There can be no doubt that the Banks' continued funding of the ESVA joint venture was an act of economic cooperation with the Respondent.
Accordingly, the second question whether there was an investment in Estonia for the purposes of the Estonia-Finland and Estonia-Germany BIT is answered in the affirmative by the Tribunal, in favour of the Banks' case. (The answer to this question also overlaps with the third question below).
"(2) Subject to the provisions of paragraph (1) of this Article, this Agreement shall apply to all investments made in the territory of a Contracting Party by investors of the other Contracting Party before or after the entry into force of this Agreement."
"This Agreement applies also to investments made by citizens or companies of one Contracting Party before this Agreement in the territory of the other Contracting Party in accordance with its legal regulations."
The later Payment Agreement cannot change the character of that investment. Accordingly, the fact that the Payment Agreement was eventually declared invalid by the Estonian Supreme Court cannot here decide the Tribunal's jurisdiction. That decision, for present purposes, leaves intact the Banks' investment, i.e. the Loan Agreement and the Loan as originally made in 1989 and continued by the Banks thereafter.
The Respondent contends that the Tribunal has no jurisdiction over the Second Claimant's Claims, ratione temporis, because the alleged breaches of the Estonia-Germany BIT took place before that BIT entered into force on 12 January 1997. It submits that this BIT has no retroactive effect as regards the Respondent's obligations assumed under the BIT; and it cannot therefore apply to any alleged breach occurring prior to its entry into force in 1997. It will be recalled that many events invoked by the Second Claimant pre-date January 1997, principally the Payment Agreement of 17 September 1993, the [REDACTED] Letter also of 17 September 1993 and the Mortgage Contract of 4 March 1994.
In short, the Tribunal accepts the Respondent's general approach as regards the non-retroactive effect of the Estonia-Germany BIT. Under international law, the basic rule on the non-retroactivity of treaties is expressed in Article 28 of the 1969 Vienna Convention on the Law of Treaties. It provides: "Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of entry into force of the treaty with respect to that party." Similarly, Article 13 of the International Law Commission's Articles on State Responsibility provides: "An act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time it occurs. "It follows that, pursuant to Article 28 of the Vienna Convention and subject to the existence of a continuing breach (as discussed below), the Estonia-Germany BIT does not bind the Respondent as regards that BIT's substantive obligations in relation to any relevant act which took place or any situation which ceased to exist before the date of this BIT's entry into force, namely 12 January 1997.
So far as concerns a continuing breach, Article 14(2) of the ILC's Articles on State Responsibility provides: "The breach of an international obligation by an act of a State having a continuing character extends over the entire period during which the act continues and remains not in conformity with the international obligation." In other words, in order to acquire this continuing character the alleged continuing breach must be (i) continuing and (ii) uninterrupted. It is of course necessary to distinguish also between breaches that are continuing in nature and breaches that are not continuing but have effects that continue in time; but this question does not arise on the facts of the present case.
As considered below in this Award, the Tribunal considers that the Republic of Estonia violated the Estonia-Finland BIT and the Estonia-Germany BIT. Those breaches were of a continuing character extending beyond 12 January 1997. RAS Ookean, in October 1995, filed its petition to the Tallinn City Court in order to invalidate the Payment Agreement and the Mortgage Contract; and these legal proceedings led eventually to the Estonian Supreme Court's judgment on such invalidity on 16 November 2001. This extensive litigation, for reasons described below, constitutes a breach by the Respondent of its obligations under both BITs; and as regards the Estonia-Germany BIT that breach continued, uninterrupted, from 12 January 1997 to November 2001, i.e. after the entry into force of the Estonia-Germany BIT.
"[...] shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."
As is well known, there is no definition of the term "investment" in the ICSID Convention, as the result of an express decision on the part of those negotiating the terms of the Convention; and there remain grave practical difficulties in identifying the outer boundaries of any definition.12 It cannot be assumed that the interpretation of this undefined term in the ICSID Convention should necessarily be the same under international law as the defined terms in the two BITs (although it appears from the history of the Convention that the parties' agreement that a dispute is an "investment" dispute will be given certain weight in any determination of ICSID's jurisdiction13).
Christoph H. Schreuer, The ICSID Convention: A Commentary (2001), pp 121 and 140.
Aron Broches, "The Convention on The Settlement of Investment Disputes: Some Observations on Jurisdiction," Columbia Journal of Transnational Law, Vol. 5, 1966, 261-280, at 268.
Thus, in the CSOB v. Slovak Republic case14, which also concerned a loan agreement, the arbitration tribunal decided:
"An investment is frequently a rather complex operation, composed of various interrelated transactions, each element of which, standing alone, might not in all cases qualify as an investment. Hence, a dispute that is brought before the Centre must be deemed to arise directly out of an investment even when it is based on a transaction which, standing alone, would not qualify as an investment under the Convention, provided that the particular transaction forms an integral part of an overall operation that qualifies as an investment."
In that case, the respondent based its argument (in part) on the fact that CSOB's loan did not cause any funds to be moved or transferred from CSOB to the Slovak Collection Company in the territory of the Slovak Republic. It argued that an investment requires the expenditure of resources by one party (the investor) in the territory of a foreign country (the host State).
Salini Costruttori S.p.A, and Italstrade S.p.A. v. Kingdom of Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction of 23 July 2001, available at http://ita.law.uvic.ca, para. 52. See also Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/29) Decision on Jurisdiction of 14 November 2005, available at http://ita.law.uvic.ca/, para 130 et seq., where this test was applied.
Malaysian Historical Salvors, SDN, BHD v. Malaysia (ICSID Case No. ARB/05/10) Award on Jurisdiction of 17 May 2007. This ICSID award was made under the Malaysia-UK BIT (which entered into force on 21 October 1998). It contains a comprehensive survey of legal materials to date on the meaning of "investment" under Article 25 of the ICSID Convention: see para 54 et seq.
