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GLOSSARY OF DEFINED TERMS AND ABBREVIATIONS

Annulment Decision Judgment of the Prague Municipal Court annulling the Zoning Plan Change (Z-1294/07), dated 26 April 2013
Annulment Request Judicial request filed by Benice and two neighbors in June 2012 seeking annulment of the Zoning Plan Change
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings 2006
Benice Lawsuit Benice's lawsuit filed in October 2009 with the District Court of Prague against Projekt Sever, contesting the validity of Projekt Sever's purchase of land under the Prague Purchase Contract
Benice Residential Complex or Project The planned residential complex which Claimants sought to develop in the Municipal District of Benice
BIT or Treaty The Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments signed on October 5, 1990, which entered into force on 7 August 1991
Boháč WS Witness Statement of Mr. Ondrěj Boháč
c-[#] Claimants' Exhibit
C-I Claimants' Memorial on the Merits dated 28 June 2018
C-II Claimants' Reply on the Merits and Counter-Memorial on Preliminary Objections dated 3 July 2019
C-III Claimants' Rejoinder on Preliminary Objections dated 4 December 2019
C-PHB Claimants' Post Hearing Brief dated 15 July 2020
CL-[#] Claimants' Legal Authority
Central Group Central Group a.s., a Cypriot owned company and developer with projects in the City of Prague
Claimants Pawlowski AG and Projekt Sever s.r.o.
Coller WS I First Witness Statement of Mr. Milan Coller
Coller WS II Second Witness Statement of Mr. Milan Coller
Concept Required in the third phase of the procurement of a zoning change, during the procurement of the Concept the environmental authority must approve the environmental impact assessment
Costs of the Proceeding The lodging fee for this arbitration and the advance on costs paid to ICSID
Decision to Procure The first step in the procurement of a zoning change, in which the Prague City Council initiates a zoning plan change
Defense Expenses The expenses incurred by the Parties to further their position in the arbitration
Defense Purchase Contract Agreement between Projekt Sever and the Ministry of Defense for 1,135 m2 of land, and for the right to tear down structures and dispose of rubble on the land
Draft Required in the fourth phase of the procurement of a zoning change, a Draft must be prepared by the procurer, be subject to public discussion, and reviewed for compliance with the law and superior land use planning documents
FET Fair and equitable treatment
Hearing Hearing on the Merits, Jurisdiction, and Quantum held 26-30 January 2020
HT [page:line] Hearing Transcript
Hudeček WS I First Witness Statement of Dr. Tomáš Hudeček
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated March 18, 1965
ICSID or the Centre International Centre for Settlement of Investment Disputes
Kadečka ER I First Expert Report of Prof. Stanislav Kadečka
Langmajer WS I First Witness Statement of Mr. Martin Langmajer
Langmajer WS II Second Witness Statement of Mr. Martin Langmajer
Malčánek WS Witness Statement of Mr. Jaroslav Malčánek
MFN Most Favored Nation standard
Nováček WS Witness Statement of Mr. František Nováček
NT National Treatment standard
Outline Required in the second phase of the procurement of a zoning change, a draft outline of a zoning plan change must be prepared by the Procurer, made available for review, and approved by the Prague City Assembly
Parties Claimants and Respondent
Pawlowski AG Pawlowski AG, Claimant in this arbitration, is a company incorporated under the laws of Switzerland
Pawlowski WS I First Witness Statement of Mr. Sebastian Pawlowski
Prague Purchase Contract Agreement between Projekt Sever and the District of Uhříněves for the purchase of 43,784 m2 of land owned by the City of Prague.
Procurer The Zoning Plan Division of the Prague Municipal Office
Project Area An area of approximately 270.000 m2 located in the Municipal District of Benice and bordering the District of Uhříněves, in which Claimants sought to develop the Project
Projekt Sever Projekt Sever s.r.o., Claimant in this arbitration, is a company incorporated under the law of the Czech Republic
R-[#] Respondent's Exhibit
R-I Respondent's Counter-Memorial on the Merits and Memorial on Preliminary Objections dated 5 December 2018
R-II Respondent's Rejoinder on the Merits and Reply on Preliminary Objections dated 6 November 2019
R-PHB Respondent's Post Hearing Brief dated 15 July 2020
RL-[#] Respondent's Legal Authority
Respondent The Czech Republic
Schumacher ER I First Expert Report of Mr. Kai Schumacher of AlixPartners
Schumacher ER II Second Expert Report of Mr. Kai Schumacher of AlixPartners
TaK The architectural and engineering studio Tichý and Kolářová
Tichý WS Witness Statement of Dr. Marek Tichý
Tomoszková ER I First Expert Report of Prof. Dr. Veronika Tomoszková
Tomoszková ER II Second Expert Report of Prof. Dr. Veronika Tomoszková
Topičová WS I First Witness Statement of Ms. Věra Topičová
Topičová WS II Second Witness Statement of Ms. Věra Topičová
Turnovský WS Witness Statement of Mr. Martin Turnovský
Tribunal Arbitral tribunal constituted on 6 November 2017
VCLT Vienna Convention on the Law of Treaties of 23 May 1969
Votava WS Witness Statement of Mr. Bořek Votava
Z-1424/07 A zoning plan change impacting land purchased by Central Group which was annulled by the Prague City Court
Zoning Plan Change The Zoning Plan Change Z-1294/07 concerning the Project Area, initially approved by the Prague City Assembly on 26 March 2010, entering into force on 16 April 2010, and later annulled by the Prague Municipal Court on 26 April 2013.
Zugar WS Witness Statement of Dr. Robert Zugar

 

LIST OF CASES

Alps Finance Alps Finance and Trade AG v. Slovak Republic, UNCITRAL, Award (Redacted), dated 5 March 2011, RL-18
Al Tamimi Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, dated 3 November 2015, RL-104
Barcelona Traction Barcelona Traction, Light and Power Co., Ltd (Belgium v. Spain), Judgment, dated 5 February 1970, CL-87
Bayindir Insaat Bayindir Insaat Turizim Ticaret Ve Sanayi A.Ş. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, dated 27 August 2009, RL-76
Binder Binder v. Czech Republic, UNCITRAL, Final Award, dated 15 July 2011, CL-119
Caratube Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case ARB/08/12, Award, dated 5 June 2012, RL-31
Cervin Cervin Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica, ICSID Case No. ARB/13/2, Award, dated 7 March 2017, RL-97
Chorzow Factory at Chorzow (Germany v. Poland), Merits, 1928 PCIJ (Ser. A) No. 17, Award, dated 13 September 1928, CL-73
CME CME Czech Republic B. V. v. The Czech Republic, UNCITRAL, Partial Award, dated September 13, 2001, CL-25
Crystallex Crystallex International Corp v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, dated 4 April 2016, CL-12
ECE ECE Projektmanagement v. The Czech Republic, PCA Case No. 2010-5, Award, dated 19 September 2013, RL-55
Edenred Edenred S.A. v. Hungary, ICSID Case No. ARB/13/21, Award, dated 13 December 2016
EDF EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, dated 8 October 2009, RL-180
Eiser Eiser Infrastructure Limited and Energia Solar Luxembourg v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, dated 4 May 2017, CL-56
Elsi Case concerning Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ, Judgement, dated 20 July 1989, RL-56
Emmis Emmis International Holding, B. V. et al v. Hungary, ICSID Case No. ARB/12/2, Award, dated 16 April 2014, RL-109
Flemingo DutyFree Flemingo DutyFree Shop Private Limited v. Republic of Poland, PCA, Award, dated 12 August 2016, CL-37
Foresight Luxembourg Foresight Luxembourg Solar 1 S.A.R.L., et al. v. Kingdom of Spain, SCC Case No. 2015/150, Final Award, dated 14 November 2018, CL-52
Frontier Petroleum Frontier Petroleum Services v. Czech Republic, UNCITRAL, Final Award, dated 12 November 2010, CL-21
Gami Investments Gami Investments, Inc. v. The Government of the United Mexican States, UNCITRAL, Award, dated 15 November 2004, RL-47
Gavrilovic Georg Gavrilovic and Gavrilovic D.O.O. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, dated 26 July 2018, RL-81
Generation Ukraine Generation Ukraine Inc v. Ukraine, ICSID Case No. ARB/00/9, Award, dated 16 September 2003, RL-45
Genin Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The Republic of Estonia, ICSID Case No. ARB/99/2, Award, dated 25 June 2001, CL105
Glamis Gold Glamis Gold Ltd. v. United States of America, UNCITRAL, Award, dated 8 June 2009, RL-95
Glencore Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, dated 27 August 2019, CL-113
Global Trading Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award, dated 1 December 2010, RL-9
Goetz Antoine Goetz et consorts v. République du Burundi, Award, dated 10 February 1999, CL-67
Hassan Awdi Hassan Awdi, Enterprise Business Consultants, Inc., and Alfa el Corporation v. Romania, ICSID Case No. ARB/10/13, Award, dated 2 March 2015, CL-100
Invesmart Invesmart v. The Czech Republic, UNCITRAL, Award (Redacted), dated 26 June 2009, RL-2
Jan de Nul Jan de Nul N. V. and Dredging International N. V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, dated 6 November 2008, RL-70
Joy Mining Joy Mining Machinery Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, dated 6 August 2004, RL-21
JSW Solar (Dissenting Opinion) JSW Solar v. Czech Republic, PCA Case No. 201403, Final Award, dated 11 October 2017, dissenting opinion of GARY BORN, CL-53
Lauder Ronald S. Lauder v. The Czech Republic, UNCITRAL, Award, dated 3 September 2001
Lemire Joseph Charles Lemire v. Ukraine, ICSID Case No ARB/06/18, Decision on Jurisdiction and Liability, dated 14 January 2010, RL-83
LG&E LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, dated 3 October 2006, CL-68
Loewen The Loewen Group, Inc. and Raymond L. Loewen (Claimants) and United States of America, ICSID Case No. ARB(AF)/98/3, Award, dated 26 June 2003, RL-53
Mamidoil Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Republic of Albania, ICSID Case No. ARB/11/2, Award, dated 30 March 2015, RL-49
Marvin Feldman Marvin Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, dated 16 December 2002, RL-108
Mauritius Republic of Mauritius v. United Kingdom, PCA (UNCLOS) 2011-03, Award, dated 18 March 2015, CL-120
Mera Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction, dated 30 November 2018, CL-85
Metalclad Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB/97/1, Award, dated 30 August 2000, CL-33
Micula I Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20, Final Award, dated 11 December 2013, CL-26
Middle East Cement Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, dated 12 April 2002, CL-66
Mondev Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, dated 11 October 2002, CL-13
MTD Equity MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSD Case No. ARB/01/7, Award, dated 25 May 2004, CL-9
Nycomb Nycomb v. Latvia, Award, SCC Case No. 118/2001, Award, dated 16 December 2003, CL-60
Occidental Occidental Exploration and Production Company v. Republic of Ecuador, UNCITRAL, LCIA Case No. UN3467, Final Award, dated 1 July 2004, RL-134
OI European OI European Group B. V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/25, Award, dated 10 March 2015, RL-64
Olin Holdings Olin Holdings Limited v. state of Libya, ICC Case No. 20355/MCP, Final Award, dated 25 May 2018, CL-61
Parkerings Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, dated 11 September 2007, CL-8
Philip Morris Philip Morris Brand et al v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction, dated 2 July 2013, CL-10
Phoenix Action Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award, dated 15 April 2009, RL-5
Pope & Talbot Pope & Talbot Inc. v. The Government of Canada, Award on the Merits of Phase 2, dated 10 April 2001, CL-108
Rumeli Telekom Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, dated 29 July 2008, CL-15
Quiborax Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational state of Bolivia, ICSID Case No. ARB/06/2, Award, dated 16 September 2015, RL-110
Romak Romak S.A. v. The Republic of Uzbekistan, PCA Case No. AA280, Award, dated 26 November 2009, RL-17
Rompetrol The Rompetrol Group N. V. v. Romania, ICSID Case No. ARB/06/3, Award, dated 6 May 2013, RL-40
Rusoro Rusoro Mining Limited v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, dated 22 August 2016, RL-79
Saba Fakes Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, dated 14 July 2010, RL-32
Saluka Saluka Investments B. V. v. The Czech Republic, UNCITRAL, Partial Award, dated 17 March 2006, RL-84
S.D. Myers S.D. Myers, Inc. v. Canada, UNCITRAL (NAFTA), Partial Award, dated 13 November 2000, RL-98
SolES Badajoz SolEs Badajoz v. Spain, ICSID Case No. ARB/15/38, Award, dated 31 July 2019, CL-114
Standard Chartered Standard Chartered Bank v. The United Republic of Tanzania, ICSID Case No. ARB/15/41, Award, dated 11 October 2019, CL-111
Stati Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Trading Ltd v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, dated 19 December 2013, RL-130
Tecmed Técnicas Medioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, dated 29 May 2003, CL-17
Tenaris Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal LDA v. Bolivarian Republic of Venezuela (I), ICSID Case No. ARB/11/26, Award, dated 29 January 2016, CL-91
Thunderbird International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award, dated 14 February 2007, RL-48
Tippets Tippets, Abbett, McCarthy, Stratton v. TAMS-AFFA Consenting Engineers of Iran et al., Iran-U.S. Claims Tribunal, Award No. 141/7/2, dated 22 June 1984, CL-65
Total Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, dated 27 December 2006, RL-85
Tza Yap Shum Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, dated 7 July 2011, CL-69
UAB UAB E Energija (Lithuania) v. Republic of Latvia, ICSID Case No. ARB/12/33, Award, dated 22 December 2017, RL-72
United Utilities United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID Case No. ARB/14/24, Award, dated 21 June 2019, RL-183
Vannessa Ventures Vannessa Ventures Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award, dated 16 January 2013, CL-106
Vestey Group Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, dated 15 April 2016, RL-16
Waste Management II Waste Management, Inc. v. United Mexican States (II), ICSID Case No. ARB(AF)/00/3, Award, dated 30 April 2004, CL-14
Watkins Holdings Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, dated 21 January 2020, CL-112
White Industries White Industries Australia Ltd. v. India, UNCITRAL, Award, dated 30 November 2011, RL-80
Wena Hotels Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, dated 8 December 2000, CL-64
Wirtgen Jürgen Wirtgen, Stefan Wirtgen, Gisela Wirtgen and JSW Solar (zwei) GmbH & Co. KG v. Czech Republic, PCA Case No. 2014-03, Final Award, dated 11 October 2017, RL-20

 

I. INTRODUCTION

1.

This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments signed on October 5, 1990, which entered into force on August 7, 1991 (the "BIT" or "Treaty"), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force generally on October 14, 1966 (the "ICSID Convention"), and entered into force for the Swiss Confederation and the Slovak Federal Republic on June 14, 1968 and June 26, 1994, respectively.

