• Copier la référence
  • Tutoriel vidéo

Avocats, autres représentants, expert(s), secrétaire du tribunal

Interim Award on Respondent's Objections to the Jurisdiction of the Tribunal

LIST OF DEFINED TERMS

1994 Joint EC Statement Joint statement by the Council, the Commission and the Member States of the then European Community on Article 45 of the European Energy Charter Treaty, 14 December 1994
1999 Law Law on Foreign Investments in the Russian Federation, 1999
BIT Bilateral investment treaty
Brill Brill Management, a limited liability company incorporated in the British Virgin Islands
Brittany Brittany Management, a limited liability company incorporated in the British Virgin Islands
Claimant or Luxtona Luxtona Limited, a limited liability company incorporated in Cyprus in 2003
DR-CAFTA or CAFTA The Dominican Republic-Central America-United States Free Trade Agreement, 2004
Carenet Carenet Limited, a limited liability company incorporated in Cyprus
Constitution Constitution of the Russian Federation, 1993
ECT or Treaty Energy Charter Treaty, 1994
Fargoil Fargoil Limited, a limited liability company incorporated in Russia
FLIT Federal Law on International Treaties of the Russian Federation, 1995
Government The government of the Russian Federation
Limitation Clause The phrase at the end of Article 45(1) of the Energy Charter Treaty: "... to the extent that such provisional application is not inconsistent with its constitution, laws or regulations"
Parties Claimant and Respondent
PCA Permanent Court of Arbitration
Ratibor Ratibor Limited, a limited liability company incorporated in Russia
Respondent Russia, or the Russian Federation
Shares or Yukos Shares The 53,938,075 ordinary shares in Yukos Oil held by Luxtona
Stichting or FPH Stichting Stichting Administratiekantoor Financial Performance Holdings, a foundation incorporated in the Netherlands in 2005
UNCITRAL Rules Arbitration Rules of the United Nations Commission on International Trade Law, 1976
USSR Fundamentals Fundamentals of Legislation on Foreign Investments in the USSR, 1991
VCLT Vienna Convention on the Law of Treaties, 1969
Yukos or Yukos Oil Yukos Oil Company OJSC, a joint stock company incorporated in the Russian Federation in 1993

 

INTRODUCTION

1.
By this Interim Award on Respondent's Objections to the Jurisdiction of the Tribunal, the Tribunal rejects two of these objections, and reserves a third objection for the next stage of the proceedings. The Tribunal thus finds: (1) that it has jurisdiction to hear Claimant's claims because Respondent's provisional application of the Energy Charter Treaty (the "ECT" or "Treaty") includes the obligation to provisionally apply Article 26 ECT on Dispute Settlement, and (2) that the conditions established by Article 17 ECT for denial of the benefits of Part III of the ECT to the Claimant's claimed Investment have not been met. Respondent's third objection -that the Yukos shares held by Claimant are not an "Investment" within the meaning of the ECT - is reserved for the merits stage.

I. PROCEDURAL HISTORY

A. Commencement of the Arbitration Proceedings

2.
By Notice of Arbitration dated 25 June 2013, Claimant initiated arbitration proceedings against the Russian Federation. Claimant's request for arbitration against Respondent was made pursuant to Article 26(4)(b) ECT and the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (the "UNCITRAL Rules").1
3.
Claimant alleged in its Notice of Arbitration that Respondent had expropriated and otherwise failed to protect Claimant's investments in the Russian Federation.

B. Constitution of the Arbitral Tribunal

4.
In its Notice of Arbitration, Claimant appointed Professor Luca G. Radicati di Brozolo as the first arbitrator.
5.
By letter dated 20 September 2013, Respondent appointed Mr. Rodrigo Oreamuno as the second arbitrator.
6.
On 7 January 2014, Claimant submitted an "Application to the Secretary-General to Act as Appointing Authority for the Presiding Arbitrator" to the Secretary-General of the PCA, under Articles 6 and 7 of the UNCITRAL Rules, explaining that the Parties were "in agreement as to the employment of the list-procedure referred to in Article 6(3) of the 1976 Rules [...] but wish for the list to be provided by the Secretary-General to include at least five names." By letter to the Parties dated 14 January 2014, the PCA proposed to modify the list-procedure under the UNCITRAL Rules such that each side would be allowed to strike no more than three names from a list of seven individuals and rank the others in order of preference. By separate correspondence dated 14 and 21 January 2014, respectively, both Claimant and Respondent agreed to this proposal.
7.
By letter dated 3 February 2014, pursuant to Articles 6(3) and 7(3) of the UNCITRAL Rules, the PCA sent the Parties a list containing the names of seven candidates for appointment as Presiding Arbitrator. By separate letters dated 17 February 2014, each of the Parties submitted its comments on the list.
8.
On 18 February 2014, following the modified list-procedure, in accordance with Articles 6(3) and 7(3) of the UNCITRAL Rules and the agreement of the Parties, the Secretary-General of the PCA appointed Professor John R. Crook as the Presiding Arbitrator.
9.
By the Terms of Appointment dated 30 April 2014, the Parties and the members of the Tribunal confirmed, inter alia, that: (a) the members of the Tribunal had been validly appointed in accordance with the ECT and the UNCITRAL Rules; (b) the proceedings shall be conducted in accordance with the UNCITRAL Rules; (c) the International Bureau of the PCA shall act as registry; (d) the issues in dispute shall be decided in accordance with the ECT and applicable rules and principles of international law; (e) the language of the arbitration shall be English and (f) the arbitral proceedings shall be held in private and all documents or evidence submitted by either Party to the Tribunal shall be confidential, unless the Parties expressly agree in writing to the contrary. The Parties also confirmed that the Tribunal shall determine the place of arbitration in Procedural Order No. 1 after hearing the Parties on the issue.

C. Written and Oral Proceedings

10.

On 16 June 2014, the Tribunal issued Procedural Order No.1, noting that the Parties were unable to agree on the place of arbitration and that, accordingly, the Tribunal would subsequently determine the place of arbitration taking into account the Parties' views.2 In light of the Parties' agreement on the issue, the Tribunal further determined that the proceedings would be bifurcated, with the following three objections of Respondent to be determined as a preliminary matter:

(a) "[t]he Russian Federation never ratified [the ECT] and applied the ECT until October 2009 on a provisional basis pursuant to Article 45(1) of the ECT only 'to the extent that such provisional application is not inconsistent with its constitution, laws or regulations'";3

(b) "[t]he Yukos shares allegedly held by Claimant are not 'investments' within the meaning of Article 1(6) of the ECT";4 and

(c) "[s]ince Claimant is a shell company with no substantial business activities in Cyprus and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 of the ECT."5

11.
Procedural Order No. 1 also set forth a procedural calendar for the preliminary phase.6
12.
By letters dated 26 May (Respondent), 27 May (Claimant), 27 June (Claimant and Respondent) and 7 July (Claimant) 2014, the Parties submitted arguments to the Tribunal on the issue of determining the place of arbitration. Claimant proposed to select The Hague, the Netherlands, or, in the alternative, London, United Kingdom, New York, United States, Toronto, Canada or Singapore as the seat of the arbitration.7 Respondent suggested Vienna, Austria, or Frankfurt, Germany as the seat, whilst indicating that it would also support a designation of Paris, France, or Geneva, Switzerland.8 On 14 July 2014, the Tribunal held a telephone conference with the Parties, during which each of the Parties further presented the Tribunal with its views on the issue of the place of arbitration.
13.
On 22 July 2014, the Tribunal issued Procedural Order No. 2, determining that the place of arbitration shall be Toronto, Canada.
14.
Pursuant to Procedural Order No. 1, Respondent filed its Memorial on Jurisdiction on 31 October 2014. Claimant filed its Counter-Memorial on Jurisdiction on 6 February 2015.
15.
On 20 March 2015, the Parties submitted a Redfern Schedule, requesting that the Tribunal order the production of certain documents. On 28 April 2015, the Tribunal set forth its decision on the Parties' requests by issuing Procedural Order No. 3.
16.
On 23 June 2015, Respondent filed its Reply on Jurisdiction. Claimant filed its Rejoinder on Jurisdiction on 20 October 2015.
17.
By letter dated 22 December 2015, Respondent requested leave to submit certain additional factual exhibits and legal authorities at the hearing. By letter dated 4 January 2016, Claimant presented its objections to Respondent's request. By letter dated 8 January 2016, the Tribunal decided that it would receive and consider additional legal authorities offered by the Respondent, as well as any other legal authorities that may be offered by the Claimant in reply or rebuttal to those additional legal authorities. By letter dated 11 January 2016, the Claimant maintained its objections to the Respondent's request for leave to submit additional factual exhibits. By letter dated 12 January 2016, the Tribunal dismissed the Respondent's request for leave to submit additional factual exhibits.
18.
From 25 January until 29 January 2016, the hearing was held in London, United Kingdom. The hearing was attended by the following:

Tribunal
Professor John R. Crook (Chairman)
Professor Luca G. Radicati di Brozolo
Mr. Rodrigo Oreamuno

Claimant

Mr. David Godfrey
Ms. Natalia Kantovich
Representatives, Luxtona Limited

Mr. Cyrus Benson
Ms. Penelope Madden QC
Ms. Ceyda Knoebel
Ms. Victoria Orlowski
Ms. Sophy Cuss
Counsel, Gibson, Dunn & Crutcher LLP

Ms. Nadia Wahba
Mr. Paul Evans
Legal Assistants, Gibson, Dunn &Crutcher LLP

Respondent

Mr. Mikhail Vinogradov
Mr. Andrey Kondakov
Representatives, The Russian Federation

Lord Peter Goldsmith QC
Ms. Sophie Lamb
Ms. Aimee-Jane Lee
Ms. Pam Shearing
Ms. Laura Rees-Evans
Ms. Ciara Murphy
Mr. Edward Pearson
Mr. Jonny McQuitty
Counsel, Debevoise & Plimpton LLP

Ms. Camilla Gambarini
Mr. Sam Oladeinde
Mr. Malte Ernsting
Mr. Mateusz Pluta
Mr. Rukshana Rahman
Ms. Claire Seaborn
Legal Assistants, Debevoise & Plimpton LLP

Witness
Mr. Bruce Misamore

Experts
Professor Paul B. Stephan
Professor Justice J.H.M. (Huub) Willems
Professor Anton V. Asoskov
Professor Dr. Rieme-Jan Tjittes

Retained Experts (Non-Testifying)
Mr. Philip Haberman
Mr. Nathan Choudhury

Permanent Court of Arbitration
Ms. Fedelma C. Smith, Legal Counsel, Tribunal Secretary and Registrar
Mr. Farouk El-Hosseny, Assistant Legal Counsel

19.
On 16 February 2016, the Parties submitted their agreed corrections to the hearing transcript.
20.
By letter dated 22 April 2016, Respondent requested that the judgment of 20 April 2016 of the District Court of The Hague in the matters of The Russian Federation v. Veteran Petroleum Limited, Yukos Universal Ltd and Hulley Enterprises Ltd (the "April 2016 Decision") be admitted into the record and requested permission "to provide the Tribunal with a short supplemental briefing explaining the implications of the April 2016 Decision for the Luxtona Proceedings". By letter dated 29 April 2016, Claimant stated that it "does not object" to the Respondent's request to admit the April 2016 Decision into the record. By letter dated 3 May 2016, the Tribunal admitted the April 2016 Decision into the record and denied Respondent's request for permission "to provide the Tribunal with a short supplemental briefing explaining the implications of the April 2016 Decision for the Luxtona Proceedings".
21.
By submisions dated 10 May 2016, each Party submitted its claim for costs pursuant to Article 38 of the UNCITRAL Rules.
22.
By letter dated 19 January 2017, Claimant sought leave to introduce into the record an interim award on jurisdiction rendered by another tribunal in a claim brought by another former Yukos subsidiary, Yukos Capital S.a.r.l. v. Russian Federation, PCA Case No. 2013-31. Respondent opposed this request by letter dated 23 January 2017; Claimant renewed its request, and Respondent its opposition in subsequent correspondence.
23.
Claimant's request was made at a time when preparation of the Tribunal's award was well advanced, and the Tribunal accordingly did not rule on it. The interim award in Yukos Capital is not part of the record in this case and has not been considered by the Tribunal.

II. FACTUAL BACKGROUND

24.
The dispute involves certain measures taken by Respondent against the Claimant's former parent company, Yukos Oil, which resulted in the bankruptcy of Yukos Oil in August 2006, thereby allegedly nullifying the value of the Claimant's investment in the Yukos Shares.

