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Lawyers and other representatives

Award

Abbreviations
ArkiaArkia Israeli Airlines
ASAAir Service Agreement
ATCAir Traffic Control
Balkan AirlinesBalkan Airlines EAD
Balkan HoldingsBalkan Airlines Holdings B.V. an affiliate of the Zeevi Group
BBABulgarian Balkan Airlines
BDZBulgarian State Railways
C IClaimant's Brief of 9 February 2004
C IIClaimant's Brief of 13 May 2004
C IIIClaimant's letter of 1 July 2004
C III aClaimant's Brief of 23 July 2004
C IVClaimant's 1st Post Hearing Brief of 8 October 2004
C VClaimant's Post Hearing Response Brief of 12 November 2004
C VIClaimant's Brief Regarding the Admissibility of the Republic's Real Counterclaims of 12 November 2004
C VIIClaimant's Brief on the Quantum of its Claims of 27 May 2005
C VIIIClaimant's Further Brief in Reply to the Republic's Counterclaims of Set-Off of 27 May 2005
C IXClaimant's Brief in Response of the Republic's Quantification Brief of 15 July 2005
C XClaimant's Post Hearing Brief Regarding Quantification and Counter Set-Off Claims of 12 October 2005
C XIClaimant's Post Hearing Brief Regarding Quantification and Counter Set-Off Claims of 31 October 2005
C-1 et seq.Claimant's Exhibit
C-RSClaimant's Brief Regarding Relief Sought of 29 May 2003
C-SoCClaimant's Statement of Claim of 2 February 2001
Disclosure LetterInformation disclosure letter prepared by the Privatization Agency attached as Appendix 1 to the Privatization Contract
EquantEquant N.V.
et seq.and following
Financial AnalysisKPMG financial analysis of BBA dated 15 April 1999
ICAOInternational Civil Aviation Authority of the United Nations
IAIIsrael Aircraft Industries Ltd.
IASInternational Accounting Standards
Information MemorandumKPMG information memorandum regarding BBA of 5 March 1999
IPOInitial Public Offering
Knafaim-ArkiaKnafaim-Arkia Holdings Ltd.; DOV Airport, P.O.B. 39301, Tel Aviv 61392, Israel
Law on Financial RecoveryBulgarian Law on the Financial Recovery of State-Owned Enterprises of August 1996
Morgan StanleyMorgan Stanley Capital Partners
NCNational Carrier
NCSNational Carrier Status
OCABulgarian Obligations and Contracts Act
p.Page
PAPrivatisation Agreement
para.Paragraph
parasParagraphs
pp.Pages
Privatization AgreementAgreement of 30 June 1999 as amended on 15 July 1999 for the sale of 75 per cent of the shares of Balkan Bulgarian Airlines to Zeevi Holdings Ltd. and Knaifaim-Arkia Holdings Ltd., see also: PA
Privatization LawBulgarian Law on the Transformation and Privatization of State-Owned and Municipal-Owned Enterprises of 1992
PwCPricewaterhouseCoopers
R IRespondent's Brief of 13April 2004
R II BRepublic of Bulgaria's Brief of 21 June 2004
R III BRepublic of Bulgaria's 1st Post Hearing Brief of 8 October 2004
R IV BRepublic of Bulgaria's Counterclaims of 17 September 2004
R V BRepublic of Bulgaria's 2nd Post-Hearing Brief of 12 November 2004
R VI BRepublic of Bulgaria's Memorial On Counterclaims of 27 May 2005
R VII BRepublic of Bulgaria's Reply Brief of 15 July 2005
R VIII BRepublic of Bulgaria's 1st Post-hearing Brief on Quantum of 12 October 2005
R IX BRepublic of Bulgaria's 2nd Post-hearing Brief on Quantum of 31 October 2005
R II PAPrivatization Agency's Brief of 21 June 2004
R III PAPrivatization Agency's 1st Post Hearing Brief of 8 October 2004
R IV PAPrivatization Agency's 2nd Post Hearing Brief of 12 November 2004
R V PAPrivatization Agency's Reply Brief on the Quantum of the Claims of 15 July 2005
R VI PAPrivatization Agency's 1st Post-Hearing Brief of 12 October 2005
R VII PAPrivatization Agency's 2nd Post-Hearing Brief of 31 October 2005
R-1 et seq.Respondents' Exhibit
R-SoDRespondent's Statement of Defense of 8 February 2002
seq.following
SITASociété Internationale de Télécommunications Aéronautiques
the AgreementPrivatization Agreement (see supra)
the AirlineBalkan Bulgarian Airlines
TPSMEAThe Transformation and Privatization of State-owned and Municipal-owned Enterprises Act
YRCYugoslavian Railway Company
ZBIZBI AD an affiliate of the Zeevi Group

 

A. The Parties

A.I. The Claimant

Zeevi Holdings Ltd.

11 Gush Etzion Street

GIVAT SHMUEL 54030

ISRAEL

Represented by:

Dr. Yaakov Neeman

Mr. Efri Berkovich

Mr. David Zailer

HERZOG, FOX & NEEMAN

Asia House

4 Weizmann St.

64239 TEL-AVIV

ISRAEL

Claimant introduces itself as, verbatim, "a member of the Zeevi Group of Companies comprised of some 100 companies. It operates across five continents and employs thousands of employees. The Group is active in the areas of energy, real estate, medical equipment, information technology, telecommunications and more. In 1999 its total revenues exceeded USD 3.5 billion" (C-SoC, para. 2.1).

A.II. The Respondents

1. Respondent No. 1

The Republic of Bulgaria

Represented by:

Jan Paulsson, Esq.

Constantine Partasides, Esq.

Georgios Petrochilos, Esq.

FRESHFIELDS BRUCKHAUS DERINGER

2-4 rue Paul Cézanne 75375 PARIS Cedex 8 France

2. Respondent No. 2

The Privatization Agency of the Republic of Bulgaria

29 Aksakov Street

1000 SOFIA

BULGARIA

Represented by:

Ivaylo Dermendjiev, Esq.

SIMEONOV & DERMENDJIEV

3, Pozitano Str., 2nd Floor

1000 SOFIA

BULGARIA

The Privatization Agency describes itself as a "legally separate from the Government of Republic of Bulgaria state agency established under the Provisions of The Transformation and Privatization of State-owned and Municipal-owned Enterprises Act (TPSMEA)" (R-SoD, para. 1.3.1.).

B. The Arbitral Tribunal

By ICC letter of 6 November 2001 the parties were informed that the International Court of Arbitration had confirmed the appointment of the Chairman of the Tribunal:

Prof. Dr. Karl-Heinz Bockstiegel

Parkstr. 38

51427 BERGISCH GLADBACH

GERMANY

At first, Claimant appointed as Co-Arbitrator:

Joseph Ciechanover, Esq.

20 Lincoln Street

TEL AVIV 67134

ISRAEL

Claimant communicated a notice of change of the Co-Arbitrator by letter of 6 April 2001 (see C III, p. 3) and appointed as Co-Arbitrator:

Prof. David Libai

Arnor Mishpar Building

8 Shaul Hemelech Boulevard

TEL AVIV 64733

Claimant communicated a notice of change of the Co-Arbitrator by letter of 6 April 2001 (see C III, p. 3) and appointed as Co-Arbitrator:

Mr. Libai resigned on 1 July 2004 (see letter by the Chairman of 1 July 2004).

As communicated by Claimant's letter of 1 July 2004 Claimant appointed as Co-Arbitrator:

Adv. Avner Yarkoni

13, Balfour Street

TEL AVIV 65211

ISRAEL

Respondent appointed as Co-Arbitrator:

Silvy Chernev, Esq.

Chernev, Komitova & Partners

51 Parensov Street

1000 SOFIA

BULGARIA

C. Short Identification of the Case

1.
A short identification of the case from the perspectives of the Parties seems best be possible by citing the Parties' own wording.

C.I. Perspective of Claimant

2.
In its Brief of 9 February 2004 Claimant outlines the case as follows (C I, Chapter 1, Section B):

5. As has been more fully outlined in the Statement of Claim, these arbitration proceedings deal with the purchase of 75% of the share capital of Bulgaria's national airline, Balkan Bulgarian Airlines (the "Company" or "Balkan") by Zeevi Holdings together with Knafaim-Arkia Holdings Ltd. (the "Buyers") from the Republic of Bulgaria. The transaction was effected through an agreement dated 30th June 1999 as amended on 15th July 1999 (the "Privatization Agreement" or the "Agreement").

A copy of the Agreement, as amended with English translations of its relevant appendices is attached as Exhibit "C/35".

6. Within the scope of the transaction, Zeevi Holdings directly invested an amount of USD 23,150,000 in the Company. In addition, Zeevi Holdings made indirect investments in the Company which together with accumulated interest bring the total of its investments in or on behalf of the Company to approximately USD 30,000,000.

7. [...]

8. Clearly, an investment of such enormous amounts in a company, situated in a foreign country, demonstrates a very high degree of goodwill on behalf of the investor and confidence in that country's integrity and regime of government and law. If it is subsequently found that the investment was lost due to incorrect, misleading and fraudulent information provided by that country, it must own up to its responsibility accordingly.

9. The state of the Company prior to its sale to Zeevi Holdings, was by no means good. This fact was known to Zeevi Holdings. However, the Company was presented as having two most valuable assets - its status as Bulgarian's exclusive national carrier and holdings of certificates of SITA (or Equant) shares.

10. The national carrier status - The national carrier status allows an airliner to operate international scheduled routes; to fly and land at various airports around the world; to fly over various countries en route to other destinations; to enjoy precious landings slots at various airports around the world, etc. The national carrier status had also meant that the Company was enjoying various rights and benefits commonly associated with this status, such as reduced aviation fees payable to various governmental authorities; rights to provide various services at the home airports (refueling, catering), etc.

Zeevi Holdings would not have purchased and subsequently invested in the Company given its problematic financial situation, were it not for its position as Bulgaria's national carrier and the important benefits and advantages associated with this. For this reason, and at Zeevi Holdings' specific request, the Bulgarian Government undertook in the Agreement that the status of the Company as exclusive national carrier will be maintained for a period of 12 years after the privatization and that this status will not be adversely affected by the sale of the Company to Zeevi Holdings.

11. The SITA shares certificates - In addition to its status as Bulgaria's national carrier, the Company was presented as holding certificates of Equant N.V shares known as the SITA shares. These shares were valued in the KPMG Financial Analyses presented to Zeevi Holdings as being worth over USD 35,000,000 (see page 37 of the KPMG Financial Analyses). This was a crucial representation regarding the sources available for the recovery of the Company, which was fundamental to Zeevi Holdings' decision to purchase the Company and subsequently invest in it substantial amounts.

12. [...]

13. The negotiations leading to the Agreement were conducted with representatives of the Republic of Bulgaria. These representatives carefully cultivated a spirit of goodwill and honesty throughout the entire process. It was thus inconceivable to Zeevi Holdings that the Government of Bulgaria would not perform obligations it had undertaken in the Agreement, or that any information represented by it regarding the state of the Company could be anything other than absolutely true and correct. Similarly, it was inconceivable that the Bulgarian Government would immediately, after the sale of the Company, begin to take various rights and benefits away from the Company, which the Company had enjoyed for years prior to its privatization. These were rights, which were worth millions of dollars to the Company. No disclosure of any of this was made to Zeevi Holdings during the negotiations. On the contrary: the Bulgarian Government represented that it intended to collaborate in future with Zeevi Holdings in the efforts to facilitate the recovery of Balkan - Bulgaria's national flag carrier. [...]

14. The negotiations regarding the sale of the Company to Zeevi Holdings lasted no more than a little over a month. This was a result of a deadline set by the Bulgarian party, which claimed that due to Bulgarian legislation, no sale could occur after 30th June 1999. In view of the Company's vast operation, it was impossible, under such conditions, for Zeevi Holdings to conduct an extensive due-diligence investigation into the state of Company.

15. Given the Company's problematic financial condition, the only way by which the transaction could be carried forward, was to rely entirely on the integrity of the information supplied by the Respondents regarding the state of the Company. As far as Zeevi Holdings was concerned, this information was contained in the Financial Analyses prepared by KPMG, which was handed to it by the Respondents (the "KPMG Financial Analyses"); and the Disclosure Letter, which formed part of the Agreement (the "Disclosure Letter") (collectively the "Information" or the "Information Documents"). […]

16. […]

17. [...]

18. Hence, specific and unequivocal representations were made in the Agreement, that the Information supplied to Zeevi Holdings, regarding the state of the Company, was "exhaustive", "true", "accurate", "complete" and "not misleading".

19. As detailed in David's Golan Witness Statement, these representations were not included in the Agreement inadvertently. They were extensively negotiated between the parties, with the clear and deliberate intention of both parties, that they would allow Zeevi Holdings to enter the Agreement, based solely on the Information provided to it by the Bulgarian Government, and without conducting an independent due diligence investigation. This also clearly emerges from a comparison between the first draft of the agreement, which Zeevi Holdings was presented with by the Respondents (the "First Draft"), and the final version of the Agreement which had subsequently been signed (Exhibit "C/35"). [...]

As appears from this comparison, various vital provisions were inserted into the Agreement during the negotiations regarding, inter-alia, the true and accurate nature of the Information supplied; the lack of adverse change in the Company's financial position since 31st December 1998; the implicit imposition of contractual liability on the Seller if any Information is found to be incorrect; and the deletion of all references to the Information Room, as constituting a valid representation of whatsoever nature toward Zeevi Holdings.

20. An examination of Zeevi Holdings' internal documents reveals that Zeevi Holdings had indeed relied solely on the Information provided by the Bulgarian Government. Reference is made in this respect to Zeevi Holdings board resolution approving purchase of the Company pursuant to the Agreement dated 29th June 1999. The resolution stated on the agenda: "The details of the agreement were presented together with a due diligence examination prepared by KPMG... ". It is clear that the board relied on the KPMG Financial Analyses in deciding to approve the transaction. Similarly reference is made to a letter of Zeevi Holdings to Mrs. Liora Meridor of the "First International Bank In Israel" dated 30th June 1999 in which Zeevi Holdings described to the Bank its obligations pursuant to the Agreement. The end of the letter indicates that the KPMG Financial Analyses was forwarded to the bank. Thus, it is clear that Zeevi Holdings had no other sources of information regarding the Company but for the Information provided to it by the Seller. […]

21. [...]

22. [...]

23. [...]

24. Once it became clear that the Government of Bulgaria had no intention to fulfill its obligations pursuant to the Agreement, and after approximately USD 30,000,000 had already been invested in the Company, Zeevi Holdings could not afford to continue to invest funds in the Company.

25. With the lack of additional investments, the Company faced a severe cash-flow problem, and was forced to enter into bankruptcy proceedings, which were initiated in mid - February 2001. Consequently, Zeevi Holdings' total direct investments in the Company, reaching approximately USD 30,000,000 were lost.

26. [...]"

C.II. Perspective of Respondent No. 1

3.
In its Brief of 21 June 2004 the Republic of Bulgaria identifies the case as follows (R II B, paras 2 - 7):

"2. This dispute arises under an agreement dated 30 June 1999 (the Privatization Agreement, as amended), by which Zeevi Holdings Limited (Zeevi) purchased Balkan Airlines EAD (Balkan Airlines), Bulgaria's insolvent national carrier. Although the purchase price was set at the nominal amount of USD 150,000, Zeevi undertook to invest over USD 100 million in the airline to ensure its survival and future development. Instead of making this investment, however, by March 2001 Zeevi had appropriated Balkan Airlines' principal assets, halted all of its operations and allowed it to fall into bankruptcy. Thus, within approximately 18 months of Zeevi having taken control of Bulgaria's national carrier, Balkan Airlines had effectively disappeared.

3. Notwithstanding Zeevi's failure to make the investments that it had undertaken to make, Zeevi claims in these proceedings to be the victim, rather than the perpetrator, of contractual breach. Specifically, Zeevi alleges that it was fraudulently misled as to the financial condition of Balkan Airlines at the time of the acquisition, and that contrary to undertakings given by the Bulgarian government, Balkan Airlines' designation as national carrier was withdrawn following the privatization.

4. However, as the documentary record in these proceedings reveals, these allegations are meritless.

5. It is a matter of documentary record that Zeevi was expressly informed prior to the conclusion of the Privatization Agreement that: (1) Balkan Airlines' debts exceeded USD 100 million, and that it had been incurring heavy losses every year for a number of years; (2) Balkan Airlines was amongst those insolvent state-owned enterprises that were "isolated" pursuant to the Law on the Financial Recovery of State-owned Enterprises; and (3) Balkan Airlines had no chance of survival following the end of its "isolation" without heavy and sustained investment. Indeed, this common knowledge was reflected in the terms of the Privatization Agreement, which provided for only a nominal purchase price, while imposing obligations on Zeevi to make investments in the company in excess of USD 100 million in the coming years. Manifestly, Zeevi was not misled about the dire financial condition of Balkan Airlines.

6. It is also a matter of documentary record that Balkan Airlines retained its designation as the Bulgarian national carrier until after Zeevi had caused it to halt all of its operations in February 2001, and after the airline's bankruptcy proceedings had commenced in March 2001.

7. In reality, Zeevi's confusing but empty allegations are little more than a subterfuge to obscure Zeevi's own straightforward breaches of the Privatization Agreement, specifically: its failure to service Balkan Airlines' debts up to USD 30 million; its failure additionally to invest USD 100 million in the airline; its failure to secure these obligations by way of letters of credit and corporate guarantees; and its illegitimate appropriation of Balkan Airlines' principal assets in violation of express terms of the Privatization Agreement. The reason for these multiple breaches appears to lie in Israel, where Zeevi was itself amassing huge and unsustainable debts during this period in respect of other acquisitions unrelated to Balkan Airlines - debts that ultimately culminated in the appointment of a receiver over Zeevi's own assets."

C.III. Perspective of Respondent No. 2

4.
The Privatization Agency identifies the case as follows in the wording from its Brief of 13 April 2004 (R I, paras 1.3., 1.5. and 4.):

"1.3. Further and in addition the Respondent repeats its position for lack of competence of the present tribunal to rule on the claims submitted by the Claimant, pursuant to lack of valid arbitration clause, lack of proper procedure for formation of the Tribunal and finally on the grounds of lack of arbitrability of several of the claims set forth in the Statement of Claim as amended by the Claimant's Brief Regarding the Relief Sought and in the latest submission dated 9 February 2004.

1.5. The Honorable Tribunal is hereby kindly requested to find that it has no jurisdiction on all of the issues of the submitted claim and that neither the Respondent nor the Republic of Bulgaria is liable for any breach of contract or misrepresentation of what so ever nature. With respect of such ruling and in addition the Tribunal is requested to award to the Respondent all the expenses suffered and made by it in these proceedings."

4.1. [...]

4.2. The three basic reasons to refute the arbitrability of the claims were mentioned already and they are:

a. the specific claims may not be subject to these proceedings as being investments claim as opposed to contractual;

b. the claims may be submitted by third party (the Company) which is not a party to the arbitration agreement or to the dispute and

c. as the claim has been already submitted in other proceedings the non bis in idem principle should apply and it may be not reviewed once again in these arbitration proceedings.

4.3. Further each claim that is maintained in the Claimant's Brief will be reviewed in brief with regards of the arbitrablity. As some of the claims lack both factual and legal reasoning in the Statement of Claim and in the Brief they may not be subject of detailed comments.

4.4. The claim for loss of investments though in facts is related to the Privatization Agreement is not a contractual based claim as it is more investment dispute. The Claimant is referring as factual background and as legal ground of the claim loss of invested monetary funds, safe this fact is denied, which loss is allegedly due to particular actions of state authorities which are not parties to the Privatization agreement. Applying state policy, adopting of new legislative frame and any other act of executive powers of a sovereign state may be a cause of investment claim and dispute only. Therefore a contradiction between the possible means of solving such disputes and the way this Tribunal was constituted exist. It is widely adopted international practice that in investment disputes, when one of the parties to it is a State applicable will be the bilateral treaties between the hosting state and the state of the investor. In this occasion the arbitral clause even being not null and void in general, which is denied in the present case, will not apply as different procedure is accepted in the respective bilateral treaty on protection of investments. Further with respect of this claim should be noted that:

a. the Claimant is not the "investor" who allegedly invested the moneys in the Company. Easily seen from the presented documents is that the drawer of the bank transfers is a company named Balkan Airlines Holding BV, Holland which company evidently is not the same person as Zeevi Holdings Ltd., who is the Claimant in these proceedings;

b. The beneficiaries of the receivables from the Company: Balkan Airlines Holding BV and ZBI AD, Bulgaria had already claimed the existing balance sums transferred as loans to Balkan Airlines AD, Sofia, Bulgaria (as a great amount of these sums has been paid) before the respective Bulgarian courts and accepting such a claim for arbitration will be contradictory to the principle of non bis in idem.

4.5. The claim for breach of undertaking to maintain the Company as national air carrier. In its submissions the Claimant mostly grounds such claim with facts related to actions on behalf of the Government of Bulgaria that allegedly threatened this status or deprived the Company of it - the fact that Bulgaria intends to join the EU, adoption of new legislation (the amendments to the Civil Aviation Act, etc.) and omission to achieve agreements with other contracting states on bilateral treaties that banned Balkan Airlines from flights over their territory. Apart from the fact that the claim are denied as unfounded and lacking of evidence these factual grounds speak of an investment dispute but not of such related to contract. Therefore it may not be subject of these proceedings. In addition to this arguments it should be noted that the person who was directly affected by this breaches, the existence of which breaches is expressly denied, is not the Claimant but the Company. The Claimant has only indirect interest. Therefore any claim based on such allegations and demanding compensation for this reason is out of the scope of the present arbitration;

4.6. The claim for missing Equant shares. It is more than logical to conclude that the lack of assets is directly affecting the party who is entitled to them. The Claimant was not granted rights over Equant shares, therefore it may not claim compensation that they are missing. Entitled to such claim could be only the beneficiary owner of such shares;

4.7. Further it should be noted with respect of all claims based on the allegation that the Respondent had mislead the Claimant with respect of some vital or important facts regarding the status (the qualities) of the Company that such claims do not find legal grounding in Bulgarian laws, which are the applicable substantive law provisions in case of a contract based arbitration in this case. Subject of the contract is transfer of shares, paragraph 3.15. above is repeated, and if a legal ground for a flaw or defect in the subject of the contract exists than according Article 197 in relation to Article 195 of the Obligations and Contracts Act such claim should be submitted by the Claimant within 6 months of the purchase, or 1 year at latest if an immovable asset is in question. The Request for Arbitration was submitted by the Claimant in February 2001, i.e. more than 1 ½ year after the purchase of shares. Therefore any claim arising of alleged flaw or defect of the shares resulting from lack of certain quality of the Company should be rejected and dismissed for being precluded by limitation. Such precluding is referred hereby to any and all of Claimant's claims stated in the initial Statement of Claim and amended by the submissions following it.

4.8. The claim related to alleged misrepresentation of the Company not being subsidized. Once again in the factual presentation of this claim the Claimant is basing its request for relief on alleged actions of the State that lead to increase of fees payable from the purchased company. Such undertaking - not to increase applicable fees is not contractual. Evidently the only remaining possible reason to raise such claims is change in the legislation and the policy of the government affecting the investments. Therefore such claim also is not contractual but investment and should be reviewed by different type of arbitration. Further it should be noted that in this case, as in most of the other claims, the party affected by the change was not the Claimant but the Company. It had to pay the allegedly increased fees. Therefore the Claimant may not put for resolving claimed rights of third parties and the claim should be dismissed or rejected as unfound.

4.9. The claim regarding the Ansett aircraft maintenance. The second part of paragraph 4.8. is repeated. The Claimant was not directly affected by such alleged misrepresentation, safe such is denied to exist at all.

4.10. The claim related to misrepresentation with respect of the liabilities to employees. The second part of paragraph 4.8. is repeated. The Claimant was not directly affected by such alleged misrepresentation, safe such is denied to exist at all. It did not pay directly any such costs and is not entitled to receive compensation for such costs.

4.11. The claim with respect of breach or representation for the debt of Bulgarian Government for training pilots. The second part of paragraph 4.8. is repeated. The Claimant was not directly affected by such alleged misrepresentation, safe such is denied to exist at all. The only person entitled to seek such payment is Balkan Airlines AD but not the Claimant. Further, these relations were not contractual and no arbitration clause to settle them existed. The Claimant is unfoundedly trying to spread the action of the arbitration agreement, the validity of which is generally denied by the Respondent, over all relations involving the privatized Company. However such attempt does not have legal grounds to be founded on.

4.12. The claim based on non disclosure of future government plans and change of government policy. This claim is based completely on factual grounds that could not be related to the contractual obligations. Even if it is accepted that such action of the Government existed, which is denied, no undertaking related to them was made in the Privatization Agreement. Therefore the dispute related to them is based on governmental policy affecting an investment and therefore is not a contractual but an investment dispute. As a result it may not be subject of the present proceedings. Further the Claimant is not the party affected by the alleged changes of governmental policy. Such affected party is the Company and only it may submit claims for damages, losses or loss of future profits based on such arguments.

4.13. The claim related to misrepresentation regarding the debt of the Company to the Air Traffic Control. Last part of paragraph 4.12. above is repeated. The Claimant was not directly affected by this liability of the Company and did not claim that it had paid this obligation or presented proof of such payment. Therefore such claim is lacking legal grounds.

4.14. The claim related to alleged breach of undertaking for transfer of real estates on the name of the Company. Once again the Claimant is trying to put in issue rights of third parties. As seen from the factual background the Claimant was not entitled to receive such rights. Allegedly, which is denied, the Company, which is a different from the Claimant person was to benefit of this undertaking. Therefore the Claimant has no rights to claim other person's rights. Just a short note to mention that according Bulgarian legislation - Article 22 of the Obligations and Contracts Act one person (for example the Claimant) may negotiate and contract in favor of third person (the Company), but in this case the rights will occur in the patrimony of the third person beneficiary and may not be claimed by the contracting person - the Claimant. So in case the Respondent had contracted with the Claimant to transfer to the Company real estate assets, safe such an agreement does not exist and is denied, the beneficiary of the said agreement is the Company and only it may demand transfer of the assets from the Respondent.

4.15. Claims regarding the breach of undertaking with respect of the Yugoslavian Railway Company. Paragraph 4.14. is repeated. The Claimant was not beneficiary of this undertaking, but the Company. Therefore the Claimant may not raise this issue in these proceedings.

4.16. Claim for breach of undertaking to assist with respect to Company's excess debt. Paragraph 4.14. is repeated. The Claimant did not benefit directly of such undertaking, safe it is denied that the undertaking bears the sense implied by the Claimant and it is denied that such undertaking was breached.

4.17. Claim for additional operating costs. Paragraph 4.14. is repeated. The Claimant did not suffer these costs directly and may not claim them. Further according Bulgarian legislation future costs, i.e. not suffered damages or losses may not be claimed.

4.18. Claims for loss of future profits. These profits, safe no proof exists and is presented that they could be realized, would not have been received by the Claimant but by the Company. Further the Claimant was not the only shareholder in this company and the possible profits should have been allocated among all shareholders (including Bulgarian state) but not contributed to the claimant only. Therefore the profits of the Company may not be claimed in these proceedings. Paragraph 4.14. is repeated.

4.19. Inability to sell a share in the Company to a strategic investor. As the Claimant had admitted that it was no longer in possession of the acquired shares of the company as they were transferred to Balkan Airlines Holding BV and ZBIA Ltd. than this claim is not attached to the Claimant in these proceedings as it could not sale something that did not belong to it. Further if a sale under additional public or private offering of shares was in question when stating this quite unclear and vague ground of claim the offering issuer would not be the Claimant but the Company and in this case the claim alleged is also not attached to the Claimant. No arbitration agreement exists between the Respondent and/or the State of Bulgaria and the Company or Balkan Airlines Holding BV and ZBIA Ltd.

4.20. Claim for damage to reputation and goodwill. In the respective claim it is alleged that an undefined personality "Zeevi Group" was damaged with respect of its reputation. Such company was not proved to exist and is not a party to the Privatization Agreement. Therefore neither the Claimant may not claim some one else's rights nor this person (Zeevi Group) is a party to these proceedings and/or the arbitration agreement, safe the statement of its invalidity is maintained by the Respondent.

4.21. The claim for failure of public offering of Zeevi Logistics. Neither this company is proven to exist nor is it a party to the Privatization Agreement. Therefore paragraph 4.20. above is repeated regarding the lack of grounds for arbitration in this claim.

4.22. The Claim for management time and expenses. Once again no clarification is made who actually bore these expenses. If this is the Company, as seems more likely, than the claim may not be submitted by the Claimant though it is majority shareholder. If this is Zeevi Group, than once again the claim is submitted by a Claimant different from the person that incurred the expenses and therefore is inadmissible.

4.23. And on the last place - any of the claims submitted by the Claimant which allegedly find their grounds in the applicable liability for tort provisions of the Bulgarian legislation - Articles 45 to 54 of the Obligations and Contracts Act may not be subject of Arbitration as under Bulgarian law the claims based on tort may not be occurring out of contract i.e. contractual liability is not such of tort. Therefore for such kind of claims no arbitration agreement may be existing and, as the Respondent had repeatedly stated in all of its submissions, these claims may not be resolved on in these arbitration proceedings."

D. Procedural History

5.
On 1 February 2001, Claimant submitted its Statement of Claim and placed the Notice of Arbitration (R II PA, para. 26).
6.
The Arbitral Tribunal rendered PO No. 1 on 19 January 2002 establishing the rules for the further procedure in the case.
7.
On 8 February 2002, Respondent No. 2 submitted its Statement of Defense.
8.
By ICC letter of 6 November 2001, the Parties were informed that the International Court of Arbitration had confirmed the appointment of Prof. Bockstiegel as Chairman of the Arbitral Tribunal by the President of the ICC.
9.
By their submissions of 14, 21 and 22 April 2003, the Parties identified in response to the Chairman's letter of 7 April 2003 what they consider as Preliminary Issues. After consideration of these submissions the Arbitral Tribunal issued PO No. 3 of 5 May 2003 regarding PO No. 1. Additionally, the following new timetable was set up:

"3.1. By 29 May 2003, Claimant shall submit a brief identifying shortly:

a) the relief sought of (now) USD 70 million,

b) from which Respondents which of this relief is sought,

c) the factual and legal basis of these claims (which may be done by references to sections to the original Statement of Claim insofar as still applicable to the reduced relief sought).

3.2. By 10 July 2003, each Party shall file a brief presenting all factual and legal arguments regarding the Preliminary Issues identified in their respective letters of 14, 21 and 22 April 2003 respectively.

3.3. By 25 August 2003, each Party shall file a brief in response to the above brief of the other Party.

3.4. To avoid misunderstanding, the Tribunal recalls that the above briefs shall be submitted in accordance with Sections 2.2., 7, 8, and 9 of Order No. 1 and Section 2.2. of this Order No.3.

3.5. After reviewing the Parties' above briefs, the Tribunal intends to decide whether a Hearing is considered necessary to decide on all Preliminary Issues."

10.
Claimant submitted its Brief regarding Relief Sought pursuant to Section 3.1 of PO No. 3 on 29 May 2003.
11.
On 10 July 2003 Claimant submitted its Brief pursuant to Section 3.2 of PO No. 3.
12.
After having reviewed the Parties submissions regarding the Preliminary Issues in accordance with PO No. 3 as cited above, the Arbitral Tribunal issued PO No. 4 of 14 October 2003 containing its decisions on the Parties' requests on Preliminary Issues. The decision is cited below under Section F.II.1.
13.
On 14 October 2003 the Arbitral Tribunal rendered PO No. 5 regarding the next steps in the procedure including, inter alia, determination of the total deposit due. The Parties were requested to transfer their respective share of the deposit to a trust account and notified that the next stage of procedure will not be started before receipt of the full deposit.
14.
By PO No. 6 of 6 December 2003 the Tribunal communicated its ruling regarding the further procedure as being limited to the issue of liability.
15.
The Tribunal acknowledged receipt of the Claimant's share of the deposit as recorded in PO No. 6. It further noted that Respondents have given notice that they will not pay their share of the deposit. Therefore, the Tribunal decided to proceed according to UNCITRAL Rule 41.4. and invited Claimant to pay the Respondents' share of the deposit. The Tribunal's rulings on the further procedure on liability are cited hereafter:

"5. Rulings on further procedure on liability

Therefore, taking into account the comments received from the Parties as well as Section 8 of Order No.4 and Section 2 of Order No.5, the Tribunal rules hereafter regarding the further procedure which is limited to liability and does not deal with quantum of such liability.

6. Communications

6.1. The Tribunal shall address communications to Counsel of the Parties.

6.2. Counsel of the Parties shall address communications directly to each member of the Tribunal either by fax or courier and, in addition, by e-mail, with a copy to counsel for the other Party. Fax communications shall not exceed 20 pages. Submission by e-mail shall be in Windows Word to facilitate later citations in decisions of the Tribunal. If a submission is sent as an attachment to a cover e-mail that e-mail shall identify the attachments.

In this context, the Tribunal notes that (1) Claimant's recent submissions were not received also by e-mail and (2) Arbitrator Chernev informs the Tribunal that he did not receive the recent submissions from Claimant at all. Claimant is, therefore, requested to still send these submissions and respect this paragraph in the future.

6.3. Larger submissions shall be preceded by a Table of Contents.

6.4. Submissions of documents shall be submitted unbound in 2-ring binders separated from Briefs and preceded by a list of such documents consecutively numbered with consecutive numbering in later submissions (C-1, C-2 etc. for Claimants; R-1, R-2 etc. for Respondents). As far as possible, in addition, documents shall also be submitted in electronic form (Windows Word). Insofar as documents have been submitted in earlier stages of this procedure and a Party wishes to rely on them for liability, they shall be re-submitted in the above context and form.

7. Timetable

7.1. By 9 February 2004, Claimant submits Brief with all further documents and any witness- and expertstatements on which it wishes to rely.

7.2. By 13 April 2004, Respondents submit Brief with all further documents and any witness- and expertstatements on which they wish to rely.

7.3. By 13 May 2004, Claimant submits further Brief, only in reply to Respondents' Brief, with all further documents and any witness- and expert-statements on which it wishes to rely in rebuttal.

7.4. By 14 June 2004, Respondents submit further Brief, only in reply to Claimant's Brief under Section 7.3., with all further documents and any witness- and expertstatements on which they wish to rely in rebuttal.

7.5. For all witnesses and experts of which they submit statements with their briefs, Parties shall assure that they are available for oral examination, if required, during the period of the Hearing mentioned under Section 7.8. below.

7.6. By 21 June 2004, the Parties submit:

* notifications of the witnesses and experts they wish to examine at the Hearing,

* and a chronological list of all exhibits with indications where the respective documents can be found in the file.

7.7. As soon as possible thereafter, Tribunal issues Procedural Order regarding details of the Hearing.

7.8. Hearing in Paris from 27 to 30 July 2004.

7.9. By 8 August 2004, transcript of Hearing is received by Parties and the Tribunal.

7.10. By 6 September 2004, Parties submit Post-Hearing Briefs of up to 30 pages (no new documents allowed).

8. Documentary Evidence

8.1. Regarding all documentary evidence, reference is made to section 6.4. above.

8.2. New factual allegations or evidence shall not be permitted after the respective dates indicated in the above Timetable, unless agreed by the Parties or authorized by the Tribunal.

8.3. Documents in a language other than English shall be accompanied by a translation into English.

9. Witness Evidence

9.1. In so far as the Parties wish to present witness testimony, written Witness Statements of all witnesses shall be submitted together with their Briefs mentioned above at the time limits established in the Timetable.

9.2. Reference is made to Section 7.5. regarding availability of witnesses for the Hearing, if required.

9.3. To make most efficient use of time at the Hearing, written Witness Statements shall generally be used in lieu of direct oral examination though exceptions may be admitted by the Tribunal. Therefore, insofar as, at the Hearing, such witnesses are invited by the presenting Party or asked to attend at the request of the other Party, after a short introduction of the witness by the presenting Party of up to 10 minutes, the available hearing time should mostly be reserved for crossexamination and re-direct examination, as well as for questions by the Arbitrators.

9.4. If a witness whose statement has been submitted by a Party and whose examination at the Hearing has been requested by the other Party, does not appear at the Hearing, his statement will not be taken into account by the Tribunal. A Party may apply with reasons for an exception from that rule.

10. Expert Evidence

Should the Parties wish to present expert testimony, the same rules and procedure would apply as for witnesses.

9. Hearing

Subject to changes in view of the further procedure up to the Hearing:

9.1. A maximum of 4 working days from 27 to 30 July 2004 has been blocked as provided in the Timetable.

9.2. The Hearing shall be in Paris at a location chosen by the Tribunal.

9.3. The Parties are invited to present short opening statements of not more than one hour.

9.4. No new documents may be presented at the Hearing unless agreed by the Parties or authorized by the Tribunal. But demonstrative exhibits may be shown using documents submitted earlier in accordance with the Timetable.

9.5. Taking into account the time available during the period provided for the Hearing, the Tribunal intends to establish equal maximum time periods both for the Claimant and for the Respondent which the Parties shall have available for examination and crossexamination of all witnesses and experts.

9.6. A transcript shall be made of the Hearing and sent to the Parties and the Arbitrators as provided in the Timetable.

9.7. The Parties presenting a witness or expert requiring interpretation are expected to provide the interpreter unless agreed otherwise.

10. Extensions of Deadlines and Other Procedural Decisions

10.1. Short extensions may be agreed between the Parties as long as they do not affect later dates in the Timetable and the Tribunal is informed before the original date due.

10.2. Extension of deadlines shall only be granted by the Tribunal on exceptional grounds and provided that a request is submitted immediately after an event has occurred which prevents a Party from complying with the deadline.

10.3. The Tribunal indicated to the Parties, and the Parties took note thereof, that in view of travels and other commitments of the Arbitrators, it might sometimes take a certain period for the Tribunal to respond to submissions of the Parties and decide on them.

10.4. Procedural decisions will be issued by the chairman of the Tribunal after consultation with his co-arbitrators or, in cases of urgency or if a co-arbitrator cannot be reached, by him alone.

16.
On 9 February 2004, Claimant submitted its Brief pursuant to PO No. 6.
17.
By letter of 10 February 2004, Counsel for Respondent No. 2, inter alia, emphasized that neither he personally nor the respective law firm represent the Republic of Bulgaria but only the Privatization Agency both of which were separate legal entities. The Counsel also noted that:

"[t]he Republic of Bulgaria neither have been served the Request for Arbitration, the Statement of Claim and all other submissions, nor participated in the appointment of the Tribunal nor was granted proper possibilities and means of defense in the proceedings. Therefore any award issued by this tribunal and on this case against "The Republic of Bulgaria" will not be binding and executable not only in Bulgaria but in any other state and before any other institution and jurisdiction."

Regarding the Claimant's Brief of 9 February 2004 it was further noted that documents accompanying the Brief which were allegedly enclosed under lit. d and lit. e to the letter had not been received.

18.
By letter of 8 April 2004 / 11 May 2004, the Chairman responded to the letter of the Ministry of Finance of the Republic of Bulgaria dated 19 March 2004 regarding the procedural timetable. The relevant part regarding the Tribunal's intention not to change the timetable as set before is cited hereafter:

"2.1. As reasoned in detail in Procedural Order No.4, the Republic of Bulgaria has been decided by this Tribunal to be a Party to this arbitration, because the Privatization Agency (PA) acts as a typical government body. Therefore, should the PA - which does not seem likely - not have informed the Government about the ongoing arbitration, the two Respondents must be considered responsible.

2.2. Procedural Order No. 4 was issued on 14 October 2003 and, therefore, from that time the two Respondents must be considered to have been aware of the Republic's position as a Respondent in this arbitration.

2.3. Procedural Order No. 6 was issued on 6 December 2003 including the timetable for the further procedure up to the Hearing in Paris starting 27 July 2004.

2.4. In view of the above considerations, the submission of the Ministry's letter at this late stage of the procedure cannot be accepted as justifying a further delay in this long going case. To avoid undue further delay in this procedure, and as new Hearing dates agreeable to all would not be available for a considerable time thereafter until the end of 2004, the Tribunal does not intend to change the timetable as set in Procedural Order No. 6 and, particularly not the Hearing dates as set.

2.5. However, of course, the Ministry - and a new law firm should one be appointed as its Counsel separate from the Counsel so far representing the Respondents - is invited to participate in the procedural steps from now on in accordance with the timetable as set, i.e. starting with Section 7.2. of Procedural Order No. 6 according to which Respondents' Brief is due by 13 April 2004."

19.
On 13 April 2004, Respondent No. 2 submitted its Brief pursuant to PO No. 6.
20.
On 13 May 2004, Claimant submitted its Response Brief pursuant to PO No. 6.
21.
On 1 June 2004, the Arbitral Tribunal issued PO No. 7 granting, inter alia, an extension in time to 21 June 2004 for Respondents regarding their submissions due under Section 7.4. of PO No. 6. The Order further contained the Arbitral Tribunal's ruling on Freshfields' request for production of documents.
22.
On 1 July 2004, the Tribunal rendered the following PO No. 9 regarding preparation and conduct of the forthcoming hearing taking place from 27 to 30 July in Paris:

"1. The Tribunal takes into account the recent submissions by the Parties.

2. The Tribunal recalls its previous rulings, particularly in

Procedural Orders No. 6. and the following text from Chairman’s e-mail of 8 February 2004:

"In follow-up to my mail of 22 January, this is to inform you that the Hearing in this case will take place from 27 to 30 July 2004 at the Hotel Raphael in Paris and that I have booked Briaut Court Reporting Service, which has worked very efficiently in other arbitrations of mine, to do the transcript. The address is:

Hotel Raphaél

17, avenue Kleber 75116 Paris Tel. 0033-1-5364 3200 Fax 0033-1-5364 3201 e-mail: reservation@,raphael@,raphael-hotel.com website: http://www.raphael-hotel.com/

At the Hotel Raphael, I have booked the hearing room and the accommodation rooms for the three arbitrators as well as the court reporter. Insofar as the Parties wish to book rooms for their representatives (and possibly : witnesses and experts) at that hotel, they should do so soon to be sure that rooms are available."

The Hearing will start on Tuesday 27 July at 9:00 in the Salon La Bibliotheque of the Hotel Raphaél.

By 20 July 2004, the Parties shall inform the Tribunal of the names and functions of the persons who will be attending the Hearing from their respective sides.

3. Intention and Scope of the Hearing

3.1. The Tribunal has taken note of the Counterclaims a nd the respective explanations presented in the Republic of Bulgaria's brief of 21 June 2004. To provide the Parties with the fast clarifications regarding the upcoming Hearing they have requested for understandable reasons, the following ruling is made by the Tribunal before having received the comments due from Claimant on 2 July 2004, because, after the resignation of Arbitrator Prof. Libai, no full consultation can be held regarding these comments before a new Arbitrator is appointed.

As Section 7.4 of Procedural Order No. 6 permitted a brief "only in reply to Claimant's Brief" and as, under the timetable until the Hearing, Claimant has no opportunity to respond on the substance of the counterclaims, the Tribunal, in application of UNCITRAL Rules 19.3 and 20, for the up-coming Hearing, considers the counterclaims only admissible in so far as their relief sought does not go beyond requesting a dismissal of the claims presented by Claimant. Only to that extent shall evidence, particularly the expert report of PricewaterhouseCoopers, be considered at the Hearing.

This is without prejudice to whether the Tribunal may admit the counterclaims in a later phase of the procedure. In this regard, the Parties are invited to submit their comments in the Post-Hearing Briefs due after the Hearing according to Section 7.10 of Procedural Order No. 6.

3.2. In view of the many and voluminous submissions and documents filed by the Parties before the Hearing, there is no need to repeat such presentations at the Hearing. As only a selected number of these exhibits will be used in the limited time available at the Hearing, to avoid that all exhibits have to be transported to Paris and to avoid delays for search of documents at the Hearing, the members of the Tribunal intend to bring to the Hearing all of the Parties' briefs (without exhibits), witness statements and expert opinions as well as the major contractual documents (Privatization Agreement including its Amendment and Appendices and the Attachment (C/43), and the French Arbitration Law), but invite the Parties to prepare and provide at the Hearing to each member of the Tribunal and to the other Party a "Hearing Binder" containing copies of those further exhibits or parts of exhibits to which they intend to refer in their oral presentations at the Hearing. If possible, the contents of the Hearing Binder shall also be handed over on a CD.

3.3. Section 9.3 of Procedural Order No. 6 1 is recalled, according to which written statements of witnesses and experts will generally be used in lieu of direct oral examination and the available Hearing time should mostly be used for cross and re-direct examination, as well as for questions by the members of the Tribunal.

3.4. Insofar as the Parties have submitted opinions of legal experts, the Tribunal does not consider it necessary to have oral examination at the Hearing. In so far as a Party wishes to further confirm or object to such legal opinions, it may do so in its oral pleadings by Counsel or Co-Counsel of its choice during the Hearing (which will be later available by transcript) and may submit a written and electronic summary of its respective pleading at the Hearing. This also applies in so far as the witness statements and the report of PricewaterhouseCoopers go beyond factual testimony and include legal evaluations.

4. Agenda of Hearing

The following Agenda is established for the Hearing:

1. Introduction by the Chairman of the Tribunal.

2. Opening Statements by the Parties

of not more than 60 minutes for the Claimant,

of not more than 60 minutes for the Respondents (together).

3. Examination of witnesses or fact experts presented by Claimant. For each:

a) Affirmation of witness or expert to tell the truth.

b) Short introduction by Claimant of up to 10 minutes (This may include a short direct examination on new developments after the last written statement of the witness or expert).

c) Cross examination by Respondents.

d) Re-direct examination by Claimant, but only on issues raised in cross-examination.

e) Remaining questions by the members of the Tribunal, but they may raise questions at any time.

4. Examination of witnesses and experts presented by Respondents. For each: vice versa as under a) to e) above.

6. Remaining Questions by the members of the Tribunal, if any.

No final oral pleadings are foreseen, as the timetable of Procedural Order No. 6, in Section 7.10, provides for Post Hearing Briefs of the Parties.

5. Witnesses and Experts

5.1. The Tribunal has taken note of the submissions of the Parties indicating the witnesses and experts they wish to examine at the Hearing. Attention is drawn to Section 3.4 above regarding legal evaluations in the statements of witnesses and experts.

5.2. To accommodate with the availability of witnesses and experts during the week of the Hearing and enable to plan their presence more precisely, the Parties may and are encouraged to agree on the order in which the witnesses and experts shall be heard and shall inform the Tribunal of such agreement by 20 July 2004.

5.3. Unless otherwise agreed between the Parties under Section 5.2 above or ruled by the Tribunal, the order of examination shall be as provided in Sections 3 and 4 of the above Agenda and the Party which presented the witnesses or experts shall decide on the order in which they shall be examined.

5.4. Unless otherwise agreed between the Parties or ruled by the Tribunal, witnesses and experts may be present in the Hearing room during the testimony of other witnesses and experts.

5.5. Section 9.7. of Procedural Order No. 6 regarding the Hearing is recalled

regarding witnesses or experts requiring interpretation to and from English.

Should more than one such person presented by each side require interpretation, as no sufficient time is available for successive interpretation, the respective Party or Parties shall provide a simultaneous interpretation service and make respective arrangements in due time with the Hotel Raphael to assure that such a service is fully available at the start of the Hearing and shall, by 20 July 2004, inform the Tribunal of such arrangements.

6. Timing

6.1. To give sufficient time to the Parties and the Tribunal to prepare for and evaluate examination and related files, the daily sessions shall not go beyond the period between 9 a.m. and 5 p.m. However, the Tribunal, in consultation with the Parties, may change the timing during the course of the Hearing.

6.2. Section 9.5 of Procedural Order No. 6 regarding the Hearing is recalled, where it is recorded that the Tribunal to intends to establish equal maximum time periods for the examination by the Parties.

6.3. Taking into account the Calculation of Hearing time attached to this Order, the total maximum time available for the Parties shall be as follows:

9 hours for Claimant

9 hours for Respondents (together).

It is left to the Parties how much of their allotted total time they want to spend on Agenda items 3 and 4.

6.4. As there is no room for an extension of the Hearing, the parties shall prepare their presentations and examinations at the Hearing on the basis of the above time limits.

7. Other Matters

7.1. As the Tribunal intends to save the costs of an administrative assistant to the Tribunal, the Parties are requested to make arrangements with the Hotel Raphael in advance of the Hearing that microphones and loudspeakers are available in the Hearing room to ensure easy understanding of all interventions by all in the room and for the court reporter.

7.2. The Chairman's e-mail of 8 February 2004 is recalled regarding the court reporting service retained f or the Hearing.

7.3. The Tribunal may change any of the rulings in this order, after consultation with the Parties, if considered appropriate under the circumstances.

Attachment to Procedural Order No. 9 :

Calculation of Hearing Time

UNCITRAL Arbitration Zeevi v Bulgaria et alt

Time available Hours

4 days of 8 hours 32

Time needed

Lunch breaks: 4 x 1.5 6

Various breaks (procedural and 8 coffee) 2.5

Procedural discussions (estimated total) 2

Introduction by Chairman 0.5

Additional Questions by members of Tribunal 3

Total time for other purposes 14

That leaves for the Parties a total of 18

Available for each the Claimant and the Respondents (together) 9"

23.
By letter of 15 June 2004, Counsels for Respondent No. 1 communicated repetition of their request made by letter of 31 May 2004 for Claimant to provide the original text of several of Claimant's exhibits.
24.
On 21 June 2004, Respondent No. 2 submitted its Second Brief pursuant to PO No. 6.
25.
By letter of 21 June 2004, Respondent No. 1 submitted "The Republic of Bulgaria's Defense and Counterclaim" accompanied by an Expert Report by PricewaterhouseCoopers.
26.
By letter of 1 July 2004, Claimant gave notice of the appointment of Avner Yarkoni, Esq., as arbitrator in place of Professor David Libai.
27.
By its second letter of 1 July 2004, Claimant requested the Tribunal (i) to delete or to declare inadmissible the counterclaim contained in the Brief of Respondent No. 1 of 21 June 2004 and (ii) to delete parts of this Brief which are not in accordance with Section 7.4 of PO No. 6.
28.
On 23 July 2004 Claimant submitted its Brief.
29.
From 27 July 2004 till 30 July 2004 the Oral Hearing was conducted in Paris.
30.
On 2 August 2004 the Tribunal rendered the following PO No. 10:

With regard to the witness statements of Mr. Ananiev and Mr. Mustakov the Tribunal decided, according to the due process principle,

"not to take into account these witnesses' statements in its decision on liability"

since they did not appear at the Hearing giving the other Party the opportunity to cross-examine them.

As to the admissibility of certain recent submissions by the Parties, which has been objected to by the other side the Tribunal decided the following:

"Taking into account the Parties' comments at the Hearing particularly what they considered as acceptable deadlines for their submissions, the Tribunal rules as follows:

2.4.1. By 8 October 2004, the Parties shall submit Post Hearing Briefs, Claimant of up to 100 pages and each Respondent of up to 50 pages, presenting:

a) any comments they have in rebuttal to the most recent Brief of the other side (i.e. Respondents' Briefs of 21 June and Claimant's Brief of 23 July 2004) to which they may enclose further documents (but no new witness statements), but in rebuttal only;

b) their evaluation and comments regarding the Hearing.

2.4.2. By 12 November 2004, the Parties may submit 2nd Round Post Hearing Briefs, Claimant of up to 40 pages and each Respondent of up to 20 pages) again with further documents (but no new witness statements), but only in rebuttal of the 1st Round Post Hearing Brief(s) of the other side.

Finally, in PO No. 10 the Tribunal issued a further ruling regarding the "Real Counterclaims":

"3.2. In so far as the counterclaims presented in the Republic of Bulgaria's Brief of 21 June 2004 go beyond requesting a dismissal of the claims presented by the Claimant ("the Real Counterclaims") the Tribunal rules as follows:

3.2.1. By 17 September 2004, the Republic of Bulgaria shall submit a Brief

a) identifying exactly the relief sought by the Real Counterclaims either as a counterclaim or as a claim for the purposes of set-off (Art. 19.3 of the UNCITRAL Rules),

b) identifying the total amount in dispute by all of these Real Counterclaims,

c) providing reasons why these Real Counterclaims should be admitted at this late stage of the arbitral procedure taking into account Articles 19.3 and 20 of the UNCITRAL Rules,

d) providing information and comments regarding the relevance of the parallel arbitration procedure started by the Republic against Claimant for the present arbitration.

3.2.2. By 12 November 2004, Claimant shall submit a Brief in reply to the above Brief of the Republic.

3.3. Thereafter, the Tribunal intends to decide on the admissibility of the Real Counterclaims."

31.
On 17 September 2004 the Republic of Bulgaria submitted its Brief regarding the "Real Counterclaims" according to PO No. 10.
32.
On 8 October 2004 the Claimant submitted its Post-Hearing Brief regarding the question of liability in accordance with PO No. 10.
33.
On 8 October Respondent No. 1 submitted its Post-Hearing Brief according to PO No. 10.
34.
On 8 October Respondent No. 2 submitted its Post-Hearing Brief in accordance with PO No. 10.
35.
On 12 November 2004 Claimant submitted its Post-Hearing Response Brief and its Brief Regarding the Admissibility of the Republic's Real Counterclaims pursuant to PO No. 10.
36.
On 12 November 2004 Respondent No. 1 submitted its Second PostHearing Brief in accordance with PO No. 10.
37.
On 12 November 2004 Respondent No. 2 submitted its Second PostHearing Brief according to PO No. 10.
38.
On 12 January 2005 the Tribunal issued PO No. 11 ruling as follows:

A. Admissibility of the Real Counterclaims

1. In view of UNCITRAL Rules 19.3 and 20, the Tribunal takes into account:

1.1. The counterclaims raised obviously arise out of the same contractual relationship as the claims.

1.2. The Tribunal is presently inclined to conclude that the Respondents are, at least to some extent, liable for the claims raised by Claimant. But, the Tribunal considers that it cannot take a final decision in this regard before having fully examined the alleged liabilities of Claimant raised by Respondent No. 1 in its counterclaims.

1.3. Though, after this Tribunal's decisions in Procedural Orders No. 4 to 6 late in 2003, Respondent No. 1 took a considerable time until the counterclaims were submitted, the tribunal appreciates that, under the circumstances, the governmental tender process for the selection of a law firm in this case should be taken into account as well as the fact that Respondent No. 1 complied with the timetable set by he Tribunal in order to maintain the Hearing dates in July 2004.