1. The Parties

A. Claimants

2.
The Claimants are Pawlowski AG ("Pawlowski AG"), a company incorporated under the laws of Switzerland, and Projekt Sever s.r.o. ("Projekt Sever"), a company incorporated under the laws of the Czech Republic (together, the "Claimants").
3.

Claimants are represented by

Prof. Felix Dasser, Kirstin Dodge J.D. and Dr. Nicole Cleis
Homburger AG
Prime Tower, Hardstrasse 201
CH-8005
Zurich, Switzerland

JUDr. Jan Havlíček
Havlíček Law Offices
Masarykovo náměstí 110/64
CZ-58601
Jihlava, Czech Republic

B. Respondent

4.
The Respondent is the Czech Republic ("Respondent").
5.

Respondent is represented by

Anna Bilanová
Ministry of Finance of the Czech Republic
Letenská 15, 118 10
Prague, Czech Republic

Eduardo Silva Romero
Erica Stein
Audrey Caminades
Dechert (Paris) LLP
32, rue de Monceau, 75008
Paris, France

6.
Claimants and Respondent shall henceforth be referred to as the "Parties."

C. The Arbitral Tribunal

7.

The Arbitral Tribunal is composed of

Mr. Juan Fernández-Armesto (President)
Armesto & Asociados
General Pardiñas, 102 8vo izq.
28006
Madrid, Spain

Prof. Vaughan Lowe
Essex Court Chambers
24 Lincoln's Inn Fields
WC2A 3EG
London, United Kingdom

Mr. John Beechey
Arbitration Chambers
Lamb Building
Temple
EC4Y7AS
London, United Kingdom

2. The Treaty: Dispute resolution clause

8.

Article 9 of the BIT provides:

Article 9

Disputes between a Contracting Party and an investor of the other Contracting Party

1. For the purpose of solving disputes with respect to investments between a Contracting Party and an investor of the other Contracting Party and without prejudice to Article 10 of this Agreement (Disputes between Contracting Parties), consultations will take place between the parties concerned.

2. If these consultations do not result in a solution within six months, the dispute shall upon request of the investor be submitted to an arbitral tribunal. Such arbitral tribunal shall be established as follows:

a) The arbitral tribunal shall be constituted for each individual case. Unless the parties to the dispute have agreed otherwise, each of them shall appoint one arbitrator and these two arbitrators shall nominate a chairman who shall be a national of a third State. The arbitrators are to be appointed within two months of the receipt of the request for arbitration and the chairman is to be nominated within further two months.

b) If the periods specified in paragraph (a) of this Article have not been observed, either party to the dispute may, in the absence of any other arrangements, invite the President of the Court of Arbitration of the International Chamber of Commerce in Paris to make the necessary appointments. If the President is prevented from carrying out the said function or if he is a national of a Contracting Party the provisions in paragraph (5) of Article 10 of this Agreement shall be applied mutatis mutandis.

c) Unless the parties to the dispute have agreed otherwise, the tribunal shall determine its procedure. Its decisions are final and binding. Each Contracting Party shall ensure the recognition and execution of the arbitral award.

d) Each party to the dispute shall bear the costs of its own member of the tribunal and of its representation in the arbitral proceedings; the costs of the chairman and the remaining cost shall be borne in equal parts by both parties to the dispute. The tribunal may, however, in its award decide on a different proportion of costs to be borne by the parties and this award shall be binding on both parties.

3. In the event of both Contracting Parties having become members of the Convention of Washington of March 18, 1965 on the Settlement of Investment Disputes between States and Nationals of other States, disputes under this article may, upon request of the investor, as an alternative to the procedure mentioned in paragraph 2 of this article, be submitted to the International Center for Settlement of Investment Disputes.

4. The Contracting State which is a party to the dispute shall at no time whatever during a procedure specified in paragraphs (2) and (3) of this Article or during the execution of the respective sentence assert as a defense the fact that the investor has received compensation under an insurance contract covering the whole or part of the incurred damage.

5. Neither Contracting State shall pursue through diplomatic channels a dispute submitted to arbitration, unless the other Contracting State does not abide by or comply with the award rendered by an arbitral tribunal.

II. PROCEDURAL HISTORY

9.
On 7 April 2017, ICSID received a request for arbitration from Pawlowski AG and Projekt Sever s.r.o. against the Czech Republic (the "Request").
10.
On 14 April 2017, ICSID asked the requesting parties to provide further information in support of the Request. That information was submitted on 2 May 2017.
11.
On 3 May 2017, the Secretary-General of ICSID registered the Request, as supplemented, in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7(d) of ICSID’s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.
12.
The Parties agreed to constitute the Tribunal in accordance with Article 37(2)(a) of the ICSID Convention as follows: the Tribunal would consist of three arbitrators, one to be appointed by each Party and the third, presiding, arbitrator to be appointed by agreement of the Parties.
13.
The Tribunal is composed of Juan Fernández-Armesto, a national of Spain, President, appointed by agreement of the Parties; John Beechey, a national of the United Kingdom, appointed by the Claimants; and Vaughan Lowe, a national of the United Kingdom, appointed by the Respondent.
14.
On 6 November 2017, the Acting Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules"), notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Lindsay Gastrell, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal. Ms. Gastrell was subsequently replaced by Ms. Anna Holloway, Legal Counsel.
15.
In accordance with ICSID Arbitration Rule 13(1), the Tribunal held a first session with the Parties on 24 January 2018 by teleconference.
16.
Following the first session, on 23 February 2018, the Tribunal issued Procedural Order No. 1 recording the agreement of the Parties on procedural matters. Procedural Order No. 1 provided, inter alia, that the applicable Arbitration Rules would be those in effect from April 10, 2006, that the procedural language would be English, and that the place of proceeding would be Paris, France. Procedural Order No. 1 also set out the agreed schedule for the proceedings.
17.
In accordance with Procedural Order No. 1, on 28 June 2018, the Claimants filed a Memorial on the merits, together with the Witness Statements of Mr. Sebastian Pawlowski, Mr. Milan Coller, Dr. Robert Zugar, Mr. Marek Tichý, and Mr. Martin Langmajer, the Expert Reports of Dr. Veronica Tomoszková (including Exhibits VT-0001 through VT-0024), Mr. Kai Schumacher of AlixPartners GmbH (including Exhibits AP-001 through AP-074), Exhibits C-0016 through C-0100, and Legal Authorities CL-0001 through CL-0048).
18.
On 25 July 2018, the Respondent confirmed that it would not request bifurcation of the proceeding.
19.
On 14 August 2018, the Tribunal issued Procedural Order No. 2 concerning production of documents.
20.
On 6 November 2018, the Respondent requested a three-week extension for filing of its Counter-Memorial citing difficulties in meeting the original deadline due to a number of departures at the division of the Ministry of Finance in charge of investment arbitration and other parallel filings that the state had to manage.
21.
On 7 November 2018, the Claimants opposed the Respondent’s request for extension noting that no compelling reason was stated to justify such an extension which would unduly disrupt the procedural calendar. In the event that the extension were granted to the Respondent, the Claimants argued, a corresponding extension for the Claimants would serve no practical purpose as the Claimants’ counsel would be engaged in another hearing at that time.
22.
On 9 November 2018, the Tribunal decided to grant an additional three weeks to each Party for preparation of their briefs. The Tribunal gave the Parties the liberty of choosing how they each wished to allocate the total additional time between the two written submissions each Party still had to present.
23.
On 19 November 2018, the Parties submitted agreed amendments to the procedural timetable and the Tribunal adopted those amendments on 28 November 2018.
24.
In accordance with the amended timetable, on 5 December 2018, the Respondent filed its Counter-Memorial on the Merits and Memorial on Preliminary Objections, together with the Witness Statements of Dr. Tomáš Hudeček and Ms. Věra Topičova, the Expert Reports of KPMG (including Exhibits KPMG-1 through KPMG-6) and Prof. Stanislav Kadečka (including Exhibits SK-1 through SK-84), Exhibits R-1 through R-26, and Legal Authorities RL-1 through RL-143).
25.
On 13 March 2019, the Tribunal issued Procedural Order No. 3 concerning production of documents.
26.
On 3 July 2019, the Claimants filed a Reply on the Merits and a Counter-Memorial on Preliminary Objections, together with the Witness Statements of Mr. Bořek Votava, Mr. František Nováček, Mr. Jaroslav Malčánek, and Mr. Martin Turnovský, the Second Witness Statements of Mr. Sebastian Pawlowski, Mr. Milan Coller, Mr. Martin Langmajer, and Mr. Marek Tichý, Second Expert Reports of Prof. Dr. Veronika Tomoscová, (including Annexes 1 through 6 and Exhibits VT-0025 through VT-0083) and Mr. Kai Schumacher of AlixPartners GmbH (including Appendices AP-G through AP-L and Exhibits AP-075 through AP-121), Exhibits C-0076a, C-0106 through C-0212, and Legal Authorities CL-0049 through CL-0108.
27.
On 6 November 2019, the Respondent filed a Rejoinder on the Merits and a Reply on Preliminary Objections, together with the Witness statements of Ms. Silvie Štěpánková, Mr. Ondrěj Boháč, and Mr. Matěj Stropnický, the Second Witness statements of Ms. Věra Topičová and Dr. Tomáš Hudeček, the Second Expert Reports of Prof. Stanislav Kadečka (including Exhibits SKII-1 through SKII-36) and KPMG (including Exhibits KPMG-7 through KPMG-37), Exhibits R-27 through R-76, and Legal Authorities RL-144 through RL-212.
28.
On 28 November 2019, the Claimants requested leave to submit new evidence into the record. The Respondent confirmed that it had no objection on 5 December 2019, following which, on 8 December 2019, the Tribunal instructed the Claimant to file new exhibits.
29.
On 4 December 2019, the Claimants filed a Rejoinder on Preliminary Objections, together with Legal Authorities CL-0109 and CL-0110.
30.
On 11 December 2019, the Claimants submitted additional Exhibits C-0213 through C-0215 in accordance with the Tribunal’s instructions.
31.
On 16 December 2019, the President of the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference.
32.
On 17 December 2019, the Claimants requested leave to submit additional evidence and indicated that the Respondent did not object to the request.
33.
The Tribunal granted leave to the Claimants to submit two new additional exhibits on 19 December 2019, pursuant to which, on 20 December 2019, the Claimants submitted further Exhibits C-0216 and C-0217.
34.
On 6 January 2020, the Tribunal issued Procedural Order No. 4 concerning the organization of the hearing.
35.
On 7 January 2020, in response to a request from the Respondent, the Claimants submitted replacement versions of the Exhibits AP-083 and AP-084 to Mr. Schumacher’s Second Expert Report, containing additional translations.
36.

A hearing on jurisdiction, merits and quantum was held in Paris, France from 26 January to 30 January 2020 (the "Hearing"). The following persons were present at the Hearing:

Tribunal:

Prof. Juan Fernández-Armesto President
Mr. John Beechey, CBE Arbitrator
Prof. Vaughan Lowe, QC Arbitrator

Assistant to the Tribunal

Ms. Krystle Baptista Serna Armesto & Asociados

ICSID Secretariat:

Ms. Lindsay Gastrell Secretary of the Tribunal

For the Claimants:

Prof. Dr. Felix Dasser Homburger AG
Ms. Kirstin Dodge Homburger AG
Dr. Nicole Cleis Homburger AG
Mr. Marc Bircher Homburger AG
Dr. Jan Havlíček Havlíček Law Offices
Mr. Vojtěch Haman Havlíček Law Offices
Ms. Jessica Wiederhold Homburger AG (Assistant)
Ms. Julia Buess Homburger AG (Assistant)
Pawlowski AG and Projekt Sever s.r.o.
Mr. Sebastian Pawlowski
Mr. Peter Williams Interpreter

For the Respondent:

Mr. Eduardo Silva Romero Dechert LLP
Ms. Erica Stein Dechert LLP
Ms. Audrey Caminades Dechert LLP
Ms. Raphaelle Legru Dechert LLP
Ms. Juliana Pondé Fonseca Dechert LLP
Mr. Quentin Muron Dechert LLP
Mr. Panos Theodoropoulos Dechert LLP
Ms. Liana Cercel Dechert LLP
Ms. Ljubica Kaurin Dechert LLP
Mr. Ondřej Landa Ministry of Finance, Czech Republic
Ms. Martina Matejová Ministry of Finance, Czech Republic
Ms. Anna Bilanová Ministry of Finance, Czech Republic
Mr. Jaroslav Kudrna Ministry of Finance, Czech Republic
Mr. Martin Nováček Ministry of Finance, Czech Republic

Court Reporter:

Ms. Diana Burden

Interpreters:

Ms. Dalila Graffova Independent
Ms. Martina Parker Independent
Dr. Dominika Winterová Independent

37.