(1) The exhaustion of Estrobprom's assets after its nationalisation by the Respondent;
(2) The non-compliance with the commitments made by the Respondent; notably its commitment to pay the monies due to the Banks as manifested by the Payment Agreement, the Mortgage Contract, the [REDACTED] Letter and the oral commitments made by several representatives of the Respondent to the Banks;
(3) The annulment of the Payment Agreement and the Mortgage Contract, followed by the deletion of the mortgages from the Estonian Ship Register; and
(4) Unjust actions by the Respondent towards the Banks in relation to the bankruptcy of RAS Ookean.
The Banks contended that the Respondent's conduct amounted to violations of the protection provided by the two BITs, notably the requirements of fair and equitable treatment and full security and protection; the provisions forbidding nationalisation or expropriation without due compensation; and the provision requiring that commitments made are honoured. As the Claimants, of course, the Banks bear the burden of establishing their respective cases against the Respondent.
Article 3 of the Estonia-Finland BIT provides, in the English version:
"Each Contracting Party shall, subject to its laws and regulations and in conformity with international law, at all times ensure a fair and equitable treatment to the investments of investors of the other Contracting Party".
(The English version was agreed to prevail by the Contracting States, in case of any dispute over the Finnish and Estonian versions).
Article 2(1) of the Estonia-Germany BIT provides, as translated from the German text:
"Each Contracting Party shall in its territory and in accordance with its legal provisions permit and if possible promote investments of citizens or companies of the other Contracting Party. Such investments must in all events be treated in a just and equitable manner."
(The final sentence in the original German version reads: "Sie wird Kapitalanlagen in jedem fall gerecht und billig behandeln". The German and Estonian versions are equally binding upon the Respondent; and the English translation of both supplied to the Tribunal was not disputed between the Parties).
"[...] that nothing is gained by introducing the conception of a minimum standard and, more than this, it is positively misleading to introduce it. The terms,,fair and equitable treatment" envisage conduct which goes far beyond the minimum standard and afford protection to a greater extent and according to a much more objective standard than any previously employed form of words. A tribunal would not be concerned with a minimum, maximum or average standard. It will have to decide whether in all circumstances the conduct in issue is fair and equitable or unfair and inequitable. No standard defined by other words is likely to be material. The terms are to be understood and applied independently and autonomously."
Dr Mann also wrote, in 1982, in the fourth edition of Legal Aspect of Money21:
"[...] In some cases, it is true, treaties merely repeat, perhaps in slightly different language, what in essence is a duty imposed by customary international law; the foremost example is the familiar provision whereby States undertake to,accord fair and equitable treatment"to each other's nationals, and to which in law is unlikely to amount to more than a confirmation of the obligation to act in good faith, or to refrain from abuse or arbitrariness."
The apparent contrast is instructive: it demonstrates at least the elusive nature of the FET standard and, at the time, the difficulties in defining its legal content and application beyond its obvious and immediate characteristics.
F.A. Mann, The Legal Aspect of Money (4th ed, 1982),p. 510 (footnote omitted).
Professor Vandevelde, in his 1992 work on the USA's investment treaty practice22, advanced the view that an express FET standard in a BIT was intended to add protection for the investor greater than that provided by the minimum standard of treatment provided by customary international law:
"The clause [in the USA's model BITs of 1983-1987 providing for "fair and equitable treatment"] provides a baseline of protection which will be useful principally in situations where other substantive provisions of international and national law provide no protection."
Kenneth J. Vandevelde, United States Investment Treaties: Policy and Practice, (Cambridge: Kluwer Law International, 1992), p. 76.
Professor Rudolf Dolzer and Ms Margrete Stevens, in their 1995 work on BITs, expressed a similar view23:
"[...] the fact that the parties to BITs have considered it necessary to stipulate this standard as an express obligation rather than relied on a reference to international law and thereby invoked a relatively vague concept such as the minimum standard, is probably evidence of a self-contained standard."
Significantly, for present purposes, these authors add:
"Further, some treaties refer to international law in addition to the fair and equitable treatment, thus appearing to reaffirm that international law standards are consistent with, but complementary to the provisions of the BIT".
Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties, (Kluwer Academic Publishers Group, 1995), p. 60.
The 1999 UNCTAD research paper on Fair and Equitable Treatment stated24:
"If States and investors believe that the fair and equitable standard is entirely interchangeable with the international minimum standard, they could indicate this clearly in their investment instruments; but most investment instruments do not make an explicit link between the two standards. Therefore, it cannot be readily argued that most States and investors believe fair and equitable treatment is implicitly the same as the international minimum standard." Its conclusion, based on state practice, was as follows: "These considerations point ultimately towards fair and equitable treatment not being synonymous with the international minimum standard. Both standards may overlap significantly with respect to issues such as arbitrary treatment, discrimination and unreasonableness, but the presence of a provision assuring fair and equitable treatment in an investment instrument does not automatically incorporate the international minimum standard for foreign investors. Where the fair and equitable standard is invoked, the central issue remains simply whether the actions in question are in all the circumstances fair and equitable or unfair and inequitable."
"Fair and equitable treatment", UNCTAD series on issues in international investment agreements, (1999). pp 13 and 40 (The 2004 UNCTAD Research Paper on "Fair and Equitable Treatment Standards in International Law re-stated this approach, at p. 24).
"[...] it is noteworthy that the instances in which States have indicated or implied an equivalence between this standard and the international minimum standard are relatively sparse. Moreover, bearing in mind that the international minimum standard has itself been an issue of controversy between developed and developing States for a considerable period, it is unlikely that a majority of States would have accepted the idea that this standard is fully reflected in the fair and equitable standard without clear discussion. These considerations point ultimately towards the conclusion that the two standards in question are not identical: both standards may overlap significantly with respect to issues such as arbitrary treatment, discrimination and unreasonableness, but the presence of a provision assuring fair and equitable treatment in an investment instrument does not automatically incorporate the international minimum standard for foreign investors. Following Mann [i.e. the 1981 work cited above], where the fair and equitable standard is invoked, the central issue remains simply whether the actions in question are in all the circumstances fair and equitable or unfair and inequitable."
"It has been suggested that fair and equitable treatment represents a classical international law standard which embodies international minimum standards of treatment. [...]. If the intention is to assimilate the two concepts, this should be made explicit in the text. Otherwise, the fair and equitable treatment standard should stand on its own."