1.4. As recorded in Section 2.2. of Order No. 10, the Tribunal took note that "the Parties expressed their support for a solution which enables the Tribunal to take into account all factual aspects relevant for a decision on liability under the claims as long as the Parties have sufficient opportunity to comment on all of these factual aspects."

1.5. As the procedure on the quantum of Claimant's claims had been postponed to a later stage of the procedure, the counterclaims would have to be taken into account as a possible set-off at that later stage as well.

1.6. In view of the parallel arbitration proceedings started by the PPCA, it would be more efficient and less time-, work- and cost-consuming to deal with the opposing claims between the Parties in this present arbitration procedure rather than having a separate further arbitration perhaps resulting in conflicting decisions.

1.7. No relevant prejudice for Claimant would result, if this Tribunal admits the counterclaims. In this context, the Tribunal assumes and takes note of the respective explanations given by Respondent No. 1 in its brief of 17 September 2004, particularly concluding that the claims admitted in this present arbitration as counterclaims "would clearly fall away" in that other arbitration. Furthermore:

a) In the present stage of the procedure, Claimant could only achieve a partial award on liability which, without a decision on the quantum of such liability, could not lead to any payments by Respondents or be enforced.

b) Thus, no delay will result for Claimant in receiving a possible decision on amounts due, if the examination of the counterclaims is joined to the stage for the procedure on quantum as foreseen later in this Order.

c) Claimant has already dealt with the facts and law relating to the counterclaims to some extent in its brief of 23 July 2004 and its Post-Hearing Briefs. As ruled later in this Order, Claimant, as it requested in its Brief of 12 November 2004 page 3, will be given a further opportunity to fully respond to the counterclaims.

2. Taking into account all above considerations, the Tribunal hereby admits the counterclaims.

B. Further Procedure

3. By 15 April, 2005 :

Claimant shall submit:

A further brief in reply to the counterclaims, a brief on the quantum of its claims identifying precisely which amount is requested in relation to each of the liabilities claimed.

Respondent No. 1 shall submit a brief on the quantum of its counterclaims identifying precisely which amount is requested in relation to each of the liabilities claimed.

4. By 17 June 2005 :

Claimant shall submit a reply brief on the quantum of the counterclaims,

Respondents No. 1 and 2 shall submit a reply brief on the quantum of the claims.

No documents or statements of witnesses or experts will be admitted thereafter, unless agreed between the Parties or authorized by the Tribunal.

5. Thereafter, as soon as possible, the Tribunal intends to issue an Order regarding the details of a Final Hearing in this case.

6. The Tribunal intends to schedule the Final Hearing from 29 August to 1 September 2005 at a place still to be chosen after consultation with the Parties.

7. By 14 October 2005, after receiving the transcript of the Hearing, the Parties shall submit 1st Round Post-Hearing Briefs (no new documents).

8. By 28 October 2005, the Parties shall submit

2nd Round Post-Hearing Briefs (no new documents) in rebuttal of the 1st Round briefs of the other side,

Statements on the Costs of legal representation and assistance they are claiming in this case.

9. All communications and particularly the briefs under sections 3 and 4 above as well as the documents and statements of witnesses and experts enclosed, shall be in conformity with the rulings in Order No. 1 sections 2, 7, 8, 9, Order No.3 section 2.2., and Order No.6 sections 6, 8, 9, 10.

39.
On 12 January 2005 with reference to PO No. 11, the Tribunal issued the following PO No. 12:

1. Further deposits regarding the Claims

The calculation in Section 8 of Procedural Order No. 4, for the final stage on quantum, leads to a total further deposit for fees due of USD 106,032.00.

To cover expected expenses of the procedure on quantum, including travels, a hearing of several days, a transcript of such hearing, meetings of the Arbitrators for deliberations, administrative secretary for deliberations, the Chairman's VAT, etc., the Tribunal has determined that a further deposit on expenses of USD 23,068.00 is appropriate and necessary under Rule 41.2.

This leads to a total deposit now due under Rule 41.2. of USD 130,000.00. Therefore, both the Claimant and the Respondents No. 1 and 2 (together) are hereby requested to each transfer

USD 65,000.00.

2. Further deposits regarding the Counterclaims

Regarding the counterclaims, applying the same considerations as they were used in Order No. 2 section 3.1. to 3.3. for the claims, the Tribunal determines that a separate fee calculation is appropriate because the counterclaims could not be dealt with in the same procedural stage as the claims.

From the Brief of Respondent No. 1 of 17 September 2004 pages 4 to 17, the various counterclaims presently quantified by a specific amount lead to a total of approximately USD 25,000,000.00.

Taking this as the presently identified amount in dispute for the counterclaims and applying the ICC Cost Calculator for average arbitrators' fees, the fees for a three member tribunal are USD 315,900.00.

To cover expected expenses of the procedure on the counterclaims, including travels, a hearing (together with the final hearing on the claims) of several days, a transcript of such hearing, meetings of the Arbitrators for deliberations, administrative secretary for deliberations, the Chairman's VAT, etc., the Tribunal has determined that a further deposit on expenses of USD 44,100.00 is appropriate and necessary under Rule 41.2.

This leads to a total deposit now due under Rule 41.2. of USD 360,000.00. Therefore, both the Claimant and Respondent No. 1 are hereby requested to each transfer

USD 180,000.00.

3. Payment Instructions

The Parties shall transfer the above payments under sections 1 and 2 in such a way that, by 14 February 2005, they are available on the trust account set up for this case:

Deutsche Institution für Schiedsgerichtsbarkeit DIS-Sonderkonto Konto-No. 108 301301 (IBAN-No. 53,3707.0024.01083013.01)

Deutsche Bank

BLZ. 370 700 24

SWIFT-Code: DEUTDEDBKOE

The Tribunal will not start its work on the next stage of the procedure before the full deposits have been received.

4. Final Determination on Costs

The Tribunal recalls that a final determination as to which Party has to bear which costs will be decided by the Tribunal in its Final Award taking into account the criteria of UNCITRAL Rule 40 and any submissions the Parties may have made in this respect."

40.
On 4 February 2005, referring to Claimant's letter of 27 January 2005, the Tribunal sent a letter to all Parties stating that the issues raised in Claimant's letter had been taken into account and reaffirming that PO Nos 11 and 12 remain unchanged.
41.
On 20 February 2005 in view of preceding communications with the Parties, PO No. 13 was issued by the Tribunal:

1. Regarding Acceptance of Jurisdiction

It happens frequently in international arbitration that, after a party has challenged the tribunal's jurisdiction and the tribunal has decided against such a challenge to the effect that it does indeed have jurisdiction, the respective party on one hand then participates in the procedure on the merits and raises a counterclaim, but on the other hand does not waive to re-raise its jurisdictional objections before the state courts once an award has been issued. In such cases, the arbitral procedure on the merits proceeds as usual.

The Tribunal takes note that Respondent No. 1, as clarified in its letter of 11 February 2005, only maintains its counterclaims "by way of set-off in these proceedings".

Therefore. the Tribunal takes it that the counterclaims are now only raised for set-off purposes.

However, irrespective of that issue, this Tribunal has to decide on its jurisdiction, because, as can also be concluded from Art. 19.3. of the UNCITRAL Rules, the Tribunal can only decide on claims raised for set-off purposes if these claims arise out of the same contract and it does indeed have jurisdiction over the claims raised for set-off. In this context, the Tribunal refers to section A.1.5. of its Procedural Order No. 11.

Therefore, in this case as well, it is appropriate for this Tribunal to continue with the procedure on the merits as ruled in Procedural Orders No. 11 and 12.

2. Regarding the parallel arbitration started by the PPCA

As mentioned in section 1 above, this Tribunal needs and, by Procedural Order No. 11, has accepted its jurisdiction over the counterclaims, even if these are now only raised for set-off. Therefore, the question remains relevant whether the parallel proceedings started by the PPCA (which, for convenience will now be called the "PPCA Arbitration") affect the manner in which this Tribunal should handle these set-off claims.

The Tribunal recalls its considerations in Procedural Order No. 11 in this respect.

Furthermore, it has to be taken into account that the PPCA Arbitration contains several differences to the present one. Particularly, its claimant is the PPCA and it involves three respondents additional to Zeevi, thus several parties which are not Parties in the present arbitration.

Therefore, this Tribunal can only consider whether the counterclaims raised by Respondent No. 1 in the present procedure against Zeevi should not be admitted insofar as they will also be raised in the PPCA Arbitration against Zeevi as one of the four respondents.

In this regard, it must be noted that this Tribunal has already accepted its jurisdiction over the counterclaims by Procedural Order No. 11 for the reasons given in that Order. This was at a time when the tribunal in the PPCA Arbitration was not yet constituted. It would, therefore, be rather a matter to be brought before the Tribunal in the PPCA Arbitration (which has now been constituted) whether and in how far it accepts its jurisdiction over those claims in view of this Tribunal's decision.

Taking into account the above considerations. the rulings in Procedural Orders No. 11 and 12 remain unchanged."

Regarding deposit payments according to PO No. 12 the Tribunal confirmed that those due from Respondents had been fully received from Respondent No. 1 and that USD 65,000 had been received from Claimant.

In application of Article 39.2. of the UNCITRAL Rules, the Tribunal had by analogy used the ICC cost rules to determine the advance payments, since the ICC was the appointing authority in this UNCITRAL case. Therefore, according to Article 30.5. ondf the ICC Rules the Tribunal requested Claimant to transfer the 2nd advance payment of USD 180,000.00 due under section 2 of PO No. 12 no later than 1 March 2005.

Further, the Tribunal drew the Parties' attention to the last paragraph of section 3 of that Order to the effect that the Tribunal will not start its work on the next stage of the procedure before the full deposits have been received.

42.
By letter of 3 March 2005 the Tribunal informed all Parties that Vienna would be the place for the Final Hearing, in accordance with Section B.6. of PO No. 11 and that respective reservations have been made at the Hotel Hilton Vienna. The Tribunal invited the Parties to make their respective reservations.
43.
On 17 March 2005 the Tribunal replied to a letter of same date from Claimant by email as follows:

"1. Respondents are invited to submit any comments they may have by 24 March 2005.

2. As Claimant has twice not transferred its deposit of USD 180,000.00 due under Procedural Order No. 12 and 13 by the dates given by the tribunal, Claimant is invited to clearly state by 24 March 2005, whether is refuses to pay its deposit due in case the procedure continues as ruled in Procedural Orders No. 11, 12, and 13.

3. To avoid any misunderstanding, the Tribunal clarifies that, for the time being, its Procedural Orders No. 11, 12, and 13 remain valid and the Parties shall take all measures to ensure that the respective timetable up to the Hearing is maintained."

44.
On 1 April 2005 the Tribunal issued PO No. 14 regarding further procedure and advance payments. With regard of the further procedure, the Tribunal drew the attention of the Parties to Provisions of The Transformation and Privatization of State-owned and Municipal-owned Enterprises Act PO Nos 9, 10, 11, 12 and 13. In particular, the Tribunal reminded the Parties that:

"the consideration in Section A.1.2. of PO No. 11, i.e. that the Tribunal can only take a final decision regarding Respondents' liability for the claims raised by Claimant after examining Claimant's alleged liabilities raised in the Real Counterclaims, is not changed by the fact that these Real Counterclaims are now only raised for set-off".

The Tribunal reaffirmed its position that:

"for the reasons mentioned in paragraphs a) to c) of section A.1.7. of PO No. 11, the Tribunal still considers that no relevant prejudice for the Claimant results from the procedure as now established and that this is the relatively most cost-saving and fastest way to conclude this case by an award".

2. Regarding the outstanding advance payment

The Tribunal thanks Claimant for its confirmation that it does not refuse to pay its outstanding advance payment if the procedure continues in accordance with POs No. 11, 12, and 13

The Tribunal confirms that, when deciding on the costs of this arbitration at the end of the procedure according to Art. 40 UNCITRAL Rules, it will take into account in how far additional costs have been caused by Respondents' objection to jurisdiction, the late submission of the counterclaims and any other procedural steps taken by the Parties. In this respect, the Parties may submit their comments and arguments in their submissions due by 28 October 2005 according to section 8 of PO no.11.

In accordance with its above-mentioned confirmation, Claimant is hereby requested to transfer its outstanding advance payment of USD 180,000.00 pursuant to PO No. 12 in such a way that it is received in the trust account no later than 15 APRIL 2005.

3. Regarding hotel reservations for the Hearing

The Vienna Hilton has informed the Chairman that only very few reservations have been made by the Parties for the Hearing. To assure availability and avoid additional costs for the hearing room, the Parties are invited to book by 15 April 2005 the reservations for all persons mentioned in the Chairman's letter of 3 March 2005."

45.
On 5 April 2005 the Tribunal, by email and fax, extended the dates for submission of briefs according to section B.3. of PO No. 11 to 19 May 2005 and for the submission of briefs according to section B.4. of PO No. 11 to 14 July 2005. The Tribunal further informed the Parties that no further extensions would be possible.
46.
On 26 April 2005 the Tribunal, by email, confirmed to the Parties the last advance payment of USD 180,000.00 due from Claimant had been received.
47.
On 27 May 2005 Claimant submitted its Brief regarding the Quantum of its Claims and its Reply Brief to the Republic's Counterclaims of Set-Off including a Witness Statement of Mr. Raphael Harlev, an Expert Opinion of Mr. Elli Kraizberg and Claimant's Exhibits Vol. 7.
48.
On 27 May 2005 Respondent No. 1 submitted its Brief on Counterclaims, a second Expert Report by PwC, Witness Statements of Mr. Hristo Todorov and Ms. Tsvetanka Krumova and two volumes of documentary evidence (Exhibits B-103 - B-155).
49.
On 7 June 2005 Claimant issued a letter with reference to the "Republic's Memorial on Counterclaims" claiming several documents and Exhibits of the Republic do not have an English translation enclosed therewith. It therefore announced that it may request a further extension of time.
50.
On 14 June 2005, Respondent No. 1 submitted the remaining translations as requested by Claimant.
51.
On 11 July 2005 the Republic requested a 1 day extension till 15 July 2005 because 14 July 2005 is a public Holiday in France.
52.
On 15 July 2004 Claimant submitted its Brief In Response Of The Republic's Quantification Brief, a second Expert Opinion of Dr. Elli Kraizberg and Claimant's Exhibits Vol. 8.
53.
On 15 July 2005 Respondent No. 1 submitted its Reply Brief pursuant to section B.4 of PO No. 11 accompanied by a third Expert Report by PwC and five new exhibits.
54.
On 15 July 2005 Respondent No. 2 submitted its Reply Brief on the Quantum of the Claims pursuant to Section B.4. of PO No 11.
55.
On 29 July 2005, the Tribunal issued PO No. 15 dealing with the details of the Final Hearing held between 29 August and 1 September 2005. After recalling Section B.4 of PO No. 11 and Chairman's letter of 3 March 2005, the Tribunal orders as follows:

"By 11 August 2005, each Party shall inform the Tribunal

a) of the names of all witnesses and experts (of which statements or reports have been presented by itself or by the other Parties) which they wish to examine at the Hearing.

b) of the names and functions of the persons who will be attending the Hearing from their respective sides.

4. The Hearing will start on Monday 29 August 2005 in the Klimt Ballsaal at 9:oo a.m.

5. Intention and Scope of the Hearing

5.1. The Hearing shall deal with all aspects of the claims and counterclaims on the basis of the submissions filed by the Parties and taking into account the Hearing of July 2004 and its respective transcript.

5.2. In view of the many and voluminous submissions and documents filed by the Parties before the Hearing, there is no need to repeat such presentations at the Hearing. As only a selected number of these exhibits will be used in the limited time available at the Hearing, to avoid that all exhibits have to be transported to Vienna and to avoid delays for search of documents at the Hearing, the members of the Tribunal intend to bring to the Hearing the major contractual and selected other documents, but invite the Parties to prepare and provide at the Hearing to each member of the Tribunal and to the other Party "Hearing Binders"

a) one containing the statements of those witnesses and opinions and reports of those experts for which the Parties will notify their examination at the Hearing under Section 3.a. above,

b) containing copies of those further exhibits or parts of exhibits to which they intend to refer in their oral presentations at the Hearing.

If possible, the contents of the Hearing Binders shall also be handed over on a CD.

5.3. Section 9.3 of Procedural Order No. 6 1 is recalled, according to which written statements of witnesses and experts will generally be used in lieu of direct oral examination and the available Hearing time should mostly be used for cross and re-direct examination, as well as for questions by the members of the Tribunal.

5.4. Insofar as the Parties have submitted opinions of legal experts, the Tribunal does not consider it necessary to have oral examination at the Hearing. In so far as a Party wishes to further confirm or object to such legal opinions, it may do so in its oral pleadings by Counsel or Co-Counsel of its choice during the Hearing (which will be later available by transcript) and may submit a written and electronic summary of its respective pleading at the Hearing. This also applies in so far as the witness statements and expert reports go beyond factual testimony and include legal evaluations.

6. Agenda of Hearing

The following Agenda is established for the Hearing:

6.1. Introduction by the Chairman of the Tribunal.

6.2. Opening Statements by the Parties

of not more than 60 minutes for the Claimant,

of not more than 60 minutes for the Respondents (together).

6.3. Examination of witnesses and experts presented by Claimant. For each:

a) Affirmation of witness or expert to tell the truth.

b) Short introduction by Claimant of up to 10 minutes (This may include a short direct examination on new developments after the last written statement of the witness or expert).

c) Cross examination by Respondents.

d) Re-direct examination by Claimant, but only on issues raised in cross-examination.

e) Remaining questions by the members of the Tribunal, but they may raise questions at any time.

6.4. Examination of witnesses and experts presented by Respondents. For each:

vice versa as under a) to e) above.

6.5. Remaining Questions by the members of the Tribunal, if any.

No final oral pleadings are foreseen, as the timetable of Procedural Order No. 11, in Sections B. 7 and 8, provides for Post Hearing Briefs of the Parties.

The Tribunal may change this agenda after consultation with the Parties if considered appropriate during the Hearing

7. Witnesses and Experts

7.1. Attention is drawn to Section 5.4 above regarding legal evaluations in the statements of witnesses and experts.

7.2. To accommodate with the availability of witnesses and experts during the week of the Hearing and enable to plan their presence more precisely, the Parties may and are encouraged to agree on the order in which the witnesses and experts shall be heard and shall inform the Tribunal of such agreement by 18 August 2005.

7.3. Unless otherwise agreed between the Parties under Section 7.2 above or ruled by the Tribunal, the order of examination shall be as provided in Sections 6.3 and 6.4 of the above Agenda and the Party which presented the witnesses or experts shall decide on the order in which they shall be examined.

7.4. Unless otherwise agreed between the Parties or ruled by the Tribunal, witnesses and experts may be present in the Hearing room during the testimony of other witnesses and experts.

7.5. Section 9.7. of Procedural Order No. 6 regarding the Hearing is recalled regarding witnesses or experts requiring interpretation to and from English.

Should more than one such person presented by each side require interpretation, as no sufficient time is available for successive interpretation, the respective Party or Parties shall provide a simultaneous interpretation service and make respective arrangements in due time with the Hotel to assure that such a service is fully available at the start of the Hearing and shall, by 18 August 2005, inform the Tribunal of such arrangements.

8. Timing

8.1. To give sufficient time to the Parties and the Tribunal to prepare for and evaluate examination and related files, the daily sessions shall not go beyond the period between 9 a.m. and 5 p.m. However, the Tribunal, after consultation with the Parties, may change the timing during the course of the Hearing.

8.2. Section 9.5 of Procedural Order No. 6 regarding the Hearing is recalled, where it is recorded that the Tribunal intends to establish equal maximum time periods for the examination by the Parties.

8.3. Taking into account the Calculation of Hearing time attached to this Order, the total maximum time available for the Parties shall be as follows:

9 hours for Claimant

9 hours for Respondents (together).

It is left to the Parties how much of their allotted total time they want to spend on Agenda items 6.2, 6.3 and

6.4.

8.4. As there is no room for an extension of the Hearing, the parties shall prepare their presentations and examinations at the Hearing on the basis of the above time limits.

9. Other Matters

9.1. As the Tribunal intends to save the costs of the attendance by the administrative assistant to the Tribunal at the Hearing, the Parties are requested to make arrangements with the Hotel in advance of the Hearing that microphones and loudspeakers are available in the Hearing room to ensure easy understanding of all interventions by all in the room and for the court reporter.

9.2. The Chairman has retained again Briault court reporting service f or the Hearing.

9.3. The Tribunal may change any of the rulings in this order, after consultation with the Parties, if considered appropriate under the circumstances."

56.
The Final Hearing was conducted from 29 August to 1 September 2005 in Vienna, in accordance with PO No. 15, Section B. 4 of PO No. 11 and Chairman's letter of 3 March 2005.
57.
Following the Final Hearings in Vienna the Tribunal issued PO No. 16 cited hereafter:

"Taking into account the discussion and agreements reached during the final Hearing in Vienna, the tribunal rules as follows:

1. Testimony of Claimant's witness Mr. Frank

Considering

Respondents' application regarding the absence of Mr. Frank at the 2005 Hearing,

the respective written and oral presentations of the Parties,

Sections 7.5 and 9.4 of Procedural Order (PO) No. 6 and Section 1.2. of PO No. 10,

the Tribunal will take into account Mr. Frank's testimony in his written statement and at the 2004 Hearing

a) insofar as it is relevant for liability regarding Claimant's claims,

b) and for the quantum of Claimant's claims insofar as it was subject to cross-examination by Respondents during the 2004 Hearing,

c) but not otherwise.

2. Further Timetable

2.1. By 12 October 2005, the Parties shall submit 1st Round Post-Hearing Briefs (no new documents), Claimant of up to 80 pages and each Respondent of up to 40 pages,

presenting a summary of their final arguments at the end of this procedure,

and particularly including a separate section with a clear identification of all the Relief Sought at the end of this procedure and identifying precisely which amount is requested in relation to each of the liabilities claimed.

2.2. By 31 October 2005, the Parties shall submit 2nd Round Post-Hearing Briefs (no new documents), but only in rebuttal of the 1st Round briefs of the other side, Claimant of up to 40 pages and each Respondent of up to 20 pages.

2.3. By 14 November 2005, the Parties shall submit Statements on the Costs of legal representation and assistance they are claiming in this case.

2.4. By 21 November 2005, the Parties shall submit comments, if any, to the cost claims of the other side...."

58.
On 12 October 2005 Claimant submitted its 1st Post Hearing Brief regarding Quantification and Counter Set-Off Claims pursuant to PO No. 16 of 6 September 2005.
59.
Respondent No. 1 submitted its 1st Post-hearing brief on Quantum on 12 October 2005 according to PO No. 16
60.
On 12 October 2005 Respondent No. 2 submitted its 1st Post-Hearing Brief pursuant to Section 2.1. of PO No 16.
61.
After reviewing the Parties' submissions the Tribunal issued PO No. 17 cited hereafter:

"Taking into account the recent submissions by the Parties regarding the exhibits enclosed to Claimant's Post-Hearing Brief, the tribunal rules as follows:

1. Section 2.1.of Procedural Order No. 16 expressly provided that "no new documents" were admitted at this stage. Particularly, it provided for no exceptions to be admitted upon application by a Party or for legal authorities.

2. By Procedural Orders No. 11 and 15, a long time before the Vienna Hearing, the Parties were aware of 15 July 2005 as the cut off date for the submission of documents. The Parties were given several and sufficient opportunities to submit all documents they wished to rely on before that cut off date. Neither Party objected to the cut off date.

3. Claimant has not provided convincing and compelling reasons why, nevertheless, the above rulings should now be changed.

4. Admitting these new documents would give Clamant an unfair advantage in this procedure which could only be levelled by admitting Respondents to reply to these new documents and also be permitted to submit further documents in rebuttal, to which, in turn, Claimant would then have to be permitted to reply. This would re-open and prolong this already by now extremely long arbitral procedure even further. The Tribunal sees no justification for such a prolongation.

5. For all the above considerations, the Tribunal does not admit the new documents submitted by Claimant and will not take these documents into account."

62.
On 31 October 2005 Claimant submitted its Post Hearing Response Brief regarding Quantification and Counter Set-Off Claims pursuant to PO No. 16 of 6 September 2005.
63.
On 31 October 2005 Respondent No. 1 submitted its 2nd Post-hearing brief on Quantum.
64.
Respondent No. 2 submitted its 2nd Post-Hearing Brief pursuant to Section 2.2. of PO No. 16 on 31 October 2005.
65.
By 14 and 21 November 2005, the Parties submitted Cost Claims and comments thereon in accordance with PO No. 16.
66.
By letter of 22 May 2006, the chairman of the Tribunal informed the Parties that, due to some unexpected and unforeseeable circumstances, the Tribunal had been delayed in completing its deliberations for an Award in this case.
67.
By a further letter of 9 September 2006, the Chairman informed the Parties that additional delay had been caused by the military conflict involving Israel which prevented Co-Arbitrator Yarkoni from timely participating in the deliberations.

E. Relief Sought by the Parties

E.I. Relief Sought by Claimant

1. According to Claimant's Statement of Claim of 2 February 2001

68.
In itsStatement of Claim of 2 February 2001 Claimant sought the following relief (see C-SoC, paras 12.2 to 12.11):

- USD 45,000,000 for decrease in value of the company due to breach of undertaking regarding company standing as exclusive NC;

- USD 44,779,235 for decrease in value of the company due to shortage in assets and unknown liabilities, in detail :

- USD 10,000,000 for shortage in Equant Shares;

- USD 13,000,000 for restriction on timely sale of Equant Shares;

- USD 3,662,000 for extent of Company debts being higher than provided for:

- USD 3,387,235 for non-payment of Bulgarian Government debt due for training of Bulgarian pilots;

- USD 1,250,000 for undisclosed freezing of Company bank accounts in Iraq and Libya;

- USD 4,500,000 for undisclosed liabilities due to Ansett for maintenance of three Boeing Aircraft;

- USD 6,000,000 for undisclosed liabilities in respect of payments due to Company employees;

- USD 3,000,000 for misrepresentation regarding debt to Air Traffic Control;

- USD 35,000,000 for additional operating costs due to misrepresentations regarding fees payable to CCA;

- USD 45,000,000 for breach of undertaking to decrease the excess debt;

- USD 10,000,000 for breach of further undertakings and duties of good faith;

- USD 100,000,000 for loss of future profits;

- USD 50,000,000 for inability to sell a share in the Company to a strategic investor;

- USD 75,000,000 for damages to reputation and goodwill;

- USD 2,000,000 for increase in financing costs;

- USD 25,000,000 for failure of public offering of Zeevi Logistics and

- USD 4,000,000 for management time and expenses.

69.
Claimant further notes that (C-SoC, paras 12.12 and 12.13):

"[a]s aforementioned, these damages losses and costs are based on preliminary investigations and estimations, and the Zeevi Group reserves the right to change or amend these damages upon further study.

Without derogating from the above, if the Company ceases to operate due to its severe financial condition, after filing of the arbitration claim, the Zeevi Group will amend these heads of damages so as to reflect its additional losses due to the entire loss of its investment in the Company.

The damages losses and costs are claimed in the aggregate unless they overlap. Because some of the heads of damages listed above overlap (in full or in part), the Zeevi Group sets the amount of the damages claimed in this Arbitration at USD 230,000,000."

2. According to Claimant's Brief Regarding Relief Sought of 29 May 2003

70.
In its Brief Regarding Relief Sought of 29 May 2003 Claimant identified the relief sought then as follows (C-RS, Sections A to C):

"A. The Relief Sought

1. Pursuant to the Claimant's letter of 4 March 2003 the Claimant limits the amount of the relief it is seeking in this claim to US$ 70,000,000.

It is stressed, that the limitation of the amount of the relief does not derogate from any of the Claimant's arguments as appearing in the Statement of Claim concerning the amount of damages, losses and costs it has suffered and incurred as a result of the misrepresentations and violations of the Agreement.

It is further noted that the limitation on the amount of the relief which is currently sought has been forced on the Claimant due to the Respondent's refusal to fulfil the Arbitrator's Order regarding payment of the arbitration fees, which may force the Claimant to pay the arbitration fees for both sides.

The Claimant reserves the right to apply to amend the amount of the relief sought and reinstate the original amounts which were sued.

2. The amount of the relief sought is comprised of the following heads:

2.1 Loss Of Investments Of The Claimant In The Company

The Claimant invested in the Company (or on its behalf or in its favour) substantial amounts of money. Such investments were made in reliance and based on the warranties and representations given to the Claimant with regard to the condition of the Company prior to entering into the Privatization Agreement, and undertakings regarding its future condition and operation. These warranties and representations were subsequently found to be incorrect inaccurate, misleading and incomplete. The undertakings were breached.

The Claimant would not have invested the said amounts in the Company had it known about the said misrepresentations and breaches and the fact that the Respondent would deny any liability to amend and/ox indemnify against these misrepresentations and breaches.

Due to the true condition of the Company and breaches of the Agreement by the Respondent, the Company subsequently entered insolvency proceedings, and the said investments have now become permanently lost.

The overall amount invested by the Claimant excluding accrued interest is approximately US$ 30,000,000. Accordingly the Relief sought under this head is:

US$ 30,000,000

The factual and legal basis of this claim is based on the misrepresentations and breaches outlined in the Statement of Claim (see in particular sections 5-10) and the Claimant's investments in the Company and futile attempts to negotiate with the Respondent described in the Statement of Claim (see in particular sections 1 and 11),

In the alternative to the amount of the Relief sought in section 2.1 above the Claimant is asking for the Relief sought in section 2.2 below:

2.2 Misrepresentations And Breaches Of The Agreement By The Respondent

As detailed in the Statement of Claim the Respondent gave the Claimant various warranties, representations and undertakings with regard to the condition of the Company prior to entering into the Privatization Agreement These warranties and representations were subsequently found to be incorrect, inaccurate, misleading and incomplete. In addition, the undertakings which were given, were breached.

The said misrepresentations and breaches decreased the value of the Company and/or entitle the Claimant to indemnification and/or compensation and/or reimbursements in the following amounts:

a. Misrepresentation with regard to the total number of "Equant Shares" held by the Company and limitations on their sale. Amount of Relief sought US$ 10,500,000; See in particular section 6(a) of Statement of Claim for factual and legal basis.

b. Misrepresentation with regard to the debts owed to the Company which were bad debts. Amount of Relief sought; US$ 750,000; See in particular section 6(b) of Statement of Claim for factual and legal basis.

c. Misrepresentation with regard to a debt from the State to the Company in respect of the training of Bulgarian pilots. Amount of Relief sought: US$ 3,000,000. See in particular section 6(c) of Statement of Claim for factual and legal basis.

d. Misrepresentation with regard to Company monies frozen in foreign bank deposits. Amount of Relief sought: US$ 250,000. See in particular section 6(d) of Statement of Claim for factual and legal basis.

e. Misrepresentation with regard to the Company's liabilities involved in the maintenance of its aircraft. Amount of Relief sought: US$ 4,500,000. See in particular section 7(a) of Statement of Claim for factual and legal basis.

f. Misrepresentation with regard to the Company's liabilities to its employees. Amount of Relief sought: US$ 3,000,000. See in particular section 7(b) of Statement of Claim for factual and legal basis.

g. Misrepresentation with regard to the Company's total liabilities to Bulgarian Air Traffic Control. Amount of Relief sought: US$ 3,000,000. See in particular section 7(c) of Statement of Claim for factual and legal basis.

h. Misrepresentations and breaches of undertakings with regard to the rates of aviation fees which the Company is obligated to pay. Amount of Relief sought: US$ 5,000,000. See in particular section 8 of Statement of Claim for factual and legal basis.

Total amount of Relief sought under this (alternative) head:

US$ 30,000,000

2.3 Breach Of Warranties And Undertakings Regarding Company Standing As Exclusive National Carrier

The Respondent undertook and warranted in the Agreement that the Company enjoys and will continue (for 12 years) to enjoy the Exclusive National Carrier Status. This was one of the most significant undertakings and warranties under the Privatization Agreement and constituted a significant asset of the Company which greatly influenced the decision of the Purchasers to acquire the Company. The said warranty was subsequently found to be incorrect and the undertaking was breached. Amount of Relief sought due to this:

US$ 7,000,000

See in particular Section 5 of the Statement of Claim for factual and legal basis.

2.4 Breach Of Further Undertakings And Duties Of Good-Faith

The Agreement was breached in a serious of further breaches, including duty to transfer assets on the name of the Company, "change" in government policy regarding flight of government officials on Company planes and breach of the Agreement with regard to the sale of debt of Yugoslavian railways. The total Relief sought for these further breaches is:

US$ 2,000,000

See in particular section 10 of Statement of Claim for factual and legal basis.

2.5 Loss of Future Profits

Amount of the Relief sought:

US$ 12,000,000

See in particular section 12.6 of Statement of Claim for factual and legal basis of this Relief.

2.6 Inability To Sell A Share In The Company To A Strategic Investor

Amount of Relief sought:

US$ 4,000,000

See in particular section 12.7 of Statement of Claim for factual and legal basis.

2.7 Damage To Reputation And Goodwill

Amount of Relief sought:

US$ 5,000,000 See in particular section 12.8 of Statement of Claim for factual and legal basis.

2.8 Increase In Financing Costs

Amount of Relief sought:

US$ 2,000,000 See in particular section 12.9 of Statement of Claim for factual and legal basis.

2.9 Failure Of Public Offering of Zeevi Logistics Amount of Relief sought:

Amount of Relief sought:

US$ 6,000,000 See in particular section 12.10 of Statement of Claim for factual and legal basis.

2.10 Management Time and Expenses

Amount of Relief sought:

US$ 2,000,000 See in particular section 12.11 of Statement of Claim for factual and legal basis.

2.11 Total Amount Of Relief Sought (as explained above the Relieves sought in Sections 2.1 and 2.2 above are alternative to each other):

US$ 70,000,000

For the avoidance of doubt it is stressed that the limitation of the total amount of Relief as detailed herein does not derogate from the Claimant's arguments regarding the amount of damages, losses and costs it has suffered and incurred as detailed in the Statement of Claim.

B. From Which Respondent The Relief is Sought

4. The above Relief is sought from the Republic of Bulgaria.

5. The Claimant notes the Respondent's conflicting position that the Republic of Bulgaria is not a party to these proceedings. It is understood that this issue is going to be resolved by the honourable Arbitrators after the appropriate briefs by the parties are filed.

6. If it is decided that the Republic of Bulgaria is not a party to these proceedings and that only the Privatization Agency of the Republic of Bulgaria, is a party (which is denied), then the Relief is sought against the Privatization Agency or any other entity which the honourable Arbitrators will decide are the Respondents in these proceedings.

7. If it is decided that the Privatization Agency is a separate entity from the Republic of Bulgaria (which is denied) then the Relief is sought both from the Republic of Bulgaria and the Privatization Agency.

C. The Factual and Legal Basis Of These Claims

8. The Arbitrators are referred to section 2 above which points, with respect to each of the relieves sought, which are the relevant sections in the Statement of Claim supporting the said relieves. It is stressed, however, that the reference is made to particular sections in the Statement of Claim does not exclude the relevance of other sections in the Statement of Claim, which provide me factual and legal background to all the claims and relieves sought."

3. According to Claimant's Response Brief of 13 May 2004

71.
The latest version of Relief Sought regarding Liability can be found in Claimant's Response Brief of 13 May 2004 (C II, para. 189):

"In view of the above the Honorable Arbitrators will be requested to determine that the Republic of Bulgaria and the Privatization Agency of the Republic of Bulgaria are each jointly and severally liable for the following misrepresentations and breaches:

a. Breach of the undertaking that the Company's status as exclusive national carrier will be maintained for a period of 12 years, and that acquisition of the Company by Zeevi Holdings shall not adversely affect this status and the rights attaching thereto.

b. Misrepresentation regarding the Company's entitlement to Equant Shares and the limitations existing on their sale.

c. Misrepresentation regarding subsidies and financial support enjoyed by the Company prior to the privatization

d. Misrepresentation regarding Ansett aircraft maintenance liabilities.

e. Misrepresentation regarding liabilities in respect of provisions for employees.

f. Breach of the representation regarding debt of the Government of Bulgaria due in respect of training of pilots.

g. Non-disclosure of future government plans regarding the Company and change of Government policies towards the Company after its privatization.

h. Misrepresentation regarding new debt owed by the Company to the Air Traffic Control.

i. Breach of undertaking to transfer real estate assets in the Company's name.

j. Breach of undertaking regarding debt of the Yugoslavian Railway Company.

k. Breach of undertaking to assist with respect to the Company's Excess debts.

The Honorable Arbitrators shall further be requested to award expenses in the Claimant's favor in respect of this stage of the proceeding."

4. According to Claimant's Post-Hearing Brief dated 8 October 2004

72.
Claimant's Relief Sought in its Post-Hearing Brief of 8 October 2004 corresponds exactly with the Relief Sought by Claimant in its Response Brief dated 29 May 2003.

5. According to Claimant's Post-Hearing Response Brief of 12 November 2004

73.
The Relief Sought in Claimant's Post-Hearing Response Brief dated 12 November 2004 equals the Relief Sought in Claimant's PostHearing Brief of 8 October 2004.

6. According to Claimant's Brief Regarding the Admissibility of the Republic's Counterclaims of 12 November 2004

74.
The Final Conclusion of Claimant's Brief Regarding the Admissibility of the Republic's Counterclaims dated 12 November 2004 is that:

"the Honorable Tribunal is asked to rule that the Real Counterclaims are inadmissible" (see C VI, para. 53).

75.
According to Claimant's Further Brief in Reply to the Republic's Counterclaims of Set-Off dated 27 May 2005.
76.
The Honourable Tribunal is asked to dismiss the Republic's set-off claims.
77.
Furthermore, Claimant asks the Tribunal to award expenses in the Claimant's favor in respect of this stage of the proceedings. (C VIII, para. 161).

7. According to Claimant's 1st and 2nd Post Hearing Brief of 12 and 31 October 2005

78.
The latest relief sought by Claimant can be found in paras 156-157 of its 2nd Post Hearing Brief of 31 October 2005. They concur with the amounts claimed in Claimant's 1st Post Hearing Brief of 12 October 2005 (see also paras 411-415) but include updated interest calculations until 28 October 2005.
79.
Claimant requests the Tribunal to award it with the following amounts:

"A. Alternative 1

i. Misrepresentations and Breaches

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 -28 October 2005 (USD)Total Amount (USD)
National Carrier 5,000,000 2,947,013 7,947,013
Equant Shares 11,000,000 6,483,428 17,483,428
Aviation Fees 5,000,000 2,947,013 7,947,013
Ansett Aircraft 2,400,000 1,414,566 3,814,566
Employees 2,400,000 1,414,566 3,814,566
Training Of Pilots 2,500,000 1,473,506 3,973,506
Change Of Government Policies 2,000,000 1,178,804 3,178,804
ATC Loan 1,000,000 589,402 1,589,402
Real Estate 500,000 294,701 794,701
Yugoslavian Debt 2,075,000 1,223,009 3,298,009
Total33,875,00019,966,00853,841,008

ii. Compensation for the loss of the value of the Company

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Company Value 33,875,000 19,966,012 53,841,012

B. Alternative 2

i. Amount Transferred Over And Above Contractual Commitment

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Amount Transferred Over And Above 14,750,000 8,693,688 23,443,688

ii. Compensation for the loss of the value of the Company

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Company Value 45,000,000 26,523,116 71,523,116

iii. Compensation for value of additional assets

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Value of additional assets and/or additional liabilities 8,000,000 4,715,220 12,715,220

C. Alternative 3

i. Damages or restitution of amounts transferred

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Amounts Transferred by Zeevi Holdings 23,150,000 13,644,669 36,794,669

ii. Compensation for the loss of the value of the Company

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Company Value 44,600,000 26,287,352 70,887,352

In addition to each of the Alternatives 1, 2 or 3

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 - 28 October 2005 (USD)Total Amount (USD)
Increase in Financing Costs, etc. 2,250,000 1,326,155 3,576,155

80.
Claimant further requests the Tribunal (see C XI para. 157):

"a. To award the Claimant the amounts in accordance and as set out in Part C of the Claimant's First Post Hearing Brief on Quantification (updated to reflect the interest calculations set out in section 156 above); and determine that interest, according to the Bulgarian statutory rate, will be added on any amount awarded until the date of actual payment.

b. To dismiss the Republic's counterclaims by way of set-off.

c. To award the Claimant any other relief that the Tribunal considers just and appropriate.

d. To award the Claimant its costs and expenses with respect of these arbitration proceedings."

E.II. Relief Sought by Respondents

1. According to Respondent's Statement of Defense of 8 February 2002

81.
In the Privatization Agency's Statement of Defense (R-SoD, Section 9) the Respondent requests an Award in its favour as follows:

"(a) declaring that the arbitration clause as set in Article 15 of the Contract is null and void and the present Arbitral Tribunal is not competent to resolve the dispute and make an award.

(b) in alternative - declaring that the present Arbitral Tribunal is not competent to resolve he dispute and make an award as it was improperly formed against the provisions of the arbitration clause and the UNC1TRAL Rules.

(c) Further in alternative - declaring that the Respondent has not breached the Contract or a warranty as it had properly and in good faith informed the Claimant of all necessary aspects of the financial, legal and material status of the Company and had not breached any of its provisions;

(d) Further in alternative - finding that the Claimant is not entitled to receive any of the sums claimed due to the fact that the Claimant did not suffer the damages claimed and such damages may not be caused by the Respondent as it had properly performed its obligations and did not misinterpret any important issue in giving necessary information to the Claimant;

(e) Further in alternative - declaring that the obligations of the Respondent were properly executed;

(f) directing the Claimant to pay all of the Respondent's costs and expenses including legal costs incurred in connection with the preparation for and conduct of the proceedings, including, but not limited to, the administrative expenses of the Arbitral Tribunal, the fees and expenses of the arbitrators and legal counsel, and those of any experts and witnesses."

2. Relief Sought in the present procedure on liability

a. Relief sought by the Republic of Bulgaria

(1) According to Republic of Bulgaria's Brief of 21 June 2004

82.
From the Republic of Bulgaria's Brief of 21 June 2004 the following relief sought is (R II B, paras 392 seq.):

"1. The Republic's Counterclaim

In view of the foregoing, the Republic respectfully requests that the Arbitral Tribunal:

(1) DISMISS Zeevi's claims in their entirety; or

(2) DECLARE that Zeevi's claim for the return of its "investments" in Balkan Airlines is inadmissible; and/or

(3) DECLARE that Zeevi is entitled to claim only in respect of damage it has suffered; and/or

(4) DECLARE that Zeevi's damages claims described at paragraph 334 above are inadmissible on account of their remoteness and/or speculative character; and/or

(5) DECLARE that any compensation due in respect of any admissible claims by Zeevi will be set off against compensation due from Zeevi in respect of the Republic's counterclaims; and/or

(6) DECLARE that any compensation due in respect of any admissible claims by Zeevi will be set off against amounts and benefits received by Zeevi, directly or indirectly, as a consequence of (a) the consultancy and management agreements described at paragraphs 313 and 315 above, (b) the sales of Balkan Airlines' Equant shares in August 2001 and June 2002 and (c) the sales of Balkan Airlines' real estate; and/or

(7) DECLARE, in respect of any admissible claims by Zeevi, that the Republic's liability to compensate Zeevi will be extinguished or reduced as a result of Zeevi's failure to comply with the requirements of due diligence and mitigation of damages; and/or

(8) DECLARE that Zeevi has breached the Privatization Agreement; and

(9) AWARD the Republic liquidated damages in an amount to be quantified; and

(10) AWARD the Republic damages arising from the discontinuance of operations of Balkan Airlines, the Bulgarian National Carrier, in an amount to be quantified; and

(11) AWARD the Republic interest on the amounts awarded under paragraphs (9) and (10) above, in amounts to be quantified; and

(12) AWARD such other relief as the Tribunal deems appropriate.

2. Costs

The Republic respectfully requests the Arbitral Tribunal to order Zeevi to pay all of the costs and expenses of this arbitration, including the fees and expenses of the Arbitral Tribunal, the fees and expenses of any experts appointed by the Arbitral Tribunal and the fees and expenses of the Republic's legal representation in respect of this arbitration and any other costs of this arbitration."

(2) According to the Republic of Bulgaria's Brief on the "Real Counterclaims" dated 17 September 2004

83.
The Republic in its Brief on the "Real Counterclaims" requests the Tribunal to

"admit the Real Counterclaims formulated by the Republic in section II of this memorial in the present arbitration (R IV B, para. 85)."

(3) According to the Republic of Bulgaria's Post Hearing Brief dated 8 October 2004

84.
The Relief Requested by the Republic of Bulgaria in its Post Hearing Brief of 8 October 2004 is as follows (R III B, para. 202 et sec.):

"1. Liability

In view of the foregoing, the Republic respectfully requests that the Arbitral Tribunal:

(1) DISMISS Zeevi's claims in their entirety;

(2) DECLARE that Zeevi has breached the Privatization Agreement;

(3) AWARD the Republic liquidated damages in an amount to be quantified;

(4) AWARD the Republic damages in an amount to be quantified;

(5) AWARD the Republic interest on the amounts awarded under paragraphs (3) and (4) above, in amounts to be quantified; and/or

(6) AWARD such other relief as the Tribunal deems appropriate.

2. Quantum

In the event that the Tribunal's award on liability is such as to require this arbitration to proceed to a quantum phase, we invite the Tribunal to make the following declarations in respect of the principles of recovery, in order to ensure that the quantum phase is conducted as efficiently as possible (in the event that the Tribunal considers it inappropriate at this time to make any findings in respect of the quantification of damage, the Republic hereby reserves its right to request the following declarations in the next phase of this arbitration):

(1) DECLARE that Zeevi's claim for the return of its "investments" is inadmissible as a matter of Bulgarian law, for the reasons set out at paragraphs 317-328 of the Republic's Defence and Counterclaim of 21 June 2004;

(2) DECLARE that Zeevi is entitled to claim only in respect of damage it has suffered; and/or

(3) DECLARE that any compensation due to Zeevi will be set off against compensation due from Zeevi in respect of the Republic's counterclaims;

(4) DECLARE that any compensation due to Zeevi shall be reduced by the sum total of amounts and benefits received by Zeevi, directly or indirectly, as a consequence of (a) the consultancy and management agreements entered into by Balkan Airlines and various Zeevi entities, (b) the sales of Balkan Airlines' Equant shares in August 2000 and June 2002, and (c) the sales of Balkan Airlines' real estate; and/or

(5) DECLARE that the Republic's liability to compensate Zeevi will be extinguished or reduced as a result of Zeevi's failure to comply with its duties of due diligence and mitigation of damages.

3. Costs

The Republic respectfully requests the Arbitral Tribunal to order Zeevi to pay all of the costs and expenses of this arbitration, including the fees and expenses of the Arbitral Tribunal, the fees and expenses of any experts appointed by the Arbitral Tribunal and the fees and expenses of the Republic's legal representation in respect of this arbitration and any other costs of this arbitration."

(4) According to the Republic's Second Post-Hearing Brief dated 12 November 2004

85.
In its Second Post-Hearing Brief, the Republic of Bulgaria:

"reiterates the prayers for relief formulated at paragraphs 202, 203 and 204 of its Post Hearing Brief." (see RV B, para. 64; above, para. 46)

(5) According to The Republic's Memorial on Counterclaims dated 27 May 2005

86.
The Republic respectfully requests the Arbitral Tribunal to:

"[...]

(i) AWARD the Republic USD 56,510,712 by way of set-off on any amount that the Arbitral Tribunal may award to the Claimant; and

(ii) AWARD the Republic any other relief that the Arbitral Tribunal considers appropriate.

269 Pursuant to Article 104 of the Bulgarian Law on Contracts and Obligations, the Republic respectfully submits this Brief as a set-off statement insofar as it concerns all monetary compensation for damages arising from Zeevi's non-performance.

B. Costs

270 The Republic respectfully requests the Arbitral Tribunal to ORDER Zeevi to pay all of the costs and expenses of this arbitration, including the fees and expenses of the Arbitral Tribunal, the fees and expenses of any experts appointed by the Arbitral Tribunal, the fees and expenses of PricewaterhouseCoopers, the fees and expenses of the Republic's legal representation in respect of this arbitration, and any other costs of this arbitration; all of these amounts to be assessed".

(6) According to The Republic's First Post-hearing brief on Quantum dated 31 October 2005

87.
In R VIII B, paras 175, 176 and R IX B paras 96, 97 Respondent No. 1 summarizes its relief sought as follows:

"A. Relief Sought

175. [...] the Republic respectfully requests that the Arbitral Tribunal:

(i) DISMISS Zeevi's claims in their entirety; or

(ii) AWARD the Republic USD 59,714,733.41 consisting of

a. USD 39,090,677 in liquidated damages for breaches of Article 8 in respect of the period 1999-2004, together with interest thereon of USD 5,801,580.25, giving a total of USD 44,892,257.25;

b. USD 5,000,000 in liquidated damages for breaches of Article 7 in respect of the period 1999-2004, together with interest thereon of USD 1,072,013.02, and USD 5,000,000 in lieu of Zeevi's performance of its debt-servicing obligation for the period 2005-2009, giving a total of USD 11,072,013.02;

c. USD 2,798,757 in liquidated damages for breaches of Article 7.9.1, together with interest thereon of USD 951,706.14, giving a total of USD 3,750,463.14;

all by way of set-off on any of the amount that the Arbitral Tribunal may award to the Claimant; and

(iii) AWARD the Republic any other relief that the Arbitral Tribunal considers appropriate.

B. Costs

176. The Republic also respectfully requests the Arbitral Tribunal to ORDER Zeevi to pay all of the costs and expenses of this arbitration, including the fees and expenses of the Arbitral Tribunal, the fees and expenses of any experts appointed by the Arbitral Tribunal, the fees and expenses of PricewaterhouseCoopers, the fees and expenses of the Republic's legal representation in respect of this arbitration, and any other costs of this arbitration."

b. Relief Sought by the Privatization Agency

(1) According to Privatization Agency's Brief of 21 June 2004

88.
The Privatization Agency defined the relief sought in its Brief of 21 June 2004 as follows (R II PA, para. 224):

"a. Both the Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not jointly or severally liable for the any of the claims of the claimant, being addressed as misrepresentations and breaches:

(i) Not liable for any loss of investments made by Zeevi Holdings or any other related to it company or person;

(ii) Not liable for breach of the undertaking that the Company's status as exclusive national carrier will be maintained for a period of 12 years, and that acquisition of the Company by Zeevi Holdings shall not adversely affect this status and the rights attaching thereto;

(iii) Not liable for misrepresentation regarding the Company's entitlement to Equant Shares and the limitations existing on their sale

(iv) Not liable for misrepresentation regarding subsidies and financial support enjoyed by the Company prior to the privatization

(v) Not liable for misrepresentation regarding Ansett aircraft maintenance liabilities

(vi) Not liable for misrepresentation regarding liabilities in respect of provisions for employees

(vii) Not liable for breach of the representation regarding debt of the Government of Bulgaria due in respect of training of pilots

(viii) Not liable for non-disclosure of future government plans regarding the Company and change of Government policies towards the Company after its privatization

(ix) Not liable for misrepresentation regarding new debt owed by the Company to the Air Traffic Control

(x) Not liable for breach of undertaking to transfer real estate assets in the Company's name

(xi) Not liable for breach of undertaking regarding debt of the Yugoslavian Railway Company

(xii) Not liable for breach of undertaking to assist with respect to the Company's Excess debts.

b. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for loss of investments incurred by the Claimant or it subsidiaries as submitted in its Statement of Claim and Brief on the Relief Sought as well as in the further Claimant's submissions;

c. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria had not breached any provision of the Agreement and/or the applicable laws and are not both or severally liable for any of the claims submitted by the Claimant in its Statement of Claim and Brief on the Relief Sought as well as in the further Claimant's submissions;

d. Further and in the alternative, the Second Respondent is not liable for any of the claims set forth in Claimant's Statement of Claim and as amended with the further Claimant's submissions, as the Second Respondent is not a party to the Privatization Agreement but just was participating as agent of the First Respondent and therefore the rights and obligations occurring of this Agreement had caused directly in the patrimony of the First Respondent.

e. The Arbitral Tribunal is further requested to award the First Respondent and Second Respondent all of their expenses in respect of all stages of the proceedings, and order the Claimant to reimburse the Respondent's for their expenses as awarded, together with interest calculated on them and applicable from the day such expenses were incurred;

f. In regard of the above the Arbitral Tribunal is further requested to decide the costs of the Arbitration to be borne by the Claimant only.

(2) According to the Privatization Agency's Post-Hearing Brief of 8 October 2004

89.
In addition to the Relief Sought by the Respondent No. 2 in its brief of 21 June 2004, the Privatization Agency, responding to the Relief Sought by Claimant, in its Post-Hearing Brief of 8 October 2004, requested the Tribunal

"to determine that all of Claimant's claims must be dismissed, and/or rejected as unfounded, not proven and not within the scope of the Arbitration Clause." (R III PA, paras 216 et seq.)

(3) According to the Privatization Agency's Second PostHearing Brief dated 12 November 2004

90.
The latest relief sought by Respondent No. 2 can be found in R VI PA (see para. 107). Respondent No. 2 requests the Tribunal to determine that:

"1. Both the Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not jointly or severally liable for the any of the claims of the claimant, being addressed as compensation and indemnity for misrepresentations and breaches:

(i) Misrepresentation and breaches regarding national carrier status;

(ii) Misrepresentation regarding the Equant Shares;

(iii) Misrepresentation regarding aviation fees;

(iv) Misrepresentation regarding Ansett aircraft;

(v) Misrepresentation regarding Company employees;

(vi) Misrepresentation regarding training of pilots;

(vii) Breaches regarding change of Government policies;

(viii) Misrepresentation regarding Air Traffic Control loan;

(ix) Breach regarding transfer of real estate

(x) Breach regarding debt of the Yugoslavian Railway Company

2. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for any claim initially filed as submitted in its Statement of Claim and further submissions and not sustained or quantified in the stage of quantification of the proceedings. That particular request is provoked by the persistent alteration, evolution, substitution, etc. of the claims throughout the course of the proceedings where some of the initially filed claims were dropped or simply not maintained, others were included subsequently and third changed drastically in terms of grounds or quantification;

3. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for compensation for the amount which Zeevi Holdings transferred in the Company allegedly over and above its contractual commitments, which is denied;

4. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for compensation for the loss of the value of the company;

5. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for compensation for damages or restitution of the amounts transferred by the Claimant in connection to the agreement;

6. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria are not both or severally liable for compensation for any additional damages with respect to increase in financial costs, failure of public offering of Zeevi logistics, managerial time and expenses and damages to reputation and good will;

7. The Second Respondent - the Privatization Agency of the Republic of Bulgaria and the First Respondent - the Republic of Bulgaria had not breached any provision of the Agreement and/or the applicable laws and are not both or severally liable for any of the claims submitted by the Claimant in its Statement of Claim and Brief and further Claimant's submissions;

8. Further and only in the alternative, that the Second Respondent is not liable for any of the claims set forth in Claimant's Statement of Claim and as amended with the further Claimant's submissions, given the Second Respondent is not a party to the Privatization Agreement but just was participating as agent of the First Respondent and therefore the rights and obligations were assumed for the First Respondent as was considered in sections 4.1 to 4.6 of Procedural Order No. 4.