During the Hearing, the following persons were examined:

On behalf of the Claimants:

Mr. Sebastian Pawlowski Fact Witness for Claimants
Mr. Milan Coller Fact Witness for Claimants
Dr. Robert Zugar Fact Witness for Claimants
Mr. Martin Langmajer Fact Witness for Claimants
Mr. (Ing.) Borek Votava Fact Witness for Claimants
Mr. Frantisek Nováček Fact Witness for Claimants
Mr. Marek Tichý Fact Witness for Claimants
Mr. Jaroslav Malčánek Fact Witness for Claimants
Claimants’ Legal Expert and Director of the Centre for Clinical
Prof. Dr. Veronika Tomoszková Legal Education at the Law Faculty of Palacký University in Olomouc, Czech Republic
Mr. Kai F. Schumacher Claimants’ Quantum Expert and AlixPartners GmbH
Mr. Clark Fraser AlixPartners GmbH

On behalf of the Respondent:

Ms. Věra Topičová Fact Witness for Respondent
Mr. Tomáš Hudeček Fact Witness for Respondent
Mr. Ondřej Boháč Prague Institute of Planning and Development
Mr. Matěj Stropnický Fact Witness for Respondent
Ms. Silvie Štěpánková Fact Witness for Respondent
JUDr. Stanislav Kadečka, Ph.D. Masaryk University, Faculty of Law
Mr. Jan Brož Trainee of JUDr. Stanislav Kadečka
Mr. Fernando Cuñado Garcia-Bernalt KPMG
Mr. Jiří Urban KPMG
Mr. Martin Staněk KPMG

38.
During the Hearing, on 26 January 2020, the Claimants submitted new Exhibit C-218 in accordance with the Tribunal’s instructions.
39.
On 5 February 2020, the Tribunal issued guidance to the Parties in connection with issues to be clarified in their post-hearing submissions.
40.
On 18 February 2020, the Parties indicated their agreement on several outstanding issues and on post-Hearing deadlines.
41.
On 20 February 2020, the Tribunal confirmed the agreed calendar for the post-Hearing submissions.
42.
On 10 March 2020, the Claimants submitted an agreed translation of Exhibit H-3 and a replacement page for Exhibit C-135 in accordance with the Parties’ agreement.
43.
On 16 April 2020, the Secretary-General notified the Members of the Tribunal and the Parties that Ms. Anna Holloway, ICSID Legal Counsel, would be replacing Ms. Lindsay Gastrell as Secretary of the Tribunal.
44.
On 24 April 2020, the Claimants requested an extension of the remaining deadlines in the post-Hearing procedural calendar, indicating that the Respondent had agreed to the proposed extensions.
45.
On 27 May 2020, the Claimants requested leave to submit new evidence, specifically, a new exhibit containing a Facebook post of Ms. Silvie Štěpánková, one of the witnesses who had testified at the Hearing on behalf of the Respondent. The Claimants cited Ms. Štěpánková’s alleged "untruthful testimony" as an exceptional circumstance to justify the admission of new evidence.
46.
After invitation from the Tribunal, on 3 June 2020, the Respondent submitted its comments upon the Claimants’ request. The Respondent maintained that the request was "belated and unwarranted." It argued that the Claimants’ request should be rejected noting that the allegedly new evidence had been available to the Claimants since before this arbitration proceeding began. The introduction of the proposed new evidence would cause prejudice to the Respondent since Ms. Štěpánková would not be able to respond to it.
47.
On 16 June 2020, the Tribunal issued Procedural Order No. 5 allowing the Claimants to submit the requested new evidence and allowing the Respondent, in turn, to submit an affidavit from Ms. Štěpánková addressing the new evidence. The Tribunal also granted the extensions on the remaining procedural submissions.
48.
In accordance with the Tribunal’s directions, on 18 June 2020, the Claimant filed an additional exhibit C-219. The Respondent submitted the Affidavit of Ms. Silvie Štěpánková on 29 June 2020.
49.
The Parties filed simultaneous post-hearing briefs on 15 July 2020, and their submissions on costs on 6 August 2020.
50.
The proceeding was closed on 5 October 2021.

III. FACTS

51.
Mr. Sebastian Pawlowski, a citizen of Switzerland, is the 100% shareholder and sole statutory representative of Pawlowski AG; he is also the executive director of Projekt Sever s.r.o, which is 100% owned by Pawlowski AG.1
52.
Mr. Pawlowski was among the first foreigners to begin investing in the Czech Republic in the early 1990s.2 Over time, Mr. Pawlowski became involved in a variety of entrepreneurial and non-profit activities in the Czech Republic, primarily through Pawlowski AG. These activities included his involvement and participation in numerous large scale property developments, his co-founding of a business with retail locations throughout the Czech Republic and his investment in several news and media companies in the country. Mr. Pawlowski has also been involved in the development of cultural centers in the country. He is the founder of the Franz Kafka Museum and the Alphonse Mucha Museum, both of which are located in Prague.3

The City of Prague

53.
Following a peaceful transition of power, the country then known as Czechoslovakia held its first democratic elections in half a century in the summer of 1990. Not long thereafter, in 1993 Czechoslovakia peacefully split into the independent countries of the Czech Republic and the Slovak Republic. The Czech Republic’s new government implemented a number of economic reforms, including the privatization of state-owned industry and the removal of price controls, as the country worked towards the goal of establishing a robust market economy.
54.
Due to these changes, the City of Prague developed rapidly and became an important economic centre. Today it is one of the most economically developed areas within the European Union.4 Prague’s economic growth has attracted many people to move to the city, resulting in consistent high demand for residential real estate.5 This demand is expected to continue to grow, as the city’s strong economy and very low unemployment attract new residents, with estimates forecasting a 20% population increase by 2050.6
55.
The City of Prague is the highest municipal authority. It is headed by three democratically elected bodies: the Mayor, the Prague City Council and the Prague City Assembly. Management, directed by a Chief Executive, is divided into various sections, including the Spatial Planning and Development Sections (the latter subsequently renamed Prague Institute of Planning and Development), which is responsible for zoning issues.7
56.
Within the City of Prague there are 57 Municipal Districts - or boroughs - each with its own legislative branch (the District Assembly) and executive branch (the District Council and District Mayor). Prague's Municipal Districts are congregated into 22 numbered administrative districts, which perform administrative functions for the Municipal Districts within their zone.8 One such administrative district is "Prague-22 Uhříněves" - which performs administrative functions for itself and four neighbouring Municipal Districts, including the District of Benice9.
57.
The dispute in the present case relates to the change of the zoning regulation affecting a certain tract of land, with an area of approximately 270,000 m210 located in the Municipal District of Benice and bordering the District of Uhříněves (the "Project Area"). The Project Area is shown on this cadastral map:11
58.
To properly understand the dispute, the Tribunal will first explain how zoning plan changes are procured and approved in the City of Prague [1.] and thereafter it will describe how the zoning plan of the Project Area changed over time [2.].

1. The procurement of zoning plans

59.
Land use planning in the Czech Republic is administered through a combination of state administration and territorial self-governance.12 Generally, the designated use for land in the Czech Republic is established through two higher planning norms: the "Spatial Development Policy", which coordinates the land planning activities of the different regions, and the "Regional Development Principles", which establishes a strategic plan for the development of a specific territory.13
60.
The procurement of a zoning plan change typically proceeds through several established steps, with each stage involving notification to and comment from various authorities, city Districts and the public. Proposed changes to Prague's land use plan are so frequent that they are grouped together into so-called "waves", which proceed through the process together.14 Overall, the process for a zoning change of the land use plan is a long and democratic administrative process, which is divided into several consecutive steps and which requires decision-making from the Prague City Assembly (the highest political body, elected by the citizens of Prague) at all relevant stages.15
61.
First Phase - Decision to Procure: the initial step is a formal act (a "Decision to procure") in which the Prague City Council initiates a zoning plan change. This may be made at the request of any municipal District, acting on its own initiative, or on the initiative of a private individual. However, any initiative for a zoning plan change by a private individual still must be submitted via the municipal District in which the area is located.16
62.
Second Phase - Approval of an "Outline": the second phase requires the Zoning Plan Division of the Prague Municipal Office (the "Procurer") to prepare a draft Outline, which is made available for review and comment by all interested Authorities and city Districts, as well as by the public; thereafter, the Prague City Assembly must approve the Outline.17
63.
Third Phase - the "Concept": If the Outline includes a requirement for an environmental impact assessment, the elaboration and approval of a zoning change Concept is the next stage of the procurement process.18 During the procurement of the Concept, the environmental authority must approve the environmental impact assessment. The Concept is again subject to public discussion.19
64.
Fourth Phase - the preparation of a "Draft": Based on public discussion and all the submitted statements, comments and objections, the Procurer prepares a Draft.20 Then, the Draft zoning change is subject to public discussion and all interested authorities and the superior planning authority submit their statements.21 After the public discussion, the Procurer assesses the results of the public discussion and, if necessary, weighs competing views, reviews the compliance of the draft with the law and superior land use planning documents and prepares the reasoning for the zoning change.22
65.
Final Phase - Approval: The Prague City Assembly considers the Draft, including the reasoning, and approves it by majority. The approved zoning change is issued in the legal form of a measure of general nature.23

2. Change in the zoning plan of the Project Area

66.
At the beginning of the XXI Century, the Project Area was zoned for "recreation", "growing vegetables", and "gardens and allotments."24 As it is close to the metropolitan area, and there is a high demand for new housing projects, there was a keen interest in changing the permitted use of the land, so as to authorise residential use. There were two attempts to obtain such re-zoning.

2.1 First rezoning attempt : Z 0592/04

67.
Sometime in the early 2000s a first change in the zoning plan of the Project Area was formally initiated and discussed within the administration of the City of Prague; the request, which received the number Z 0592/04, proposed that the use of the land be reclassified as residential with housing for approximately 800 residents.25 The map below, taken from file Z 0592/04, establishes that this first attempt affected the Project Area:26
68.
The first attempt was unsuccessful: in August 2002, file Z 0592/04 received a negative opinion from the Environmental Division, because of its proximity to a natural park:

"From the viewpoint of the interests protected by us, the change is inadmissible - the Botič - Milíčov natural park."27

69.
On the basis of this negative opinion, the proposed change was rejected by the Prague City Assembly on 29 May 2003.28

2.2 Second rezoning attempt: Z 1294/06

70.
The second attempt to re-zone the Project Area, instigated by the owners of 17 real estate units29, was filed before the first zoning change had been formally rejected. On 13 March 2002, the Benice District Assembly approved this second proposal.30 A few months thereafter, on 10 July 2002, the Uhříněves District Assembly ratified the request.31
71.
A year later, on 2 October 2003, when Z 0592/04 had already been formally dismissed, the Deputy Mayor of Uhříněves, Mr. Martin Langmajer, transferred the proposed zoning amendment (Z 1294/06) to the Development Section of the Municipal Office of Prague32. A later submission, dated 26 April 2004, specified that what was being requested was a change in the use of the Project Area from agricultural use to "purely residential use", consisting of "low buildings with envisaged use rate code C."33 The reason given for the proposed change was:

"[t]he possible development of the territory on the border of Prague Benice and Prague Uhříněves boroughs, i.e. the creation of a new residential complex surrounded by nature with the possibility of connecting it to commercial, cultural and sporting facilities in Prague Uhříněves and simultaneously within reach of the Čestlice - Průhonice commercial zone."34

72.
The Districts' proposals were included in "wave 6" of the various proposed changes being considered for Prague's land use plan. They were numbered as change "Z 1294/06", later renumbered as "Z 1294/07" (the "Zoning Plan Change Z 1294/07" or simply the "Zoning Plan Change").35 This marked the official start of the long procurement and approval process for the proposed re-zoning.36

The Outline

73.
As a first step, an Outline of the Zoning Plan Change was prepared by the Zoning Plan Division of the Municipal Office of the City of Prague. The Outline37 was made available for the review and comment of all interested Authorities and City Districts, displayed for public viewing in the zoning plan processor's office and posted online.38 Additionally, a public discussion of the Outline was scheduled for 28 February 2005.39
74.
Position statements were submitted by the Environmental Division of the Municipal Office of the City of Prague on 17 March 2005, and by the Ministry of Regional Development on 12 October 2005.40 The position statement of the Ministry of Regional Development confirmed the compliance of the Outline with all applicable regulations and procedural requirements, and the Environmental Division accepted the Outline, on condition that a detailed urban study (including an assessment of the impact on the Botič-Milíčov nature park) be undertaken and provided.41
75.
On 23 February 2006, following the review of the Outline by the relevant City and state authorities and the public, the Prague City Assembly approved the Outline for the zoning plan change.42

The Concept

76.
The second step of the process was to obtain approval for the Concept from the Development Section and from the Environmental Division. A Concept was elaborated and made available to the interested authorities, to the City Districts, and for public comment, and was subsequently approved by the Development Section on 24 April 2008.43 An environmental impact assessment was also prepared and provided to the Environmental Division, which issued a positive position statement on 7 May 2008.44
77.
Based on these approvals, the Concept was submitted to the City Assembly, which approved it by issuing an "affirmative opinion with conditions" in its resolution of 30 October 2008.45
78.
It is to be noted that this was the current stage of the Zoning Plan Change when Claimants purchased the land constituting the Project Area - see infra section [4.].

The Draft

79.
In the final stage of the procurement process, the Development Section of the Municipal Office of Prague prepared the Draft of the zoning plan change in the form of a zoning map, based on the Outline.46 At this point, several of the proposed changes in "wave 6" were split out and reassigned into a "wave 07", which proceeded more quickly than the changes that remained in "wave 06." Procedure Z 1294/06 was moved to "wave 07" and was thereafter referred to as Z-1294/07.47
80.
The Draft went through two rounds of deliberations and was made available to the relevant Authorities and to the public.48 As part of the approval process, a joint hearing was held on 15 May 2009, followed by a public hearing.49
81.
The interested authorities - including the Environmental Division and the Ministry of Regional Development - approved the Draft in the context of both hearings.50 Since the reactions of the Authorities had been favorable, and no comments had been received from the public, the Development Section submitted it directly to the City Assembly.51

2.3 Approval of Zoning Plan Change Z 1294/07

82.
On 26 March 2010, Prague's City Assembly approved the Zoning Plan Change Z 1294/07 relating to the Project Area ("Zoning Plan Change") and implemented it through a "Measure of General Nature" of the same date.52 The Zoning Plan Change entered into force on 16 April 2010 - eight years after the Benice District Assembly had first discussed and approved the proposal for the re-zoning of the Project Area. But the approval was still subject to judicial review, which could lead to the annulment of the Zoning Plan Change, at the request of any District or any other affected party.53

3. Mr. Pawlowskis introduction to the investment opportunity in Benice / UhŘINĚVES

83.
In 2007 Mr. Pawlowski, who was actively looking for investment opportunities, was introduced to the Mayor of Uhříněves, Mr. Coller, and to his Deputy Mayor, Mr. Langmajer. In the course of their discussions, Mr. Coller and Mr. Langmajer informed Mr. Pawlowski of the ongoing efforts by the district of Uhříněves to find a developer to construct a residential project (the "Benice Residential Complex", or the "Project") in the Project Area.54

4. Claimantspurchase of land

84.
Following these enquiries, Pawlowski AG acquired the shelf company Projekt Sever s.r.o. in February 2007 for the purpose of realising the project.55 Projekt Sever then hired a real estate lawyer, Dr. Robert Zugar, who began to work towards concluding purchase agreements for the land in the Project Area.56 Projekt Sever eventually concluded all of the relevant land purchases between June 2007 and December 2008,57 at a time when the re-zoning was still underway (it would only be approved two years later in 2010).
85.
Projekt Sever acquired the Project Area from different owners. In particular, it purchased land from private landowners [4.1], the City of Prague [4.2] and the Czech Republic [4.3 and 4.4].
86.
The map below shows the land purchased from private owners (orange), the City of Prague (blue), and the Czech Republic’s Ministry of Defense (green) and Czech Land Fund (yellow).58

4.1 Projekt Severs purchase of land from private landowners

87.
As can be seen in the map above, the majority of the Project Area involved land previously owned by private landowners (shaded in orange).
88.
The re-zoning process had at this point been underway for five years, a Concept had been approved by the City Assembly and Projekt Sever thus paid the landowners a price, which as Mayor Coller acknowledged, was considerably higher than it would have been for agricultural land."59 Dr. Zugar, Claimants’ attorney for the land acquisitions, explains that:

"[t]he prices agreed with the private land owners reflected an average price of CZK 1,250 per square meter, which was much higher than the price of farming land in the same area at that time due to the fact that the zoning process was in a very advanced stage."60

4.2 Projekt Severs purchase of land from the City of Prague

89.
Claimants also sought to purchase certain plots of land located within the District of Benice and owned by the City of Prague.61 Since June 2000, the Benice District Assembly had delegated the administration of these plots to the neighboring District of Uhříněves,62 and Claimants therefore negotiated directly with officials from Uhříněves.
90.
A tender was launched, and Projekt Sever was the only bidder. The Council and the Assembly of Uhříněves approved the sale of the land.63 On 20 June 2007 Projekt Sever and Prague 22 District signed a contract (the "Prague Purchase Contract"), which described the asset as "arable land"; the buyer paid CZK 43,820,000 for the 43,784 m2 of land owned by the City of Prague.64

4.3 Purchase of military owned land from the Ministry of Defense

91.
In addition, Projekt Sever also purchased a small proportion of land (about 8% of the total) from the Czech Republic’s Ministry of Defense, which owned several small plots of land in the Project Area as well as old buildings that had once served as housing for military personnel. They included structures such as workshops, fencing, and outdoor lighting.65 By 1992, the military had mostly abandoned the complex and returned much of the land beneath the buildings to private individuals, but the buildings and related structures remained. As of 2007, the majority of the former military owned buildings and fixtures were in a state of disrepair.66
92.
On 8 December 2008, Projekt Sever signed an agreement with the Ministry of Defense (the "Defense Purchase Contract"). It paid CZK 10,854,281 to the Ministry for 1,135 m2 of land, and for the right to tear down the structures and to dispose of the rubble.67 The Defense Purchase Contract describes the object of the sale as "structures" and "miscellaneous" and "unfertile" land.68

4.4 Option to Purchase land owned by the Czech Land Fund

93.
Uhříněves officials also offered to assist Projekt Sever with the purchase of a strip of land which was owned by the Czech Land Fund: Projekt Sever agreed to a plan whereby Uhříněves would apply for a transfer of land to the District and the District would in turn sell the land to Projekt Sever.69
94.
Dealing with the Czech Land Fund land took longer than anticipated (due to a restitution lawsuit which had been started against the Czech Land Fund for the same plot of land). Ultimately, Projekt Sever entered into an agreement with the prospective private owner, with an option to purchase the property, if the restitution lawsuit was successful.70
95.
The restitution suit ultimately was successful, but due to the eventual annulment of the Zoning Plan Change, the purchase of this plot of land was never completed.71

5. The Benice Lawsuit

96.
The Prague Purchase Contract had been entered into between Projekt Sever and District 22 of the City of Prague. The land sold was located in the District of Benice, but it was administered by the District of Uhříněves. The distinction is relevant, because the sales price paid by the buyer went to the District which administered the land, not to that in which it was located.72
97.
The District of Benice was not satisfied with this solution. In October 2009, Benice filed a lawsuit with the District Court of Prague against Projekt Sever (not against the District of Uhříněves), contesting the validity of Projekt Sever’s purchase of land under the Prague Purchase Contract (the "Benice Lawsuit"). Benice asserted that its District, and not the District of Uhříněves, should have represented the City of Prague during the sale of the landand should have received the proceeds.73
98.
Once the Benice Lawsuit was filed, a lawyer representing the District of Benice informed Mr. Pawlowski’s lawyer that Benice was willing to withdraw the lawsuit if the Claimants paid the District CZK 20 million.74 Mr. Pawlowski refused to make the payment.75

6. Permits of the project

99.
In the Czech Republic, once a zoning plan is approved or changed, a developer must obtain three permits for the construction and subsequent use of real estate.76 These are a planning permit, a building permit and a final inspection approval:77

- As a first step, the developer must obtain a planning permit from the competent building authority, which ensures that the project conforms to the zoning plan and that the proposed construction complies with legal requirements, including water, electricity, fire protection and other public health requirements;78

- After obtaining the planning permit, a developer must secure a building permit, which describes the layout and technical details of the planned construction; once the developer has obtained the building permit, construction may start;79

- Last, the completed construction requires inspection approval, which confirms that the construction complies with the building permit; once the inspection approval is granted, the buildings may be used for their planned purpose.80

100.
After purchasing the land in the summer of 2007,81 Project Sever hired the architectural and engineering studio Tichý and Kolářová ("TaK").82 An architectural agreement was concluded on 23 December 200783 and immediately thereafter, the planning activity began. It went on for almost four years. The formal application for a planning permit was finally filed in January 2012 (i.e., two years after the Zoning Plan Change Z 1294/07 had been adopted by the City of Prague Assembly).84
101.
Projekt Sever and TaK had to take numerous steps in order to obtain preliminary approvals from the relevant authorities. For example, Projekt Sever was obliged to confirm that the residential complex could be connected to the municipal sewage system. This involved discussions with local authorities, and ultimately led to the solution that Projekt Sever would cooperate with another developer in the area, constructing a new wastewater pumping station and pressure line, at their own cost.85
102.
Another extensive process was the preparation of the documentation related to the environmental impact assessment for the project. For this, TaK had to obtain statements from a number of authorities. TaK adapted the Project’s design to incorporate the comments received from and the agreements reached with the authorities.86 However, before the formal application for a planning permit could be filed, an application for an increase in density was required.

7. Application for an increase in density

103.
As mentioned previously, on 16 April 2010, Zoning Plan Change Z 1294/07 was approved by the Prague Assembly and the Project Area was zoned as residential land87 within the category "OB-B", i.e., residential use with a density coefficient of 0.3. This implied that Projekt Sever could build approximately 100,000 m2 of apartments and houses on the site, subject to obtaining planning and building permits.88

Proposal for an increase in the density coefficient

104.
Six months later, on 19 January 2011, Projekt Sever submitted a proposal to increase the density coefficient from 0.3 ("OB-B") to 0.5 ("OB-C")89 - which was the density coefficient that had originally been sought in the applications for the zoning plan change submitted by Benice and Uhříněves, but which had been reduced to OB-B by the Prague City Assembly in its resolution approving Draft Change Z 1294/07.90
105.
The process for the increase of the density coefficient was simpler than for the zoning plan change, since it qualified as an adjustment and not as a change.91 Approvals were sought from the relevant authorities, including the Districts of Benice and Uhříněves, the Construction Department of Uhříněves, the Development Section of the Municipal Office of Prague, and the Environmental Division.92
106.
The Construction Division of Prague 22 and the Deputy Mayor of Uhříněves, Mr. Martin Turnovský, both approved the density increase.93
107.
Benice, however, opposed the density increase and on 7 March 2011 issued a negative opinion, noting that it stood by its original statement on the project from December 2008:

"Prague-Benice Borough stands by its original statement on the investment project from December 2008. In the minutes of the consultation of the borough’s comments on the zoning plan concept of 31.3.2009, it is stated that a request for low-rise construction up to 3 levels above ground will be accepted."94

108.
Shortly thereafter, Benice's Mayor Topičová informed Claimants' lawyer that the District could accept a density increase, but she requested a payment from Projekt Sever as consideration for the District's smooth cooperation.95
109.
No such payment was made.

Approval of the increase in the density coefficient

110.
The District of Benice ultimately waived its opposition and gave its approval to the increase in the density coefficient. Mayor Topičová has justified the change of position, explaining that the District was threatened with losing access to Uhříněves’ kindergarten. Mayor Topičová testified that Uhříněves' Deputy Mayor Turnovský met with her at Benice's municipal office and threatened that, if Benice withheld its consent to the change in the density coefficient, Uhříněves' kindergarten would turn away all the children from Benice.96
111.
Mr. Turnovský rejected Ms. Topičová's presentation of the facts, maintaining that he reached a mutual agreement with Ms. Topičová so that both boroughs would support the change in density, in order to secure the greatest possible involvement of the investor, particularly for the creation of a new kindergarten.97 Mr. Turnovský explained that the issue of a new kindergarten was important, precisely because Uhříněves would not have the capacity to admit the additional children of the proposed new Residential Complex Benice.98 According to Mr. Turnovský, the discussion did not involve threats to turn away children from Benice from Uhříněves’ kindergarten; rather, Uhříněves agreed to admit a specific maximum number of children, regardless of the further evolution of the Project.99
112.
Be that as it may, it is a fact that the District of Benice gave its consent, as did the District of Uhříněves, and that on 16 August 2011, the Zoning Plan Division of the Municipal Office of Prague modified the zoning plan to reflect the increased density coefficient of 0.5 ("OB-C").100

8. Application for a planning permit

113.
Six months later, on 3 January 2012, the Zoning Plan Department of the Municipal Office of Prague confirmed that TaK’s design of the residential complex was in line with the functional use permitted in the zoning plan.101 Following this confirmation, TaK filed the planning permit application and supporting documentation for the Project with the building office of Uhříněves,102 anticipating the construction of 796 apartments and houses on the Project Area.103
114.
On 30 January 2012, Claimants’ representative, Mr. Jaroslav Malčánek, sent a written request for consent from Benice regarding the Project’s connections to gas lines and to the sewer system on City land administered by Benice.104 When no response was received, Mr. Malčánek made an appointment with Mayor Topičová to discuss the matter in person. According to Claimants, there followed a number of face-to-face meetings between their representatives and Mayor Topičová, although she ultimately refused the request for consent and told Mr. Malčánek that Mr. Pawlowski should meet with her in person.105
115.
Although in her witness statement Mayor Topičová denied having met with Mr. Malčánek,106 during the Hearing she admitted that, in fact, she had met with Mr. Malčánek with respect to the connection to the gas lines.107
116.
Eventually, the Prague Property Records, Management and Use Division sent a letter warning Benice that if it failed to issue the requested statement and failed to follow the standard procedure for the planning permit process, the City, as landowner, would respond to the request. Mayor Topičová also noted her irritation that Claimants continued to negotiate with Prague 22 Borough, rather than with Benice, even though the Project area was located on Benice’s cadastral area.108

9. The Benice Lawsuit is dismissed

117.
By early 2012, the development of the Project seemed to be proceeding as planned: the zoning change had been approved, the increase in density had been accepted and the planning permit application had been submitted by Claimants’ architects to the relevant authorities.
118.
At that time, the Benice Lawsuit, Benice’s judicial challenge against the Prague Purchase Contract was still pending. On 8 March 2012, the District Court issued its decision: it dismissed the Benice Lawsuit, with the result that the purchase price paid by Projekt Sever would flow to Uhříněves and that Benice would not be entitled to receive any funding.109 In its decision, the Court considered that Benice lacked standing to bring the case, because Municipal Districts cannot own property and act only as managers of entrusted property.110 Additionally, the Court rejected the argument that Benice was in charge of the administration of the plots of land and confirmed that Uhříněves was the rightful administrator.111
119.
Benice’s Mayor Topičová promptly decided to appeal the decision.112 On 29 May 2012, Projekt Sever sent a letter to Mayor Topičová, objecting to the filing of the appeal and protesting once again that Projekt Sever could not be held hostage in the dispute between Benice and Uhříněves.113
120.
The appeal was eventually dismissed,114 and Projekt Sever’s purchase of land owned by the City of Prague under the Prague Purchase Contract became unassailable.

10. Benices Annulment Request

121.
The extent of the Residential Complex planned by Projekt Sever was causing concern to neighbours who owned real estate in the proximity. In May 2012, two neighbours, Mr. Hepner and Ms. Štěpánková,115 contacted Mayor Topičová and held a meeting with her and with Benice’s lawyer, Mr. Bernhard, to voice their concern.116 It was during this meeting that the possibility of a judicial request for the annulment of the Zoning Plan Change was first discussed (the "Annulment Request").117
122.
After obtaining the authorization of the Benice District Assembly, on 28 June 2012 the Annulment Request was filed with the Court. In this action, the City of Prague (not Projekt Sever) was named as respondent, and the relief sought was the annulment of the Zoning Plan Change, based on substantive and procedural shortcomings.118
123.
Projekt Sever was invited to take part in the proceedings through a notification sent by the Municipal Court on 25 July 2012. However, by the time Projekt Sever attempted to do so in March 2013, the deadline had already passed, and the Court denied Projekt Sever’s request to participate.119
124.
The City of Prague, as respondent in the annulment action, replied and opposed the arguments made by the plaintiffs.120

Decision of the Municipal Court

125.
The City Court reviewed the case, and on 26 April 2013, it issued a long and fully reasoned decision (the "Annulment Decision"),121 finding that Zoning Plan Change Z 1294/07 should be annulled, because:

- (i) it had been issued in contravention of the law; and

- (ii) it lacked proper reasoning.

Decision of the Prague Supreme Administrative Court

126.
Initially, the Mayor of Prague, Mr. Tomáš Hudeček, stated publicly that the city "welcome[d] the Court’s judgment" and that the City of Prague would not file a cassation complaint to the Prague Supreme Administrative Court.122
127.
Contrary to Mr. Hudeček’s remarks, the City of Prague did in fact file a cassation complaint.123 At the time, Mayor Hudeček was quoted as saying that "lawyers had convinced [him] that if Prague had not appealed, it could have harmed its position in any arbitration."124
128.
The cassation complaint was dismissed by the Supreme Administrative Court one year later, on 26 February 2014, thus confirming the annulment of the Zoning Plan Change.125
129.
As a consequence of the cassation judgment, the Annulment Decision became res judicata.

Projekt Sever’s unsuccessful appeals to the Constitutional Court

130.
Projekt Sever filed two further actions before the Constitutional Court, in an effort to undo the annulment of the Zoning Plan Change.126
131.
In the first case, Projekt Sever challenged the decision of the Municipal Court, denying Projekt Sever’s standing, due to its failure to appear by the deadline established by the Court. On 4 December 2014 the Constitutional Court confirmed the Municipal Court's decision and dismissed the complaint.127
132.
In the second, later, case, Projekt Sever challenged the merits of the Annulment Decision itself. This case was likewise dismissed by the Constitutional Court on 21 February 2017, with the Court finding that Projekt Sever’s fundamental rights under the Constitution and international treaties binding upon the Czech Republic had not been breached.128

11. Developments after the Annulment Decision

133.
The Annulment Decision had a devastating effect on the Project: the use of the land reverted to the previous category (agriculture, forest, and recreation), making any residential development impossible. Projekt Sever’s application for a planning permit became moot.
134.
It is not in dispute that the partial or total annulment of a zoning plan is a frequent occurrence in the Czech Republic.129 The Building Act has a specific provision, Section 55(3), establishing the principles which a Municipal authority must follow in such cases.130 Claimants say that Section 55(3) required the Prague City Assembly to take up the question of re-procurement without delay (11.1) - an interpretation which was initially contested by the Municipality (11.2; 11.3 and 11.4). When Claimants’ interpretation was supported by the Ministry of Regional Development (11.5), the City changed tack and in 2015 submitted the issue of re-procurement to the City Assembly - which eventually decided not to start a new zoning change procedure, leaving the Project Area with its original status of agricultural and recreational land, on which residential development is impossible (12).
135.
These events will be explained in more detail in the following sub-sections.