Saluka Investments BV v The Czech Republic, Partial Award of 17 March 2006, available at http://ita.law.uvic.ca; Azurix Corp. v. Argentine Republic (ICSID Case No. ARB/01/12), Award of 14 July 2006, available at http://www.worldbank.org/icsid; Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467 Award of 1 July 2004, available at http://ita.law.uvic.ca. These awards were not cited to the Tribunal in these proceedings; but it is nonetheless useful to refer to these and like materials as confirming the approach upon which the Tribunal has already decided based on materials and arguments submitted by the Parties.
In Saluka28 the tribunal declined the invitation to assimilate that particular BIT's express FET standard with the minimum standard under customary international law:
"Whichever the difference between the customary and the treaty standards may be, this Tribunal has to limit itself to the interpretation of the "fair and equitable treatment" standard as embodied in Article 3.1 of the Treaty. That Article omits any express reference to the customary minimum standard. The interpretation of Article 3.1 does not therefore share the difficulties that may arise under treaties (such as the NAFTA) which expressly tie the "fair and equitable treatment" standard to the customary minimum standard. Avoidance of these difficulties may even be regarded as the very purpose of the lack of a reference to an international standard in the Treaty. This clearly points to the autonomous character of a "fair and equitable treatment" standard such as the one laid down in Article 3.1 of the Treaty."
In Azurix29, the tribunal was required to interpret an FET standard in a BIT which also provided, in a third sentence, that investors should in no case "be accorded treatment less than that required by international law." This tribunal concluded:
"The clause, as drafted, permits to interpret fair and equitable treatment and full protection and security as higher standards than required by international law. The purpose of the third sentence is to set a floor, not a ceiling, in order to avoid a possible interpretation of these standards".
The tribunal there clearly distinguished between the autonomous standard of an express provision in a treaty and the minimum standard imposed by customary international law.
In Occidental30, the tribunal declined on the facts of that case required for its decision, to determine whether the FET standard in the USA-Ecuador BIT was the same as the minimum standard under customary international law:
"The question whether there could be a Treaty standard more demanding than a customary international law standard that has been painfully discussed in the context of NAFTA and other free trade agreements does not therefore arise in this case. The case here is rather to ensure both the stability and predictability of the governing legal framework".
(The tribunal decided that an alteration of the legal and business environment, in which the investment had been made, could "trigger treatment that is not fair and equitable").
"International Law": With regard to the Estonia-Finland BIT, it is the Tribunal's view that, without the express reference to international law, Article 3 of the Estonia-Finland BIT would bear the like autonomous meaning to Article 2(1) of the Estonia-Germany BIT. The next question, therefore, is whether that reference lowers this BIT's FET autonomous standard to the minimum standard under customary international law.
"Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security."
"(1) Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party. (2) The concepts of "fair and equitable treatment" and "full protection and security" do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens."
The FTC's interpretation is, of course, to be accorded appropriate weight; but it is not legally binding on this Tribunal; and even if it were, it cannot be conclusive on the particular question facing this Tribunal. In the Tribunal's view, the wording of Article 3 of the Estonia-Finland BIT is materially different from Article 1105(1) NAFTA: the term "in conformity with" is not the same as the term "in accordance with". Article 3 does not therefore prescribe treatment in accordance with international law with an FET standard as a subsidiary rule of customary internal international law, as was noted by the Saluka tribunal (cited above). To the contrary, as indicated by Dolzer & Stevens, the reference to international law reaffirms "that international law standards are consistent with, but complimentary to the provisions of the BIT" (cited above); and it is not therefore intended as a "ceiling".
Accordingly, the Tribunal considers that the FET standard in Article 3 of the Estonia-Finland BIT bears an autonomous meaning, and like the Germany-Finland BIT, is not to be assimilated to the lesser minimum standard treatment under customary international law. However, there is a potential difference between these BIT's two autonomous meanings. As regards the Estonia-Finland BIT (unlike the Estonia-Germany BIT), the Tribunal must still give effect to its reference to international law, which is expressed as a form of qualification to its FET standard. This reference cannot here be disregarded by the Tribunal as meaningless or redundant as a matter of treaty interpretation.
In the Tribunal's view, these Contracting Parties intended, by this reference, to ensure that their BIT's FET standard was not to be interpreted as a wholly autonomous concept, thereby enabling a tribunal (arguably) to apply its own subjective or impressionistic conclusions as to whether a respondent state had acted "fairly" or "equitably", but rather to ensure that their FET standard was a recognized and defined standard in international law. The next question, therefore, is what is this recognized and defined standard, given that it is not the minimum standard under customary international law?
Such an FET standard is difficult to define, in the abstract, as a matter of international law. The term remains significantly ambiguous and imprecise; it cannot be determined by reference to a dictionary; and it is clearly not synonymous with "equity" under national laws, or even common notions of "fairness" (which may differ between investors and capital-importing states and between states with developing and developed economies). Whilst, in the Tribunal's view, its meaning significantly overlaps with the minimum standard under customary international law, this FET standard clearly provides a greater protection for the foreign investor. According to the minimum standard under customary international law, an investor is protected against the host state's fraud, bad faith, capricious and wilful discrimination or where the host state "deprives an investor of acquired rights in a manner that leads to the unjust enrichment of the State"32. The FET standard in the Estonia-Finland BIT must therefore give greater protection than this; but it is plain that it is easier to apply this FET standard case than to define it. As the tribunal noted in the Mondev case:
"A judgment of what is fair and equitable cannot be reached in the abstract; it must depend on the facts of the particular case"33
UNCTAD, Fair and Equitable Treatment, (1999), p. 12.
In The Neer Case34, which did not concern an investment dispute, the tribunal applied an FET standard under customary international law, requiring its breach to amount:
"to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognise its insufficiency".
It follows that the FET standard in the Estonia-Finland BIT, providing a greater protection for the investor than customary international law, can be broken by the host state with treatment falling short of such egregious "outrage, bad faith etc". In other words, malign intent, bad faith or malice are not required for a breach of this FET standard.