A. Energy Charter Treaty

25.
The ECT was opened for signature on 17 December 1994 and entered into force on 16 April 1998. According to Article 2 of the Treaty, its purpose is to establish "a legal framework in order to promote long-term co-operation in the energy field [...] in accordance with the objectives and principles of the Charter."
26.
Respondent signed the ECT, subject to ratification, on 17 December 1994. The Russian Government presented the ECT to the State Duma for ratification in August 1996. However, the State Duma did not ratify the Treaty and the draft law on its ratification was eventually withdrawn. On 20 August 2009, Respondent sent a notification pursuant to Article 45(3)(a) ECT to the ECT's depositary, the Portuguese Republic, stating that it did not intend to become a Contracting Party.

B. The Parties to These Proceedings

1. Claimant

27.
Claimant is Luxtona Limited, a company incorporated on 27 November 2003 in the Republic of Cyprus.

2. Respondent

28.
Respondent is the Russian Federation.

C. Luxtona's Shareholding in Yukos Oil Company

29.
Claimant alleges that it purchased 53,938,075 ordinary shares in Yukos Oil on 12 March 2004 at the then market price of USD 13 per share (the "Shares"), the value of which has been, according to Claimant, reduced to "zero" as a result of "the dismantling, dissolution and ultimate removal of Yukos from the companies register in Russia."9

III. THE PARTIES' POSITIONS

A. Respondent's Position

30.
Respondent essentially argues that the Tribunal lacks jurisdiction on the following three independent grounds: (a) the arbitration of the present dispute is inconsistent with Respondent's "constitution" and "laws" for the purposes of Article 45(1) ECT as the Claimant's claims are "premised on taxation and tax enforcement measures and measures taken in bankruptcy proceedings, which are not arbitrable under Russian law,"" and are "those of a shareholder of a Russian joint-stock company based on alleged harm to the Russian company, which are not authorized under Russian law;"10 (b) Claimant has not made an investment protected under Article 1(6) ECT, primarily given that "shares held by Luxtona in its then Russian parent company, Yukos Oil Company, [were] made with Yukos Oil Company's funds generated by Yukos Oil Company's production and trading activities in Russia;"11 and (c) Respondent is entitled to deny and, by its Memorial, denies Claimant the advantages of Article 17 ECT, given that "Claimant is a passive conduit" that has no "substantial business activities" in Cyprus, and "is controlled by the US directors of the board" of the Stichting Administratiekantoor Financial Performance Holdings (the "Stichting" or "FPH Stichting").12

B. Claimant's Position

31.
Claimant essentially argues that Respondent's objections to the Tribunal's jurisdiction should be rejected in their entirety. First, Claimant contends that Respondent's "piecemeal" approach to provisional application "represents a fundamentally flawed interpretation of Article 45(1) ECT."13 Instead, Claimant posits that Article 45(1) ECT allows signatories to avoid provisional application of the ECT as a whole "only to the extent the principle of provisional application is inconsistent with their domestic law", which is not the case with the Russian Federation.14 Second, Claimant dismisses Respondent's attempt to portray the Shares as not constituting an "Investment" under Article 1(6) ECT15 made by an "Investor" in the sense of Article 1(7) ECT.16 Claimant also dismisses Respondent's argument that the Shares have to, but do not, satisfy the criteria for an investment under general international law.17 Finally, Claimant posits that Respondent's argument that it is "entitled to deny the benefits of ECT protection to Claimant pursuant to Article 17 ECT" is "without merit."18 Article 17(1) solely applies, according to Claimant, to Part III ECT and not to Part V, in which Article 26 on the right to arbitration is set forth. Claimant suggests that Respondent failed to "show that (i) it has exercised its right to deny benefits; (ii) such right has retrospective effect; and (iii) Claimant falls within the two cumulative substantive requirements of Article 17(1)."19

IV. PARTIES' REQUESTS FOR RELIEF

A. Respondent's Requests for Relief

32.

Respondent requests that the Tribunal issue an award that:

(a) declines to exercise jurisdiction over Claimant's claims;

(b) orders Claimant to pay to Respondent the full costs of this arbitration, including, without limitation, arbitrators' fees and expenses, administrative costs, counsel fees, expenses and any other costs associated with this arbitration;

(c) orders Claimant to pay to Respondent interest on the amounts awarded under (b) above until the date of full payment; and

(d) grants any further relief to Respondent as it may deem appropriate.20

B. Claimant's Requests for Relief

33.
Claimant requests that the Tribunal dismiss all the jurisdictional objections raised by Respondent and proceed to the merits stage of the proceedings.21

V. APPLICABLE LAW

34.
The procedural law to be applied in these proceedings consists of the procedural provisions of the ECT, the UNCITRAL Rules, and, Toronto being the place of arbitration, the provisions of Canadian arbitration law.
35.
In conformity with Article 26(6) ECT, the substantive law to be applied in these proceedings consists of the substantive provisions of the ECT as interpreted in the light of the Vienna Convention on the Law of Treaties ("VCLT") as well as applicable rules and principles of international law. In addition to the foregoing sources, the national law of the Russian Federation is also relevant with regard to certain issues, as is the law of the Republic of Cyprus, this being the place in which Claimant is incorporated.
36.

This Award refers to specific provisions of the ECT. For ease of reference, the key relevant provisions are reproduced below, in the order in which they appear in the Treaty:

"Article 1 - Definitions

(6) Investment" means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:

(a) tangible and intangible, and moveable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;

(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;

(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;

(d) Intellectual Property;

(e) Returns;

(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.

[...]

(7) "Investor" means:

(a) with respect to a Contracting Party:

(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;

(ii) a company or other organization organized in accordance with the law applicable in that Contracting Party;

(b) with respect to a "third state," a natural person, company or other organization which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party.

[...]

Article 17 - Non-Application of Part III in Certain Circumstances

Each Contracting Party reserves the right to deny the advantages of this Part to:

(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized;

[...]

Article 26 - Settlement of Disputes Between an Investor and a Contracting Party

(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible be settled amicably.

(2) If such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution:

(a) to the courts or administrative tribunals of the Contracting Party party to the dispute;

(b) in accordance with any applicable, previously agreed dispute settlement procedure; or

(c) in accordance with the following paragraphs of this Article.

(3)

(a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

(b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph (2)(a) or (b).

[...]

(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:

[...]

(b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as "UNCITRAL")

[...]

Article 45 - Provisional Application

(1) Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.

(2)

(a) Notwithstanding paragraph (1) any signatory may, when signing, deliver to the Depository a declaration that it is not able to accept provisional application. The obligation contained in paragraph (1) shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depository.

(b) Neither a signatory which makes a declaration in accordance with subparagraph (a) nor Investors of that signatory may claim the benefits of provisional application under paragraph (1).

(c) Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations.

(3)

(a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depository of its intention not to become a Contracting Party to the Treaty. Termination of provisional application for any signatory shall take effect upon the expiration of 60 days from the date on which such signatory's written notification is received by the Depository.

(b) In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory under paragraph (1) to apply Parts III and V with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph (c).

(c) Subparagraph (b) shall not apply to any signatory listed in Annex PA. A signatory shall be removed from the list in Annex PA effective upon delivery to the Depository of its request therefor."

VI. ISSUES FOR ANALYSIS AND DECISION

37.

Based on the Parties' written and oral submissions, the following issues arise for analysis and decision by the Tribunal:

A. Does the provisional application of the ECT by the Russian Federation pursuant to Article 45 ECT provide a basis for the Tribunal's jurisdiction over the merits of Claimant's claims?

1. Does the "To The Extent" Clause in Article 45(1) ECT relieve Respondent of the obligation to provisionally apply Article 26 ECT because that Article is inconsistent with Respondent's "Constitution, Laws or Regulations"?

2. Is Article 26 ECT inconsistent with Russian Law?

B. Are the Claims Barred by the "Denial-of-Benefits" Provision (Article 17) of the ECT?

1. Does Article 17(1) ECT give rise to a jurisdictional challenge?

2. Can Article 17 ECT be invoked to deny the benefits of Part III with respect to claims that have aleady been brought?

3. Can Respondent invoke Article 17(1) ECT because Claimant is controlled by nationals of the United States of America?

C. Is Claimant a Protected Investor with an Investment under the ECT?

1. Does Claimant's "Investment" amount to an investment by Yukos Oil in its own shares?

2. Does the ECT protect Investments of nationals of a Contracting State in the territory of, and with resources from, that same Contracting State?

3. Do Claimant's shares lack the inherent characteristics of "Investments" under Article 1(6) ECT?

VII. THE TRIBUNAL'S ANALYSIS

A. Provisional Application of Article 45

1. Interpretation of Article 45(1)

(1) The Parties' Contentions

38.
Respondent's first jurisdictional objection concerns the extent of its obligations resulting from its provisional application of the ECT pursuant to Article 45 ECT, following its signature of the treaty in December 2004 until it gave notice of its intent not to become party to it in August 2009.
39.
Respondent agrees that it applied the ECT provisionally during the relevant period, but contends that it is not bound by the dispute settlement provisions of Article 26 of the ECT on account of its provisional application of the treaty. Claimant disagrees, contending that Respondent's provisional application of the ECT at the relevant times subjects it to Article 26's procedures for compulsory arbitration of its claims.
40.
Article 45 ECT, captioned "Provisional Application," is complex and difficult to interpret. It contains double negatives ("not inconsistent"), "notwithstanding" clauses of ambiguous effect, inconsistent uses of terms ("constitution, laws or regulations" versus "laws or regulations"), and other impediments to easy interpretation.
41.
The text of Article 45 ECT is reproduced above at paragraph 36.

