Disputes between the Investor and a Contracting Party
(1.) Any disputes between one of the Contracting Parties and an investor of the other Contracting Party concerning the interpretation or application of this Agreement shall, if possible, be settled amicably.
(2.) If the dispute cannot thus be settled within six months following the date on which the dispute has been raised by either party, it shall at the request of either party be submitted to arbitration for a definitive settlement. For the arbitration procedure shall be applied the Arbitration Rules of the United Nations Commission on International Trade Law, as adopted by the General Assembly on 15 December 1976.
(5.) The arbitral decision shall be final and binding on both parties to the dispute. Each Contracting Party shall execute them in accordance with its laws."
Mr Thomas Wiren
Mr Nils-Urban Allard.
SwemBalt argued the case and responded to the arbitrators' questions. Minutes of the hearing were taken and later sent to both parties. Following the hearing and receipt of the minutes and further exhibits presented by SwemBalt, the Respondent submitted a brief with five appendices on 20 September 2000. On 28 September 2000, SwemBalt submitted a response, opposing consideration of the Respondent's brief, whilst pointing out that the Tribunal may decide upon consideration of this brief. SwemBalt's response merely repeats the facts and arguments that have already been presented. The Tribunal has taken the Respondent's brief into account when adopting a decision.
"1. On 2 April 1993 SwemBalt acquired a Ro-Ro type ship, which was to be moored in the Port of Riga and used as a Swedish trade centre and floating commercial centre. The ship was registered in the Swedish Ship Register under the Swedish flag.
2. On 21 April 1993 the ship was transported from Sweden to the Riga Ship Repair Yard, where internal and external renovation of the ship was carried out. The ship was 118.9m in length, 15.55m wide and weighed 3,500 DW. Following renovation, the internal area of the ship was 2,600 m2. The ship also had 21 cabins, which could have been used as offices or overnight accommodation, in addition to three conference rooms, a dining room, a bar and a wide deck.
3. Negotiations on positioning of the ship in the Port of Riga were held with the Mayor of Riga, Andris Teikmanis, with the participation of the Riga Port Authority, the City of Riga architect's office and the Land Commission. As a result of these negotiations the Land Commission stated that the land could be leased and that the ship could be moored at the southern end of the Kipsala peninsula and that contact should be established with Oskars Caune, the local mayor for the Kurzeme district of Riga, as the land belongs to the state, but it is managed by the district.
4. Caune was positively in favour of the project and asked for a plan of the property and plan of the ship to be submitted. On 7 October 1993, the Land Committee, Riga City Council and the local mayor, Caune, granted permission for the lease of the berth to go ahead. On 17 November 1993, following authorisation from Ivars Lismanis at Riga City Council and the Port of Riga, the ship was towed to a suitable location at Kipsala, where it arrived at 3pm.
5. For the purposes of this project, SwemBalt AB established the company SwedeBalt SIA, which signed an agreement on 24 March 1994 with the Kurzeme district of Riga, for the lease of a berth and an 11,200 m2 area of land. The basis for this agreement was the City of Riga Land Commission decision No. 22734 of 1 December 1993. The agreement was to have been in force from 1 December 1993 to 30 June 1998. In accordance with this agreement, the land was leased to establish a floating commercial centre with a Ro-Ro type ship at the SwedeBalt berth.
6. On Monday 28 March  at 11am, Konstantins Gailiss of the Riga Port Authority arrived at the ship together with about 15 people and three tow boats. At the time, no representative of the owner, or any personnel from Sweden were present. Only personnel from Latvia and Russia carried out operations onboard. Later on [the same day], the ship was forcibly moved, without permission from the owner, and moored two nautical miles from the leased berth. The ship was not secured to a berth, but to mooring posts approximately 30m in the water. SwemBalt and lessees (Global Recycling AB, SwemTek AB, Wirens Rederi AB, Ostman Invest AB, SwedSped AB etc) were prohibited from carrying out any further business activities on the ship. Furthermore, rental agreements that had almost been signed with Gotthard Metall AB (rent of USD 100,000 per annum) and ABB Latvia (rent of USD 100,000 per annum) were annulled as a result.