11.1 Claimantsletter to Mayor HudeČek

136.
Two months after the Supreme Court decision, Mr. Pawlowski (in the name of Projekt Sever) sent a letter to Mayor Hudeček, explaining that the annulment of the Zoning Plan Change had caused massive damage to Projekt Sever (quantified at a minimum of CZK 2.5 billion) and requesting that the matter be included on the agenda of the next session of the City Assembly.131
137.
The following month, Mayor Hudeček reacted. By letter dated 19 May 2014, he informed Projekt Sever that Section 55(3) did not apply to this case, and that the only possible course of action was the filing of a new application for a zoning plan change.132

11.2 Discussion at the City Assembly Meeting of 29 May 2014

138.
At the meeting of the Prague City Assembly on 29 May 2014 (10 days after Mayor Hudeček’s letter), Assembly member Dr. Blažek asked Mayor Hudeček about the delay in bringing the matter of the annulment of the Zoning Plan Change before the Assembly, noting the potential exposure to damages that the City of Prague was facing.133 (Dr. Blažek was an important figure in the "ODS" party, a rival and opponent of Mayor Hudeček’s "TOP09" party).134
139.
Mayor Hudeček responded by asserting that:

"[t]he error is not in the official procedure [of the zoning change]; the error is that the Prague City Assembly ever approved it."135

140.
Mayor Hudeček suggested that there had been improper conduct in obtaining the Zoning Plan Change: the Zoning Plan Division initially had a negative opinion, and undue pressure had been exerted upon it to change its opinion. He also told the Assembly that files relating to the approval of the Zoning Plan Change had been sent to the Police.136 Mayor Hudeček further insinuated that there had been criminality involved in the re-zoning process.137

11.3 Discussion at the City Assembly Meeting of 19 June 2014

141.
One month later, at the 19 June 2014 City Assembly meeting, Dr. Blažek once again brought up the annulment of the Zoning Plan Change, proposing that the City restart the re-procurement process, and noting the potential future risks that the City Assembly members could face if they did not act. Dr. Blažek proposed placing the matter on the agenda.138
142.
In response to Dr. Blažek’s concerns, Mayor Hudeček replied that:

"If part of a zoning plan is annulled and there is no valid zoning plan in the given part of the city or territory, the assembly has to act without delay. That means that we have here the opinion of lawyers from the zoning plan division headed by Mrs. Engineer Cvetlerová. Based on this opinion I think that we really don’t have to deal with this situation now and consequently I won’t submit the prints either. I consequently will not second Doctor Blaežek’s motion."139 [Emphasis added].

143.
Mayor Hudeček thus refused Dr. Blažek’s motion to place the matter on the agenda for discussion.

11.4 Discussion at the City Assembly Meeting of 11 September 2014

144.
Three months later, at the 11 September 2014 meeting of the City Assembly, Dr. Blažek accused Mayor Hudeček of being driven by personal animosity against Mr. Pawlowski, stating:

"Perhaps I even understand that you don’t like Mr Pawlowski. Personal feelings are a fundamental driving force of your actions, but that’s all right. You will happily play it down in six months’ time [...]"140

145.
In reply, Mayor Hudeček noted that the land in question belonged to Mr. Pawlowski, and he alleged that Mr. Pawlowski was trying to force the Assembly to take up the issue of the re-zoning. Mayor Hudeček then once again urged the Assembly members not to give in to pressure from Mr. Pawlowski, suggesting that all of Prague was against the Zoning Plan Change and questioning Dr. Blažek’s motivations for raising the issue.141

11.5 Opinion of the Ministry of Regional Development

146.
In the meantime, Mayor Coller of Uhříněves had approached the Ministry of Regional Development for a legal opinion regarding the annulment of the Zoning Plan Change. The Ministry reacted on 27 October 2014, with a letter addressed to Mayor Coller, in which it explained the Ministry’s position.142 The interpretation given by the Ministry to existing Czech legislation was that, upon annulment of a zoning plan change, the matter must be submitted to the relevant Municipal Assembly, which was obliged to assess the situation and to adopt a reasoned decision

- to re-procure the Zoning Plan Change (which would require amending the shortcomings established in the annulment judgement) or

- to confirm the annulment, in which case the previous zoning rules would apply.143

12. The City Assembly terminates the re-procurement

147.
Mayor Hudeček’s mandate ended in November 2014. Thereafter, at some unspecified time, the City of Prague decided to change tack. The City abandoned the position that no new discussion in the Assembly was required and accepted the Ministry’s interpretation of the Building Law, namely: if a zoning plan change is annulled by the Courts, the Municipal Assembly is bound to assess the annulment (i.e. to re-procure the file), and to adopt a reasoned decision either remedying the shortcomings found by the Courts or finding that the post-annulment situation is satisfactory.
148.
By this time, Deputy Mayor Matěj Stropnický of the Green Party had assumed responsibility for spatial planning issues in Prague. As a first step, he put the annulment of the Zoning Plan Change on the agenda of the Committee on Spatial Development meeting to be held on 15 February 2015. Subsequently, the City Council discussed the issue at its 31 March 2015 meeting and instructed Deputy Mayor Stropnický to submit the matter to the Assembly, with the recommendation that the procurement of Change Z 1294/07 be terminated (i.e. that the procurement should not be reinitiated, to correct the shortcomings found by the Court).144

Decision of the Assembly

149.
The annulment of Zoning Plan Change Z 1294/07 was placed on the agenda for the Prague City Assembly meeting of 14 April 2015.
150.
At this meeting, Deputy Mayor Stropnický proposed the termination of the procurement of Change Z 1294/07.145 Mayor Krnáčová then called for a vote from the City Assembly members.146
151.
51 members voted in favor of the motion to terminate, and none abstained or voted against it.147
152.
Thus, on 14 April 2015 - 13 years after the initial idea for the re-zoning, five years after the Zoning Plan Change had been approved and 14 months after the Supreme Court’s Annulment Decision - the Prague City Assembly terminated the procurement of the re-zoning of the Project Area. Thus, the land purchased by Projekt Sever to develop the Benice Residential Complex reverted to its original use as agricultural, forest and recreational land.

13. Legal remedies

153.
The Parties have debated the legal remedies that Claimants could theoretically have pursued in order to resolve the situation. As summarized below, Respondent says that Claimants did not make use of all of the potential remedies available to them by law, including their ability to re-initiate the procurement for the zoning change or their ability to challenge the City Assembly’s resolution itself. Claimants considered both alternatives to be futile.

Claimants’ ability to re-initiate the procurement of the zoning change

154.
According to Respondent’s expert, Projekt Sever, as an owner of the plots affected by the Zoning Plan Change to the Prague land use plan, had the right to submit a proposal under the 2006 Building Act to procure a change to the Prague land use plan either on its own or by petitioning the District Assembly. Respondent’s expert acknowledges, however, that the Prague City Assembly was not bound to accept such proposals.148
155.
Claimants’ expert, on the other hand, explains that although it is true that, following the Prague City Assembly’s vote to terminate the procurement, Claimants could, in theory, have applied for a new zoning change, but they were not obliged to do so.149 Claimants’ expert explains that since neither Benice, nor the Prague City Assembly supported the zoning plan change following its annulment, an application by the Claimants would have had no chance of success.150 Rather, it was the Prague planning authorities, who were obliged to promote the re-procurement, preparing a better substantiation in order to remedy the deficits identified by the Courts.151

Claimants’ ability to challenge the Assembly’s resolution

156.
With respect to the Claimants’ ability to challenge the Assembly’s Resolution of 14 April 2015, which terminated the re-procurement of the Zoning Plan Change, Respondent’s expert explained that if Projekt Sever considered this resolution to be an illegal interference with its rights, it could hypothetically have brought an action before the administrative courts of the Czech Republic. However, Respondent’s expert also noted that because (in his view) Projekt Sever is not vested with any public subjective right that could have been curtailed, a challenge of the resolution of the Prague Assembly would not have been likely to succeed.152
157.
Claimants’ expert agreed that there would have been little to no chance of success in challenging the City Assembly’s resolution.153 Furthermore, Claimants’ expert noted that, based on the Administrative Procedure Act, the Claimants would only have been able to submit a request, which would not actually bind the Ministry of the Interior to take action or to set the resolution of the Prague City Assembly aside.154

IV. REQUESTS FOR RELIEF

Claimants' request for relief

158.
In their Memorial, Claimants submitted the following request for relief:

"For the reasons set out in this Memorial, Claimants respectfully request that the Arbitral Tribunal grant the following relief:

1. Declare that the Czech Republic's actions and omissions at issue, including those of its instrumentalities for which it is internationally responsible, violated Articles 3 and 4 of the Bilateral Investment Treaty between Switzerland and the Czech Republic by failing to grant the necessary permits in connection with such investments, by failing to treat Claimants' investments fairly and equitably and by impairing Claimants' investments through unreasonable and discriminatory measures;

2. Declare that the Czech Republic's actions and omissions at issue, including those of its instrumentalities for which it is internationally responsible, constitute an indirect expropriation without prompt, adequate and effective compensation in violation of Article 6 of the Bilateral Investment Treaty between Switzerland and the Czech Republic;

3. Award compensation to Claimants, including pre-award interest as of July 31, 2020, in the amount of 4,950,382,717 Czech Crowns (CZK);

4. Award Claimants' all costs associated with these proceedings, including the costs and expenses of ICSID and of the arbitrators as well as fees and disbursements for Claimants' attorneys and experts;

5. Award post-award interest on all sums awarded from the date of the award until Respondent pays the award and all accrued interest in full, at the repo rate set by the Czech National Bank for the first day of the calendar half-year in which the default occurs plus eight percentage points (8%); and

6. Any further relief that the Arbitral Tribunal deems appropriate in the circumstances."155

159.
In their Reply on the Merits and Counter-Memorial on Preliminary Objections, Claimants slightly amended their Request for relief:

"For the reasons set out in this Memorial, Claimants respectfully request that the Arbitral Tribunal grant the following relief:

1. Declare that the Czech Republic's actions and omissions at issue, including those of its instrumentalities for which it is internationally responsible, violated Articles 3 and 4 of the Bilateral Investment Treaty between Switzerland and the Czech Republic (i) by failing to grant and uphold the necessary permits in connection with such investments, (ii) by failing to treat Claimants' investments fairly and equitably, and (iii) by impairing Claimants' investments through unreasonable and discriminatory measures;

2. Declare that the Czech Republic's actions and omissions at issue, including those of its instrumentalities for which it is internationally responsible, constitute an indirect expropriation without prompt, adequate and effective compensation in violation of Article 6 of the Bilateral Investment Treaty between Switzerland and the Czech Republic;

3. Award compensation to Claimants, including pre-award interest as of July 31, 2020, in the amount of 5,266,622,342 Czech Crowns (CZK);

4. Award Claimants' all costs associated with these proceedings, including the costs and expenses of ICSID and of the arbitrators as well as fees and disbursements for Claimants' attorneys and experts;

5. Award post-award interest on all sums awarded from the date of the award until Respondent pays the award and all accrued interest in full, at the repo rate set by the Czech National Bank for the first day of the calendar half-year in which the default occurs plus eight percentage points (8%); and

6. Any further relief that the Arbitral Tribunal deems appropriate in the circum- stances."156

160.
In their Post-Hearing Brief, Claimants submitted a request identical to that formulated in their Reply on the Merits and Counter-Memorial on Preliminary Objections.157

Respondent's request for relief

161.
In its Counter-Memorial, the Czech Republic submitted several jurisdictional objections and requested that the Tribunal:

"- DECLARE that it has no jurisdiction over Claimant 1;

- DECLARE that it has no jurisdiction over Claimants' claims;

- In the alternative, DECLARE that the Czech Republic has not breached the Treaty and DISMISS all of Claimants' claims in their entirety;

- In the further alternative, DECLARE that the damages Claimants claim are not due; and

- In any event, ORDER Claimants to fully reimburse the Czech Republic for the costs it has incurred in defending its interests in this arbitration (plus interest)."158

162.
In its Rejoinder, the Czech Republic slightly amended its request for relief:

"For the foregoing reasons, the Czech Republic respectfully requests that the Tribunal:

- DECLARE that it has no jurisdiction over Claimants' claims;

- DECLARE that it has no jurisdiction over Claimant 1;

- In the alternative, DECLARE that the Czech Republic has not breached the Treaty and DISMISS all of Claimants' claims in their entirety;

- In the further alternative, DECLARE that the damages Claimants claim are not due;

- In the even further alternative, DECLARE that the damages Claimants claim should be limited to their sunk costs, quantified at CZK 28.9 million; and

- In any event, ORDER Claimants to fully reimburse the Czech Republic for the costs it has incurred in defending its interests in this arbitration (plus interest)."159

163.
In its Post-Hearing Brief, the Czech Republic submitted a request for relief identical to that formulated in its Rejoinder.160

V. APPLICABLE LAW

165.
The BIT is silent on the applicable law. However, Article 42(1) of the ICSID Convention establishes the following:

"The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting state party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable."

166.
Thus, the Tribunal must apply the BIT, the law of Czech Republic and the rules of international law.

VI. JURISDICTIONAL OBJECTIONS

167.

Respondent submits that Claimants' claims and investments fall outside the jurisdiction of the Centre and the competence of the Tribunal, for the following reasons:

- Pawlowski AG does not qualify as a protected investor under Article 1(1)(b) or under Article 1(1)(c) of the BIT [Jurisdiction "Ratione Personae"] [VI.1];

- Both Pawlowski AG and Projekt Sever have failed to establish that their alleged investments are protected under the BIT and the ICSID Convention [Jurisdiction "Ratione Materiae"] [VI.2].

168.
Respondent additionally argues that Claimants' claims are inadmissible, because they are purely domestic claims and because Claimants have not clarified which acts or omissions, if proven, could constitute a breach of the BIT [Domestic Law Objection] [VI.3].
169.

Claimants disagree. They insist that the Tribunal has jurisdiction for the following reasons:

- Both Pawlowski AG and Projekt Sever qualify as protected investors under Article 1(1) of the BIT;

- Pawlowski AG and Projekt Sever made investments that qualify for protection under the BIT; and

- Both Claimants have fulfilled all other obligations required under the BIT and the ICSID Convention.