(a) Respondent's submissions

42.
Respondent argues that an ECT signatory is entitled to invoke ECT Article 45(1) so as to exclude the provisional application of particular ECT obligations that are inconsistent with its domestic legal order, and that the exercise of that right does not require it to make the declaration specified in Article 45(2).22 Respondent maintains that the arbitration procedure established by Article 26 ECT conflicts in multiple ways with its constitution and laws. Accordingly, it is not bound by Article 26, and the Tribunal lacks jurisdiction over this dispute.
43.
In support of its position, Respondent emphasizes that Articles 45(1) and 45(2) differ from each other and play fundamentally different roles.23 Article 45(1) allows the provisional application of the ECT with respect to treaty obligations that are "not inconsistent" with a signatory's "constitution, laws or regulations." By contrast, Article 45(2)(a) ECT allows a signatory to opt out of provisional application altogether - for any reason - by delivering upon signature a declaration to the ECT's depositary to that effect.24
44.
Respondent points out that twelve ECT signatories made declarations at the time of signature pursuant to Article 45(2)(a): Australia, Bulgaria, Cyprus, Hungary, Iceland, Japan, Liechtenstein, Malta, Norway, Poland, Switzerland and Turkmenistan.25 Other signatories did not opt out of the ECT's provisional application pursuant to Article 45(2)(a), but expressly relied on the Limitation Clause in Article 45(1) to exclude or limit its provisional application, namely Austria, Italy, Luxembourg, Portugal, Romania and Turkey.26
45.
Respondent further contends that reliance on the Limitation Clause to decline provisional application of portions of the Treaty based on inconsistencies with its domestic legal order - and without making a declaration under Article 45(2)(a) - is in line with the interpretation of Article 45(1) given by the then European Community and its Member States.27 By a joint statement approved in December 1994, the "Statement by the Council, the Commission and the Member States on Article 45 of the European Energy Charter Treaty" ("1994 Joint EC Statement"),28 the then European Community authorities were said to rely on the Limitation Clause of Article 45(1) in concluding that an ECT signatory would not have to file a declaration of non-application under Article 45(2).29
46.
Respondent submits that, pursuant to Article 45(1), a signatory applies the ECT provisionally, pending its entry into force for that signatory, only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations."30 This means, Respondent argues, that the Limitation Clause applies both to conceptual inconsistencies such as the non-recognition of the principle of provisional application in constitutional law, and to inconsistencies of individual treaty provisions (such as, in particular, Article 26 ECT on settlement of investment disputes) with the signatory's constitution, laws or regulations.
47.
Respondent bases this interpretation on the following arguments.
48.
Respondent first refers to the plain language of the Limitation Clause - notably, the ordinary meaning of the term "to the extent" - which it understands to mean that the scope of an ECT signatory's provisional application is limited to those ECT provision that are "not inconsistent" with that signatory's "constitution, laws or regulations."31 For Respondent, "to the extent that" is a limiting phrase, whose ordinary meaning conveys that an ECT signatory's obligation to provisionally apply the treaty extends only to provisions that are consistent with its domestic legal order. Article 45(1) ECT thus imposes "a general limitation on provisional application, applicable ipso jure to each signatory."32 Respondent contends that the ordinary meaning of the translations of the "to the extent" clause in the other authentic language versions of the ECT are to the same effect.33
49.
Respondent obj ects to Claimant's interpretation of the Limitation Clause in its Notice of Arbitration and elsewhere, whereby it contends that the "to the extent" clause would have effect only if an ECT signatory's domestic law prohibits provisional application altogether. This interpretation, according to Respondent, would deprive the term "to the extent" of any meaning, effectively substituting for it the terms "if" or "where."34 Respondent refers in this regard to an article by Professor Michael Reisman, which posits that "the language of Article 45(1) is more supportive of the view that the reference to 'such provisional application' does not refer to the whole of the Treaty but to specific obligations of the Treaty."35
50.
Secondly, Respondent cites the inclusion of "regulations" in the Limitation Clause, pointing out that a prohibition of provisional application typically results from constitutional requirements or acts of legislation, not from "hierarchically lower legal acts" such as regulations.36 Therefore, the inclusion of "regulations" is said to confirm that the Limitation Clause covers both rejection of the principle of provisional application, and specific inconsistencies of particular treaty provisions with domestic laws and regulations.37
51.
Thirdly, Respondent refers to the context of Article 45(1), recalling that under the VCLT, the words of a treaty must be read in their context. In Respondent's view, Article 45(2)(c) uses the phrase "to the extent that" in a manner that shows that the phrase relates to specific treaty provisions, not to the principle of provisional application itself. Article 45(2)(c) requires a signatory that has declared itself unable to accept provisional application of the ECT as a whole under Article 45(2)(a) nevertheless to provisionally apply Part VII ECT ("Structure and Institutions") "to the extent that such provisional application is not inconsistent with its laws or regulations."38
52.
Respondent argues that, "[s]ince a signatory that applies Part VII on a provisional basis pursuant to Article 45(2)(c) ECT has already opted out of provisional application entirely", the "to the extent" clause in Article 45(2)(c) ECT can only refer to "inconsistencies between that signatory's 'laws or regulations' and specific obligations under Part VII of the ECT."39
53.
In addressing the context of the Limitation Clause, Respondent contends that the said clause was introduced pursuant to a U.S. proposal40 and refers to a facsimile sent by the U.S. Department of State to the Energy Charter Conference Secretariat during negotiation of the ECT.41 The facsimile was said to show that the United States "made clear that it does not have a conceptual difficulty with provisional application, but nonetheless insisted on the inclusion of the 'to the extent' clause in order to exempt itself from provisional application of specific obligations under the ECT."42
54.
Respondent submits that "the vast majority of, if not all, ECT negotiating parties", including those who were not party to the VCLT at the time of the ECT's negotiation, "did not prohibit provisional application per se, but had to accommodate domestic law constraints through the [Limitation Clause]."43
55.
Accordingly, and contrary to Claimant's assertion, "Article 45(1) and (2) regimes of provisional application both expressly provide for provisional application subject to domestic law."44 Respondent rejects Claimant's interpretation of Article 45(3)(b),45 contending that there can be no obligation to continue to apply particular provisions of Part III or V following a signatory's termination of provisional application where no obligation under Article 45(1) exists in the first place.46
56.
Respondent submits that Claimant's "all-or-nothing" interpretation of Article 45(1) would render the obligation to apply Article 45(6) "in accordance with and subject to the provisions of paragraph (1)" unnecessary.47 As to the reciprocity limitation in Article 45(2)(b),48 while noting that it "has been unable to locate a single provision that contains a reciprocity clause", Respondent posits that "a signatory that has opted out of provisional application and its investors may not claim the benefits of provisional application under Article 45(1) ECT", as opposed to "this Treaty."49 Respondent submits that both Claimant's interpretation, and that of the Hulley Enterprises50 tribunal, rest upon "policy considerations" and go against the "letter and spirit" of the ECT's actual terms, which allow a signatory to apply "the ECT provisionally pursuant to Article 45(1) ECT [and to apply] or [...] not [...] a particular provision of the ECT, including, critically, the investor-State arbitration mechanism in Article 26 ECT."51
57.
Respondent contends that its interpretation corresponds to consistent State practice "of more than one third of the signatories",52 as reflected in statements made by the European Community and its Member States.53 Respondent rejects as "demonstrably wrong"54 Claimant's contention that ECT signatories having difficulty with provisional application made their position known to other ECT signatories and "did so with respect to provisional application of the ECT as a whole." Respondent relies in this regard on Finland's position, as reflected in a Finnish Ministry of Foreign Affairs memorandum of November 1994 indicating that with regard to provisional application of the ECT, Finland "may not apply Article 37(3) regarding the costs of the Secretariat due to the provisions concerning the budgetary authority of the Finnish Parliament."55 "Such procedure was deemed permissible in accordance with Article 45(1) of the Treaty and does not require separate notification."56
58.
In response to Claimant's contention that Russia's practice "matters more than any" to show the meaning of the disputed phrase,57 Respondent submits that "respondent States may not rely on their practice to support their positions unless it accords with that of other signatories or contracting States"58 and that, "[i]n any event, Claimant has failed to point to any evidence that [...] Respondent, had contrary views or practices."59 Respondent refers to statements by the Secretary-General of the Energy Charter Conference,60 the European Union,61 and the UK Secretary of State,62 as evidence that "provisional application did not impose on Respondent the same obligations as ratification."63
59.
Respondent emphasizes in this regard that the 1994 Joint EC Statement adopted in connection with signature of the ECT (which states that Article 45(1) ECT defines "the conditions and limits for the provisional application of the ECT by the Signatories") "does not create any commitment beyond what is compatible with the existing internal legal order of the Signatories" and allows "the Community to limit provisional application to matters which fall under its competence."64 Respondent understands this to show that the European Community shared its interpretation of the Limitation Clause, as the Community limited its provisional application obligations to those portions of the ECT within its competence, while leaving performance of other ECT provisions within the competence of EC Member States to those Member States.65
60.

In Respondent's view, "the 1994 Joint EC Statement is a joint statement of the European Community and its Member States and therefore sets forth the interpretation of Article 45(1) ECT by the European Community and the (then) twelve EC Member States" - a fact that the Hulley Enterprises tribunal failed to appreciate.66

61.
Respondent submits that EC Member States, in turn, relied on the Limitation Clause to limit their provisional application to the portions of the ECT within their competence, as well as treaty provisions that are not otherwise incompatible with their internal legal orders.67 Respondent claims that several Member States were constitutionally bound to insist on such a limitation, citing the German Constitution as an example.68
62.

Respondent refers to additional statements said to support its view made by the European Commission,69 the Council of the European Union,70 the UK Secretary of State for Foreign and Commonwealth Affairs,71 and the ECT Secretariat.72 Respondent also quotes from an article by Mr. Craig Bamberger, former chairman of the legal advisory committee to the European Energy Conference, which discusses the provisional application of the ECT's dispute resolution provisions in energy transit disputes.73 Mr. Bamberger takes the view that:

"[e]ven in the case of a state not making such a declaration [under Article 45(2)(a) of the ECT], it could prove extremely difficult to ascertain the extent to which the provisions of the ECT are inconsistent with the particular signatory's constitution, laws or regulations."74

63.
According to Respondent, Mr. Bamberger's article confirms the view that "the operation and effectiveness of the transit dispute settlement mechanism [...] depends upon the consistency of that mechanism with the signatories' domestic laws."75
64.
In response to Claimant's contention that Russia "consent[ed] to be bound by the ECT" upon its signature, Respondent maintains that Claimant "conflates fundamentally different concepts of the law of treaties" relating to consent.76 First, a "State's consent to be bound is expressed by ratification, not signature."77 Second, "consent to provisional application does not constitute consent to be bound by the ECT" as, otherwise, provisional application would render "a treaty's ratification requirement meaningless"78 nor is it "a means to avoid ratification requirements that a State, under its domestic law, is required to follow before it may express consent to be bound internationally."79 Furthermore, Respondent asserts that Claimant "conflates provisional application and [provisional] entry into force of a treaty."80 Referring to Article 44 ECT, Respondent points out that "the ECT does not provide for provisional entry into force."81
65.
According to Respondent, the "to the extent" clause in Article 45(1) properly interpreted does not "run counter" to Article 27 VCLT, as contended by Claimant.82 Instead, "no treaty obligation whose non-performance would give rise to State responsibility exists [...] [i]f a State's treaty obligations are limited by the express terms of the treaty itself."83 Here, the Limitation Clause defines the extent of signatories' obligations to provisionally apply the ECT by reference to domestic law, assuring that there is no conflict with ECT provisions,84 and no issue under Article 27 VCLT.85
66.
Respondent rejects Claimant's contention that Article 46(1) ECT provides a "narrow exception" to Article 27 VCLT corresponding to the ECT Limitation Clause. Instead, unlike Article 46(1) ECT, which allows a State "to vitiate its consent to apply the ECT", the Limitation Clause "excludes or limits the treaty obligations that a State that validly consented to provisional application [...] undertakes."86 Respondent reiterates that it "never consented to be bound by the ECT, and the ECT therefore never entered into force for Respondent."87
67.
As further support of its position, Respondent points to a "consistent body of GATT case law", which "confirms that the GATT Contracting States were entitled to and did invoke specific inconsistencies of their domestic laws with particular GATT obligations."88
68.
Respondent dismisses the relevance of the decision of the tribunal in Hulley Enterprises v. Russia, noting that it knows of no other court or tribunal that has relied on Article 27 VCLT to "reduce the scope of a 'to the extent' clause to the principle of provisional application" and that the tribunal's award is presently the object of set-aside proceedings in the Netherlands.89 Respondent also dismisses the decision of the tribunal in Kardassopoulos v. Georgia, pointing out that this tribunal was chaired by the same president as the Hulley Enterprises tribunal and rendered its decision during the jurisdictional phase of the Hulley Enterprises arbitration.90
69.
In particular, Respondent claims that the Hulley Enterprises tribunal's findings "suffer from the same fundamental flaws as Claimant's arguments" and that the tribunal "relied on unsound equity and policy arguments."91 By way of example, Respondent suggests that the tribunal's finding to the effect that Respondent "benefits" from ECT membership and participation at ECT Conference meetings and its leading of the ECT Secretariat are not "benefits of provisional application."92 Thus, Respondent points out that Norway, "an ECT signatory that opted out of provisional application - is not only a member of the Energy Charter Conference, but the current Vice-Chair of the Energy Charter Conference and Chair of the Strategy Group is a Norwegian national."93