Neer v. Mexico, 4 RIAA 60 (Gen. Cl. Comrn"n 1926); 3 AD 213..
In Waste Management35, the tribunal noted by reference to decisions in past NAFTA cases over its FET standard:
"[...] the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant."
The Tribunal here notes, in particular, the reference to conduct of the host state that is "arbitrary, grossly unfair, unjust or idiosyncratic" and the reference to treatment in breach of representations made by the host state.
In Tecmed v Mexico36, the tribunal decided in its award:
" The Arbitral Tribunal considers that this provision of the Agreement, in light of the good faith principle established by international law, requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations.... The foreign investor also expects the host State to act consistently, i.e. without arbitrarily revoking any pre-existing decisions or permits issued by the State that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities."
The Tribunal here notes, in particular the reference to the investor's "basic expectations".
Tecnicas Medioambientales Tecmed, S.A. v. United Mexican States, (ICSID Case No. ARB (AF)/00/2), Award of 29 May 2003, available at http://ita.law.uvic.ca, para 154; applied in MTD Equity Sdn. Bhd. & MTD Chile S.A. v Chile, (ICSID Case No. ARB/01/7), Award of 25 May 2004, available at http://ita.law.uvic.ca; CMS Gas Transmission Company v. Argentine Republic, (ICSID Case No. ARB/01/8), Decision of the Tribunal on Objections to Jurisdiction of 17 July 2003, available at http://www.worldbank.org/icsid; and Eureko BV v. Republic of Poland, Partial Award of 19 August 2005, available at http://ita.law.uvic.ca.
Again, however, the FET standard in the Estonia-Finland BIT grants still greater protection than the minimum standard; but in the light of the recent decision in MTD Equity v. Chile, it may be necessary to qualify this tribunal's particular approach to the investor's "basic expectations" (as noted further below).
In Thunderbird v. United Mexican States37, the tribunal similarly suggested that, in order to establish a case based on the investor's expectations, it was necessary that there be conduct on the part of the State creating "reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct". Having regard to the recent decision in MTD Equity v. Chile, it may be necessary also to qualify this tribunal's particular approach to the investor's "expectations".
In MTD Equity v. Chile38, the ICSID Ad Hoc Committee was invited to criticise "the Tecmed programme for good governance" and to decide that the Tecmed dictum (in paragraph 154 of the award, cited above) did not reflect international law. The Committee clearly accepted certain of these criticisms:
"For example, the TECMED Tribunal's apparent reliance on the foreign investor's expectations as the source of the host State's obligations (such as the obligation to compensate for expropriation) is questionable. The obligations of the host State towards foreign investors derive from the terms of the applicable investment treaty and not from any set of expectations investors may have or claim to have. A tribunal which sought to generate from such expectations a set of rights different from those contained in or enforceable under the BIT might well exceed its powers, and if the difference were material might do so manifestly."
The Committee did not however exclude the relevance of "legitimate expectations". It approved as "defensible" the tribunal's formulation in the challenged award: "In terms of the BIT, fair and equitable treatment should be understood to be treatment in an even-handed and just manner, conductive to fostering the promotion of foreign investment. Its terms are framed as a proactive statement -"to promote", "to create", "to stimulate" - rather than prescriptions for a passive behavior of the State or avoidance of prejudicial conduct to the investors." The Committee also recognised that the extent to which a State is obliged under the FET standard to be pro-active is open to debate, "but that is more a question of application of the standard than it is of formulation." The Tribunal notes this significant distinction.
In this case, for two reasons, it is unnecessary for this Tribunal to resolve the debate over the exact content of the minimum standard under international law, which will doubtless continue for many years. First, the issue here, as decided above by the Tribunal, relates to an autonomous FET standard providing greater protection to a covered investor than the minimum standard. Second, as decided below by the Tribunal, that FET standard is here applicable to a specific representation made by the host state to the investor (the [REDACTED] Letter) in the context of an existing dispute and not a general pre-existing "set of expectations" claimed by an investor because these "were taken into account by the foreign investor to make the investment".
Thus, in the present case, it will be necessary for the Tribunal to identify under Article 3 of the Estonia-Finland BIT, in particular, (i) whether there was any such unequivocal representation made by or on behalf of the Respondent to the Banks; (ii) whether the Banks relied on that representation, such reliance being reasonable and justifiable in all the circumstances; (iii) whether the Respondent acted inconsistently with its representation; and (iv) what actual loss, if any, resulted from the Respondent's failure to act consistently with its representation.
After the Respondent became independent from the USSR in August 1991, the Supreme Council of Estonia declared the property or assets of any companies, associations or organisations in the territory of Estonia operating under the control or subordination of any Soviet administration as the property of the Respondent. On 12 September 1991, the Estonian Government passed the Decree No. 182 on the implementation of the Supreme Council's decision. As an attachment to the Decree was a list of the companies which (with their assets) were declared to be property of the Respondent. Amongst these listed companies was Estrobprom40.
The Banks' submission was not materially disputed by the Respondent: see its Counter Memorial, para. 35.
The question whether, at some point in time at or after the Respondent's independence, the Respondent also acquired legal ownership of any of these assets, is not relevant to the Tribunal's decisions in this Award, whether in the form of "state-ownership" previously enjoyed under Soviet law by the USSR or otherwise. The Tribunal is satisfied that, at the date of incorporation of RAS Ookean in July 1993, assets were transferred to it from RE Ookean41. Moreover, by September 1993 (as evidenced by the [REDACTED] Letter), the Respondent treated the vessels described in the Payment Agreement as the property of RAS Ookean. Still further, RAS Ookean paid old Estrobprom bills42; RAS Ookean was treated as responsible for the Estrobprom Guarantee as its legal successor43; and there was no material distinction made between RAS Ookean's assets and Estrobprom's assets44 Indeed, both RE and RAS Ookean were generally considered at the time to be the successors of Estrobprom45.
Se e the Attachm ent to RAS Ookean's Articles of Asso ciation, Exhibi t. 2.
Mr [REDACTED] Testimony, Transcript pp. 381-82; Mr [REDACTED] Testimony, Transcript p. 1071; Mr [REDACTED] Testim ony Transc ript p. 1341.
