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Lawyers, other representatives, expert(s), tribunal’s secretary




The International Centre for Settlement of Investment Disputes (hereafter "ICSID" or "the Centre") received a Request for Arbitration from the Claimant against the Respondent dated February 15, 2004. The Request invoked the ICSID arbitration provisions in the Agreement between the Government of the Czech Republic and the Government of the State of Israel for the Reciprocal Promotion and Protection of Investments, which was signed on September 23, 1997, and entered into force on March 16, 1999 (hereafter "BIT" or "the Treaty"), as a basis for the Tribunal's jurisdiction.
Phoenix Action Ltd. (hereafter "Phoenix" or "Phoenix Action"), the Claimant, complained about the treatment of its investment by the Czech Republic, its investment being two Czech companies, Benet Praha, spol. s.r.o. (hereafter "Benet Praha" or "BP") and Benet Group, a.s. (hereafter "Benet Group" or "BG"). The Claimant acquired all interests in these companies on December 26, 2002. The Claimant informed the Respondent of the existence of an investment dispute a little more than two months after the acquisition of its investment, on March 2, 2003.
When it received the Request for Arbitration, the Centre requested, by letter dated May 4, 2004, further information from the Claimant, especially with regard to "the corporate activities of Benet Praha and of Benet Group". In a letter dated May 12, 2004, the then counsel for the Claimant, Mr. Meir Arad, gave some details relating to the corporate activities of BP and BG, and stated that BG was established by BP as a wholly owned subsidiary. In another letter dated June 29, 2004, the Centre asked for more precisions on the acts complained about by Phoenix in the following terms:

"We note that the facts that are complained of in the request... concerned exclusively Benet Group and Benet Praha before their acquisition. Under these circumstances, and to assist us further in our review of the request, please explain how and when a dispute for the purpose of Article 7 of the 1997 Israel-Czech Treaty has arisen between the requesting party and the Czech Republic."

In an answer dated July 8, 2004 to this letter, Phoenix explained that its right to ICSID arbitration was transferred to it by Benet Praha and Benet Group. The initial claim was thus based on the notion that the Benet Companies had assigned an ICSID claim to Phoenix as part of the acquisition of the shares. Phoenix was therefore complaining both for acts committed against Benet Group and Benet Praha before Phoenix acquired the companies, and for acts committed after this acquisition:

"Certain grounds of the claim are related to the seizure of all of Benet Praha assets on April 25, 2001 and the continuance of the seizure up to this date, almost 2 years after the investment was made... due to the fact that the right of action was assigned to the Claimant when the acquisition was made, it is our view that the Claimant is entitled to claim also in respect of actions, inactions and omissions prior to the date of the investment. Thus, a dispute exists between the parties for the purpose of Article 7 of the BIT in connection with the actions, inactions and omissions, which took place prior to the investment as well as subsequent to the investment... As mentioned hereinabove the claimed violation is an ongoing process that might have started before the investment was made, yet it is still an ongoing violation after the investment was made."1

This prompted another letter from the ICSID Secretariat dated July 28, 2004, in which further clarifications were requested:

"I refer to your letter of July 8, 2004, explaining that a right of action was assigned to Phoenix Action Ltd at the time of its acquisition of Benet Group and Benet Praha. It would appear that this would have had to have been a right to ICSID arbitration... I would appreciate receiving your clarification of this point."

In its answer dated September 15, 2004, Phoenix insisted that a claim of an Israeli company under the Israeli/Czech BIT cannot be considered by the Secretariat to be manifestly outside the jurisdiction of the Centre, and asked that the request be registered without delay.
Further clarifications were requested by the ICSID Secretariat in a letter dated January 21, 2005, in which three questions were raised, i.e. what can be called the Investment Question, the Assignment Question and the Timing Question:

"We ask that you specify the investments made by Phoenix Action to acquire Benet Praha and Benet Group.

More importantly, we continue to require clarification of the basis for such request for arbitration. We are unable to understand how Phoenix could bring their request as assignee, since Benet Praha and Benet Group could not themselves have brought such an action, or how the matter could involve continuing violations of rights since the events underlying the dispute seem to have predated the involvement of Phoenix action which alone could invoke the Czech Republic - State of Israel bilateral investment treaty."

In its 13 pages answer dated December 14, 2005, the Claimant assisted by Matthew Adler, the new counsel from the law firm of Pepper Hamilton, stated, in response to the Investment Question, that its investment was the purchase of the shares of BP and BG. It did not discuss directly the Assignment Question. The assignment theory was thus implicitly abandoned, as confirmed by a clear statement in the Claimant's CounterMemorial on Jurisdiction, where it is stated that "no BIT claim has been transferred because none existed prior to the time of the investment".2 Having abandoned the assignment theory, the Claimant merely insisted on the fact that Phoenix "owned the claim at the time it filed the action ".3 As far as the Timing Question was concerned, the Claimant asserted that "(i)t is not the case that all the events underlying this dispute predate the involvement of Phoenix", insisting that the continuous freezing of Benet Praha's bank accounts and the continuous seizure of documents as well as the Czech courts' delays in the different actions brought by Benet Praha and Benet Group in 2001 were part of a dispute which falls within the ambit of the ICSID Convention.
Finally, the Request for Arbitration, as supplemented by the Claimant's above mentioned letters, was registered by the Centre on March 23, 2006, pursuant to Article 36(3) of the ICSID Convention. On the same day, the Secretary-General, in accordance with Institution Rule 6(1)(a), notified the parties of the registration, and invited them to proceed to constitute an Arbitral Tribunal as soon as possible, pursuant to Institution Rule 7.