(b) Claimant's submissions

70.
Claimant contends that Article 45(1) ECT requires signatories to provisionally apply the ECT in it entirety, except "to the extent the principle of provisional application is inconsistent with their domestic law."94 According to Claimant, this is not the case with Respondent "nor does Respondent suggest that it is."95 Claimant points out that ECT signatories may, alternatively, "elect not to apply the Treaty provisionally by making a declaration under Article 45(2) ECT", but that "Respondent did not do so."96 Claimant further posits that Respondent's interpretation of the Limitation Clause amounts to a piecemeal interpretation that would render "the specific scope of provisional application entirely dependent on the degree and nature of each signatory's invocation of its internal laws" and ultimately "run counter to cardinal principles of international law."97
71.
In support of its view, Claimant points to the "ordinary meaning" of Article 45(1), read in its context and in the light of the ECT's object and purpose, in accordance with Article 31(1) VCLT.98
72.
For Claimant, the limiting "to the extent that" phrase in Article 45(1) "applies only to 'such provisional application'" so that the interpretation of Article 45(1) must accordingly be based on the meaning of this term.99 Accordingly, Claimant posits that "[t]he word 'such', ignored by Respondent, means as a matter of plain English in this context: 'of the kind specified'."100 Hence, "the kind of provisional application specified is that '[e]ach signatory agrees to apply [the ECT] provisionally pending its entry into force for such signatory'."101 Claimant therefore maintains that, "the limiting 'to the extent' language [...] operates only where applying 'this Treaty' (i.e., the principle of provisional application itself) is inconsistent with the signatory's constitution, laws or regulations."102 Contrary to Respondent's contention, Claimant further maintains that "to the extent" and the word "if" are used interchangeably in legal drafting and that, in any event, Claimant's interpretation would not deprive "to the extent" of meaning.103 In this regard, Claimant criticizes Respondent for omitting key passages from Professor Reisman's opinion on the scope of provisional application.104
73.
According to Claimant, this interpretation is also supported by the findings of the tribunals in Hulley Enterprises v. Russia105 and Kardassopoulos v. Georgia.106
74.
In addition, Claimant refers to Article 17(1) of the VCLT, which provides that "the consent of a State to be bound by part of a treaty is effective only if the treaty so permits or the other contracting States so agree."107 Claimant cites Article 45(2)(c) ECT as an example of such an explicit provision, requiring signatories that have made a declaration under Article 45(2)(a) to "apply Part VII provisionally [...] to the extent that such provisional application is not inconsistent with [their] laws or regulations."108 By contrast, Article 45(1) ECT contains no such express authorization, so that "[w]hen a signatory consents to apply [the Treaty] provisionally [...] that consent is with respect to the entire treaty."109 Here, Claimant emphasizes that the inclusion of "regulations" under Article 45(1) ECT "attracted no attention" during the negotiations as evidenced by the travaux préparatoires and, therefore, does not support Respondent's "piecemeal interpretation."110
75.
The ECT, Claimant observes, precludes reservations to individual treaty provisions pursuant to Article 46(1) ECT. Instead, it provides "a specific mechanism to fully 'exclude' the provisional application of the Treaty until ratification under Article 45(2) and 45(3)(c)."111 Here, Claimant refers to Article 45(2)(a) ECT, which entitles a signatory to declare, upon signing that it "is not able to accept provisional application."112 According to Claimant, this "provides that a declaration removes '[t]he obligation contained in paragraph (1)', making clear that 'provisional application' has the same meaning under both Articles 45(1) and 45(2)(a) (i.e., application of the Treaty as a whole)."113
76.
Claimant finds further support in what it sees as the "reciprocity of obligations" reflected in Article 45(2)(b), providing that "investors of a signatory may not claim [ECT] benefits unless the signatory consents to apply [the ECT] provisionally (i.e., in its entirety)."114 Claimant cites in this regard the findings in Hulley Enterprises v. Russia to the effect that "[a]llowing a State to modulate [...] the obligation of provisional application [...] would undermine the principle that provisional application of a treaty creates binding obligations"115 and would "create unacceptable uncertainty in international affairs."116
77.
Regarding Respondent's criticism of the Hulley Enterprises finding that it received the "benefits of provisional application", Claimant contends that it would be a "proposition devoid of legal support or merit" if a signatory "obtains [...] a denial of benefits defence against investors from all other signatory States" by being "able to make a factual showing that it did not benefit from provisional application of the ECT."117 Claimant submits that, in any event, "it can hardly be suggested that Respondent received no benefits" and that "the signing of the ECT was one of the steps the Yeltsin government took to attract foreign capital to support Russia's economic restructuring following the collapse of the USSR."118
78.
Claimant cites Article 45(3) of the ECT, which allows signatories to terminate provisional application but imposes a continuing obligation to apply Parts III and V of the ECT with regard to investments already made, except for signatories listed in Annex PA to the ECT.119 (Russia is not listed in Annex PA.) Claimant argues that this can only be seen as a confirmation that "application of Parts III and V of the ECT is part of the obligation of provisional application found in Article 45(1)", as it "would otherwise be nonsensical."120
79.
Claimant also refers to Article 45(6) of the ECT, which requires that "signatories shall, in accordance with and subject to the provisions of paragraph (1) or subparagraph (2)(c) as appropriate, contribute to the costs of the provisional Secretariat as if the signatories were Contracting Parties."121 In Claimant's view, this shows that "there are two distinct categories of provisional application", "application of the Treaty as a whole under Article 45(1) or application only of Part VII under Article 45(2)(c)."122
80.
Relying on Articles 27 and 46 of the VCLT, Claimant asserts that Respondent cannot "invoke the provisions of its internal law as justification for its failure to perform a treaty."123 For Claimant, this reflects the principle of legal certainty, which is "a fundamental principle of international and national law and not a mere 'policy consideration'."124 In support of its argument, Claimant refers to statements by several contracting States,125 the Russian Federation Constitutional Court,126 and legal opinions submitted by Professors Michael Reisman and James Crawford in Hulley Enterprises.127
81.
Claimant accepts that, pursuant to Article 46(1) VCLT, a "narrow exception" applies "[i]f a fundamental provision of internal law 'regarding competence to conclude treaties' [...] manifestly precludes the giving of consent to so conclude [...] the treaty."128 However, Claimant insists that Respondent has not suggested, and cannot suggest, that this exception is applicable to it.129 By signing the ECT, Respondent agreed to be legally bound to apply the ECT "on a provisional basis in accordance with Article 45, until such time as it became a party to the ECT", i.e. by ratifying it in accordance with Article 39 ECT, "or terminated its agreement to provisionally apply it."130 This is supported by the ILC Commentary to Article 25 VCLT, which affirms that "a provisionally applicable treaty is binding and constitutes a legally enforceable instrument among signatory States."131
82.
In Claimant's view, "[m]ost of Respondent's arguments in support of its [...] approach may be described as supplementary means of interpretation arguments."132 Since Article 45(1) ECT is not "ambiguous or obscure" and a plain language interpretation does not lead to a "manifestly absurd or unreasonable" result, these arguments are "unnecessary" and "should not be considered" pursuant to Article 32 of the VCLT.133
83.
In any event, Claimant rejects these arguments for multiple reasons. A discussion in the UN General Assembly invoked by Respondent "concerns the principle of provisional application of treaties", but lends no support to Respondent's "piecemeal" interpretation of provisional application.134 A work by René Lefeber cited by Respondent to show that "in the event of a conflict, domestic laws prevail over inconsistent treaty provisions" suggests no such thing.135 Claimant rather quotes Mr. Lefeber to the effect that "if a competent organ agrees to the provisional application of a treaty in disregard of such domestic limitations, such disregard will normally not have legal effect at the international level."136
84.
Claimant recalls that, when the Energy Charter Conference Secretariat "asked all delegations wishing to make a request to be excepted from provisional application to notify it", Respondent made no such request under either Article 45(1) or Article 45(2)(a) ECT.137 On the contrary, Respondent joined a declaration made in the Sixteenth Plenary Session of the Energy Charter Conference stating that "a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty."138 Claimant also quotes the Russian delegation's statement to the Energy Charter Conference in December 2002 that "[t]he Russian Federation has yet to ratify the Energy Charter Treaty, but as a Signatory Country, it implements the Treaty from the day it entered into force."139 Hence, in Claimant's view, Respondent "at all relevant times made clear that it was provisionally applying 'the Treaty', not merely some unidentified part of it."140
85.
As to State practice, Claimant points out that Respondent cites only the practice of Finland in support of its position,141 but fails to mention that all other States mentioned by Respondent relied on the "to the extent" language in Article 45(1) ECT "solely to exclude", not to limit, the ECT's provisional application.142 Moreover, Claimant contends that the Finnish documents relied upon do not "provide evidence of 'any agreement' between the parties or an instrument accepted by the other parties on signature or any 'subsequent agreement' or 'practice' establishing the agreement of the parties for purposes of Article 31 [VCLT]."143
86.
Equally, Claimant dismisses the relevance of the 1994 Joint EC Statement cited by Respondent.144 Quoting the findings of the tribunal in Hulley Enterprises v. Russia, Claimant states that "[t]he 1994 EU Joint Statement does not say, and cannot be read as meaning, that certain elements of the ECT will not be provisionally applied by the European Community because they are inconsistent with the Community's internal legal order."145 The Hulley Enterprises v. Russia tribunal rather found that "the 1994 EU Joint Statement concludes that the European Community can safely sign the ECT, and accept the obligation of provisional application, without taking on any obligation to do anything that is beyond its competence."146 As a consequence, the Statement would be "not so much an example of partial provisional application of the ECT due to inconsistency with the EC's legal order, as [...] an example of the EC's partial jurisdiction for the provisional application of the whole ECT".147

(2) The Tribunal's Decision

87.
The Tribunal has jurisdiction only if Article 26 of the ECT was in force for the Respondent as the result of its provisional application of the treaty when the claims arose. Respondent maintains that Article 26 was not in force, because it is inconsistent with Russia's internal legal order. Accordingly, pursuant to Article 45(1), Respondent's commitment to apply the treaty provisionally did not extend to obligations under Article 26.
88.
It follows that the Tribunal's jurisdiction depends on the interpretation and application of Article 45(1). As indicated above, this provision poses difficult interpretive challenges. As the Parties' competing interpretations demonstrate, and as Arsanjani and Reisman wryly observe, "Article 45 of the ECT is not a paragon of drafting clarity."148 Neither of the competing interpretations offered by the Parties is illogical or does violence to the treaty's language.
89.
The Parties agree that the VCLT establishes the rules governing interpretation of the ECT. Mindful of concerns that some investment tribunals have paid lip service to the VCLT's rules of interpretation while disregarding them in practice,149 the Tribunal has sought to apply the VCLT in accordance with its terms and utilizing the structure of interpretation it creates.
90.

For convenience, the relevant VCLT provisions are set out here:

"Article 31 - General rule of interpretation

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

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relations between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

Article 32 - Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) Leaves the meaning ambiguous or obscure; or

(b) Leaves to a result which is manifestly absurd or unreasonable."

91.
The VCLT's binding rules of interpretation call for two threshold observations.
92.
First, the starting point for interpretation under the VCLT is of course the ordinary meaning of the terms concerned. These are to be interpreted in good faith, but in the Tribunal's view, good faith is not at issue here. Neither of the Parties' competing interpretations appears unfair, unreasonable or raises questions of good faith.
93.

Second, in the Tribunal's view, some scholarly and other discussions of Article 45 have not given sufficient consideration to all of the VCLT's requirements, instead basing themselves on what the interpreters see as the ordinary meaning of particular provisions without due regard to the VLCT's broader structure of interpretation.150 Some such analyses have failed to give appropriate weight to context, disregarding the connections among provisions of a complex text. There also at times has been a tendency to disregard the plain meaning of parts of the context that are inconsistent with the interpreter's preferred view, in effect assuming that these provisions cannot mean what they say, because if they did, the preferred "ordinary meaning" interpretation would be wrong.151

94.
This is a case in which the context - in particular, the text of Article 45 of the ECT, but also the text of the treaty as a whole - plays an important role in identifying the correct interpretation of the disputed language of Article 45(1). As discussed below, the Tribunal has carefully examined the context, including the uses of disputed terms throughout the treaty in order to identify meanings that can coherently apply throughout the instrument.

(a) Ordinary Meaning

95.
The Tribunal's task of interpretation begins with consideration of the ordinary meaning of the terms of Article 45 ECT, particularly Article 45(1), in their context.
96.
The Parties present two competing understandings of the phrase "to the extent that such provisional application is not inconsistent [...]" in Article 45(1). Respondent emphasizes the words "to the extent," viewing them as limiting the obligations of provisional application so as to allow a State to accept provisional application of the ECT but only to the extent that specific provisions of the treaty are consistent with its domestic legal order. If specific treaty provisions are inconsistent with Respondent's constitution, laws or regulations, its provisional application of the ECT thus creates no international legal obligation to observe or give effect to those provisions.152
97.
Claimant offers a competing interpretation of the phrase, sometimes referred to in these proceedings as the "all or nothing" approach. For Claimant, Article 45(1) does not permit a State to pick and choose among the ECT provisions binding it as the result of provisional application. In Claimant's view, provisional application gives rise to binding obligations under international law; domestic law cannot alter or supersede these international legal obligations.

(b) The Context of Article 45

98.

The four words "to the extent that", or some close equivalent, appear several times in the ECT,153 each time in a context where the words indicate some limitation or qualification either of the term preceding or following them. In addition to Articles 45(1) and 45(2)(c) (both discussed below), other uses of "to the extent" include:

Article 6(5) ECT: "If enforcement action is initiated, the notified Contracting Party shall advise the notifying Contracting Party of its outcome and, to the extent possible, of any significant interim development."

Article 8(2) ECT: "Accordingly, to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new obstacles."

Article 19(2) ECT: "At the request of one or more Contracting Parties, disputes concerning the application or interpretation of provisions of this Article shall, to the extent that arrangements for the consideration of such disputes do not exist in other appropriate international fora, be reviewed by the Charter Conference aiming at a solution."

Article 21(1) ECT: "In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency."

Article 21(5)(b) ECT: "Whenever an issue arises under Article 13, to the extent it pertains to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory, the following provisions shall apply: [...]"

Article 27(3)(f) ECT: "In the absence of an agreement to the contrary between the Contracting Parties, the Arbitration Rules of UNCITRAL shall govern, except to the extent modified by the Contracting Parties parties to the dispute or by the arbitrators. The tribunal shall take its decisions by a majority vote of its members."