Mr [REDACTED] Testimony, Transcript pp. 506 and 531.
Mr [REDACTED] Testimony, Transcript, p. 700.
Mr [REDACTED] Testimony, Transcript pp. 1071 and 1133; Mr [REDACTED] Testimony, Transcript p. 1186.
The Tribunal does not consider that the participation of the Estonian Government in these activities constituted any breach of the FET standard. It must be recalled, in particular, that the events in the USSR leading up to August 1991 were turbulent in the extreme; and that after the Respondent's independence from the USSR, the dissolution of the USSR was and remained politically, legally and economically chaotic. The Respondent had to surmount enormous difficulties; and these difficulties continued long after 1991, including the period from December 1992 onwards upon which the Banks here rely.
"At the meetings held in Tallinn on June 4th and 7th 1993 representatives of the Ministry of Economy and Ookean stated that they intend to repay the ESVA loan despite current legal disputes and they are prepared to enter into a commitment to the Banks to that effect and to sell certain assets for the specific purpose of paying off the ESVA loan."
RAS Ookean then committed itself towards the Banks in accordance with the Payment Agreement's terms, already described above in Part II of this Award. In summary, RAS Ookean's commitment was to mortgage and sell the six vessels in order to pay the balance of the Loan to the Banks. This is manifestly clear from the Payment Agreement itself, and also from witness testimony adduced in these arbitration proceedings48.
E.g. Mr [REDACTED] Testimony, Transcript p. 551.
The relevant part of the [REDACTED] Letter (inter alia) provided:
" Ookean Ltd shall... use all funds from the sale of these vessels for the purpose of repaying the ESVA Loan in accordance with the above agreement [i.e. the Payment Agreement].
 The Board of Ookean shall through their capacity and the authority invested in them by the Ministry, exercise their rights and powers in such a manner as to ensure that Ookean Ltd complies with the obligations stipulated in this agreement."
(The Tribunal does not consider that the Banks' case is advanced by sub-paragraph 1 of the [REDACTED] Letter).
It is important to state first what, in the Tribunal's view, the legal significance which this letter did not bear: it was not a guarantee; nor an indemnity; nor a "near-guarantee"; nor indeed of any contractual significance under the national law or laws applicable to the Payment Agreement (accordingly, the [REDACTED] Letter could not found any claim for breach of Articles 4 of the Estonia-Finland BIT and 8(2) of the Estonia-Germany BIT concerning observance of obligations/commitments with regard to investments).
As regards this meeting, [REDACTED] testified as follows:
"Mr [REDACTED] let us know that possibly a guarantee by the Estonia government could be given or a new guarantee by Ookean with the signatures of the concerned ministries, which in his opinion would be almost equal to that of the government.49
And the minutes of that meeting report:
"Deputy Minister [REDACTED] stated that the Ministry of Industry [...], as representative of the owner of Ookean will ensure that the Banks will not suffer any loss of rights if they shall refrain from formal legal action against Ookean or ESVA."50
Exhibit C9; see also Mr [REDACTED] Testimony, Transcript pp. 597-8, 602, 611; [REDACTED] Testimony, Transcript p. 733; Mr [REDACTED] Testimony, Transcript pp. 1222,1241.
Exhibit C9; see Mr [REDACTED] Testimony, Transcript pp. 743-4.
It is significant that, when the Respondent's Ministry of Economy appealed against ESVA's bankruptcy, the Ministry stated in that appeal:
"[...] a third party, RAS Ookean, presented a composition proposal during the hearing, agreeing to sell six vessels type "Moonsund" to cover the debts. The Ministry of Economic Affairs has accepted the matter in question."51
This "acceptance" by the Ministry for RAS Ookean speaks for itself.
At the time of the Payment Agreement, the Banks clearly relied on the [REDACTED] Letter. The negotiations leading to the Payment Agreement were triggered by the bankruptcy proceedings of Ookean and ESVA; and the bankruptcy of Ookean and other legal actions were terminated on the basis of the Payment Agreement both in Estonia and Finland. If the Payment Agreement had not been concluded, the Banks would have pursued their legal actions for the immediate repayment of the outstanding Loan; and without the [REDACTED] Letter, the Banks would not have made the Payment Agreement. The Payment Agreement was a major concession by the Banks. Again, in the Tribunal's view, the evidence for these conclusions is overwhelming.
The second element is that the Banks were to receive under the Payment Agreement, not later than 30 September 1993, as security for ESVA's loans and for the fulfilment of Ookean's obligations under the Payment Agreement, first priority mortgages on six vessels of RAS Ookean in a form and substance acceptable to the Banks61.
Article II, 4 of the Payment Agreement.
RAS Ookean should have done much more to have the mortgages registered earlier. It did not do this for an improper motive, namely to put further unfair pressure on the Banks to make more concessions in still further negotiations.62 There is no evidence that the Respondent attempted to curtail RAS Ookean's recalcitrant conduct.
Mr [REDACTED] Testimony, Transcript, p. 526: Mr [REDACTED] Testimony, Transcript, pp. 1145 and 1146.
Nonetheless, the Tribunal does not regard the Respondent's conduct so far as a breach by the Respondent of the FET standard in the BITs. That would elevate the status of the [REDACTED] Letter to a guarantee or indemnity, legal characteristics which it never bore. Moreover, the Banks, ever patient, generally acquiesced in the overall delay - up to October 1995.
From the outset, the Respondent not only tolerated but indeed encouraged this litigation for the benefit of RAS Ookean and to the detriment of the Banks. In the Tribunal's view, the Respondent's conduct (not being limited to impassive observation) was a violation of the legitimate expectation created by the [REDACTED] Letter. Taking into account the long history of the Banks' difficulties, the Respondent's conduct was neither even-handed nor fair; and it was utterly inconsistent with the [REDACTED] Letter. Accordingly, the Respondent violated the FET standard of the Estonia-Germany and Estonia-Finland BITs.