On August 29, 2006, Claimant requested that the Arbitral Tribunal in this case be constituted in accordance with Article 37(2)(b) of the ICSID Convention. Accordingly, the Tribunal was to consist of three arbitrators, one arbitrator appointed by each party and the third, the President of the Tribunal, by agreement of the parties. However, on November 27, 2006, without having proceeded under Arbitration Rule 3, the Claimant requested that the appointments of the President of the Tribunal and the arbitrator to be appointed by the Claimant be made by the Chairman of the ICSID Administrative Council under Article 38 of the ICSID Convention. On November 28, 2006, the Respondent appointed Professor Juan Fernández-Armesto as arbitrator. Following consultations with the parties, the Chairman of the Administrative Council appointed Professor Andreas Bucher to serve as co-arbitrator and Professor Brigitte Stern to serve as the President of the Tribunal. On January 8, 2007, the Secretary-General of ICSID, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (hereafter "Arbitration Rules"), notified the parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to be constituted and the proceedings to have begun on that date. The same letter informed the parties that Ms. Martina Polasek, Counsel, ICSID, would serve as Secretary of the Tribunal.
Shortly after the constitution of the Tribunal and before its planned first session, on January 25, 2007, the Claimant sent to the Centre a letter to which it attached an order requesting a transfer of the frozen funds in a bank account of Benet Praha, while invoking Arbitration Rule 39 concerning provisional measures. By a letter of February 7, 2007, the Secretary of the Tribunal informed the parties that the President of the Tribunal invited the Respondent, in accordance with Arbitration Rule 39(4), to submit its observations on the request for provisional measures by February 14, 2007. The Respondent submitted its observations within the prescribed time limit and asked the Tribunal to deny the Claimant's request. The parties were subsequently informed that the question of provisional measures would be dealt with at the first session of the Tribunal with the parties.
The first session of the Tribunal was held on February 23, 2007, at the European Headquarters of the World Bank in Paris. In addition to the members of the Tribunal and the Secretary, the following persons attended that meeting:

Attending on behalf of the Claimant

Mr. O. Thomas Johnson Covington & Burling LLP

Mr. Lubos Kutis General Director of BENet Praha spol. s r.o.

Mr. Pavel Klimes Demut, Klimes, Mader Law Office

Mr. Zdenek Hrdlicka Translator, Assistant

Attending on behalf of the Respondent

Mr. George von Mehren Squire Sanders & Dempsey LLP Mr. Stephen P. Anway Squire Sanders & Dempsey LLP Mr. Ondrej Sekanina Squire Sanders & Dempsey LLP

At the outset of the preliminary hearing, the parties expressed their agreement that the Tribunal had been properly constituted (Arbitration Rule 6) and stated that they had no objections in this respect. At that meeting, in accordance with Arbitration Rule 41(3), after having heard the parties' positions and following deliberations, the Tribunal proposed the following timetable for the written and oral proceedings, to which the parties agreed:

- The Claimant shall file its Memorial by May 25, 2007;

- The Respondent shall file its Memorial on Jurisdiction by July 25, 2007;

- The Claimant shall file its Counter-Memorial on Jurisdiction by September 25, 2007;

- The Tribunal shall decide on the issue of bifurcation of the proceeding by October 12, 2007.

A(i) If the Tribunal decides to bifurcate the proceedings, then:

- The Respondent shall file a Reply on Jurisdiction by November 12, 2007;

- The Claimant shall file a Rejoinder on Jurisdiction by December 12, 2007;

- A pre-hearing conference by telephone will be held on December 20, 2007 at 5 p.m., Paris time; and

- A hearing on jurisdiction will be held on January 17 and, if necessary, January 18, 2008.

A(ii) If the Tribunal decides to bifurcate the proceedings and the Tribunal does not require further submissions on jurisdiction, then:

- It was decided after the first session and an exchange of communication between the arbitrators and with the parties that a pre-hearing conference by telephone will be held on November 13, 2007 at 9 a.m. Washington, D.C. time; and

- A hearing on jurisdiction will be held on November 30 and, if necessary, on December 1, 2007.

B. If the Tribunal decides to join the jurisdictional objections to the merits of the case, then:

- The Respondent shall file a Counter-Memorial by January 12, 2008;

- The Claimant shall file a Reply by March 12, 2008;

- The Respondent shall file a Rejoinder by May 12, 2008;

- A pre-hearing conference by telephone will be held on May 26, 2008 at 5 p.m., Paris time; and

- A hearing on jurisdiction and the merits will be held in the period June 16 to 19, 2008.

Other procedural issues identified in a provisional agenda circulated by the Tribunal's Secretary in advance of the hearing were also discussed and agreed. Among other things, it was agreed that the applicable Arbitration Rules would be those in force as of April 10, 2006 and that the place of proceedings would be the seat of the Centre in Washington, D.C. without prejudice to the possibility of holding sessions at a different venue, after consultations with the parties.

The question of the requested provisional measures was also raised and pleaded. The parties made presentations of 20 minutes each regarding the Claimant's request for provisional measures, as well as rebuttal arguments of 5 minutes each. It was decided that the parties would submit, within 10 days of the first session, by March 5, 2007, brief summaries setting out the parties' respective oral arguments, which both parties did. The Tribunal, after having reviewed the Claimant's and Respondent's arguments, both as presented in writing and orally, as well as the applicable law, rendered a Decision on Provisional Measures, dated April 6, 2007, in which it denied the requested measures.
In accordance with the agreed schedule, the parties duly filed the following submissions:

- Claimant's Memorial by May 25, 2007;

- Respondent's Memorial on Jurisdiction by July 25, 2007;

- Claimant's Counter-Memorial on Jurisdiction by September 25, 2007.

On October 11, 2007, after due consideration of the parties' submissions, the Arbitral Tribunal issued Procedural Order No. 1, in which the Tribunal decided to bifurcate the proceedings. That Procedural Order suspended the proceedings on the merits to deal with the jurisdictional objections raised by the Czech Republic as a preliminary matter pursuant to Article 41(2) of the ICSID Convention and Arbitration Rule 41(3) and (4). In that regard, the Tribunal considered that a second round of written pleadings was necessary.
The proceeding continued according to the timetable set out in Procedural Order No. 1. The Respondent filed as scheduled its Reply on Jurisdiction by November 12, 2007. However, a week later, by letter dated November 12, 2007, ICSID was informed that the Claimant's third counsel, Mr. Thomas Johnson from Covington & Burling LLP, who had been appointed by the Claimant after the termination of Pepper Hamilton's mandate on July 20, 2006, had resigned from his functions, and that the Claimant consequently requested a suspension of the proceeding. As the Claimant had not paid its part of the required advance to the Centre and following a notice of default, the proceeding was suspended on December 18, 2007, in accordance with ICSID Administrative and Financial Regulation 14(3)(d).
Later, on May 22, 2008, the Tribunal learned from ICSID that the payment of US$ 100,000.00 due by the Claimant had been paid. The Tribunal was also informed that the law firm of Covington & Burling had resumed its representation of the Claimant. Thus, the procedure was resumed on May 22, 2008, but the initial timetable was no longer workable.
A new timetable was agreed between the parties and accepted by the Tribunal. The Claimant's Rejoinder on Jurisdiction was filed on June 27, 2008, and the Hearing on jurisdiction was planned for September 1, 2008.
The Hearing on jurisdiction (hereafter "Hearing") was indeed held on September 1, 2008, at the European Headquarters of the World Bank in Paris. In addition to the members of the Tribunal and the Secretary, the following persons were present at the Hearing:

Attending on behalf of the Claimant

Mr. O. Thomas Johnson Covington & Burling LLP

Mr. David Shuford Covington & Burling LLP

Mr. Lubos Kutis General Director of BENet Praha spol. s r.o.