99.
This body of usage in the ECT indicates that the words "to the extent that" as used in the ECT do indeed have a limiting effect, as Respondent contends. What is being limited may precede or follow the phrase, depending on the context.
100.
The Tribunal here notes a curious feature of Article 45(1): the double negative phrase following the "to the extent" clause: "not inconsistent with." Had the ECT's drafters intended to say "to the extent that such provisional application is consistent with" they presumably would have done so. But they did not, instead using the more complex and obscure double negative "not inconsistent with."
101.
In English usage, double negatives are generally not favored, although they are common in slang. In more formal usage, a double negative gives a less emphatic affirmation of the proposition asserted.154 They can thus be used to inject a note of ambiguity or uncertainty by giving a weaker affirmative than a positive statement. They can also be used to convey subtle points of meaning.155 The meaning of "not inconsistent with" is not directly relevant to the interpretation of Article 45(1), but will be examined below in another context.
102.
Claimant's interpretation of Article 45(1) sees the phrase "such provisional application" (emphasis added), the referent of the "to the extent that" clause, as a key to correct understanding of Article 45(1). Claimant observes that the ordinary meaning of "such" conveys the idea "of the kind specified." Accordingly, the reference to "such provisional application" (emphasis added) refers to the obligation to apply the treaty provisionally arising from the Article's initial reference to provisional application.
103.
Hence, in Claimant's understanding, Article 45(1)'s obligation must be understood to mean: "[e]ach signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory [...]." The obligation is to apply "this Treaty" provisionally, not some self-selected portion of it. The limiting "to the extent that such provisional application" language operates only where provisional appplicatoin of "this Treaty" (i.e., the principle of provisional application itself) is inconsistent with the signatory's constitution, laws or regulations. The limiting language ("to the extent that such provisional application is not inconsistent with its constitution, laws or regulations") thus relates to the principle of provisional application itself, not to possible conflicts between specific provisions and the indicated types of legal provisions.156 In support of this interpretation, Claimant emphasizes that the same conclusion was reached by the arbitral tribunals in Hulley Enterprises v. Russia and Kardassopoulos v. Georgia.157 (The Tribunal observes, however, that after the jurisdictional hearing in this case, the District Court in The Hague rejected the Hulley Enterprises v. Russia tribunal's interpretation of Article 45(1), with its emphasis on the importance of the word "such". The District Court's ruling is currently under appeal.)158
104.
Respondent disputed Claimant's emphasis upon the word "such".159 In Respondent's view, Claimant and the Hulley Enterprises v. Russia tribunal assigned undue weight to the word, arguing that in Claimant's interpretation, the word becomes unnecessary and serves no function.160 Respondent further contended that Claimant's preferred interpretation, inter alia, has the effect of depriving the phrase "to the extent that" of meaning.161
105.
This Tribunal has carefully considered Respondent's objections, but concludes that the word "such" cannot be disregarded. Instead, the word plays an important role in determining the correct construction of Article 45(1).
106.

In ordinary usage, one important function of the word "such" is to show the identity of two nouns or noun phrases in a phrase, sentence, or paragraph. This is reflected in dictionary definitions, which define "such" to convey the idea "of the kind mentioned" or "of the same or a similar kind."162 "Such" is consistently used in just this manner no less than eight times in Article 45. Each time, its function is to show that a noun ("signatory", "declaration", or "provisional application") appearing in the latter part of a sentence or paragraph is identical to a noun or phrase appearing earlier in that sentence or paragraph in the article. This is apparent in the actual language of Article 45 (emphasis added):

(1) "Each signatory agrees to apply this Treaty provisionally pending its entry into force for SUCH signatory in accordance with Article 44, to the extent that SUCH provisional application is not inconsistent with its constitution, laws or regulations.

(2)

(a) Notwithstanding paragraph (1) any signatory may, when signing, deliver to the Depository a declaration that it is not able to accept provisional application. The obligation contained in paragraph (1) shall not apply to a signatory making SUCH a declaration. Any SUCH signatory may at any time withdraw that declaration by written notification to the Depository.

[...]

(c) Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII provisionally pending the entry into force of the Treaty for SUCH signatory in accordance with Article 44, to the extent that SUCH provisional application is not inconsistent with its laws or regulations.

(3)

(a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depository of its intention not to become a Contracting Party to the Treaty. Termination of provisional application for any signatory shall take effect upon the expiration of 60 days from the date on which SUCH signatory's written notification is received by the Depository.

(b) In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory under paragraph (1) to apply Parts III and V with respect to any Investments made in its Area during SUCH provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph (c)."

107.
Putting aside for the moment the disputed wording at the end of Article 45(1), each of the seven other uses of "such" in Article 45 serves to show the identity of a noun or noun phrase appearing in a sentence or paragraph with the initial use of that noun or phrase earlier in the text. This consistent pattern of usage of "such" throughout Article 45 is important in correctly understanding the disputed sentence in Article 45(1). The usage shows that "such" is not surplusage in Article 45(1), as Respondent seems to have it. Instead "such" is used in Article 45(1), as elsewhere throughout Article 45, to show that a subsequent appearance of a word or concept is the same as that word or concept appearing previously. Hence, "such" demonstrates that the sentence's first reference to provisional application (signatories agree "to apply this Treaty provisionally pending its entry into force [...]") is identical to the second reference ("such provisional application").
108.
The "to the extent" clause does have a limiting effect, as Respondent contends. However, the connecting word "such" shows that the limit ("to the extent that such provisional application is not inconsistent [...]") applies to both references to provisional application in the sentence, not just the second one. An ECT Contracting Party that accepts Article 45(1) agrees to provisionally apply the treaty if the practice or principle of provisional application "is not inconsistent with its constitution, laws or regulations."
109.
This interpretation is in harmony with other provisions in Article 45 and elsewhere in the ECT making up the context of the disputed phrase. With varying degrees of clarity, these reinforce the conclusion that Article 45(1)'s reference to "such provisional application" is to the principle of provisional application, as Clamant would have it, not to the potentially limited version advocated by Respondent.
110.

Article 45(3) is telling in this regard. Subparagraph 45(3)(a) establishes a procedure by which a signatory that later decides not to become a party to the ECT can terminate provisional application of the treaty. Subparagraph 45(3)(b) then states:

"In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory under paragraph (1) to apply Parts III [protections of investment] and V [dispute settlement] with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph (c)."

111.
Under subparagraph 45(3)(c), "[s]ubparagraph (b) shall not apply to any signatory listed in Annex PA." Thus, when they signed the ECT, signatories anticipating that they might terminate provisional application, and not wishing to provide continuing treaty protection to covered investment thereafter, had the option to reject this obligation. The Czech Republic, Germany, Hungary, Lithuania, and Poland availed themselves of this mechanism, and are listed on Annex PA. Respondent is not listed.
112.
Thus, an ECT signatory not listed in Annex PA that terminates provisional application remains bound by obligations under Parts III and V ECT, without qualification or limitation. The necessary implication is that provisional application of the ECT carries with it the obligation to observe these key parts of the treaty. This can only be if provisional application under Article 45(1) is "all or nothing," and includes the commitment to be bound, inter alia, by Part V on dispute settlement.
113.
Claimant adopts this understanding of subparagraph 3(b),163 but Respondent argues that 3(b) only extends to whatever obligations the terminating party may have assumed under paragraph (1). In Respondent's view, if the terminating party has no obligation to apply some ECT provisions because of inconsistency with its national law, Article 45(3)(b) imposes no new obligation to observe those provisions.164
114.
Here and elsewhere, Respondent utilizes this pattern of argument to dismiss elements of the context inconsistent with its preferred interpretation. The Tribunal does not find it persuasive. The key difficulty is that this is not what subparagraph 45(3)(b) says. The significant limitation on a signatory's obligations under the subparagraph urged by the Respondent is simply not in the text. Respondent's argument succeeds only if one assumes the correctness of its interpretation of Article 45(1) and mentally writes the corresponding limitations into subparagraph 3(b). The argument amounts to saying that "these provisions must have the meaning required to be consistent with Respondent's interpretation, because Respondent's interpretation is correct." However, the VCLT requires that context is to be used to illuminate ordinary meaning, not the other way around.
115.

Other elements of the context further support Claimant's interpretation, beginning with Article 45(2)(a):

"Notwithstanding paragraph (1) any signatory may, when signing, deliver to the Depository a declaration that it is not able to accept provisional application. The obligation contained in paragraph (1) shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depository."

116.
The verb "may" makes clear that that such a declaration is not mandatory.165 Article 45(2)(a) can apply in various situations. It allows a signatory whose internal law permits it to provisionally apply the ECT in full, but that does not wish to do so for political or other reasons, to avoid provisional application by making the required public declaration. And, a signatory whose internal law precludes provisional application in toto (or in part) can avoid any obligation to apply the treaty provisionally by making an Article 45(2) declaration. Under both Parties' understandings of Article 45(1), any signatory whose internal law wholly precludes provisional application can rely on Article 45(1). As noted earlier, signatories not wishing to apply the ECT provisionally have acted on the basis of both provisions. Some have relied on Article 45(1); others made a declaration under Article 45(2).
117.
The interplay between the first two sentences of subparagraph 45(2)(a) lends further support for the "all or nothing" interpretation. The first sentence says that a signatory may deliver a declaration "that it is not able to accept provisional application." The text thus refers to provisional application without limit or qualification, not "provisional application as specified in paragraph (1)". Then, under the second sentence, "[t]he obligation contained in paragraph (1) shall not apply [...]", thus, Article 45(2) identifies the Article 45(1) obligation as being to apply the ECT provisionally - without any qualification or limitation. The limiting "to the extent consistent" language is not repeated from Article 45(1).
118.
Here again, as with Article 45(b)(3), Respondent urges that the reference to provisional application necessarily means the potentially limited or partial scope of provisional application that follows from its interpretation of Article 45(1).166 While Respondent argues that this limitation must be understood to apply, this is not what the text says. Once more, this argument amounts to saying that the context must be construed to be consistent with Respondent's interpretation of Article 45(1), because this interpretation is correct. The Tribunal does not find this line of argument persuasive.
119.
Respondent also posits that Article 45(2)(a) establishes a distinct regime for States wishing to exclude the possibility of provisional application altogether, which in its view would be unnecessary under Claimant's "all or nothing" approach.167 Any signatory whose domestic law bars provisional application altogether would be relieved of the obligation of provisional application solely by the operation of Article 45(1), rendering Article 45(2)(a) superfluous. This argument falls short, however. First, Article 45(2)(a) creates the option for signatories legally able to accept provisional application to nevertheless opt out for political or any other reasons. Second, it enables signatories wishing to avoid any uncertainty regarding the effect of Article 45(1) to be legally certain regarding their position. Third, and perhaps most important, it allows signatories not intending to provisionally apply the treaty, for whatever reason, to be fully transparent.
120.
Claimant cites Article 45(2)(b) in support of its position, but the Tribunal does not find this helpful. Under subparagraph 2(b), if a signatory makes a declaration "opting out" of provisional application, neither it nor its investors "may claim the benefits of provisional application under paragraph (1)." The negotiators thus built a measure of reciprocity into the provisional application regime. For Claimant, this weighs in favor of the "all of nothing" interpretation: if Article 45(1) allows a signatory to provisionally apply only part of the ECT, there would not be reciprocity between it and signatories applying it in full.168
121.
Respondent finds no support for this interpretation in other treaties or in other ECT wording, and points to writings of a participant in the ECT negotiations anticipating that some signatories applying the ECT provisionally might not implement certain of its provisions, and that that provisional application could lead to asymmetries in signatories' treaty obligations.169
122.
The Tribunal does not find the language of subparagraph 2(b) to assist in understanding Article 45(1). Claimant's argument regarding this provision appears to reflect its view of what the negotiators must have intended regarding the role of reciprocity, but this is not clearly reflected in the treaty language as adopted.
123.

In contrast, while again not a model of clarity, Article 45(2)(c) lends further support the "all or nothing" perspective.

"Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII170 provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations."