9. The Arbitral Tribunal is further requested to award the First and the Second Respondent all of their expenses incurred in respect of all stages of the proceedings (as they will be identified in the forthcoming Statements of costs), and order the Claimant to compensate the Respondents for their expenses as awarded.

10. In regard of the above the Arbitral Tribunal is further requested to decide the costs of the Arbitration to be borne by the Claimant.

91.
Later in the brief the Privatization Agency ads the following request:

"repeats (here) paragraph 9 of Respondent's First Brief dated 13 April 2004, paragraph 224 of Respondent's Second Brief dated 21 June 2004 and paragraphs 217 - 219 of its First Post Hearing Brief dated 8 October 2004." (R IV PA, para. 123).

(4) According to the Privatization Agency's Second Round Post Hearing Brief of 31 October 2005

92.
In RVII PA Respondent No. 2 summarizes its relief sought (see para. 87). It requests the Tribunal to determine that:

"(i) All Zeevi's claims are groundless, unproven and unjustified and therefore should be dismissed in full;

(ii) The Claimant is not entitled to compensation pursuant to any of the alternatives as set in Part C of the Claimant's Post-hearing Brief regarding quantification;

(iii) The Republic is to be awarded the amounts of its counterclaims by way of set-off to the extent the Claimant may be awarded for some of its claims;

(iv) In the alternative, the Second Respondent is not liable for any of the claims with respect to the Tribunal's view that the Privatization Agreement was participating as agent of the First Respondent and therefore the rights and obligations were assumed for the First Respondent.

(v) The Respondents are entitled to compensation for their expenses born in all stages of the procedure."

E.III. The Tribunal

93.
In its Procedural Order No.16, the Tribunal ruled:

"By 12 October 2005, the Parties shall submit 1st Round PostHearing Briefs (no new documents), Claimant of up to 80 pages and each Respondent of up to 40 pages, presenting a summary of their final arguments at the end of this procedure, and particularly including a separate section with a clear identification of all the Relief Sought at the end of this procedure and identifying precisely which amount is requested in relation to each of the liabilities claimed."

94.
Therefore, though the Relief Sought by the Parties has changed over this long procedure - which is not unusual as the case, its evidence and the arguments of the Parties change - the Tribunal concludes that it can and must only decide on the relief sought by the Parties in their last submissions. Earlier relief sought is cited above and may be referred to present a full picture of the procedural history and because it may be of some relevance in certain contexts for considerations of the Tribunal.

F. General Considerations of the Tribunal

95.
This procedure has been exceptionally long and burdensome for all concerned. Both the Claimant and the Respondents, in earlier stages of the procedure, have taken long periods to proceed with their claims, counterclaims and contentions which were changed a number of times. But after the final Hearing was held and the last submissions filed by the Parties, also on the side of the Tribunal, outside circumstances have delayed its deliberations. Furthermore, while the professional and personal relationship between the members of the Tribunal was never disturbed, the views of its three members on a number of issues proved to be very different and so far apart that a number of rounds of extensive deliberations and a readiness for compromise only made it possible to reach an Award which, though not being identical with the full personal preference of any of its members, at least made it possible to issue an Award supported by a majority of the Tribunal.
96.
Before the Tribunal can enter into evaluating the facts and contentions of the Parties on the merits, it seems appropriate to identify the legal framework in which the relevance of the factual aspects can and must be considered.

F.I. Applicable Substantive Law

1. Contentions by Respondent No. 1

97.
Respondent No. 1 contends that the substantive law applicable in these proceedings is Bulgarian law as the lex loci contractus regarding claims based on the Agreement and as the lex loci delicti commisi regarding claims based on tort.
98.
Although, there are some administrative aspects in relation with the privatization process, the Parties to the Agreement enjoy equal status. Hence, their contractual relations are governed by the Bulgarian laws on sales contracts, subsidiary by the Trade Law, the Transformation and Privatization of State and Municipal Owned Enterprises Act and the OCA (R I, paras 3.1. et seq.). For determination of the scope of liability Respondent No. 2 refers to the express agreements of the Parties on this issue as set forth in Article 11.1 of the PA and paragraph 9.1.2. of the Amendment to the PA dated 15 July 1999 (R I, para. 3.10.).

2. Contentions by Respondent No. 2

99.
Respondent No. 2 contends that all claims asserted should be evaluated in accordance with Bulgarian laws, in particular the OCA.

3. Contentions by Claimant

100.
Even though Claimant does not directly address the question of applicable substantive law, it is its view that the primary source of law is a contract concluded between the parties. In addition Claimant implicitly acknowledges that in the case at issue Bulgarian Law will serve to fill gaps not governed by the Agreement. This becomes obvious in several of its arguments. E.g. Claimant in C XI, para. 19 states:

"ii. Order Of Argument

19. [...]

Secondly: An analysis is made of Zeevi Holdings' rights to be indemnified or compensated for the value of the misrepresentations, pursuant either the provisions of the Agreement or Bulgarian law."

101.
Even though Claimant contests Respondents' legal argument under the Agreement or Bulgarian Law, it does not contest its applicability in general. This conclusion can be drawn from C XI, para 153. Claimant states:

"As detailed below, the Respondents' analysis of the law does not reflect the reality under both the Agreement or Bulgarian law. As can be expected, both of which recognize, that when misrepresentations are made, liability for this arises."

102.
In addition Claimant makes reference to European Principles of Contract Law (see C XI, paras 175-176, 209).

4. The Tribunal

103.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and the evidence:

Party Submissions:

R I paras 3.1. et seq., 3.10.

C XI paras 153, 175-176, 209

104.
Pursuant to para. 15.1 of the PA the Parties have agreed to settle any claim or dispute arising out of or in relation to this contract by arbitration to be conducted under the Rules of Arbitration of the United Nations Commission on International Trade (UNCITRAL Rules). Regarding the substantive law to be applied by the tribunal, Article 33 UNCITRAL Rules provides:

"Article 33

1. The arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute."

105.
In Section 14.1 of the PA the Parties have agreed that the PA "shall be governed by and construed in accordance with the laws Bulgaria." Therefore, concerning the merits of the case the law of the Republic of Bulgaria will be applied.
106.
Since it has not been contested by the Parties that under the law of the Republic of Bulgaria, generally and subject to mandatory provisions of the law, the terms of the parties' contract have the force of law between them, and the parties must comply with what is expressly stated in the contract the PA is the primary legal source for the Tribunal's findings.
107.
Additionally, Bulgarian Law may be applied where the PA lacks an agreement on certain issues.
108.
Furthermore, pursuant to Article 33 (3) UNCITRAL Rules "usages of trade applicable to the transaction" might be pertinent, although they are cautiously applied.

F.II. Procedural Issues

109.
As set out above the Parties have agreed to settle any claim or dispute arising out of or in relation to the PA by arbitration to be conducted under UNCITRAL Rules. The place of arbitration being Paris, France (see : para. 15.1 PA). As the UNCITRAL Rules are silent and in the absence of any express choice of law by the Parties regarding the applicable arbitration law, the express choice of Paris, France as the seat of arbitration, gives rise to the applicability of any mandatory provision of French arbitration law.
110.
Therefore, the Award will be a "French award" and thus, in so far as possible under French arbitration law, subject to review before French Courts.

G. Liability under the claims raised by Claimant

G.I. Legal Grounds and Principles regarding Liability and Compensation

1. Summary of Contentions by Claimant

a. Indemnity Clauses contained in the PA

111.
Claimant primarily relies on Articles 9.1.2 and 11.1. of the PA to entertain its claims. It is emphasized that Articles 9.1.2 and 11.1 impose general liability not confined to the issues dealt with in the two letters that form Appendix 11. If, however, an issue covered by these letters is concerned, liability shall only be borne in accordance with the latter (C II, para. 29; C X, paras 165-176). Necessity for this provision arose as the Minister of Finance's letter provides for a mechanism of how to deal with liabilities unknown at the time the Parties signed the PA (C II, para. 32).
112.
Claimant argues that even if the Respondents' assertion that Article

11.1 of the PA was null and void was correct, this fact did not render Article 9.1.2 of the PA invalid in its entirety. The latter provision encompasses two parts; the first imposes a general liability on the Respondents, whereas the second one, the part referring to Section 11.1.1, limits the obligation to provide compensation. Thus, if the second part is deemed null and void the scope of Article 9.1.2 is even broadened (C II, para. 23).

113.
A similar line of argument applies to Article 11.1 of the PA which provides for liability for misrepresentations. Such liability is subject to a qualification as it is to be borne "in accordance to Attachment 11." Claimant is of the view that reference to "Attachment 11" instead of "Appendix 11" is a mere typographical error. If it is not, however, liability imposed on Respondents under Article 11.1 is not subject to any qualification (C II, para. 24).
114.
The aforementioned reasoning therefore applies to the matter of unknown liabilities at the time the PA was signed. Claimant points out that its claims for misrepresentations do not concern such unknown liabilities. The claims rather concern known but undisclosed liabilities, missing assets and liabilities that arose only after the PA was signed (C II, para. 31).
115.
In a subsidiary argument Claimant takes the view that liability to indemnify and compensate due to the misrepresentations is also imposed on the Respondents pursuant to Articles 3.6.2 and 3.7.3 of the PA, in which the Respondents "warranted" that (Article 3.6.2):

"all the information contained in this Agreement, the Information Disclosure Letter and in the Information Memorandum is true and accurate in all material respects, is not misleading and has been ceded to the Buyer is good faith"

and (Article 3.7.3):

"there has been no material adverse change in the financial position of the Company since 31 December 1998... " (C X, paras 177 et seq.)

116.
Breach of these warranties gives rise to liability due to breach of contract. Article 79 of the OCA provides (C X, para. 178):

"If a debtor fails to perform his obligation accurately the creditor shall be entitled to claim performance plus damages for the delay, or to claim damages for non-performance".

b. Bulgarian Law

117.
Claimant contends that even if it should be found that the PA does not provide for specific liability clauses, then liability does still exist under the pertinent provisions of the OCA (C II, para. 39).
118.
Claimant derives from Article 12 of the OCA a pre-contractual obligation to accurately provide all information relevant to the other party (C II, para. 40). If this obligation is violated, the other party owes damages as determined in Article 82 of the OCA. These damages are to be indemnified in accordance with Article 82 of the OCA and encompass damages suffered and profits lost (C II, para. 42).
119.
In addition Claimant contends that Respondents are liable under fraud provisions. It refers to Article 45 of the OCA (C X, para. 180).

2. Summary of Contentions by Respondent No. 2

a. Indemnity Clauses contained in the PA

120.
Respondent No. 2's contentions regarding Article 9.1.2 and Article

11.1 of the PA may be summarized in its own words as follows (R II PA, para. 34):

"a) The clause of Article 9.1.2. refers to a non existing clause 11.1.1., i.e. it refers to no clause;

b) The clause of Article 11.1. on which the Claimant relies refers to non existing Attachment 11;

c) Even if Attachment 11 is the wrong reference to Appendix 11 (another error of the Claimant who was so concerned on the wording of the Agreement) this Appendix does not provide for limits of liability and scope of compensation, as interpreted by Claimant."

121.
According to Respondent No. 2's interpretation of Article 9.1.2 the scope of the seller's liability was to be described and qualified in clause 11.1.1. The two parts forming Article 9.1.2 are deemed inseparable. Clause 11.1.1. as referred to in the second part of Article 9.1.2., however, is non-existent. Thus, no scope of liability is defined and Article 9.1.2 is rendered meaningless. Consequently, Article 9.1.2. of the PA is null and void according to Article 26 of the OCA for lack of subject (R II PA, para. 40).
122.
Regarding Article 11.1 of the PA Respondent No. 2 notes that no "Attachment 11" exists, while "Appendix 11" that might have been meant, does not cover issues of liability (R II PA, para. 34). It consists of a letter by the Bulgarian Minister for Transportation regarding the NCS and a letter by the Minister of Finance concerning debts owed by Balkan Airlines to the state. The latter deals with unknown liabilities of the airline providing a mechanism for dealing with them but not providing for liability (R II PA, paras 45 seq.). Besides, Claimant does not allege misrepresentations in regard of such unknown liabilities. The Respondent No. 2 therefore concludes that either Article 11.1 of the PA is null and void for lack of subject or, in case the Tribunal concludes to the contrary, the Respondent's liability under this provision is limited to the subject matters of the two letters (R I, para. 3.11; R II PA, para. 44).
123.
Even if Article 9.1.2 is found to be valid, Respondent's liability is contended to be limited to the undertakings made in the letter forming Appendix 11. These undertakings, however, have been fully complied with. Therefore, any liability is denied (R II PA, paras 44 seq.).
124.
In addition, even if Article 9.1.2 and Article 11.1 should be deemed valid by the Tribunal, Respondent is in no means liable to the extent asserted by Claimant (R II PA, para. 60). The scope of indemnification owed is determined by Article 12 and Article 82 of the OCA. According to Article 12 Claimant may only be entitled to "damages" which excludes profits lost (R II PA, para. 58). Article 82 on the other hand requires:

(i) that the damages

"are direct and immediate result of the non-fulfillment" and

(ii) that it

"was possible to be foreseen at the arising of the obligation."

Respondent No. 2 contends that these requirements are not met since the alleged damages claimed could either only be suffered by third persons or were not foreseeable at the time the PA was concluded (R II PA, paras 59 seq.).

125.
Furthermore, wording of clauses 9.1.2 and 11.1 of the PA was drafted by Claimant (R II B, para. 58) who may now not rely on the wording's missing clarity to support its claim by giving the clauses a wider meaning as originally intended (R II PA, paras 43 and 49). To the opposite, the clauses' wording rather aims at limiting the scope of liability (R II PA, para. 53). Claimant is liable for those discrepancies in the wording of the PA and the clauses not expressing the Parties' mutual will should be disregarded as being null and void (R II PA, para. 37).
126.
As a consequence, liability was not negotiated between the Parties. Therefore the general provisions of Bulgarian law apply (R II PA, para. 37). Moreover, as liability is thus not a contractual issue, it does not fall within the scope of the arbitration agreement.

b. Bulgarian Law

127.
Respondent No. 2 observes that Bulgarian law, in particular the OCA, does not provide for a general obligation to compensate "damages from misrepresentation," but only for specific cases of indemnification for such damages.

(1) Pre-Contractual Liability

128.
Legal basis for liability regarding alleged bad faith conduct in course of negotiations is Article 12 of the OCA as cited by the Respondent:

"At leading the negotiations and in concluding the contract the parties must act in good faith. In the opposite case they owe compensation". (R I, para. 3.6; R II PA, para. 18)

129.
In this regard, obligations of the seller regarding the production of information were regulated by the Privatization Act. Liability under Article 12 of the OCA requires intentional production of untrue information or deliberate omission of facts essential for the other party's decision to conclude the agreement. This on the other hand requires that the defaulting party had actual knowledge of such facts. The Respondent No. 2 denies that Claimant complied with the burden of proof it bears regarding Respondent's knowledge in order to claim compensation for misrepresentations (R II PA, para. 18).
130.
Respondent No. 2 describes the term "misrepresentation" as follows. According to English legal doctrine a representation

"is a statement of fact, express or implied, anterior to the contract, which is intended to and does induce the persons to whom it was made to enter into the contract but is not at the tame [time] of its making intended as a promise […]" (R II PA, para. 20, citing R. M. Goode, Commercial Law, pp. 111 seq., see R-93).

A false representation constitutes a misrepresentation and is actionable if it occurred fraudulently. Hence, even if misrepresentations existed in the present case, they were not made in fraud or negligence and are therefore no ground for liability (R II PA, para. 21).

131.
Furthermore, damages arising in connection with misrepresentations may only justify a claim for compensation if they constitute the direct and unavoidable consequence of such misrepresentation (R II PA, para. 22).
132.
Besides, Respondent No. 2 denies that it ever undertook to bear the risk of misrepresentation, but merely explained BBA's financial condition at the time it was sold (R II PA, para. 19). Remedies available to the opposing party in case the actual financial condition of the airline transpired not to be as described are rescission and damages suffered by such rescission. Thus, Claimant may under no circumstances claim damages and losses but only rescission and the subsequently occurring damages (R II PA, para. 21).
133.
Moreover, liability under Article 12 of the OCA is to the Respondent No. 2's view pre-contractual and as such not covered by the scope of the arbitration clause as opposed to contractual liability. Therefore, the claims based on this ground should be rejected for not falling within the Tribunal's competence.
134.
Respondent No. 2 further address the issue of liability under Article 195 of the OCA. It points out that claims based on the PA as a contract on the sale of shares are subject to the provisions of Articles 193 to 197 of the OCA (R II PA, para. 23). The alleged misrepresentations are considered defects of the shares in Balkan Airlines sold to Claimant. Shares, however, are regarded as movable assets and are therefore subject to the above stated provisions of the OCA (R II PA, para. 26).
135.
As such the claims are subject to the provision of Article 197 of the OCA which imposes a time limit of 6 month for submitting these claims. Time limit has expired as the Request for Arbitration was filed a year and a half after the date of the sale (R II PA, paras 25 ff; R VI PA para. 42).
136.
Thus, Respondent No. 2 concludes that the applicable ground for liability is either contractual and as such subject to the time restrictions of Article 197 of the OCA or pre-contractual and as such not subject to the arbitration clause.
137.
By application of these provisions of the OCA analogia legis Respondent No. 2 derives further conclusions for the limitation of the seller's liability: (i) seller is not liable for defects known to the purchaser and (ii) according to Article 194 Claimant had a duty to review assets purchased and to give notice immediately to the seller in case defects were discovered. If the notice requirement is complied with, the following remedies are available to the buyer: (i) restitution and recovery of purchase price and costs of transaction; (ii) reduction of purchase price; (iii) repair of defects for account of seller or (iv) damages under the general provisions of law.
138.
Furthermore, the required knowledge of the facts underlying Respondent's possible liability is not presumed but needs to be proven by Claimant. Respondent denies any knowledge in this regard and refers to the audit report prepared by KPMG on which it relied (R II PA, para. 27).
139.
In addition, Respondent No. 2 determines that even if it should be found that Respondent is liable under the Privatization Contract for damages caused to BBA, Claimant may nonetheless not claim compensation since these damages are not attributed to Claimant (R II PA, para. 28, R VI PA, para. 27). Respondent refers to Article 15(2) of the Bulgarian CCP which, albeit integrated into the CCP, is a substantive law rule regarding the issue of liability (R I, para. 3.13.):

"Except in cases provided by the law no one may claim from its name others (sic) rights in court."

Thus, Claimant may not claim compensation for damages incurred to third persons, i.e. Balkan Airlines or Balkan Holdings. Moreover, the Tribunal may not rule on claims for damages suffered by Balkan Airlines due to lack of jurisdiction as the latter is not a party to the arbitration agreement.

140.
Further, Claimant contends that pre-contractual liability is limited to the negative interest, meaning the reimbursement of expenses incurred by relying on the contract, while under Bulgarian Law only contractual liability allows indemnification for the positive interest. (R VI para. 36 et seq.)

(2) Contractual Liability

141.
As for Claimant's argument that it can claim damages under Article 82 of the OCA Respondent No. 2 contends that Claimant has to establish the relevant facts, that is to prove:

(1) the unlawfulness of the alleged conduct,

(2) the actual damage;

(3) the existence of a causal link between that conduct and the alleged damage;

(4) the existence of a direct link of cause and effect between the unlawfulness of the conduct of the Respondent and the damage alleged, that is to say the damage must be a direct consequence of the conduct complained, and

(5) the damages that allegedly occurred and were suffered by the Claimant were not foreseeable at the time the obligations were assumed. (R VI PA, para. 22-29)

Respondent is in the view that Claimant failed to prove those prerequisites of liability under Bulgarian Law.

142.
Respondent further argues that in the case at issue liability has to be determined under the application of negligence rules - as opposed to strict liability rules, meaning that Respondents are held liable only if they failed to take due care. under Bulgarian Law The alleged misconduct of the Respondents should be estimated through the prism of Bulgarian law where liability is imposed in cases of possible negligence to the utmost.

c. Application of European Contract Law

143.
Respondent No. 2 contends that Claimant's reference to the European Contract Law Principles as a legal source for liability does not help the Claimant's case. It is reminded that the applicable substantive law to these proceedings is the Bulgarian law. Pursuant to Article 1:101 (b) of the European principles they may be applied "when the parties have not chosen any system or rules of law to govern their contract." In its views that Parties have chosen the Bulgarian legal system and the rules of its law to govern the contract. Thus, the initial determination of the governing law excludes the applicability of the European principles even on the basis of subsidiarity let alone if a conflict of rules is detected.

d. Agency

144.
Respondent No. 2 emphasizes that the notion of liability is closely related to the status of the respective party (R II PA, para. 213). In the light of the Tribunal's finding as recorded in PO No. 4 that Respondent No. 2 is a mere agent acting on behalf of Respondent No. 1, i.e. the Republic of Bulgaria, it asserts that it may not be held liable for breach of contract. The status as an agent implies that it bears no liability for breach of a contract it concluded on behalf of its principal (R II PA, paras 226 seq.). Instead, the effects of legal acts it performs arise directly for the principal by virtue of the pertinent Article 36 of the OCA. Respondent No. 2 further addresses the Claimant's request to determine joint and several liability of both Respondents for the alleged breaches of contract. Pursuant to Article 121 of the OCA which is applicable to this matter joint liability may not be presumed but arises either by virtue of law or by party agreement (R II PA, paras 229 seq.). In the present case there is no such statutory provision nor have the Parties agreed on the Respondents' joint liability. Therefore, Respondent No. 2 cannot be held liable for the alleged breaches of contract by its principal (R II PA, para. 231).

e. Nature of the claims and arbitrability

145.
Respondent No. 2 denies arbitrability of the prevailing part of the claims submitted to the Tribunal for being either non-contractual or not attributed to Claimant (R I, paras 4.2. et seq.).
146.
Several claims are investment claims as opposed to contractual claims and as such not subject to arbitration. Such claims are the claim for loss of investment, claim for breach of undertaking to maintain NCS, the alleged misrepresentation of the airline not being subsidized and the non disclosure of future government plans and change of government policy. Furthermore, Claimant is not entitled to claim the loss of investment as the drawer of the transfers of funds described as investments was not Claimant but Balkan Holdings. Likewise, Claimant would not be the beneficiary owner of the Equant Shares it claims missing and is therefore not entitled to claim compensation.
147.
Directly affected by alleged misrepresentations regarding Ansett aircraft maintenance, liabilities to employees, outstanding debt of the Bulgarian state for training pilots, debt of Balkan Airlines to ATC and additional operation and management costs was only Balkan Airlines. Claimant has an indirect interest which is, however, outside the scope of this arbitration (R I, para. 4.5.).
148.
Several claims concern rights only the airline was to benefit from, like undertakings regarding transfer of real estates and assistance with the airline's excess debt as well as undertaking with respect to Yugoslavian Railway Company. Therefore, Claimant cannot raise these issues in the arbitration either.
149.
As shareholder Claimant would not have received the airline's future profits claimed lost but only its respective share. Profits of the airline cannot be claimed in this arbitration.
150.
Claimant admits that it transferred its shares in Balkan Airlines to Balkan Holdings and ZBI. Thus, the claim regarding the inability to sell the shares to a strategic investor is not attached to Claimant.
151.
Respondent No. 2 questions the existence of "Zeevi Group" and "Zeevi Logistics". Claimant further failed to provide any evidence that the alleged public offering was planned or launched (R IV PA, para. 23). But in any way Claimant may not invoke damages allegedly incurred to these entities regarding reputation and goodwill and damages caused by failed public offering respectively.
152.
Following this argumentation Respondent's position is that despite of the ruling of the Tribunal in PO No. 4 dated 14 October 2003 regarding the competence of the Tribunal, all claims submitted by the Claimant in these proceedings should be dismissed as they fall off the scope of the arbitration agreement pursuant to Articles 20 and 21 of the UNCITRAL Rules. PO No. 4 deals with the competence of the Tribunal in general terms, however the Tribunal did not rule on the issue whether each of the separate claims stated in the Statement of claim actually falls within its competence (R III PA, para. 33). Therefore, all claims shall be dismissed.

3. Summary of Contentions by Respondent No. 1

153.
Respondent No. 1 outlines two major legal principles governing the parties' liabilities and their respective entitlement to compensation. The first is the concept of reliance damages as claimed by Claimant for its investments in Balkan Airlines. This kind of compensation means to be restored in the position in which the party would have been had it never concluded the PA. This claim, however, requires prior avoidance or rescission of the PA (R II B, para. 294). Second, the requirement of direct causality between breach of contract and damage suffered is invoked by Respondent No. 1 (R II B, para. 295). Such causal connection has to be proven by the Claimant. This principle is set forth both in Article 11.1 of the PA (R II B, para. 331) and Article 82 of the OCA (R II B, para. 332). By virtue of this principle all heads of damages too remote from the alleged breaches of contract are eliminated (R II B, para. 333). Secondly, the requirement of a causal nexus has the consequence that Claimant may only claim damages sustained to itself and not Balkan Airlines (R II B, para. 335).

4. The Tribunal

154.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and the evidence:

Party Submissions:

C II paras 23- 42

C X paras 177 et seq. (178)

R I paras 3.6, 3.11, 3.13, 4.2 et seq., 4.5

R II PA paras 18-22, 25 et seq., 36 et seq., 40 et seq., 49, 58 et seq., 213, 226-231

R III PA para. 33

R IV PA para. 23

R VI PA paras 22-29, 27

R II B paras 294 seq., 331 et seq., 335

155.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
156.
First of all, the Tribunal is not persuaded by the Respondent No. 2's objections to arbitrability. The Tribunal has already dealt with some aspects of its jurisdiction in its PO No. 4. Further it is sufficient to point out that the Tribunal will only deal with claims covered by the cited arbitration clause and the UNCITRAL Arbitration Rules that the clause refers to. The fact that the contract provided duties to invest does not make respective claims investment claims not covered by the arbitration clause as it may be in arbitrations under Bilateral Investment Treaties.
157.
Though the wording of a contract such as the PA is of primary relevance for its interpretation, the Tribunal has to take into account the intention of the Parties and that, before coming to an invalidity of a clause due to its wording, an interpretation should be examined which keeps the clause valid and is covered by the intention of the Parties. In concluding the PA and its Amendment, the Parties were obviously trying to conclude a valid agreement. Therefore, if some "sloppy" drafting leads to difficulties, the Tribunal has to examine whether nevertheless the intention of the Parties can be established.
158.
When the Parties redrafted Article 9.1.2. of the PA by the Amendment, their intention was obviously to establish a valid clause. The reference to the non-existing "Section 11.1.1." in the reworded Article 9.1.2. must therefore be interpreted to refer to Article 11.1. PA (which was not changed by the Amendment) which makes sense in the context.
159.
Further, for similar considerations, when Article 11.1. refers to the non-existing "Attachment 11", it would be against the intention of the Parties to consider this as an invalid reference. Rather, both the wording and the intention must be interpreted to refer to "Appendix 11", a reference which also makes sense in the context.
160.
Therefore, the Tribunal concludes that the PA did include an agreement by the Parties on liability. Therefore, this agreement has priority over non-mandatory provisions of Bulgarian law, particularly of the OCA, regarding the liability of the Parties under the PA. This is particularly so regarding the Seller's liability for information or misrepresentation, because that is exactly what Article 9.1.2. is dealing with. This provision is therefore interpreted to be the exclusive ruling between the Parties regarding the scope, but also the limits of Seller's liability regarding information.
161.
Thus, the next task for the Tribunal is to examine the scope of liability on which the Parties have agreed.
162.
In the first part of Article 9.1.2., the provision lists for which information Seller shall be liable ("contained in (...)"). In the second part of Article 9.1.2., the wording "provided the liability for damages in such case subject to Section 11.1.1. of the PA", taking into account that this is a reference to Article 11.1. as concluded above, can only be understood to contain a limitation of the liability established in the first part of Article 9.1.2.
163.
The next step, therefore, must be to establish which limits of liability are provided by Article 11.1.
164.
This provision expressly deals with Seller's "liability (...) resulting from misrepresentation or beach of warranty" and thus, as intended by the Parties by their reference in Article 9.1.2., indeed provides a ruling on Seller's liability regarding information.
165.
Its wording "in accordance to Attachment 11" - which, as concluded above, has to be understood as a reference to "Appendix 11" - must be interpreted as limiting the liability to the effect that only in so far as Appendix provides a list of the information by Seller, a libility of the Seller shall exist.
166.
The only exception thereto is information which the amended wording of Article 9.1.2., expressly lists and which is not mentioned in Appendix 11. Therefore, Seller is also liable for information "contained in this Agreement, the Data Room, the Disclosure Letter or the Information Memorandum", because all these are expressly mentioned in the new Article 9.1.2.
167.
Regarding the disputed issue as to whether Claimant also has to prove Respondent's negligence, a distinction has to be made between liability due to express contractual provisions and liability under Bulgarian law, particularly the OCA. While such prove of negligence may be required for the latter, the Tribunal does not have to decide this issue, because - as seen above - the Tribunal is applying not the liability provisions of the OCA, but those of the contract. Regarding the PA, in view of the express provisions establishing liability of the seller for certain information, the Tribunal concludes that Claimant only has to prove that the information was incorrect, but does not have prove that this was due to negligence of the seller.
168.
The Tribunal does not agree with Respondents' argument that they are not liable for damage which was not foreseeable at the time of the conclusion of the contractual provisions. The contractual liability provisions do not contain such a limitation, and by expressly mentioning the information for which Seller would be liable, the contract shifted the risk of such information being incorrect to the Seller who was in better control of such information than Claimant.
169.
Regarding the argument of Respondent No. 2, that in view of the Tribunal's ruling in PO No. 4, it must be considered as a mere agent of Respondent No. 1 and therefore is not liable, the Tribunal considers the following.
170.
On one hand, Respondent No. 2 is expressly mentioned in the preamble of the PA as the party to the contract ("Seller") and also has signed the PA. The considerations in PO No. 4 only concern the procedural question whether the Republic of Bulgaria is an additional Respondent and conclude that the procedure is against Respondents No. 1 and No. 2. As it is undisputed that Respondent No. 2 has, at least for civil law relations, a legal identity separate from the Republic, the considerations of PO No. 4 to the effect that the Republic is an additional party to the PA and its arbitration clause may speak in favour of considering that both Respondents are jointly and severally liable for whatever liability the contract provides for.
171.
On the other hand, however, taking into account considerations already given in PO No. 4, there can be no doubt, that although designated as a party to the PA, in the process of negotiating and signing of the PA the Privatization Agency was acting as an agent of the Republic. It was namely in this capacity Respondent No. 2 signed the PA which was later "approved" by a special Act of the Government. The separate legal identity does not make the PA a real Seller in that context. Further, although Article 121 OCA provides an option for a contractual establishment of joint liability, it requires an explicit statement of all parties assuming joint liability directed to the establishment of such type of liability. In the present case we have mere agency and there is no statement on behalf of the PA in its capacity as a separate legal entity directed towards assuming by itself any form of joint liability. On the other hand, the General Law (OCA) does not provide for joint liability in case of agency (representation). The same is true of the Special Law (the Privatization Law) which is also silent on this issue. Lastly, there are no practical or equity reasons to come to another conclusion. Under the relevant law (Article 399 of the Civil Procedure Code) in case any budgeted entity (the Agency is such an entity.) is condemned to pay a certain sum of money, this sum has to be paid from a budget credit specially provided for that purpose. If there is no such credit, it has to be provided for by the entity's higher standing authority for the next budget period (in our case by Respondent No. 1).
172.
Therefore, the Tribunal concludes that, on one hand the actions of both Repondents have to be taken into account in evaluating the conclusion and performance of the contract, because Respondent No. 2 acted on behalf and with the authorization of Respondent No. 1. But, on the other hand, should the Tribunal come to conclude a liability in its Award, only Respondent No.1 shall be liable.
173.
In this context, the Parties also disagree regarding the following issues:

1) Whether Claimant knew or should have known that certain information was incorrect and that this may exclude Seller's liability. The Tribunal considers that this issue can better be examined in the context of the further issue of causality also disputed between the Parties.

2) Whether there is causality between the incorrect information and any damage of Claimant. The Tribunal will examine this issue further when dealing with the specific claims raised and with the quantum of any liability.

3) Whether damage of third Parties is claimed by Claimant and is covered by the liability provisions. Again, the Tribunal will deal with this issue when examining specific claims raised and with the quantum of damages.

4) Finally, the Parties disagree on the scope of liability under the provisions of the PA. Again, the Tribunal will deal with this issue when examining the specific claims raised and the quantum of liability.

G.II. Due diligence and financial condition of BBA prior to its sale

1. Summary of Contentions by Claimant

174.
Claimant acknowledges that it was aware of the difficult financial situation of Balkan Airlines at the time of purchase. However, the airline

"was presented as having two most valuable assets - its status as Bulgarian's exclusive national carrier and holdings of certificates of Equant shares." (C I, para. 9).

175.
The latter were worth over USD 35,000,000 according to the KPMG Financial Analysis (C I, para. 11). Claimant points out that this representation was crucial and of fundamental importance for its decision to purchase Balkan Airlines (C I, para. 12). In this context, Claimant asserts that the draft agreement was changed and all references to Zeevi Holdings having knowledge of the information contained in the Data Room were removed and an undertaking regarding Respondent's liability in case of misrepresentations was incorporated instead (C II, para. 6). Therefore, Respondents' assertion that Claimant could have known certain facts regarding the state of the airline is irrelevant. According to the "allocation of risks" reflected in the PA "the burden of putting things right" was thus with the Respondents (C II, para. 8).
176.
Claimant further emphasizes that negotiations were subject to the deadline of 30 June 1999 set by the Bulgarian party. Due to these time restrictions it was not possible for Claimant to conduct an extensive due diligence (C I, para. 14). Instead, it had to rely entirely on the information supplied by the other side, in particular the KPMG Financial Analysis and the Disclosure Letter (C I, para. 15; C II, para. 4; see C-38 and C-39). As Claimant had to rely solely on this information, Respondents provided undertakings in the PA reassuring the correctness of the information given. In support of this contention Claimant refers, inter alia, to the following clauses of the PA (C I, para. 17):

"3.6.1 The information regarding the legal, property and financial state of the Company is objectively and exhaustingly reflected...

3.6.2 The Seller hereby warrants to the Buyer that all the information contained in this Agreement, the Information Disclosure Letter and the Information Memorandum is true and accurate in all material respects, is not misleading.

3.7.1 The accountancy reports. reflect the true financial state of the Company for the fiscal year as ended at 31 December 1998.

3.7.2 The Financial Analysis as prepared by KPMG and presented to the Buyer reflects the true state of the Company for the fiscal year as ended at 31 December 1998.

3.7.3 The Seller further warrants that there has been no material adverse change in the financial position of the Company since 31 December 1998."

177.
The Disclosure Letter (Exhibit C-39) Annexed as Appendix 1 to the PA contained similar undertakings:

"2. The accounting reports as of May 31, 1999 render complete and accurate information on the current status of Balkan.

3. The accounting reports as of May 31, 1999 render complete and accurate information on the assets and liabilities of the Company...

4. The present Disclosure Letter represents complete and accurate statement for all obligations of Balkan."

178.
A notice made by the Respondents on the date of Completion of the PA (15 July 1999) stated as follows:

"....we hereby confirm that the warranties and representations incorporated in the Agreement are true, correct, and are not misleading".

179.
Claimant invokes the witness statement by David Golan, Esq., according to which these representations have been thoroughly negotiated between the parties in order to allow Claimant to enter the contract based solely on the information provided by Respondents. (C I, para. 19)
180.
Claimant acknowledges that in hindsight it might have been easy to detect the misrepresentations. However, at the time the PA was signed, these misrepresentations were not known and detection would have required

"[conducting] a due diligence for the entire affairs regarding Balkan. This was something it [Claimant] was not capable or willing to do" (C II, para. 10).

Therefore, Respondents consented to give representations regarding the accuracy of the information.

181.
Claimant's argumentation in this regard is supported by the Witness Statement given by Mr. Golan indicating that in entering into the transaction, the Claimant did not rely on any information other than the Information Documents, and certainly not on any information allegedly found in the Information Room. (C IV, para. 59)
182.
In contrast, the Respondents failed to provide any witnesses in support of their version of events. Hence, their two arguments in this regard are unsupported by any evidence (C IV, para. 62) as established below.

a. The Claimant did NOT examine the Information Room.

183.
In contrast to Respondents' allegation on which it bases its argument, the Claimant did not examine the Information Room. This was supported by Ms. Valeva in her cross-examination and confirmed by Mrs. Docheva's witness statement in stating that Mr. Golan's visits to the Information Room were for meeting purposes only, both witnesses on behalf of the Respondents. (C IV, paras 62 et seq.)

b. The Agreement Does Not Provide that the Information Room Would Qualify the Information Documents

184.
The Respondents falsely allege, the PA provided that the Information Room would qualify the representations regarding the Information Documents. However, this argument lacks any evidence. (C IV, para. 70)
185.
The Respondents base their argument solely on Article 9.1.2 of the PA, concluding that the Seller shall only be liable if all the information contained in the Information Room is untrue or inaccurate. This interpretation is false. (C VI, paras 71 et seq.) This Article clearly does not restrict the imposition of liability to situations wherein the information contained in the "Agreement", the "Data Room", the "Disclosure Letter" and the "Information Memorandum", taken together, is found to be untrue. Instead the Article refers to each item of information separately (C IV, para. 73). This interpretation was supported by the Respondent's own expert, Mr. Neitchev.
186.
Furthermore, the Respondents' interpretation of Article 9.1.2 leads to absurd results. The Respondents' interpretation frees the Seller to make any representations in the Information Documents, true or false, without incurring any liability for this pursuant to Article 9.1.2, so long as somewhere in the Information Room some document exists from which it could be ascertained that the representations in the Information Documents were false. (C IV, para. 74)
187.
In addition, it is clear, according to the wording of Article 9.1.2 if a statement made in any of the Information Documents is "untrue" or "inaccurate", then the mere fact that an examination of the Information Room might reveal this, would not make this representation become "true" or "accurate". The Seller would, therefore, still be liable pursuant to Article 9.1.2. In any case, such representation would definitively be "misleading". It is clear, therefore, that Article 9.1.2 deals with imposition of liability and not with qualification of the warranties and representations found in Articles 3.6.1, 3.6.2, 3.7.1, 3.7.2 & 3.7.3 of the PA. (C IV, para. 75) Hence, what emerges is pursuant to Article 9.1.2 the Respondents would bear liability also (but not only) if the information in the Information Room would transpire to be untrue, even if it was not examined by the Claimant (C V, para. 13).
188.
This interpretation is further substantiated by Article 9.1.1, which provides that

"each warranty shall be interpreted individually as a separate warranty". (C IV, para. 76)

189.
Claimant's interpretation of the Article in question is additionally supported by the factual circumstances surrounding this Article's insertion. It is noted, that Bulgarian law, allows for an examination of outside sources when interpreting an Agreement. The version of the PA, which was signed on 30 June 1999, did not include any reference to the Information Room. Therefore, had the PA of 30 June 1999 not been subsequently changed, the warranties and representations regarding the

"exhaustive", "true", "accurate", "complete" and "not misleading"

nature of the Information Documents (see Articles 3.6.1, 3.6.2, 3.7.1, 3.7.2 & 3.7.3 of the PA) could not be construed as being subject to the Information Room, even according to the Respondents' point of view. Article 9.1.2 was subsequently replaced by the Amendment to the PA, signed on 15 July 1999 (Exhibit C-41) by a request made by the Claimant. Ms. Valeva has confirmed this in her crossexamination. Hence, the terminology in question cannot be understood as making the warranties and representations subject to the Information Room where this was not the case beforehand (C IV, para. 80).

190.
Therefore, the inevitable conclusion from this is that even if, assuming arguendo, there is an ambiguity in Article 9.1.2, then given that both parties knew that the Claimant did not examine the Information Room, it is impossible to interpret Article 9.1.2 as providing that the warranties and representations be subject to the Information Room. (C IV, para. 81)
191.
Unlike the Respondents, Claimant was able to produce a knowledgeable witness on this issue. Mr. Golan, in his First Witness Statement, confirmed that the purpose of revising Article 9.1.2 was to reinforce the Respondents' liability (C IV, para. 82).
192.
A review of the drafts of the PA further reinforces this conclusion. As noted above, the First Draft of the PA included an express provision qualifying the warranties and representations given to the Claimant, by the information found in the Information Room (see Article 8.1.2 of the First Draft - Exhibit C-42). According to Mr. Golan, since it was impossible for the Claimant to examine the Information Room, references to the Information Room as constituting disclosure were intentionally removed from the PA. (C IV, para. 83)
193.
Even if one takes into consideration only the language of this Article, one comes to the conclusion that the Respondents' argument in this matter lacks merit. The necessity, however, to refer to external circumstances in order to interpret this Article was even confirmed by the Respondents' own expert, Mr. Neitchev and is permitted by Bulgarian law. The result of the Respondents' failure to bring Mr. Zheliazkov to provide evidence is that Mr. Golan's testimony remains undisputed. (C V, para. 12)
194.
Ms. Valeva's testimony does not change the above conclusion (C IV, para. 85).

c. The Claimant could legitimately rely on the Information Documents

195.
Contrary to Respondents' allegation, the Claimant did not enter into the transaction without the benefit of a due diligence examination. Zeevi Holdings based its decision to enter the transaction on a very extensive and professional due diligence analyses prepared by KPMG. Therefore, it cannot be said, that the Claimant acted unreasonably when it relied on the Respondents representations, especially, since the seller was a sovereign State that agreed to be liable under the PA if any Information it provided turned out to be "untrue", "inaccurate", "incomplete", "misleading" or "provided in bad faith" (C IV, paras 91 et seq.).
196.
"In their Post Hearing Briefs, the Respondents argue for the first time that the KPMG Financial Analyses is not referred to in Article 9.1.2 of the PA and, therefore, the Respondents bear no responsibility for any untrue or misleading information it contains. One cannot but be amazed at the mere suggestion that the Respondents allegedly do not bear responsibility for false information provided by them in a report, which they represented was true. Such an argument in itself manifests the utmost bad-faith." (C V, para. 17)
197.
Claimant supports this allegation with the following arguments: The Respondents raise this argument for the first time in this late stage of the proceedings although the Company had approached them with regard to the misrepresentations much earlier. (C V, para. 18) Moreover, by raising this argument, the Respondents contradict themselves, having confirmed the accuracy of the KPMG Report (C V, para. 19). Furthermore, the accuracy and the resulting liability of the Respondents with regard to the KPMG Financial Analyses is specifically mentioned in Article 3.7.2 of the PA (C V, para. 20). Additionally, if indeed Article 9.1.2 excludes the Respondents' liability regarding the KPMG Financial Analyses, then it is not subject to qualification by the Data Room. Even if the Respondents were permitted to provide false information in the KPMG Financial Analyses, this would not affect most of Claimant's claims, since responsibility for almost none of the claims emerges from this Report (C V, para. 23).

d. The Respondents Have Not Shown that the Information Room Contained any Relevant Information

198.
Even if the Tribunal decides in the Respondents' favor on this issue, this will still not change the outcome of these proceedings. The Respondents failed to present any relevant content of the Information Room, nor gave any evidentially supported explanation as to why they failed. Therefore, this failure should be taken to mean that the Information Room did not contain any relevant information (C IV, paras 95 et seq.).
199.
This conclusion is supported by the fact that, contrary to the Respondents' allegation, they had the possibility to provide any information necessary. (C IV, para. 97)
200.
Any documents the Respondents referred to as having been in the Information Room, were not supported by any of their witnesses. (C IV, para. 98)
201.
In addition, Exhibit R-33, which the Respondents claim to be the "the list of documents provided in the Data Room" is nothing more but a list of "categories of documents". The content of this document does not specifically refer to any document allegedly contained in the Information Room. Therefore it is impossible to find out which documents actually were in the Data Room. To conclude: even if the Information Room qualified the warranties and representations given under the PA (which is denied), the Respondents have not shown that any information found in the Information Room supplemented the false representations which were given in the Information Documents. Simply because they have not shown what documents were in the Information Room. (C IV, paras 99 et seq.)

2. Summary of Contentions by Respondent No. 2

202.
Respondent No. 2 contends that Claimant knew all facts allegedly concealed from it or at least should have known them had it applied the necessary diligence in the transaction (R II PA, para. 11.). Claimant had been given the possibility to inspect all documents contained in the Data Room and was not forced by the Respondents to conduct this deal in a speedy manner (R IV PA, para. 7). Thereby, Respondent had discharged its obligation to provide accurate and exhaustive information on Balkan Airlines to the buyer (R II PA, para. 12.). The PA does by no means provide:

"direct obligation of the Respondent to verify that the information is correct" (R II PA, para. 16).

It may not be Respondent's detriment that Claimant, unlike all other bidders (R IV PA, par. 7), was allegedly unable to conduct its own due diligence but relied on the information provided by Respondent instead. Respondent No. 2 asserts that due diligence is not only normal business practice but also stipulated by law (R II PA, para. 16) It is noted that Claimant was provided the possibility for such due diligence being conducted. As a professional investor Claimant should have considered the entirety of information provided. The question now is not on what part of the information Claimant relied on for its decision to purchase Balkan Airlines but on what information it could and should have relied upon. Likewise, it is irrelevant how Claimant allegedly interpreted the facts provided but how a professional investor would have acted. Claimant was neither misled nor was any information concealed. (R II PA, paras 13 to 16). Article 9.1.2 of the PA may not be interpreted as discharging Claimant from its obligation to bring the most diligent attention to the deal.

203.
Respondent asserts that it acted diligently by hiring the internationally renowned auditor KPMG to prepare independent financial analysis of Balkan Airlines. This analysis reveals the dire financial situation of the airline together with all its assets and liabilities. Respondent No. 2 emphasizes that:

"[t]he so called "additional liabilities Zeevi Holdings is suing for" (such as the Ansett maintenance costs, employees costs etc.) were unknown to the Respondent and occurred of circumstances out of its control and rather under the control of the Claimant". (R II PA, para. 46)

This is additionally revealed by the fact that the Minister of Finance agreed to establish a mechanism for dealing with unknown liabilities as expressed in the respective letter.

204.
Furthermore, the KPMG Financial Analyses was not represented as being exhaustive, but merely represented the "true state of the company for the fiscal year ended 31 December 1998" (R IV PA, para. 10). It was neither intended to purport a due diligence according to IAS. The only reference made to the IAS in this Report was it had transferred the reports from BGL into US Dollars. (R IV PA, para. 12)
205.
In any case, Article 9.1.2 clearly states that in deciding whether a representation is given or fact disclosed, one should also take into consideration the contents of the Data Room. In contrast to that, the KPMG Report is not even mentioned in this provision (R IV PA, para. 45). Hence, the Data Room does qualify the information provided to the Claimant (R IV PA, para. 22) and the parties did not agree otherwise (R IV PA, para. 44). Mr. Golan even admitted visiting the Data Room, but decided not to examine it (R IV PA, para. 43) due to the fact that the Data Room contained too vast information (R IV PA, para. 57).
206.
Contrary to Claimant's questioning of the existence of the relevant documents in the Data Room, it shall be noted that the Respondents had provided sufficient evidence of the existence and contents of the Data Room and the fact that the Claimant had access to it. It was also confirmed by the witness testimony of Mrs. Emilia Docheva and Miss Valeva that the Data Room contained all substantial information for the activities and assets of the Company. (R IV PA, para. 57). Furthermore, the list of categories of documents found in the Data Room was not intended to purport an exhaustive enumeration of the vast number of documents contained in the Data Room, but merely provided an overview of the different topics on which documents may be found in the Data Room (R IV PA, para. 59).
207.
With respect to the meaning of Article 9.1.2 of the PA, Respondent No. 2 emphasizes that the different sources of information enumerated under this provision do not replace each other, as alleged by Claimant, but substantiate each other in adding additional information. Therefore the word "or" or the commas were used just to separate the different sources of disclosure but not to create meaning of separation of liability for each of them. (R IV PA, para. 46) As to the scope of liability resulting thereof, Respondent No. 2 submits that the representations did not refer to all of the presented information and therefore the liability of the Respondent was intentionally limited to the documents or information described in Article 9.1.2. (R IV PA, para. 48) This will of the parties is expressly stated in the contract and does therefore not need "surrounding circumstances" in order to interpret it. In such a clear case, referring to outside information is not even permitted by Bulgarian law, contrary to Claimant's allegation. (R IV PA, para. 51)
208.
To conclude, it is irrelevant whether the KPMG Report was exhaustive, since in commercial investment transactions, all parties must apply the due diligence (R IV PA, para. 30).

3. Summary of Contentions by Respondent No. 1

209.
Respondent No. 1 contends that Claimant had been expressly informed about Balkan Airlines dire financial situation prior to the purchase decision. Thus, Claimant was well aware that it was acquiring a company on the brink of bankruptcy.
210.
Respondent No. 1 describes the history of the negotiations that lead to the PA in order to further elaborate this issue. Among other state enterprises struggling for survival in the post-communist era Balkan Airlines was placed in so-called "isolation" under the Law on Financial Recovery. "Isolation" was "a moratorium on state enterprises that were effectively insolvent, by enabling the state to offer financial assistance for a time, while temporarily postponing the repayment of their long-standing debts" (R II B, para. 16). The names of the companies under "isolation" were published in the State Gazette on 23 August 1996 (R II B, para. 17). The underlying Law on Financial Recovery, however, was effective only until 30 June 1999. Thus, the Bulgarian government decided to finally privatize Balkan Airlines under the auspices of the Privatization Agency in order to prevent bankruptcy. The Privatization Agency gave all potential purchasers access to the Data Room set up in the airline's administrative building at Sofia Airport. The Data Room contained comprehensive documentary records on the past and present operations of Balkan Airlines relating to the "isolation" and program for financial recovery, status as NC, service monopoly, discounts and fly-over landing taxes, the airline's assets, employment contracts, all obligations owed and all pending court proceedings.
211.
Additionally an information memorandum and due diligence report produced by reputable independent auditor KPMG was made available to those interested in the purchase. The information provided in the KPMG reports was supplemented by the Disclosure Letter issued by the Privatization Agency.
212.
The Information Memorandum as published by KPMG on 5 March 1999 presented income statements and balance sheets for the years of 1996 to 1998. From this information it became apparent that the airline suffered losses each year since 1996. The balance sheets recorded huge liabilities. Furthermore, the Financial Analysis as produced by KPMG on 15 April 1999

"left no room for doubt about the seriousness of Balkan Airlines' financial condition" (R II B, para. 34)

and revealed the airline's weaknesses and threats. All in all, the information provided to Claimant prior to its decision to purchase expressed the magnitude of the airline's desperate financial condition. Claimant's senior management recognized this condition by determining that

"the Company's debts range between $65 million and $120 million". (R II B, para. 40).

213.
Zeevi, however, argues that it was entitled to ignore the Data Room, which is, according to Respondent No. 1, an unsustainable contention for the following reasons:

(i) Practicality - Given the volume of information relevant to an enterprise such as Balkan Airlines, and the Privatization Agency's own lack of familiarity with the airline's operations, comprehensive disclosure to potential purchasers was only possible through a data room;

(ii) Commercial practice - It is standard practice in a corporate acquisition of this magnitude for disclosures to be made both by way of a disclosure letter, and by making information available to potential purchasers in a data room; and

(iii) The terms of the parties' contract - the parties' expressly linked the Privatization Agency's liability for inaccurate and/or incomplete disclosures to the disclosures made in the Data Room, in Article 9.1.2 of the PA.

214.
Claimant has contended repeatedly during these proceedings that all references to the Data Room were removed from the PA at its request because it did not wish to rely on the disclosures made therein. However, the Bulgarian version in contrast to the English version, of the PA refers to the Information Room in Article 3.1.2.
215.
Even the English version contains reference to the Data Room in Article 9.2.1 that Zeevi itself included. Therefore, one must take into account the information disclosed to Zeevi in the Data Room. (R III B, para. 48 et seq.)
216.
Furthermore, Zeevi contends that it was entitled to rely solely on the Financial Analysis produced by KPMG. Article 9.1.2, which is the Article in question, contains no reference whatsoever to KPMG's Financial Analysis, only, among others, to the KPMG Information Memorandum and the information contained in the Data Room. (R III B, para. 52 et seq.)
217.
In this way, Zeevi obtained a right to compensation if "the information contained in […] the Data Room", but not if the Financial Analysis, was "untrue, inaccurate, incomplete, misleading or presented in bad faith". (R III B, para. 61)
218.
Accordingly, even if it were true that Zeevi chose - as it now says -"not to take a look" at the Data Room, contrary to Mr. Golan's letter dated 25 April 1999, which revealed that Claimant intended to examine the Data Room prior to making a proposal (R V B, para. 24), this does not alter the contractual relevance of disclosures made in the Data Room. Moreover, Zeevi had a period of 12 weeks to conduct a comprehensive due diligence investigation, which is not uncommon in corporate transactions of this nature. In view of that, both, Mr. Neitchev and Mr. Golan, conceded that large corporate acquisitions often involve the task of due diligence of data rooms containing vast quantities of documentation (R III B, para. 63 et seq.).
219.
Claimant contends that each source of information enumerated in Article 9.1.2 must individually be true, exhaustive, not misleading, etc. However, if each of these documents replicated the contents of the others, there would have been no reason for the Privatization Agency to provide more than any one of these information sources. (R V B, para. 29). Such an interpretation would render the reference to the Data Room in Article 9.1.2 meaningless and the Data Room itself purposeless (R V B, par. 39).