In the Tribunal's view, that violation of the latter FET standard by the Respondent began no later than 20 October 1995; and it continued, uninterrupted, up to at least 16 November 2001. As described earlier in Part II of this Award, the history of this litigation is long and complicated. After the decision of the Tallinn City Court of 28 August 1996, a number of appeals and other legal skirmishes occurred. The final decision was issued by the Supreme Court on 16 November 2001. Accordingly, the violation by the Respondent of the Estonia-Finland BIT continued after the entry into force of the Estonia-Germany BIT on 12 January 1997.
For the purpose of this part of the Award, it suffices to stop the Tribunal's reasoning at this point, without separately deciding other matters raised by the Banks in support of their case. Accordingly, the Tribunal does not need to decide whether, as the Banks contended, the Respondent's wrongful conduct also amounted to a violation of the BITs as regards full security and protection, the observation of commitments, nationalisation and expropriation. By way of final clarification, the Tribunal does not attribute to the Respondent any act alleged by the Banks to be an international wrong committed by the Respondent's judicial, legislative or other organs, other than its executive based on the [REDACTED] Letter as decided above under the FET standard in the two BITs.
As already indicated, the Tribunal does not accept the Respondent's case that RAS Ookean complied properly and timeously with its obligations under the Payment Agreement (if valid). As regards the Banks' alleged misconduct, the Tribunal does not accept the Respondent's case for the following reasons.
The Tribunal, in the light of these several considerations, does not accept the Respondent's case that it was the Banks' own conduct that frustrated the proper and timely implementation of the Payment Agreement by RAS Ookean. Accordingly, the Tribunal rejects this part of the Respondent's defence.
In their Memorial the Banks claim that, as a direct result of the Respondent's breaches of the BITs, the Banks lost their investment in Estonia and suffered a considerable amount of losses in the form of lost capital gains, as well as additional costs and expenses incurred while trying to resolve this dispute.
With regard to the principal amount, the Banks submit that the total principal amount paid by the Banks to ESVA under the Loan Agreement during the years 1989 and 1990 was USD 7,565,485.32 and DEM 26,794,081.60; and that this principal amount developed thereafter as follows:
(1) ESVA repaid USD 15,076.54 and DEM 44,053.83 in 1992;
(2) At the time of the Notice of Termination on 16 December 1992, the unpaid principal thus amounted to USD 7,550,408.78 and DEM 26,750,027.77, interest according to the Loan Agreement to USD 48,232.60 and DEM 431,254.46 and default interest to USD 15,838.75 and DEM 87,110.31;
(3) After the Notice of Termination in 1992, the Banks received Valio's payment under its Guarantee, totalling 48 % of the Loan;
(4) The outstanding balance of the Loan attributable to Estrobprom's Guarantee at the time of the Notice of Termination was thus USD 3,959,529.67 and DEM 14,179,564.12, which is what the Banks claim as the outstanding principal amount of damages, together with contractual interest according to the Loan Agreement.
On this principal amount, the Banks primarily claim default interest to be determined on the basis of the Loan Agreement from the date of the Notice of Termination on December 16, 1992 until the date of the Supreme Court's decision on 16 November 2001, this date being the date on which it became evident that RAS Ookean was not going to pay the balance receivable under the Loan Agreement and the Guarantee. (As regards the calculation of the Banks' interest claim, these sums are taken into account separately below).
The Banks further submit that, in 1994, the Banks received the equivalent of USD 307,362.59 and DEM 1,070,435.66 as advance dividends from ESVA's bankruptcy estate. The Banks submit, in their Memorial, that these dividends have been deducted from the default interest accrued until the date of payment of these dividends. The development of the amount under this heading until 16 November 2001 amounts to USD 2,156,672.47 and DEM 21,583,748.76.
After 16 November 2001, the Banks contend that the interest rate should be awarded in accordance with a generally accepted level. The Banks submit that an interest rate of 6 % per annum, compounded annually, corresponds to the established decisions of previous ICSID tribunals and should be considered as an equitable compensation for the Banks' inability efficiently to use these monies. The Banks add in their Memorial that, in reality, the Banks would have been most likely, due to their line of business, to have received a profit greater than 6% per annum if the monies have been available for them to reinvest.
As already noted above, the Banks received final dividends from ESVA's bankruptcy estate in the amounts of DEM 4,072,154.46 in September 2002, DEM 1,035,337.63 in November 2002 and DEM 124,214.70 in December 2002. The final dividends have been taken into account as a deduction of the default interest incurred on this amount since the date of payment of the dividend.
(1) For the expenses and costs: from the date that the reimbursement of these costs and expenses was claimed from the Respondent, i.e. the date of the Notification of a Claim of 30 August 2002; and
(2) For the additional sum returned to the estate of RAS Ookean: from the date the payment was made, i.e. 20 February 2002.
First of all, however, the Respondent submits that the Banks' claim for damages must fail for lack of legal nexus and causation. It submits that the Banks' claim damages for the loss of their Loan; and since this Loan, according to the Respondent, cannot be considered as an investment in Estonia, that claim must fail. The Tribunal has already addressed this argument as a jurisdictional issue (in Part VI of this Award above) and rejected it; and the Tribunal rejects it here for the same reasons.
(1) It is uncertain whether the amount claimed by the Banks fully reflects the amounts received as dividends in ESVA's estate (a total of USD 5.6 million); and
(2) The refund of the amount of USD 622,143 related to the "Heinaste" (i.e. the difference in the purchase price and the documented sale price which the Banks had to repay after the Payment Agreement and the Mortgage Contract were declared invalid by the Estonian Supreme Court) should be refused, as the Banks failed to prove, in the Estonian Courts, why the amount realised was USD 622,143 less than the amount expressly stated in RAS Ookean's written agreement for the "Heinaste".
(1) No default interest is due, or at least not for a period of thirteen years over which such interest is claimed by the Banks. The Respondent submits that to bear a debtor's default for a period of thirteen years is manifestly unreasonable. In its submission, default interest in a loan contract is a means of forcing payment of an undisputed debt, which in practice either leads to prompt payment or to prompt insolvency of the debtor;
(2) The Payment Agreement has no provision on interest;
(3) Unlike several national laws, international law does not provide for a fixed or generally accepted interest rate. On the contrary, the rule is that a tribunal must evaluate all the relevant circumstances in determining the rate of interest, if any;
(4) Interest should start to run on the date of the submission to arbitration of the international law claim (this being the date on which "the state's international responsibility became engaged"); in this case, that is the date of the Banks' Request for Arbitration of 10 December 2003; and
(5) Compound interest (as opposed to simple, compensatory interest) is in principle not allowed in international law.