Mr. Pavel Klimes Demut, Klimes, Mader Law Office

Mr. Milos Gerstner Translator

Attending on behalf of the Respondent

Mr. Radek Snábl Ministry of Finance of the Czech Republic

Mr. George von Mehren Squire Sanders & Dempsey LLP

Mr. Stephen P. Anway Squire Sanders & Dempsey LLP

Mr. Ondrej Sekanina Squire Sanders & Dempsey LLP

Mr. Rostislav Pekar Squire Sanders & Dempsey LLP


The factual background of this arbitration is summarized hereunder to the extent necessary to rule on the jurisdictional issues arising out of the Respondent's objections to jurisdiction.


The Claimant is an Israeli company registered under the laws of the State of Israel on October 14, 2001, with Israeli corporation number 51-3153502. It has its permanent seat at 50 Dizeongoff Street, Tel Aviv, Israel. Phoenix is entirely owned by Mr. Vladimír Beno. On December 26, 2002, two contracts were entered into by the Claimant, in order to purchase the holdings of BG and BP. On the one hand, an "Agreement for the Transfer of a Business Share" between Claimant, as purchaser, and Benreal s.r.o., as seller, effectuated the sale of BP to Claimant. On the other hand, a "Share Purchase Agreement" was agreed by the Claimant, as purchaser, and BP and Yugo Alloys s.r.o., as sellers, by which the Claimant became owner of BG. Thus, Phoenix became the sole owner of interest in two Czech companies, Benet Praha and Benet Group on December 26, 2002. The Claimant's ownership of BP was registered in the Czech Commercial Register on March 10, 2003 and its ownership of BG was registered on April 7, 2003.
The Respondent is the Czech Republic. The Czech Republic is a sovereign State and a Contracting Party to the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereafter "Washington Convention" or "ICSID Convention"), which it ratified on March 23, 1993, and to the BIT with Israel, which entered into force on March 16, 1999.


Some of the factual background has already been presented in the Decision on Provisional Measures rendered by this Tribunal on April 6, 2007, but will be recounted for the sake of completeness in this Award.
BP and its subsidiary BG were involved in trading of ferroalloys, and their businesses were complementary: BP was established to be active in the import and export of these substances, by purchasing ferroalloys on the international market and providing them to manufactures or other brokers in the Czech Republic; BG for its part purchased large quantities of ferroalloy component materials on the international market and also sold them on the international market, these goods rarely entering the Czech Republic. BG asserts that it is the owner of two Czech companies, Cash & Capital a.s. (hereafter "C&C") and Druha Slevarna Blansko a.s. (hereafter "DSB"), which it acquired from a Czech national.
Certain new information concerning the present ownership of the Czech companies was given by the Claimant in passing in footnote 2 to its Rejoinder on Jurisdiction, where the Claimant indicated that it had sold its interest in BP on January 8, 2008. This information was discussed during the Hearing. Counsel for the Respondent elaborated on the sale of BP in the following manner:

"We learnt this reading footnote 2 of Phoenix's rejoinder on jurisdiction, when it said that claimant had sold back Benet Praha. But I invite you to look at footnote 2. It doesn't tell us to whom the claimant sold Benet Praha, it doesn't tell us why it sold Benet Praha and it doesn't tell us for how much. Indeed, it doesn't even mention this fairly momentous event at all in the rest of its brief. So we did some investigating.

We... looked at the Czech Commercial Registry in connection with the sale and we discovered three very interesting facts …

First, the ultimate owner of the seller, ie the claimant, is in fact Mr. Beno …

Second, we found out to whom claimant sold Benet Praha: back to the same entity from which claimant bought it in 2002, Mr. Beno's wife's company …

Third,... we learnt how much claimant sold Benet Praha for. You guessed it: the exact same price that it purchased it for in December 2002, $4,000."4

The Claimant did not deny the existence of that transaction, the consequence of which being that Benet Praha was at the time of its purchase by Phoenix and is now again indirectly owned by Mr. Beno's wife through the Czech company called Benreal, of which she is the sole owner.
In December 2002, at the time when Phoenix purchased the two Czech companies, both BP and BG were involved in ongoing legal disputes, BG with a private party, BP with the Czech fiscal authorities.

1. The background of Claimant's a l eged investment in BG: the civil proceedings relating to the ownership actions

Benet Group was involved in two lawsuits against Mr. Miroslav Raska, the subject matter of which was the ownership of C&C and DSB. These two entities were described in the following way by the Claimant in its Memorial: "C&C was a shell company that existed for the sole purpose of bidding on a manufacturing facility called CKD Blansko (hereafter "CKD Blansko") that was owned by a bankrupt joint-stock company called CKD Blansko a.s.... DSB was a metal foundry."5
To summarize these legal proceedings, it can be said that BG had executed on November 26, 2000 a series of contracts6, the objectives of which were the purchase of the two mentioned companies, C&C and DSB, from Mr. Miroslav Raska, and the subsequent bidding by C&C on the bankrupt company CKD Blansko7, which owned large parcels of land as well as a manufacturing facility. The contract for the acquisition of CKD Blansko was jointly signed by Mr. Beño and Mr. Raska on behalf of C&C. Following disagreement between the two contractors8, the ownership of C&C, DSB and CKD Blansko - and the assets possessed by the latter company - is in dispute between a Czech company and a Czech citizen, i.e. between the Benet Group and Mr. Raska in the Czech courts.
C&C and DSB were both declared bankrupt, as stated in the Request for Arbitration: ". both C&C and DSB become bankrupt and all of their assets, estimated by an appraisal in the sum of US$ 36,000,000 become the subject of sale in bankruptcy."9 It has to be noted that BG itself initiated the bankruptcy proceedings in order "to prevent further alienation of the companies' property"10 by Mr. Raska. BG submitted its bankruptcy petition against C&C to the Municipal Court of Prague on November 2, 2001 and joined a bankruptcy petition against DSB which was filed in the Regional Court of Hradec Kralove on April 19, 2002. The Claimant complains that it has been deprived of its properties, because the Czech courts - for which the Czech Republic is internationally responsible - did not promptly resolve the private commercial dispute between BG and Mr. Raska, both alleging that they were the true owner of C&C and DSB and their respective assets.