4. The Tribunal

220.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 9-12, 14 seq., 17, 19

C II paras 4, 6, 8, 10

C IV paras 59, 62 et seq., 70-76; 80 et seq.; 91 et seq.; 95 et seq.

C V paras 12 seq., 17 et seq., 23

R II PA paras 11-16; 46

R IV PA paras 7, 10, 12, 22, 30, 43 et seq., 51, 57, 59

R II B paras 16 seq., 34, 40

R III B paras 48 et seq.; 52 et seq.; 61 et seq.

R V B paras 24, 29, 39

Exhibits:

C-38 PA

C-39 Disclosure Letter

C-41 Amendment to the PA

R-33 List of Documents provided in the Data Room

221.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
222.
The PA provides quite a number of provisions according to which Respondents had to provide and Claimant could rely on information. In particular the following are relevant in the context of the various arguments put forward by the Parties:
223.
Reference to information in the PA itself, the Disclosure Letter and the KPMG's Information Memorandum are found in Article 3.6.2. PA as well as in Article 9.1.2. as re-phrased by the Amendment.
224.
Reference to the Financial Analysis prepared by KPMG is found in Article 3.7.2. Therefore there can be no doubt that Claimant could rely on that information.
225.
What remains to be examined is the relevance of the information in the Data Room which is disputed between the Parties. It may well be that, as alleged by Claimant, all references to the Data Room were deleted from the original PA before it was signed. However, it is clear that the Amendment later did include such a reference in the newly worded Article 9.1.2.
226.
Examining the wording of the new Article 9.1.2., the Tribunal notes that this provision expressly starts by saying that "Seller shall be liable" for the information mentioned thereafter including the Data Room. It does not contain any wording regarding the question as to whether and to what extent Claimant is obliged to examine this information. And even less does it contain any wording to the effect that, if information in the Data Room differs from information contained in the other sources of information mentioned (Agreement, Disclosure Letter and Information Memorandum), Claimant may not rely on such information from these other sources. The new Article 9.1.2. therefore can only be understood to provide that Respondents are liable for information not only from these other sources, but also in addition for information from the Data Room.
227.
The Tribunal does not consider it relevant whether, as disputed between the Parties, Claimant did not and could not examine in detail the information in the Data Room due to lack of time. For, as concluded above, such information in the Data Room was in any case not able to discredit information from the other sources of information mentioned in Article 9.1.2. Based on that provision of the PA, Claimant could rely on and Respondents were liable for the information in these other sources. Even if information in the Data Room would have differed from information in these other sources, the express mentioning of the specific documents of these other sources (Agreement, Disclosure Letter and Information Memorandum) gave a priority to that information over the more general information contained in the thousands of documents placed in the Data Room.
228.
In view of the clear wording of Article 9.1.2., this would not exclude any liability of Respondents also for information contained in the Data Room. But no such liability is claimed by Claimant and the Tribunal thus does not have to deal with that issue.
229.
Therefore, the Tribunal concludes that Claimant could rely on and Respondents are liable for all information included in the documents referred to in the PA as well as in the documents expressly referred to in such documents irrespective of what the Data Room contained. In particular, this liability includes information in :

1) the PA itself;

2) the Disclosure Letter;

3) KPMG's Information Memorandum;

4) KPMG's Financial Analysis.

230.
The question whether and to which extent, as alleged by Claimant, Respondents breached their obligations under this liability will be examined by the Tribunal at a later stage in the context of the specific claims raised.

G.III. The Relief Sought by Claimant under Alternative 1

1. The National Carrier Status

a. Summary of Contentions by Claimant

231.
Scope and alleged breach of undertaking regarding the NCS of BBA are outlined by Claimant as follows (C I, paras 27 and 28):

"Clause 3.9.2 of the Agreement (Exhibit "C/35") provided as follows with regard to the Company's status as exclusive national carrier:

"The Company has been designated as Bulgarian exclusive national carrier in all bilateral agreements to which the Republic of Bulgaria is a party, and enjoys all rights and privileges attaching to such designated status.

This status of the Company as Bulgarian carrier will be maintained for at least 12 (twelve) years...

The Seller hereby warrants that the acquisition of the Shares pursuant to this Agreement shall not adversely affect such exclusive national carrier status and the enjoyment by the Company or the Buyer of the rights attaching thereto or deriving therefrom".

Clause 5.1.3 of the Agreement additionally provided that:

"the intention of the Buyer being to maintain the Company as the leading provider of aviation services within and from Bulgaria and as the Bulgarian exclusive national carrier, the Buyer having received confirmation from the Bulgarian Government in the form of a letter from the Minister of Transportation (Attachment No 11) that: a) as of the time of entering into new intergovernmental treaties Balkan Airlines shall be entitled to the right of first refusal to be appointed as a carrier of the national flag if this is in compliance with the negotiated clauses of the specific treaty for air communications, and that it can rely on the Government's support when carrying out such duties...".

These commitments also appeared in the Bulgarian Minister of Transportation's letter annexed as Appendix 11 of the Agreement, which stated:

"The Minister of Transport undertakes for the next 12 years to preserve the status of "Balkan Airlines" AD as per the intergovernmental treaties, under which it was appointed as a carrier — bearer of the national flag..."

English translations of the letter from the Bulgarian Minister of Transportation and the letter from the Bulgarian Minister of Finance, both dated 22nd June 1999 and annexed as Appendix 11 to the Agreement, are attached as Exhibits "C/46A", "C/46B".

These undertakings were reconfirmed by the representation in paragraph 3 of the chapter of the Disclosure Letter (Exhibit "C/39") dealing with Commercial Relations of the Company, which provided:

"No approval or consent of a third party is needed and no agreement exists, on which grounds the manner or the scope of activity of Balkan Airlines EAD can be restricted, except for the limitations provided for in the Law on the Financial Recuperation of State-Owned Enterprises and Art. 21 of the Law on Privatization."

ii. The Breach Of The Undertaking

The undertaking regarding the exclusive national carrier status of the Company were breached, inter-alia, in the following respects:

a. Company flights to Iran, Lebanon and Syria were cancelled following change of control over Balkan pursuant to the Agreement. The Respondents took no steps to remedy these cancellations.

See correspondence attached as Exhibit "C/47".

b. Rather than remedying the situation, the Bulgarian Government appointed Balkan's competitor, Hemus Air (which at the time was controlled by the Government), to be the designated carrier to destinations where Balkan was forced to stop flying to. No compensation from the Government, or payment from Hemus were offered to the Company as a result of this.

See for example the Company's Marketing and Sales Department's letter dated 16th September 1999, attached as Exhibit "C/48".

c. Queries were raised by Holland, Cyprus, Morocco, Algeria and Tunis, regarding change of control over the Company pursuant to the Agreement. These countries also threatened to cancel the Company's flights to them. The Respondents took no steps to remove these threats or to make them unattainable.

See correspondence attached as Exhibit "C/47".

d. The inability to fly over Iranian airspace, prevented or hardened flights to destinations such as Colombo, Bangkok and Mali. The Respondents took no steps to remedy these difficulties.

See correspondence attached as Exhibit "C/47".

e. The change of control over the Company threatened noncompliance with Council Regulation (EEC) 2407/92. The Respondents took no steps to remedy the difficulty which arose therefrom.

The minutes of a discussion relating to the Company's noncompliance with Council Regulation (EEC) 2407/92 is attached as Exhibit "C/49".

f. The Bulgarian Government appointed Hemus Air as national carrier to destinations Balkan ceased to fly to due to economical and commercial reasons, without compensating Balkan or alternatively obligating Hemus Air to do so, although the right to fly to these destinations belonged to Balkan.

g. The Company was denied privileges and benefits which it had been granted for years prior to its privatization and which were associated with its being Bulgaria's national carrier (reduced aviation fees; operation of various facilities at the airport; etc)."

232.
Claimant contends that according to the definition of "national carrier" as set forth in the Law on Civil Aviation of 1998 the aviation operator being awarded the NCS does not need to be of Bulgarian nationality (C II, paras 100 et seq.).
233.
If indeed the immediate consequence of the shift of the airline's ownership to a foreign entity was the loss of the NCS, the mere sale of BBA would already constitute a breach of the undertaking made in the sales contract (C II, para. 103). The latter was expressly required by Claimant in the negotiations and crucial for its decision to enter into the PA (C II, para. 104). In addition, the NCS is associated with various other privileges (C II, para. 114).
234.
The State of Bulgaria may not be excused for alleged impossibility to comply with undertaking to maintain BBA's NCS in international relations. Even if impossibility was assumed, this only meant that Respondents' primary obligation under the PA was replaced by a secondary obligation to compensate for damages (C II, para. 108).
235.
It is emphasized by Claimant that BAA fulfilled the technical requirements for being an "aviation operator" as set forth by Article 3.9.2 of the PA at all times until it went bankrupt (C II, para. 101).
236.
Additionally, Respondents may not argue that designation of Hemus Air as NC for destinations not serviced by BBA did not constitute a breach. Prior to its privatization BBA had also retained NCS for 31 destinations it was not actually flying (C II, para. 112).
237.
It shall be noted at this point, that the Company's status as Bulgaria's "exclusive national flag carrier" was undisputedly Balkan Airline's most intangible asset. Without this feature, Zeevi would not have purchased Balkan. (C IV, para. 103)
238.
Zeevi was to invest substantial amounts of money into the Company; in return, the Company's status would be maintained for at least 12 years in accordance with Article 3.9.2 of the PA (C IV, paras 106 et seq.). This warranty was meant to ensure that the change of control over the Company would not change its NCS and the rights attached thereto (C IV, para. 109). Unfortunately, the Respondents breached this agreement.
239.
As noted above, after the privatization, Iran, Lebanon and Syria were displeased by the transfer of 75% of the shares of the Company to Israeli-owned corporations, and therefore terminated the Company's flights to these countries. (C IV, para. 112) The Respondents already knew before (as of 6 July 1999) the completion of the PA that the Company could not fly to Iran and Lebanon, as shown in Exhibit B-38. Concealment of such vital information from the Claimant cannot be described as anything but serious fraud and deceit (C IV, paras 113 et seq.).
240.
According to the Respondents, Mrs. Docheva testified that the reason for Iran's cancellation of BBA's NCS was that the

"Company had not serviced its obligations to the Iranian Aviation Authority".

However, there is no mention of this fact in Mrs. Docheva's witness statement. The letter from the Iranian Government to the Bulgarian Deputy Minister of Transport dated 25 October 1999 confirms the opposite.(C V, para. 26)

241.
In addition, some time before Completion - while undertaking to the Claimant that the Company's NCS will be preserved - the Bulgarian Government operated to designate another NC to Lebanon, instead of Balkan. As appears from Mr. Garabedian's letter of 14 July 1999, this in fact did take place, with Hemus Air replacing Balkan as NC in Lebanon before Completion (C IV, para. 116). Since Article 3.9.2 guarantees the Company as being the exclusive NC in all bilateral agreements, this clearly constituted a breach of said article. With that behavior, Respondents are further in breach of Articles 9.1.1, 5.4.2 and 3.7.3 of the PA (C IV, para. 118). Even after Completion of the PA, the Respondents took active steps to conceal the letters from the Claimant and eventually from the Honourable Tribunal (C IV, para. 119).
242.
The Respondents argue that they were not liable towards the Claimant under Article 3.9.2 of the PA, in situations where the NCS was cancelled by third-party states. This narrow misinterpretation of Article 3.9.2 is unacceptable for reasons set out in detail in sections 105-111 of the Claimant's Response Brief. In addition to this, the following is noted: (C IV, para. 122)
243.
This narrow interpretation is certainly not applicable in this case, since the Respondents concealed this fact from the Claimant prior to the completion of the PA (C IV, para. 123). Moreover, this interpretation narrows Article 3.9.2 to a mere undertaking that the Minister of Transport itself would not remove the NCS from the Company. Clearly, no investor would have entered into the transaction based on such feeble protection of the Company's most important intangible asset (C IV, para. 124). Furthermore, the Respondents' argument that they cannot be liable for the actions of third-party states beyond their control is irrelevant. If the Respondents could not provide such a firm undertaking, because it was not solely in their control, then they should not have given this commitment (C IV, para. 125).
244.
The Bulgarian Government appointed Hemus Air as NC to destinations Balkan ceased to fly to due to economical reasons. This was done without any compensation to Balkan for the value of these lines. Taking these lines without compensation, where an undertaking exists that the NCS will be preserved with respect of all conventions, irrespective of whether these lines were used or not, constituted, therefore, a breach of the undertaking. The Respondents' argument that since Balkan did not fly to these destinations, they were forced to find replacements is false. Indeed, prior to the privatization, the Company was designated as the NC in 81 bilateral agreements, but was servicing only 44 of them. (C IV, paras 126 et seq.)
245.
The Ministry of Finance's letter (Exhibit C-46A) only obliged Claimant to continue all activities characteristic for the company (C IV, para. 133), not to continue flying to all destinations.
246.
Same applies to Article 4.1.8 of the PA. It only obliged Claimant to manage the company in a manner which is consistent with the performance of its rights and obligations as NC, not to fly to all destinations. (C IV, para. 134)
247.
Forcing Claimant to continue operating loss-making lines is economically absurd especially with regard to the financial situation, the Company found itself in. (C IV, paras 135 et seq.)
248.
The Respondents' claim that Claimant knew, prior to completion of the contract, of the possible substitutions, since this knowledge was reflected in Claimant's Draft Prospectus. This argument is false, because the Draft Prospectus was dated March 2000, i.e. after the completion of the Agreement.
249.
Furthermore, Claimant alleges, the Respondents did not take any reasonable steps to preserve Balkan's NCS. What the Respondents referred to as "extensive efforts to reverse that cancellation, and in respect of Libya those efforts were successful" consisted of a total of only seven letters (with respect of four states), written over a eighteen month period. With respect to Iran, The Respondents disclosed (Exhibit B-38) only four diplomatic letters. None of these letters contained any demand by the Respondents against Iran concerning the cancellation of the NCS from Balkan (C IV, para. 141). The "diplomatic efforts" with respect to Libya are expressed in a single letter, dated 2 June 2000 (C IV, para. 144). With regard to Syria, the Respondents have not shown that even one letter was written to this country (C IV, para. 143). The Respondents' "success" in Lebanon was that from then on, not Balkan Airlines, but Hemus Air was appointed NC to that country (C IV, para. 142). Clearly, the diplomatic steps allegedly taken were not serious ones (C IV, para. 145).
250.
In this regard, Claimant suggests, the simplest thing the Government of Bulgaria could have done to ensure BBA's NCS for example with regard to Lebanon, was to apply the same measures towards the Lebanese NC, which would even have been in accordance with Article 7 (1) of the Bulgarian-Lebanon bi-lateral agreement.
251.
The Respondents argue that the Republic's "express international obligation to meet the anticipated requirements of traffic from or to Bulgaria" required it to designate Hemus Air as Bulgaria's NC to Lebanon instead of Balkan. The Respondents' argument is totally unacceptable. On the one hand, the Respondents argue that Lebanon's cancellation of Balkan's designation as NC was in breach of its international obligation. On the other hand, the Respondents argue that in order to comply with the obligation imposed pursuant to the Air Services Agreement with Lebanon, they were obliged to designate Hemus Air as the NC to Lebanon. This in effect means, that the Respondents' interpretation of the ASA with Lebanon is that each time Lebanon breaches this agreement, the Republic of Bulgaria is under an obligation to take steps to remedy Lebanon's breach. (C V, para. 29)
252.
The Respondents concentrate their arguments mainly on attempting to down play the damages and losses these misrepresentations and breaches caused. In response to that Claimant notes: Zeevi Holdings would not have entered into the PA knowing that several of the Company's destinations were cancelled prior to Completion of the PA. However, by entering into the transaction, it lost the USD 23,150,000 that it transferred directly into the Company (C IV, para. 149). Indisputably, the NCS was the Company's most valuable intangible asset. Zeevi Holdings entered the transaction based on an undertaking that this status would be preserved for a period of twelve years. Clearly, without a Governmental undertaking to preserve the Company's NCS, the value of this asset significantly decreased (C IV, para. 150). The loss of the lines to Iran, Lebanon and Syria was significant. Indeed, had the line to Lebanon not been profitable then Hemus Air would not have volunteered to take it. Furthermore, if the lines were unimportant, then why did the Respondents choose to conceal from the Claimant the fact that they were lost prior to completion? (C IV, para. 151) The loss of these lines affected the feasibility other destinations, such as Bangkok, Mali and Colombo (C IV, para. 152). The fact that lines to which the Company did not fly were transferred to Hemus Air with no compensation further damaged the Company (C IV, para. 153). Furthermore, contrary to Respondents' allegation, Mr. Golan did not mention Iran, Syria or Lebanon when referring to the destinations, to which BBA did not fly due to economical reasons. In fact, he stated, that these were potentially profitable lines. (C V, para. 31)
253.
Pursuant to the warranties in Article 3.9.2 of the PA the Company should have continued to enjoy the privileges associated with the NCS also after completion of the PA (C IV, para. 155). The fact that according to the Respondents the said privileges were not set forth in regulations does not mean that they did not exist. (C IV, para. 157) Contrary to the Respondents' allegation, Mr. Frank did not concede that it was not in the business of providing fuel to other airlines, as one of these privileges. He only stated that BBA was not selling fuel, which is different from the right to sell the service of providing fuel, which is part of the privileges associated with the NCS. (C V, para. 34)
254.
In contrast to Respondents' allegation, Article 4.1.8 of the PA refers to Balkan as

"national flag bearer and as manger or operator of Bulgarian airports".

This is also supported by the Minister of Transport's letter (Exhibit C-46A). (C IV, para. 158)

255.
Respondents' argument that the Claimant did not protest against any unjust removal of privileges is false, as Mr. Golan's letter dated 14 February 2000 proves.

b. Summary of Contentions by Respondent No. 1

256.
The designation is described as a unilateral act of state whereby the respective air carrier is given permission to conduct scheduled flights to and from foreign states that have concluded a bilateral ASA with the State of Bulgaria (R II B, para. 136).
257.
Several ASAs required substantial ownership and effective control of the airline to be vested in nationals of the contracting state. This requirement is commonplace and part of the standard terms recommended by ICAO. Besides, this requirement (i) did not give rise to any problems for Claimant (R II B, paras 148 et seq.) and (ii) was fulfilled when Claimant transferred 26 per cent of BBA's shares to its wholly-controlled Bulgarian company ZBIA (R II B, para. 159).
258.
Respondent No. 1 emphasizes that it maintained BBA's designation as NC until all operations ceased and bankruptcy proceedings had been initiated in March 2001 (R II B, paras 135 and 142, R VIII V, para.148) and thereby fulfilled its contractual obligation. Balkan's NCS was even preserved until November 2002 (R V B, para. 34).
259.
It is noted by Respondent No. 1 that it could not and in fact did not underwrite the continuous observance by foreign states of BBA's status. It may not be held liable for any alleged refusal of a foreign state to recognize the airline's designation. As a fundamental rule of international law responsibility of a state is engaged only by acts that are attributable to this state. Sovereign acts of foreign states, however, are not attributable to the Republic of Bulgaria (R II B, para. 146; R VIII B, para. 157) as conceded by Mr. Golan (R III B, para.75). Therefore, the Republic warranted Balkan's rights as NC insofar as such rights were within its own sphere of control (R V B, para. 37). Besides, the overwhelming majority of states respected BBA's continued designation (R II B, para. 147). Joint efforts by Bulgarian Authorities and Balkan Airlines succeeded in convincing Libya, which had denied its recognition as NC to withdraw that denial (R III B, para. 75). Those states that did not - Syria, Lebanon and Iran - did so for arbitrary reasons and despite rather than because of the terms of the respective ASA and the steps taken by Bulgarian officials (R II B, paras 151 et seq.). The aforementioned states that refused continuous recognition of BBA's status were minor and unprofitable destinations as confirmed by Mr. Golan. Moreover, due to Speedwing's recommendation to focus on mostly Western European destinations lead Balkan to voluntarily reduce its routes (R III B, para. 77; R VIII B, paras 152-154, Vienna Transcript, at 1234:1-16 (Mr Harlev).).
260.
Regarding the destinations that were not serviced by BBA anymore, Bulgarian law and the ASAs permit and require designation of another airline as NC (R II B, para. 158).
261.
To conclude, Respondent submits, under Article 3.9.2 of the PA Zeevi was promised that Balkan Airlines' NCS would be maintained insofar as Zeevi was prepared and able to service - and service adequately - a relevant ASA of the Republic.
262.
The rights attached to the NCS are only those set forth in the ASAs and do not encompass the benefits asserted by Claimant (R II B, paras 166 et seq.). Zeevi relies principally on Mr. Frank's personal opinion, to the effect that national airlines "customarily" enjoy the exclusive right to provide ground handling and refueling in their home airports. On cross-examination however, he conceded that these allegations have no contractual basis and that Balkan Airlines was not in the business of providing fuel to other airlines (R III B, para. 48).

c. Summary of Contentions by Respondent No. 2

263.
The Respondent No. 2 summarizes its contentions on this issue as follows (R I, p. 30, before 5.3):

"The claim for breach of undertaking to preserve the Company as national air carrier is unfounded and lacking of proof. No breach of such undertaking was committed. The Respondent had undertaken only for its or for the respective state authorities behavior (for avoidance of misinterpretation on behalf of the Claimant the last undertaking is made directly by the Minister of Transportation) and under one very clear condition - that the Company will meet any necessary by law requirements to be such carrier. Therefore the Respondent and/or the State of Bulgaria may not be liable for actions of other independent states. The Respondent also is not liable under the Privatization agreement for changes in internal or international legislation that may influence on this status as this is a trade contract and does not involve undertakings of a state to procure policy affecting its sovereignty. Further the Claimant did not present any consistent or sufficient evidence of breach of this undertaking and as a result could not prove the amount of the damages or losses of future profits such alleged breach would cause. In the last instance it is not Claimant's right to claim damages or losses of future profits as these could be suffered just by the Company being the exclusive national carrier and not directly by the Claimant."

264.
Respondent No. 2 emphasizes that the status as NC is subject to various bilateral treaties with other states. Such status is not "general" i.e. there is not a general legal definition of National Air Carrier or this status do not necessarily apply to all destinations to which an air company from a specific state perform flights. Therefore, theoretically if there are 90 bilateral treaties there could be 90 different National Air Carriers, if there are 90 different aviation companies. (R IV PA, para. 61) The Agreement does not refer to BBA as being the exclusive NC (R IV PA, para. 62). Thus, it is not the Republic of Bulgaria's sole decision to grant or revoke this status. These bilateral treaties provided for the option for the contracting state to withdraw its consent in case the airline designated as NC was not majority owned by a local, i.e. Bulgarian, entity (R II PA, paras 119 seq.). Even if the respective treaty did not provide for the requirement of at least 51 per cent national shareholding, any state can renounce such treaty by its sovereign decision (R II PA, para. 126). Respondent No. 2 argues that it may not be held liable for such acts exceeding its power of control as acts of independent states. In the same vein, Respondent No. 2 asserts that the undertakings made in the PA could not have referred to such acts (R II PA, paras 120 et seq.).
265.
Furthermore, as these treaties became part of the internal legislation they limit the undertaking made by Respondent No. 2 as expressed by the Minister of Transport in his letter to Claimant where it was determined that BBA's status as NC should be preserved

"under the condition that it meets the requirements for Bulgarian aviation operator contained in the respective laws and secondary legislation." (R II PA, para. 128; see C-46A).

266.
Moreover, it does not constitute a breach if the NCS is designated to another airline in respect to those destinations not serviced by BBA anymore (R II PA, para. 131). In fact, Respondent No. 2 asserts that the Company kept its NCS, even in respect of the routs no longer operated by it, until its aviation operation license was revoked following Balkan's bankruptcy (R III PA, para. 157). In this respect, Claimant misuses the term "completion" of the contract in conjunction with the warranties given.

"A party (in this case the Respondent) when making a warranty is considering the facts existing and/or known to it at the date of making such warranty. Unless it [the warranty] refers to something dependant on the respective party, the warranty may not be deemed to be valid in the future also, as the party is not supposed to know what will happen in the future. Therefore the date of "completion" and events occurring after signing of the contract and before date of completion are irrelevant when speaking of representations and warranties as they are given at certain point of the time". (R IV PA, para. 68)

267.
Furthermore, it transpired from the witness statements of Mr. Frank and Mr. Golan that the destinations in question were not so valuable and important to the Company at all.
268.
Moreover, according to Mrs. Docheva's witness statement the reasons for stopping the flights of Balkan Airlines to Iran do not lay in the change of ownership of the company but in the fact that the Company had not serviced its obligations to the Iranian Aviation Authority (R III PA, para. 157).
269.
Contrary to Claimant's allegation, the Respondents did take active steps to overcome the difficulties of BBA to fly to Libya, Iran, Syria and Lebanon. The measure proposed by Claimant, to act in reciprocity to these states, would only have deepened the controversy with the respective states. (R IV PA, para. 77) Furthermore, contrary to Mr. Golan's statement, the Company continued to fly over Iran, which is proven from the written evidence presented. The speculation of Mr. Golan that the Company was trying to renew the Colombo, Bangkok and Male destinations but was stopped just from the problems with Iran is totally unsupported. (R IV PA, para. 80)
270.
As to the lines to which Hemus Air was appointed NC due to the fact that BBA had ceased to operate these routs because of economical reasons, Respondent No. 2 states the following:

"The text of the Contract - Article 4.1.8 expressly provides that the Claimant is obliged to operate the company as national air carrier. As this status is not general but relative - to each separate bilateral aviation treaty, this means that ceasing of flights on each such destination where Balkan was the designated carrier is breach of Article 4.1.8. Therefore the Claimant may not now demand specific compensation as it was not granted the "monopoly" to fly to certain destinations."

271.
Respondent rejects the view that the mere status as NC is associated with further benefits (R II PA, paras 132 and 135). As demonstrated, the status of NC is the status as provided in the respective bi-lateral intergovernmental treaties, none of which specifies that the NC will have additional rights (R IV PA, para. 18).

d. The Tribunal

272.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and evidence:

Party Submissions:

C I paras 27 seq.

C II paras 100-114

C IV paras 116-127, 133 et seq., 141-145, 149-153, 155, 157

C V paras 26, 29, 31, 34

R II B paras 135 seq., 142; 148 et seq., 151 et seq., 157 et seq., 166 et seq.

R III B paras 48, 75, 77

R V B paras 34, 37

R VIII B paras 152-154

R I at page 30, before para. 5.3

R II PA paras 119 et seq., 126, 128, 131 seq., 135

R III PA para. 157

R IV PA paras 18, 61 seq., 68, 77, 80

Exhibits:

C-35 PA

C-39 Disclosure Letter

C-46A Appendix 11 to the PA, English translation of the letter from Bulgarian Minister of Transportation of 22 June 1999

C-46B Appendix 11 to the PA, English translation of the letter from Bulgarian Minister of Finance of 22 June 1999

C-47 Letters relating to cancellation of overflight/landing rights

C-48 letter of Company's Merketing and Sales Department of 16 September 1999

C-49 minutes of a discussion concerning Company's non-compliance with Council Regulation (EEC) 2407/92

R-B 38 diplomatic letters

Hearings:

Mr. Harlev Vienna Transcript at p. 1234: 1-16

273.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
274.
On one hand, there is no doubt that the NCS generally is of vital importance for an airline since it assures the airline rights and overflight rights via international treaties. It is not necessary that the NC makes use of all its rights, e.g. that it flies to all destinations to which it has access. If an airline loses its NCS, it cannot collect royalties. Even though it may be difficult to quantify the damages resulting from the loss of the NCS, the NCS is a valuable asset. The Tribunal has no doubt that Claimant would never have bought the Airline, if it had not been assured the NCS.
275.
On the other hand, it has to be taken into account that landing and over-flight rights were revoked by third parties, namely Libya, Iran, Syria and Lebanon, being sovereign states. This was beyond the control of Respondents. Further, in Bulgarian law, there are two different regimes: one is that of a mere contractual obligation and the other is that of a guarantee. It may be argued that the landing and over-flying rights were an obligation but not a guarantee.
276.
Be that as it may, it is undisputed that the NCS was expressly assured by Respondent's according to para. 3.9.2 for "all bilateral agreements to which the Republic of Bulgaria is a party" and that both that provision and in Appendix 11 of the PA the Respondent No. 1, by its Minister of Transport, assured that status for subsequent 12 years. These express provisions show that the NCS was of primary relevance for the contract and particularly for Claimant. It also shows, since it was clear for the Parties that bilateral treaties gave the opportunity for third states to revoke the NCS, that nevertheless Respondent was ready to accept a contractual obligation in this regard and thereby allocated the risk of revocation in the sphere of Respondent. It may be added that, in view of the frequent relevance of the NCS, such a situation and legal construction is quite common to aviation related contracts and arbitrations.
277.
Therefore, since the assurance was given for "all bilateral agreements" and since it is undisputed that up to three States did revoke the NCS, it is clear for the Tribunal that Respondents that this leads to a liability in this regard.
278.
Whether any damage has been shown to have been caused by this breach and, in the affirmative, what is the quantum, will be examined by the Tribunal at a later stage in this Award.

2. The Equant Shares

a. Summary of Contentions by Claimant

279.
There is no dispute that the Company's entitlement to the Equant N.V Shares (the "Equant Shares" or the "SITA Shares" or "Shares"), was the most valuable tangible asset the Company possessed, which was crucial to the Claimant in contemplating to purchase the Company and rehabilitate it (C IV, para. 161). This was confirmed not only by Mrs. Docheva in her cross-examination and by internal documents of the Claimant, but also by Respondents' own expert (C IV, paras 163 et seq.). Claimant submits that the Respondents knew well that the Claimant was relying on these Equant Shares in its planned acquisition of the Company (C IV, para. 166). The representations given by the Respondents with respect to the Company's entitlement to the Equant Shares were found after the Privatization to be untrue in a number of most material aspects (C IV, para. 168).
280.
Scope of representations and alleged misrepresentations regarding the Equant Shares are outlined by Claimant as follows (C I, paras 31 and 32):

"i. The Scope Of The Representation

31. Page 39 of the KPMG Financial Analyses (Exhibit "C/38") stated as follows with regard to the Company's entitlement to Equant N.V Shares (the "Equant Shares" or the "Shares"):

"Balkan Bulgarian Airlines' participation in SITA gave it entitlement to a relevant number of certificates, being 26,322, as at December 1998. Each certificate in Equant is convertible to shares at the ratio 1 certificate: 20 shares. Half of the shares have a restriction on sale until July 2000".

See also page 6 and Note 6 at page 37 of the KPMG Financial Analysis, which set out the value of the Company's holdings of Equant shares at USD 35,699,000.

ii. The Scope Of The Misrepresentation

32. The representation was found to be untrue in the following respects:

a. The Company possessed only 320,379 Equant Shares as opposed to 408,448 Equant Shares, a shortfall of 88,069 Equant Shares.

b. A restriction applied on the sale of all the Equant Shares the Company possessed, until December 1999.

c. In December 1999, the Company was permitted: i) to sell only one third of the Shares it possessed; ii) to carry out the sale at below the quoted price of the Shares on the New York Stock Exchange (USD 87.4663 per Share as opposed to USD 112 per Share)".

281.
The fact that the number of Equant Shares the Company was entitled to was only provisional was not revealed to the Claimant. This, even according to the Minister of Finance himself, in his letter dated 2 August 2000, constituted an "(…) insufficiently thorough description of the nature and essence of the participation of Balkan Airlines Joint-Stock Company in SITA" (C IV, para. 173). Even the SITA Foundation informed its members that its statements referred to a provisional number of shares; therefore, it is inconceivable that the Respondents should not have done the same when making representations to third parties (C IV, para. 175). Claimant asserts that the KPMG Financial Analysis disclosed that

"the number [of shares] will be adjusted after an allocation of Equant Shares currently held by GETS."

This adjustment, however, is unrelated to the adjustment that caused the shortfall of 88,069 shares between the number of shares represented in the Financial Analysis and the number of shares actually possessed by BBA at the time the PA was signed. Mr. Neitchev's cross-examination demonstrated the insufficient manner by which this matter [the fact that the number of shares was only provisional] found its expression in the KPMG Financial Analysis (C IV, para. 176).

"The fact that the Respondents need to rely on sources outside of the KPMG Financial Analyses in order to explain what was the Company's true entitlement to the Shares, is best proof that in itself the KPMG Financial Analyses did not provide a true description of this entitlement (C V, para. 35)."

Further, according to the Respondents, the KPMG Financial Analyses represented the situation of the shares as of the date of its preparation. However, Claimant submits that the adjustment had already taken place before that date. (C V, para. 36)

282.
BBA held shares in GETS - a company in liquidation - and was supposed to receive half of the liquidation dividend by way of Equant Shares. (C II, para. 116) In regard to this matter, the Republic and the Privatization Agency (not for the first time) contradict each other in their factual arguments. (C IV, para. 176)
283.
Respondents' reliance on documents in the Data Room in regard to an anticipated adjustment of the number of shares is to be rejected for the reasons put forth before, i.e. that the parties agreed that Claimant would not be held to know the contents of the Data Room (C II, para. 119). To the contrary, the expected adjustment was not disclosed in the KPMG Financial Analysis and the warrant given under Article 3.7.3 of the PA that

"there has been no material adverse change in the financial position of the Company since 31 December 1998"

has been violated (C II, paras 122 et seq.). Furthermore, neither did the Respondents prove the existence of any such information contained in the Data Room, nor any of the witnesses presented by the Respondents had any personal knowledge about this (C IV, para. 177). Even an examination of the KPMG Financial Analyses and the document allegedly containing any information regarding this issue does not reveal that an adjustment to the number of shares was due to take place (C IV, para. 179). From the Financial Analysis itself it can be derived that in February 1999 117,992 shares were sold, whereas the Respondents purport that the decrease in the number of Equant Shares held by BBA was due to the "rules governing the administration of the Shares" (see C II, para. 127). In the end, it is irrelevant why the decrease occurred. Crucial is that the representation regarding the number of shares held by BBA was not true at the time the PA was signed (C II, para. 128).

284.
Claimant further addresses the issue of restrictions that applied to the sale of Equant Shares. As noted above, according to the KPMG Financial Analysis, only half of the SITA Shares were subject to sale restrictions. This statement was false, since restrictions applied to all shares, because the SITA Foundation had the sole discretion with respect to how and when the sales could be effected, even after July 2000. (C IV, paras 199 et seq.). Even according to the Respondents themselves, SITA's discretion emerged not from the Financial Analyses, but from "other sources" (C IV, para. 204) contained in the Data Room. A fact, which has not been proven by the Respondents (C IV, para. 207). BBA was only granted permission to sell about one third of its Equant Shares. Claimant was forced to pledge the remaining shares to affiliated companies in order to acquire further funds for BBA instead of selling the shares at a higher price on the stock exchange. It is clear from the above, that the KPMG Financial Analyses provided untrue information in the manner by which it valued the Shares, in a way which completely ignored the fact that the Company, selling the Shares through SITA, could not raise from these Shares their market price on the stock exchange (C IV, para. 212). Hence, restrictions applied even after December 1999 (C II, paras 129 et seq.).
285.
Claimant submits that it could reasonably rely on the KPMG Financial Analysis as a source regarding the Company's rights to the shares. In contrast to the Respondents attempt to down play its importance, this 102 page comprehensive document went into the smallest details in the Company's operation, was titled "Balkan Bulgarians Airlines EAD Due Diligence" and was prepared in view of being presented to potential investors and was warranted to be true and accurate (C IV, paras 215 et seq.).
286.
Claimant further asserts that the shortfall of Equant Shares constituted a material adverse change in the sense of Article 3.7.3 and therefore required disclosure. This requirement was confirmed by Respondents' own expert, Mr. Neitchev in his cross-examination and reinforced by warranties expressed under Articles 5.4.2 and 9.1.1 of the PA (C IV, paras 185 et seq.).
287.
The Respondents' argument that they had no knowledge about any adjustment of the numbers of shares before the completion of the PA, has neither been substantiated by any witnesses, nor is it very plausible given that prior to the privatization, Balkan had a special department dedicated to dealing with the SITA Shares (C IV, paras 190 et seq.).
288.
The misrepresentations regarding the number of Equant Shares caused direct damages to Claimant since it had not invested in BBA had it known the substantial deviation in the number of Equant Shares (C II, para. 134).
289.
Knowledge of the expected adjustment by Knafaim-Arkia may not be imputed on Claimant should it exist at all since Knaifaim-Arkia and Zeevi are unconnected entities. In this respect, Claimant notes that although Knafaim-Arkia being an affiliate of Arkia, which is an airline itself which had entitlement to receive Equant Shares, it needs not have known the details of the regulations associated with these shares. This is especially so, since in this case the complexity of this issue is apparent from the cross-examination of the Respondents' expert (Mr. Neichev) during which he could not answer the questions related therewith. Given this background there is no reason to assume that Knafaim-Arkia, whose interest in the Shares was insignificant was acquainted with the "ins and outs" of the various rules governing these Shares, to an extent which immediately enabled it to detect that representations given with respect to these Shares were not true (C IV, paras 225 et seq.). Furthermore, the Respondents cannot assume that any information that Arkia might have had reached Knafaim-Arkia, a different company and then the Claimant, another different company (C IV, para. 227). Moreover, even if Knafaim-Arkia had any information regarding the share, then so did the Respondents, owning the Company. Therefore, in representing that the KPMG Report reflected the true state of the Company even though it omitted to mention full extent of the restrictions, the Respondents made a false statement and hence have to bear the resulting responsibility. (C V, para. 42)
290.
In any case, it was Respondent's obligation to provide accurate information (C II, para. 136).

b. Summary of Contentions by Respondent No. 1

291.
Respondent No. 1 maintains that Claimant was well aware that:

(i) BBA's entitlement to Equant shares was only indirect;

(ii) the number of shares was subject to adjustment and

(iii) restrictions attached to the sale (R II B, para. 181).

292.
The nature of BBA's entitlement to shares in Equant N.V. is described as follows. Equant's majority stockholder was "The SITA Foundation" ("Stichting" - non-profit entity under Dutch law). The foundation was formed by SITA, a non-profit entity organized under Belgian law created by airline companies to serve their telecommunication needs. Equant N.V. provided data communication services over SITA's network. The SITA Foundation held the Equant Shares for the benefit of its members, i.e. various airline companies, among them BBA and Arkia. Thus, the shares could only be sold through the foundation as the holder. In connection with an IPO of Equant Shares in New York and Paris in July 1998, the SITA Foundation agreed with Morgan Stanley not to sell any shares for a period of two years after the IPO. This restriction applied until July 2000. In 1999 depository certificates were issued by the SITA Foundation representing the beneficial interest of its members in Equant. The certificates could be converted to shares but only after 1 January 1999. The shares were allocated to the members in two segments. The first was unconditionally allocated whereas the second was subject to a later adjustment in order to reflect the members' use of SITA services (R II B, paras 184 et seq.). This fact was explicitly stated in the KPMG Financial Analysis (R II B, para. 202). Mr. Golan confirmed that he was prompted to consult Knafaim-Arkia in connection with the Equant Shares after having reviewed the Information Memorandum and the KPMG Financial Analysis (R III B, para. 91). Furthermore, the conditions regarding the allocation adjustment were revealed by the Terms of Administration of the SITA Foundation as presented in the Data Room (R II B, para. 200). Additional information was publicly available through the compendious prospectus for Equant's IPO that was published in July 1998 (R III B, para.90).
293.
Claimant may not deny knowledge of these circumstances, in particular since its joint purchaser - Knafaim-Arkia - was itself a member of SITA and thus familiar with this matter. Respondent No. 1 asserts that Claimant and Knafaim-Arkia are connected by signing the PA as one "Buyer" with joint and several liability (R II B, paras 192 seq.).
294.
Besides, PwC considers

"the disclosures made by KPMG in the Financial Analysis as to the number of Equant shares held by Balkan, and the restrictions over their sale, adequate in the context of the purchasers' own knowledge of the SITA Foundation [...]." (PwC Report, para 2.5)

295.
Just as Knafaim-Arkia and consistent with Balkan Airlines' annual accounts, the Information Memorandum did not record an entitlement to Equant Shares at all, because it was not the "official owner of the shares" (R III B, para. 94).
296.
Respondent No. 1 rejects the contention that Claimant suffered damage in relation to the readjustment by being compelled to inject additional funds into BBA to avoid the company's collapse, since Article 7.9.1 required Zeevi to use all proceeds from the sale of Equant Shares to repay "in priority" debts to the Bulgarian state (R III B, para. 95). To the contrary, Claimant by far did not comply with its contractual debt-servicing and investment obligations in the first place. It may thus not claim that it had to exceed those obligations, thereby suffering damage by the readjustment (R II B, paras 208 seq.).

c. Summary of Contentions by Respondent No. 2

297.
The Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 35, before para. 5.4):

"As a summary it should be underlined that the Respondent and KPMG as preparing the Due diligence Report did not by any means mislead the Claimant and Knafaim - Arkia Holdings with respect of the actual number of Equant shares. Such misrepresentation exists only in the statements of the Claimant and is invented just to serve the unfounded allegations in these proceedings. Apart from the documents presented during the negotiations on the privatization, the Claimant was granted full access to the financial data and documents related to it so that it could make its on investigation and conclusions on this topics. This claim is not proved or justifies and may not be submitted by the Claimant as it may be attached only to the Company and/or because is precluded by the expiration of prescription. Further the claim is not proved as amount as the Claimant could not establish what is the exact damage caused to the Company or to it by the alleged misrepresentation."

298.
It is further contended that the anticipated adjustment in the number of Equant Shares held by BBA was properly disclosed and described in detail in the KPMG Financial Analysis (R II PA, para. 136). The Expert report of PwC revealed that the relevant disclosures on Equant Shares made in the KPMG Due Diligence Report are adequate with the intentions and purposes of this report (R III PA, para.161). In this respect, Respondent No. 2 stresses repeatedly that the KPMG Report

"reflects the true sate of the Company for the fiscal year as ended 31 December 1998". (R IV PA, para. 82)

Moreover, contrary to Claimants allegation, the KPMG report never stated the exact number of shares, but merely the number of certificates to which BBA was entitled (RIV PA, para. 83). With regard to the sale restrictions, applying to these shares, Respondent No. 2 argues that the Report was not intended to provide such information (R IV PA, para. 89). The reasons why such an adjustment occurred and what restrictions applied were set forth in the "Terms of Administration of Stitching the SITA Foundation", a document available in the Data Room (R II PA, para. 149). All relevant facts regarding the adjustment and sale were disclosed to Claimant entirely by the documents provided and in a timely fashion. It was Claimant's obligation as a professional investor to make use of this information (R II PA, para. 139 et seq.). Besides, Knaifaim-Arkia itself owned Equant Shares and was thus well aware of the restrictions applying as well as the pending adjustment (R II PA, para. 159). This was confirmed by Mr. Golan's testimony (R III PA, para. 159).

299.
Furthermore, contrary to Claimant's exaggerating allegation, Mrs. Docheva did not state there was an Equant Shares Department, but merely a SITA Department, as this was of interest to the Company (R IV PA, para. 84).
300.
Furthermore, Respondent No. 2 contests that the adjustment constitutes a material adverse change in the light of the overall financial position of BBA (R II PA, para. 143) and that the alleged importance to Claimant of this entitlement was communicated to the Respondents (R IV PA, para. 85).
301.
The fact that Claimant transferred Equant Shares to its affiliate reveals that no restrictions existed anymore (R II PA, para. 151).
302.
Respondent No. 2 maintains that even if any damage occurred by a shortfall in the number of shares held by BBA, this damage incurred to BBA and not Claimant who is therefore not entitled to seek compensation pursuant to Article 82 of the OCA.

d. The Tribunal

303.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and evidence:

Party Submissions:

C I paras 31 seq.

C II paras 116, 119, 122 et seq., 127 et seq., 134, 136

C IV paras 161, 163 et seq., 166, 168, 173, 175 et seq., 179, 185, 190 et seq., 199 et seq., 204, 207, 212, 215, 225 et seq.

C V paras 35 seq., 42

R II B paras 181, 184 et seq., 192 seq., 202, 208 seq. R III B paras 90, 94 seq.

R I p. 35, before para. 5.4

R II PA paras 136, 139 et seq., 143, 149, 151, 159

R III PA paras 159, 161

R IV PA paras 82 seq., 84 seq., 89

Exhibits:

C-38 KPMG Financial Analysis

304.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
305.
The Tribunal understands that 1/3 (117,000) of the shares were sold in 1999 and that no restriction were applied in this respect. But it also understands that all shares were restricted for two years from the time from issuance that was until July 2000, and even after that time any sale was under the discretion of SITA. It seems that some restrictions were factual rather than legal, because many investors intended to sell their shares, so the sale had to be restricted in order to assure a realistic price.
306.
The Tribunal also notes that all SITA rules had been disposed in the data-room.
307.
In this context, it has to be recalled that above the Tribunal has concluded that, under Chapter III of the PA ("Declarations and Warranties of the Seller") due to Article 3.7.2., Respondents are liable for the information in the Financial Analysis prepared by KPMG.
308.
Regarding the Equant Shares, indeed, the following section on page 39 of the KPMG Financial Analyses (Exhibit C-38) is relevant:

"Balkan Bulgarian Airlines' participation in SITA gave it entitlement to a relevant number of certificates, being 26,322, as at December 1998. Each certificate in Equant is convertible to shares at the ratio 1 certificate: 20 shares. Half of the shares have a restriction on sale until July 2000".

309.
In the last two lines it is stated that half of the shares have restrictions until 2000. In an argument ex contrario, interpretation of that contractual provision cannot be understood otherwise than that the other half does not have any restrictions.
310.
Since, in fact, also this other half was under relevant restrictions, it is clear that the information given on page 39 of the KPMG Report is incorrect.
311.
Also above in this Award, the Tribunal has concluded that, should information in the Data Room differ from information in specific documents provided by Respondent and referred to in the PA, Claimant could rely on the information in such documents and did not have to verify whether that was confirmed by information in the Data Room. Thus, since, due to the express provision in Article 3.7.2. PA, Respondents are liable for the information in the KPMG Report, that liability covers the incorrect information on its page 39 and is not changed by whatever information was in the Data Room.
312.
Therefore, the Tribunal concludes that Respondents are liable for the incorrect information on page 39 of the KPMG Report regarding the Equant Shares.
313.
Again, at a later stage of this Award, the Tribunal will have to examine whether that liability lead to a damage and what the quantum is in that case.

3. Company not being subsidized or financially supported

a. Summary of Contentions by Claimant

314.
Claimant summarizes its contentions regarding the scope of representations and misrepresentations regarding BBA being financially subsidized and supported as follows (C I, paras 35 seq.):

"i. The Scope Of The Representation

35. Paragraph 7 of the Disclosure Letter (Exhibit "C/39"), in the chapter dealing with the Company's activity, stated as follows with regard to the subsidies and financial support the Company had received prior to its privatization:

"Balkan Airlines EAD has not been subsidized or financially supported in any other way by a government or another authorized body".

ii. The Scope Of The Misrepresentation

36. The representation was found to be untrue in the following respects:

a. Pursuant to Order No. RD-08-5/04.01.1997 of the Ministry of Transport and order No. 9/08.01.1997 of the Ministry of Finance, the Company was being charged 10% of the "Landing fee", "Air navigation fee for overfly" and "Fee for air navigation services in airports area" during the period between 1st January 1997 until 31st December 1997.

b. Pursuant to Order No. RD-08-1181/18.12.1997 of the Ministry of Transport and order No. 544/22.12.1997 of the Ministry of Finance, the Company was being charged 20% of the "Landing fee" during the period between 1st January 1998 until 31st December 1998.

c. Pursuant to Decree No. 60 as of 18th December 1998 of the Council Of Ministers for the release from payments of fees, the Company was being charged 30% of the "Landing of aircraft" fee, "Parking" fee and "Use of radio navigation devices and flight services in the airport area" fee as of 1st January 1999.

d. In addition, the Company had been paying reduced handling fees to Sophia and other airports in Bulgaria."

315.
Claimant rejects Respondents' view that it must have been aware of the subsidies provided to BBA as it was disclosed that BBA was under a specific recovery program. There is no evidence, however, that this program actually existed (C V, para. 52). To the contrary, the relevant Rehabilitation Act does not provide that companies under such program would necessarily enjoy subsidies. In fact, the information that BBA enjoyed reduced aviation fees was not disclosed to Claimant (C II, paras 138 et seq.). The Respondents could neither prove that the information allegedly made available through IATA is of any relevance with respect to the reduced fees (C V, para. 53). Claimant further contends that during the negotiations the Respondents reassured Mr. Golan that there were no subsidies or any other financial support enjoyed by the Company and represented so in the PA (C V, para. 46).
316.
Furthermore, reduced fees applied to BBA well before it was placed under "isolation" pursuant to the Rehabilitation Act (C II, para. 140). This is evidenced by orders of the Ministry of Transport cited by Claimant (C II, para. 152).
317.
Claimant's contention is that the reduced fees constituted subsidies, not only in the Respondents' own understanding, but also under Bulgarian legislation and case law (C II, paras 143 et seq.). This finding is not jeopardized by the fact that these

"fees were not collected for the State budget'"

The notion of "subsidies" does not necessarily require that funds flow from the state budget to the subsidized company. Moreover, the fees were public fees as expressed by the Minister of Transport in its letter dated 10 July 2000 (C-71). Therefore, the reduced aviation fees are to be characterized as subsidies. This view is also supported by the Respondents' own Experts in section 3.9 of their Opinion, specifically referring to subsidies (C IV, para. 235). Mrs. Docheva referred to these as financial assistance (C IV, para. 236).

318.
Claimant purports that the subsidies' financial significance is evidenced by the Respondents' witness statement that a reduction in aviation fees was unavoidable for BBA to further operate.
319.
In contrast to Respondents' allegation, which has yet to be substantiated by witnesses or other evidence, Claimant did not know about the lower landing fees prior to signing the PA (C IV, paras 244 et seq.). In fact, the Disclosure Letter explicitly informed the Claimant that the Company did not enjoy any subsidies or financial support (C IV, para. 246). Even if Claimant had known about it, then the information contained in the Disclosure Letter would have been false (C IV, para. 250). Furthermore, even if Mr. Golan had to have understood that the Company enjoyed reduced fees, the fact that these were not published anywhere and that Mr. Moustakov and the Privatization Agency could not ascertain what the exact facts were regarding these reduced fees must be taken into consideration (C V, para. 49). Moreover, contrary to the Respondents' allegation, Mr. Frank did not confirm, Claimant had any knowledge with respect to the reduced fees prior to signing the PA. In this regard, the Respondents took Mr. Frank's testimony out of context. The same applies to the Respondents' utilization of Balkan Holdings' letter dated 7 September 2000. (C V, para. 50) The increase of the aviation fees after the privatization constituted also a clear breach of the warranty in Article 3.9.2 of the PA (C IV, para. 256), since the Respondents' themselves argued that the reduced aviation fees the Company used to enjoy were a result of Balkan being Bulgaria's NC (C IV, paras 256 et seq.). It is further noted, that the rescheduling of the aviation fees is a non-issue in these proceedings, since it did not solve the problem of the increase in the aviation fees (C IV, para. 255), but enshrined the Company's obligation to pay the increased fees from that moment onwards (C V, para. 55). Claimant ascertains that it would not have invested in BBA had it known that new debts would accrue as a consequence from the increase in fees. The cancellation of the reduced fees increased the annual operating costs of the Company by approximately USD 5 million (C IV, para. 232). This constituted a direct damage to Claimant (C II, para. 148).

b. Summary of Contentions by Respondent No. 1

320.
Respondent No. 1 asserts that BBA had not received and was not receiving any state financial subsidies at the time of its privatization other than those disclosed prior to the purchase. Additionally, as part of the regime of the Law on Financial Recovery applicable to BBA prior to the purchase (BBA was placed in "isolation" under this law), reduced fees for landing and air navigation applied. With the purchase, however, BBA had to be removed from this regime in order to meet the international obligation under Article 15 of the Chicago Convention on International Civil Aviation to treat domestic and foreign air carriers alike. Thus, the fees were increased, however, only gradually pursuant to the agreement between the Republic of Bulgaria and the European Investment Bank. All relevant facts were ascertainable from the information disclosed in the Data Room (R II B, paras 212 et seq.). Moreover, Mr. Golan and Mr. Frank confirmed Zeevi knew of the lower landing fees applicable to Balkan. Furthermore, Zeevi's argument that the rescheduling did not satisfy Balkan Airlines' request to the government is false (R III B, para. 112 et seq.). To the contrary, the decision of the Ministers of Finance and Transport, dated 20 November 2000, granted precisely what Zeevi had requested in a letter of 10 November 2000 (R III B, para. 114).
321.
Hence, Claimant was not mislead prior to the conclusion of the PA and suffered no prejudice from increased landing fees thereafter (R V B, para. 51).

c. Summary of Contentions by Respondent No. 2

322.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, pp. 40 seq., before para. 5.5):

"As a summary Respondent's position is that the claim is not reasoned and finds no legal grounds. Neither the Respondent nor any other state institution had mislead the Claimant for the fact that the Company was not being subsidized as it actually was not subsidized and did not receive financial aid. Even if it is found that the reduction of fees is state aid, the Claimant was informed of this fact as being informed that the Company was undergoing recovery plan and was included in the list of companies for financial rehabilitation. Provided the legal background of that rehabilitation was the Financial Rehabilitation of State Enterprises Act of 1996, expired on 30 June 1999, the Claimant knew or should have known that these reductions will be existing no more after the recovery period expires or after the privatization - ignorantia legis neminem excusat.

Further this claim is not properly submitted by the Claimant as the only affected party from the alleged increase of the fees and the costs are actually the passengers or at most - the Company. Therefore the Claimant may not rise such issues to arbitration as not being entitled to this right of claim though being majority shareholder in the Company until affiliated to it companies acquired the shares. After this acquisition the Claimant is not even a shareholder in the Company to suffer indirect damages or loses. And in fine - the Claimant did not provide any evidence on the actual amount of the increase of costs for the period the Company operated after the acquisition of shares by the Claimant and what is the actual amount of the damage occurring for it, safe it is denied that any damage whatsoever was caused by action or representation of the Respondent and/or the Government of Bulgaria."