170.
Furthermore, Claimants reject the Respondent’s objection to admissibility and aver that their claims are for violations of the BIT.

VI.1. JURISDICTION RATIONE PERSONAE

171.
In the following sections, the Tribunal will summarize Respondent's ratione personae objection to jurisdiction [1.], followed by Claimants' position [2.], and finally make its decision [3.].

1. Position of Respondent

172.

Respondent argues that the Tribunal must decline jurisdiction ratione personae over Claimant 1 (Pawlowski AG), because Pawlowski AG does not qualify as a protected investor under Article 1(1) of the BIT.161 Respondent does not raise objections to the Tribunal's jurisdiction ratione personae over Claimant 2 (Projekt Sever).

173.

According to Respondent, Pawlowski AG does not qualify as a protected investor under Article 1(1)(b) of the BIT, because it has neither real economic activities, nor its seat, in Switzerland [1.1],162 and it is not protected under Article 1(1)(c), because an investor that fails to qualify under Article 1(1)(b) cannot requalify as a protected investor under Article 1(1)(c) [1.2].163

1.1 Pawlowski AG is not a protected investor under Article 1(1)(b)

174.
According to Respondent, Article 1(1)(b) of the BIT requires a protected investor to demonstrate that it has "real economic activities" in Switzerland [A.] and that it has its "seat" in Switzerland [B.].164

A. Pawlowski AG does not carry out "real economic activities" in Switzerland

175.
Respondent argues that Pawlowski AG is an "investment holding company",165 that does not carry out real economic activities, and that it is only Pawlowski AG's subsidiaries that carry out such activities.166
176.
Respondent refers to a "seven-prong" test, set forth by the Alps Finance tribunal, to assess whether an investor meets the requirements of "real economic activities."167 It is the Respondent's view that Pawlowski AG cannot satisfy this test.
177.
Respondent argues that Claimant 1 relies not on its own economic activities, but on the activities of an entirely different company, Dmura AG, for the alleged economic activities of Pawlowski AG.168

B. Claimants have not established a Swiss "seat" for Pawlowski AG

178.

With respect to the company’s "seat", Respondent argues that a company’s "seat" must be interpreted as the effective place of management and administration of its business operations. Respondent notes that this was the definition adopted by the Alps Finance tribunal - which is the only other tribunal to have been constituted under the BIT and called upon to apply Article 1(1)(c).169

179.
According to Respondent, Mr. Pawlowski was unable to identify a "given Swiss place" from which the company was managed and administered.170 Respondent notes that Mr. Pawlowski identified the seat of another company, Dmura AG, which is located in Zuoz, Switzerland, as the place where he usually works. Additionally, Respondent notes that Pawlowski AG has its registered offices in the care of an investment fund, Quadris AG, which is where Pawlowski AG has its registered place of business as well as available office space.171

1.2 Pawlowski AG is not a protected investor under Article 1(1)(c)

180.
Respondent argues that Article 1(1)(c) is not intended to cover companies, which, while registered in Switzerland, fail to pass the test of Article 1(1)(b).172 Thus, according to Respondent, because Pawlowski AG is not a protected investor under Article 1(1)(b) of the BIT, it cannot requalify as an investor under Article 1(1)(c).173
181.
Respondent argues that Article 1(1)(c) cannot be read in isolation, because such a reading would render meaningless the restrictions of Article 1(1)(b) in contravention of the principle of effet utile.174 Respondent notes the Alps Finance finding that Article 1(1)(b) of the BIT is a "special and uncommon clause", included specifically "to exclude from treaty protection 'mailbox’ or 'paper’ companies." According to Respondent, Pawlowski AG is such a company.175
182.
Additionally, according to Respondent, Article 1(1)(c) of the BIT only covers two types of companies:

- those which are Czech-registered but ultimately Swiss-controlled, and

- those which are registered in any country outside of the two Contracting Parties, yet are ultimately Swiss-controlled (Respondent notes that the reverse would be true in the case of a claim brought against Switzerland).176

183.
Since Pawlowski AG is neither Czech-registered but ultimately Swiss-controlled, nor registered in a third country but Swiss-controlled, it cannot be considered an investor under Article 1(1)(c).177

2. Position of Claimants

184.
Claimants reject Respondent’s ratione personae jurisdiction objections. They assert that both Pawlowski AG and Projekt Sever qualify as protected investors under Article 1(1) of the BIT.178
185.
It is common ground between the Parties that Projekt Sever is a protected investor under Article 1(1)(c) of the BIT.179 With respect to Pawlowski AG, Claimants argue that it qualifies as a protected investor under Article 1(1)(b) [2.1] as well as under Article 1(1)(c) [2.2] of the BIT.180

2.1 Pawlowski AG qualifies as a protected investor under Article 1(1)(b)

186.
Claimants explain that for Pawlowski AG to qualify as a protected investor under the provisions of Article 1(1)(b), it must show that it is established in Switzerland and demonstrate that it has [A.] real economic activities in Switzerland and [B.] its seat located in Switzerland. Claimants note that Pawlowski AG’s establishment under the laws of Switzerland is undisputed.181

A. Pawlowski AG carries out "real economic activities" in Switzerland

187.
Claimants assert that Pawlowski AG does carry out real economic activities in Switzerland, noting Pawlowski AG’s ownership and administration of its participation in a number of businesses in Switzerland.
188.
Claimants accuse Respondent of misrepresenting the findings of the Alps Finance case to the extent that they seek falsely to imply that the "seven-prong test" set forth in Alps Finance is a cumulative test rather than a series of discrete examples, and by ignoring the distinction between "brass plate" companies that carry out their operations in other countries and corporations with an effective seat of management in the host country.182 Thus, argue Claimants, fulfilling just one of the Alps Finance criteria would be sufficient to prove real economic activities in the host state.183
189.
Claimants argue that the Tribunal should consider the nature and activities of Pawlowski AG in the round. Claimants explain that Pawlowski AG acts as an investment holding company, and thus does not have direct operational responsibilities and does not require large offices and staff - but that this does not mean that Pawlowski AG is not engaged in real economic activities in Switzerland.184
190.
Claimants note that it is in the nature of holding companies to conduct business through their subsidiaries. Claimants also note that Respondent does not refute that Dmura AG is Pawlowski AG's subsidiary, or that Pawlowski AG is a substantial shareholder of Lyceum Alpinum Zuoz. According to Claimants, Pawlowski AG brings benefit to the Swiss economy through its daughter company and through its holding in Lyceum Alpinum Zuoz.185
191.
Claimants explain that Pawlowski AG has more than a modest turnover, pays substantial fees for various legal and bookkeeping services, and has handled payments and contributions via its Swiss bank accounts, including the payment of remuneration to former board members.186
192.
Claimants additionally note that accepting Respondent's interpretation would lead to the untenable result of excluding holding companies from the BIT's protection entirely, and that this result would contradict both the purpose of the BIT as well as jurisprudence and doctrine.187

B. Pawlowski AG has its "seat" in Switzerland

193.

According to Claimants, the Swiss statutory seat of Pawlowski AG is sufficient to fulfill the BIT's requirement of a seat in Switzerland.188 Claimants refer to case law for the proposition that a company's seat shall be interpreted by way of renvoi to municipal law.189 Claimants assert that, pursuant to Article 56 of the Swiss Civil Code, the seat of a legal entity is located where its administration is carried out, unless its articles of association provide otherwise.190

194.
Claimants explain that Pawlowski AG’s articles of association name Zug, Switzerland, as its seat.191 Claimants also explain that, according to the Swiss Private International Law Act, the seat of a company is the place specified in the articles of association or the partnership agreement.192 Finally, Claimants note that the Zug Commercial Registry lists Zug as the seat of Pawlowski AG.193
195.
Claimants argue that Respondent’s interpretation of the BIT is wrong.
196.
Claimants note that Respondent relies upon the Wirtgen tribunal in support of the proposition that the definitions contained in Article 1 are meant to be autonomous and treaty-specific, and hence, according to Respondent, "seat" should be read in accordance with international law rather than Swiss law.194 However, according to Claimants, the Wirtgen position is not that a term such as "seat" should be interpreted in accordance with international law; rather, the Wirtgen tribunal explained that when it appears that the contracting parties did not wish to give a term a particular meaning which it may have in national law, then a treaty term may be interpreted independently from the national law of the parties. Claimants assert that in the present case there is no indication that the Contracting Parties did not wish tribunals to consider national law in interpreting the BITs terms.195
197.
Claimants note that, as a practical matter, it does not make a difference whether the Tribunal accepts Claimants’ or Respondent’s arguments regarding the interpretation of the term "seat" in the BIT. According to Claimants, even if Respondent’s interpretation of "seat" (meaning the effective place of management and administration of a company) were correct (quod non), Claimants have submitted evidence sufficient to demonstrate that Pawlowski AG is effectively managed and administered in Zug and Zuoz, Switzerland, notably that:196

- The general meetings of shareholders are held in Switzerland;

- Corporate and accounting records are maintained in Switzerland;

- All administrative services, including bookkeeping and accounting, have been provided in Switzerland;

- At all material times, an active bank account has been maintained, and is still maintained, in Switzerland;

- The office in Zug is the only office worldwide, with substantive administrative work being done in Zuoz; and

- The auditors have always been companies with their seat in Switzerland.

2.2 Pawlowski AG also qualifies as an investor under Article 1(1)(c)

198.

Claimants argue that, regardless of the Tribunal's interpretation of Article 1(1)(b) of the BIT, Pawlowski AG separately and independently qualifies as an investor under the BIT under Article 1(1)(c), because Pawlowski AG is 100% owned and controlled by a Swiss national, Mr. Sebastian Pawlowski.197

199.
Claimants explain that Article 1(1)(c) of the BIT applies to two types of potential investors:

- legal entities that are controlled by Swiss nationals, and

- legal entities that are controlled by Swiss entities that also have real economic activities in Switzerland.198

According to Claimants, the Tribunal has jurisdiction over Pawlowski AG in the present case by virtue of Mr. Pawlowski’s citizenship as a Swiss national and his ultimate control of Pawlowski AG.199

200.

Claimants reject Respondent’s argument that Article 1(1)(c) only applies to Swiss-controlled companies registered either in the Czech Republic or in any country other than Switzerland or the Czech Republic. According to Claimants, this argument goes against the terms of the BIT, particularly since the text of Article 1(1)(c) states that it applies to "legal entities established under the law of any country."200

201.
Claimants additionally reject Respondent’s argument that granting jurisdiction under Article 1(1)(c) would be in contravention of the principle of effet utile. According to Claimants, the principle of effet utile aims to make the object and purpose of the BIT possible or effectuated through interpretation. Claimants explain that the object and purpose of the BIT is, inter alia, to "create and maintain favourable conditions for investments by investors of one Contracting Party in the territory of the other Contracting Party." Thus, in order to qualify as an "investor of one Contracting Party", Pawlowski AG is required to show a sufficient link to Switzerland. According to Claimants, by including both Article 1(1)(b) and Article 1(1)(c) in the BIT, it follows that the Contracting Parties deemed these to be different links, satisfaction of either one of which is sufficient to secure qualification as a protected investor.201
202.

Thus, according to Claimants, Pawlowski AG qualifies as an investor either if it

- has its seat, together with real economic activities in Switzerland (under Article 1(1)(b))

- or alternatively, if, in conformity with Article 1(1)(c), it is controlled by a Swiss national (under Article 1(2)(c)).

Claimants' position is that Pawlowski AG has demonstrated sufficient links to Switzerland to satisfy the conditions to qualify as an investor under both possible avenues.202

3. Decision of the Arbitral Tribunal

203.
According to Respondent, Pawlowski AG does not fulfil the requirements under Article 1(1) of the BIT and therefore does not qualify as a protected investor under the BIT. Specifically, Respondent asserts that:

- Pawlowski AG does not qualify under Article 1(1)(b), because it has not established that it has real economic activities and its "seat" in Switzerland; and

- Pawlowski AG cannot requalify under Article 1(1)(c), because this clause is not intended to apply to investors who otherwise fail to meet the requirements under Article 1(1)(b).

204.
According to Claimants, Pawlowski AG qualifies as a protected investor under Article 1(1)(b) and, separately, under Article 1(1)(c) of the BIT.203
205.
The Tribunal notes that there is no dispute between the Parties with respect to the Tribunal's jurisdiction over Projekt Sever. For the sake of completeness, the Tribunal will quickly go over the facts pertinent to its jurisdiction ratione personae over Projekt Sever.
206.
Claimants have shown that:

- Projekt Sever is a company established in 2007 under the laws of the Czech Republic, registered with the Municipal Court in Prague under Company ID No. 278 61 503204;

- 100% of the shares of Projekt Sever have been held by Pawlowski AG at all times relevant to this dispute205; and

- Pawlowski AG is a Swiss established company206 fully owned and controlled by Mr. Pawlowski - himself a Swiss Citizen.207

207.
Article 1(1)(c) of the BIT provides protection to investors, who are defined as:

"legal entities established under the law of any country which are, directly or indirectly, controlled by nationals of that Contracting Party or by legal entities having their seat, together with real economic activities, in the territory of that Contracting Party."

208.

Projekt Sever is a legal entity established under the law of the Czech Republic. Projekt Sever also fulfills the additional requirements for protection under Article 1 (1)(c): it is a legal entity which is (i) controlled directly by the Swiss company Pawlowski AG through its 100% share ownership, and (ii) controlled indirectly by Mr. Pawlowski, who is a national of Switzerland.

209.
Thus, the Tribunal determines that it has jurisdiction ratione personae over Projekt Sever.
210.
The Tribunal will now turn to Respondent’s objection to the Tribunal’s jurisdiction ratione personae over Pawlowski AG. The Tribunal will begin by establishing the facts [A.] and will then explain why it dismisses Respondent’s objection [B.].

A. Proven facts

211.
As previously noted, Pawlowski AG is fully owned and controlled by Mr. Sebastian Pawlowski, who is a Swiss citizen.208
212.
Pawlowski AG is a company which was incorporated under the laws of Switzerland on 20 September 1996.209 Pawlowski AG’s Articles of Association establish that its seat is in Zug and that:

"The purpose of the company is to acquire and manage all types of investments in domestic and foreign companies.