7. SwemBalt found out on the same day that the ship had been moved and then sent a fax to the Mayor of Riga, Andris Teikmanis. SwemBalt also informed the Swedish Embassy in Riga on the same day. Later that day, SwemBalt learned from the Harbour Master of the Port, Gunars Ross, that Riga City Council had arranged for the ship to be moved and therefore again sent a fax to Mayor Teikmanis.
8. On 14 April 1994 the Swedish Embassy delivered a note to the Ministry of Foreign Affairs of Latvia, requesting an explanation of events.
9. On 22 April 1994 the Embassy received a reply. However, this reply did not provide an explanation of the events.
10. On 18 April 1994 the Mayor of Riga, Andris Teikmanis, informed SwemBalt that a new law had been adopted, which had been applied retroactively, thereby invalidating the land lease agreement.
11. On 17 June 1994 the Swedish Embassy sent a letter to Prime Minister Birkavs, requesting an official explanation of events.
12. On 20 June 1994 a meeting was held between the Parties and governmental authorities involved. However statements made by governmental representatives during this meeting did not correspond to the former official position.
13. On 2 September 1994, Riga City Council decided that lease of the land was not in force. No explanations were provided as to why this agreement was deemed to be invalid. However, it is most likely that Riga City Council based its decision on the new legal act, which was adopted in August 1994 and was intended to be adopted retroactively. According to SwemBalt this would then be a breach of Articles 2(2), 2(5) and 4(1) of the Investment Agreement, and the Civil Law of Latvia, 1937, which as a general norm establishes the principle that the law applied to an agreement shall be the law that was in force at the time the agreement was signed.
14. During 1994 and 1995 the Swedish Embassy and various governmental authorities were in contact on a number of occasions, but without any results.
15. On 20 September 1994 Settervalls Advokatbyra (law office), Stockholm, at the request of SwemBalt, carried out an investigation of the case. Settervalls conluded, inter alia, that the lease agreement was valid and that removal of the ship was a breach of the lease agreement and possibly a breach of the "Unification of certain regulations on the arrest of sea-going ships".
16. On 11 April 1995, the Swedish Foreign Office informed SwemBalt that the claim was justified in accordance with the Agreement on the Protection of Investments between Latvia and Sweden.
17. On 17 May 1995, the Swedish Embassy in Riga delivered a memorandum to the office of the Prime Minister of Latvia. The purpose of this memorandum was to provide information on the SwemBalt case, which had been discussed during the visit of the Swedish Prime Minister, Ingvar Carlsson, on 19 May 1995.
18. In Prime Minister Ingvar Carlsson's letter to SwemBalt, dated 11 September 1995, the Prime Minister stated that Latvia's actions did not correspond to the Agreement on the Protection of Investments between the countries.
19. On 2 January 1996 the Legal Service of the Swedish Foreign Office prepared a memorandum in this case, which was later submitted to the Ministry of Foreign Affairs of Latvia.
20. On 3 May 1996, the Maritime Administration of Latvia advertised a public auction of the ship. The ship was designated a "wreck" in the advertisement. The Maritime Administration had concluded that the ship, owing to its being positioned in a place by the Port Authority of Riga, may constitute a danger to navigation. The Swedish Foreign Office regarded this action as unwarranted and "cloaked in legalese". According to SwemBalt, the ship was in a better condition than it appears in photographs. Furthermore, the Latvian authorities and not SwemBalt had removed the ship to the aforementioned mooring posts. The location itself was not a danger, as the mooring is usually used for ships as a "holding area".
21. In July 1996, Ulf Hjertonsson of the Swedish Foreign Office sent a letter to his colleagues in Latvia, reiterating Sweden's position. With regard to the sending of this letter, the Swedish Foreign Office sent notification to the Swedish Embassy in Riga, dated 18 June 1996. Incidentally, this notification stated that SwemBalt continues to have no access to the ship.