323.
Respondent contends that it disclosed to Claimant that BBA was undergoing a recovery program under the Bulgarian Financial Rehabilitation of State-Owned Enterprise Act. As part of this program temporarily reduced aviation fees applied to BBA and neither constituted subsidies nor any other financial support under the definition contained in Article 20(1) of the Competition Protection Act as confirmed by Ms. Valeva and Mrs. Docheva during their witness testimonies. The Commission on Protection of Competition and the Supreme Administrative Court had both concluded that the reduced fees were not detrimental to competition. The latter, however, was required in order to characterize the reduction in fees as subsidies or state aid (R II PA, paras 161 et seq.).
324.
Moreover, it is pointed out that damages arising in regard to ceasing state aid cannot constitute direct consequence of a breach of contract as required by Article 82 of the OCA nor were they recoverable under Article 12 of the OCA as the fees were paid by BBA but not Claimant. Besides, fees were included in the ticket sales price and thus did not give rise to any damages (R II PA, paras 176 et seq.).
325.
Respondent No. 2 emphasizes that BBA had to be removed from the rehabilitation program after being privatized as the program was only meant for state-owned enterprises (R II PA, para. 180).
326.
In addition, Respondent No. 2 submits that even according to Mr. Golan, the Claimant was aware of the fact that the Company paid reduced aviation fees prior to completion of the privatization (R III PA, para. 163). Hence, whether or not these reduced fees constituted subsidies is irrelevant, since Claimant was informed about them in the Disclosure Letter (R III PA, para. 164).

d. The Tribunal

327.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and evidence:

Party Submissions:

C I paras 35 seq.

C II paras 138 et seq., 148, 143 et seq., 152

C IV paras 232, 235 seq., 244 seq., 246, 250, 255 et seq.

C V paras 46, 49 seq., 52 seq., 55

R II B paras 212 et seq.

R III B paras 112 et seq.

R V B para. 51

R I pp. 40 seq., before para. 5.5

R II PA paras 161 et seq., 176 et seq., 180

R III PA paras 163 seq.

Exhibits:

C-39 Disclosure Letter

C-71 Letter of the Minister of Transport of 10 July 2000

328.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
329.
The Tribunal first recalls that, as concluded above in this Award, Article 9.1.2. PA leads to a liability of Respondents for information contained in the Disclosure letter if such information is incorrect.
330.
The relevant section of the Disclosure Letter (Exhibit C-39) is indeed Paragraph 7 in the chapter dealing with the Company's activity:

"Balkan Airlines EAD has not been subsidized or financially supported in any other way by a government or another authorized body".

331.
It is undisputed that the considerable reductions of the landing fees first to 10%, then to 20%, and then to 30% of the landing fees, parking fees and fees for use of radio navigation devices and flight services in the airport area as well as of the handling fees at all airports in Bulgaria by decisions of the Ministry of Transport and the Council of Ministers are not mentioned in the Disclosure Letter or any other of the documents by which Respondents gave in formation to Claimant under the PA.
332.
The Tribunal also sees no difficulty in finding that the very broad wording "subsidized or financially supported in any other way" includes such reductions of fees as mentioned above. In this context, the term "subsidy" is not an administrative one, but a contractual one and has to be interpreted in a broad sense. But irrespective thereof, the decreases in fees are covered by the addition of, "or financially supported in any other way"
333.
It is also clear that these reductions in fees were very relevant for the "activity of the company" which is the title of that section of the Disclosure Letter to let Claimant judge the financial status and prospects of the company. This is particularly obvious as the cited paragraph follows other paragraphs in the same section of the Disclosure Letter which are intended to give a complete picture on the costs occurring for the running of the company.
334.
It may well be that, as pointed out by Respondents, that these advantages were due to regime of the Law on Financial Recovery applicable to BBA prior to the purchase, and that, with the purchase, BBA had to be removed from this regime. And it may also be that relevant further information was available from the Data Room. However, as the Tribunal has concluded above in this Award, if there was a clear express information in a document mentioned in Article 9.1.2. PA such as the Disclosure Letter, the Claimant could rely on it without having to verify it in the Data Room and the Respondents are liable if such information is incorrect.
335.
As the cited Paragraph 7 of the Disclosure Letter is clear and contains no ambiguity, and as this information is found to have been incorrect, the Respondents are liable in this regard.
336.
Again, the Tribunal will examine at a later stage in this Award, whether this breach has caused any damage and, if so, what its quantum is.

4. Ansett Aircraft Maintenance Liabilities

a. Summary of Contentions by Claimant

337.
Claimant summarizes its contentions regarding Ansett aircraft maintenance liabilities as follows (C I, paras 40 seq.):

"i. The Scope Of The Representation

40. The Company leased three aircraft from Ansett Worldwide Aviation Ltd. ("Ansett") (see p. 65 of the KPMG Financial Analysis, Exhibit "C/38"). The following representations (and misrepresentations) were made with regard to these aircraft:

a. The Agreement represented that the Information Documents accurately reflected the financial state of the Company (see clauses 3.6.1, 3.6.2, 3.7.1 and 3.7.2 of the Privatization Agreement, Exhibit "C/35", and paragraphs 2 and 3 of the chapter in the Disclosure Letter, Exhibit "C/39", dealing with the Company's accounts). In this respect it is noted:

i. The KPMG Financial Analyses presented the Company's balance sheet, according to which an amount of USD 5,000,000 was deposited with Ansett in connection with the lease of the three aircraft (the "Deposit"). (See Note 7a in page 42 of the KPMG Financial Analysis, Exhibit "C/38"). The Financial Analysis did not disclose that the Deposit (or part thereof) would not be refunded due to additional maintenance costs due in respect of the leased aircraft.

ii. The Information Documents did not disclose that any additional maintenance costs were due in respect of the leased aircraft.

b. The following specific representations were made in the Disclosure Letter (Exhibit "C/39") regarding the various costs associated with the leases of the Ansett aircraft and the degree of their maintenance:

i. In paragraph 9 of the chapter of the Disclosure Letter dealing with the Company's Assets, the Respondents represented:

"Except as listed in Appendix XI, all movables, representing transport vehicles, owned or used by Balkan... are maintained and serviced according to effective technical standards".

Appendix XI of the Disclosure Letter did not disclose the Ansett aircraft as being amongst the transport vehicles not maintained and serviced, according to effective technical standards.

ii. In paragraph 5 of the chapter of the Disclosure Letter dealing with Accounting Reports, the Respondents represented:

"The present Disclosure Letter represents complete and accurate statement for all due and payable amounts under lease agreements..."

The Disclosure Letter did not disclose any of the costs associated with the return of the Ansett aircraft upon termination of their leases.

iii. In paragraph 7 of the chapter of the Disclosure Letter dealing with Accounting Reports, the Respondents represented:

"The Company's obligations outstanding as of May 31, 1999 are described in details and exhaustively in Appendix XVI".

Appendix XVI of the Disclosure Letter did not disclose any liabilities associated with excess costs of maintenance of the Ansett aircraft.

c. The KPMG Financial Analysis (Exhibit "C/38"), on pages 65 and 66, portrayed the position with regard to the leases of the three Ansett aircraft, stating inter alia that:

"The future payments in USD related to these rentals are presented in Figure 4.20".

An examination of figure 4.20, shows that it does not disclose any liabilities associated with the return of the aircraft, despite the fact that they were then already known at the time and were certainly and clearly "related" to the aircraft "rentals". Attention is also drawn to page 7 of the KPMG Financial Analyses, according to which the amounts set out in figure 4.20 (which total USD 31,637,000) reflect "The total amount that is expected to be paid according to these contracts until they expire.".

Furthermore, unlike the position with regard to the Ansett aircraft, Figure 4.21 on the same page of the KPMG Financial Analysis, provides details regarding the Company's additional maintenance liabilities arising in connection with the return of two other aircraft of the Company (Boeing 767-200s) (leased from Air-France). No mention of such costs is made in connection with the three Boeing 737-500 aircraft. The difference between the information given with regard to the two types of aircraft, clearly gives rise to the misleading impression that, as opposed to the two Boeing 767-200 (in relation to which only some of the maintenance costs were covered by the maintenance fund), there was no such shortfall in connection with the Boeing 737-500 aircraft.

ii. The Scop Of The Misrepresentation

41. The representations were found to be untrue in the following respects:

a. The three Ansett aircraft were not maintained and serviced according to effective technical standards.

An example of the poor maintenance standards by which the aircraft were maintained is to be found in a letter from Victor Nanoiv, the Technical Director of the Company, dated 11th November 1999, attached as Exhibit "C/63A".

The "Ansett Worldwide redelivery from Balkan Bulgarian Airlines" memorandum pointing out the aircraft's redelivery requirements to Ansett that were not covered by the Maintenance Fund (thus indicating the poor maintenance of the aircraft) is attached as Exhibit "C/63B".

b. Contrary to the representations, additional maintenance costs associated with the return of the Ansett aircraft to Ansett upon termination of their leases, existed at the time the Agreement was signed, in an amount exceeding USD 1,000,000 for each aircraft. Attention is drawn in this respect to the following:

i. Upon return of two of the Ansett aircraft to Ansett at the end of the lease period they were maintained at the Israel Aircraft Industries Ltd. (the "IAI") in order to comply with Ansett's redelivery requirements. The IAI issued invoices with respect to these maintenance works. These invoices show that "extra payments" of USD 1,096,196 and USD 1,218,594 were made with respect of the two Ansett aircraft (respectively). The "extra payments" did not form part of the regular maintenance work associated with return of the aircraft at the end of a lease period, and they represented the additional maintenance cost associated with the Ansett aircraft which were not disclosed in any of the Information Documents.

The schedules of the IAI invoices reflecting the "extra payments" for Ansett B737-500 # LZ-BOA and Ansett B737-500 # LZ-BOB are attached as Exhibit "C/64".

It is noted that the third Ansett aircraft which the Company leased was in a similar condition of the other two aircraft, and the extra payments which would have been due for it upon return to Ansett would have been similar.

ii. A copy of the Company's report dated 22nd May 2000, evidencing that the total amount required for the maintenance of the Boeing 737-500 aircraft for the period May-December 2000 was 9,219,438 is attached as Exhibit "C/65". According to the report, out of this amount 70% out of USD 6,596,978 (USD 4,617,884) was covered by the Maintenance Fund, whilst the balance of USD 4,601,554, had to come from the Company's resources."

338.
Claimant contends that no potential maintenance liabilities were disclosed and therefore they could legitimately expect the deposit to be returned (C II, para. 157). It suffered damages as the deposit would in fact have been returned if the additional maintenance costs had not occurred (C II, para. 163). The aircraft were not properly maintained before BBA was privatized which can be derived from IAI letter dated 6 May 2004 (C-94). This was confirmed by various documents, including the "Speedwing Report" and also by Mr. Frank's witness statement and cross-examination, in which he reiterated inter-alia that these aircraft were not properly treated for corrosion for years (C IV, paras 261 et seq.). The IAI determined the difference between the expected and actual costs of maintenance of the aircraft and found that

"aircraft which are maintained and serviced according to effective technical standards," do not "incur such significantly higher costs." (C II, para. 161)

339.
Claimant contends that the Respondents - though being under a duty to - did not disclose the Ansett maintenance costs and the fact that the deposit would not be returned. The Disclosure Letter and the KPMG Financial Report were, in this respect, highly inaccurate (see above, para. 266) (C IV, paras 264 et seq.). The duty to disclose these facts was confirmed by Mr. Neitchev in his witness statement (C IV, para. 267).
340.
In contrast to the Respondents' argumentation the relevant passage of the KPMG Financial Analyses, does not disclose the fact that there are uncovered maintenance costs. This disclosure simply states that 70 to 80 percent of the maintenance costs are charged to a maintenance fund to cover maintenance expenses at the end of the lease, meaning that the rest of the maintenance costs are made on an on-going basis (C IV, para. 271). This understanding was confirmed by the Respondents' own expert, Mr. Neitchev and by Mr. Frank (C V, para. 66).
341.
Contrary to the position of the Respondents, any information regarding this matter contained in the Data Room neither qualifies the Information Documents nor have the Respondents presented any evidence that the Data Room contained any documents in relation therewith (C IV, para. 272).
342.
The Company could also not have carried out the redelivery works in Balkan-Technique, since this was a project, which has never been materialized (C IV, para. 273).
343.
Contrary to the Respondents' allegation, it was possible to predict the additional maintenance costs associated with the redelivery of the Ansett aircraft (C V, para. 58). This clearly emerges from the PwC opinion regarding the Knafaim-Arkia accounts and from the Speedwing Report (C V, para. 61 et seq.). Claimant further contends that in alleging the above, it contradicts it own argument that from documents allegedly contained in the Data Room it was clear that "recourses to this security deposit was likely to be necessary". (C V, para, 60)
344.
Thus, Respondents are liable for misrepresentations made in regard to the degree of maintenance of the Ansett Aircraft (C II, para. 160).
345.
Contrary to the Respondents' allegation that the refunding of USD 750,000 proves, the aircraft were properly maintained, Claimant contends that this only confirms that a significant part of it, i. e. USD 4,250,000.00 was not refunded (C V, para. 68).
346.
Acknowledging that the quantification of damages is difficult, Claimant submits that it indeed suffered damages and that contrary to the Respondents' allegation, the timing as to when the refund would occur is irrelevant (C V, para. 70).

b. Summary of Contentions by Respondent No. 1

347.
Respondent No. 1 explains that three aircraft had been received from Ansett as a ten-year financing lease in November 1990, December 1990 and December 1991, respectively. BBA had provided a deposit of USD 5,000,000 as security for performance of all its obligations under the leasing agreement. A part of the monthly lease payment was put into a maintenance fund to be used for maintenance pursuant to the technical standard set out in the leasing agreement (R II B, paras 225 et seq.).
348.
It is ascertained by Respondent No. 1 that all Ansett aircraft were

"maintained in accordance with Bulgarian airworthiness and operational standards." (R II B, para. 245)

Claimant's allegations in this regard have not been substantiated. To the contrary, as Mr. Golan explained, "we managed to convince them [Ansett] they were holding too much money from us". In order to agree to this reduction Ansett must have satisfied itself on the standard pursuant to which the aircraft was being maintained and the then-current state of the aircraft. Furthermore, the allegedly inferior standard of the aircraft was not even recorded by Zeevi itself in its draft prospectus for Balkan. Moreover, the information contained in the IAI letter in support of Claimant's allegation could not be confirmed by any witnesses. (R III B, para. 104)

349.
All relevant information was disclosed to Claimant in the KPMG Information Memorandum and the Financial Analysis. These clearly revealed that the maintenance fund would only cover 70% - 80% of the repairs and maintenance costs occurring upon return of the aircraft. Further, these documents did not give Zeevi any basis to believe, the 20% - 30% shortfall would be covered by ongoing maintenance. (R V B, para. 54) In addition, the leasing agreement with Ansett was available in the Data Room. The testimonies of Mr. Golan and Mr. Frank were in contradiction with this documentary evidence (R III B, para. 102). Furthermore, Claimant was given opportunity to verify the standard of maintenance prior to the purchase (R II B, paras 230 and 232).
350.
Respondent No. 1 notes that PwC confirmed that the disclosures made

"were in accordance with [International Accounting Standard] 17 "Accounting for leases" (PwC Report, para. 4.61)

Moreover, it was stated by PwC that

"no provision for possible future maintenance costs under the Ansett leases were required by IAS 17."

To the contention of PwC, KPMG adequately disclosed possible maintenance costs in the Financial Analysis (R II B, para. 239; PwC Report, para. 4.68).

351.
PwC further explained that any comparison of the disclosures made in regard to the Ansett leases to those made in respect of the previous Air France leases were inappropriate (PwC Report, para. 4.60). Claimant may not derive any conclusion from such comparison (R II B, paras 234 et seq.).
352.
Additionally, Respondent No. 1 questions necessity of the additional maintenance performed by Claimant and the reasonableness of the costs that allegedly incurred.
353.
Finally, Respondent No. 1 contends that Claimant cannot have suffered any damage, since Balkan was not to receive any part of the Ansett security deposit before completion of the redelivery of the third Ansett B737, scheduled for December 2001, well after Claimant had abandoned Balkan Airlines (R III B, para. 105).

c. Summary of Contentions by Respondent No. 2

354.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 46, before para. 5.6):

"It is hereby repeated that this claim is unfound and neither factual nor legal grounds for it exist. The Claimant is making misrepresentation and totally voluntary interpretations of the Privatization Agreement and the financial documents and analysis prepared by KPMG. The Claimant was not in any way misled about the liabilities of the Company as these towards Ansett did not exist at the time of the privatization sale and could not be predicted. No legal or practical obligation exists for the Respondent and for KPMG to predict and disclose future obligations for which no sufficient data or proof exist.

Further the Respondent bears no liability towards the Claimant for such alleged misrepresentation, safe such is denied, as the Claimant did suffer and did not prove to suffer any damage or loss occurring of it. The possible damaged party is the Company which had paid the additional maintenance costs, but neither the Respondent is liable for such costs nor the Claimant may submit claims attributed to the Company as it is not even shareholder in it at the moment these proceedings started. And at last - the Claimant did not prove what is the nature and volume of alleged damages caused to the company or the Claimant from the alleged lack of proper disclosure, which is denied."

355.
Respondent No. 2 contends that the deposit was disclosed and that the logical expectation regarding the deposit was that there is a risk it might not be returned. The maintenance costs, however, were unforeseeable and could as such not be disclosed. No representations regarding the degree of maintenance were made and the Respondent is therefore not liable in this regard (R II PA, paras 184 seq.).
356.
Concerning the IAI letter dated 6 May 2004 Respondent asserts that it might well have been the Claimant's management that caused the improper maintenance (R II PA, para. 187).
357.
Besides, no damage could have been suffered by Claimant as the deposit covered the maintenance costs (R II PA, para. 188).
358.
Respondent No. 2 further asserts that the Expert Report of PwC confirmed that the KPMG Due Diligence Report did not contain any misleading information and was not prepared to constitute an exhaustive due diligence according to IAS (R III PA, paras 167 et seq.) or to include any technical information regarding the aircraft. Since these liabilities neither had occurred, nor were they quantified, there was no obligation or possibility to disclose them (R IV PA, para. 97).
359.
Moreover, Mrs. Docheva and Mr. Golan testified that after the privatization, Ansett agreed to free a significant part of the deposit as the condition of the aircraft was satisfactory (R III PA, para. 169). Claimant has not provided any evidence to the contrary (R IV PA, para. 98).

d. The Tribunal

360.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 40 seq.

C II paras 157, 160 seq., 163

C IV paras 261 et seq., 271 et seq.

C V paras 58, 60 et seq., 68, 70

R II B paras 225 et seq., 230, 232, 234 et seq., 239, 245

R III B paras 104 seq.

R V B para. 54

R I p. 46, before para 5.6

R II PA paras 184 seq., 187 seq.

R III PA paras 167 et seq.

R IV PA paras 97 seq.

Exhibits:

C-35 PA

C-38 KMPG Financial Analysis

C-39 Disclosure Letter

C-63A Letter of the Technical Director of the Company of 11 November 1999

C-63B Ansett Worldwide redelivery from BBA Memorandum

C-64 IAI Invoices for Ansett B737-500 #LZ-BOA and Ansett B737-500 # LZ-BOB

C-65 Company's report concerning costs of maintenance of 22 May 2000

C-94 IAI letter of 6 May 2004

361.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
362.
The arguments of the Parties summarized above correctly mention all relevant provisions in the PA and in documents referred to in the PA containing relevant information in this context. Thus, there is no need to repeat them here.
363.
Indeed, the major relevant information on which Claimant could rely is contained in the Disclosure Letter and its references to Appendices XI and XVI, and in KPMG's Financial Analysis and Information Memorandum.
364.
In this context, the Tribunal has taken note of the Report submitted by PwC, particularly sections 4.60., 4.61., and 4.68., regarding the Ansett Liabilities and Leases which conclude PwC is satisfied that the information provided was accurate according to IAS 17 as well as according to its own standards.
365.
The Tribunal, having examined the Parties contentions and the documents listed above, finds no reason to disagree with that evaluation by PwC.
366.
Further, the Tribunal considered that, even though the deposit was not entitled to be exclusively to maintenance, almost all of it was spent on maintenance. Since the deposit was for all obligations and not only for maintenance this might be an indication that the leased planes were in a bad shape at the time of the closure of the PA. If the bad shape had been known, Respondents had to be aware that a refund of the deposit would be much less than the deposited USD 4,250,000. As it is undisputed that USD 750,000 were refunded, the question is, whether it had to be expected that almost the full deposit would have to be spent on maintenance. On the other hand, it is not unusual that one does not get refunded a deposit. Further Claimant failed to establish whether the bad shape/maintenance occurred before or after the sale. In addition Claimant only complained six month after the transaction took place. In view of these considerations, since Claimant has the burden of proof, the Tribunal concludes that Claimant has not fulfilled its burden of proof that the planes were in bad shape at the time they were handed over and there is no reason to change the evaluation made by PwC as mentioned above.
367.
Therefore, as Claimant has the burden of proof that information supplied was incorrect, and since no reliable proof has been provided in this regard, the Tribunal finds no liability of Respondents with regard to the Ansett Aircrafts.

5. Liabilities in respect of Provisions for Employees

a. Summary of Contentions by Claimant

368.
Scope of representations and alleged misrepresentations in regard to BBA's liabilities towards employees in connection with the reduction of the workforce are described by Claimant as follows (C I, paras 43 seq.):

"i. The Scope Of The Representation

43. The Agreement included representations regarding the Company's liabilities towards employees in connection with the reduction of the workforce. Reference is made in this respect to the following representations:

a. The KPMG Financial Analyses (Exhibit "C/38") represented the costs associated with the termination of employees of the Company in the following manner (see page 32):

"In the case of retirement of an employee the company should pay three gross salaries to the retiree as par the last amendment of the collective labor contract".

No disclosure was made of any other costs associated with reduction in the workforce of the Company.

b. Paragraph 10 of the Disclosure Letter (Exhibit "C/39") in the chapter dealing with the Company's activity, stated as follows with regard to the contingent liabilities associated with the Company's employees:

"Balkan airlines EAD is not a party to any agreement and is not held liable (unlimited, future or conditional liability inclusive) for granted security, compensation or other agreements for securing third parties' debts except for the ones, attached in Appendix 20".

Appendix 20 of the Disclosure Letter, did not disclose any further liabilities towards the Company's employees.

c. The Agreement represented that the Information Documents accurately reflected the financial state of the Company (see clauses 3.6.1, 3.6.2, 3.7.1 and 3.7.2 of the Privatization Agreement, Exhibit "C/35", and paragraphs 2 and 3 of the chapter of the Disclosure Letter, Exhibit "C/39", dealing with Company's accounts). These documents did not disclose any other liabilities associated with the Company employees.

ii. The Scope Of The Misrepresentation

44. The representations regarding the costs associated with the Company employees, were breached in the following respects:

a. After signing the Agreement, it was discovered that the Company had substantial liabilities in respect of accumulated balances of employees' unused vacations. On average, each employee had accumulated over 100 unused vacation days. The employees were entitled to receive their unused vacation pay upon termination of their employment. These costs (amounting to over USD 5,000,000) were not disclosed in any of the Information Documents.

b. After signing of the Agreement it was discovered that the Company had never paid social security payments on account of its overseas employees. The Company was required to make these payments after the privatization in an amount of approximately USD 1,200,000. No disclosure of this hidden cost was made in any of the Information Documents."

369.
Claimant's view is that Respondents could not simply ignore the potential liability in respect to the fact that BBA had over 3,000 employees with on average 100 unused vacations days each for which BBA owed payment until the moment this liability materialized. This did not conform with accepted accounting standard and constituted a breach of the representations made in this regard (CII, para. 165).
370.
Respondents' own expert, Mr. Netchev, confirmed in his crossexamination that the above liability had to be disclosed to Claimant (C IV, para. 277). This duty also arises from specific provisions in the Agreement, namely Paragraph 10 of the Disclosure Letter. Contrary to Respondents' allegation, Appendix 20 of the Disclosure Letter did not disclose any such liabilities (C IV, para. 278). In addition, neither the KPMG Financial Analyses, nor the Information Memorandum mentions the liability towards the employees from the unused vacation days they accumulated. (C IV, para. 279) The same is true for the Collective Labor Agreement of Balkan (C V, para. 71).
371.
Contrary to the Respondents' allegation, they were aware of the Claimant's plans to reduce workforce, since the Company was suffering from severe overstaffing and the Respondents' themselves discharged approx. 500 employees during 1997-1998 alone (C IV, paras 280 et seq.). However, whether or not the Respondents knew about the redundancies, the duty to disclose such information is not dependent on this knowledge, as confirmed by Mr. Neitchev and PwC's Expert Opinion (C IV, para. 283).
372.
Claimant substantiated its contention in this respect by providing a very detailed witness statement of the CEO of the Company at that time, Mr. Frank (C IV, paras 285 et seq.). His statements have not been contradicted by any of the Respondents' witnesses (C IV, para. 286). The Respondents also did not provide any documentary evidence to the contrary (C IV, para. 287). Furthermore, Bulgarian Legislation provides for employers to redeem unused vacation days of their employees by payment of cash in lieu of vacation. The purpose of this was to overcome the problem which many Bulgarian employers encountered, of having employees accumulate "extraordinarily" high number of vacation days. This shows that the situation the Claimant faced when it purchased Balkan was not "unique" in Bulgaria (C IV, para. 288).
373.
In addition, it was not disclosed to the Claimant that after the privatization, the Company was required to make security payments on account of overseas employees in an amount of USD 1.2 million (C IV, para. 290).
374.
In support of the Respondents' allegations, they have produced new evidence with respect to this issue. These exhibits, however, should not be allowed, since they are in violation of Section 2.4.1 of PO No. 10. Their approval would seriously prejudice Claimant, because the Respondents' failure to produce these documents before the Hearing, which was possible, according to their dates, denied Claimant the ability to cross-examine Mrs. Docheva regarding these documents. (C V, paras 73 et seq.) The Respondents' attempt to prevent Claimant from cross-examining its witnesses in respect of these exhibits, also affects their credibility (C V, para. 76). Furthermore, since these exhibits deal with the amount of vacation days accrued and the quantification of damages resulting thereof, they should only be considered in the next stage of the proceedings (C V, para. 77).
375.
With regard to the Respondents' allegations in respect of Balkan Technique, Claimant notes the following:

"The Company's maintenance department was the most problematic in terms of overstaffing. Thus, major redundancies were inevitable at that department. To overcome the problem, Balkan Technique was incorporated, thus making use of the technical crew, preventing their unemployment, and saving the Company costs due to the redundancies. This is exactly the kind of creative thinking which is required in order to rehabilitate an ailing company such as Balkan."

b. Summary of Contentions by Respondent No. 1

376.
Respondent No. 1 cites from the Information Memorandum which states, that

"[a]ccording to the Collective labor contract's clauses, in case of ending a labor agreement due to a lay-off in the full time positions, closing down part of the company or decrease in the workload, the company will pay up to three gross salaries to an employee with more than five years of work experience in the company [...]." (R II B, para. 248; R-74, para. 6.2.3)

This information was supplemented by the Financial Analysis, which referred to the Bulgarian Labor Code, and the employment contracts available in the Data Room. The provided information and significant disclosures permitted Claimant to assess the costs associated with the reduction of workforce, especially in light of the fact that Mr. Golan had access to specific legal advice from Bulgaria's largest law firm (R III B, para. 120).

377.
Claimant did not disclose any plans for massive lay-offs until it produced its "Employment Plan" of January 2000 (R III B, para. 121). Without knowledge of these plans no reasonable estimates could be made by Respondents and therefore the costs resulting from such redundancies did not constitute a contingent liability requiring disclosure (R III B, para. 122).
378.
The alleged liabilities for redemption of unused holidays at the termination of employment and the alleged failure to pay national insurance contributions are found to be unsubstantiated. The allegations are based on the testimony of Mr. Frank, then CEO of BBA. Failure to provide adequate prove may not be compensated by an attempt to shift the burden of proof to Respondents (R II B, paras 260 et seq.). In fact, new evidence provides that instead of the alleged USD 5 million accrued, the total amount in 1999-2000 was only USD 574,762 (R III B, para. 124).
379.
Furthermore, instead of being an investment for the creation of "300 new jobs", as Claimant alleges, Balkan Technique was devised to reroute Balkan's employees, thereby hiving off redundancy costs (R III B, para. 125).
380.
Finally there is no evidence that any of the claimed amount was paid by Balkan, or that it suffered any damage resulting thereof (R V B, para. 60).

c. Contentions of Respondent No. 2

381.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 49, before para. 5.7):

"It is hereby expressly that this claim is unfound and neither factual nor legal grounds for it exist. The Claimant is once again making bad faith misrepresentation and illogical interpretations of the Privatization Agreement and the financial documents and analysis prepared by KPMG. The Claimant was not in any way mislead about the liabilities of the Company towards the employees as these towards them and occurring of due compensations did not exist at the time of the privatization sale and could not be predicted. Neither did exist or are proved by the Claimant obligations for social security that were not disclosed at the negotiations or by the financial documents. No legal or practical obligation exists for the Respondent and for KPMG to predict and disclose future obligations for which no sufficient data or proof exist.

Further the Respondent bears no liability towards the Claimant for such alleged misrepresentation, safe such is denied, as the Claimant did suffer and did not prove to suffer any damage or loss occurring of it. The possible damaged party is the Company which would have had paid the costs for alleged compensations, but neither the Respondent is liable for such costs nor the Claimant may submit claims attributed to the Company as it is not even shareholder in it at the moment these proceedings started. And at last - the Claimant did not prove what is the nature and volume of alleged damages caused to the company or the Claimant from the alleged lack of proper disclosure, which is denied."

382.
Respondent No. 2 asserts that BBA's accounting reports properly disclosed the contingent liabilities towards employees. Liabilities arising upon termination of employment contracts by Claimant were not foreseeable for Respondents and KPMG (R II PA, para. 189), since neither knew how many employees were going to be laid-off by the Claimant (R III PA, para. 174). Not even Claimant knew this at the time of the signing of the Agreement and even six months after, as Mr. Golan conceded (R IV PA, para. 101). Besides, Claimant has failed to prove the extent and degree of the alleged contingent liabilities.
383.
Claimant also contends that paragraph 10 of the Disclosure letter contained representations regarding the liabilities of the Company, including towards employees. The mere and logical interpretation of the whole text of paragraph 10 of the Disclosure Letter confirms that this disclosure is related to collateral obligations of the Company only. (R IV, para. 100)
384.
Respondent No. 2 alleges that even if this information was mistakenly not disclosed, the amount stated in the comparative accounting report for accrued compensations for unused leave is only approximately USD 280,000 and not USD 5 million as purported by Claimant (R III PA, para. 172).
385.
Moreover, it became apparent from the relevant witness evidence and the exhibits attached thereto the sums claimed by Claimant were never paid. Hence, no damage could have occurred. (R III PA, para. 174)
386.
Even if costs incurred they do not constitute direct damages to Claimant and may therefore not be claimed by the latter under Article 82 of the OCA nor under Article 12 of the OCA (R II PA, para. 192).

d. The Tribunal

387.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and evidence:

Party Submissions:

C I paras 43 seq.

C II para. 165

C IV paras 165, 278 et seq., 283, 285 et seq.

C V paras 71, 73 et seq., 76 seq.

R II B paras 248, 260 et seq.

R III B paras 120 et seq.

R V B paras 60

R I p. 49, before para. 5.7

R II PA paras 189, 192

R III PA paras 172, 174

R IV PA paras 100 seq.

Exhibits:

C-35 PA

C-38 KMPG Financial Analysis

C-39 Disclosure Letter

R-74 Information Memorandum

Hearings:

Mr. Neitchev 785:1-13

Mr. Frank 331:22-333:4

388.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
389.
The Tribunal takes into account that in so far as the financial compensation directly derives from the applicable Bulgarian law, no disclosure by Respondents was required. The law provides that only upon termination of the employment agreement the employer has to pay compensation for leave (if, the employee agrees to that solution) or that otherwise the employee can take leave before his working contract ends.
390.
The Tribunal recalls that above in this Award it has concluded that Respondents are liable for information in the KPMG Financial Analysis. In the present context, the Tribunal considers to be of particular importance that this KPMG Report, as the last paragraph of section 4.2.4. on "personnel" on page 32, provides expressly:

"In the case of retirement of an employee the company should pay three gross salaries to the retiree as par the last amendment of the collective labor contract".

391.
If the Report, as it does here, refers to financial consequences of retirement even in indicating such consequences provided by law, it gave the impression that, other than the consequences expressly mentioned, no major consequences of financial relevance would occur.
392.
As is undisputed, in fact, BBA had over 3000 employees at the time who, on average, had 100 unused vacation days for which, in case of retirement, they could claim salaries the total of which amounted to over USD 5 million. Further, Claimant found out that the company had never paid social security on account of its overseas employees the total of which amounted to USD 1.2 million. Though both of these liabilities resulted from application of the relevant Bulgarian laws, their factual basis in the present case had to be disclosed in the information documents. This is particularly so, since it was clear between the Parties, though not included in the contract wording, that one of the main measures for Claimant to put the company back on a financially sound track was that large numbers of the employees had to be terminated. Under these circumstances, if the above cited phrase in the KPMG Report even mentioned the three gross salaries to be paid to retirees, Claimant, not mentioning the above mentioned outstanding liabilities from prior activity of the company for unused vacation days and social security, particularly in view of the large amounts due in that regard, was, if not incorrect, definitely "misleading or presented in bad faith" both of which give rise to liability according to Article 9.1.2. PA.
393.
Therefore, the Tribunal concludes that Respondents are liable in this regard.
394.
Again, at a later stage in this Award, the Tribunal will have to examine whether this breach by Respondent caused any damage, particularly whether any of the amounts thus due were in fact paid by Balkan.

6. Debt of the Government of Bulgaria due in respect of Training of Pilots

a. Summary of Contentions by Claimant

395.
Claimant explains scope of representations and misrepresentations regarding the debt owed by the Bulgarian government for the training of pilots by BBA as follows (C I, paras 46 seq.):

"i. The Scope Of The Representation

46. Paragraph 11 of the chapter of the Disclosure Letter (Exhibit "C/39") dealing with the Company's Activity, stated as follows with regard to debt due from the State to the Company in respect of training of Bulgarian pilots:

"Pursuant to Appendix No 21 at present the indebtedness of the Bulgarian government towards Balkan Airlines EAD exists".

Appendix 21 of the Disclosure Letter stated in this connection that:

"... Balkan Airlines has continued the training of the previously admitted students till 1996, receiving no money from the State Budget. For the period 1990-1996 the cost of training is 3,387,235 USD. This sum is to be regarded as due from the State Budget".

ii. The Scope Of The Misrepresentation

47. Subsequent to signing the Agreement it was found that the Bulgarian Government does not acknowledge the existence of any debt to the Company due to training of pilots."

396.
Claimant argues that representation given in the Disclosure Letter regarding a debt owed by the Government of Bulgaria transpired to be untrue as it did actually not exist (C II, para. 168). Respondents may not reject this allegation by asserting that Claimant had not even attempted to collect the debt, as (i) it is unclear whether Respondents would have paid at all and (ii) Claimant's demand in its letter dated 18 October 2000 remained unanswered (C II, para. 172).
397.
The Republic argued that the Claimant did not take the required legal action to collect it. However, if legal action had to be taken to collect such a debt, then clearly the representation which was given was false, or at the very least misleading. Furthermore, when a Government represents that a Disclosure Letter stating that it owes money, then, if later it transpires that it does not owe the money, then at the very least, the representation it gave was untrue (C V, para. 80). This was confirmed by the Respondents' Expert (C IV, para. 296).

b. Summary of Contentions by Respondent No. 1

398.
Respondent No. 1 explains that disclosure in regard to debt owed by the State budged was accurate. In support of this perception it cites from the Information Disclosure Letter:

"Pursuant to Appendix No. 21 at present indebtedness of the Bulgarian government towards Balkan Airlines EAD exists."

Appendix No. 21 in turn reads:

"Balkan Airlines has continued the training of the previously admitted students till 1996, receiving no money from the State Budget. For the period 1990-1996 the cost of training is 3,387,235 USD. This sum has to be regarded as owed by the State Budget." (C-39, para. 11, p. 5; R II B, para. 269 seq.)

399.
Contrary to Claimant's allegation, there was no misrepresentation regarding KPMG's clear methodology for provisioning for bad debts. Moreover, the representation in the Information Disclosure Letter about the existence of a pilot training debt due from the state budget to Balkan Airlines was accurate. (R III B, paras 142 et seq.)
400.
Claimant rather lacked the necessary diligence in collecting the debt (R II B, para. 272).
401.
Moreover, given that this debt of USD 3,387 million is dwarfed by Balkan Airlines' own debts to the Bulgarian state it is questionable that Claimant suffered any damage at all resulting from failing to collect it (R III B, para. 144).

c. Summary of Contentions by Respondent No. 2

402.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 51, before para. 5.8):

"It is hereby stated that this claim is unfounded and may not be submitted by the Claimant. No agreement was reached that the sums allegedly due from the state budget will be paid by the Respondent and/or the state. Further these sums were due not to the Claimant but to the Company and the Claimant may not submit such claims attributed to other persons. At the same time the eventual claim of the Company towards the state was liquidated by prescription upon expiration of five years of its occurring and as no evidence was provided when and what part of the debt had occurred this period is to be calculated from the earliest date 1990 i.e. the prescription period had expired as of the day of submitting the Request for Arbitration. With respect of the last sentence the Claimant did not provide any proof of the amount of the debt for each year so that no conclusion may be made on the volume of this debt, safe it is not owed to the Claimant and the Respondent is not liable for it."

403.
Respondent No. 2 makes the following statements in regard to the matter of alleged misrepresentations concerning payments owed by the State for training of pilots: (i) Claimant is not entitled to such debt but BBA and cannot have suffered any damages; (ii) BBA and Claimant as the one who selected BBA's management failed to undertake the necessary steps to collect the debt or to use the right of set-off and (iii) at the time the present claim was submitted the debt had liquidated due to prescription (R II PA, para. 194).
404.
It shall further be noted that according to the Disclosure Letter, this debt was just a claim of the Company against the State, but not a liquid an indisputable asset, as confirmed by Mrs. Docheva and PwC (R III PA, para. 175).

d. The Tribunal

405.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents and evidence:

Party Submissions:

C I paras 46 seq.

C II paras 168, 172

C IV para. 269

C V para. 80

R II B paras 269 seq., 272

R III B paras 142 et seq.

R I PA p. 51, before para. 5.8

Exhibits:

C-35 PA

C-39 Disclosure Letter

Hearings:

Mr. Neitchev 783:5-24

406.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
407.
On one hand the Tribunal considers that it could be doubted whether a misrepresentation existed in this regard, since it was an obligation from another contract. If there was breach of an obligation, then it was a breach under a different contract not under the PA. In addition debts in the amount of USD 8,5 million were signed off by Parliament.
408.
On the other hand, one could consider this to be a breach of obligation under the PA, because, if Respondents never intended to pay back the debt in the first place, then it was a case of misrepresentation. And even according to Respondent No. 2's argument that the debt falls under the law of limitations, one could consider that there was a misrepresentation though a new period would start at the time the government acknowledged the debt and that the debts would therefore not fall under the statute of limitations.
409.
Be that as it may, the wording of Appendix 21 of the Diclosure Letter

"This sum is to be regarded as due from the State Budget." gives the impression that Respondents confirmed the existence of this debt. If that is so, since Respondent No. 1 controls the State Budget, in good faith it was under an obligation to also accept to pay the debt. At least Claimant could understand this from the cited wording. If Respondents nevertheless intended to question the debt and insist that Claimant had to initiate legal action to collect the debt that was at least a misrepresentation which leads to liability under Article 9.1.2.

410.
Therefore, the Tribunal concludes that Respondents breached their obligation under Article 9.1.2. PA.
411.
But at the same time the Tribunal points out that, in its later examination of that liability, it may have to consider whether (i) that breach by Respondents caused any damage (ii) if Claimant never tried to collect the debt and (iii) if the amount is still due and could be collected for the company.

7. Change of Government Policies towards BBA

a. Summary of Contentions by Claimant

412.
Claimant describes the scope of the representation and breach thereof regarding the non-disclosure of future governmental plans concerning BBA and the change of governmental policy towards BBA as follows (C I, paras 49 seq.):

"49. "As the well-established national carrier of Bulgaria for many years, the Company, like other national carriers in many other countries, had enjoyed certain rights, benefits and privileges, which formed an integral part of its Business. These included reduced aviation fees, rights to offer refueling and other ground services to other airlines, responsibility for operating check-in services in Sophia airport, operation of VIP lounge in Sophia airport, etc.

Note is made in this respect to the definition section of the Agreement (Exhibit "C/35"), which defined the Company's "Business" as follows:

"International and domestic passenger and cargo transport and thereto related services and activities, hire and lease of air transport crafts and equipment, production, technical and intermediary activities, investment and engineering, on-land servicing and airport terminals, training and requalifying of staff, domestic and foreign commercial business, representational agency, tourism, bedding and catering, advertising, informational and any other services as permitted by law".

50. Immediately after the privatization, these rights and benefits started to be taken away from the Company. Among the rights and benefits which were removed were the following:

a. Use of buildings and property at Sophia Airport. Over the years Balkan had used various areas at the airport for the purposes of its routine operations. After the privatization the Company was suddenly and unilaterally informed that it can no longer do so, and was required to pay if it wished to continue to use them.

b. Rights to provide refueling services. Over the years the Company had enjoyed a franchise to provide refueling services at the airports for its own and other companies' aircraft. After the privatization, the Company was suddenly and unilaterally told that it no longer has these rights, and was informed that these were passed to someone else. The Company was obliged to pay for these services, and lost the income they used to generate.

c. Rights to provide check-in services. Over the years the Company provided check-in services to its and other airlines' passengers. After the privatization this right was removed from the Company.

d. Rights to provide ground handling and ramp handling services. Over the years, the Company provided these services for itself and other airlines. After the privatization, the Company was unilaterally told it could no longer do so.

e. The custom that Government officers should fly with the Company. Since the Company was Bulgaria's national flag carrier, prior to its privatization, it benefited from a governmental custom that Bulgarian officials flew aboard its aircraft during their official traveling. This custom was stopped immediately after the privatization.

f. The Company used to enjoy reduced rates of aviation fees payable to the CAA, ATC and Sophia (and other) airports. These benefits stopped immediately after the privatization of the Company.

51. None of the Information Documents had disclosed that any of the above rights and benefits would be removed from the Company, following the privatization.

As outlined above, the Agreement explicitly provided that the Information supplied to Zeevi Holdings with regard to the Company was "exhaustive", "true", "accurate", "complete", "not-misleading" and "not presented in bad faith" (see clauses 3.6.1, 3.7.1-3.7.3, 9.1.2).

Clearly, the non-disclosure of the fact that the Company would be denied and would lose the various rights and benefits (worth millions of dollars a year to it) immediately after the privatization, is in direct conflict with these undertakings.

52. Clause 3.9.2 of the Agreement (Exhibit "C/35") provided that:

"... the acquisition of the Shares pursuant to the Agreement shall not adversely affect... the enjoyment by the Company or the Buyer of the rights attaching or deriving from [the exclusive national carrier status]".

Denying and removing from the Company, immediately after the privatization, the various rights and benefits it used to enjoy prior to its privatization due to its status of national carrier, was also in breach of this undertaking.

53. During the negotiations, the representatives of the Government cultivated an atmosphere of good-faith and honesty, giving the clear impression that the parties are "partners" in their common goal to achieve Balkan's recovery, and that the spirit of good will and cooperation between the parties would also continue after the privatization. The behavior of the Government immediately after the privatization, which divested the Company from the various rights and benefits it used to enjoy, was in stark contradiction to this conduct and impression."

413.
Claimant contends that BBA enjoyed certain privileges due to governmental policies prior to its privatization. These privileges, like the reduced aviation fees and ticket offices in governmental buildings (C IV, para. 297) were taken away from BBA after the privatization. This was not communicated to the Claimant prior to signing the PA.

b. Summary of Contentions by Respondent No. 2

414.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 55, before para. 5.9):

"The claims for non disclosure or changes of future governmental plans are not found and irrelevant. The Claimant did not provide any legal reasoning based in the applicable substantive law or the Privatization Agreement to submit this claim. Neither did the Claimant produce evidence and reasoning whether such changes had actually occurred. The Respondent is not liable for any actions or omissions of state authorities, and even if being an agent of the State, it remains not liable as the contract would affect the represented, safe no undertakings as alleged by the Claimant were made in the Privatization Contract.

Further the Claimant failed to provide arguments and evidence on the direct manifestation and volume of the alleged breach and misrepresentations of the Respondent and/or the Sate of Bulgaria. Therefore this claim is not proved as amount. And on the last place - even if such breaches existed, which is denied, the Claimant was not the affected party for them as they allegedly resulted in the financial status of the Company and not in the patrimony of the Claimant. Therefore the Claimant may not submit such claims which, if grounds ever existed, could be attributed only to the Company."

415.
Respondent No. 2 denies that any governmental policy in the sense described by Claimant ever existed. None of the alleged rights and privileges were awarded to BBA. Other activities and conditions were the result of the airline's normal operations rather than a specific governmental policy.
416.
In addition to the above, Mr. Frank confirmed that, contrary to Claimant's allegation, he did not see any document obliging state officials to fly BBA as part of the alleged policy (R III PA, para. 177).

c. The Tribunal

417.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 49 seq.

C IV para. 297

R I p. 51, before para. 5.9

R III para. 177

Exhibits:

C-35 PA

418.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
419.
The Tribunal considers that there is no need for long deliberations on the present issue. The issue of the NCS has already been dealt with above and cannot be reconsidered here. But beyond that specific assurance of NCS, neither the PA nor any other information document supplied by Respondents to Claimant provided any express or implied assurance that there would not be any change of government policies towards BBA. Quite to the contrary, the privatization itself could be expected to lead to changed policies and anyhow a government has an inherent sovereign right to decide on policies and its changes. Any limitation in that regard must be clearly agreed on which is not the case here.
420.
Therefore, the Tribunal concludes that there is no liability of Respondents in this regard.

8. New Debt of BBA to ATC

a. Summary of Contentions by Claimant

421.
Claimant's view of the scope of representation and misrepresentation in regard to the ATC loan is as follows (C I, paras 55 seq.):

"The Scope Of The Representation

55. Paragraph 3 of the Chapter of the Disclosure Letter (Exhibit "C/39") dealing with the Company's activity, stated as follows:

"Balkan Airlines EAD has entered into agreements and assumed obligations only with regard to conducting its usual activities".

In addition Clause 3.7.3 of the Agreement (Exhibit "C/35") stated:

"The Seller further warrants that there has been no material adverse change in the financial position of the Company since 31st December 1998...".

See also clauses 3.6.1 and 3.6.2 of the Agreement.

ii. The Scope Of The Misrepresentation

56. Subsequent to signing the Agreement, it was found that on 15th June 1999, only two weeks before the Agreement was signed, the Company took a short-term, three month loan of USD 3,000,000 from the Bulgarian Air Traffic Control (the "ATC"). This loan was not disclosed in any of the Information Documents."

422.
Claimant asserts that the reasons for BBA to take out the undisclosed USD 3,000,000 short-term loan from a government entity, i.e. ATC, are revealed by the witness statement of Mrs. Docheva (witness statement of Mrs. Emilia Docheva, clause 6):

"Immediately before the privatization, just two weeks before, there was a real risk for Balkan to stop operating because of the pile of unpaid liabilities. All Balkan's partners denied to credit the Airliner's activity any more. So, the managing body of Balkan approached the Minister of Transport and Finance to permit the Company to take credit from ATC."

Claimant's view is that the fact that BBA had serious liquidity problems described in the witness statement needed to be fully disclosed. (C II, paras 177 et seq.)

423.
Contrary to the Republic's allegation, Appendices 18 and 19 of the Disclosure Letter do not reveal any information regarding this Loan. Respondent No. 1's assumption in this matter has not been supported by any witnesses or documents. In fact, the documents presented by the Republic show, that due to their numbering, they cannot be part of neither Appendix 18 nor 19 (C IV, para. 304). Respondent No. 2 came up with to different versions contradicting each other, concerning the Loan. However, neither version proves that disclosure of this Loan was made in Appendix 18 or 19 (C IV, para. 305). It cannot be regarded as Claimant's knowledge about a certain document, if it is not attached to where it was supposed to be attached. Especially in a Disclosure Letter consisting of 7 volumes (C IV, para. 306).
424.
Since Claimant and the Respondents submitted two different versions of Appendix 18, which cannot co-exist, Claimant stresses that the Respondents' version must have been fabricated. This is due to the fact that even though it looks similar to the Claimant's version, the "PA Numbers" on the various pages of the Respondents' version, are not in consecutive order. Furthermore, some of these numbers have been "scribbled" on the pages, indicating that they came from somewhere else. (C V, paras 83 et seq.) Claimant concludes that "whoever manipulates exhibits produced to an international panel of arbitrators clearly would have no problem fabricating other exhibits and evidence" (C V, para. 87).
425.
Furthermore, Claimant indeed suffered, contrary to Respondents' allegation, damages resulting from ATC Loan, since it bore legal interest as of 30 September 1999. Moreover, it constituted a liability affecting the Company's accounts, which required disclosure. Finally, misleading the Tribunal, the Respondents stated that a sum of about USD 3 million was made available to the Company through sate funds to cover the ATC. The document provided in support of that funding, however, suggests that only BGN 3 million (USD 1.6 million) were made available to cover a different loan (C IV, para. 309).

b. Summary of Contentions by Respondent No. 1

426.
Respondent No. 1 notes that Claimant was well aware of BBA's severe cash flow limitations. The Financial Analysis revealed that the airline's current liabilities exceeded its current assets and that BBA was unable to repay debts that fell due and faced serious shortages of operating capital (R II B, para. 275).
427.
It is further asserted by Respondent No. 1 that the ATC Loan was in fact specifically disclosed in the Information Disclosure Letter which was inter alia appended by three documents related to this loan (see Appendix 18). The Information Disclosure Letter in turn was appended to the PA (see Annex No. 1). (R II B, paras 276 et seq.)
428.
The confusion relating to the pagination of the relevant disclosure results from the fact that (i) the ATC Loan documents were attached twice to the Information Disclosure Letter; and (ii) two different page numbers appear on each page of the Republic's copy of the Information Disclosure Letter. To clarify this matter, Respondent No. 1 submitted a complete copy of Appendix 18 with its Post Hearing Brief of 8 October 2004 (R III B, paras 128 et seq.).
429.
Even if Claimant was indeed unaware of the ATC Loan it could not have suffered any damage since (i) the loan was interest-free, (ii) it was still outstanding when BBA entered insolvency proceedings and (iii) BBA's operation was in no way impeded by ATC in order to collect the debt nor had BBA ever tried to repay the loan (R II B, para. 280).

c. Summary of Contentions by Respondent No. 2

430.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 56, before para. 5.10):

"The present claim is unfounded and not justified. The Claimant was informed for this short-term loan by the information documents and during the negotiations. Further this loan was received in the course of the normal operation of the Company and did not by any means damage the Company and/or the Claimant.

431.
Respondent No. 2 further notes that the fact that a loan is disclosed in a draft prospectus, which was not published, does not damage the Claimant either (R IV PA, para.107).

"As the loan to the Air Traffic Control was repaid by the Company without any financial burdening or damages, it is mostly ungrounded to claim damages or losses out of such factual background. No proof written or oral for damages caused by the loan or the alleged concealing of it, which is denied, had been presented in these proceedings. As a consequence the volume of impact of this loan or the alleged misrepresentation on the activities of the Company was not proved also."

432.
Respondent No. 2 states that the debt to ATC was made in BBA's normal course of operations and activities and was used to finance those, whereas the creditor's identity is irrelevant in this regard. It is denied that Respondent No. 2 represented the absence of liquidity problems but merely stated in the Disclosure Letter that

"Balkan Airlines EAD has entered into agreements and assumed obligations only with regard to conducting its usual activities." (R II PA, para. 201)

433.
Respondent No. 2 alleges, according to Mr. Golan's witness statement the debt was not concealed from the Claimant, contradicting paragraph 7.17 of Claimant's Statement of Claim (R III PA, para.179).
434.
In its attempt to mislead the Tribunal, Claimant presented to it only part of the Disclosure letter, which it even admitted.
435.
With regard to the numbering problem of the relevant appendices Respondent No. 2 notes, at no point the Respondents had specified the numbering of the pages as made along the signing of the Contract. What is important is that these documents were attached to the Disclosure letter as Attachment 18. It could not be attached as Appendix 19 as this appendix contains disclosures regarding loans provided not to but by the Company. Claimant's allegation that Appendix 18 contained only the HypoVereinsBank loan is false.

d. The Tribunal

436.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 55 seq.

C II paras 177 et seq.

C IV paras 304 et seq., 309

C V paras 83 et seq., 87

R II B paras 275 et seq., 280

R III B paras 128 et seq.

R I p. 56, before para. 5.10

R II PA para. 201

R III PA para. 179

R IV PA para. 107

Exhibits:

C-35 PA

C-39 Disclosure Letter

437.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
438.
First of all, the Tribunal notes that it is undisputed that the USD 3,000,000 were paid to and received by the Airline and were not paid back to the Directorate of ATC.
439.
With regard to the dispute between the Parties as to whether there was a disclosure in this regard by Appendix 18 to the Disclosure Letter, the Parties have submitted two different versions of this Appendix. While Claimant assumes a forgery in this context, Respondents explain the differing pagination by a twofold use of the Appendix.
440.
The Tribunal concludes that it does not have to decide this evidentiary issue for the following reason: Though an unpaid debt reduces the value of a company, to prove any damages resulting from the alleged misrepresentation in this regard, Claimant would have to prove that a damage occurred though the loan provided additional liquidity to the company. The Tribunal does not see that Claimant did provide such proof. Quite to the contrary, the Tribunal notes that the loan was interest-free, was not repaid and the amount was still available at the time BBA entered into insolvency proceedings. In particular, Claimant has not been able to provide proof that either the existence of the loan impeded BBA's ongoing operation or caused the start of the insolvency proceedings.
441.
Therefore, in this particular case, the Tribunal considers it appropriate to already deal with the causation of damage by the alleged misrepresentation, because it makes it clear that even in case of such a misrepresentation the Tribunal would not be in a position to accept any claim for damages in this regard.

9. Transfer of Real Estate Assets

a. Summary of Contentions by Claimant

442.
Claimant defines scope and breach of undertaking to transfer real estate assets in the name of BBA as follows (C I, paras 58 seq.):

"i. The Scope Of Undertaking

58. Paragraph 5 of the Finance Minister's letter annexed as Appendix 11 to the Agreement (Exhibit "C/46B") stated as follows:

"Regarding the property of Balkan Airlines in Bulgaria and abroad paid by the company, however, lacking ownership deed, no claims for payments related to prior periods should be filed and full support shall be provided to Balkan Airlines for the utilization thereof at similar terms."