In its Counter-Memorial, the Respondent also disputed the Banks' claim for costs and expenses in connection with court proceedings in Estonia and South Africa. The Respondent's principal objection against the Banks' claim is that these costs relate to litigation and that these costs should therefore be considered as having been incurred in the Banks' regular course of business. Notably, the Respondent principally submits:
(1) The litigation costs were incurred in the Estonian Courts (a forum to which the Banks expressly agreed in the Payment Agreement), and in the South African Courts (a forum to which the Banks chose to resort);
(2) These costs were incurred in litigation not with the Respondent but with RAS Ookean; and
(3) The litigation costs related to the Payment Agreement and the Mortgage Contract, not to the Banks' alleged investment under the BITs.
(1) As it had done already in its Rejoinder, the Respondent queried whether the Banks' claim fully reflected the amounts received as advance and final dividends in the ESVA bankruptcy estate;
(2) The Respondent asserted that the price received by the Banks for the sale of their shares in the new ESVA should be deducted from the compensation claimed by the Banks; and
(3) In the letter of 1 March 2006, the Respondent raised what it called a fundamental question regarding the Banks' claim.
The Tribunal disagrees with the Banks' submission. Essentially, the Banks claim compensation for the loss of their investment. This, as explained below, is what the Tribunal generally accepts as the Banks' recoverable compensation. Any amount received by the Banks in connection with that investment should then be deducted from the compensation to be awarded in these proceedings.
With regard to the Respondent's principal objections, the Tribunal observes first of all that, as set out above, the Respondent violated the FET standard in the two BITs, resulting in the loss of at least a significant part of the Banks' investment. As a general principle, in the opinion of the Tribunal, the Banks should be put in the same position as if such violations had not occurred.
Under the Payment Agreement, default interest would have occurred after that date as well. But that, in the opinion of the Tribunal, is not appropriate for the claim at issue under the two BITs for several reasons. First, the Banks are not claiming damages from its debtor under the Payment Agreement but damages from the Respondent on the ground of the Respondent's violations of the applicable BITs.
With regard to the Respondent's objections against the Banks' methodology for calculating the principal amount due to them, with interest, the Tribunal determines the following:
(1) First, the outstanding principal amounts at the time of the Notice of Termination, with interest to that date and the conversion of the DEM sum into Euros, have not been disputed as such by the Respondent (except for the latter's query whether the Banks deducted all dividends which they received from the ESVA estate). As follows from the Tribunal's observations above, the Tribunal's view is that these dividends were properly accounted for;
(2) Second, it is not in dispute that the Banks recovered 48% of the total amount of the Loan then outstanding when Valio paid under its Guarantee; and
(3) Third, the total amount of the Loan outstanding as of the date of the Payment Agreement was set forth in its preamble at Section A.
Damages (Principal Amount): This means that the Banks' damages as a principal amount, measured as their total unrecovered investment assessed at the time of the Payment Agreement and [REDACTED] Letter on 17 September 1993, amount to USD 4,147,801.49 and DEM 15,441,892.98. Converted into Euros, the DEM portion amounts to EUR 7,895,315.80. These sums (subject to adjustments below) therefore constitute collectively the "principal" amount of damages awarded by the Tribunal required to compensate the Banks for the Respondent's violation of the FET standard under the two BITs.
Transcript p. 80.
James Crawford, Third report on State responsibility, 4 August 2000, (ILC 2000).
For example, Section 49(3) of the English Arbitration Act 1996 has given arbitrators the power to award compound interest on the principal amount awarded.
F. A. M ann Further Studies in International Law, (Oxford Clarendon Press 1990) pp. 377-78, 383-85.
Stephen M. Schwebel, "Compound Interest in International Law" TDM Volume 2, Issue 5, November 2005.
This is the English translation of the original German and Estonian original versions.
This is the original text of the English version, equivalent to the Finnish and Estonian versions.
See Section VI.126.96.36.199 of the Memorial and the Statement [REDACTED] 9 March 2006.
See Claimants' letters of 20 February 2006 and 10 March 2006
Accordingly, the Banks' damages as principal amounts after these deductions amount to USD 3,837,801.49 and EUR 7,320,315.80. So far as the claims of the First and Third Claimants are concerned (under the Estonia-Finland BIT), they are thus entitled to compensation respectively in the sum of USD 1,279,267.10 and EUR 2,440,105.20 each being one-third of the total damages awarded. So far as the claims of the Second Claimant are concerned (under the Estonia-Germany BIT), it is likewise entitled to compensation in the sum of USD 1,279,267.10 and EUR 2,440,105.20, again being one-third of the total damages awarded.
As regards the sums received in 2002 (dividends, the "ESVA 2002 proceeds"), the Tribunal decides to depart from the information provided in Mr [REDACTED] statement of 9 March 2006, i.e. to deduct only those amounts, specified in Euros, paid to the Banks. Mr. [REDACTED] statement lists that the Banks received (i) EUR 1,342,030 on 6 September 2002; (ii) EUR 341,208.61 on 26 November 2002; and (iii) EUR 40,943.99 on 18 December 2002. The Tribunal decides that these sums with interest at the rate of 6% per annum compounded annually from each of the dates on which the distributions were made until 15 November 2007 should be deducted from the EUR portion of the compound interest awarded on the principal amounts as damages as decided under paragraph 357. According to the Tribunal's calculation, the ESVA 2002 proceeds with interest amount to EUR 2,326,809.57 (EUR 1,816,410.74, EUR 455,885.73 and EUR 54,513.10).