2. The background of Claimant's a l eged investment in BP: the freeze of Benet Praha's bank accounts and the seizure of various documents

BP, for its part, was engaged in an ongoing dispute with the police and the prosecutorial authorities regarding the freeze of funds in a number of bank accounts belonging to the company and the seizure of a substantial quantity of the company's accounting and business documents. It all started when a criminal investigation was commenced in April 2001 against Mr. Vladimír Beno, who was at that time Benet Praha's Executive Officer. The investigation was related to the alleged committing of a series of tax and custom duty evasions, when importing metals into the Czech Republic. Further investigations revealed a suspicion that Mr. Beno also engaged in income tax fraud. On the basis of an arrest warrant issued against Mr. Beno, the Czech police took him into custody and attempted to escort him to the Office of corruption and financial crimes, but Mr. Beno escaped police and fled to Israel, where he thereafter, on October 14, 2001, registered a new company, Phoenix Action Ltd., which is the Claimant in this case.
On April 24, 2001, the Czech police conducted a premises search of the head office of BG's corporate parent BP, as part of the mentioned criminal investigation. During the course of this search, the police seized a large quantity of BP's accounting and business records. As it was determined that the funds of Benet Praha were proceeds of a criminal activity, namely customs evasion, on April 25, 2001 and April 27, 2001, Czech police, with the approval of the High Prosecuting Attorney's Office in Prague and pursuant to Czech legislation, seized all of Benet Praha's assets held in CSOB Bank in the Czech Republic, as well as a substantial quantity of the company's accounting and business documents. It has to be noted that the freezing of Benet Praha's funds and the seizure of accounting and business documents were related to the criminal proceedings against Mr. Beno. These events of 2001 are the basis for some of the claims of Phoenix before the Tribunal.



According to the Czech Republic, Phoenix's allegations as to a violation of its rights as a foreign investor fall outside the jurisdiction of the Tribunal mainly because "Phoenix is nothing more than an ex post facto creation of a sham Israeli entity created by a Czech fugitive from justice, Vladimír Beno, to create diversity of nationality."11 The Respondent considers that "(t)his case represents one of the most egregious cases of ‘treaty-shopping' that the investment arbitration community has seen in recent history. The purported investor, Phoenix, acquired the Benet Companies for the precise purpose of bringing their pre-existing and purely domestic disputes before an international judicial body", adding that "such abusive treaty-shopping is directly at odds with the fundamental object and purpose of the ICSID Convention and the BIT, which are meant to encourage international investment."12 Because of the specificities of the case, according to the Czech Republic, "the Tribunal should exercise its equitable discretion to look beyond the shell of the corporate claimant. Such an equitable result is justified in this case because Phoenix has engaged in abusive treaty-shopping and has violated the principle of good faith, which applies to all bilateral investment treaties and the rights derived therefrom."13 Its conclusion is that "this Tribunal should not elevate form over substance and simply accept Phoenix as the ‘paper' claimant."14
From a legal point of view, the Czech Republic submits that the Tribunal should dismiss Phoenix's claim on the following jurisdiction-related grounds:

"(a) The Tribunal has no jurisdiction ratione temporis over Phoenix's claims arising prior to 26 December 2002;

(b) The local remedies rule bars Phoenix's claims arising after 26 December 2002;

(c) Phoenix's alleged purchase of the Benet Companies is not an "investment" within the meaning of Article 25 of the Convention and Articles [sic] 7 of the BIT; and

(d) The Benet Companies, rather than Phoenix, are the real parties in interest, and the diversity of nationality requirement and the exclusive remedies principle are therefore not satisfied."15

The Respondent argues that the Tribunal has no jurisdiction ratione temporis over the acts committed against the Czech companies before they were acquired by Phoenix. Moreover, it maintains that the same conclusion should prevail for any alleged acts performed after this acquisition, as these acts can only be analyzed as a logical extension of the prior acts and should therefore be subjected to the same treatment.
As for the claims of denial of justice for acts committed after the investment was effected, the Respondent objects to the Tribunal's jurisdiction because of the non exhaustion of the local remedies. According to the Czech Republic, there has yet to be a final decision of the Czech courts and "when a claim of injury is based upon judicial action in a particular case, State responsibility only arises when there is final action by the State's judicial system as a whole"16.
Assuming these two objections do not prevent the Tribunal from determining that it has jurisdiction to hear the claims, whether arising before or after December 26, 2002, the Respondent presents an additional major objection to the Tribunal's jurisdiction, in that Phoenix's acquisition of BP and BG is not an "investment" within the meaning of Article 25 of the Convention and Articles 1 and 7 of the BIT. One of the arguments for denying the character of an investment to the transaction made by Phoenix is the following:

"Nor is there any allegation or evidence that Phoenix has been involved in the business activities relating to its investment. It has been, at most, a passive investor in two inactive companies. Surely that cannot suffice to satisfy the definition of "investment" under Article 25(1) of the ICSID Convention. As Dr. Ben Hamida has astutely observed, ‘ICSID jurisprudence is well established on the fact that capital or passive money is not enough to be protected'."17