Attention is drawn in this context to clause 3.12 of the Agreement as well.

ii. The Scope Of The Breach Of The Undertaking

59. Contrary to the Finance Minister's assertions, no assistance was given to Zeevi Holdings to transfer the Company's real estate under the Company's name. This prevented the Company from selling these properties and collecting vitally important cash for the Company."

443.
Mr. Golan's First Witness Statement supports this view, which has not been contradicted by any of the Respondents' witnesses (C IV, para. 310).

b. Summary of Contentions by Respondent No. 1

444.
Respondent No. 1 asserts that neither the PA nor the Letter of the Minister of Finance referred to by Claimant do in fact contain the alleged undertaking to transfer title to real estate assets to BBA. Respondent No. 1's understanding is that the aforementioned letter rather contains the Minister's undertaking to provide "full support" to BBA for "utilization" of

"property of Balkan Airlines in Bulgaria and abroad, paid by the company, however, lacking ownership deed" (R II B, para. 282).

The property lacking title deeds was described in the KPMG Financial Memorandum and the Financial Analysis (R II B, para. 283).

445.
No breach of this undertaking occurred since utilization of the mentioned property by BBA remained unimpeded at least until 31 December 2000 (R II B, para. 285). Respondent No. 1 has fully complied with this obligation, and Claimant presented no evidence at the Hearing to prove otherwise (R III B, para. 133).

c. Summary of Contentions by Respondent No. 2

446.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 57, before para. 5.11):

"It is expressly repeated that no undertaking for transfer of assets was made by the Respondent or the Sate towards the Claimant or the Company. The respective undertaking of the State for assistance for utilization of used premises and real estate was fulfilled and no proof of the opposite exists. Therefore such claim is totally unfounded and not proved. Further it may not be submitted by the Claimant as it is not direct beneficiary of such undertaking; safe it is denied that the undertaking, as being interpreted by the Claimant exists. The addressee of such transfer of assets could be the Company but not the Claimant and respectively this claim may be submitted by the Company only to which the Claimant has no right of procedural substitution."

447.
Respondent No. 2 submits, it was confirmed by Mrs. Docheva that the Company was never deprived from its rights to use assets it had paid for but were on the name on the State (R III PA, para. 183).

d. The Tribunal

448.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 58 et seq.

C IV para. 310

R II B paras 282 seq., 285

R III B para. 133

R I p. 57, before para. 5.11

R III PA para. 183

Exhibits:

C-46B Appendix 11 to the PA, English translation of the letter from Bulgarian Minister of Finance of 22 June 1999

449.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
450.
This again is an issue where the Tribunal considers that no long deliberations are required.
451.
In the view of the Tribunal it is obvious that no guarantee was given in this respect. The wording "full support" in the Finance Minister's letter is too vague, to conclude that it gave a assurance to clear the way for a transfer of the real estate assets.
452.
Therefore, the Tribunal does not find any liability of Respondents in this regard.

10. Debt of the Yugoslavian Railway Company

a. Summary of Contentions by Claimant

453.
Claimant describes scope of undertaking and breach thereof regarding the debt of the YRC as follows (C I, paras 61 seq.):

"i. The Scope Of Undertaking

61. Pursuant to the letter of the Minister of Finance dated 22nd June 1999, which was attached as Appendix 11 of the Agreement (Exhibit "C/46B") it was agreed that governmental support would be provided to the Company through transfer of an amount of BGN 16,558,557 (approximately USD 8,500,000 (!)), to be used by the Company for the purposes of purchasing a debt of the Yugoslavian State Railways to the Bulgarian State Railways.

ii. The Scope Of The Breach Of The Undertaking

62. After the privatization it became apparent that the Yugoslavian State Railway debt could not be collected, and that it was consequently worthless. Despite the substantial efforts made by the Company, without any help being given on part of the Bulgarian Government, it has proved impossible to enforce the debt and obtain any payments from the Yugoslavia authorities. This was in breach of the Bulgarian Government's obligation pursuant to Appendix 11 to assist in collecting the debt."

454.
Claimant explains that the debt of the YRC assigned to BBA by the Bulgarian Railway Company transpired to be worthless as it turned out to be not collectable despite Claimant's efforts in this regard. Claimant understands that this fact should have been disclosed by Respondents. The claim is based on the PA rather than the assignment agreement between BBA and the Bulgarian Railway Company. According to the PA the Yugoslavian Railway debt was to be assigned to BBA. Assignment of a worthlessness debt did not fulfill this obligation (C II, paras 185 et seq.).
455.
With respect to the Respondents' argumentation that Claimant has not made sufficient efforts to collect this debt, it is noted that, according to Mrs. Docheva's statement, the receivers managing the Company since February 2001 have also not managed to collect this debt (C IV, para. 311).
456.
Claimant alleges that Respondent No. 1 tried to mislead the Tribunal in stating that its obligations were to extend funds to allow the Company to acquire the Yugoslavian Railway debt and to assist Balkan to set off this acquired receivable against the Company's debt to YRC. Unfortunately, the debt which Balkan owed was not to YRC but to the Yugoslav state, hence the receivables could not be set off against YRC. (C V, para. 90)

b. Summary of Contentions by Respondent No. 1

457.
The scheme underlying the Yugoslavian Railway debt is described by Respondent No. 1 as

"an arrangement whereby Balkan Airlines would be able to settle liabilities to the Yugoslav state, by obtaining credit in the same amount from BDZ against the Yugoslav state railways" (R II B, para. 288). Respondent No. 1 thereby "undertook to finance the assignment of the BDZ receivable and to provide support in the settlement of the respective liabilities" (R II B, para. 289).

458.
The described undertaking has been fulfilled as transfer of USD 8,500,000 to BBA was effected on 9 July 1999 and the receivables were assigned by BDZ to BBA on 31 August 1999. Thereby, BBA was put into the position to avoid payment of its debt to the Yugoslav state by way of setting off. Respondent No. 1 has further expressed its willingness to assist BBA in this matter. Claimant, however, eventually requested cancellation of the assignment and cash payment of the given credit instead (R II B, paras 289 et seq.). Contrasting this, Mr. Golan's testimony at the Hearing confirmed that this was also Claimant's understanding, i.e. that the Yugoslav debt was not meant to be "paid back" (R III B, para. 136).

c. Summary of Contentions by Respondent No. 2

459.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, pp. 58 seq., before para. 5.12):

"It is expressly repeated that no undertaking for collection of the transferred debt was made by the Respondent or the Sate towards the Claimant or the Company. The respective undertaking of the State for transfer of the debt was fulfilled which was proven, and this was made with no financial costs for the Claimant or the Company. Therefore such claim is totally unfounded and not proved. Further it may not be submitted by the Claimant as it is not direct beneficiary of such undertaking, safe it is denied that the undertaking, as being interpreted by the Claimant exists. The addressee of such transfer of debt was the Company but not the Claimant and respectively this claim may be submitted only by the Company to which the Claimant has no right of procedural substitution. As consequence of the lack of grounds of the claim no proving is made of the volume and nature of damages or loss of future profits that were suffered by the Claimant."

460.
Respondent No. 2 denies that any undertaking was made that the Yugoslavian Railway debt will remain collectable. Likewise, Article 100(2) of the OCA provides that the assignor is not liable in this regard. Respondent fulfilled its contractual obligation to assign the debt. It is further emphasized that neither Claimant nor BBA made any payments in return for this debt. Therefore, no damage can have arisen in regard to the uncollected debt (R II PA, paras 207 et seq.).
461.
It is contested that the Claimant failed to provide oral or documentary evidence that the Yugoslavian Railroad debt was crucial undertaking for it to purchase the Company or that it had undertaken the necessary steps to collect this debt from the YRC at all (R III PA, para. 186).

d. The Tribunal

462.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 61 seq.

C II paras 185 et seq.

C IV para. 311

C V para. 90

R II B paras 288 et seq.

R III B para. 136

R I pp. 58 seq., before para. 5.12

R II PA paras 207 et seq.

R III PA para. 186

Exhibits:

C-46B Appendix 11 to the PA, English translation of the letter from Bulgarian Minister of Finance of 22 June 1999

463.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
464.
The Tribunal considers that two bullet points in the letter of the Minister of Finance dated 22 June 1999, which was attached as Appendix 11 of the PA (Exhibit C-46B) must be seen together, since both are under the heading "Debt to FR Yugoslavia". If that is so, it is of relevance in interpreting the undertaking of the Ministry of Finance that the first bullet point expressly mentions "for the purposes of acquiring receivables of BDZ from FR Yugoslavia" and that the second bullet point makes it clear that the purpose is the settlement of the respective liabilities. In view of these wordings, the respective undertaking of the Ministry cannot be understood as an assurance to provide fresh money to Claimant. Rather, the assignment actually effected, in the view of the Tribunal, was indeed an option to comply with the undertaking.
465.
With regard to the question as to whether the assignment was worthless, the Tribunal notes that this has not been shown by Claimant for the limited purpose of the transfer mentioned above. It would still seem that the assignment put the Company into the position to avoid payment of its debt to the Yugoslav party, and indeed, YRC never collected the money (C-70/R-5). A set-off against a debt that really existed would have been possible and as long as there has not been a set-off, the Company still had a receivable at its disposal.
466.
Therefore, the Tribunal does not find a liability of Respondents in this respect.

11. Assistance with respect to Excess Debts

a. Summary of Contentions by Claimant

467.
Claimant describes scope of undertaking and breach thereof regarding assistance with respect to BBA's excess debts as follows (C I, paras 64 seq.):

"i. The Scope Of Undertaking

64. Clause 3.11 of the Privatization Agreement (Exhibit "C/35") stated:

"The Seller hereby undertakes to assist the Buyer and the Company in renegotiating any other debts of the Company listed in the Information Disclosure Letter - Annex 1 to this Contract".

ii. The Scope Of The Breach Of The Undertaking

65. The Bulgarian Government took no steps to assist in renegotiating any of the Company's debts.

66. Moreover, the Government (and its various agents) stood first to demand payment by the Company of various past debts, such as the undisclosed debt to the ATC (see Section H above) or the increased debts to the CAA and airports (see Section C above), with regard to which legal proceedings had also been brought."

468.
Claimant asserts that Respondents failed to provide any assistance to renegotiate BBA's debts (C II, para. 188).
469.
Mr. Golan's witness statement remains uncontested by the Respondents (C IV, para. 312).

b. Summary of Contentions by Respondent No. 2

470.
Respondent No. 2 summarizes it contentions on this issue as follows (R I, p. 61, before para. 6):

"This claim is once again made in bad faith as the Claimant misinterprets the contents of the PA and the undertakings made in it. The claim finds no legal or contractual grounds and no sufficient proof of it is presented. Further the Claimant failed to prove the volume and the nature of the damages or losses incurred allegedly by it."

471.
Respondent No. 2 points out that no attempts of Claimant were made in regard to renegotiations of debts whereas Respondent in fact provided assistance by rescheduling of BBA's existing debts (R II PA, para. 211). Claimant could not provide a single piece of evidence that it even requested such "assistance" or that it was denied such (R III PA, para. 188).

c. The Tribunal

472.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I paras 64 seq.

C II para. 188

C IV para. 312

R I p. 61, before para. 6

R II PA para. 211

R III PA para. 188

Exhibits:

C-35 PA

473.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
474.
Again, this is an issue not requiring long deliberations.
475.
The wording of Article 3.11. PA "undertakes to assist" is rather vague and cannot be considered to give a guarantee in this regard. Furthermore, Claimant's allegations in this context are not sufficient to show that Respondents beached that rather general undertaking.
476.
Therefore, the Tribunal does not find any liability of Respondents in this context.

12. Compensation for Loss of the Value of the Company

a. Summary of Contentions by Claimant

477.
Respondents' breaches and failures directly caused the Company's collapse constituting the loss of the value of the Company to Claimant. (C VII, para. 106)
478.
Claimant's belief in the Company's success is best proven by the massive injections of funds into the Company over a very short period of time and the additional activities Claimant undertook, such as consulting "Speedwing"in order to restructure the Company modernizing the aircraft fleet and initiating a joint venture with IAI to establish Balkan Technique. (C VII, paras 107 et seq.)
479.
The potential Claimant saw in its investments in Balkan is evidenced by its plans to launch a public offering based on its holdings of Balkan. (C VII, para. 112)
480.
On the Respondents' own admission, these actions brought about a substantial improvement in the Company's position. (C VII, para. 113)
481.
Despite all these activities, the Company collapsed at the beginning of 2001. (C VII, para. 114) the reason for this is that the Company was missing at least assets in the amount of USD 91,994,876 due to Respondents misrepresentations. This collapse could have been avoided had the Respondents injected into the Company only a small portion of the total value of their false representations. (C VII, paras 115 et seq.) This is supported by Claimant's expert Mr. Raphael Harlev. (C VII, para. 118)
482.
As can be seen from the 2001 Budget, this budget forecasted an operating profit for the Company already for 2001 amounting to USD 1,851,000 but also required a total injection of USD 10,750,000 during the year. (C VII, para. 119) From a comparison of this amount with the amount the Respondents owed to the Company one can conclude that the collapse could have been avoided, if the Respondents had compensated to the full extent of the missing assets and additional liabilities. (C VII, para. 120)
483.
If the Respondents had at least shown its willingness to accept responsibility for its false representations, Claimant would have been willing to inject even further amounts. This is proven by the fact that claimant already had injected USD 14,750,000 over and above what was required under the PA. (C VII, para. 122)
484.
The budget for 2001 also proves that had the Company's position upon its privatization been as presented to Claimant, there would have been no problem operating the Company. (C VII, para. 125)
485.
The Company's budget for 2001, thoroughly illustrates that the size of the amounts that were lacking for the Company's continued existence were far less than the amounts that the Respondents were liable to pay in view of the false representations that had been made. Thus, had such payments been made, the Company would not have collapsed. Hence, the loss of the Company is a direct result of the Respondents' misrepresentations. (C VII, para 126)
486.
According to the Expert's conservative Valuation, which is based on data compiled by Speedwing, made for the Company by Dr. Elli Kraizberg, the value of Claimant's share in the Company, as a going concern, as of 1 January 2001 was USD 71,845,000. The Company's collapse accordingly reflects a direct loss to the Claimant which at the very least equals this amount. (C VII, paras. 127 et seq.)
487.
According to Speedwing's report, which is undisputed, the Company's profits for the five-year period of the report's projections would have reached the sum of USD 55.6 million. (C VII, para. 131)
488.
This was confirmed by the Expert Opinion of Mr. Raphael Harlev, which corresponds to Mr. Golan's and Mr. Frank's witness statements, who stated that the Company had implemented the restructuring steps recommended by Speedwing to a large degree. (C VII, para. 133)
489.
The Valuation also analyzed the Company's real estate assets and its landing rights. The Valuation of the real estate assets is based on real-time valuations made to these assets. The value of the flying rights has been determined based on a market valuation report made to the Company's assets at the request of the Trustees' in Balkan's bankruptcy. 50% of this value are counted as surplus value being worth USD 5,800,000. The Respondents have acknowledged a much higher value to these rights. (C VII, paras 134 et seq.)
490.
In view of the conservatism practiced in preparing the Valuation, among other things, the Valuation deducted from the value of the Company the entire amount of the Company's debts which have been recognized by the Trustees in Balkan's bankruptcy. (C VII, para. 138)
491.
To conclude, the Respondents' refusal to fulfill their contractual and legal obligations and compensate and indemnify for the missing assets and additional liabilities (in an amount which is far greater than the USD 10,750,000 which were needed to ensure the Company's operations), thus caused an additional direct loss to Zeevi Holdings amounting to at least USD 71,845,000. (C VII, para. 139)
492.
Claimant submits, it could not have prevented Balkan Airlines' collapse. Claimant's desperate attempt to save the company is best illustrated by the fact that it injected far more funds than it was contractually obliged to. (C VII, para. 141) Furthermore, Claimant purchased the Company with the representation that the Respondents undertook to support it in all matters, which, in reality they did not (reference is made to the loss of the national carried status). This behavior also resulted in severe damage to the Company's reputation, which negatively affected the ability to inject additional funds from third parties. (C VII, para. 142)
493.
Additionally, Claimant sought to raise capital in form of a public offering of the Company. This was, however, made impossible due to the fact that Claimant had to disclose the Respondents' misrepresentations to the public. (C VII, para. 143)
494.
Moreover, had the Respondents undertaken to perform their part of the PA, claimant would have been able to inject further funds into Balkan. (C VII, para. 144)
495.
In this respect, Claimant refers the Tribunal to the letters dated 7 September 2000, 14 September 2000 and 18 September 2000, in which Claimant informs the Respondents of their breaches of the PA and the urgent need of the Company to receive additional funds due to these misrepresentations by the Respondents. (C VII, para. 146)
496.
Hence, for a relatively small amount, the Respondents could easily have avoided the enormous damages and losses that were sustained ex post facto. In view of the letters that were written, it is clear that the Respondents cannot argue that they were unaware of the heavy damages and losses that were likely to be caused. Therefore, the Respondents should compensate for the damages in full. (C VII, para. 147)

b. Summary of Contentions by Respondent No. 1

497.
Regarding the claim for USD 40 million for the direct loss to Claimant resulting from the Company's collapse, Respondent No. 1 submits, it was Claimant's management that led to the exponential deterioration of the airline's financial condition in 2000. (R VII B, para. 140) In view Claimant's allegation, that Balkan was doomed to fail, Respondent No. 1 refers to Claimant own consultants, Speedwing, who concluded, concluded that Balkan Airlines would achieve operating break-even within a year or two, provided significant investment was made, chiefly in "modern aircraft". (R VII B, para. 144) Mr. Harlev drew a similar conclusion. (R VII B, para. 145) Hence, the Speedwing Report and Claimant's 2001 budget show that the cause for Balkan Airlines' so-called "collapse" could not have been the misrepresentations and breaches with which Claimant charges the Respondents. (R VII B, para. 149)
498.
Respondent No. 1 alleges in this regard, Claimant was responsible for the deterioration of the financial condition of Balkan Airlines as at February 2001. (R VII B, para. 150) This allegation is sustained by the Second PwC Report, which describes the steep deterioration of Balkan under Claimant's management in 2000 and attributes this to a significant increase in Balkan Airlines' expenses, a large proportion of which comprised expenses for hired services; the disappearance of many of Balkan Airlines' principal assets; the significant increase in Balkan Airlines' debt and the halving of Balkan Airlines' cash holdings. (R VII B, para.152) These were allegedly all direct results of Claimant's management of the Company. (R VII B, para. 153)
499.
The PwC Second Expert Opinion concludes, instead of investing in Balkan Airlines, Claimant appropriated a net of approximately USD 5 million. (R VII B, para. 155) It was due to these appropriations, that Balkan Airlines collapsed in February 2001 (R VII B, para. 156)
500.
Furthermore, in view of the facts that, according to Respondent No. 1 only days before the Company collapsed, Claimant siphoned USD 1 million out of the Company and Claimant's entire management left Bulgaria for Israel, Respondent No. 1 contends, Claimant abandoned the airline. (R VII B, para. 157) This also emerges from Mr. Frank's curriculum vitae, stating with regard to Balkan Airlines, the project was abandoned. (R VII B, para. 158)
501.
Therefore, the value of the shares in Claimant's possession is of no relevance to this arbitration, since the company did not collapse due to Respondents' alleged misrepresentations, but to the abandonment by the Company's own management, Claimant. (R VII B, para. 160)
502.
In any event, Respondent No. 1 asserts, Dr. Kraizberg's valuation of Balkan at the time of Claimant's abandonment is unreliable. In this regard, Respondent refers to the PwC Report, which concluded, that it was impossible to verify Dr. Kraizberg's valuation due to the significant amount of unsupported calculations and assertions made within the valuation. (R VII B, paras 161 et seq.) The inadequacies of Dr. Kraizberg's valuation do not mean that Balkan Airlines was worthless in early 2001. Balkan Airlines definitely had value in February 2001, but the Kraizberg Report is not a reliable basis upon which to calculate that value. (R VII B, para. 164)

c. Summary of Contentions by Respondent No. 2

503.
With respect to the damage resulting from the loss of the Company, Respondent No. 2 submits, Claimant breached its funding obligation. In this regard it is noted that the argument that the Claimant restrained from duly fulfillment of its investment and funding obligations in response to Respondents misrepresentations and breaches should be rejected. (R V PA, para. 101)
504.
The Company collapsed not because of Respondents' erroneous conduct but for the Claimant's own breaches of the agreement followed by the abandonment of the Company. (V PA, para. 103)
505.
Furthermore, Respondent No. 2 submits, it is contrary to good faith procedural conduct to put forward a claim for loss of the company at this late stage of the proceedings as no such claim was raised in the phase on liability issues and thus conflicts with Article 20 of the UNCITRAL Rules. (R V PA, para 104)
506.
Claimant's allegation concerning the loss of the Company is baseless, since the Company was not lost, but abandoned by Claimant. The bankruptcy proceedings would never have commenced, if Claimant, had covered the USD 500,000 claim from Bulstrad. (R V PA, para. 105)
507.
Furthermore, Claimant's evaluated loss based on Dr. Kraizberg's Valuation, is to be disregarded, since this Valuation consists mostly of presumptions. Moreover, there is no justified right to recovery of lost profits in this case since there is no evidence that the Claimant could have performed his part of the obligations. (R V PA, para. 106)
508.
Furthermore, Respondent No. 2 submits, since Claimant has failed to provide any realistic proof of it future profits, it is not possible to render an award on such basis. (R V PA, para. 108)
509.
The application of a discount cash flow analysis in the present case is inappropriate given Claimant's business plans were not fully implemented and an award based on future but uncertain profit would be thoroughly speculative. Moreover, Mr. Harlev admitted that the Company would have started to fully implement the Speedwing recommendations only in 2002. Since until then, the Company's losses were growing, the projection of future profits is even more speculative. (R V PA, para. 111)
510.
In contrast to Dr. Kraizberg's Valuation, Respondent No. 2 alleges, in valuating a company, an investor should normally take into account the following issues: cash flow, technical efficiency, fleet age and the general economic environment of the airline industry. (R V PA, paras 113 et seq.)

d. The Tribunal

511.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C VII paras 106 et seq., 112 et seq., 118 et seq., 122, 125 et seq., 131, 133 et seq., 138f., 141 et seq., 146f.

R VII B paras 140, 144f., 149f., 152f, 155f et seq., 160 et seq.

R V PA paras 101, 103 et seq., 108, 111, 113 et seq.

512.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
513.
In this regard, Claimant has the burden of proof that the collapse of the Company was caused by unjustified action of Respondents.
514.
After evaluating the evidence mentioned in the above contentions by the Parties, the Tribunal concludes that both Respondents and Claimant contributed to the collapse of the Company. To mention an example, in view of the relatively small amount lacking and leading to the insolvency, had Respondents paid up what were undisclosed and misrepresented obligations of the Company under the PA, the collapse would probably have been avoided at least at that particular time. But, on the other hand, as will be discussed in more detail in connection with the counterclaims, the Tribunal also concludes from the file and particularly from the PwC Report that Claimant's management lead to a considerable increase in the Company's expenses and debts of various kinds and withdrawal of funds which, together with the sudden abandonment of the Company by Claimant's management in February 2001, as well, contributed to the collapse of the Company.
515.
In any case, in the view of the Tribunal, Claimant has not provided sufficient proof, that it lost the value of the Company due to breaches of Respondents.

13. Conclusion on Claimant's Alternative 1

516.
Taking into account the above considerations and conclusions on the various claims submitted by Claimant under its Alternative 1, therefore, the Tribunal finds that a total amount of USD 3,532,686.24 would be due to be paid by Respondent No. 1. However, further, the Tribunal has to examine the Alternatives 2 and 3 before it can decide which of them shall be accepted for the final decision in this Award.

G.IV. The Relief Sought by Claimant under Alternative 2

517.
Under its Alternative 2, Claimant seeks the following relief:

i. Amount Transferred Over And Above Contractual Commitment

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 -28 October 2005 (USD)Total Amount (USD)
Amount Transferred Over And Above 14,750,000 8,693,688 23,443,688
ii.Compensation for the loss of the value of the Company

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 -28 October 2005 (USD)Total Amount (USD)
Company 45,000,000 26,523,116 71,523,116

Value
iii. Compensation for value of additional assets

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 -28 October 2005 (USD)Total Amount (USD)
Value of additional assets and/or additional liabilities 8,000,000 4,715,220 12,715,220

518.
The Tribunal can deal with these claims without going into further detail. First, regarding the a mount allegedly transferred over and above Claimant's contractual c ommitment, the contract does not provide a basis for its reimbursement and it could therefore only be reclaimed if the collapse of the Company was caused by breaches by Respondents. The latter condition would also apply to the two other claims raised under Alternative 2.
519.
However, as the Tribunal has already concluded above with regard to the last claim raised under Alternative 1, in the view of the Tribunal, Claimant has not provided sufficient proof, that the Company collapsed and Claimant lost the value of the Company due to breaches of Respondents and its assets due to breaches of Respondents.
520.
Therefore, the claims raised by Claimant under Alternative 2 must fail.

G.V. The Relief Sought by Claimant under Alternative 3

521.
Under its Alternative 3, Claimant seeks the following:

i. Damages or restitution of amounts transferred

Description Principal Amount USDInterest Amount During The Period 1 February 2001Total Amount USD
28 October 2005 (USD)
Amounts Transferred by Zeevi Holdings 23,150,000 13,644,669 36,794,669
ii. Compensation for the loss of the value of the Company

DescriptionPrincipal Amount (USD)Interest Amount During The Period 1 February 2001 -28 October 2005 (USD)Total Amount (USD)
Company Value 44,600,000 26,287,352 70,887,352

522.
With regard to the claim raised under section ii., that claim must fail for the same reasons as the claims for the loss of the value of the Company under Alternatives 1 and 2.
523.
With regard to the claim raised under the section i., i.e. for damages or restitution of allegedly USD 23,150,000 transferred by Claimant into the Company, since that issue cannot be separated from the quantification issues, the Tribunal will deal with it below when considering the restitution of amounts transferred by Claimant to the Company.

G.VI. Investments made by Claimant

524.
The issues of Claimant's obligations for investments under the PA, what actually was invested by Claimant and what was the volume of such investments, are also of relevance in the context of Respondents' counterclaim and in the context of quantum of any liability. The Tribunal considers that it is preferable to examine these issues together in that later context in the respective sections of this Award.

G.VII. Claimant's right to compensation

1. Summary of Contentions by Claimant

525.
Claimant submits two alternative claims. First, it claims USD 30,000,000

"for the return of Zeevi Holdings' investment in Balkan."

Claimant further notes that

"Zeevi Holdings would never have made [...] these investment had it known about the misrepresentations. Alternatively [...] these investments would not have been lost had the position of the Company been as described in the Information Documents […]."

Claimant considers the loss of investment directly caused by the alleged misrepresentations and seeks to recover it from Respondents. (C II, para. 46 lit. a.)

526.
Second and in the alternative, Claimant seeks compensation

"for the value of the missing assets and additional liabilities which were misrepresented to it in the Agreement."

Claimant asserts that it is entitled to receive compensation or indemnification for the decrease in value of Balkan Airlines linked to the alleged misrepresentations. Claimant further emphasizes that Balkan Airlines did not suffer any damages due to the misrepresentations and that Balkan Airlines cannot claim compensation from the Respondents. (C II, para. 46 lit. b)

2. Summary of Contentions by Respondent No. 1

527.
Respondent No. 1 contends that Claimant is not entitled to recover its alleged investments in Balkan Airlines. This contention is based on two grounds.
528.
First, Claimant has failed to furnish proof that it was induced by the alleged misrepresentations to conclude the PA (R II B, paras 318 et seq.). Respondent No. 1 asserts that the Claimant's contention that it would not have concluded the PA but for the alleged misrepresentations remains unsubstantiated. To the contrary, it refers to the analysis and conclusion drawn by PwC on this matter that

"it would seem unlikely that any of the misrepresentations alleged by Zeevi, that we have reviewed, would have had a significant influence on the decision made by Zeevi" (PwC Report, at para 5.9; see R II B, para. 319).

529.
Second, Claimant has not sought rescission of the PA although this is a necessary prerequisite for being entitled to recover the claimed damages (R II B, paras 321 et seq.) nor is Claimant actually entitled to seek such rescission (R II N, paras 324 et seq.). Pursuant to Article 29 of the OCA only fraudulent misrepresentations would justify avoidance or rescission of the PA (R II B, paras 322 seq.). Thus, Claimant has the burden to prove that:

(i) the Respondents intentionally misrepresented to Claimant false or inexistent facts as true; and

(ii) these misrepresented facts were of the essence to Zeevi's decision to enter the PA. (R II B, para. 324)

530.
Claimant may now not rescind the PA as these prerequisites are not pertinent. As Balkan Airlines was obviously insolvent there were only two assets that were crucial for Claimant's decision to settle the purchase. One was the airline's status as NC. This fact, however, was not misrepresented. The other asset were the Equant Shares. As to those, the financial analysis prepared by KPMG was presented to Claimant. Thus, no fraudulent misrepresentation has occurred.
531.
Furthermore, Respondent No. 1 contends that Claimant may as well not seek compensation for the alleged breaches of contract claimed in the alternative due to lack of a direct causal nexus between the alleged breaches and possible damages suffered (R II B, paras 329 et seq.). This requirement is stipulated by Article 11.1 of the PA as well as Article 82 of the OCA as the two possible legal bases for the claim. Respondent No. 1 identifies three heads of damage that are of a speculative nature and as such by definition too remote to be admissible.
532.
The first is Claimant's alleged inability to sell shares in Balkan Airlines to a strategic partner. Respondent No. 1 notes that no investor would have been interested in purchasing these shares in light of the airline's grave financial situation.
533.
The second is failure of Zeevi Logistics' public offering. Not only had the failed public offering occurred at a time when stock market prices had plummeted. The company's portfolio most likely included shares in various other companies so that the impact of the shares in Balkan Airlines held by Zeevi Logistics is too speculative.
534.
The third, is the claimed damage to reputation and goodwill. Respondent No. 1 emphasizes that Claimant's assets are subject to orders for receivership its principal on trial for financial crimes. Compared to this, possible damage to its reputation by breaches of the PA is inconceivable.
535.
The further implication of the requirement of a direct causal link is that Claimant may only claim for damages sustained to itself (R II B, paras 335 et seq.) but not for damages suffered by Balkan Airlines. Thus, Claimant had to prove that either its rights as a shareholder of Balkan Airlines have diminished or its obligations increased. As a shareholder Claimant is entitled to a share of the company's dividends but not its income. Thus, Claimant is on the other hand not entitled to claim damages for the airline's lost income incurred in connection with the loss of the NCS.

3. Summary of Contentions by Respondent No. 2

536.
Respondent No. 2 denies that Claimant posses the substantive nor the procedural right to claim compensation for the loans granted to Balkan Airlines as, what Claimant regards it to be, investments. These loans have been transferred to the airline not from the Claimant but a third company (in the largest amount by Balkan Holdings; see R I, para. 5.1.21.). Even if this company was an affiliate of the Claimant the claimed sums are solely attributed to the third company and Claimant therefore lacks legal authorization to submit any claims on its own behalf in this regard (R I, para. 5.1.5.).

4. The Tribunal

537.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C II para. 46 lit. a and b

R II B paras 318 et seq., 321 et seq., 329, 335 et seq.

R I paras 5.1.21, 5.1.5.

Exhibits:

C-35 PA

538.
Taking into account the above contentions of the Parties in so far as considered relevant, the Tribunal's major considerations are:
539.
In this section, the Tribunal will deal only with general questions related to Claimant's right to compensation. The further questions as to whether and which specific damages were caused by Respondents' breaches of their liability, and what the quantum of such damages is, can better be examined later after the investments made by Claimant have been examined and the breaches found by the Tribunal can be related to specific damages with regard to causation and quantum.
540.
The Tribunal notes that Respondent No. 1, as summarized above, concedes that two assets were crucial for Claimant's decision to conclude the PA, i.e. the NCS and the Equant Shares. Respondent then argues that, since no misrepresentations were made regarding these two assets, Claimant has no right to compensation. However, as the Tribunal has concluded above in the sections of the Award dealing with these two assets, there was indeed misrepresentation regarding both assets and thus, Respondents are liable with regard to both according to Article 9.1.2. Thus, the condition on which Respondent No. 1 based its argument is wrong, and on the basis of its own argument at least with regard to these two assets Claimant has a right to compensation.
541.
Furthermore, contrary to Respondents' respective argument, already above in this Award, the Tribunal has concluded that in view of the express liability for information contained in the PA, there is no need for Claimant to prove Respondents' negligence or even intention with regard to the misrepresentations found by the Tribunal.
542.
On the other hand, Respondent is correct in arguing that Claimant has the burden of proof that alleged damages were suffered by Claimant itself and not by third parties. This does not per se exclude damages occurred to Balkan Airlines. Indeed such a damage to the company could still cause a damage to Claimant itself, if Claimant's rights as a shareholder in the company were diminished or Claimant's obligations towards the company or for investments under the PA increased.
543.
Both Respondents argue that Claimant cannot claim any damage in connection with investments made in the company not by itself, but by third parties. The Tribunal is not persuaded by this argument. The wording of the PA both in Article 8.1 and Article 8.2.1. speaks of "investment in or by the Company". Considering the size of the deal and the extensive legal consultation of the Parties in negotiating the PA, it is hard to believe that this phrasing appeared accidentally. Quite to the contrary, it must be interpreted to the effect that, as long as required investments were made, it was irrelevant whether it was made by Claimant itself or a third party. This interpretation also makes economic sense as the investment was important in the context and not by which means Claimant channeled it. This interpretation also is compatible with the general legal principle that, unless otherwise agreed, that an obligation can validly be fulfilled by a third party.
544.
Finally, Respondents have not argued, and indeed there is no indication, that the investments allegedly made by third parties resulted from some other deal or agreement with Respondents. Therefore, it is undisputed that also such investments by third parties were initiated by Claimant. This implies that, since Claimant had a liability regarding such investments towards such third parties for repayment or compensation, that Claimant can claim compensation from Respondents for damage caused to these investments initiated by Claimant in case of liability of Respondents under the PA.

H. Liability under the Counterclaims raised by Respondent No. 1

H. I. The Reasons for the Republic's Counterclaim

1. Summary of Contentions by Respondent No. 1

a. Zeevi and Knafaim-Arkia were selected because of their intention to invest in Balkan Airlines

545.
Respondent No. 1 contends that Claimant and Knafaim-Arkia were selected as the buyers of Balkan Airlines because of their undertaking to invest USD 130 million in an airline which they knew to be in need of significant investment. In 1996, Balkan Airlines was one of 71 state-owned entities placed in public "isolation" under the Law on Financial Recovery. This means that enterprises that were effectively insolvent were protected from their creditors due to financial support by the government. According to the above mentioned law, said financial support could only last until 30 June 1999. After that date, without significant investments by private investors, Balkan Airlines would have gone bankrupt (R VI B, p. 6, paras 20 et seq.). Hence, in accordance with these tender preconditions, on 5 May 1999 Claimant and Knafaim-Arkia submitted a joint proposal for the purchase of 75% of Balkan Airlines' share capital in a letter that set out both their proposed debt-servicing and investment commitments (R VI B, p. 7, para. 23). These significant investment commitments would have been best serviced by the combination of Claimant's the apparent financial strength and Knafaim-Arkia's experience in operating airlines. Therefore, Claimant and Knafaim-Arkia together were selected as purchasers of Balkan Airlines (R VI B, p.8, para. 27). Respondent No. 1 submits Claimant and Knafaim-Arkia prior to purchasing Balkan Airlines understood that it was insolvent and in need of significant investments. This is supported by internal memorandums of Claimant dated prior to the purchase date and definitively on this issue, Claimant's own counsel affirmed during the oral hearing in Paris in July 2004 that

"it is not disputed that the financial condition of Balkan was not good when it was offered for sale, a fact known to Zeevi Holdings. Balkan [Airlines] had about $100 million of debt." (R VI B, paras 28 et seq.)

546.
Notwithstanding Balkan Airlines' historic debts, and manifest need for major investment, the purchase nevertheless represented a significant commercial opportunity for its new owners. The airline was the long-standing NC for a state that was scheduled to accede to the European Union in 2007, and which itself had undertaken pursuant to the PA to forgive and reschedule a series of significant debts owed by the airline to the state in support of its future recovery. In addition, Balkan Airlines had prime take-off and landing slots at some of the major hub airports in the western world, including Heathrow, Frankfurt and New York, that had significant commercial value. Furthermore, Balkan Airlines' asset base comprised an extensive portfolio of real estate, including a 15-storey headquarters building at Sofia Airport and various multi-story hotels in Bulgaria. Additionally, Balkan owned a number of depository certificates in the SITA Foundation that, subject to certain restrictions, corresponded to an entitlement to Equant Shares. Given the comparatively low price of the purchase paid by Claimant (USD 150,000) it cannot be assumed that the Privatization Agency was not concerned to ensure that the purchasers would not simply assume control of the airline and appropriate its most valuable assets for their own benefit, which Claimant ultimately did. (R VI B, para. 30 -34)
547.
Even six months after the privatization was completed Claimant's own independent airline consultant, Speedwing, conducted a review of the airline concluding that subject to significant investment in "modern aircraft", within five years (2000-2004) Balkan Airlines had realistic prospects of generating operating profits over the five-year period in the amount of USD 55.6 million (R VI B, para. 37). Contrary to Claimant's claims, the restrictions of the SITA depository certificates and the cancellation of operations to Lebanon and Syria were already known by the time of Speedwing's evaluation. None of these issues, in Speedwing's opinion, would prejudice Balkan Airlines' prospects of achieving operating profits soon if the necessary investments were made (R VI B, paras 38 et seq.)
548.
Indeed, Claimant itself expressed the same optimism in its draft prospectus for the sale of shares in Balkan Airlines, which was drawn up more than eight months after the conclusion of the PA, in March 2000 (R VI B, para. 41). Hence, the airline's prospects of recovery were very real, but depended on (a) the airline being properly managed, and (b) sufficient investment being made in it by its new owners (R VI B, para. 42).
549.
However, notwithstanding the importance of Knafaim-Arkia's experience in the airline industry to the decision by the Bulgarian government to select the Zeevi/Knafaim-Arkia joint venture (Zeevi had no airline experience whatsoever), Knafaim-Arkia soon withdrew from Balkan Airlines, at a time and for reasons that still to this day remain unclear (R VI B, para. 44), and transferred "all of its interests" to Claimant. Whatever the form, terms and timing of this "transfer", it is likely to amount to a breach of either or both of Article 7.6 (transfer of shares) and Article 13.1 (transfer of rights and obligations) of the PA. For the prospects of Balkan Airlines, the significance of Knafaim-Arkia's disappearance cannot be overstated. (R VI B, paras 44 et seq.)

b. Zeevi's Failure to Invest

550.
Pursuant to Claimant's separate obligations under Articles 7 and 8 of the PA, Claimant was obliged to inject into Balkan Airlines by the end of the year 2000 USD 8.4 million to service pre-existing debts (Article 7), and USD 20 million by way of approved investments (Article 8), i.e. a total of USD 28.4 million. (R VI B, para. 50) The amounts that Claimant alleges to have actually invested in Balkan Airlines up to 31 December 2000 have varied between USD 26.5 million and USD 23.15 million. Whichever amount is accepted, Claimant still failed to fulfill is investment obligations under both Articles 7 and 8 of the PA. (R VI B, para. 51)
551.
For the capital that Claimant did purport to "invest" in Balkan Airlines was advanced by way of egregiously expensive short-term loans granted by Balkan Holdings to Balkan Airlines with durations ranging between only six and 24 months. Respondent No. 1 alleges these transactions were used to strip Balkan of its assets (R VI B, para. 52).
552.
With regard to the recommended investments into a new airplane fleet, by Speedwing, Claimant in fact did the opposite. In January 2001 Claimant sold many of the company's existing aircraft without ever replacing them, simply diverting a large portion of the proceeds of those sales directly into Claimant's own bank accounts before abandoning the airline in February 2001.(R VI B, para. 53)
553.
Respondent No. 1 contends that as of May 2000 Claimant, in fact, intended several times to shift the investment burden to the Government of Bulgaria, contrary to the PA (R VI B, para. 55).

c. Zeevi Diverted Balkan Airlines Revenues

554.
Notwithstanding Balkan Airlines' significant historic debts, its business generated substantial revenues of approximately USD 200 million each year. During the course of the year 2000, in addition to its failure to invest in Balkan Airlines, Claimant appears to have diverted significant amounts of cash generated by Balkan Airlines' business into the accounts of its subsidiaries and officers, by causing Balkan Airlines to conclude a matrix of secret "management" and "consultancy" agreements with Claimant's entities and officers, by which regular payments were to be made from Balkan Airlines to these Claimant entities and individuals. (R VI B, para. 60) At least one of these agreements (with Claimant's Dutch subsidiary, Balkan Holdings) was precisely for services what Claimant itself had undertaken to do as an owner of the airline under the PA. Moreover, the fee to be paid under this "management" agreement was tied to the significant turnover, rather than the non-existent profit, of Balkan Airlines. As noted by both, PwC and Mr. Todorov, one can only appreciate the true effect of the 3% fee charged by Balkan Holding on Balkan Airlines' revenues in light of comparative data from other airlines: in reality it minimizes the chances of an airline even making a profit. (R VI B, para. 62)
555.
In June 2000, Claimant procured that Balkan Airlines entered into two further "consultancy agreements", this time with BDO Bulgaria OOD (BDO), an intermediary consultancy firm (R VI B, para. 64). Pursuant to these "consultancy" agreements, Balkan Airlines was to pay Claimant's officers an annual total amount of well over USD 450,000. Indeed, Balkan Airlines' records show that a total of approximately BGN 1.44 million was paid to BDO in the course of the year 2000 and the first two months of 2001. (R VI B, para. 66)
556.
On 7 December 2000, Claimant's officers caused Balkan Airlines to enter into yet another "Contract for Consultation Services" with Global Satellite Transmission Systems (SGTS). The ownership of SGTS is, for the moment, unclear. Oddly enough, however, the contract stated:

"For the implementation of these services and activity, the consultant could employ also other persons, who are associated with previous agreements and clauses between the parties." (R VI B, para. 67)

557.
Respondent No. 1 submits Claimant does not deny these allegations (R VI B, paras 68 et seq.).
558.
Respondent No. 1 asserts, Claimant put in place this matrix of secret, overlapping "consultancy" agreements as a way of siphoning revenue from Balkan Airlines for its own purposes (R VI B, para. 71).
559.
Furthermore, as has been discovered by PwC, around the time of its abandonment of the airline, Claimant transferred a total of approximately USD 1.75 million from the various accounts of Balkan Airlines to its own accounts in at least seven installments, without any attempt to justify these withdrawals (R VI B, para. 72).
560.
In addition, Respondent no. 1 alleges, Claimant used funds from Balkan Airlines to pay for its legal fees for the negotiation and consummation of its purchase of Balkan Airlines in the months following the privatization (R VI B, para. 73).

d. Claimant appropriated Balkan Airlines' assets

561.
In addition to diverting Balkan Airlines' revenues, during the year and a half that it managed Balkan Airlines Claimant proceeded systematically to appropriate Balkan Airlines' most valuable assets, and the proceeds resulting from the sale thereof. Thus, Claimant caused Balkan Airlines to transfer all of its remaining SITA depositary certificates to Claimant's Dutch subsidiary, Balkan Holdings, for no consideration (R VI B, paras 77 et seq.). Furthermore, Respondent No. 1 contends, Claimant caused Balkan Airlines to transfer its most valuable real estate to Claimant's Bulgarian subsidiary, ZBI, as consideration for loans that were not yet due (R VI B, paras 81 et seq.). Finally, Respondent No. 1 recently learned, Claimant caused Balkan Airlines to sell many of its remaining aircraft in January 2001, and then transferred USD 1 million out of the USD 2,275 million proceeds directly to one of its bank accounts (R VI B, paras 85 et seq.).

e. Claimant's explanation of its asset-stripping is not credible

562.
Respondent No. 1 alleges that Claimant's explanations regarding this issue have advanced the theory that Claimant stripped these assets in the weeks and days before it abandoned Balkan Airlines in order to use them to facilitate the procurement of third-party bank finance for Balkan Airlines that was ultimately frustrated because of the onset of bankruptcy proceedings (R VI B, para. 87). No such further third-party bank finance was ever forthcoming for Balkan Airlines, yet Claimant never returned these assets to the airline. Instead, it sold them and pocketed the proceeds (R VI B, para. 89). Claimant's alleged attempts to obtain third-party finance simply does not explain why it sold Balkan Airlines' planes and transferred a large portion of the proceeds directly into its own bank accounts (R VI B, para. 90). Claimant has presented absolutely no evidence of its alleged attempts to obtain third-party financing for Balkan Airlines (R VI B, para. 92).

f. Claimant caused Balkan to cease operations

563.
Contrary to Claimant's allegations, Balkan Airlines had longstanding debts to Bulstrad, but these had never stopped Bulstrad from renewing Balkan Airlines' coverage, so long as Balkan Airlines reached agreement with it on the rescheduling of these historic debts, and continued to meet its current insurance liabilities (R VI B, para. 97). In 2000, under Claimant's management, Balkan Airlines failed to reschedule the long-standing debt, or to meet its current liabilities to Bulstrad (R VI B, para.98). This notwithstanding, Bulstrad did not initiate bankruptcy proceedings of Balkan Airlines until after Zeevi abandoned the airline. At the time it initiated bankruptcy proceedings, Balkan Airlines' liabilities for current insurance coverage amounted to only USD 511,000 (R VI B, para. 99). Respondent No. 1 draws the Tribunal's attention to the fact that this amount compared to the USD 2 million siphoned from Balkan Airlines' accounts following Claimant's sale of many of its aircraft in view of Mr. Frank's testimony that

"there was absolutely no way to overcome Balkan Airlines' dramatic cash flow problem in January/February 2001." (R VI B, paras 95 et seq.)

g. Claimant abandoned Balkan Airlines on 13 February 2001

564.
Mr. Frank left Bulgaria on the night flight to Tel Aviv on 13 February 2001, allegedly in order to negotiate a loan to be granted to ZBI, now the owner of Balkan Airlines' principal real estate. He was the last Zeevi manager to leave Bulgaria. The following morning he ordered all operations ceased.
565.
On 16 February 2001, the Minister for Transport and Communications addressed a letter to Mr. Frank requesting performance of its obligations under the PA. A response was never received. Only then, Bulstrad initiated bankruptcy proceedings. (R VI B, para. 101-108)

h. The Bankruptcy Proceedings

566.
On 16 and 19 February 2001, following Zeevi's abandonment of the management of the airline, Bulstrad petitioned for Balkan Airlines' bankruptcy in respect of outstanding current insurance liabilities of USD 511,000, as well as older, re-scheduled debts (R VI B, para. 109). The Sofia City Court granted Bulstrad's request two days later, commencing bankruptcy proceedings and appointing temporary trustees (R VI B, para. 110). In the same way as Bulstrad's petition had been based on the disappearance of Claimant's management and the ceasing of Balkan Airlines' operations, so the City Court's ruling also took account of these obviously critical developments (R VI B, para. 111). The temporary trustees issued an analysis of the evolution of Balkan Airlines' financial condition between 1998 and 2000, which revealed that Balkan Airlines' condition deteriorated sharply following Claimant's assumption of management control (R VI B, para. 113). Notwithstanding this assessment, the temporary trustees opined that, even at this stage, Balkan Airlines "possesse[d] sufficient potential to be transformed into a good basis for its future stabilization," if it could benefit from the type of investment that the privatization itself had been intended to provide (R VI B, para. 117) One and a half years after the initiation of the bankruptcy procedure however, it had become clear to everyone - including Balkan Airlines' creditors - that Balkan Airlines' principal shareholder had no intention of rescuing Balkan Airlines by making the investments in the airline that it had undertaken to make under the PA. Thus, at a creditors' meeting of 29 October 2002, the creditors of Balkan Airlines rejected the trustees' proposed restructuring plan. As a result, on 29 November 2002, the Sofia City Court noted this rejection and ruled that the formal liquidation of Balkan Airlines would now commence.(R VI B, para. 120)

i. Bulgaria Air was designated as NC following the formal liquidation of Balkan Airlines

567.
Facing the dilemma of having lost its NC after Balkan Airlines formal liquidation and being bound under numerous ASAs to "adequately meet the anticipated requirements of traffic from or to [its] territory, the Republic had no option but to establish a new airline, Bulgaria Air" (R VI B, para. 122). Bulgaria Air was developed from an existing tour operator, Balkan Air Tour, a 100% state-owned company. The necessary capital injection was directly funded by the government from the state budget. Bulgaria Air adopted a strategy similar to that advocated by Speedwing in their Report to Balkan Airlines a few years earlier, which led to Bulgaria Air's immediate profitability. (R VI B, paras 123 et seq.)

2. Summary of Contentions by Claimant

568.
Claimant submits, according to Article 90 of the OCA, which stipulates a fundamental rule of contract law throughout the developed world, it was not obliged to perform its obligations under the PA since, after the PA had been entered into, it transpired that the Respondents had systematically made very grave misrepresentations to the Claimant in the PA itself, and additionally breached the PA after it had been singed. (C VIII, paras 17 et seq.)
569.
Throughout the period, during which the Claimant was managing the Company, the Republic did not for a moment change its stubborn position according to which it would not perform its obligations under the PA. Accordingly, the Claimant's obligations under the PA have been stayed and it was under no duty to perform them. This fact in itself constitutes adequate cause for the summary dismissal of all the Republic's claims. (C VIII, para. 20)
570.
Claimant submits, Article 8.5 of the PA, which Article 10.4 expressly refers to, provides that a condition precedent for referring any dispute to arbitration in connection with the performance of the Claimant's obligations pursuant to Article 8 is first referring the dispute to a special committee to be appointed specifically for the purpose, consisting of two representatives of the Republic and two representatives of the Claimant. Only if the committee is unable to make a majority decision may the Republic then refer the dispute to arbitration. (C VIII, paras 22 et seq.)
571.
In a letter of 16 May 2001, the Respondents claimed that the investments had not been made in accordance with Article 8. In reply to the Respondents' letter, Balkan Holdings responded to the Privatization Agency in a letter of 12 June 2001, stating that it made the investments required under the PA. Claimant further requested an explanation as to why certain elements of the investment report had been rejected in order to formulate an adequate response. (C VIII, para. 24)
572.
Neither did the Respondents reply to this letter, nor did they seek to appoint the special committee in accordance with Article 8.5. (C VIII, para. 25)
573.
Claimant further contends, according to Article 103 of the OCA, a set-off claim is only possible provided that the claim is liquid. Since the condition precedent has not been fulfilled, the Republic's set-off claim is not liquid. Hence, it should be dismissed. (C VIII, paras 26 et seq.)
574.
Contrary to the requirements set-off claims stipulated in Article 103 Para 1 of OCA, the claims raised by the Republic have been disputed by the Claimant. Furthermore, as far as the claims pursuant to Article 8 of the PA are concerned, these needed to be resolved pursuant to the process set-out in Article 8.5 of the PA. Consequently, it cannot be said that by the end of the limitation period (three years) the Republic's claims were indisputable or were exercisable or liquid. Their set-off at the stage the claim was filed, after the exasperation of the limitation period (as the Republic itself admits) is, therefore, not possible. (C VIII, para. 29)

3. The Tribunal

575.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R VI B paras 20 et seq., 28 et seq., 30 et seq., 37 et seq., 41 seq., 44 et seq.; 50 et seq., 60, 62, 64, 66 et seq., 71 et seq., 77 et seq. 81 et seq., 85 et seq., 101 et seq., 109 et seq. 113, 117,120, 122 et seq.

C VIII paras 17 et seq., 20, 22 et seq., 29

Exhibits:

C-35 PA

576.
The Tribunal will now deal with the above contentions of the Parties. But in addition, later in this Award, it will examine the concrete breaches of the PA which Respondent No. 1 alleges in its counterclaims.

1 and 2 "Zeevi's Failure to invest":

577.
The Tribunal considers that there are two main groups of investments and that one group of investment could be made via loans. With regard to the latter it could become relevant at what interest rate the loans were given an issue on which the parties are at dispute. If the interest rate was too high then it could have been practically impossible for the Defendant to make use of these "investments". Also, it has to be taken into account that the loans were shareholder loans and that they were not given by a third party. As the Company collapsed because of the lack of cash flow the debts were not repaid, they did provide cash liquidity to the company. The Tribunal is aware that, in practice, it was difficult to separate the two different groups of obligations, since one can not tell where to the specific money went that was transferred to the Company. It was part of the logic of the deal that the value of the company was very small and that Respondent itself acknowledged that the Company had only two main assets - the Equant Shares and some real estate and that Claimant paid USD 30 million.
578.
It was also part of the logic of the deal that both types of obligations had to be fulfilled and were entered into for different reasons; one obligation was to transfer USD 30 million to allow the Company to get rid of its existing debts and then there was a second obligation namely investment that had to be made to modernize the Company. It may well have been that the market value of the company was higher than the book value and that the price of USD 30 million did not reflect the true value of the company. But for the Tribunal, the question is what the parties contractually agreed on and not what could be argued would have been fair.
579.
Clearly, the intention of the PA was to improve the Company's economic situation and to ensure its survival. Economically, there can indeed be different views why the company collapsed. But the Tribunal simply has to apply the PA to find out which Party fulfilled or breached its various obligations and whether breaches found caused or contributed to the collapse.
580.
In that context, it may have to be clarified what party at what point in time breached the PA, because a party can stop to perform its obligation if the other party to the contract has substantially breached the contract. In such a case the breach that occurred at a later point of time can be justified if specific requirements are met. For that reason it may become crutial to establish a chronological order of events.

3. "misappropriation of proceeds":

581.
Regarding the question of the diverted revenues the Tribunal notes that Respondents claims that a total of USD 1.75 million were transferred to Zeevi's accounts and the sum of BGN 1.44 million allegedly was misappropriated. Further, the Tribunal takes into account the evidence submitted according to which all proceeds had to be transferred to external accounts (abroad) but also that payments made by the Company to Claimant could be considered mere reimbursements for payments that Claimant had entered into on behalf of the Company:

4. "Assets":

582.
In this context, the Tribunal particularly notes of the following:
583.
Claimant presented a letter that the last portion of the SITA Shares was transferred into France Telekom (98,000) shares and sold for about USD 3 million.
584.
Respondent No. 1 in its submission R VIII B, in paras 90-96, asked to submit further exhibits; the Tribunal then ruled that additional evidence was inadmissible; further in its Quantification Brief at para. 92 Respondent No. 1 states that it made an error and it asked of Claimant to prove the price at which the shares were actually sold.
585.
The Tribunal considers that, in that respect, the burden of proof lies with Respondents.