The Tribunal has made its decisions in favour of the Banks on both liability and quantum. Accordingly, subject to special factors indicating otherwise, the Tribunal determines that the Banks are entitled to compensation for their reasonable costs incurred in these arbitration proceedings as the successful party. The Respondent also claimed costs, as specified in its submission of 8 March 2006. The Tribunal rejects the Respondent's claim in principle, in the light of the Tribunal's decisions above: as the unsuccessful party, the Respondent is not entitled to payment of any costs from the Banks.
As a special factor, the Respondent submitted that the Banks are not entitled to costs because their conduct unnecessarily complicated these arbitration proceedings. The Tribunal does not accept this criticism of the Banks. To the contrary, the Banks presented their case in a straightforward and professional manner. In the Tribunal's view, there are no other special factors in this case which could determine as a matter of principle that the Banks should not recover their costs from the Respondent (subject to their amount) as the successful party.
In their letter of 8 March 2006, the Banks claimed costs in the amount of EUR 1,815,785.37, comprised of the following items (excluding VAT):
(i) Fees and costs of Hannes Snellman Attorneys at Law Ltd., to a principal amount of EUR 1,589,659.10;
(ii) Fees and costs of OY Asianajotoimisto Hedman Osbourne Clark Advokatbyra Ab, to a principal amount of EUR 104,018.60;
(iii) Fees and costs of Law Office Tark & Co, to a principal amount of EUR 45,839.00;
(iv) Compensation for the time spent on the case by Mr. [REDACTED] and Mr. [REDACTED] (General Counsel for OKO) and other in-house counsel of the Banks to a principal amount (estimated) of EUR 35,000.00;
(v) Compensation for the time spent, costs accrued and witness fee of Mr [REDACTED] to a principal amount of EUR 17,750.40;
(vi) Compensation for the time spent, costs accrued and witness fee of Mr [REDACTED] to a principal amount (estimated) of EUR 13,000.00; and
(vii) Costs paid directly by OKO Osuuspankkien Keskuspankki Oyj, to a principal amount of EUR 10,518.19.
On items (i), (ii), (iii), (v) and (vii) the Banks provided a break-down of costs.
In addition, the Banks requested the Tribunal to order the Respondent to bear the expenses and fees of the arbitration proceedings including the fees payable to the arbitrators. The Parties' advances to ICSID to cover the costs of the arbitration amounted to USD 410,000.00 at the closure of the proceedings. The Banks contributed half of this amount, i.e. USD 205,000.00.
In its comments of 17 March 2006, the Respondent submitted, in summary, that:
(1) Item (i) exceeds the Respondent's costs of legal assistance by Freshfields Bruckhaus Deringer by ±152% (± EUR 1,5 million as against ± EUR 600,000); and
(2) Likewise, the cost of the Banks' Estonian law experts exceed those of the Respondent considerably (whereas the latter prepared more reports);
(3) Mr [REDACTED] spent less time for the preparation of his witness statement and oral testimony than for his other legal work for the Banks;
(4) There should be no compensation for the work prepared by in-house counsel, and that item almost certainly also covers time devoted to the Estonian legal proceedings;
(5) Mr [REDACTED] and Mr [REDACTED] charges are unwarranted; and
(6) In general, the costs incurred by the Respondent are much less.
Considering the above-mentioned factors, the Tribunal concludes that it is also appropriate that the costs of the proceeding, i.e. the fees and expenses of the Tribunal and the ICSID Secretariat in the total sum of USD 410,000.00, be borne by the Respondent. As the Banks' relief did not include a claim for interest on the costs of the proceeding, this amount shall not bear any interest.
For the reasons above, the Tribunal awards and orders as follows:
1. The Tribunal has jurisdiction over the dispute submitted in this arbitration and the Claimants' claims, as here decided;
2. The Respondent violated its obligations to accord to the investment of the Claimants fair and equitable treatment in accordance with the Estonia-Finland and Estonia-Germany Bilateral Investment Treaties, thereby causing loss to the Claimants;
3. In respect of such violations and losses, the Respondent is liable to pay damages to the Claimants, as follows:
(i) Monetary damages in the amount of USD 3,837,801.49 and EUR 7,320,315.80 to be paid by the Respondent to the Claimants in equal shares in the amount of USD 1,279,267.10 and EUR 2,440,105.20;
(ii) Interest on the amounts in sub-paragraph (i) above at the rate of 6% per annum compounded annually from 16 November 2001 to 15 November 2007, deducted by the sums set out in paragraph 362 of this Award, in the total amount payable of USD 1,606,193.27 and EUR 736,882.50, to be paid by the Respondent to the Claimants in equal shares in the amount of USD 535,397.73 and EUR 245,627.50;
(iii) Interest on the total amount of USD 1,606,193.27 and EUR 736,882.50 awarded under sub-paragraph (ii) above at the rate of 6% per annum compounded annually from 16 November 2007 until the date of payment, to be paid by the Respondent to the Claimants in equal shares;
(iv) Monetary damages in the amount of USD 622,143.32 and EUR 1,200,000.00 incurred as expenses by the Claimants prior to these arbitration proceedings, together with the additional sum returned to the bankruptcy estate of RAS Ookean by the Claimants, to be paid by the Respondent to the Claimants in equal shares in the amount of USD 207,381.12 and EUR 400,000.00;
(v) Interest on the sums in sub-paragraph (iv) above at the rate of 6% per annum compounded annually until the date of payment as from 30 August 2002 for the amount of EUR 1,200,000.00 and as from 20 February 2002 for the amount of USD 622,143.32 to be paid by the Respondent to the Claimants in equal shares;
(vi) An amount of EUR 1,500,000.00 for the Claimants' legal costs in this arbitration, plus interest on this amount as from the date of dispatch of this Award at the rate of 6% per annum compounded annually until the date of payment to be paid by the Respondent to the Claimants in equal shares; and
(vii) An amount of USD 205,000.00 for the Claimants’ arbitration costs (advances paid to ICSID), to be paid by the Respondent to the Claimants in equal shares in the amount of USD 68,333.33.
4. All payments mentioned above shall be made to the Claimants within sixty days of the date of dispatch of this Award;
5. Save as ordered above, the Tribunal dismisses all other claims and crossclaims made by the Parties in these arbitration proceedings.