The fact that it was only a passive investor is confirmed by the analysis of the Claimant's investment: Phoenix's investment cannot pass any of the four criteria of the so-called " Salini test"18, which the Respondent considers should be utilized to give some content to the notion of investment as used in the Washington Convention: according to the Respondent, there is no contribution in money, no sufficient duration, no risk and no contribution to the host State development. The Tribunal additionally has no jurisdiction because Phoenix's alleged investment was not an investment "in connection with economic activities," as required by Article 1(1) of the BIT.
Last but not least, the Respondent argues that, even if the Tribunal were not convinced by all these jurisdictional objections, Phoenix's claims should still be dismissed because the presentation of an ICSID claim under the circumstances is abusive, as the Benet companies, not Phoenix, are the real parties in interest. When there is - as the Respondent contends is the case here - an abuse of a corporate structure, the Tribunal should look beyond the apparent facts and lift the corporate veil.
According to the Reply of the Czech Republic, the Claimant's Counter-Memorial on Jurisdiction leaves the following facts entirely uncontroverted:

"Phoenix's purported "investment" in the Czech Republic was made after a former-Czech national, Vladimír Beno, fled from the Czech police to Israel;

After fleeing to Israel, Mr. Beno incorporated Phoenix and purchased the shares of the two Czech companies that he controlled (and continues to control), Benet Praha and Benet Group;

Mr. Beno's wife and daughter were the previous legal owners of Benet Praha and Benet Group and "sold" them to Phoenix to create the purported investment at issue in this case; and

The raison d'être of Phoenix is to create diversity of nationality in this case - ie., to serve as a vehicle by which to bring pre-existing domestic disputes in which the Benet Companies were involved before an international investment tribunal."19

The relief requested from the Tribunal has been reaffirmed in the Reply on Jurisdiction in the following terms:

"(a) a declaration that the Tribunal does not have jurisdiction over Phoenix's claims;

(b) an order that Phoenix pay the costs of these arbitral proceedings, including the cost of the Arbitral Tribunal and the legal and other costs incurred by the Czech Republic, on a full indemnity basis; and

(c) interest on any costs awarded to the Czech Republic, in an amount to be determined by the Tribunal."20

The Respondent heavily insisted during the Hearing on the importance of the present case and the duty of the Tribunal to deny its jurisdiction, you will be the first Tribunal to decide whether a foreign entity can be created for the sole purpose of creating diversity of nationality and hence to achieve ICSID jurisdiction."21 And it added:

"We submit that if the Tribunal holds that it does have jurisdiction over Phoenix's claims, it would send a message to the world that there is virtually no limit to ICSID jurisdiction. A domestic dispute or its continuation would always be reviewable by an ICSID Tribunal if the ultimate owner of a domestic company can simply incorporate a foreign entity who then buys the shares of the domestic company embroiled in the dispute."22


Before analyzing the position of the Claimant on the jurisdictional issues, it seems apposite to summarize the acts complained of. As far as BG is concerned, Phoenix contends that it has suffered a denial of justice, because of the lengthy civil litigation procedure still pending in the Czech courts. As far as BP is concerned, four types of alleged illegal acts are invoked by Phoenix: the failure to terminate the freeze, the failure to terminate the document seizure, the violation of the obligation to accord fair and equitable treatment (hereafter "FET"), because BP had to respond to customs assessments without the benefit of access to its business records, the violation of FET, because BP had to respond to two tax assessments without the benefit of access to its business records. The Benet Group investment is the sole basis for the first claim, which is the denial of justice claim. The Benet Praha investment is the sole basis for the claims based on the problems with the funds freeze, the document seizure and the tax and customs assessments.
Concerning the freeze of the assets of BP, it has to be added here that, in footnote 2 already mentioned to its Rejoinder to Jurisdiction, the Claimant indicated that the funds were released on March 6, 2008, but that it still seeks compensation for Respondent's wrongful freezing of those funds until January 8, 2008 - the date on which Phoenix sold its interest in BP, because it was deprived of the use of its funds until that time. Also in its Rejoinder, the Claimant presented a new analysis of the acts complained of, in that it did add, to the existing list of violations already asserted, a claim for expropriation, because the assets of the bankrupt companies whose ownership is disputed in the Czech courts have been sold: "Given that the disposition of property in the bankruptcy proceeding cannot be undone pursuant to Czech law, it is additionally possible now to characterize Phoenix Action's claims related to the Ownership Actions as sounding in an expropriation or a measure having an equivalent effect to an expropriation, without payment of prompt, adequate, and effective compensation in violation of Article 5 of the BIT."23
These different claims can only be entertained by the Tribunal if the latter has jurisdiction over them, which the Claimant contends is the case.
Although the Claimant had defended for a certain period of time the theory of an assignment of the claims of BP and BG to Phoenix, this analysis has been later abandoned. This was clearly emphasized, for example, in the Claimant's Rejoinder on Jurisdiction, where it was submitted that "... there has been no such transfer of a claim."24 Phoenix thus contends that it has brought before the Tribunal its own claims that have arisen since it has made its investment in the Czech Republic.
What are then the claims brought to the Tribunal by Phoenix? In its Counter-Memorial on Jurisdiction, the Claimant lays great emphasis on acts or omissions of the Czech Republic performed after the purchase of BP and BG by Phoenix. In answering to the objection to jurisdiction based on ratione temporis reasons, the Claimant said that "Respondent makes the unremarkable observation that ‘[t]he Tribunal is limited ratione temporis to judging only those acts and omissions occurring after the date of the investor's purported investment.' Claimant agrees; indeed, it asks the Tribunal to judge nothing else".25 In fact, the Claimant concentrates, at that stage, on the post investment events and considers that Phoenix's BIT claims did arise after its investment on December 26, 2002, characterizing its claims in the following manner:

"Claimant does not allege that the Ownership Actions themselves violate the BIT, but rather alleges that the conduct of the Ownership Actions by the Czech courts since the time of the investment has violated the BIT because of unjustified and prejudicial delay in their adjudication.

Claimant does not allege that the funds freeze and document seizure alone violate the BIT, but rather that Respondent has violated the BIT by failing to terminate the funds freeze and document seizure over the almost five years that have passed since the investment, during which time all legitimate reasons for the continuation of the freeze and seizure have expired.

Claimant does not allege that the customs assessments and actions alone violate the BIT, but rather that the Respondent violated the BIT by requiring BP to respond to those assessments, after December 2002, without the benefit of its business records.