The company may acquire, hold and dispose of real estate and engage in all commercial, financial and other activities related to the purpose of the company."210

213.
Pawlowski AG’s activities are consistent with the above. It acts primarily as a holding company, which, through its subsidiaries, owns and controls investments in Switzerland and abroad, inter alia:

- Besides its ownership and control of Projekt Sever, Pawlowski AG also owns 100% of the shares of the Swiss company Dmura AG;211

- Dmura AG, in turn, runs the Swiss hotels Parkhütte Varusch,212 Hotel Engiadina,213 and Hotel Crusch Alva,214 all of which employ significant numbers of personnel;215

- Dmura AG is also active in the real estate business in Switzerland, having engaged in the construction and sale of apartment buildings, especially in the Canton of Graubunden;216

- Pawlowski AG has also directly invested in the Lyceum Alpinum Zuoz, a well-known Swiss international boarding school, where Mr. Pawlowski serves as the chairman of the board of directors.217

B. Discussion

214.
Article 1(1) of the BIT explains that:

"(1) In the case of either Contracting Party, the term "investor" refers to:

(a) natural persons who are nationals of that Contracting Party in accordance with its laws;

(b) legal entities, including companies, corporations, business associations and other organisations, which are constituted or otherwise duly organized under the law of that Contracting Party and have their seat, together with real economic activities, in the territory of the same Contracting Party;

(c) legal entities established under the law of any country which are, directly or indirectly, controlled by nationals of that Contracting Party or by legal entities having their seat, together with real economic activities, in the territory of that Contracting Party." [Emphasis added]

215.
Respondent argues that Pawlowski AG cannot qualify as an investor under Article 1(1)(c) of the BIT, because this provision is not intended to extend to companies registered in Switzerland which fail to pass the test of Article 1(1)(b).218
216.
The Tribunal does not agree.
217.
Under the rules of interpretation set forth in Article 31 of the VCLT:

"A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."219

218.

The Tribunal does not see any language in the text of Article 1(1) of the BIT which suggests that a failure to qualify under one clause would prohibit qualification under the other. Thus, the Tribunal finds that Pawlowski AG may qualify as a protected investor under Article 1(1)(c) independently of the requirements of Article 1(1)(b).

Article 1(1)(c)

219.

Two elements are required for Pawlowski AG to qualify as a protected investor under Article 1(1)(c) of the BIT:

- First, it must be a legal entity established under the law of Switzerland; and

- Second, it must be controlled, directly or indirectly, by: (i) nationals of Switzerland, or (ii) legal entities which are seated and have real economic activities in Switzerland.

220.
It has already been shown that Pawlowski AG was incorporated under the laws of Switzerland in 1996,220 satisfying the first requirement.
221.
It has also been established that Pawlowski AG is fully owned and controlled by a Swiss national, Mr. Sebastian Pawlowski,221 meeting the second requirement.
222.
Consequently, the Tribunal determines that it has jurisdiction ratione personae with respect to Pawlowski AG under Article 1(1)(c) of the BIT.

* * *

223.
Having determined that Pawlowski AG qualifies as a protected investor under Article 1(1)(c), the Tribunal finds that Respondent’s objections with respect to Article 1(1)(b) are moot.

VI.2. JURISDICTION RATIONE MATERIAE

224.
Claimants submit that they made investments under the BIT and the ICSID Convention by undertaking several interrelated economic activities which lead to the implementation of a project. In particular:

- Pawlowski AG invested in all the shares and capital of Projekt Sever;

- Projekt Sever, in turn, invested in 276,134 m2 of real property in Prague in order to construct the Project; and

- Projekt Sever also invested capital in the planning process of the Project.

225.
In the following sections the Tribunal will summarize Respondent's ratione materiae objection to jurisdiction [1.], followed by Claimants' position [2.], and finally make its decision [3.].

1. Position of Respondent

226.
Respondent argues that, under the BIT and under Article 25(1) of the ICSID Convention, a protected investment involves contribution, duration and risk. According to Respondent, the Claimants' submissions focused solely on the criterion of contribution and they have thus failed to prove that their investments meet all of these criteria.222 Respondent presents ratione materiae objections to the Tribunal’s jurisdiction over the investments of both Pawlowski AG (Claimant 1) [1.1] and Projekt Sever (Claimant 2) [1.2].

1.1 Pawlowski AG’s shareholding is not a protected investment

227.
Respondent notes that Pawlowski AG’s investment consists solely of its shares in, and payment for those shares to, Projekt Sever. Respondent argues that this shareholding is insufficient to qualify as a protected investment, because Claimants paid only an admittedly nominal price of CZK 200,000 for the shares in Projekt Sever.223 According to Respondent, the payment of a purely nominal price for shares puts in doubt the existence of a contribution and, in turn, that of a protected investment.224 Furthermore, Respondent argues that Pawlowski AG cannot possibly hold a protected investment, since it only holds shares in Projekt Sever, which itself does not hold a protected investment.225

1.2 Projekt Severs alleged investments are not protected

228.
According to Respondent, none of the three components of Projekt Sever's alleged investment is protected, namely:

- the purchase of land;

- the capital spent on the planning process; or

- the expectation that the Project would finally be implemented.226

229.
Respondent argues that Projekt Sever's purchase of land is a one-off commercial transaction, devoid of any risk and duration, which thus does not fulfil the inherent criteria of a protected investment.227 Respondent also argues that, because the Claimants' project never materialised, any pre-investment expenditures or capital spent on the planning process cannot form a part of a protected investment.228 Finally, Respondent argues that Claimants have failed to prove that Projekt Sever's investment can consist of the expectation that the Project would finally be implemented - an impossible task, since such expectation does not fulfil the criteria of contribution, duration and risk.229

2. Position of Claimants

230.
Claimants dismiss Respondent's objections with respect to both Pawlowski AG and Projekt Sever. As a preliminary matter, Claimants note that Respondent does not contest that Pawlowski AG's investments (its purchase of the shares in Projekt Sever, its capital contributions to Projekt Sever, Projekt Sever's purchase of the real estate at issue, and the costs incurred by Projekt Sever in connection with the planning and development of Residential Complex Benice) would not have come about but for Claimants' decision to develop and dedicate Projekt Sever's resources to the Project. According to Claimants, this by itself is sufficient to establish the existence of a protected investment.230
231.
Claimants have presented submissions arguing that both Pawlowski AG [2.1] and Projekt Sever [2.2] made protected investments as defined in Article 25(1) of the ICSID Convention and in the BIT.231

2.1 Pawlowski AG made protected investments

232.

Claimants note that it is not in dispute that Pawlowski AG purchased 100% of the shares of Projekt Sever for CZK 200,000.232 According to Claimants, this alone qualifies as an investment by Pawlowski AG under Article 1(2)(b) of the BIT, regardless of the amount paid for such shares.233 Claimants note that Pawlowski AG also made additional capital contributions and loans to Projekt Sever totaling CZK 649,027,000 as of 31 December 2018.234

233.
Claimants assert that Pawlowski AG acquired Projekt Sever as a shelf company and made loans and capital contributions to it for the sole purpose of constructing the Project in Prague.235 Additionally, Claimants argue that the elements of duration and risk faced by Projekt Sever also apply to Pawlowski AG’s investments in Projekt Sever.236

2.2 Projekt Sever made protected investments

234.
Claimants assert that Projekt Sever’s purchases of real estate for the development of a residential housing project (at prices for residential land) were investments in a long-term economic activity and not one-off commercial transactions.237 According to Claimants, it would require years of effort and substantial costs after the land purchases to realise a return on these investments, such that Projekt Sever was subject to the inherent risks of such development projects.238
235.
Additionally, Claimants argue that the costs incurred by Projekt Sever in the course of designing and planning the project, including costs incurred pursuant to binding contracts, also qualify as investments.239 According to Claimants, such costs are not "pre-investment expenditures", as such a term could only be applied to the costs incurred in connection with Claimants’ due diligence efforts prior to deciding to purchase land for the Project. Thus, in the Claimants view, all costs incurred from the moment of the first land purchase were investments in a development project that commenced with that land purchase.240

3. Decision of the Arbitral Tribunal

236.
The Tribunal must determine whether the investments made by Claimants qualify as "protected investments" under the BIT and Article 25(1) of the ICSID Convention.
237.
Claimants rely on the following investments:

- Pawlowski AG’s invested CZK 200,000.00 in purchasing its 100% shareholding in Projekt Sever;

- Pawlowski AG made capital contributions and loans to Projekt Sever for the purpose of purchasing the land for development of the Project;

- Projekt Sever invested CZK 343,693,031.00 in its purchase of 276,134 m2 of real estate in Prague;241 and

- Projekt Sever invested additional capital in the planning and designing of the Project.

A. Proven facts

238.
Claimants have provided evidence that Pawlowski AG paid CZK 200,000 for its 100% share ownership of Projekt Sever.
239.
The contract concerning the assignment of Projekt Sever’s shares declares that:242

"The seller paid his contribution of CZK 200,000,- to the company’s nominal capital in full. His share, which is determined by the ratio of his contribution to the company’s nominal capital, is 100%.

[...]

The seller assigns its entire share in the above-mentioned Company, corresponding to a contribution of CZK 200,000,-, to the Buyer [identified as Pawlowski AG].

[...]

The seller assigns its company share at a price of CZK 200,000,- (in words: two hundred thousand Czech crowns)."

240.
The extract from the Commercial Register of the Municipal Court in Prague lists Pawlowski AG as the sole shareholder of Projekt Sever, showing a 100% paid contribution of CZK 200,000 equating to a 100% business share in Projekt Sever.243
241.
Documentary evidence submitted by Claimants shows that Pawlowski AG provided significant funding to Projekt Sever, including (as of 31 December 2018):

- Equity contributions totaling CZK 414,707,000;244

- Loans totaling CZK 649,027,000.245

242.
With respect to Projekt Sever's alleged investments, it is undisputed that Projekt Sever purchased the land for the Project from private landowners, the City of Prague and the Czech Republic's Ministry of Defense.246

B. Discussion

243.

Article 1(2) of BIT provides the following definition of "investments":

"The term "investments" shall include every kind of assets and particularly:

(a) movable and immovable property as well as any other rights in rem, such as servitudes, mortgages, liens, pledges;

(b) shares, parts or any other kinds of participation in companies;

(c) claims and rights to any performance having an economic value;

(d) copyrights, industrial property rights (such as patents, utility models, industrial designs or models, trade or service marks, trade names, indications of origin), know-how and goodwill;

(e) concessions under public law, including concessions to search for, extract or exploit natural resources as well as all other rights given by law, by contract or by decision of the authority in accordance with the law." [Emphasis added]

244.
Article 25(1) of the ICSID Convention provides:

"The jurisdiction of the Centre 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."

245.
The Tribunal will assess the investments of each Claimant in turn.

Pawlowski AG’s investments

246.

Article 1(2) of the BIT makes clear that "investments" includes "shares, parts or any other kinds of participation in companies."

247.
It has already been established that Pawlowski AG paid the sum of CZK 200,000.00 for its 100% shareholding in Projekt Sever. There is therefore nothing to cause the Tribunal to doubt that Pawlowski AG’s shareholding in Projekt Sever qualifies as a protected investment.
248.
Pawlowski AG also indirectly invested in the Project through its equity contributions to Projekt Sever.
249.
With respect to the question of whether loans and other equity contributions could be considered an investment, the tribunal in Standard Chartered noted that:

"The Tribunal accepts that loans and financial instruments standing alone without any link to some economic venture intended to provide for the improvement of the State’s development would not be considered an 'investment ’."247

250.

However, the Standard Chartered tribunal also noted that it had no doubt that such loans, when made in the context of financing the construction and operation of a facility, clearly carried inherent investment risks, thus satisfying the requirement of "investment risk" under Article 25 of the ICSID Convention. As noted by the tribunal in Standard Chartered, this finding has been confirmed by numerous other tribunals.248

251.
The Tribunal finds that the loans and contributions extended by Pawlowski AG to Projekt Sever were analogous to those contemplated by the Standard Chartered tribunal, as they were made for the direct purpose of financing the purchase and development of the Project.
252.
The Tribunal therefore finds that Pawlowski AG’s loans and equity contributions, made to Projekt Sever to support the purchase of land and the development of the Project, also qualify as protected investments under the BIT and Article 25 of the ICSID Convention.

Projekt Sever’s investments

253.
Projekt Sever’s alleged investments include its direct investments in the purchase of land for the Project, and its direct investment in designing and planning the Project, as well as associated costs.
254.
Article 1(2) of the BIT states explicitly that "investments" shall include "movable and immovable property."
255.
Projekt Sever’s purchases of land for the purpose of realising the construction of a residential development has been well established. These land purchases clearly fall within the meaning of "investments" provided by the BIT.
256.
Projekt Sever’s expenditures in connection with the design and planning of the Project have likewise been established, and the Tribunal considers that these expenditures also qualify under the terms of the BIT, as they constitute "claims and rights to any performance having an economic value."
257.
The Tribunal finds that the purchase of land is a perfectly legitimate first step in an incremental investment intended to be realised in a multi-unit development. Indeed, Projekt Sever's further expenditures towards the design and planning of the Project prove that they were not "one-off commercial transactions", but rather a series of distinct expenditures all made for the purpose of realising the development of the Project.
258.

In this case, Pawlowski AG assumed the legal and financial risk of being the 100% shareholder of the Czech company Projekt Sever. Pawlowski AG then contributed capital in the form of equity and loans extended to Projekt Sever in order to enable it to carry out entrepreneurial activity in the Czech Republic - consisting in the purchase of land for, and the design and planned development of, the residential project in Benice. The Tribunal thus finds that Respondent’s ratione materiae objections are inapposite; however "investment" is defined, there is no question that foreign direct investment, where the foreign investor directly owns and manages an enterprise situated in the host country, and where said enterprise carries out entrepreneurial activities in the host country, qualifies as such.249

* * *

259.
In view of the above, the Tribunal finds that

- Pawlowski AG’s shareholding in, and its equity contributions to, Projekt Sever, and

- Projekt Sever’s land purchases and expenditure towards the design and development of the Project,

each qualify as protected investments under the BIT.

260.
Consequently, the Tribunal dismisses Respondent’s ratione materiae objection.

VI.3. DOMESTIC LAW OBJECTION

1. Position of Respondent

261.
Respondent argues that Claimants’ claims are inadmissible, because they are purely domestic claims involving Czech urban planning law, over which the Tribunal does not have jurisdiction.250
262.
Additionally, Respondent argues that Claimants have merely listed several Treaty standards that they say were breached, and that they have not clarified which act or omission of the Czech Republic, if proven, could constitute a breach of the BIT, nor have they established any actual interrelationship between their domestic claims and Treaty claims.251

2. Position of Claimants

263.
Claimants reject Respondent’s objection to admissibility and aver that their claims are for violations of the BIT. According to Claimants, Czech domestic law provides relevant factual context, but Claimants’ claims do not depend on proving any violation of Czech law.252
264.
Claimants refute the relevance of the case law cited by Respondent, noting that the Generation Ukraine tribunal, in coming to the conclusion that it lacked jurisdiction, found that the claimant in that case had raised no international law claims.253
265.
Claimants assert that in the present case it is obvious from reading Claimants’ submissions on the merits that their claims are for violations of the BIT, not for violations of domestic Czech law.254 Claimants explain that this case does not turn on the question of whether the district of Benice was required under Czech law to refrain from filing a lawsuit to challenge the re-zoning of the Project Area to residential, or whether the Prague City Assembly was required under Czech law to restore the zoning plan change after it had been annulled by the Czech courts. Rather, according to Claimants, the relevant question pertinent to the claims in this arbitration is whether Respondent’s treatment of Claimants violated international law, and, in particular, the BIT.255

3. Decision of the Arbitral Tribunal

266.