22. The ship was auctioned in July 1996 and was acquired by the Ferrum scrap metal company for USD 50 per tonne, which was the scrap value of the ship's metal, totalling USD 150,000.
23. On 31 July 1996, the Swedish Foreign Office sent a fax to SwemBalt, which stated that the Ministry of Foreign Affairs of Latvia will attempt to avert scrapping of the ship.
24. On 7 August 1996 a meeting was held at the Ministry of Foreign Affairs of Latvia between representatives of Latvian governmental authorities, the Swedish Foreign Office and SwemBalt. Following the meeting, the Swedish Foreign Office stated that there is an evident conflict of competence between the Latvian governmental authorities. No amicable resolution of the dispute was achieved as a result of this meeting.
25. On 8 August 1996 an inspection of the ship was carried out, which revealed that reinforcements and other parts had already broken off.
26. The Ministry of Foreign Affairs did nothing to avert scrapping of the ship. The ship was towed to the Mangali quay. There the equipment, for example, the electricity generators, refrigerators, boilers and other standard Swedish equipment was removed. The ship was then moored across the river at the Liepaja Metalurgs site, where it was scrapped for melting.
27. On 17 April 1997 another meeting was held at the Ministry of Foreign Affairs of Latvia, between Latvian governmental authorities, the Swedish Foreign Office and SwemBalt. No amicable outcome was reached during the meeting.
28. SwemBalt has not received any compensation for the ship, or the furnishings or equipment. In addition SwemBalt has not received any compensation for the utilities, which were on the ship."
"1. SwemBalt asks the Arbitration Tribunal to adjudge immediate payment of USD 2,806,258 plus interest:
2. USD 2,250,000 as compensation for the loss of the vessel M/S SwedeBalt, plus interest of 10% per year, starting from 29 March 1994 until the day on which payment is made in full.
3. USD 156,258 as compensation for the loss of equipment and furnishings (Article 2.3.1), plus interest of 10% per year, starting from 29 March 1994 until the day on which payment is made in full.
4. USD 75,000 as compensation for loss of income from March 1994 to 28 March 1995, plus interest of 10% per year, starting from 29 March 1996 until the day on which payment is made in full.
5. USD 100,000 as compensation for loss of income from 29 March 1994 to 28 March 1996, plus interest of 10% per year, starting from 29 March 1996 until the day on which payment is made in full.
6. USD 100,000 as compensation for loss of income from 29 March 1996 to 28 March 1997, plus interest of 10% per year, starting from 29 March 1997 until the day on which payment is made in full.
7. USD 100,000 as compensation for loss of income from 29 March 1997 to 28 March 1998, plus interest of 10% per year, starting from 29 March 1998 until the day on which payment is made in full.
8. USD 25,000 as compensation for loss of income from 29 March 1998 to 30 June 1998, plus interest of 10% per year, starting from 1 June 1998 until the day on which payment is made in full.
9. SwemBalt claims compensation for court costs."
"2.30. Market value of the ship (USD 2,250,000) based on the value of the recently renovated ship at the time of removal, in addition to the projected increase in value. The market value is also based on the cost of building a brand new similar ship, which, according to EIDE Contracting A/S, Norway, would have been NOK 140,000,000 NOK (USD 21,000,000). Furthermore, in January 1996 SwemBalt had the opportunity of selling the ship to Valinvest S.A. for USD 11,700,000. The price included renovation of the ship by EIDE Contracting A/S, Norway. EIDE offered to renovate the ship for NOK 45,000,000 (USD 6,550,000). The agreement of sale was signed and presented to the Swedish Ship Register for registration on 15 March 1996. As the ship had been confiscated by the Latvian authorities and it could not be moved, both parties agreed to cancel the sale. This cancellation was registered in the Swedish Ship Register on 26 August 1996.