Finally, Claimant does not allege that the tax assessments alone violate the BIT, but rather that the Respondent violated the BIT by requiring BP to respond to the assessments, after December 2002, without the benefit of its business records."26

Acts prior to the investment were subsequently referred to in a different way, as the Claimant states, for example, in its Rejoinder that "each and every claim raised by Phoenix Action in this case arose after its investment in the Czech Republic"27, the former acts and omissions being just referred to as a means to understand the status quo ante the time at which the investment was made.

As far as the objection to the Tribunal's jurisdiction over a claim of denial of justice28 based on the local remedies rule is concerned, the Claimant asserts that it is not jurisdictional in nature, but instead is a defence on the merits. Moreover, in the Claimant's view, it is indeed the total failure of the Czech courts to resolve those actions that is the subject of part of Phoenix's claims and for the other part, it stresses that the obligation to exhaust local remedies does not exist where the complaint relates to judicial inaction or a refusal to judge, as is the case here.
Turning then to the jurisdictional requirements of the ICSID Convention and the BIT, the Claimant briefly answers the Respondent's objections in asserting that they are frivolous, adding that "(t)he Tribunal can and must exercise jurisdiction over this investment dispute lest it commit a manifest excess of powers."29. For the Claimant, there is not one single arbitration case in which an international tribunal has declared that "the purchase of a local company by a foreign national does not constitute an investment for purposes of Article 25 of the ICSID Convention or, for that matter, for purposes of any BIT"30. For the Claimant, nothing should be added to the text of the Washington Convention and it rejects the pertinence of the criteria of the Salini test, but adds that - should they be taken into account - they are nevertheless satisfied, stating, for example, in its Rejoinder, that "even accepting as legitimate the non-textual jurisdictional limitations proposed by Respondent, the Tribunal must still find that the exercise of jurisdiction over this dispute is proper."31 In other words, according to the Claimant, all criteria of the Salini test are present: Phoenix Action paid $334,500 for the two companies, the purchase was for an indefinite period, there was an anticipation of profits and a real risk involved as the companies were in a distressed situation when purchased. As far as the criteria of the contribution to the host State economy is concerned, Claimant asserts that it is not applicable outside of a State contract situation, which is not the situation in this case, and moreover that if it has not contributed to the development of the State's economy it is due to the illegal acts of the State. Moreover, the requirement of the BIT are satisfied, as the Claimant alleged to have made its investment in order to develop economic activities, i.e. to restart the profitability of the two Czech companies. According to the Claimant, one cannot contend, as does the Respondent, that if there is no economic activity at the time of the investment, it cannot be considered as a protected investment: "the purchase of land for future development would not qualify as an "investment" under Respondent's reasoning, because no commerce actively takes place on a piece of land that is undeveloped at the moment of the investment. But many tribunals have held that the purchase of land in fact is an investment."32 The Claimant cites a number of cases in support of its contention.33
On this basis, the Claimant, considering that the Tribunal has jurisdiction to deal with the merits, requests the following relief: an award of compensation for losses suffered by Claimant related to C&C, which should in no event be less than CZK 951,048,000 (approximately EUR 37,500,000 at present) - this being the appraised value of CKD Blansko as of May 3, 2001; an award of compensation for losses suffered by Claimant related to the loss of BP as a working ferroalloys trading company; an order requiring Respondent immediately to unfreeze BP's funds and bank accounts; an order requiring Respondent immediately to release BP's business and accounting documents; an award of compensation for all other breaches of the BIT by Respondent, including but not limited to its imposition of tax and customs assessments on Claimant without allowing it the means necessary to defend itself against those assessments; compensation for corporate expenses, including but not limited to the more than CZK 2 million (approximately EUR 79,000,000 at present) in legal fees BP paid throughout the course of the 171 customs assessments; and an order requiring Respondent to bear the costs of the present arbitration. When asked, during the Hearing, by a member of the Tribunal whether all the requests for relief sought were still valid after the submissions, pleadings and the evolution of some aspects of the situation34, counsel for Claimant answered in the following manner:

"The short answer to that question is: all of the requests for relief remain operative except for the request for an order requiring respondent immediately to unfreeze BP's funds and bank accounts. That has happened."35



The jurisdictional requirements of the BIT are contained in its Article 7, with further precisions in Articles 1 and 3. Article 7 reads in pertinent parts:

"1. Any dispute which may arise between an investor of one Contracting Party and the other Contracting Party in connection with an investment made in the territory of the latter shall be subject to negotiations between the parties to the dispute.

2. If any dispute between an investor of one Contracting Party and the other Contracting Party cannot be thus settled within a period of six months, the investor shall be entitled to submit the dispute to:

a) a court of competent jurisdiction of the Contracting Party in whose territory the investment was made; or

b) the International Centre for the Settlement of Investment Disputes (ICSID) having regard to the applicable provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature at Washington D.C. on March 18, 1965; or

c) an arbitrator or international ad hoc arbitral Tribunal as agreed by the parties to the dispute. The arbitral Tribunal shall be established according to the principles contained in Article 8."



At the outset, the Tribunal notes that in this case, for the jurisdiction ratione personae, there is no discussion about the Israeli nationality of Phoenix, which has been registered in Israel on 14 October 2001, and has its permanent seat in Tel Aviv, Israel.
In the same manner, for the jurisdiction ratione voluntatis, there is neither any discussion of the fact that the Czech Republic gave its consent to ICSID arbitration in the Israeli-Czech BIT, while the Claimant has manifested its consent in bringing a request for arbitration to the Centre.
The Tribunal will therefore concentrate on the claims presented to the Tribunal for acts or omissions committed while the alleged investment belonged to the Claimant and analyze whether they enter into its jurisdiction ratione materiae.
In this arbitration, the main question to answer at this stage is whether the Tribunal has jurisdiction ratione materiae, i.e. whether there is a legal dispute arising directly out of an investment, and this is the question on which the Tribunal will concentrate. In Section V, the Tribunal will carry out an abstract analysis and interpretation of the definition of investment, as set forth in the ICSID Convention and in the BIT between Israel and the Czech Republic. In Section VI, the Tribunal will then apply its findings to the specific set of facts of this arbitration, in order to come to a conclusion whether it has or it lacks jurisdiction ratione materiae.