124.
Thus, seeking to opt out of provisional application by means of a subparagraph 45(2)(a) declaration does not necessarily free a signatory from obligations under Part VII ECT, particularly the Article 37 obligation to help pay the costs of the Secretariat. Such a signatory still has to pay, but only "to the extent that such provisional application is not inconsistent with its laws or regulations." Thus, a signatory opting out of provisional application for reasons of policy, but whose internal legal regime allows it to do so, must still contribute to the costs of the Secretariat.
125.
Respondent understands the "to the extent that" clause in Article 45(2)(c) to show that the ECT recognizes the potential for inconsistencies between particular treaty provisions and specific provisions of national law.171 For Respondent, the clause, like the corresponding clause in Article 45(1), allows for such limited inconsistencies, not just situations where the very principle of provisional application conflicts with national legal requirements.172
126.
However, this understanding may prove too much in the context of Article 45(2)(c). Its "to the extent" clause shows that an opt-out declaration under subparagraph 2(b) can include both signatories fully capable of provisionally implementing the ECT and those able to do so only in part. For the second group, the obligation to pay can be avoided only if compliance with Part VII is inconsistent with the signatory's "laws and regulations."173 Thus, signatories making opt-out declarations because they "are not able to accept provisional application" could include those able to provisionally apply some ECT provisions, but not the funding obligations under Article 37. This is most consistent with the "all or nothing" approach. Under the "piecemeal" approach, a signatory able to perform only parts of the ECT would not need to declare under Article 45(2) "that it is not able to accept provisional application."
127.
Accordingly, the Tribunal concludes that the most persuasive interpretation of the ordinary meaning of Article 45(1) ECT, read in context, is that a signatory is obliged to provisionally apply all provisions of the ECT, including Article 26, unless its constitution, laws or regulations do not allow it to provisionally apply treaties.

(c) Preparatory Work of the Treaty

128.
There remains an aspect of the text of Article 45(1) heavily relied upon by Respondent in support of the "piecemeal" theory - the fact that this provision relieves a signatory of the obligation to provisionally apply the ECT "to the extent that" doing so would be inconsistent with its "regulations." In Respondent's view, any domestic legal barrier to the basic principle of provisional application will stem from a state's constitutional or statutory provisions, not from regulations occupying a lower position in its domestic legal hierarchy. The reference to "regulations", urges Respondent, thus, shows that Article 45(1) relieves a signatory of any obligation to implement particular ECT provisions that may run afoul of existing regulations.174
129.
Claimant counters that the negotiating history of the Article 45(1) reference to regulations shows that it was added in response to persistent requests by the Japanese delegation; that the provision occasioned little discussion; and that the chairman of the negotiating group agreed to add the provision in order to move the negotiations along.175
130.
The VCLT's rules of interpretation generally do not encourage recourse to this sort of negotiating history. However, Article 32 VCLT allows reference to supplementary means of interpretation "including the preparatory work of the treaty [...] in order to [...] determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure [...]". Insofar as Article 45(1)'s reference to "regulations" creates a possible ambiguity, recourse to the preparatory work cited by Clamant seems warranted. That preparatory work does indicate that the Article 45(1) reference to regulations received little attention and was added in response to the unexplained concerns of a single delegation. As such, while the reference to regulation adds complexity to the interpretive task, it does not appear be dispositive.176

(d) Object and Purpose

131.
Article 31(1) VCLT also requires that, in addition to context, ordinary meaning must be assessed in light of a treaty's object and purpose. Both Parties advanced arguments supporting their view of the ordinary meaning of paragraph 45(1) based on their understandings of the history of the ECT and of its object and purpose.177
132.

Article 2 ECT, captioned "Purpose of the Treaty," sets out the instrument's purpose:

"This Treaty establishes a legal framework in order to promote long-term co-operation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the [European Energy] Charter."

133.

Standing alone, Article 2's broadly worded statement of the ECT's purpose does little to aid the interpretive exercise. However, Article 2 also calls for consideration of the "objectives and principles of the [European Energy] Charter." The 1991 European Energy Charter, a political document that was the precursor to the ECT, provides that its signatories "will ensure that international rules on the protection of industrial, commercial and intellectual property are respected." The Charter then lists the following among a number of agreed implementing measures:

"In order to promote the international flow of investments, the signatories will at national level provide for a stable, transparent legal framework for foreign investments, in conformity with the relevant international laws and rules on investment and trade.

They affirm that it is important for the signatory States to negotiate and ratify legally binding agreements on promotion and protection of investments which ensure a high level of legal security and enable the use of investment risk guarantee schemes."178

134.
While these Charter provisions appear in a separate instrument concluded three years before the ECT, Article 2 ECT makes them relevant to understanding of the ECT, and they shed light on the nature of the legal regime referred to in the Treaty's statement of purpose. They indicate that this regime is to include national legal frameworks characterized by stability and transparency and that reflect international legal principles on investment and trade. While hardly determinative, this suggests that in assessing possible interpretations of the ECT's provisions, an interpreter should weigh whether they serve these objectives of legal stability and transparency.

(e) Related Agreements

135.
Under Article 31(2)(a) VCLT, in addition to ordinary meaning, disputed language's context also includes "any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty." In connection with Article 17(1), Respondent refers to one of the several agreed Understandings adopted when the ECT was adopted in 2004.179 However, neither Party has identified any such agreements among all parties relevant to interpretation of Article 45(1).
136.
However, during the proceedings, a good deal of attention was paid180 to a joint statement agreed among organs of the then-European Community ("EC") and its members countries participating in the ECT negotiations regarding their respective roles and responsibilities in areas where competence was divided between the EC and its Member States.181 Respondent urged that this statement showed that important ECT signatories agreed that a signatory provisionally applying the ECT could be internationally responsible to fulfill less than all of the treaty's obligations in light of the characteristics of its internal legal order.
137.

The statement provides:

"The Council, the Commission and the Member States agree on the following declaration: Article 45 (1) of the European Energy Charter Treaty should be interpreted as defining the conditions and limits for the provisional application of the ECT by the Signatories:

a) it does not create any commitment beyond what is compatible with the existing internal legal order of the Signatories;

b) on the basis of this interpretation of Article 45(1) to the ECT, a Signatory is not bound to enter a declaration of non-application, as is provided for in Article 45 (2) ECT;

c) this interpretation allows the Community to limit the provisional application to the matters which fall under its competence."

138.
The Tribunal has reservations regarding the significance of the 1994 Joint EC Statement as a guide to the interpretation of Article 45(1). First, it has not been established that it was known to, and accepted by, the other ECT signatories "as an instrument related to the treaty" as required by Article 31(2)(a) VCLT. Many issues of concern to particular countries or groups of countries were reflected in agreed Understandings or statements formally reflected in the ECT or its associated documents, and hence were known to and accepted by other ECT signatories. Thus, for example, Article 16 of the ECT is accompanied by a formal Decision defining the ECT's relationship with the Svalbard Treaty. The EC statement was not so reflected.
139.

Moreover, Respondent's arguments regarding the statement do not take account of the fact that the text of the ECT clearly provided for the possibility of divided competence between a Regional Economic Integration Organization ("REIO") -notably the then-European Community, the only such entity participating in the ECT negotiations - and its member countries. The definition of REIOs in Article 1(3) ECT explicitly recognizes that competence for particular matters may be divided between the member States and the REIO:

"(3) 'Regional Economic Integration Organization' means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters."

140.

This division of competence between the European Community and its member countries is again recognized in the voting rule in Article 36(7) ECT:

"(7) A Regional Economic Integration Organization shall, when voting, have a number of votes equal to the number of its member states which are Contracting Parties to this Treaty; provided that such an Organization shall not exercise its right to vote if its member states exercise theirs, and vice versa."

141.
Thus, the ECT's definition of REIO and its voting rules take account of the special case of the EC, where competence over some (but not all) matters covered by the treaty lay with the EC, while competence over the remaining matters remained with Member States. These provisions anticipate that all ECT obligations will be fulfilled, but responsibility for fulfilling particular obligations may be divided between an REIO - i.e., the European Community - and its member countries.182
142.
The 1994 Joint EC Statement reflects this special legal and political reality, one previously addressed during the ECT negotiations and reflected in the ECT's agreed language. It does not, however, make it possible for key obligations to fall through the cracks. The agreed statement guarantees that some signatory - whether the EC or its individual member countries - must assure that all parts of the ECT are provisionally applied. It thus does not offer a convincing precedent for the proposition that Article 45(1) allows provisional application of some, but not all, ECT provisions in different factual and legal situations.

(f) Subsequent Agreements and Practice

143.
Article 31(3)(a) VCLT provides that, together with context, interpretation of a treaty "shall" take into account "any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions." The Parties have not referred to any such agreement, and the Tribunal knows of none.
144.
Article 31(3)(b) VCLT requires that the Tribunal also take into account "any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation." The Parties examined several statements and actions by various ECT signatories in this regard. However, these seem largely to show that ECT signatories understood the complex provisions of Article 45 in varying ways. This falls far short of establishing any shared understanding of the article's meaning. It does show, however, that many countries sought to make their positions regarding provisional application known, rather than staying silent until a controversy arose.
145.
Several countries made statements invoking Article 45(1) and its "to the extent" clause to exclude provisional application altogether - not to escape provisional application of certain of its provisions. These included Austria, Italy, Luxembourg, the Netherlands (only as to the Netherlands Antilles and Aruba), Portugal, Romania, and Turkey.183 To the extent that these actions have interpretive significance - which is not clear - they seem to lend greater support to Claimant's understanding of Article 45(1).
146.
Twelve other ECT signatories, none members of the EC, made declarations that they were "unable to accept provisional application" pursuant to Article 45(2)(a): Australia, Bulgaria, Cyprus, Hungary, Iceland, Japan, Liechtenstein, Malta, Norway, Poland, Switzerland and Turkmenistan.184 As these declarations were communicated to other ECT signatories, the positions of these states were clearly known.
147.
In addition to its reliance upon the EC Agreed Statement185 discussed above, Respondent cited two illustrations of State conduct said to support its position. The first involved Finland's practice, as reflected in a November 1994 Finnish Ministry of Foreign Affairs memorandum,186 indicating that Finland may not provisionally apply Article 37(3) dealing with costs of the Secretariat "due to the provisions concerning the budgetary authority of the Finnish Parliament."187 "Such procedure was deemed permissible in accordance with Article 45(1) of the Treaty and does not require separate notification."188 This practice of one signatory does not constitute "subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation" as required by Article 31(3)(b) VCLT.
148.
The same must be said of the second, a fax message from a lawyer in the United States Department of State to the Energy Secretariat setting out a U.S. negotiating position to the effect that the ECT's provisions on provisional application should allow for signatories not to provisionally apply any provisions of the treaty in conflict with their domestic legal order. (The United States ultimately did not sign the treaty.) The views of one party to the negotiations do not establish the parties' agreement regarding its interpretation.
149.
Respondent also cited two statements emanating from European institutions referring to the obligation to apply the ECT "to the extent possible."189 However, these reflect the very ambiguity at issue in the present dispute. Respondent also referred to statements by the UK's Foreign Minister and the Energy Charter Secretariat regarding Respondent's provisional application of the ECT, statements said to show that Respondent was provisionally applying only certain ECT provisions.190 Respondent also cites an article written by a participant in the ECT negotiations giving the author's view that Article 45(1) requires provisional application only as to specific provisions not in conflict with domestic law.191 However, Respondent made no attempt to show how these materials fall within the scope of the VCLT's rules on interpretation. They do not.
150.
The Tribunal concludes that, to the extent that they reveal anything, these diverse statements and actions suggest a lack of interpretive consensus by the ECT's signatories, not the reverse. This diverse and inconsistent body of practice does not have the clarity and coherence required to establish the ECT Parties' agreement regarding the proper interpretation of Article 45.

(g) Relevant Rules of International Law

151.
Under Article 31(3)(c) VCLT, a tribunal is also to take account of "any relevant rules of international law applicable in the relations between the parties." Claimant invoked in this regard the fundamental international law principle that a State cannot invoke its national law to escape international legal obligations, citing, inter alia, VCLT Article 27's rule that, "[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty." Claimant viewed Respondent's "piecemeal" approach as resulting in international legal obligations being subordinated to national law, a prohibited result.
152.
Respondent does not dispute that domestic law cannot trump international legal obligations, but insists upon the need for clarity as to what those obligations may be. In Respondent's contention, provisional application under Article 45(1) gives rise to international legal obligations only to the extent indicated by its understanding of that Article. Hence, in Respondent's view, a signatory is not bound to provisionally apply ECT provisions that are inconsistent with its constitution, laws or regulations.192 Domestic law is not superior to international legal obligations; rather, it defines the extent of obligations arising under Article 45(1).
153.
The Respondent has the more persuasive position. The interpretive issue before the Tribunal is the extent of the international law obligations the Respondent assumed as the result of provisional application. Each Party can make a logical case regarding the relevance, or irrelevance, of Article 27 VCLT on the basis of its preferred interpretation of Article 45(1). However, the rule that international legal obligations are superior to domestic law does not assist in determining which interpretation is to be preferred. Consideration of the "relevant rules of international law applicable in the relations between the parties" as directed by the VCLT does not help to identify the correct interpretation of the disputed provision.