6, 7 and 8 "Bankruptcy and Ceasing Operations":

586.
The Tribunal considers that the ceasing of operations and the bankruptcy can be dealt with together since it is in essence a repetition of arguments. In this context, it is one issue if a company files for bankruptcy, yet it is a different issue if the investor decides to leave the country, because it could be argued that abandoning the Company and leaving the country is a breach, unless there is justification for such a drastic step. The Tribunal notes that, since it is undisputed that the entire management left the country, the Claimant has the burden of proof for a justification.
587.
Further, the Tribunal considers that the PA did not require and economically it would go too far to require Claimant to invest money after the Company had filed for bankruptcy.

9 "Bulgaria Air":

588.
In this context, the Tribunal notes that Bulgaria Air started its operations only 1 - 1 years after the bankruptcy (November 2002), and that, it was a company created from scratch. There was no connection between the Company and Bulgaria Air until Bulgaria Air, only at a later point in time, was assigned with the NCS. However, at that time the Company was still flying.
589.
It is undisputed that the Government of Bulgaria in 2002 invested twice in Bulgaria Air. On one hand it can be understood and certainly can be argued that there were good reasons, under the circumstances at that time, that Respondent No. 1 started another company to provide for a working air carrier for a whole nation rather than invest in somebody else's Company. But on the other hand, as there were liabilities and costs of the "old" Company for which Respondents were responsible, it cannot be excluded that, if the investment by the Respondents in the Company would have been made in 2002/2003 and the loans would have been given to the Company, the picture would have been very different.

H.II Zeevi breached Article 7 of the PA

1. Summary of contentions by Respondent No. 1

590.
In accordance with Article 7 of the PA, Cliamant specifically undertook to service the "obligations" of Balkan Airlines that existed on 31 May 1999 (R VI B, para. 130). Claimant was to meet the funding obligation in Article 7.1 in two ways. First, by a USD 6 million deposit in an escrow account to be opened in Balkan Airlines' name on Completion of the PA. Secondly, by "procuring" that Balkan Airlines would be put in funds in an annual amount of USD 2.4 million. (R VI B, para. 131)
591.
Respondent No. 1 submits, Claimant violated each and every one of its obligations under Article 7.1 of the PA. Claimant did not fulfil its obligations to service existing debts by replacing Balkan Airlines' existing debts with punitive new loans (R VI B, para. 133). As confirmed by Mr. Golan, Claimant was fully aware that providing operating capital had no impact on Claimant's separate funding obligations under the PA (R VI B, para. 134). Although Claimant provided two letters of credit amounting together to USD 2.4 million in December 1999, it did so in order to secure installments due under two aircraft leases concluded by Claimant, not to secure the repayment of debts existing on 31 May 1999, as required under Article 7.1. (R VI B, para. 137).
592.
Contrary to Claimant's allegation, that by end of 2000 it had invested more than six times the amount it was obliged to under the PA and that therefore no additional letters of credit were needed, Respondent No. 1 submits, that the letters of credit required under Article 7.1.2 were specifically to ensure payment of Balkan Airlines' pre-existing debts - no funds provided by Claimant to Balkan Airlines for its day-to-day operations could diminish Claimant's separate obligation to pay pre-existing debts. Moreover, under Article 8 Claimant was required to additionally invest USD 20 million by the end of 2000, which were never paid. (R VI B, para. 139, 140)

2. Summary of contentions by Claimant

593.
Pursuant to Article 7.1 of the PA, Claimant was required to provide an amount of USD 30,000,000 to the Company, over a period of ten years in the following manner: Upon signature of the PA, Claimant was to transfer an amount of USD 6,000,000 and thereafter, beginning in 2000, Claimant was obligated to transfer an amount of USD 2,400,000 annually over a period of ten years, that is until the end of 2009. (CVIII, par. 64)
594.
According to these terms, and contrary to Respondent No. 1's allegation that Claimant had to invest an amount of USD 10.8 million, Claimant was to invest USD 8.4 million by February 2001. This was later conceded by Respondent No. 1. (C VIII, paras 65 et seq., C IX, para. 51)
595.
Claimant submits, there is no dispute that by February 2001, it had transferred USD 23,150,000 to the Company, USD 14,750,000 more than its commitment for that period pursuant to Article 7.1 of the PA. (C VIII, para. 69)
596.
Claimant alleges, Respondent No. 1 has repeatedly tried to create confusion in respect of the loan agreements pursuant to which the Claimant transferred a total of USD 23,150,000. This attempt is contrived and has no basis in reality. (C VIII, para. 71)
597.
Moreover, since the investments according to Article 8 were to be made "in or by" the Company, they are to be gauged according to the money that the Claimant remitted to the Company but rather it should be determined by reference to the amounts invested by the Company, totaling approximately USD 26,500,000, as reported to the Respondents in the March 2001 investment report. On the other hand, the funds totaling USD 23,150,000 that the Claimant transferred to the Company are the index for analyzing the performance of the Claimant's obligations pursuant to Article 7.1 of the PA. These injections of funds included the sum of USD 14,750,000 over and above the Claimant's commitment pursuant to Article. (C VIII, para. 74)
598.
In conclusion, in these circumstances, the Republic's allegations of the Claimant's supposed breach of Article 7.1 are absurd given that the Claimant had transferred USD 14,750,000 more than it was required under Article 7.1. (C VIII, para. 75)
599.
With regard to the method of using the escrow account funds, Claimant submits, there is no dispute that the funds that were transferred to the Company were applied in payment of its debts and the fact that the Company's main problem was its cash flow and payment to current suppliers, rather than the payment of long-term debts, it is perfectly clear that the Republic's argument is frivolous and made in bad faith, and consequently, should not be heard. (C VIII, para. 78)
600.
In accordance with Article 6.1, Claimant used the funds for

"repayment of indebtedness of the Company existing as at the date of Completion or arising in respect of the ongoing business of the Company following Completion or occurred after that date in relation with the business of the Company (C VIII, para. 79, C IX, para. 53)

601.
Moreover, Respondent No. 1 has yet to prove that the funds were in fact not used for repayment of debts from before the privatization, even though the burden of prove still rests with it. (C VIII, para. 80)
602.
Respondent No. 1's claim for liquidated damages due under Article 10.13 for alleged non-payment of past debts by the proceeds of the sale of the Equant Shares is baseless. Article 10.13 (as amended -see Exhibit C-41) provides that the Buyer would owe liquidated damages only in cases in which the proceeds of such sale are not used for "payment of debts [i.e., any debts] of the Company or the implementation of the investment program." (C IX, para. 54)
603.
Moreover, past debts of the Company in an amount of almost USD 50,000,000 were paid during the time in which Claimant operated the Company. This amount exceeds by more than twice the amount of past debts which Respondent No. 1 claims should have been covered by the Claimant which totals USD 17,884,149 (being comprised of an amount of USD 6,000,000 on account of the escrow deposit; USD 2,400,000 on account of the transfer for 2000; and USD 9,484,149 on account of the sale of Equant Shares in December 1999). (C IX, para. 55; C-130)
604.
With reference to the "Main Liabilities Structure"document, Claimant asserts, although the burden of proof, it is easy to prove that the escrow account funds were in fact applied in order to repay debts that arose before the privatization. (C VIII, para. 81)
605.
Therefore, the Respondent No. 1's claim for compensation due to the fact that the escrow funds were supposedly not applied in payment of pre-privatization debts is without merit also since it has not sustained any damage as a result. (C VIII, para. 82)
606.
Contrary to Respondent No. 1's allegation, Claimant not only transferred an additional sum of USD 2,400,000 to the Company by the end of 2000 in accordance with Article 7.1.2, but, in fact, exceeded this amount by USD 14,750,000. (C VIII, paras 84 et seq.)
607.
Claimant further argues, in contrast to the Respondent No. 1's contention, Article 7.1.2 plainly provides that these funds were to be used for repaying the Company's "debts", i.e. any debts, incurred before or after the Privatization of the Company. (C VIII, paras 90 et seq.)
608.
Here, too, the burden of proof rests solely on the Respondents, which they have not met. (C VIII, para. 92)
609.
With respect to the transferring of funds according to Article 7.1 in form of loans, Claimant submits the PA prescribes no set method as to the manner in which the USD 30,000,000 are to be transferred. Furthermore, obliging the Claimant to transfer the funds by means of equity rather than loans would clearly have meant an immediate dilution of all the remainder of the Company's shares that were held by Respondent No. 1 on completion. Acting in that way would clearly have been in complete contradiction to the intention of the Parties. (C VIII, paras 95 et seq.)
610.
With regard to the sale of the remaining SITA Shares, Claimant contends, they were collateral against the loans which Claimant granted Balkan Airlines. Since they were restricted, their value was low and did not even cover the USD 8.4 million, Claimant was obliged to invest in the Company, let alone the USD 14,750,000 Claimant invested in excess of its obligations under the PA, to which it was compelled due to the misrepresentations of Respondent No. 1. (C VIII, paras 98 et seq.)
611.
Regarding the interest on the loan agreements, Claimant submits, they were reasonable and did not exceed 8.64% in total, as opposed to 20% per annum as alleged by Respondent No. 1. (C VIII, para. 100) Moreover, there is no dispute that the interest on the loans, as with the loans themselves, has never been collected by the Claimant. Therefore, the fact that the funds were transferred by loans is irrelevant. (C VIII, para. 102)
612.
With regard to Respondent No. 1's allegation that Claimant did not act in good faith, Claimant submits, it transferred USD 8,250,000 to the Company only two months before the commencement of its bankruptcy proceedings. Contrary to Respondent No. 1's allegations, this undisputed fact proves the extent of efforts which Claimant was ready to go into in order to save Balkan Airlines. (C VIII, para. 103)
613.
Regarding the non-issuing of letters of credit in order to secure the annual amounts of USD 2,400,000 due under Article 7.1.2, Claimant contends, since by the end of 2000, it had already transferred USD 14,750,000 over and above its obligation, there was no reason for issuing any letter of credit. (C VIII, para. 105)

3. The Tribunal

614.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R VI B paras 130 seq., 133 seq., 137, 139, 140

C VIII paras 64 et seq., 69, 71, 74 seq., 78 et seq., 81 seq., 84, 90, 92, 95 et seq., 98 et seq., 102 seq., 105

C IX paras 51, 53 et seq.

Exhibits:

C-41 Amendment to the PA

C-130 Overview of Balkan Main Liabilities

615.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
616.
The Tribunal considers that, concerning the investment of USD 30 million, according to Article 7.1. PA, the form is not specified by the PA and that it meets the requirements of the PA if loans were given in the amounts specified by the PA. This is particularly so with regard to shareholder loans.
617.
Regarding the terms of such loans, it can indeed be argued that it is irrelevant, whether they are given at a high or low interest rate, and for a long or short period, since the burden is on the shareholder if the Company fails to repay the loans, particularly since, it is hardly possible to determine where money went that was given to the Company. Obviously, the most important effect was that money was injected into the company and old debts were paid with it. In the present context it is thus irrelevant that the very high interest rates charged by Claimant for the loans given to the company considerably increased the company's liabilities and thus damaged its financial status.
618.
However, the further requirements of Articles 7 and 8 PA had to be met and in this regard the burden of proof is on the Claimant. In this context, the Tribunal notes that Article 7.1. expressly determines that the purpose of these payments due by Claimant was

"to assist the Company repaying its obligations (as more fully described in the Information Disclosure Letter)".

Claimant's burden of proof thus particularly includes that it repaid old debts in the amount required by the PA.

619.
As well, the burden of proof in regard to the payment of the USD 6.0 and USD 2.4 million, i.e. a total of USD 8.4 million, due under Article 7.1.1. and 7.1.2. PA rests with the Claimant who has to show that those amounts were transferred to the Company and that similar amounts were paid for external debts.
620.
The fulfilment of the obligations under Article 7 requires two elements:

1) that Claimant put USD 8.4 million into the Company, and

2) that these funds were used to assist the Company in repaying its obligations.

621.
Regarding the first element, the evidence particularly provided in Exhibits: C-72A, C-97, C-72D, E, F, and G and R-16A, B, C, D, E, F, and G, B-107 p.26, 32, and 49 show to the satisfaction of the Tribunal that, as argued by Claimant, it actually paid a total of USD 23,150,000.00 into the Company. Since this is considerably more than the USD 8.4 million required by Article 7, the first element mentioned above has been proven.
622.
With regard to the second element mentioned above, since Claimant has the burden of proof, the Tribunal has evaluate the evidence as to whether it has and how it can provide such proof. On one hand, there is no evidence in the case that the loans given by the Claimant to the Company were kept separate from the normal funds of the Company, such as on a separate account, and then earmarked for and used for repayment of existing debts. But the Tribunal cannot find in or conclude from Article 7 that such payment to and from a separate account or earmarking was required. Therefore, there was nothing wrong in "mixing" the funds of the loans from Claimant with other income of the Company such as from its regular activities. And once debts of the Company were paid from these general accounts of the Company, it was not possible to identify whether that respective payment of debt was funded by the loans from the Claimant or from other income of the Company.
623.
The total amount of Company obligations and respective payments during the time it was controlled by Claimant can be summarized as follows: The Company obligations are defined in Article 1 of the PA as "The obligations of the Company as of 31.05.1999 in the Information Disclosure Letter ". These obligations are set out in Appendix 13/16 of the Disclosure Letter (Exhibit C-39). According to this Appendix Balkan's total obligations as of 31 May 1999 amounted to BGN 209,374,016. Exhibit C-130 lists Balkan's obligations as of 31 January 2001. Columns 8 and 9 of this Exhibit identify obligations which existed "before 30.6.1999". The total amount of these obligations is: BGN 104,600,000. From the above it can be concluded that over BGN 100,000,000 of debts which existed before June 1999 were paid by Balkan during the time it was controlled by Claimant. According to the exchange rate set out in Exhibit C-130 (last page), which was USD 1 = BGN 2.10463, this equals approximately USD 50,000,000. This amount represents past debts of Balkan which are recorded to have been paid during the time in which it was controlled by Claimant. If further, one takes into account the undisputedly extremely difficult financial position of the Company at that time - which later led into bankruptcy -, it is hard to imagine that the Company could spare an amount of that magnitude from its regular income to repay debts. Had that been possible, it is hard to see why such debts were not repaid, before the Claimant took over.
624.
On the basis of the above considerations, and in view of the lack of any earmarking duty and of the difficulties of more concrete proof mentioned above, the Tribunal concludes that Claimant has complied with its burden of proof also in this respect and, thus, also the second element mentioned above has been proven.
625.
Therefore, the Tribunal concludes that Claimant has fulfilled its obligations under Article 7.1. and a counterclaim based on that provision must fail.

H.III. Zeevi breached the Investment Commitments in Article 8 of the PA

626.
At the outset of this section, the Tribunal recalls that above, in section G.IV. of this Award on "Investments made by Claimant", it had postponed its respective deliberations to this section of the Award in order to be able to examine at the same time the respective counterclaim by Respondent No. 1.

1. Parties' contentions in connection with the claims raised by Claimant

a. Summary of Contentions by Claimant

627.
Claimant argues that the amount of USD 23,000,000 has indeed been invested in Balkan Airlines through wholly-owned affiliates for and on behalf of the Claimant. Any loss suffered thereby by theses affiliates represents a direct loss to Claimant itself (C II, paras 59 et seq.).
628.
In its Brief of 9 February 2004 Claimant presents information on the bank transfers regarding the direct amounts invested by Claimant in Balkan Airlines. These transfers accumulate to a total amount of USD 23,150,000 (C I, para. 7 and Exhibits).
629.
Claimant further asserts that these amounts had been confirmed by the Sofia City Court in its ruling of 23 October 2001 (C I, para. 7, C73).

b. Summary of Contentions by Respondent No. 2

630.
Respondent No. 2 contends that payments received by Balkan Airlines were transferred as loans and can therefore not be considered as "investments" (R I, para. 5.1.21.). These loans, transferred mainly by third person, i.e. Balkan Holdings, amount to USD 23,150,000 (R I, para. 5.1.21.). In the meaning ascribed to it in the PA the term "investments" is defined as

"costs for acquisition or improvement of material assets of the privatized company" (R I, para. 5.1.2.).

The provided funds, however, were used for repayment of current liabilities and of allegedly false obligations towards companies connected with Claimant. Respondent denies that the alleged amount of investments had been confirmed by the Sofia City Court in bankruptcy proceedings. To the contrary, the said Court has rejected the claims raised by Claimant's affiliates in these proceedings as unfounded and unproven (R I; para. 5.1.3.; see C-73, R-82 to R-85).

631.
From the latest of Claimant's submissions, it appears that Claimant admits that the above amount was not "invested" in the Company, but rather consisted of a "discharge of funding obligation". Therefore the claims purporting that Claimant had lost such investment should evidently fall aside as it was admitted that investments were not made. (R III PA, para. 153)
632.
Contrary to Claimant's allegation, it never invested in the renewal of the aircraft fleet of the Company. The two ATR aircraft allegedly leased never reached the Company. (R V A, para. 16)
633.
Claimant has failed to provide any evidence in support of its allegation that it met its investment obligation. Respondent No. 2 regards Claimant's argument that Article 8.1 of the PA allows investments not by the Claimant but by the insolvent Company itself as absurd and grotesque.

c. Summary of Contentions by Respondent No. 1

634.
Respondent No. 1 describes Claimant's investment obligations under the PA as follows (R II B, paras 74 and 76; see also R II B, paras 45 et seq.):

"Zeevi's investment obligations fell into two broad categories: first, an obligation to put Balkan Airlines in funds up to USD 30 million in order to assist it to repay indebtedness that existed at the time of the privatization as fully described in the Information Disclosure Letter; and secondly, and separately, the obligation to invest not less than USD 100 million, i.e. approximately USD 20 million a year, over a five-year period following the privatization.[...] Zeevi's obligation to put the company in funds to repay up to USD 30 million of existing indebtedness was to be effected by putting in place an escrow account in the amount of USD 6 million on Completion of the sale of Balkan Airlines' shares; and, further, by putting the company in funds in the sum of USD 2.4 million each year for a period of ten years. Moreover, the annual payments of USD 2.4 million were to be secured for the first three years by letters of credit and by corporate guarantees thereafter."

635.
These obligations are recorded in the PA. The relevant provisions are cited hereafter according to Respondent No. 1's Brief (R II B, paras 45 et seq.):

"7.1 The buyer shall have an obligation to put in the Company funds [sic] at the amount but limited to USD 30 million including the amount under Article 7.1.1 to assist the Company in repaying its obligations (as more fully described in the Information Disclosure Letter) as follows:

At Completion, the Buyer shall deposit in the name of the Company in the escrow account the amount of USD 6 million from which the Company shall repay existing indebtedness;

7.1.2 Each year for a period of ten years following Completion (such period ending on 31 December 2009), the Buyer shall procure that the Company will put in funds [sic] in a sum of USD 2.4 million per annum to serve as funds with which the Company shall service its debts. Such funds shall be secured for the first three years by Letter of Credit opened by the Buyer in favour of the Company and for the next seven years by a corporate guarantee of the Buyer in favour of the Company...

Six months after Completion the Buyer will deliver to the Seller an indicative Investment Plan pursuant to which the Buyer will plan for the investment to be in or by [sic] [Balkan Airlines] of USD 100 million over a period of five years (ending on 31 December 2004). Such investment will be for the commercial development of [Balkan Airlines] with a view to increasing the range of services and profitability of [Balkan Airlines] in the medium and long term. The Investment Plan will set out to be anticipated levels of investment required to achieve this objective, the proposed timing of such investment and the expected priority investment areas within [Balkan Airlines] activities. The Seller shall not be involved in the preparation of the Investment Plan.

8.2.1 To give effect to the Investment Plan, the Buyer as a majority shareholder shall (subject to Clause 8.3 below) cause [Balkan Airlines] to be invested an amount [sic] of not less than USD 100 million, approximately, USD 20 million per annum over the said five-year period. At the end of each year, the Buyer shall disclose to the Seller the amount of investment effected during the preceding year. The investment for the first reporting period (which shall end on 31 December 2000) may not be less than USD 20 million. Investments made in or by [Balkan Airlines] in years 2-5 (inclusive) may vary by an amount of up to 25% of the determined amount of USD 20 million per annum.

8.2.2 In respect of the period ending 31 December 2000, the Buyer undertakes to provide the Seller not later than January 2, 2000 with a bank guarantee secured with an irrevocable bank guarantee with term of validity up to 30.04.2001 in the sum of USD 6 million, which guarantee may be enforced in accordance with Clause 10.2 by the Seller in the event of non-performance by the Buyer of his investment commitment for the period ending 31 December 2000. For each next reporting period the Buyer shall present to the Seller corporate guarantees securing the indemnities due for non-fulfillment of the investment program. Corporate guarantees shall be in the full amount covering the amount of the indemnity for the non-performing investments for the respective reporting period.

8.3 For the purpose of certifying the foregoing investments, the Buyer shall be obliged to prepare at its own expense and to submit, on or before 31 March in each year, to the Seller a written report about the investments made for each respective past period. This report shall state the type and the amount of the investments made under the Investment Program for the previous year. The investment part of the report under the foregoing Article shall be accompanied by certified by the Buyer copies of the documents, verifying the fulfillment of the investments, adjusted by the currency of the Investment Program according to the exchange rate of the Bulgarian National Bank for the day the commitment is made."

636.
The Parties further specified the investments by stipulating in Article 4.1.9 that the

"Investment Program shall be directed towards accelerated renewal of the airplane fleet and improved quality of services."

637.
Respondent No. 1 contends that these obligations were manifestly disregarded by Claimant. Although an escrow account of USD 6,000,000 was put in place, it was not used as required, i.e. to cover existing indebtedness. The agreed annual funds of USD 2,400,000 were not put in at all and the required letters of credit were neither opened in 1999, nor in 2000 or 2001 (R II B, para. 77). Claimant further failed to prepare an investment plan regarding the obligation to additionally invest USD 100,000,000 over five investment periods (R II B, para. 79). In fact, the total investments for the first period are considered by Respondent No. 1 to amount to USD 1,187,787 (R II B, para. 81). During the next period, i.e. the year of 2001, no investments at all were made (R II B, para. 87).
638.
Regarding the USD 23,000,000 allegedly invested by Claimant between July 1999 and December 2000 Respondent No. 1 contends that the respective payments were short-term loans with interest rates up to 10,125 % compounded monthly. These loans, secured against the airline's own assets, were used by Claimant for appropriation of the airline's principal assets, i.e. real estate property and shareholding.
639.
Additionally, Respondent No. 1 notes that Claimant had sold almost the airline's entire fleet of aircraft without adequate replacement as opposed to Claimant's commitment under Article 4.1.9 of the PA (R II B, para. 88).
640.
The significance attached to Claimant's due performance of these investment obligations is revealed by Article 10.2 of the PA that provides for the buyer's liability in case of non-performance as follows:

"In case of non-performance of the investment obligations, the Buyer shall be liable as follows:

(i) For non-fulfillment of the investments agreed under Clause 8.2 for the period starting at Completion and ending on December 31, 2000 the Buyer shall pay indemnity in the amount of 30% of the agreed but not made investments for the respective investment period in accordance with the investment plan. Under such circumstances the Seller shall have the right to withdraw the bank guarantee in order to satisfy his claim.

(ii) For non-fulfillment of the investment agreed under Clause 8.2 for the periods 1 January, 2001 - 31 December 2002 and 1 January, 2003 - 31 December 2004, the Buyer shall be liable to pay an amount equal to 30% of the agreed but uncommitted investments under the Investment Plan to be measured at the end of the above period. Under such circumstances the Seller shall have the right to satisfy his claim from the corporate guarantees given by the Buyer for the above reporting period."

641.
Claimant wrongfully contends in its Limited Response Brief that the PA was an investment obligation imposed not on the buyers, but on the insolvent Balkan Airlines itself (R III B, para. 21). This statement is inconsistent with its original Statement of Claim and its Response Brief, always referring to "its own investment obligation" (R III B, para. 23). This is also contradictory to the wording of Article 8, which always refers to the "Buyer" (R III B, para. 24). Article 8 is even entitled "Buyer's Investment Commitment" (R V B, para. 11). Mr. Golan conceded that Article 8 imposes an investment obligation on Claimant (R V B, para. 15). Claimant, however, focuses on Article 8.1, which provides that the Buyer will plan for the investment "in or by" the Company of USD 100 million. These three words are not intended to contradict every other element of Article 8. Furthermore, understanding the debt-servicing obligation under Article 7 and the investment obligation under Article 8 as separate obligations is entirely consistent with Claimant's own original offer to the Privatization Agency dated 5 May 1999 (R III B, paras 25 et seq.). However, Mr. Golan attempted to suggest that the original offer made by Claimant, either (i) did not mean what it appeared to mean because it was cleverly negotiated, or (ii) changed during the course of the negotiation. Neither of Mr. Golan's theories is credible or substantiated (R III B, para. 27). Finally, Claimant's contention in this matter is fundamentally at odds with the very purpose of the privatization of Balkan Airlines (R III B, para. 28). To conclude, Respondent No. 1 contends, it is simply absurd to argue that an airline that was privatized because it was insolvent an in desperate need of external investment assumed an obligation to invest USD 100 million in itself pursuant to an agreement to which it was not even a party (R V B, para. 3).

2. Contentions of the Parties in connection with the Counterclaims

a. Summary of Contentions by Respondent No. 1

642.
Contrary to Claimant's allegation, Article 8 imposes a separate investment obligation on Claimant as the buyer and not on the nonparty to the PA, Balkan Airlines itself. This is evidenced by the wording of Article 8, which only refers to the "Buyer". (R VI B, para. 145, 146) Indeed, the buyer's investment obligation was, the central purpose of the entire privatization process (R VI B, para. 150), and Claimant's belated denial of the existence of its investment obligation is inconsistent with its own position before this arbitration commenced and also for over three years in this arbitration.(R VI B, para. 145, 148)
643.
Brushing aside the repeated references to "the Buyer's" investment commitment, Claimant focuses on Article 8.1, which provides that the Buyer will plan for the investment "in or by" the Company of USD 100 million. However, these three words are not intended to contradict every other element of Article 8, and simply mean that the Buyer could fulfil their investment obligation through Balkan Airlines, e.g. by reinvesting their retained earnings or by making a capital increase in Balkan Airlines. (R VI B, para. 147). Respondent No. 1 suggests, it is absurd to contend that an airline that was privatized because it was insolvent and in desperate need of external investment assumed an obligation to invest USD 100 million in itself pursuant to an agreement to which it was not even a party (R VI B, para. 151).
644.
As to the question of whether shareholder loans constituted investments according to the PA, Respondent No. 1 refers to the purpose of such investments established under Article 8.1 (commercial development) and Article 4.1.9 (renewal of airplane fleet and improvement of services) (R VI B, paras 152 et seq.). Moreover, in order to ensure that Claimant's investments fulfilled these requirements, Respondent No. 1 refers to Article 8.4, which provides that investments may be effected by any available method "agreed" by the parties. In this regard, Respondent No. 1 alleges, Claimant did not fulfil its information obligation under said Article. (R VI B, para. 156)
645.
Hence, pursuant to pursuant to Claimant's separate obligations under Articles 7 and 8, Claimant was obliged to inject into Balkan Airlines by the end of the year 2000 USD 8.4 million to service pre-existing debts (Article 7), and USD 20 million by way of approved investments (Article 8), i.e. a total of USD 28.4 million (R VI B, para. 158). Claimant claims to have injected USD 23.15 million into Balkan Airlines by the end of 2000. All of these investments were made in the form of punitively expensive short term loans, one of which has turned out to be a letter of credit concerning an aircraft lease (USD 2.4 million) and not an investment. Therefore, even if the rest is considered investments, Claimant did not fulfil its separate obligations under both Articles 7 and 8. (R VI B, para. 159-161)

"Rather than constituting a means of fulfilling its investment obligations under the Privatization Agreement, the loans were entered into by Zeevi to further its own financial interests. As concluded by PwC, there were more appropriate methods of "investing" in Balkan Airlines, such as capital injections or long-term loans, consistent with its financial condition and its future development prospects. Zeevi clearly had an obligation to invest in Balkan Airlines under the Privatization Agreement, and manifestly breached that obligation." (R VI B, para. 166).

646.
In addition to its failure to invest, Zeevi violated its obligations under Article 8 in a number of other ways: Firstly, contrary to Article 8.1, Zeevi never presented an Investment Plan to the Privatization Agency. Secondly, Zeevi never provided the bank guarantee required under Article 8.2.2. Finally, in violation of Article 8.3, Zeevi never provided investment reports to the Privatization Agency. (R VI B, para. 167)

b. Summary of contentions by Claimant

647.
Claimant submits Respondent No. 1's interpretation that Claimant was to inject, from its own resources, an annual amount of USD 20 million over a five year period, manifestly contradicts the clear wording of Article 8, just as it is contrary to the intention of the parties. (C VIII, para. 30)
648.
It is undisputed that Article 8 imposes an obligation on Claimant to see that investments in the above amount be made in the Company, however, Claimant disputes the allegation that it had to invest in the Company funds from its own resources. (C IX, para. 34)
649.
In view of the fact that the parties never intended Article 8 to provide for what Respondent No. 1's lawyers are now asserting, it is no wonder that Respondent No. 1 took no less than five years in order to "reveal" to Claimant its new and original interpretation of Article 8 of the PA. (C VIII, para. 32) Respondent No. 1 has not been able to produce a single witness to substantiate this interpretation. (C VIII, para. 33)
650.
Contrary to the Respondent No. 1's interpretation, and as already explained by the Claimant in its previous Briefs, the true situation is that the parties never agreed that the Claimant's obligation pursuant to Article 8 of the PA, would oblige the Claimant itself to invest an annual amount of USD 20 million in the Company. Rather Article 8 obliged the Claimant to cause the Company to invest an annual amount of USD 20 million for the purpose of the Company's commercial development. The financial sources for that investment by the Company could be the Company's own money or external funds injected into the Company, by the Claimant or anyone else. (C VIII, para. 34)
651.
Claimant contends that the wording of Article 8 sustains its interpretation of said Article. Article 8.1 refers to

"investments in or by the Company"(C IX, para. 36)

652.
Article 8.4 refers to

"reinvestment of retained earnings and use of operating cash flows"

of the Company.

653.
Furthermore, contrary to Respondent No. 1's allegation, Article 8.2.1 provides that Claimant, as the majority holder of 75% of the Company's shares, undertook an obligation to manage the Company in a manner which would cause the Company to be invested with USD 100,000,000. (C VIII, para. 36)
654.
In addition, Claimant interprets Article 7.9.1 as follows:

"Funds resulting from the sale of the SITA Shares or the Company's real estate could be applied for the utilization of the investment program, is that the Claimant was not under any obligation that the source of the investment would be solely out of the Claimant's own money, and that the investment could clearly be financed through the Company's own funds (for example: from proceeds of sale of the SITA Shares)". (C VIII, para. 37; C IX, paras 38 et seq., 49)

655.
Same is true, according to Claimant, for Article 10.13 of the Amendment to the PA, according to which proceeds from sale of the SITA Shares could be used for the implementation of the investment program. (C VIII, para. 38; C IX, paras 38 et seq.)
656.
This interpretation is further supported by the specific wording of Article 7.1. by which Claimant was indeed obliged to invest certain funds in the Company. Hence, it can be seen that when the parties specifically agreed that the Claimant's obligation would be realized through funds from sources outside the Company, they knew and were perfectly aware as to how to word this obligation in unequivocal terms. The wording of Article 7.1 differs from the wording of Article 8. (C VIII, para. 40)
657.
As shown, Claimant's interpretation is in line with the language of the PA. It is further in line with real-time documents which it possesses, such as its letter of 30 June 1999 to its bankers.
658.
The Republic's attempt to contradict such an interpretation is contrary to and in conflict with: (i) all the terms and conditions of Article 8; (ii) the overall provisions and structure of the PA; and (iii) the clear failure to produce even a single witness in support of its creative interpretation. (C VIII, para. 42)
659.
The documents (Exhibit B-7, R-55), which t Respondent No. 1 refers to in Section 22 of its Quantification Brief in support of its theory, predates the PA by six months and does not support Respondent No. 1's proposition. (C IX, para. 41)
660.
In view of the foregoing, Claimant submits, the investments of the Company amounted to USD 26,471,589, namely some USD 6,500,000 more than the amount that Claimant had undertaken that the Company would invest pursuant to Article 8. According to the Investment Report of 27 March 2001, the Company invested in computers, an IT system, two aircraft Model ATR-42, one AN-12 aircraft and three lease agreements for aircraft 737-300. (C VIII, para. 45)
661.
Respondent No. 1 attempts to confuse the Tribunal between the USD 23,150,000 transfers Claimant made to the Company, and the USD 26,471,589 investments which were made in or by the Company. It is important to differentiate between the two amounts, as they are examined according to different criteria. While the USD 23,150,000 were directly invested from Claimant, the USD 26,471,589 are comprised of direct investments from Claimant and additionally investments from other sources, such as "reinvestment of retained earnings, use of operating cash flows". (C IX, para. 42)
662.
To prove this allegation, Respondent No. 1 refers to Claimant's offer, in which it stated its intention to invest from its own resources USD 100,000,000. However, there is no need to refer to the offer, when there is no ambiguity in the language of the PA itself. (C IX, para. 43)
663.
In this regard, Claimant contends that the burden of proof that Claimant has not invested said amounts is on Respondent No. 1. However, it has failed to prove its allegations. (C VIII, paras 47 et seq.)
664.
Contrary to Respondent No. 1's allegation that Claimant's interpretation is new, it is the Respondent's interpretation that is new, since it was only introduced in the Respondent No. 1's Defense and Counterclaim Brief on 21 June 2004 - more than three years into this arbitration. (C IX, para. 44)
665.
To further sustain its interpretation, Respondent No. 1 referred to the Speedwing Report. However, Respondent No. 1 fails to explain where exactly the Speedwing Report allegedly stated that insofar as investments in the Company were required, they necessarily had to come from external sources. (C IX, para. 45)
666.
The passages in the Report, Respondent No. 1 refers to in its Quantification Brief do not show that as a pre-condition to the Company's recovery the Speedwing Report allegedly require investments in the Company which would be made out of external sources. (C IX, para. 46)
667.
To further support its interpretation, Claimant refers to the fact that the establishment of Bulgaria Air company did not require external funds after an initial capital injection of BGN 10,000,000 was put into it. Hence, in Bulgaria, there is no absolute need for continuous external investments in order to establish a viable airline. (C IX, para. 48)
668.
In contrast to Respondent No. 1, Claimant, even though the burden of proof remains on the Respondent No. 1, has been able to clearly show that the investments, as detailed in the March 2001 investment report, were indeed made. This is confirmed by Respondents' own documents, i. e. the report of the Company's temporary trustees, which was prepared after the Company went into bankruptcy proceedings, which stated:

"during lsic] this period a contract for the leasing of an ATR airplane was signed. Irrespective of the fact, that from a legal point of view such a contract does not generate the effect of a material transfer, in conformity with the national accounting standard No. 17 this asset is registered within the assets of the company and leads to considerable increase in the balanced value of the long term tangible assets of the Company".

"During the 1999-2000, the Balkan airlines company concluded a number of leasing contracts with Ansett Worldwide Aviation, Gecas and ATR, according to which the Company has used three airplanes under leasing - Boeing 727-500...; three Boeing 737300 with ser. No. 23749, 23923 and 25017 and registration No. BOD, BOE and BOF and one ATR 42-300 airplane". (C VIII, para. 50)

669.
This is further supported by the witness evidence of Mr. Golan and Mr. Frank.
670.
Hence, the investment report, in respect of investments totaling approximately USD 26,500,000 made by the Company by the end of 2000, which was USD 6,500,000 in excess of the investments required as at that time pursuant to the PA, did correctly reflect the investments that had actually been made. (C VIII, para. 51)
671.
Since Respondent No. 1 never replied to Claimant's letter dated 12 June 2001 in which Claimant asked for clarification as to the grounds of Respondent No. 1's refusal to accept the investments, one can say, Respondent No. 1 never genuinely believed that it was entitled to be compensated for what now it alleges to be lack of investments in sums of tens of millions of dollars. Respondent No. 1 has always known that any detailed analysis of its allegations, would disclose that they do not rest upon any serious basis. (C VIII, par. 53)
672.
Furthermore, according to Article 8.1 and contrary to Respondent No. 1's allegation, Claimant did not need to obtain the Privatization Agency's agreement to the investments that were made. Especially not, since the Respondents did not even comment on the above letter. (C VIII, para. 54)
673.
More over, in contrast to Respondent No. 1's allegation, since the total investments made by the Company by the end of 2000, amounted to approximately USD 26,500,000, some USD 6,500,000 more than the investment that had been undertaken would be invested in accordance with Article 8, there was no need to provide any guarantee to secure the investment given that it had in fact been made in full. (C VIII, para. 56)
674.
Claimant further notes, according to the investment report of 27 March 2001, as at that date investments totalling approximately USD 12,500,000, constituting more than two thirds of the total investment that needed to be made by the end of 2000 (and more than twice the guarantee that should allegedly have been given), had in fact already been made. Hence there was no need for a guarantee for investments, which had already been made. (C VIII, paras 57 et seq.)
675.
Claimant alleges that Respondent No. 1 cannot prove any damage resulting from this alleged breach to provide a guarantee since the investment that the guarantee was intended to secure, was in fact made in full. (C VIII, para. 59)
676.
With regard to the alleged breach of Claimant's reporting obligation, it is noted that on 27 March 2001 Claimant submitted an investment report, to which Respondent No. 1 even commented by rejecting certain investments made. When asked to clarify reasons for the rejections, in order for Claimant to adjust its investment report, no answer was given. Hence, the Respondents have no one to blame other than themselves with regard to any "reporting obligation". (C VIII, paras 60 et seq.)

3. The Tribunal

677.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

C I para. 7 and exibits

C II paras 59 et seq.

C VIII paras 30, 32 et seq., 36 et seq., 40, 42, 45, 47 et seq., 50 seq., 53 seq., 56 et seq.

C IX paras 34, 36, 38 et seq., 41 et seq.

R I paras 5.1.2., 5.1.21., 5.1.3.

R III PA para. 153

R II B paras 45 et seq., 74, 76 et seq., 81, 87 seq.

R III B paras 21, 23 seq., 25 et seq.

R V B paras 3, 11, 15

R VI B paras 145 et seq., 150 et seq., 156, 158 et seq., 166 seq.

Exhibits:

C-35 PA

C-73 Decision of the Sofia City Court of 21 October 2001

C-35 PA

B-7

R-55

678.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:

a. The Duty to Provide Funds as Investment.

679.
First of all, the Tribunal notes that, due to any indication in the wording of Article 8 to the contrary, the respective investments can be made by a loan and by a third party on behalf of Claimant.
680.
Further, the Tribunal notes the differences in the wording between Article 7.1.:

"The Buyer shall have an obligation to put in the Company" on one hand, and on the other hand the wordings in Article 8.1.:

"the Buyer will plan for the investment in or by the Company"

and Article 8.2.1.:

"the Buyer (...) shall cause in the Company to be invested".

681.
The different wordings in Article 8 can not be interpreted as accidental and can only mean that such investments could either come from outside the Company or from its own resources.
682.
This is confirmed by Article 8.4. PA which expressly includes a number of other ways of investment. The wording "agreed with the Company" in that provision does not require an agreement with the Seller.
683.
Further, Article 7.9.1. clarifies that also proceeds from the sale of SITA Shares can be used for "investment program" which is the subject matter of Article 8. As Article 7.9.1. does not require an agreement with Seller, but only to "notify" Seller, the Tribunal does not consider such a notification as a condition for Claimant's authority for such a sale.
684.
This is without prejudice that, in view of Article 10.13. of the Amendment to the PA, a lack of notification of such sale to Seller may be relevant in another context.
685.
Thus, Claimant and the Company controlled by it had wide discretion as to from where and how to perform the investments due under Article 8.
686.
Now, it has to examined whether such investments were actually made. Contrary to Claimant's respective argument, Claimant has the burden of proof in this regard.
687.
Claimant alleges that it did invest USD 26,471,589.00 and thus considerably more than the USD 20 million due under Article 8 PA. It relies on the Investment Report of 27 March 2001 (C-99) sent to Respondents by a letter of the same date and sees a confirmation in one of Respondent's exhibits, i.e. the Report of the Company's temporary trustees prepared after the Company went into bankruptcy which confirmed the investments made by the leasing of an ATR airplane and the leasing contracts on three Boeing 373-300 aircrafts for which testimony has been submitted by witnesses Mr. Golan and Mr. Frank.
688.
When Claimant, by its letter of 12 June 2001 (C-102), referred again to the Investment Report and asked Respondent No. 1 for a clarification for its refusal to accept the investments, no reply by Respondents was received or at least no such reply has been submitted to the evidence in this case. Since no agreement by Seller to investments was required by Article 8, the Tribunal does not have to decide whether that lack of reply should be interpreted as a tacid agreement. But in any case, the above evidence satisfies the Tribunal that the investments mentioned in the Investment Report have been sufficiently proven by Claimant.
689.
Therefore, the Tribunal concludes that Claimant has fulfilled its obligations under Article 8 PA to provide the required funds for investment in the Company.

b. The Duty not to Withdraw Investments.

690.
However, the above conclusion is not the end of the necessary examination by the Tribunal. Without further explanation it is obvious that Article 8 PA not only required Claimant to provide the investments, but also required Claimant to maintain the investments in the Company and not withdraw them later without justification. In examining this issue, it is not possible to separate the justification of any withdrawel from the amounts involved. Therefore, in this context, the Tribunal will also deal with the respective quantum of any misappropriation found.
691.
In various contentions already summarized further above in this Award, the Parties have dealt with the transfers of money and assets from the Company to Claimant, its subsidiaries or persons managing the Company on behalf of Claimant which respondents allege were unjustified and which for which Claimant has provided explanations. In this context, the Tribunal will not discuss those transfers which in its view are part of the normal running of the Company. But the Tribunal will hereafter discuss those transfers regarding which doubt may indeed be raised as to their justification.
692.
Respondents argue that the "secret" management and consultancy agreements it discovered in the file concluded between the Company and subsidiaries and persons under the control of Claimant were per se unjustified, particularly since they paid for services which Claimant had to perform under the PA. The Tribunal does not share that view, that the PA did not exclude that the Company had to pay its employees as well as the persons managing the Company. Indeed, it can be justified that payments for such services, rather than being paid as salaries, were paid by different arrangements. Without prejudice to application of Bulgarian tax and other public law, which this Tribunal does not have to examine, such other arrangements could be justified by tax reasons or making them available outside Bulgaria. If, as alleged by Respondents, the Company was to pay Claimant's officers an annual amount in the range of USD 450,000.00, the Tribunal does not consider such a remuneration exorbitant.
693.
There are, however, a number of transfers made by Claimant where such a justification seems doubtful.
694.
The first is the transfer of a total of USD 1.75 million to Claimant's accounts in instalments up to February 2001 (R VI B and second PwC Report Sections 5.8-12). The Tribunal cannot find any satisfactory justification in this regard.
695.
The second such item are the lawyers invoices paid to the law firm retained by Claimant in its negotiations of the PA and thereafter, for which the Tribunal cannot find a justification as proper expenses of the Company. The total amount of these invoices (Exhibit R-103 G), transferred into USD is:

• Gueorguiev,Todorov & Co 46,073.12 leva

• Borislav Boyanov 4,548.67 leva

• Djingov, Guguinski, etc. 89,844.43 leva

total: 140,466.22 leva

(see R - 103) or 70,233.11 USD

696.
From the evidence the Tribunal can see that this money was paid for services rendered by the lawyers after the privatization. Further, the Tribunal cannot see from this evidence that this money has been paid for services not rendered to the Company. Therefore, the Tribunal cannot conclude that this payment was misappropiated by Claimant.
697.
At the same time, under consultancy agreements, the following amounts were paid to:

• BDO Bulgaria 1,437,472.02 leva

• ET "Starch" 1,912.00 leva

• SGTC - Bulgaria 212,686.00 leva

• LB Consult 89,844.43 leva

which makes a total of 1,741,914.45 leva which converts into 870,957.22 USD

698.
The Tribunal considers the related evidence as not quite clear. It might well be that this money was either taken as consultancy fees by the respective entity and later paid as consultancy fee to Claimant's management staff. Under the Agreement between the Company and BDO Bulgaria OOD of 5 June 5 2000 (R-103a) a total amount of BGN 1,437,472 (R-103) has been paid which was approximately equal to USD 718,000. Under this agreement for rendered services, the Assignee shall use only the following consultants which all shall be on the payroll of the Assignee: Andrew Gray, Yechiam Mar-Chaim, Jacob Shenhav, Dov Kagan and Raphael Harlev. It seems that all those persons who were employed or hired directly by the Company received additional payments through this scheme. But the Tribunal does not consider the evidence as sufficiently conclusive to find a misapprpriation by Claimant in this regard.
699.
The next issue in this context is that Respondents have demonstrated (particularly in R VI B pp. 25 and 26) that USD 2.6 million of the price of a total of USD 9.5 million for the first sale of SITA Shares were transferred to Zeevi Logistics. However, as Mr. Stanley explained in his direct examination, after his report he "has seen documents which show these amounts lwere paid] to IATA and Eurocontrol." (Transcript 1090:6-1091:7). Consequently the Tribunal cannot find sufficient proof that these payments were allegedly misappropriated.
700.
However, in the same context, it is undisputed that Claimant contracted a transfer of the remaining SITA Shares to Balkan Holdings in May 2000 (B-71). The Tribunal cannot find sufficient evidence for the respective justification put forward by Claimant that this was as collateral for future financial facilities. Since, in any case, these financial facilities were never put at the disposal of the Company, the value must be taken as the market value at that time. Since the sales contract was concluded in May, the risk for any further change in value cannot be charged to the profit of Claimant and against Respondents. Therefore, whether, as alleged by Claimant, the actual transfer was done in August at a lower value, is not relevant in the present context. Respondents have provided proof regarding the value in May by Exhibit B-78. The market value of this part of the SITA Shares at the time was USD 12.9 million (PwC Report Section 5.35). Even if these shares were only transferable in July 2000, Claimant cannot rely on this limitation for a lower market value in May, because it was Claimant's choice to transfer these shares earlier in breach of its contractual obligation. However, on the other hand, Respondent No.1 itself has submitted a calculation (RVII B, p.25 para. 84) - which the Tribunal has accepted above in another context - to the effect that expenses of 22 % have to be subtracted from this market value. Therefore, only 78 % of the market value of USD 12.9 million can be counted against Claimant, i.e. USD 10,091,441.30.
701.
Further, it is undisputed that a number of the Companies aircraft were sold. While this by itself may well have been justified to replace them by newer aircraft, the Tribunal cannot find sufficient justification in the file for the transfer of parts of the respective proceeds to Claimant rather than leaving the money in the Company. The PwC Report (Section 5.42) reveals that, only two days after the sales price was received by the Company, USD 1 million were transferred to Claimant. However, the amount of USD 1.75 million referred to in Sections 5.8-5.12 of PwC Second Opinion is included in Table 15 which sums up the various transfers which were made. Section 5.42 of the PwC Second Report states: As can be seen from Table 15 above, USD 1 million was paid from the same account to Balkan Holdings on 31 January 2001. It seems likely, therefore, that the USD 1 million comprised part of the proceeds received on the sale of the TU154M aircraft". It is thus apparent that the amount of USD 1 million forms part of the amounts set out in Table 15 of the PwC Second Expert Opinion, which altogether lists total transfers in an amount of USD 1.75 million already taken into account above. This is in conformity with the submission of the Respondent No. 1 (RVI B para. 72, p. 23 and 24). Therefore, this amount of USD 1 million cannot be counted twice against Claimant.
702.
Finally, the Tribunal notes that Claimant caused the sale of real estate of the Company in deeds notarized on 12 and 13 February 2001 just before Claimant's management left Bulgaria. However, since, later, theses sales were considered invalid and no money seems to have been transferred to Claimant's side in this context, the Tribunal does not have to examine this matter any further here.
703.
Adding up the amounts that have been found to be withdrawn by Claimant due to the above considerations, the Tribunal concludes that the Claimant has withdrawn from the Company and thus breached its duty to maintain the investments due under Article 8 PA in a total amount of USD 11,841,441.30.
704.
In conclusion, the Tribunal finds that Respondent No. 1's counterclaim based on Article 8 PA is justified for an amount of USD 11,841,441.30.
705.
Further, Article 10.2.(i) PA provides that, for any non-fulfillment of the investment obligation for the year 2000 under Article 8.2. PA, the Buyer shall pay an indemnity of 30 % of the investment due, but not made. Above, the Tribunal has concluded that, on one hand, Claimant did fulfill its obligation under Article 8 PA to provide the required funds as investments, but, on the other hand, breached its duty not to withdraw investments. Regarding the question whether the indemnity of Article 10.2.(i) applies to both of these obligations under Article 8 PA, there can be no doubt as to ots application to the first. However, since the "indemnity" under Article 10.2.(i) is actually a contractual penalty for non-fulfilment beyond any obligation for damages, the Tribunal feels it must be interpreted in a restricted way to the effect that such a penalty can only be applied to breaches of obligations expressly mentioned. There is no evidence that the Parties, in drafting that provision, thought of and intended to include the ban on withdrawel of funds. Therefore, regarding the second obligation, i.e. not to withdraw investments originally made, the Tribunal concludes that the contractual penalty of Article 10.2.(i) cannot be applied.
706.
On the basis of the above conclusion, the Tribunal thus concludes that no penalty is due according to Article 10.2.(i) PA to Respondent No. 1.

H.IV. Zeevi breached Article 7.9.1 of the PA

1. Summary of Contentions by Respondent No. 1

707.
Respondent No. 1 submits Article 7.9.1 imposes on Claimant an obligation to notify in case of sale of Balkan Airlines' Equant Shares or real estate and to use the proceeds in conformity with the PA. Article 7.9.1 further establishes that

"in all instances, the obligations towards the Bulgarian State outside the scope of the obligations addressed in Attachment 11 shall have priority." (R VI B, para. 168)

Contrary to Claimant's allegation that the terms of that provision were subsequently subject to indirect amendment of Article 10.13 (R VI B, para. 172). The reference of Article 10.13 to Article 7.9.1 is expressly limited to the first sentence of Article 7.9.1. Claimant provided no evidence to the contrary. Indeed, Claimant's own draft prospectus on Balkan Airlines expressly mentions the obligation to give priority to the Bulgarian state in using the proceeds. Hence, it does not amend the remainder of Article 7.9.1 including the above quotation. (R VI B, paras 173 et seq.)