According to Article 31 of the Vienna Convention on the Law of Treaties, which the International Court of Justice has repeatedly described as the expression of customary international law, "(a) treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose " (Article 31. 1)46.
Also, international agreements like the ICSID Convention and the BIT have to be analyzed with due regard to the requirements of the general principles of law, such as the principle of non-retroactivity or the principle of good faith, also referred to by the Vienna Convention. This has been stated for the WTO law stemming from the Marrakech Agreements of 1994:

"States in their treaty relations, can contract out of one, more or in theory, all rules of general international law (other than those of jus cogens), but they cannot contract out of the system of international law. As soon as States contract with one another, they do so automatically and necessarily within the system of international law."47

This has been stated also with force by the Appellate Body of the WTO Dispute Settlement Mechanism in its first rendered decision, where it stated:

"The General Agreement is not to be read in clinical isolation from public international law"48.

In general, it is very easy to ascertain the existence of an investment: for example, nobody would contest that the construction and operation of a power plant is an investment. In this hypothesis, a reference to the ordinary meaning of what constitutes an investment is sufficient and no sophisticated analysis based on several criteria is needed. Sometimes, the nature of the economic operation is less evident or has different components and the existence of an investment is more difficult to ascertain. For that purpose, ICSID case law has developed various criteria to identify the pertinent elements of the notion of investment. Sometimes, however, in a minority of cases, this factual analysis of the existence of an investment, relying on the ordinary meaning of the term "investment", is insufficient to detect an economic operation which is objectively an investment, but which is not a protected investment because, for one reason or another, it is not the purpose of the multilateral or bilateral treaty of protection of investments to extend protection through international arbitration to such an investment. If doubts are raised with regard to the existence of a protected investment, the Tribunal has to conduct a contextual analysis of the existence of a protected investment, in order to decide whether or not the investment satisfies certain criteria additional to those analyzed above, that grant it international protection through the ICSID mechanism and the BIT. In other words, in order to conclude that an economic operation, which by its nature is or looks like an investment, is indeed an investment deserving international protection, the Tribunal must also take into consideration the purpose of the international protection of the investment, whether it is the specific purpose of the ICSID system or the general purpose of the protection granted by international law.
The parties differ as to the interpretation of the facts and of the applicable law, the Claimant insisting that there is indeed an investment, the Respondent denying that such an investment has been made. In order to perform this interpretation, the Tribunal will first analyse the ordinary meaning of the notion of investment under the ICSID Convention, and will then ascertain which investments are protected in view of their object and purpose, before looking at the BIT definition. Finally, in order to complete the determination of protected investments under the international arbitration mechanism, the Tribunal will interpret these two international agreements in the light of the general principles of international law.


It is well known that the ICSID Convention contains no definition of the term "investment" used in its Article 25. According to the Claimant, as a consequence, "the Convention leaves to each Contracting State the determination of what types of economic activities are to be considered investments which it consents to submit to ICSID jurisdiction in the event of a dispute"49; the Claimant rejects the relevance of the Salini test50, because it introduces "non-textual jurisdictional limitations" to the ICSID definition of an investment, but at the same time insists on the fact that in any event the different criteria of the test are fulfilled. On the contrary, the Respondent contends that the definition of an "investment" in the ICSID Convention is independent from the BIT51, that in order to ascertain the existence of an investment, the Salini test is the reference, and that the different criteria of this test are not fulfilled.52

1. The ordinary meaning of the notion of investment under the ICSID Convention

Nevertheless, depending on the circumstances, this presumption can be reversed, as is illustrated in this Award. If the investor carries out no economic activity, which is the goal of the encouragement of the flow of international investment, the operation, although possibly involving a contribution, a duration and some taking of risk will not qualify as a protected investment, as it does not satisfy the purpose of the ICSID Convention. This will be developed in the next paragraphs.

2. The purpose of international protection is to protect foreign investments made in order to develop an economic activity

The Tribunal wishes to recall that the object of the Washington Convention is to encourage and protect international investment made for the purpose of contributing to the economy of the host State. At the time of the adoption of the Washington Convention, this purpose was clearly in the forefront, and it still is today:

"... adherence to the Convention by a country would provide additional inducement and stimulate a larger flow of private international investment into its territories, which is the primary purpose of the Convention."59

This has to be read in light of the first words of the Preamble of the ICSID Convention, referring to "... the need for international cooperation for economic development, and the role of private international investment therein."60

a. The protection of foreign investments

It is common knowledge that the purpose of the ICSID system is not to protect nationals of a Contracting State against their own State: the system was clearly "designed to facilitate the settlement of disputes between States and foreign investors" with a view to "stimulating a larger flow of private international capital into those countries which wish to attract it."61
It is settled jurisprudence that a national investment cannot give rise to ICSID arbitration, which is reserved to international investments and that an invalid ICSID clause signed by a national cannot be transformed into a valid ICSID clause by assignment to a foreign investor. The cases of Banro62 and Mihaly63 concerning a foreign investor - who like a national is not entitled to protection - transferring its claims to a foreign investor so entitled are apposite here.
The Banro Tribunal made it very clear that an assignment from one company of the Banro group, the Canadian subsidiary Banro Resource, to another company of the group, the parent company Banro American, could not transform the inoperative ICSID arbitration clause contained in Article 35 of the contract concluded by the Canadian company into an operative one, of which an American parent company could avail itself:

"In order to consider the right of access to ICSID arbitration, available under Article 35, as ‘extended' or ‘transferred' to Banro American by applying other provisions of the Mining Convention, it would still be necessary that such right existed first for the benefit of the entity Banro Resource. Such is not the case, given that Banro Resource, a Canadian company, never had, at any time, jus standi before ICSID. Having never existed for the benefit of Banro Resource, the right of access to ICSID cannot be viewed as having been ‘extended' or ‘transferred' to its affiliate, Banro American."64

The same rationale has been applied by another ICSID tribunal in the case of Mihaly, where the question raised was also whether a Canadian company could validly assign an ICSID claim to an American company benefiting from a BIT. The answer was clearly no:

"... no one could transfer a better title than what he really has. Thus, if Mihaly (Canada) had a claim which was procedurally defective against Sri Lanka before ICSID because of Mihaly (Canada)'s inability to invoke the ICSID Convention, Canada not being a Party thereto, this defect could not be perfected vis-à-vis ICSID by its assignment to Mihaly (USA). To allow such an assignment to operate in favour of Mihaly (Canada) would defeat the object and purpose of the ICSID Convention..."65