(h) Conclusion

154.
For the foregoing reasons, the Tribunal concludes that the interpretation of Article 45(1) most in harmony with the VCLT's rules of interpretation is that this provision relieves a signatory of the obligation to provisionally implement the ECT if its constitution, laws or regulations do not allow provisional application of treaties. If a signatory's domestic legal regime does allow it to apply treaties provisionally, it must provisionally apply the entire ECT, and not just portions of it.
155.
A signatory whose constitution, laws and regulations allow for the possibility of provisional application, but that doubts its ability to provisionally apply all parts of the ECT because of conflicts between specific provisions and its domestic legal order, may have recourse to the opting out procedure established by Article 45(2). It can in this manner assure that it does not incur international legal obligations involving specific ECT provisions that it is unable to implement.
156.
Thus, by agreeing to provisionally apply the ECT, Respondent became bound by the Dispute Settlement provisions in Article 26 ECT, including unconditional consent to international arbitration of covered disputes. This Tribunal therefore has jurisdiction pursuant to Article 26 over the present claims.

2. Applicable Russian and International Law

157.
In the previous section, the tribunal concluded that, correctly construed, Article 45(1) ECT does not authorize an ECT Signatory to apply some ECT provisions provisionally, but not to apply others seen as inconsistent with its constitution, laws or regulations. Given this interpretation of Article 45(1), the claimed inconsistency of Article 26 with Respondent's internal legal order does not relieve Respondent of obligations under that Article.
158.
Nevertheless, the Parties addressed at length aspects of Respondent's internal legal order that might apply under a contrary interpretation of Article 45(1) allowing "piecemeal" provisional application. For completeness, the Tribunal considers these issues in this section.
159.
Respondent contends that by agreeing to apply the ECT provisionally in accordance with Article 45(1) ECT it did not become bound by the Article 26 obligation to arbitrate claims against it. In Respondent's submission, the Article 26 commitment to arbitrate these claims would conflict with its constitution, laws and regulations, and hence fall within the scope of the "to the extent" exception clause of Article 45(1). Claimant disputes the existence of such a conflict.
160.
Respondent presented extensive and detailed arguments regarding aspects of Russia's domestic legal system. The testimony of Respondent's legal expert Professor Asoskov largely concerned the arbitrability of disputes concerning taxation measures, enforcement of tax assessments, or bankruptcy matters, and the (non-)availability of shareholder claims for damages to a company under Russia's domestic law.193 Respondent urged that, given these perceived inconsistencies between aspects of its domestic legal order and the obligation to settle disputes under Article 26 of the ECT, provisional application of Article 26 would be inconsistent with Russia's constitution, laws and regulations.
161.
Claimant's arguments in this regard emphasized Claimant's view of the scope of the constitutional authority of Russia's executive to enter into international agreements. Claimant contended, inter alia, that this provides sufficient domestic legal authority to conclude and provisionally implement the ECT.
162.
In the Tribunal's view, much of the argument and evidence regarding arbitrability of certain kinds of disputes in Russia's domestic legal order and similar matters is in fact not relevant. Instead, the key issues go to the nature and extent of Respondent's legal authority to apply treaties provisionally. These issues raise interconnected questions of international and Russian domestic law.

(1) Provisional Application in International Law

163.
The international law question concerns the nature and extent of Respondent's international legal obligations resulting from its agreement to provisionally apply the ECT in accordance with Article 45(1). The Parties agree, as they must, that a State's agreement to apply a treaty provisionally creates obligations under international law. They disagree regarding the extent of the obligations that Respondent incurred by agreeing to provisional application under Article 45(1).194
164.
The starting point for assessing these obligations is again the VCLT. Respondent is a party to the VCLT; as will be discussed below, its provisions are fully incorporated into Respondent's domestic legal order both by operation of Article 15(4) of the Russian Constitution195 and through the incorporation of key VCLT provisions in the Federal Law of International Treaties ("FLIT").196
165.
Under Article 25(1) VCLT, "[a] treaty or a part of a treaty is applied provisionally pending its entry into force if: (a) the treaty itself so provides [...]". Article 45(1) ECT does so provide. Whether the obligation to apply the treaty provisionally includes the entire ECT, or only to parts thereof, is at the heart of the present dispute regarding Article 45.
166.
Provisional application is not equivalent to the state becoming a party to a treaty. A state agreeing to provisionally apply a treaty must observe the treaty in accordance with its terms, but the treaty has not yet entered into force for that state. Of particular importance, provisional application can be terminated unilaterally if a state later decides not to become a party.197 (This might occur, for example, if parliamentary approval is required by domestic law, but is refused.)
167.
Until any such termination, however, the state is bound under international law by VCLT Article 26's rule of pacta sunt servanda ("[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith"), and Article 27's rule that "[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty." And, like any other state that has signed but not yet ratified a treaty, it is required by Article 18 VCLT, "to refrain from acts which would defeat the object and purpose of a treaty [...] until it shall have made its intention clear not to become a party to the treaty."198
168.
Respondent did not, at the time of signature or later, take of the actions authorized by the ECT for Signatories wishing to publicly avoid or limit the scope of provisional application. It made no declaration under Article 45(a)(2) disavowing provisional application altogether nor did it cause itself to be listed in Annex PA, thereby avoiding any continuing obligations under Parts III and V of the ECT following termination of provisional application.
169.
Accordingly, by signing the ECT, Respondent obligated itself to provisionally apply it in accordance with its terms, including the provisions of Article 45(1). In doing so, Respondent undertook significant obligations implicating the rights and interests of other ECT parties and their investors. Performance of these obligations must be assessed in accordance with the Article 26 of the VCLT obligation to perform the treaty in good faith.

(2) Burden of Proof or Persuasion

170.
Two preliminary questions follow: which Party has the burden of establishing the applicability of the claimed limitations on provisional application under Article 45(1)? And, what must that Party establish?
171.
Regarding the first question, it is clear that the Respondent has the burden of establishing that Article 45(1) relieves it of the obligation to arbitrate these claims. The Parties did not address the matter of whether proof of Russian law was an issue of law or of fact, and the outcome does not turn on how the matter is conceived. If viewed as a matter of fact, Article 24(1) of the UNCITRAL Arbitration Rules, applicable here, mandates that "[e]ach party shall have the burden of proving the facts relied on to support his claim or defense." The same principle applies to a Party asserting propositions of domestic law in its defense.199 As the Party claiming that it is not subject to important ECT obligations on the basis that they are inconsistent with its domestic law, the Respondent bears the burden of persuading the Tribunal of the correctness of its legal argument.
172.

What must Respondent establish? Here, the Tribunal notes again the peculiar wording of Article 45(1) ECT (emphasis added):

"Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations."

173.
What is the purpose or effect of the double negative ("not inconsistent") in Article 45(1)? As explained above, in ordinary English usage, "[t]he use of a double negative to express a positive is acceptable, although it yields a weaker affirmative than the simpler positive and may be confusing [...]".200 A less scholarly linguist observed "the expression is a hedge, a waffle, an evasion. It means that the subject does not appear to violate whatever rules or guidelines we are working under, while falling short of asserting that it obeys those rules or guidelines."201
174.
Thus, the ordinary meaning of "not inconsistent with" in Article 45(1) conveys less than a clear or unqualified affirmation. This suggests a bias in favor of provisional application of a treaty in full. The double negative requires less than an affirmation that provisional application (in whole, or of particular provisions, as Respondent contends) is "consistent" with a Contracting Party's "constitution, laws and regulations." Instead, the language suggests that a Contracting Party need not affirmatively show that provisional application is consistent with its constitution, laws and regulations as a pre-condition to provisional application. Rather, it is obliged to provisionally implement the treaty (or, some of its provisions, as Respondent sees it), unless its constitution, laws and regulations legally preclude it from doing so.
175.
This is in harmony with uses of the term "not inconsistent with" elsewhere in the ECT. The term is employed in several provisions addressing trade obligations,202 suggesting that it may have been borrowed from trade law and practice. It appears, for example, in the general exceptions to the GATT contained in its Article XX(d), which allows certain measures "not inconsistent with the provisions of this agreement." Such terminology has been understood to require GATT obligations to prevail except where mandatory national legislation compels a different result. Respondent's Reply cites in this regard a body of GATT jurisprudence, under paragraph 1(b) of the GATT Protocol of Provisional Application, that requires proof of specific inconsistencies with existing national law in order to avoid GATT obligations.203
176.
Investment tribunals have similarly concluded that in assessing claims of incompatibility between the ECT or other treaties and principles of the respondent state's internal law, the party contesting application of the treaty must establish the preclusive character of the internal law provisions on which it relies. In Electrabel v. Hungary,204 Hungary invoked an alleged conflict between the ECT and principles of European Union law. The tribunal disagreed, finding that "nothing in EU law can be interpreted as precluding investor state arbitration under the ECT and the ICSID Convention" (emphasis added). The tribunal in Achmea v. Slovak Republic likewise rejected a claim of incompatibility between EU law and a bilateral investment treaty, finding that, "[i]t cannot be asserted that all arbitrations that involve any question of EU law are conducted in violation of EU law."205
177.
The Tribunal concludes that, rather than requiring proof of affirmative legislative or other comparable sanction authorizing implementation of Article 26, the most plausible reading of Article 45(1) is that a Contracting Party must provisionally apply that Article, unless it can satisfactorily demonstrate that doing so would contravene established principles of it domestic legal order.206 Thus, to come within the Article 45 exception, Respondent must show that Russian law precludes provisional application of Article 26.207
178.
Respondent views matters differently, suggesting that ECT Article 45(1) requires that its domestic law affirmatively sanction provisional application of the Article 26 dispute settlement regime.208 As discussed below, the Tribunal finds that even if viewed from this alternative perspective, Russian law relating to provisional application does indeed provide such sanction.

(3) Respondent's Showing

179.
As noted above, the first Expert Report of Respondent's expert, Professor Asoskov, did not address matters relating to provisional application under international or Russian internal law. Indeed, the English translation of his report does not contain the words "provisional application," and, in cross-examination, Professor Asoskov made clear his lack of familiarity with, and reluctance to express views on, international law relating to treaty obligations.209
180.

Instead, Professor Asoskov was requested to give his opinion on two specific questions regarding Respondent's internal law:

"I. Does Russian law authorize or permit the arbitration of disputes concerning (i) taxation measures; (ii) enforcement measures related to tax assessments; and (iii) bankruptcy matters.

II. Does Russian law authorize or permit a joint-stock company's shareholders to claim compensation for losses based on damages caused to the company."210

181.
Professor Asoskov's First Report addressed these questions in detail, answering each in the negative. He found no statutory authorization to arbitrate the specified types of claims, and argued that without it, disputes involving such public law issues cannot be referred to arbitration in Russia's internal legal order. Hence, the issues raised by Luxtona's claims against the Russian State relating to tax assessments and enforcement, bankruptcy, and other public law issues, cannot be referred to arbitration without authorization by Russia's Parliament. Further, Professor Asoskov concluded that Respondent's domestic law does not authorize claims by shareholders for damages caused to a joint-stock company, as "[s]hareholder rights do not include the right of a shareholder to claim compensation for losses based on damages caused to a joint-stock company by third parties, including the State."211
182.
In Professor Asoskov's opinion, various legislative enactments cited by Claimant governing foreign and domestic investment did not authorize arbitration of such disputes.212Inter alia, he maintained that Article 10 of Respondent's 1999 Law "On Foreign Investments in the Russian Federation" did not do so because in his opinion it was merely a "blanket provision" devoid of independent legal content. (Article 10 states that foreign investor's disputes "shall be resolved in accordance with the international treaties of the Russian Federation and federal laws in court, arbitrazh court, or through international arbitration (arbitral tribunal)."213) In Professor's Asoskov's view, this provision did not, despite its wording, authorize arbitration of foreign investor's disputes based on the ECT. Instead, the mechanism for arbitrating such claims must be created by some other legal instrument.214
183.
Claimant's Expert, Professor Stephan, took a different view. He largely agreed with Professor Asoskov's views regarding the non-arbitrability of particular kinds of disputes involving public law questions.215 However, he found these irrelevant to the matter at issue, which he saw as the domestic effect of a validly concluded international treaty, not the legal principles applicable to purely domestic disputes in the absence of such a treaty.216 In his opinion, Russia's Executive has the power under the Russian Constitution to conclude binding international agreements, and under Article 15(4) of the Constitution, the terms of those agreements become part of Russia's internal law. Professor Stephan also found in various Russian statutes, including Article 10 of the FLIT, statutory authority to conclude and fully implement the ECT without the need for further action by Respondent's Parliament.217
184.
In rebuttal, Respondent insisted that as a matter of its constitutional and statutory law, a treaty like the ECT must be approved through the passage of a ratifying statute by the legislative branch before it can be brought into force. In this regard, Professor Asoskov urged the importance of separation of powers in Russia's constitutional structure. He contended that changing Russia's internal legal order to allow Respondent to arbitrate the sorts of claims by foreign investors presented here would require Parliamentary approval of the ECT, followed by its ratification by Russia. Neither occurred here.
185.
The Parties addressed in detail the roles and authority of the different branches of the Russian government, the need for ratification of certain types of treaties, the hierarchy of international agreements in Russian domestic law (some were said by Professor Asoskov to have more extensive domestic legal effects than others), and the place of ratified treaties in Russia's internal legal order. Ratification clearly would have been required for Respondent to become Party to the ECT, not least because the terms of the Treaty require it. (Article 39 ECT provides that the Treaty is subject to "ratification, acceptance or approval."218) Thus, in addition to the requirements of the FLIT, the ECT itself requires ratification. Under Respondent's law, this requires, inter alia, legislative approval by enactment of an appropriate federal law.219
186.
Much of this discussion did not directly address what the Tribunal sees as the key question. Given its international legal commitment to provisionally apply the Treaty pursuant to ECT Article 45(1), has the Respondent established that it cannot provisionally apply the obligations of ECT Article 26? In the Tribunal's view, this key question requires examination of the nature and consequences of provisional application in Russia's domestic legal order. Legal situations where provisional application is not involved are simply not relevant.