708.
Contrary to Claimant's allegation, there were in deed obligations towards the Bulgarian State, such as social security and other "public law obligations", various airport fees and taxes for the period January 1999-February 2001 and contractual debts to the Respondent No. 1's ATC, which together exceeded USD 20 million. (R VI B, paras 180 et seq.) These obligations to the Bulgarian state could have been entirely satisfied by the funds generated from the disposal by Claimant of Balkan Airlines' principal properties and remaining SITA depository certificates (R VI B, para. 183). Instead, and in breach of Article 7.9.1, Claimant chose to appropriate those assets, and/or the proceeds resulting from the sale thereof, illegitimately for itself (R VI B, paras 184 et seq.).
709.
Respondent No. 1 claims that Claimant attempted to justify the appropriation in order to facilitate its attempts to find third-party finance for the airline (R VI B, para. 186). This in itself already constitutes a violation of Article 7.9.1 (R VI B, para. 188). Moreover, Respondent No. 1 alleges, Claimant never accessed any bank finance for Balkan Airlines with these assets but, nevertheless, has never returned these assets to the airline. (R VI B, para. 189)

2. Summary of contentions by Claimant

a. The Equant Shares

710.
With regard to the sale of Equant Shares owned by the Company, Claimant submits, as a consequence of undisclosed restrictions in respect of the sale of those Shares, the Company could then only sell about one third of the Equant Shares that it held (instead of half the Shares, as had been represented to the Claimant), and even that at a price which was about USD 25 less than the specified price of each share at that time. (C VIII, para. 106) Now, in view of these misrepresentations, Respondent No. 1 claims damages according to Article 10.13 because these funds were not used to repay preexisting debts toward the Bulgarian State (C IX, para. 56). There is no dispute that the Claimant made use of the funds obtained on the sale of the Equant Shares solely for the benefit of the Company (C VIII, para. 109)
711.
Claimant alleges, Article 10.13, as amended on 15 July 1999 does not provide that the Claimant would pay liquidated damages if the proceeds of the sale of the Equant Shares are not used for repayment of the "pre-existing debts"or debts to the Bulgarian State. (C VIII, para. 113, C IX, para. 57)
712.
Contrary to Respondent No. 1's allegation and in accordance with Mr. Golan's testimony, Article 10.13 was in fact modified in order to ensure that on the one hand, Claimant could not "strip the Company off its principle assets" and on the other hand give Claimant the necessary flexibility to make the best use of the funds for the Company and not to ensure the recovery of the Bulgarian Government's budget. (C VIII, paras 116 et seq.)
713.
In view of this modification, Respondent No. 1's claim in this respect is devoid of substance or indeed merit. (C VIII, para. 118)
714.
Even if the modification is not accepted, Respondent No. 1's claim is still unfounded due to the fact that when the Equant Shares were sold, the Company had no debts to the State of Bulgaria apart from the framework of liabilities referred to in Appendix 11 to the PA.
715.
With regard to the social security and other public law obligations Respondent No. 1 refers to, Claimant notes, the Trustees' Report indicating that a debt of USD 893,841 allegedly existed. However, there in no indication, that such debts existed also in December 1999 when the Equant Shares were sold. (C IX, para. 59)
716.
Regarding the alleged airport fees and taxes for the period January 1999 - February 2001, which accrued to an amount of USD 14,699,147, Claimant considers it is outrageous that Respondents first deceive Claimant by stating that there were no subsidies prior to the privatization and Respondent No. 1 now argues that it was actually entitled to be paid these fraudulent fees with priority. (C IX, para. 60)
717.
Regarding the Debt to the ATC, Claimant notes, Respondents' allegation is false. With reference to the alleged debt to the ATC in the amount of USD 3,000,000, which was undisclosed to Claimant, it is noted that it is inconceivable that the Respondents can at the same time fail to properly disclose the existence of this debt, and argue that this undisclosed debt should have enjoyed priority of payment. Regarding the alleged assignment of an amount of USD 1,900,000 from HypoVereinsBank to the ATC, Claimant questions its existence. (C IX, paras 61 et seq.)
718.
Furthermore, Respondent No. 1 has not proven that the proceeds of sale of the Equant Shares were not applied in paying debts from before privatization or in implementing the investment program. (C VIII, paras 120 et seq.)
719.
In fact, Claimant has provided positive evidence that proves that the proceeds were so applied. During the period in which Claimant managed the Company, Company Obligations in amount of approximately USD 50,000,000 were paid. Accordingly, it is clear that proceeds of sale of the Equant Shares totaling USD 9,484,149 were applied in order to pay Company Obligations which existed on 31 May 1999. (C VIII, para. 124)
720.
Due to the fact that certain restrictions, including that the Shares could not be pledged to third parties but only to banks, financial institutions or companies related to the Company (like Balkan Holdings, which was an affiliate of the Company), applied to the sale of Equant Shares, more creative solutions had to be sought of in order to obtain funds for the Company. (C VIII, paras 126 et seq.) It was based on the concept of transferring the Equant Shares to Balkan Holdings, which could then pledge them to third parties, against financial facilities that would be transferred directly from Balkan Holdings to the Company. (C VIII, para. 127) This is an example of how the Claimant tirelessly explored every possible avenue and opportunity in order to obtain the financing that the Company urgently needed. (C VIII, para. 128)
721.
Moreover, Respondent No. 1 has no cause to argue for agreed compensation based on the above mentioned transfer pursuant to Article 10.13 of the PA (as amended on 15 July 1999), since Article 7.9.1 and the amended Article 10.13 deal with the sale of the Equant Shares. However, this transfer, constituted a collateral by means of the Shares aimed to obtain financial facilities for the Company. (C VIII, para. 130) Mr. Golan's testimony and the terms and conditions of the transfer agreement, which expressly permitted the Company to recover the Shares at any given time by fully repaying the financial facilities, substantiate Claimant's contention in this regard.
722.
Since it was not a sale agreement, it does not fall within the scope of Articles 7.9.1 and 10.13 and, ipso facto, Respondent No. 1 has no cause of action or claim for damages pursuant thereto. (C VIII, para. 131)
723.
Even if a sale of Equant Shares was involved (which is denied), then there is still no cause for claiming damages pursuant to Articles 7.9.1 and 10.13. This is so because the Respondent No. 1's allegation is that no financial facilities were ultimately obtained against the pledge of the Shares. This being the case, no use of any proceeds (which Respondent No. 1 claims were never obtained) could be said to have been in contravention of Articles 7.9.1 and 10.13. (C VIII, para. 132)
724.
Even if a sale was involved and proceeds were obtained, the Respondent No. 1 has not pleaded and, a fortiori, has not proven that the use of those proceeds was not for the purpose of paying the Company's debts or the implementation of the investment program, in accordance with Article 10.13 of the Amendment to the PA. (C VIII, para. 133)

b. Sale of Balkan's Real Estate

725.
With regard to Respondent No. 1's allegation in relation to the transfer of Balkan's real estate, Claimant submits, it cannot serve as a basis for any claim, since these transfers have never been recognized by Respondent No. 1 as valid and effective. (C VIII, para. 135)
726.
The bad faith of Respondent No. 1 in this regard is evidenced by the fact that it has been trying to obscure this fact from the Tribunal. (C VIII, paras 136 et seq.)
727.
Claimant contends, the underlying objective in the attempt to transfer the three properties was to raise funds for the Company, which could not raise money in any other way. Contrary to Respondent No. 1's allegation the attempt to transfer the properties was part of the Claimant's uncompromising and relentless efforts to raise funds for the Company through those properties before the Company collapsed. (C VIII, para. 139)
728.
Furthermore, there can be no claim regarding alleged failure to give notification with respect of the sale of the real-estate pursuant to Articles 7.9.1 and 10.13, since Respondent No. 1 has not recognized the sale. Therefore, it is doubtful whether such notice was required. (C VIII, para. 140)

3. The Tribunal

729.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R VI B paras 168, 172 et seq., 180 et seq., 184, 188 et seq.

C VIII paras 106, 109, 113, 116, 118, 120 et seq., 124, 126 et seq., 130 et seq., 135 et seq., 139 seq.

C IX paras 56, 57, 59 et seq.

Exhibits:

C-35 PA Appendix 18

730.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
731.
Regarding the dispute between the Parties about the relevance of Article 10.13. as amended, the Tribunal notes that the wording of Article 10.13. expressly only refers to the sale of shares and of real estate and not to the obligations towards the Bulgarian State which are the subject matter in the last sentence of Article 7.9.1. Therefore, due to this last sentence, Claimant was obliged to use the proceeds from the sales with priority to pay for such obligations towards the Bulgarian State.
732.
However, as discussed in detail above in this Award, due to Article 9.1.2. and other provisions of the PA, Seller had a liability to disclose to Claimant all relevant obligations the Company had. Therefrom, it must be concluded that obligations which were not disclosed, even if they existed, do not fall under the priority payment rule of the last sentence of Article 7.9.1. und thus had not to be paid by Claimant from the proceeds of sales.
733.
In this context, the Tribunal has to discuss Appendix 18 to the Disclosure Letter of which different versions have been submitted by the Parties. Claimant's version is in Exhibit C-109 which shows a pagination within the stamp at the bottom of the page. The Tribunal notes that Appendix 17 goes up to p. 293; then on p. 294 Appendix 18 starts existing of two pages namely pp. 295 seq.; then Appendix 19 starts on p. 297. In the version submitted by Respondents as Exhibit B-98, there is a new and different pagination outside the stamp at the bottom of the page in the middle with a new document (on the ATC Loan) inserted which is paginated from 295 to 315 and only thereafter the above document of two pages with the original pagination 295 and 296 is found newly additionally paginated as 316 and 317. It can be seen from the stamp and the signatures on the ATC loan that different documents were submitted.
734.
The Tribunal does not need to speculate as to how and why the later introduction of the new document occurred. But, in view of the above situation in the file, it concludes that Respondents have not been able to prove that the ATC loan was properly disclosed in Appendix 18.
735.
Further above in this Award, the Tribunal also found that the Company's obligations for outstanding social security and other public law obligations, airport fees and taxes, and towards ATC were not properly disclosed by Seller.
736.
Therefore, Claimant did not breach its obligation under the last sentence of Article 7.9.1. by not using the proceeds of sales for all the above obligations.
737.
What remained was the obligation under the second sentence of Article 7.9.1. to use the proceeds of sales for either paying Company obligations or the investment program. In this regard, the Tribunal notes the dispute between the Parties as to whether the use of the proceeds from the SITA Shares for what Claimant alleges was a facilitation of third party financing for the Company complied with Article 7.9.1. Whatever its purpose and legal formalities were, the "transfer" of the Shares from the Company to Balkan Holdings took the Shares out of the property of the Company and thus had the same effect as a formal "sale". The obvious intention of Article 7.9.1. was to assure that property of the Company should not be disposed of without notification to Seller and its value remaining available as capital of the Company. Therefore, the Tribunal concludes that Claimant's disposal of the proceeds of the sale of the shares falls under Article 7.9.1.
738.
Regarding the Claimant's "transfer" of the Company's real estate, Claimant argues that Article 7.9.1. should not be applied because Respondents have not recognized its validity and, anyhow, the proceeds were intended to be used to raise funds for the Company. However, even if both arguments were valid, there was still an obligation of Claimant to notify Seller according to the first sentence of Article 7.9.1.
739.
The first sentence of Article 7.9.1. PA expressly provides that the:

"Buyer shall be under the obligation to notify the Seller" regarding sales of both the shares and the real property of the Company. It is undisputed that Claimant did not do so.

740.
Therefore, the Tribunal concludes that Claimant has breached Article 7.9.1. PA in this regard.
741.
The consequences of this breach have to be examined taking into account particularly Article 10.13. PA as amended which provides that the Buyer shall owe liquidated damages in the amount of 10 % of the market value of shares sold. According to Exhibit C-55, the total proceeds were USD 9,484,149. The Tribunal therefore agrees with the calculation presented by Respondent No.1 in R VI B p. 79, para. 263 to the effect that these 10 % amounting to USD 948,414.91 are also due to be paid by Claimant to Respondent No.1.

H.V. Claimant breached its duty of good faith

1. Summary of Contentions by Respondent No. 1

742.
Apart from Claimant's breaches of Articles 7 and 8 Respondent No. 1 alleges, Claimant undermined the basic purpose of the PA in a manner that fundamentally conflicted with its duty to perform its contractual obligations in good faith (R VI B, para. 191). Article 63(1) of the OCA requires contractual counterparts to perform their obligations loyally, fairly, conscientiously, and so as to fulfill the purpose of the agreement without any intention to damage or deceive their contractual counterpart (R VI B, paras 192 et seq.). The purpose of the PA was to facilitate the stabilization and future success of Bulgaria's NC (R VI B, para. 194). Respondent No. 1 submits, after the disappearance of Knafaim-Arkia, Balkan Airlines was left in the hands of an investor with no airline management experience, that proceeded to undermine the purpose of the PA by stripping off Balkan's assets. This bad faith behaviour is substantiated by the fact that Claimant concealed the above mentioned transactions from the Tribunal and the Bulgarian State until June 2004. (R VI B, paras 196 et seq.) Respondent No. 1 alleges, when they were uncovered, Claimant did not deny them, contending that there was no express prohibition in the PA that restrained it from looting the airline that it undertook to invest in. (R VI B, para. 198)
743.
Furthermore, causing Balkan Airlines to enter into a matrix of consultancy agreements with subsidiaries for services that Claimant itself under the PA was to perform and appropriating Balkan's assets constituted additional breaches of Claimant's good faith duty (R VI B, para. 199):

"Very simply, the Bulgarian government did not sell its national carrier to Zeevi for the nominal amount of USD 150,000 so that the latter could appropriate its assets, divert and misuse its revenues and, finally, sell off its planes and pocket the proceeds. In engaging in such conduct, and in concealing it from its contractual counterpart, Zeevi breached - at the very least - its contractual duty of good faith"(R VI B, para. 200)

2. Summary of Contentions by Claimant

744.
With regard to the allegations that Claimant undertook to strip the Company off its assets in bad faith, Claimant contends, this can only be understood as a sign of its serious distress. (C IX, para. 64) it is further indicative that Respondent No. 1 does not claim any compensation or damages which allegedly result from this. (C IX, para. 65)
745.
In this regard, Claimant submits, it remains unexplained that the Respondents seriously misrepresented and defrauded Claimant in the PA prior to Claimants alleged plundering even began. (C IX, paras 67 et seq.) Therefore, Claimant asserts, the Respondents' allegations are nothing but a smoke screen designed to distract attention from the Respondent No. 1's lack of any substantive defences. (C IX, para. 69)
746.
Furthermore all of the Respondent No. 1's claims concerning alleged "plundering" by Claimant of Company's real-estate and illegal transfer of monies concentrate on events which allegedly took place in January-February 2001. In view of this, Claimant wonders as to why the Respondent No. 1 did not comply, before that, with its contractual duties to compensate and indemnify Claimant or the Company for missing assets and additional liabilities? (C IX, para. 70)
747.
If Claimant indeed had the intention of plundering the Company, then why did it engage in the activities in order to restructure the Company? In this regard Claimant reminds, it paid an undisputed amount of USD 23,150,000 into the Company and USD 8,250,000 of that amount only two months before the Company's collapse. Claimant hired aviation experts such as Speedwing and Mr. Harlev to advise on how to recover the Company, etc. (C IX, para. 71)
748.
Furthermore, in order to steal from the Company, as alleged by the Respondents, it would have been much easier just to appropriate the Company's assets without investing transferring USD 23,150,000 of its money into the Company. (C IX, para. 72)
749.
In view of the above, it is clear that the Respondents' allegations in this regard are devoid of merit. (C IX, para. 73)
750.
Regarding the Respondent No. 1's claim that Equant Shares in the value of USD 12.9 million were transferred to the Claimant in May 2000, Claimant contends that firstly, this did not constitute a transfer but merely a security to fund additional monies which the Company required. The fact that after fraudulently representing that the Shares could be sold, Respondent No. 1 dares accuse Claimant for the steps it took to mitigate the effect of the Respondents' misrepresentations, is outrageous. (C IX, para. 75) Furthermore, contrary to the Respondnts' assertion, the Shares did not have a value of USD 12.9 million in May 2000, since they could not be sold due to the restrictions applied to them. In the end, they were sold at a value of only USD 2.5 million. (C IX, paras 76 et seq.)
751.
Regarding the Respondents' allegations concerning the transfer of real estate, Claimant submits, there was no transfer, since any transfer was not recognized by the Bulgarian Government. (C IX, para. 78)
752.
Furthermore, since the transfers were made against part of the surplus loans, which the Claimant had transferred to the Company there can be no claims regarding alleged appropriation of assets for no value. (C IX, para. 79) In connection, with the Respondents' misrepresentations, the attempt to transfer the properties was part of the Claimant's uncompromising and relentless efforts to raise funds for the Company through those properties before the Company collapsed. (C IX, para. 80) Hence, it is noted that had Claimant in fact the intention of stripping off the Company's assets, then it would have transferred the real estate immediately upon completion of the Privatization and not shortly before the Company's collapse. (C IX, para. 81)
753.
With regard to the monetary transfers, which were made from the Company to Claimant totaling USD 4.6 million and the allegations that no letters of credit worth USD 2.4 million, which were given by the Claimant to GECAS in favour of the Company were ever realized, it is noted, that these accusations are based on the PwC Second Expert Opinion. PwC's easy access to the Company records in itself raises a question with respect to the indistinguishable links between the Respondent No. 1 and the Trustees in Balkan's bankruptcy proceedings. Furthermore, Claimant is disadvantaged in these proceedings, since it does not have the same access to the Company records as the Respondents have.
754.
With respect to the allegations regarding the misuse of proceeds from the sale of Equant Shares, Claimant submits, contrary to the Respondents' assertion which is based on the PwC Second Expert Report, there are in fact records of payments by Claimant in the amount of the proceeds from the Equant Shares sale on behalf of Balkan to IATA Clearing House and Eurocontrol. Hence, the USD 1,350,000 and USD 1,221,746 transfers made on 31 December 1999 from the Company to Zeevi Logistics constituted a repayment of the amounts which Zeevi Logistics extended to the Company. Therefore, regrettably, it is clear that the PwC Experts have produced a one sided and clearly misleading report, falsely accusing Zeevi Holdings of misappropriation of funds. (C IX, para. 83)
755.
In contrast to the Respondents' experts' accusation, that there is no explanation of a payment of USD 1 million from the Company to Claimant, Claimant submits, this represents a very partial repayment of the USD 8,250,000 loans that were transferred only two months beforehand in November-December 2000. This repayment was in accordance with the express terms of the loan agreement and is therefore not illegal in any way. This is especially the case in view that once it appeared that as a result of Respondents' refusal to honour the PA, the Company had very small prospects and its collapse was getting more and more imminent. (C IX, para. 83)
756.
Based on the PwC Second Expert Opinion, the Respondent No. 1 claims that Claimant transferred only USD 20,750,000 into the Company instead of USD 23,150,000, since it does not know whether USD 2,400,000 bank letters of credit which Claimant put in favour of the Company for the lease the GECAS aircraft were ever realized. In view of this allegation, Claimant contends, the Respondents have not raised this claim before and that it contradicts the bankruptcy court's decision. Additionally, Claimant refers to Elasis Leasing's calls of the letters of credit dated 14 and 16 March 2001 and the bank statements showing their withdrawal. Dr. Kraizberg also confirmed this. Hence, the Respondent No. 1's claims in this respect are baseless.
757.
According to the PwC Experts it was not possible to obtain an explanation for the reason for six payments totalling USD 750,000. Claimant's contention in this regard is, given that PwC could also not find the explanations for the other payments, this means nothing. In fact, in view of USD 23,150,000 transfers Claimant undisputedly made into the Company, the fact that after deep analyses by PwC of all Company records these Experts could only come up with six "unexplainable" transfers, is highly complementary to Claimant's integrity and proper account keeping of Company matters. (C IX, para. 83)
758.
In view of the Respondent No. 1's allegation that Claimant misused Company funds to pay for services it was under a duty to pay for, Claimant contends, these payments were made to one of Bulgaria's most reputable law firms. Accusing this law firm of invoicing the Company for services it never supplied stands for itself. Furthermore, Exhibits B-114 and B-115 reveal that they mostly discuss services which were clearly given to the Company. Finally, the Respondent No. 1 has only annexed Djingov, Gouginski, Kyutchuvov & Velichkov's invoices. It has not shown that these were fully paid.
759.
Dr. Kraizberg's Second Expert Opinion shows, that PwC's Second Report is fundamentally flawed from both factual and financing point of view and that Claimant's actions did not lead o the Company's collapse. (C IX, para. 85)
760.
In this regard, it is noted that Claimant acted as an innocent investor buying a company in a bad condition, which was represented as possessing a number of valuable assets with which, in connection with Claimant's own resources could have been turned around. (C IX, para.87) Claimant's seriousness in this matter is best evidenced by the enormous amounts of monies it put into it and the active measures it took in order to find ways for the Company to recover. (C IX, para. 88)
761.
Unfortunately, Claimant found that various representations made to it with respect of the Company's assets and liabilities were not correct. Furthermore, the Government acted in a manner which manifestly showed that once the Company no longer belonged to it, it could not care less what would become of it. (C IX, para. 89) Despite several warnings that if the Respondents did not live up to their obligations pursuant to the PA, the Company would collapse. Hence, Claimant was not a "plunderer" but fell victim to the Bulgarian Government's ruthless behaviour, which caused losses to Claimant amounting to at least USD 23,150,000. (C IX, paras 90 et seq.)
762.
With regard to Respondent No. 1's claims in respect to Claimant's responsibility for the collapse of the Company, Claimant submits, this is absurd in view of the fact that the Respondents' breached the PA and Claimant by investing USD 14,750,000 over and above of what it was required to, exceeded its obligations pursuant to that same Agreement. (C IX, paras 95 et seq.)
763.
It is noted that in order to prevent it from collapsing, Claimant invested a massive amount of USD 8,250,000 shortly before it collapsed allowing the Company to prolong its operations for two further months. (C IX, paras 97 et seq.)
764.
In regard to Respondents' allegation Claimant asks whether it makes sense to attribute to Claimant a conduct whereby two months after putting USD 8,250,000 in the Company Claimant would cause itself to loose this amount by calling back an amount of USD 1 million? (C IX, para. 100)
765.
Contrary to the Respondents' allegation, the Company did not collapse merely due to an amount of USD 511,000 missing from its cash-flow, but from amounts ranging from USD 5,750,000 to USD 10,750,000 as can be derived from the Company's list of debts. (C IX, paras 101 et seq.)
766.
The Company's desperate condition and urgent need of larger funds is also apparent from real time correspondence in this respect. (C IX, para. 104)
767.
This is further apparent from its 2001 Budget from which it appears that the amount of extra funds which the Company required to ensure its future operations ranged between USD 5,750,000 to USD 10,750,000. Hence, the Respondent No. 1's attempt to argue that only USD 511,000 were missing from the Company in order to ensure its continued operations is baseless. (C IX, paras 105 et seq.)
768.
Moreover, seeing that the Company had no prospects, due to the Respondents' stubbornness in not fulfilling their obligations under the PA, Claimant called back a small part of its loans. (C IX, para. 107)
769.
In fact, if indeed only USD 511,000 was required in order to ensure the Company's continued operations, then the Respondents' liability for the collapse of the Company becomes even clearer. (C IX, paras 109 et seq.) This is even more so, if one compares the missing amount to the USD 3,387,235 which the Respondents owed by then to the Company due to training of pilots and which they refused to pay to the Company even after having been notified several times prior to the Company's collapse. (C IX, paras 111 et seq.)
770.
Finally, the Respondents' bad faith is best illustrated by the fact that Respondent No. 1 refused to put even one dollar into the Company notwithstanding the clear misrepresentations which were made, but injected an amount of BGN 10,000,000 into the newly formed Bulgarian Air. (C IX, para. 113)
771.
With regard to the Management Agreement between the Company and Balkan Holdings B.V, Claimant submits, it was, contrary to the Respondents' allegation not a "secret", but openly and fully disclosed in the books. (C IX, para. 117) Thereby, it was also disclosed to the minority shareholders of the Company, which under Bulgarian Law is not even required. (C IX, para. 118) Respondent No. 1 further misleads the Tribunal by describing the terms of the management agreement as providing for payment of management fees of 3% of Balkan's turnover which was USD 200 million. However, as appears from Article 6 of the management agreement, it only applied to the Company's turnover of activities outside of Bulgaria. (C IX, para. 119) Finally, the debt on account of this management agreement accrued in Balkan's balance sheet, had no real effect on any of its operations, since it was a debt owed to the owner of the Company. Indeed, other than an amount of USD 250,000, even Respondent No. 1 does not claim that any payment was made under the management agreement. (C IX, para. 120) In any case, the PA did not forbid the management agreement. (C IX, para. 121)
772.
With regard to another management agreement between ZBI and the Company, Claimant submits, the attempt to transfer the real-estate was designed to help raise further funds desperately required to rescue the Company. However, Claimant wanted the real-estate to continue to serve as a profit center of the Company. To this end the management agreement was signed. (C IX, para. 122)
773.
In respect to the various consultancy agreements Claimant notes, these are devoid of any merit. (C IX, para. 123) Contrary to the Respondents' allegation, they were not secretive at all as becomes apparent from an internal document, which Respondent No. 1 itself presented. (C IX, para. 124) The accusation that the consultancy agreements were used by Claimant to "siphon" monies out of the Company is absurd. The PwC Experts themselves confirm that

"it appears that the individuals named above all had management roles in Balkan. the contract with BDO may, therefore, have been one of the means by which the above individuals were remunerated by Balkan" (section 5.27 of the PwC Second Expert Opinion) and that "the payments made to BDO were then paid to the management of Balkan appointed by Zeevi, rather than to Zeevi itself"

774.
PwC also confirmed that Mr.Gray and Mr. Frank were CEO's of the Company; that Mr. Mar-Chaim was Balkan's CFO; and that Mr. Shenhav was senior vice president of the Company. Mr. Harlev's acted as Special Executive Advisor to the Board of Directors of Balkan Bulgarian Airlines. Hence, all of the said individuals provided services to Balkan and were entitled to be remunerated for this. (C IX, para. 125)
775.
The reason why the payments to the non-Bulgarian management of the Company were effected through such type of consultancy agreements is a consequence of tax advice which the Company received, according to which payment of salaries through BDO, which is a non-Bulgarian entity, allowed to significantly reduce the tax due for compensating the managers for the work they performed for Balkan. (C IX, para. 126) Needless to say, that it was in Claimant's interests, in as much as it was in the Company's interest, to see that expenses of the Company are reduced as much as possible. The claim that Claimant used the consultancy agreements to "siphon" monies out of the Company is, therefore, absurd.
776.
The reason why the management received money out of two contracts was because according to the Bulgarian contracts, the said individuals received amounts of BGN 1,000 (approx. USD 500). With salaries that low, the Company could not have attracted any western style management. (C IX, para. 127)
777.
With regard to the consultancy agreement with SGTS, Claimant notes, it is unclear why this is an issue in this case, since this agreement has nothing to do with any of the claims. Furthermore, SGTS is a Bulgarian company, which is not affiliated to Claimant or the Company in any way. (C IX, para. 128)
778.
With regard to the Respondents' claims concerning Knafaim-Arkia, Claimant contends, Knafaim-Arkia stopped its active involvement in Balkan due to the various problems the Buyers encountered after purchasing the Company, which made it difficult for it to comply with the reporting requirements applying to it as a publicly traded company. (C IX, para. 129) Furthermore, the PA did not prohibit Knafaim-Arkia's disengagement from active involvement in the Company. (C IX, para. 130) The provisions, Respondent No. 1 alleges Knafaim-Arkia breached by withdrawing from its engagement in the Company are of no relevance to the Claimant, since it remained fully active in the Company and is not responsible for alleged breaches of Knafaim-Arkia. (C IX, para. 131)
779.
Claimant contends that the Respondents' claims that there were other bidders for the Company are false. Quite to the opposite, the Respondents could not sell the Company to anyone else and were therefore eager to get Claimant to sign the PA. (C IX, paras 132 et seq.)
780.
Contrary to the Respondents' contentions, Claimant submits, the Zeevi Logistics Draft Prospectus did not state there was nothing wrong with the representations given by the government concerning the Company. In fact, this was exactly the reason for this never o materialize into a final prospectus. (C IX, para. 135)

3. The Tribunal

781.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R VI B paras 191 et seq., 196, 199 et seq.

C VIII paras 133, 135 et seq., 139 seq.

C IX paras 64 seq., 67, 69 et seq., 75-81, 83, 85, 87

et seq., 95 et seq. 100 seq., 104 seq., 107, 109 et seq., 113, 117 et seq., 125 et seq., 135

782.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
783.
On one hand, there can be no doubt that the contractual Parties had to fulfil their contractual obligations in good faith. But, on the other hand, a contract as detailed as the PA was with its many further documents to which it referred and which it included as binding, must be interpreted as dealing by these many express provisions with all obligations which the Parties considered as being of primary importance. A high hurdle is thereby established before one can derive additional obligations from the duty of good faith though they have not been expressly mentioned in the many contractual documents.
784.
Further, it was the purpose and the effect of the PA that Claimant would now be in charge of the Company and its management. This provided a wide discretion to Claimant how run the company in so far as the PA did not limit that authority.
785.
It may well be that, in hindsight, a number of actions taken by Claimant in running the Company may be questioned. But, in order to be considered as a breach of the PA due to lack of good faith, Respondents would have to show that any of the actions they claim to be against good faith could not be explained by a reasonable business judgement at the time.
786.
In considering the various actions submitted by respondents in this context, the Tribunal - without having to go in details of these actions - concludes that Respondents have not been able to provide the necessary proof. Claimant's explanations given regarding the various actions may not always be considered wise in hindsight, but are sufficient to show that no bad faith must have been involved.
787.
Therefore, the Tribunal concludes that it cannot find a breach of good faith by Claimant.

H.VI. Balkan Airlines collapsed in 2001 as a result of Zeevi's mismanagement of the Airline

1. Summary of Contentions by Respondent No. 1

788.
Respondent No. 1 contends, Claimant's own consultants, Speedwing, concluded in November 1999, on the basis of their exhaustive review of the airline's business that Balkan Airlines could break even on an operational level within a year or two, provided appropriate investments were made. (R VI B, para. 204) Fleet renewal and improved services were the centrepiece of Speedwing's investment recommendations. (R VI B, para. 205) Beyond fleet renewal, Speedwing's other recommendations, such as reorganizing route structure and improving the technical department, also required substantial financial investment. (R VI B, para. 206) On the basis of these requirements, Speedwing concluded that the airline had realistic prospects of generating operating profits by 2004 in the amount of USD 55.6 million (R VI B, para. 208). Hence, Claimant's allegation, that Balkan Airlines "lacked, from the outset, any prospects of recovery" is false. (R VI B, para. 208). Notwithstanding the cautious optimism of Speedwing at the end of 1999, Balkan Airlines' financial position deteriorated dramatically under Claimant's management in 2000 compared to the years 1998 and 1999 (R VI B, paras 209 et seq.).
789.
This deterioration was, according to PwC's Second Expert Report, due to a significant increase in Balkan Airlines' expenses, a significant proportion of which comprised expenses for hired services; the disappearance of many of Balkan Airlines' principal assets; the significant increase in Balkan Airlines' debt and the halving of Balkan Airlines' cash holdings. (R VI B, para. 212)
790.
Respondent No. 1 alleges that deterioration of Balkan Airlines' financial condition closely reflected Claimant's violations of the PA. (R VI B, para. 214)

"The debilitating increase in Balkan Airlines' debt followed from Zeevi's decision to "invest" in the airline by way of exorbitantly priced short-term loans notwithstanding the terms and purpose of Article 8. The disappearance of Balkan Airlines' principal assets followed from Zeevi's decision to strip Balkan Airlines of its most valuable assets for its own benefit, notwithstanding the terms of Article 7.9.1. And the sharp increase in Balkan Airlines' foreign expenses, as well as the sudden decline in its cash holdings, followed inexorably from the various cash-diverting schemes contrived by Zeevi during its period of mismanagement in violation of its duty to perform its contractual undertakings under the Privatization Agreement in good faith."(R VI B, para. 215)

791.
With reference to the loans, PwC concluded, that is:

"was clearly not the most beneficial method to Balkan [Airlines'] financial condition and its future development prospects" (R VI B, para. 216)

792.
PwC's conclusion of the impact of the totality of these various actions by Claimant is that they:

"had the effect of seriously weakening Balkan [Airlines'] financial position, and its ability to continue to operate in the future at the levels seen in 2000, let alone develop its business". (R VI B, para. 218)

793.
By recalculating the liquidity ratios with the assumption that Claimant had honored its investment obligations under the PA, PwC demonstrated that Balkan Airlines' liquidity would have been significantly healthier. (R VI B, para. 221)
794.
Notwithstanding the deteriorating condition in which Balkan Airlines found itself after a year of Claimant's management, the onset of bankruptcy was still far from inevitable in February 2001. This fact is starkly revealed by comparing the amount of USD 511,000 of liabilities for current insurance, which led Bulstrad to commence bankruptcy proceedings against Balkan Airlines, with the approximately USD 1.75 million that Claimant itself siphoned from Balkan Airlines in the days before and after it abandoned the airline on 13 February 2001. (R VI B, para. 222) Bulstrad has over the years proven its willingness to reschedule Balkan Airlines' debts. However, the position of a creditor facing a debtor airline that has decided to halt operations, with no indication that they will be recommenced, is easy to understand. (R VI B, para. 225)

2. Summary of contentions by Claimant

795.
With regard to Respondent No. 1's claim for damages due to the loss of its NC, Claimant submits, the claim should be dismissed, since the Company's collapse does not constitute a breach of the PA by the Claimant. Furthermore, had Claimant not purchased it, Balkan Airlines would have gone bankrupt as early as 30 June 1999. Furthermore, Article 7.4 specifically stipulates that such an event would not constitute a breach of the PA. (C VIII, para. 142)
796.
Moreover, apart from a claim for harm to "economic morale" being rather remote, the collapse of Balkan Airlines was a direct result of the Republic's misrepresentations and breaches of the PA. (C VIII, paras. 143 et seq.)
797.
Claimant, on the other hand exceeded its obligations under the PA. (C VIII, para. 146)
798.
Furthermore, Respondent No.1's allegation of "damage" resulting from the "loss" of its NC is a total fiction, which directly contradicts its other claims in this arbitration. In order to claim that it had allegedly no motive to deceive the Claimant into entering into the PA Respondent No.1 argued that its position whether the Company would be privatized or not was allegedly "neutral" since had the Company not been privatized in June 1999 it would have "simply" gone into bankruptcy and Respondent No.1 would have appointed another NC in its place. (C VIII, para. 148)
799.
With regard to damages claimed by Respondent No. 1 in respect for alleged "non-performance" of Claimant's obligations during the years 2001-2004, Claimant submits, these claims are baseless. This is because, once the Company entered into bankruptcy proceedings, Claimant was no longer obligated to provide bank guarantees, ensure that the Company would continue to invest USD 20 million, report on such hypothetical investments, or any other obligation due after the Company was no longer active or under Claimant's control. (C VIII, paras 151 et seq.)
800.
Claimant refers to Article 20 of the OCA stating, Respondent No.1's conclusion would certainly contravene any acceptable principles of logical and good faith interpretation of an agreement in view of its overall context. (C VII, para. 153)
801.
Furthermore, Claimant contends, a Company which is in bankruptcy proceedings cannot invest "for the commercial development of the Company with a view to increasing the range of services and profitability of the Company in the medium and long term" (see Article 8.2 of the PA). (C VIII, para. 155)
802.
Furthermore, once the Company entered bankruptcy proceedings Claimant lost its ability "as a majority shareholder" to "cause" it to do anything (see Article 8.2.1 of the PA) since the Trustees in bankruptcy gained control over the Company. (C VIII, para. 156)
803.
Same is also true with respect to the claim that the Claimant should have carried on transferring USD 2,400,000 a year into the Company. (C VIII, para. 158)
804.
The fact that Respondent No.1 has found it necessary to artificially claim that the obligations to transfer amounts under Article 7 and cause for investments under Article 8, continue to exist even once the Company is no longer operative, only shows its lack of good faith. (C VIII, para. 159)

3. The Tribunal

805.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R VI B paras 209 et seq., 212, 214, 216, 218, 221 seq.

C VIII paras 142 et seq., 146, 148, 151 et seq., 155 seq., 158 seq.

806.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
807.
It is undisputed that the Company was threatened to go bankrupt at the time the PA was concluded. The optimistic potential identified in the Speedwing Report did not change that situation, but was based on assumptions which later did not realize. Similarly to the above considerations regarding good faith, on one hand, there can be no doubt that it was the common purpose of both parties to the PA to avoid the threatening bankruptcy of the Company and make the Company profitable again by its privatisation. But again, on the other hand, a contract as detailed as the PA was with its many further documents to which it referred and which it included as binding, must be interpreted as dealing by these many express provisions with all obligations which the parties considered as being of primary importance.
808.
It is clear and undisputed that the PA does not contain a clause by which Claimant gives any kind of guarantee that the Company may not fail or become insolvent. Such a guarantee would have been of such a primary importance that it can also not be interpreted "into" the contract. Article 7.4. rather indicates that a liquidation was not excluded. Thus it is clear that the Parties did not and did not intend to put the Claimant under such an obligation.
809.
Further, also in the present context it must be noted that it was the purpose and the effect of the PA that Claimant would now be in charge of the Company and its management and that this provided a wide discretion to Claimant how run the company in so far as the PA did not limit that authority.
810.
It may well be that, in hindsight, a number of actions taken by Claimant in running the Company may be questioned. But, in order to be considered as a breach of the PA, Respondents would have to show that any of Claimant's actions they claim to be the cause of the later insolvency could not be explained by a reasonable business judgement at the time.
811.
In considering the various actions submitted by Respondents in this context, the Tribunal - without having to go in details of these actions - concludes that Respondents have not been able to provide the necessary proof. Claimant's explanations given regarding the various actions may not always be considered wise in hindsight, but are sufficient to show that no bad faith must have been involved.
812.
Further, as the Tribunal has found above, there were a number of large outstanding liabilities of the Company which the seller would have had to disclose and did not disclose. These liabilities were an obvious heavy burden - unexpected by Claimant - which the Company had to carry forward all the way to the time of the eventual insolvency of the Company.
813.
Respondents would have had the burden of proof that, even with the undisclosed outstanding liabilities, the Company's insolvency was caused by breaches of the PA by Claimant. In the view of the Tribunal, neither by the PwC Reports nor by any other means have they been able to provide such proof.
814.
Therefore, the Tribunal concludes that this claim by Respondents fails.

H.VII. Deduction and Extinguishing Factors

1. Summary of Contentions by Respondent No. 1

a. Set-off against counterclaim

815.
Respondent No. 1 requests the Tribunal to declare that any compensation Claimant may be entitled to receive is subject to setoff against the Respondent's counterclaims for liquidated damages and further damages pursuant to Article 103 and 104(1) of the Bulgarian Law on Contracts and Obligations (R II B, paras 297 et seq.). For this purpose it is noted that Respondent's submission constitutes the respective notice of set-off.
816.
Respondent No. 1 submits, since the Tribunal admitted the counterclaims in its PO. No. 11, which are quantified at a total amount of USD 56,510,712 including interest should be set-off against any claims of the Claimant. (R VII B, paras 204 et seq.)
817.
In response to the alleged preconditions for the admission of the counterclaims Respondent No. 1 submits the following:
818.
Contrary to Claimant's allegation, these counterclaims are admissible. In this regard, Respondent No. 1 refers to Article 90 of the OCA, which according to Claimant, releases Claimant from its obligations under the PA so long as Respondent No.1 does not perform its obligations, stating that this Article is not applicable in the present proceedings, since Claimant did not seek to avoid the PA by 13 February 2001. Furthermore, Claimant has until now argued that it has fulfilled its obligations and not that it was not obliged to fulfill them. (R VII B, paras 211 et seq.)
819.
Moreover, contrary to Claimant's allegation, Article 8.5 of the PA is no obstacle to the Respondent No.1's counterclaims. In this regard, Respondent No. 1 contends, that Article 8.5 provides the parties in effect with no more than an opportunity to resolve any investment dispute by agreement. In any event, Article 8.5 envisages differences about the nature and amount of investment realized. The dispute here is first and foremost about the very existence of an investment obligation on Claimant's part. (R VII B, paras 216 et seq.)
820.
Furthermore, contrary to Claimant's allegations and in accordance with Article 103 of the OCA, Respondent No. 1 submits, the counterclaims were executable and liquid. (R VII B, paras 119 et seq.) This is so, because they arise directly from liquidated damage provisions of the PA, which also directly and unambiguously determine their amount. Respondent No.1's counterclaims became executable and liquid within 14 days following their notification to Claimant, in accordance with Article 10.3 of the PA. (R VII B, para. 123)
821.
Claimant's allegations in this regard indicate its recognition of the merit of the counterclaims. (R VII B, para. 124)

(1) Claimant Breached Article 7 of the PA

822.
Respondent No. 1 contends, that Claimant failed to fulfill its obligations to service debts of up to USD 30 million, which was to be done by setting up of an escrow account of USD 6 million and by paying USD 2.4 million annually, due to the fact that the amounts injected in Balkan Airlines were in the form of punitive short-term loans, which were used to operate Balkan Airlines. Furthermore, Claimant failed to secure its debt-servicing obligations by providing letters of credit in the form set out in Article 7.1.2 of the PA. (R VII B, paras 225 et seq.)
823.
Regarding Claimant's argument that it reduced the pre-existing obligations of the Company by USD 49 million, Respondent No. 1 contends, there are two flaws in this submission:
824.
First, Claimant's new interpretation of Articles 7.1.1 and 7.1.2 confuses Claimant's obligation to fund Balkan Airlines with Balkan Airlines' ability to repay debts out of its own turnover. Thus the USD 49 million used from Balkan's revenues to repay debts do not release Claimant from its obligation to additionally repay Balkan's debts from its own (Claimant's) funds. (R VII B, para. 231)
825.
Secondly, by replacing old debts, with expensive new ones, undermines the purpose of the debt-servicing obligation of Article 7.1. (R VII B, para. 233)
826.
Contrary to Claimant's allegation, Respondent No. 1 submits, Claimant did not transfer USD 14,750,00 over and above its obligation pursuant to Article 7.1, since the Letter of Credit that forms the subject matter of the loan agreement dated 5 December 1999 did not result in any money finding its way into Balkan Airlines. Hence, Claimant cannot have injected more than USD 12,350,000 in excess of its obligations. (R VII B, para. 234)

(2) Claimant breached Article 8 of the PA

827.
Furthermore, Respondent No. 1 contends, Claimant ignored its separate funding obligation pursuant to Article 8 of the PA according to which it was to invest additional USD 20 million annually, it failed to provide guarantees securing its performance of the investment obligation, provide to the Privatization Agency an initial investment plan as well as any of the investment reports that it was required to establish and submit thereafter. (R VII B, paras 236 et seq.)
828.
Contrary to Claimant's argumentation in this regard, Respondent No. 1 contends its interpretation of the investment obligation pursuant Article 8 has been consistent throughout these proceedings, in contrast to Claimant's interpretation in this regard. (R VII B, para. 240) A cursory review of the documentary record shows that there is nothing novel about Respondent No.1's and the Privatization Agency's interpretation of Article 8. (R VII B, paras 242 et seq.)
829.
In contrast to the Respondents' interpretation, Claimant has changed its interpretation since the Respondent No.1 filed its Defense and Counterclaim. Until then, Claimant interpreted this Article the same way the Respondents did. After that, Claimant began to refuse its funding obligation pursuant to this Article. (R VII B, para. 244) According to Claimant's newly adopted interpretation of Article 8, Claimant had no more than an obligation to manage Balkan Airlines in a way that would make it attractive to external financiers, which ignores the purpose of the privatization. It is absurd to contend that an airline that was privatized because it was insolvent and in desperate need of external investment assumed an obligation to invest USD 100 million in itself pursuant to an agreement to which it was not even a party. (R VII B, para. 247)
830.
But even if one were to adopt Claimant's thesis that it had an obligation to see to it that Balkan Airlines would invest in itself, rather than Claimant make these investments, this obligation has not been discharged. (R VII B, para. 248)
831.
Additionally, contrary to Claimant's allegation that it fulfilled its funding obligations pursuant to Article 8 of the PA, Respondent No. 1 contends, the alleged investments in aircraft, but one, did not constitute investments pursuant to the terms of Article 8.4. In this regard, Respondent No. 1 contends there is a fundamental difference between a "financing" lease and an "operating" lease: the former contains an option, and typically the expectation, of eventual purchase of the aircraft and the lease payments therefore incorporate some element of a purchase price; the latter is structured as no more than a short-term rental with no option to buy. It is for this reason that only financing leases are considered, and accounted for, as "investments" by airlines around the world. Article 8.4 is consistent with this practice. Hence, the only amounts that could be considered as genuine investments are the lease payments actually made under the one ATR-42 financing lease. (R VII B, paras 249 et seq.)

(3) Claimant breached Article 7.9.1 of the PA

832.
Respondent No. 1 contends Claimant breached Article 7.9.1 by using the proceeds from the December 1999 sale of Equant Shares to cover operating expenses, by secretly misappropriating the rest of the Equant Shares in May 2000, and by selling the main real estate of Balkan Airlines in January-February 2001 for its own benefit, instead of primarily repaying the Company's debt to the Bulgarian state with the proceeds of these transfers. (R VII B, para. 256)
833.
Contrary to Claimant's argumentation in this regard, that it used these assets solely for the "general benefit" of Balkan Airlines, Respondent No. 1 contends, it is irrelevant under the plain terms of Article 7.9.1. Claimant's contention is false in that it in fact did not use the proceeds from these transfers for the benefit of the Company, since it misappropriated Balkan Airlines' SITA depository certificates and real property for no value. (R VII B, paras 259 et seq.)

(4) Claimant breached its Duty of Good Faith

834.
Respondent No. 1 further alleges, Claimant breached its good faith duty under Article 63(1) of the OCA by exacerbating Balkan Airlines' liquidity crisis by causing it to enter into numerous, overlapping "consultancy" and "management" agreements; by using Balkan Airlines' revenues for Claimant's own purposes; and by selling off a significant part of Balkan Airlines' air fleet, and pocketing much of the proceeds. (R VII B, para. 263)
835.
Respondent No. 1 submits, Claimant's defence in this regard, in which it pointed out that the PA did not forbid any of these agreements, misses the point, since the duty of good faith prevents Claimant from using the silence of the PA to justify its own turpitude. (R VII B, para. 264)
836.
In addition to the numerous consultancy and management agreements that have been uncovered, Respondent No. 1 alleges, it discovered yet another agreement with a Bulgarian company called Interbalkan management and consulting AD, whose services remain unclear. (R VII B, paras 267 et seq.)

b. Unjust enrichment

837.
Respondent No. 1 further requests that any compensation Claimant might be entitled to is reduced by "an amount equivalent to the market value of the real estate and Equant Shares appropriated by Zeevi" (R II B, para. 306). Respondent No. 1 relies on the notion of unjust enrichment on Claimant's side in case the latter would be entitled to recover damages already compensated by appropriation of Balkan Airlines' real estate and the proceeds of the sale of the airline's shares in Equant (R II B, paras 303 et seq.). These assets had been transferred to Claimant involving its subsidiaries in settlement of or as security for loans given to Balkan Airlines. By retaining these assets Claimant thereby already obtained compensation for loss of its alleged investments in the airline (see also R I, para. 5.1.6.). Moreover, the value of real estate and Equant Shares transferred to the creditor exceeded the loans extended to the Airline (R I, para. 5.1.21.). Furthermore, the alleged damages arising out of the "loss of investments" have already been claimed by the airline's nominal creditor, i.e. Balkan Holdings, before the Sofia City Court. Additional submission of these claims in the present arbitration violates the principle of non bis in idem and should therefore be rejected (R I, para. 5.1.7.).
838.
Without the reduction Claimant would thus recover twice for this alleged damages. Such double recovery, however, is prohibited by Bulgarian law as in Article 59 of the OCA.

c. Contributory negligence and failure to mitigate damages

839.
A further reduction of any compensation Claimant might be entitled to be requested by reference to Claimant's alleged contributory negligence and its failure to mitigate damages as recognized in Article 83 of the OCA (R II B, paras 308 et seq.).
840.
Claimant has failed to conduct any due diligence of its own on the airline's assets and liabilities prior to the purchase but relied on the KPMG reports provided and thereby

"failed to acquit itself with the diligence required of a reasonable and responsible purchaser" (R II B, para. 310).

In particular, this failure regards the nature of the Equant Shares, the reduced landing and other fees, the payments due to the airline's employees and the existence and extent of the ATC loan. Additionally, Claimant failed to take the available measures to mitigate damages in regard to the aircraft maintenance liabilities and the debt for pilot training.

d. Amounts received by Claimant through "consultancy agreements"

841.
Furthermore, Respondent No. 1 requests that any possible compensation due to Claimant is reduced by the amounts Claimant received through the so called consultancy agreements concluded between Claimant's subsidiaries Balkan Holdings and ZBI and the Airline. The purpose of these agreements was to recover cash from the Airline prior to its collapse (R II B, paras 313 et seq.).

2. Contentions of Respondent No. 2

842.
Respondent No. 2 contends that a significant part of the claims submitted by the Claimant were already submitted by its subsidiary companies in the insolvency procedures against Balkan Airlines AD. Therefore the submission of such claims in this arbitration is demonstration of bad faith and disregard of the principle non bis in idem.
843.
Should the Tribunal decide to award to the Claimant the relief sought, this will have as effect the unjust enrichment of the Claimant, which is prohibited by Articles 55 - 59 of the OCA as the claims submitted do not represent the legal beneficial interest of the Claimant but of other entities and thus the Claimant would be entitled to receive compensation that belongs to persons different from the Claimant. (R III PA, paras 212 et seq.)

3. Summary of Contentions by Claimant

844.
Claimant contends that the Respondents' request for deduction of any amount from the damages Claimant is entitled to is to be rejected as unjust (C II, paras 47 et seq.). It is explained that Claimant does not seek to recover any amount twice. Insofar as loans are returned, claims in bankruptcy proceedings succeed and Claimant has a good title to the airline's real estate, the amount of claim for lost investments is reduced respectively (C II, paras 53, 58, 66). On the other hand, Claimant will waive any right to the real estate insofar as its claim for lost investments succeeds (C II, para. 66).

a. Investments by way of secured loans

845.
The fact that investments in the airline made by Claimant by way of irrecoverable loans as opposed to investments by equity is deemed irrelevant. Claimant emphasizes that loans extended under repayment terms not less then 12 months are considered "investments" by Bulgarian law (Article 12(1) item 6 of the Bulgarian Foreign Investments Act). The respective provision in the treaty between Bulgaria and Israel (see C-79A) even does not require the 12 month term. C II, para. 48 et seq.

b. Claim in bankruptcy proceedings

846.
The fact that the investments had been claimed back in the Airline's bankruptcy proceedings does not bar the Claimant from claiming these investments in the present arbitration. Claimant has the right to seek recovery from different entities in different actions. Moreover, the bankruptcy court has denied Claimant's rights to claim back the investments which evidences that the investments have been lost and may therefore be claimed in this arbitration.

c. Transfer of the airline's assets

847.
Regarding the alleged appropriation of the Airline's assets as consideration for the investments Claimant notes that it had to inject further funds in the airline in order to keep it operating and thereby mitigate damages. Claimant acknowledges that these funds were put in by way of loans secured by a pledge over the Airline's Equant Shares. These shares were finally sold. Although

"significantly less than the amounts loaned against,"

the proceeds of this transactions

"should be deducted from the Claimant's claim" (C II, para. 65).

848.
Claimant points out that its attempt to acquire the Airline's real estate has failed and is therefore irrelevant for this arbitration. Trustees in the Airline's bankruptcy proceedings contested the transfers' validity and initiated court proceedings. While two claims are still pending, the claim against transfer of the Airline's office building has already been granted (C II, para. 66; see C-80). Claimant emphasizes that transfer of the airline's real estate was only meant to raise additional funds.

d. Mitigation of damages

849.
Claimant points out that indeed it struggled to mitigate damages by further investing into Balkan Airlines in order to

"save it from immediate collapse" (C I, para. 22)

even though Claimant

"would be able to demand compensation for all monetary losses resulting from the collapse" (C I, para. 22).

e. Claimant's motives

850.
Claimant further stresses that it did indeed attempt to mitigate losses. In fact, Claimant invested further funds in the Airline in order to avoid its collapse and thus loss of the entire investment. This conduct of business is contrary to the Respondents' allegation (see R I, para. 5.1.21.) that Claimant did not aim at the Airline's recovery but strived to dispense of its remaining assets before liquidating it (C II, paras 67 et seq.).

f. Contributory Negligence

851.
The Respondents argue for contributory negligence on part of the Claimant in entering into the transaction. Having deceived the Claimant into entering the transaction based on their misrepresentations, the Respondents now blame the Claimant for being negligent because it relied on them.
852.
In the event, the Respondents' analyses are also legally flawed. Article 83 of the OCA, to which the Respondent No.1 is not applicable to this case. (C III, paras 324 et seq.)

4. The Tribunal

853.
In the context of this section, the Tribunal, without repeating the contents, takes particular note of the following documents of the evidence:

Party Submissions:

R I paras 5.1.6. seq.; 5.1.21.

R II B paras 297 et seq., 303 et seq., 306, 308 et seq., 313

R VII B paras 119 et seq., 123 seq., 204 seq., 211 seq., 216 et seq., 225 et seq., 231 et seq., 236 seq., 242 et seq., 247 et seq., 256, 259, 263 seq., 267 seq.

R III PA para. 212

C I para. 22

C II paras 47 et seq., 53, 58, 65 et seq.

C III paras 324 et seq.

Exhibits:

C-79A Investment Treaty between the Republic of Bulgaria and Israel

C-35 PA

854.
Taking into account the above contentions of the Parties, the Tribunal's major considerations are:
855.
Regarding the possibility of set-off, the Tribunal recalls from its PO Nos 11, 12 and 13 that, for the reasons mentioned there, it has jurisdiction over the counterclaims and, in so far as counterclaims of Respondent No. 1 are found to be justified, they can lead to set-off against any claims of Claimant found to be justified.
856.
Article 8.5. PA provides no obstacle in this regard because the committee mentioned in that provision is for a different purpose and its last sentence makes it clear that any disagreement would anyhow have to be settled by arbitration.
857.
Neither does the Tribunal see any obstacles to set-off coming from the relevant provisions of Bulgarian law, particularly Article 103 OCA.
858.
Further above in this Award, the Tribunal has already dealt with the counterclaims raised for alleged breaches by Claimant of Article 7, 8, 7.9.1. PA and the duty of good faith.
859.
In addition to these counterclaims examined by the Tribunal further above in this Award, in the present context Respondents raise a counterclaim for unjust enrichment for the market value of real estate and Equant Shares appropriated by Claimant by which any claims of Claimant found to be justified would have to be reduced. In this context, it has to be examined whether the express provision for liquidated damages in Article 10.13. PA as amended excludes such an additional claim for unjust enrichment. In this respect, the Tribunal concludes that there is no exclusive effect of Article 10.13., because it only facilitates proof of any damages in case of lack of notification or if the proceeds are not used for the Company's debts or the investment program. If, however, it is shown that the Buyer has appropriated the proceeds for its own benefit, it would be illogical to interpret Article 10.13. in a way that the Buyer would still only have to pay 10% and be allowed to keep the remainder of the proceeds which it appropriated in breach of the PA.
860.
Therefore, a counterclaim for unjust enrichment can still be raised in this regard.
861.
After having considered the liability of the Parties for the claims and counterclaims raised, the Tribunal will now have to examine how far causation of damages and the quantum of such damages has been established.

I. Causation of Damages and Quantum for accepted Claims

I.I. NCS

1. Summary of contention by Claimant

862.
Claimant contends, it is impossible to "put a price tag" on value of the misrepresentations and breaches concerning the Company's NCS, since had influence on every aspect of the Company's operations. Furthermore, Claimant notes, it is undisputed that Claimant purchased Balkan Airlines for the sole reason of its NCS. (C VII, paras 12 et seq.) Without a governmental undertaking to preserve the Company's NCS, the value of the Company significantly decreased, especially in view of the fact that several countries already cancelled Balkan Airlines' status. (C VII, para. 14)
863.
Furthermore, Claimant submits this situation had severe consequences on Claimant's ability to raise monies for the Company from third party investors and affected the planned public offering. (C VII, para. 15)
864.
This effect was also reflected in the Company's damaged reputation resulting thereof. (C VII, para. 16)
865.
The loss of several routes also negatively affected the Company's income. The average profit, Balkan Airlines would have made if it had kept the lines would have been about USD 2,316,666 per line. (C VII, para. 17)
866.
Furthermore, the loss the NCS on the non-operated lines led to serious doubts which were cast by third parties as to Balkan's NCS the counter measures of which led to substantial additional expenses. (C VII, para. 20)
867.
On a conservative basis, the direct value of the breaches and misrepresentations concerning the NCS has been set at USD 15,000,000. (C VII, para. 23; C X, paras 39-41)

2. Summary of Contentions by Respondent No. 1

868.
Regarding the alleged breach concerning Balkan's NCS, Respondent contends, Claimant bases allegation on Article 3.9.2 of the PA, pursuant to which it formulated two separate claims: One for USD 15 million (the "direct value") and one for the return of its entire USD 23.15 million "investment" in Balkan Airlines.
869.
Regarding the "direct value"of the NCS, Respondent No. 1 submits, it was never in breach of Article 3.9.2 and those destinations that were cancelled were cancelled by Claimant itself or had no effect on it. (R VII B, para. 55) Respondent No.1 maintained Balkan Airlines' NCS at all relevant times. The destinations, which were lost (Syria, Lebanon and Iran), we