2.30. Compensation for equipment and furnishings based on the following market values:
"Article 1 Definitions
For the purpose of this Agreement:
(1) The term "investment" shall mean every kind of asset, invested by an investor of one Contracting Party in the territory of the other Contracting Party, provided that the investment has been made in accordance with the laws and regulations of the other Contracting Party, and shall include in particular, though not exclusively:
(a) movable and immovable property as well as any other property rights, such as mortgage, hen, pledge, usufruct and similar rights;
(b) shares and other kinds of interest in companies;
(c) claims to money or any performance having an economic value;
(d) intellectual property rights, technical processes, trade names, know-how, good-will and other similar rights; and
(e) business concessions conferred by law, administrative decisions or under contract, including concessions to search for, cultivate, extract or exploit natural resources.
(2) Goods that under a leasing agreement are placed at the disposal of a lessee in the territory of one Contracting Party by a lessor being a national of the other Contracting Party or a legal person having its seat in the territory of this Contracting Party, shall be treated not less favourably than an investment.
(3) The term "investor" shall mean:
(b) any legal person having its seat in the territory of either Contracting Party, or in a third country with a predominant interest of an investor on either Contracting Party.
Promotion and Protection of Investments
(1) Each Contracting Party shall, subject to its general policy in the field of foreign investment, promote in its territory investments by investments of the other Contracting Pary and shall admit such investments in accordance with its legislation.
(2) Each Contracting Party shall at all times ensure fair and equitable treatment of the investments by investors of the other Contracting Party and shall not impari the management, maintenance, use, enjoyment or disposal thereof as well as the acquisition of goods and services and the sale of their production through unreasonable or discriminatory measures.
(5) The investments made in accordance with the laws and regulations of the Contracting Party in whose territory they are undertaken, enjoy the full protection of this Agreement.
Expropriation and Compensation
(1) Neither Contracting Party shall take any measures depriving, directly or indirectly, an investor of the other Contracting Party or an investment unless the following conditions are complied with:
(a) the measures are taken in the public interest and under due process of law;
(b) the measures are distinct and not discriminatory; and
(c) the measures are accompanied by provisions for the payment of prompt, adequate and effective compensation, which shall be transferable without delay in a freely convertible currency.
"In response to your telefax of 94-04-08 we inform you that the initiative of the company concerning the parking of ship "Feeder Chief in Kipsala was arbitrary. The towage had not been approved by the administration or captain of the port, and any specific agreements with the corresponding institutions had not been concluded.
We would like to remind you that a ship cannot be towed in any port of the world without permission given by the governing body of the port.
The agreement of March 24 1994, about the lease of land in Kipsala from 1 December 1993, concluded between you and Mr. Caune, the representative of Kurzeme District Government, is illegal and invalid. In accordance with the resolution No. 50 of 26 March 1993, adopted by Riga City Council, land lease agreements in the City of Riga can be concluded only by Riga City Government, in the territory of the Port of Riga - only by Riga Port administration. Besides, the decree No. 75-r of 1 March 1994, adopted by the Cabinet of Ministers, envisages the following: until the law about ports is adopted by Saeima, all land lease agreements within the territories of the ports can be concluded only with the approval of the National Port Council.
Therefore we would like to remind you once more: the problem, concerning the stationing of the ship in the territory of the Port of Riga, has to be resolved in accordance with Latvian law and regulatory enactments.
Thereby, since you have transgressed the established order, you have to assume the responsibility for the sustained losses yourself. Riga City Government will not admit any claims for the compensation of losses."
1. The Respondent, the Republic of Latvia, shall pay SwemBalt compensation for loss of the ship in the amount of USD 2,506,258, with interest of 10% per year starting from 9 April 1999 up until the day payment is made.
2. The Respondent shall pay SwemBalt compensation for duties and payments to solicitors, including duties and costs of the Arbitration Tribunal, totalling USD 1,345 and SEK 1,406,250, including 25% VAT of SEK 525,000.
3. Payment for the arbitrators shall be as follows:
Allan Philip DKK 237,000
Kaj Hober DKK 220,000, including 25% VAT of DKK 176,000
Gustaf Moller DKK 176,000
All additional claims for VAT or other duties shall be reserved.
The arbitrators' travel and other expenses comprise DKK 29,266.45
4. All payments shall be made no later than two weeks following the date of this Decision.