Claimants have made several claims under the BIT. Specifically, Claimants allege that:

- Respondent has violated the BIT's Article 4 obligations, including the requirements to provide fair and equitable treatment, to refrain from unreasonable, arbitrary and bad faith measures, and to refrain from discriminatory and less favorable treatment;

- Respondent has breached its obligation pursuant to Article 3 of the BIT to "provide the necessary permits" in connection with Claimants' investment; and

- Respondent's actions resulted in an indirect expropriation of Claimants' investment, in violation of Article 6 of the BIT.

267.
The Tribunal finds that, while several of Claimants' arguments refer to Czech domestic law, such references are made in order to provide context for Claimants' claims under the BIT. This conclusion is consistent with the finding in Binder, where the tribunal noted that:

"390. The BIT is an international treaty and should be interpreted in accordance with the principles of international treaty law, as codified in the Geneva Convention on the Law of Treaties. The Arbitral Tribunal derives its competence exclusively from the BIT and is not competent to decide how Czech law ls to be interpreted, this being a matter for the Czech courts. Consequently, the Tribunal cannot review the interpretation of domestic law in Czech court decisions. Nor can the Tribunal express an opinion on the interpretation of Czech law on matters which have not been decided by Czech courts.

391. However, in this arbitration Czech law is one of the factual elements which the Tribunal must take into account when establishing whether the Czech Republic has observed its undertakings in the Czech-German BIT. It is the Tribunal's task to examine whether Czech Law, as it was applied to the Claimant and his company CARGO, may have violated the obligations of the Czech Republic in the BIT. In other words, if it should be found that Czech law had such contents, or was applied in such manner, as to violate any of these treaty obligations, the Tribunal is competent to establish that a violation occurred and to draw the legal conclusions following from it. The Tribunal's examination may not only concern specific acts by the Czech authorities but also extend to general questions of whether the Czech legal system, including the availability of judicial and administrative remedies, was sufficient to provide the Claimant with adequate protection for his investment in the Czech Republic."256 [Emphasis added]

268.
The Tribunal does not have any doubt that Claimants' claims arise under the BIT. Indeed, each of Claimants' claims requires the Tribunal to determine whether Respondent has violated the BIT with respect to Claimant's protected investments.
269.
While the Tribunal may have to undertake an examination of Czech Law or the Czech legal framework, such analysis is only undertaken in order to enable the Tribunal to make determinations as to the merits of Claimants' international law claims arising under the BIT.
270.
The Tribunal therefore dismisses Respondent’s domestic law objection.

VII. Merits

271.
Having determined that it has jurisdiction, the Tribunal now turns to the merits and to Claimants’ allegation that the Czech Republic’s conduct towards their investments was in breach of Articles 3, 4, and 6 of the BIT.
272.
Claimants make four general points with respect to the merits:
273.
First, Claimants ask that the Tribunal consider the Preamble of the BIT, which records the Contracting States’ desire "to intensify economic cooperation" and "to promote and protect foreign investments" as well as their desire to "create and maintain favourable conditions for investments by investors of one Contracting Party in the territory of the other Contracting Party."257
274.

Second, Claimants note that they are not required to prove fault in the sense of intention to harm. Claimants quote Mondev, which found that "it is only the act of a state that matters, independently of any intention."258

275.

Third, Claimants argue that a violation of a treaty obligation is not excused by the fact that the acts in question may have complied with the internal laws of the state.259

276.
Fourth, Claimants argue that the Tribunal does not need to decide whether each of Benice’s and the City of Prague’s individual actions was wrongful; the events should be considered "cumulatively in context to each other,"260 with the ultimate question being whether the cumulative effect of Respondent’s actions amounts to a violation of the BIT.261
277.

Respondent rejects all of the claims, arguing that Claimants not only misconstrue the legal standards applicable to Articles 3, 4, and 6 of the BIT, but also that they fail to demonstrate facts that could amount to a treaty violation; the claims, it says, are nothing more than alleged breaches of Czech domestic law.

278.
First, according to Respondent, it is a foundational principle of international law that its norms are separate and distinct from those of domestic law. A breach of domestic law does not, therefore, automatically amount to a breach international law.262
279.
Second, Respondent explains that Claimants' claims centre around the Municipal Court of Prague's and the Supreme Administrative Court's annulment of the Zoning Plan Change and the City of Prague's subsequent failure to override those court judgments. Claimants are only submitting breaches of domestic law and they have failed to include arguments that could convert their claims into breaches of international law.263
280.
Third, Respondent argues that, even if the Tribunal were to find that Claimants presented international law claims, the Czech Republic did not violate Articles 3, 4, or 6 of the BIT.264
281.
The Tribunal will start by analysing whether the Czech Republic has breached Article 4 of the BIT [VII.1], Claimant's main claim, and it will devote separate sections to the two ancillary claims submitted: the breach of the obligation to grant the necessary permits under Article 3 [VII.2] and the breach of the prohibition to expropriate under Article 6 [VII.3].

VII.1. BREACH OF ARTICLE 4 OF THE BIT

282.

Claimants’ principal claim is that the Czech Republic breached its duty to guarantee "fair and equitable treatment" ("FET") as required by Article 4(2) and the prohibition against "unreasonable or discriminatory measures" provided for in Article 4(1) of the BIT.265

283.
Article 4 of the BIT reads as follows:

"(1) Each Contracting Party shall protect within its territory investments made in accordance with its laws and regulations by investors of the other Contracting Party and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale and liquidation of such investments. [...]

(2) Each Contracting Party shall ensure fair and equitable treatment within its territory of the investments of the investors of the other Contracting Party. This treatment shall not be less favourable than that granted by each Contracting Party to the investments made within its territory by its own investors or than that granted by each Contracting Party to the investments within its territory by investors of the most favoured nation, if this latter is more favourable. [...]" [Emphasis added]

284.
The rule thus imposes both a positive and a negative obligation upon the Czech Republic:

- The positive obligation is to accord within its territory FET to the protected investments of Swiss investors; and the standard applied must not be less than the treatment given to its own investors or those of the most favoured nation;

- The negative obligation is to abstain from impairing any protected investment through the adoption of measures which are either unreasonable or discriminatory.

285.
Claimants argue that Respondent breached the FET standard enshrined in Article 4 in three ways:

- By adopting unreasonable measures [VII.1.2];

- By adopting discriminatory measures, which provided less favorable treatment to Claimants’ investments [VII.1.3.] and

- By violating Claimants’ legitimate expectations [VII.1.4.].

286.
Before analyzing each of the alleged breaches, the Tribunal will devote a section to analyse Article 4 in general [VII.1.1].

VII.1.1. Applicable law: Article 4 of the BIT

287.
Claimants say that Respondent’s conduct resulted in a breach of Articles 4(1) and (2) of the BIT.

1. The FET standard

288.

The first sentence of Article 4(2) of the BIT is a rule of laconic brevity and delphic obscurity: it simply obliges the Contracting States to ensure "fair and equitable treatment" to investments of protected investors.

289.
The FET standard requires that the host state treat the protected investment in an even-handed and just manner, avoiding intentional harassment and denial of justice. The precise scope of protection is intimately related:

- to the legitimate and reasonable expectations on which the investor relied, including the stability of the host State’s legal framework; and

- to the specific undertakings and representations proffered by the host State at the time when the investment was made.

290.
The legitimacy or reasonableness of the investor’s expectations must be assessed in conjunction with the political, socioeconomic, cultural and historical conditions in the host State, and in particular, balancing the right of the State under international law to regulate within its borders.
291.
The obligation to provide FET binds the State as a whole. It can be breached by the conduct of any branch of government. In principle, then, the FET standard can be breached:

- by the executive or administrative branch or its separate agencies by means of administrative acts that directly target the investment;

- by the State’s judicial system as a whole, when it is responsible for a denial of justice which affects the investment; or

- by the enactment of laws or regulations of general application, which radically modify the applicable legal framework to the detriment of the investment.

292.
The threshold of propriety required by FET must be determined by the Tribunal in light of all the relevant circumstances of the case. To this end, the Tribunal must carefully analyse and take into consideration all the relevant facts, and, inter alia, weigh the following factors:

- whether the State made specific representations to the investor before the investment was made and then acted contrary to such representations;

- whether the State has failed to offer a stable and predictable legal framework, in breach of the investor's legitimate expectations;

- whether the host State has engaged in harassment, coercion, abuse of power, or other bad faith conduct against the investor266;

- whether the State has respected the principles of due process, consistency and transparency when adopting the measures at issue.

293.

In evaluating the State's conduct, the Tribunal must balance the investor's right to be protected from improper State conduct against other legally relevant interests and countervailing factors. First among these factors is the principle that legislation and regulation are dynamic, and that (absent a treaty obligation to the contrary) States enjoy a sovereign right to amend their laws and regulations and to adopt new ones in furtherance of the public interest. Other countervailing factors affect the investor: it is the investor's duty to perform an appropriate pre-investment due diligence review and to conduct itself in accordance with the law both before and during the investment.267

2. UNREASONABLE MEASURES

294.

Under Article 4(1) of the BIT, the Czech Republic has assumed the negative obligation to abstain from unreasonable or discriminatory measures affecting protected investments. A literal interpretation of the rule shows that for a measure to amount to a violation of the BIT it is sufficient if it is either unreasonable or discriminatory; it need not be both.

295.
Any unreasonable or discriminatory measure may, by definition, also be said to be unfair and inequitable. The reverse is not true, though. A government measure may fall short of the FET standard, for reasons other than that it is discriminatory or unreasonable.268
296.
An interesting feature of Article 4(1) of the BIT is the drafters' choice of terminology. Other BITs include a prohibition against "arbitrary or discriminatory" measures. The Swiss-Czech BIT however uses the expression "unreasonable or discriminatory" measures.
297.
Are "unreasonable measures" and "arbitrary measures" synonymous?

Arbitrary measures

298.

Arbitrariness has been described as "founded on prejudice or preference rather than on reason or fact";269 "[...] contrary to the law because: '[it] shocks, or at least surprises, a sense of juridical propriety'";270 or (in very similar terms) "willful disregard of due process of law, an act which shocks, or at least surprises a sense of judicial propriety";271 or as conduct which "manifestly violate[s] the requirements of consistency, transparency, even-handedness and non-discrimination."272

299.
In EDF, Professor Schreuer, appearing as an expert, defined as "arbitrary":273

"a. a measure that inflicts damage on the investor without serving any apparent legitimate purpose;

b. a measure that is not based on legal standards, but on discretion, prejudice or personal preference;

c. a measure taken for reasons that are different from those put forward by the decision maker;

d. a measure taken in willful disregard of due process and proper procedure."

And the EDF tribunal seemed to accept his definition in its analysis and ultimate rejection of the claim that Romania had adopted arbitrary measures.274

Unreasonable measures

300.
The BIT does not refer to "arbitrary measures." It prohibits "unreasonable measures", i.e., measures adopted by the host State that are irrational in themselves or result from an irrational decision-making process. All arbitrary measures are, by definition, unreasonable, because rational State action cannot result in the substitution of the rule of law by prejudice, preference or bias.275 The opposite is not necessarily true: an irrational decision-making process may result in an unreasonable measure, but the content of the measure does not have to be arbitrary (although in most cases, unreasonable decision-making will result in arbitrary results). In any case, the exposure to irrational processes may by itself be a breach of the duty to act in accordance with the FET standard.
301.
The tribunal in LG&E said that the contracting states (in that case Argentina and the United States)276

"wanted to prohibit themselves from implementing measures that affect the investments of nationals of the other Party without engaging in a rational decision-making process." [Emphasis added]

302.
The LG&E tribunal added:

"Certainly a State that fails to base its actions on reasoned judgement, and uses abusive arguments instead, would not 'stimulate the flow of private capital’." [Emphasis added]

303.
It is noteworthy that the treaty under consideration in LG&E contained a prohibition in respect of "arbitrary or discriminatory measures", and that the tribunal concluded that unreasonable or irrational measures breached such prohibition - proving the proximity of and overlap between both concepts. The Tribunal agrees with Claimants’ conclusion that in investment arbitration cases, the term "unreasonable" is often used interchangeably with the terms "unjustified" or "arbitrary."277
304.
Be that as it may, in the present case, Claimants plead the higher standard: they say that the measures adopted by the Czech Republic were not only unreasonable, but that they also meet the arbitrariness test.

3. Discriminatory measures

305.

Article 4(1) of the BIT also prohibits the adoption by the Czech Republic of discriminatory measures against a protected investment. Article 4(2) provides an additional rule: the treatment must not be less favourable than the treatment granted to investments made by Czech investors, or by investors of the most favoured nation, if this latter treatment is more favourable.

306.
Discrimination means unequal or different treatment. But this, in itself, is insufficient. To amount to discrimination, the protected investment must be treated differently from similar cases without justification278 such that the host State "expos[es] the claimant to sectional or racial prejudice"279 or "target[s] Claimants’ investments specifically as foreign investments."280
307.
Discrimination is a relative standard, which requires a comparative analysis between the measures applied to the protected investment and the measures applied to investments in similar situations. One leading commentator provides the following guidance by which to establish whether similar cases are being treated differently281:

"... start by looking at a narrow circle of comparators that are closest to the case at hand. In other words, the treatment of other investors in the same line of business will have to be looked at first. If there are clear indications of discrimination already on that basis, the matter may be regarded as settled. But the absence of discrimination within this narrow group is not necessarily conclusive. For instance, if the particular sector of the economy is small or is strongly dominated by foreign interests, it would not be sufficient for the tribunal to satisfy itself that no discrimination has occurred within that group of investors. The circle may be widened to a broader sector of activity that includes a variety of economic actors until a workable basis for comparison can be found."

National Treatment and Most Favored-Nation treatment

308.

Article 4(2) of the BIT defines the National Treatment ("NT") and the Most Favored-Nation ("MFN") standards:

"This treatment shall not be less favourable than that granted by each Contracting Party to the investments made within its territory by its own investors or than that granted by each Contracting Party to the investments within its territory by investors of the most favoured nation, if this latter is more favourable." [Emphasis added]