In other words, according to ICSID case law, a corporation cannot modify the structure of its investment for the sole purpose of gaining access to ICSID jurisdiction, after damages have occurred. To change the structure of a company complaining of measures adopted by a State for the sole purpose of acquiring an ICSID claim that did not exist before such change cannot give birth to a protected investment.

b. The protection of investments whose purpose is the development of an economic activity


As quoted in paragraph 56 of this Award, according to the BIT, "(t)he term ‘investment' shall comprise any kind of assets invested in connection with economic activities by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter...". The question is raised whether this definition is a restriction or not of the ICSID notion of investment as formerly outlined, or if it is only an explicit description of elements that must be present for any investment to benefit from ICSID arbitration.
Before answering that question, the Tribunal will turn to the issue of the proper interpretation of the notion of investment in the general framework of the ICSID mechanism and the specific framework of the BIT, in light of the general principles of international law.


1. The protection of foreign investments made in accordance with the laws of the host State

2. The protection of bona fide investments


The Tribunal wants to emphasize that an extensive scrutiny of all these requirements is not always necessary, as they are most often fulfilled on their face, "overlapping" or implicitly contained in others, and that they have to be analyzed with due consideration of all circumstances.


The Tribunal will now proceed to the analysis of the different criteria it considers relevant to determine the existence of a protected investment under the ICSID mechanism.


According to the Claimant, "Phoenix Action paid $334,500 for these companies... Since the initial investment, Phoenix Action has invested an additional $1.37 million in its Czech subsidiaries over the last five years to cover various operating expenses."83 To support the figures concerning the payment of the shares, the Claimant annexes three exhibits containing, in the words of the Claimant, "three confirmations of international wire transfers of funds from Phoenix Action to the pre-investment owners of BP and BG."84


The Tribunal is therefore not convinced that this element of duration constitutes a bar to the qualification of the purchase of BP and BG as an apparent investment, if all other elements of the definition of an investment are satisfied.


The Respondent's analysis presented in order to deny the existence of a risk in the Claimant's operation follows the same line of arguments used to prove that the operation did not entail a certain duration. According to the Respondent, "Phoenix had no business project... Accordingly, there is no element of risk in Phoenix's alleged investment."91
Overall, the Tribunal concludes so far that there are not sufficient objective elements to disqualify the existence of an apparent investment under the Washington Convention in this case, as there was clearly possession, during approximately six years, by an Israeli company of equity in two Czech companies, which according to the Claimant involved a risky operation. But this is not the end of the inquiry.


It appears from the file and Phoenix admits in its Memorial, that at the time of Phoenix's alleged investment, the Benet Companies had been engaged in no economic activity for more than a year. Indeed, the only activity in which the Benet Companies were involved at the time of the investment was the litigation that is a basis for this arbitration, which evidently is not an "economic activity."
The Respondent has heavily insisted on the absence of any economic activities performed by Phoenix, while it had invested in the two Czech companies, stating that the Claimant clearly did not buy a going concern in order to make a foreign investment that would contribute to economic activities, its only concern being to buy an ICSID claim. Proof of this situation of stand still during several years is, according to the Respondent, the fact that BP was sold back in 2008, six years after the purported investment, for exactly the same amount of money spent for its purchase in 2002.
The Claimant, on the contrary, insisted on the fact that, had not the Czech authorities illegally frozen the assets of BP, Phoenix would be entitled to $6 million at current exchange rates in the bank accounts that were frozen by the Respondent.92 The Claimant also argues that, had the Czech courts acted swiftly, it would have been recognized as the true owner of C&C and DSB and their valuable assets. According to the Claimant, the fact that it was not capable of engaging in economic activities was entirely due to the Czech authorities actions: "... it would be more than ironic, indeed it would be unjust, if Phoenix Action were to be deprived of the BIT's protection because of the Respondent's93 own breach of that treaty." This idea was also forcefully expanded in the Claimant's Rejoinder:

"Phoenix Action has owned two Czech businesses which, if Respondent had complied with its obligation under the BIT, would have resumed their normal operations in the metal-trading business."94

Both parties thus agree on the state of affairs at the time of the purchase. Where they disagree is on the consequences of this state of affairs on Phoenix's claims. The Respondent considers that the purchase of the ownership in the companies can as a result of the surrounding facts not amount to an investment, while the Claimant on the contrary argues that the purchase qualifies as an investment as it was made in order to try to "revive" the two Czech companies:

"BG and BP had been profitable businesses before the events of April 2001, and Phoenix Action had every reason to believe that their profitability would return if the Respondent acted in a fashion consistent with its obligations under the BIT."95

"Respondent would have the Tribunal believe that ownership of host-state companies is not "in connection with economic activities by an investor" because BG and BP have not resumed their prior level of business or profitability. This is incorrect. Under this reasoning the purchase of land or a company out of liquidation would not be investment, contrary to the ordinary meaning of that term... A more reasonable application of the BIT's terms to Claimant's investment in BP and BG is that Phoenix Action's purchase of BP and BG was made in connection with economic activities because it was made in the reasonable belief that the Ownership Actions, Customs Actions, document seizure, and fund-freezing would be resolved in a manner consistent with Respondent's obligations under the BIT and that the companies' economic activities consequently would resume their prior extent and profitability. Respondent's breach of the BIT is the cause of BP and BG's continued inability to resume their prior functioning."96




Having found that there is no protected investment under the Washington Convention and the Israeli/Czech BIT, interpreted in light of their object and purpose, the Tribunal need not address the other objections raised by the Respondent to the Tribunal's jurisdiction. More precisely, the Tribunal does not need to address the scope of the rule concerning the exhaustion of local remedies when a denial of justice is concerned and consequently does not need to decide whether or not the local remedies rule invoked by the Respondent would bar Phoenix's claims related to denial of justice arising after December 26, 2002.



For the reasons stated above, the Tribunal unanimously decides:

1. The dispute brought by Claimant before the Centre is not within the jurisdiction of the Centre and the competence of the Tribunal.

2. Claimant shall pay to Respondent CZK 21,417,199.13 and USD 196,000.00, which represent the Respondent’s legal fees and expenses and the Respondent’s contribution to the costs of these proceedings.

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