(4) The Tribunal's Analysis

(a) Provisional Application in Respondent's Legal Order

187.
The Tribunal begins with Professor Asoskov's observations regarding the need for ratification of the ECT under Article 15(1) of the FLIT. According to Professor Asoskov, Article 15(1) requires ratification for three types of international agreements: (1) those "whose implementation requires the enactment of federal laws to amend existing federal law;" (2) those "whose implementation requires the adoption of new federal laws" because they include non-self executing provisions requiring statutory implementation; and (3) another group that does not require the amendment of existing law or the adoption of new legislation. According to Professor Asoskov, the ECT falls into this third group.220
188.
Article 15(1) of the FLIT describes this third group of treaties as those "that set out Rules different from those provided by law."221 Professor Asoskov testified that ECT Article 26 is such a provision and therefore is to be included among "treaties that provide for derogations from, and are therefore inconsistent with, existing federal laws" (emphasis added).222 Thus, in the view of Respondent's expert, Article 26 neither requires amendment of existing laws nor the adoption of new implementing laws. Rather, its "inconsistency" with Respondent's constitution, laws and regulations lies in the fact that it creates a new procedure that would "apply only to relationships involving investors of the Contracting States of the relevant treaty."223
189.
Thus, the essence of Respondent's position is that the ECT is "inconsistent" with its domestic legal regime because it provides for a new procedure for settling foreign investors' disputes, even though this procedure would not require Respondent's parliament to amend existing statutes or to adopt implementing legislation.
190.
Professor Asoskov's evidence thus establishes that implementation of Article 26 would not require amendment of existing statutes, or the adoption of new ones. The Tribunal concluded above that the ordinary meaning of Article 45(1) indicates that a Contracting Party seeking to avoid provisional application must show that existing law precludes provisional application, not just that it differs from existing law. By this standard, Respondent's showing fails to satisfy the requirements of Article 45(1).
191.
Even applying a less demanding standard, however, the record does not establish that provisional application of Article 26 would be inconsistent with Respondent's constitution, laws and regulations.
192.

The Tribunal emphasizes that the issue is whether Respondent is obligated to apply Article 26 of the ECT provisionally, not whether the ECT must be ratified for Respondent to become a Party to the treaty. In this regard, both provisional application of treaties, and the obligation to observe them in good faith, are firmly incorporated into Respondent's domestic legal order by Article 15(4) of the Russian Constitution, which incorporates treaties and other rules of international law into domestic law:224

"The universally-recognised norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied."225

193.
Respondent is Party to the VCLT, pursuant to its approval by the appropriate legislative authorities of the former Soviet Union. Hence, as a matter of constitutional law, the VCLT's rules, including Article 23 relating to provisional application and its rules regarding good faith performance of treaties, are part of Respondent's domestic legal order.
194.

These norms enjoy an additional layer of legislative sanction, because they have been incorporated into the FLIT, which entered into force a year after Respondent signed the ECT. Many of its operative provisions reproduce VCLT obligations, including Article 23 of the FLIT, which mirrors Article 25 VCLT on provisional application.226 By adopting the FLIT, Respondent's parliament gave additional weight to the position of provisionally applied treaties in Russia's domestic legal order. Article 23 FLIT, captioned "Provisional application of international treaties by the Russian Federation", provides:

"1. An international treaty or a part of a treaty may, prior to its entry into force, be applied by the Russian Federation provisionally if the treaty itself so provides or if an agreement to that effect has been reached with the parties that have signed the treaty.

2. Decisions on the provisional application of a treaty or a part thereof by the Russian Federation shall be made by the body that has taken the decision to sign the international treaty according to the procedure set out in Article 11 of this Federal Law.
If an international treaty - the decision on the consent to the binding character of which for the Russian Federation is, under this Federal Law, to be taken in the form of a Federal Law - provides for the provisional application of the treaty or a part thereof, or if an agreement to that effect was reached among the parties in some other manner, then this treaty shall be submitted to the State Duma within six months from the start of its provisional application. The term of provisional application may be prolonged by way of a decision taken in the form of a federal law according to the procedure set out in Article 17 of this Federal Law for the ratification of international treaties.227

3. Unless the international treaty provides otherwise, or the respective States otherwise agree, the provisional application by the Russian Federation of a treaty or a part thereof shall be terminated upon notification to the other States that apply the treaty provisionally of the intention of the Russian Federation not to become a party to the treaty."228

195.
Thus, the ability to apply treaties provisionally, and the duty to implement them in good faith, are firmly anchored in Respondent's domestic law by both Respondent's Constitution and comprehensive legislation adopted by its legislature. These provisions intersect with, and are reinforced by, broad powers conferred by the Constitution on Respondent's Executive authorities.
196.
In this regard, Claimant contended, and Respondent did not dispute, that Russia's Constitution allocates significant powers for the conduct of foreign affairs to Russia's Executive Branch.229 Article 86(b) of the Constitution assigns to Respondent's President extensive authority over the negotiation and signing of treaties and their ultimate ratification.230 Exercising this constitutional allocation of power, the Chairman of the Government of the Russian Federation authorized the Deputy Chairman to sign the ECT on behalf of Respondent, including the undertaking to provisionally apply the treaty.231
197.
The Parties seem to share the view that agreeing to provisional application is a proper exercise of these constitutional powers, and that the Executive can commit Respondent to provisional application.232 Thus, Professor Asoskov stated "if an international treaty is subject to ratification, the Government (or the President) only has the power to take a decision to sign the international treaty (as a preliminary step of treaty making) or to apply the treaty on a provisional basis [...]"(emphasis added).233
198.

Indeed, Respondent's Reply describes the FLIT's requirement that provisionally applied treaties be submitted for legislative approval within six months as a means that:

"[...] ensures that the legislative prerogative of ratification is not circumvented by requiring that a decision on the provisional application of a treaty that amends or supplements federal laws beyond six months be taken in the form of a federal law [...] Article 23(2) FLIT imposes an express restriction on the executive's powers to agree to provisional application of treaties that 'set out rules different from those provided for by law.'(emphasis in original)."234

199.
This could be true only if provisional application of a treaty is indeed capable of amending or supplementing existing federal law.
200.
Thus, the provisional application of the ECT is firmly anchored in Respondent's domestic legal order through Respondent's adherence to the VCLT and its incorporation into domestic law by Article 15 of its Constitution; by Article 23 of the FLIT, a statute approved by parliament; and through the exercise of powers constitutionally allocated to Russia's Executive by Article 86 of its Constitution. In Respondent's legal system, a decision to provisionally apply a treaty rests on a confluence of constitutional, legislative and executive powers.
201.
The Tribunal further recalls, as Professor Asoskov observed, that the ECT provides for a new dispute settlement procedure that does not require that existing legislation be amended, nor the adoption of implementing legislation.
202.

What then was the domestic legal consequence of Respondent's international legal obligation to observe the ECT provisionally pending either ratification or a notification that it would not become a party? Professor Stephan took a broad view of the matter.

"[i]nternational treaties of the Russian Federation, as a matter of Russian constitutional law, form a part of Russian law, and the terms of such treaties apply in lieu of the rules provided by domestic law. For this reason, the idea that the terms of an international treaty to which Russia has consented to be bound could be inconsistent with provisions of Russian law is mistaken. This point applies to all treaties, including those that apply provisionally."235

203.
Respondent disagreed, urging that a treaty creating a new procedure for arbitration of these claims requires legislative approval of ratification (although, as noted above, its characterization of Article 23(2) of the FLIT also appears to contemplate that provisional application can supplement existing law).
204.
Professor Asoskov's second opinion also contends that there is a hierarchy of legal acts in Respondent's legal system, such that constitutional obligations cannot be impaired by statutes, and that statutes cannot be superseded by executive action.236 This opinion does not make clear how the hierarchy of legal acts is relevant to the specific matter of provisional application, given its conclusion that the ECT does not require either amendments to existing legislation or the adoption of new implementing legislation. Moreover, it does not address the specific situation of provisional application, which is sanctioned by application of Article 15 of the Constitution to the VCLT, has separate legislative approval in the form of Article 23 of the FLIT, and involves an exercise of Executive powers under Article 86 of the Constitution.
205.
The issue of the domestic legal consequences of a decision to provisionally apply a treaty poses difficult and disputed issues of Respondent's internal law. Both Parties advanced sometimes complex and subtle arguments. In weighing these, the Tribunal has given particular weight to the actions and words of Respondent's judges and public authorities regarding the domestic legal effect of a provisionally applied treaty and the scope of Respondent's resulting obligations. Such decisions and actions of Respondent's judges and officials, taken in the normal course of their official duties, rather than materials prepared for purposes of litigation, offer the most persuasive indications of Respondent's ability to provisionally apply the ECT in full.

(b) Positions of Respondent's Judicial Authorities

206.
The Tribunal finds persuasive in this regard Resolution 8P, adopted in 2012 by the Constitutional Court of the Russian Federation. This decision clearly rests on the premise that an un-ratified treaty being provisionally applied supplants inconsistent provisions of domestic law.237
207.
The case involved the amount of customs duty charged to a Mr. Ushakov on personal goods brought into Russia on 10 July 2010. Mr. Ushakov was initially charged some 1,530 roubles under the Customs Code of the Russian Federation and related regulations. The Russian customs authority subsequently claimed some 46,770 additional roubles in customs duties, relying on an international treaty that had been provisionally applied from 1 July 2010 and ratified on 5 April 2011, but not officially published.
208.
The legal issue before the Constitutional Court of the Russian Federation was whether Article 23(1) of the FLIT, which was cited by the Court of Appeals as a basis for the provisional application of an unpublished international agreement, is consistent with the Constitution of the Russian Federation.
209.

The Court decided that, because the provisionally applied treaty had domestic legal effect, individuals must be given notice of it by publication. The Court's discussion makes clear its view that a provisionally applied treaty supplants inconsistent domestic legal provisions:

"4.1. Being guided by the Vienna Convention on the Law of Treaties and provisions of the Federal Law "On International Treaties of the Russian Federation" in their literal interpretation, public authorities and officials of the Russian Federation consistently pursue the legal policy which provides that provisions of a provisionally applied international treaty become part of the legal system of the Russian Federation and, like international treaties of the Russian Federation that have entered into force, have priority over Russian laws in the absence of the officially published text, including instances when they alter the regulatory content of rights, freedoms and duties of man and citizen.

[...]

In the context of requirements set forth in Article 15 (part 4) of the Constitution of the Russian Federation in conjunction with its Articles 2, 17 (part 1) and 19 (part 1), provisionally applied international treaties of the Russian Federation by their legal consequences, effect on rights, freedoms and duties of man and citizen in the Russian Federation are essentially equivalent to international treaties that have entered into force, ratified and officially published in accordance with the procedure established by federal legislation."238

210.
In his Second Expert Opinion, Professor Asoskov agreed that in Resolution 8-P "the Constitutional Court stated that international treaties that apply provisionally become part of the legal system of the Russian Federation and, like treaties that have entered into force for the Russian Federation, may have priority over the provisions of Russian laws."239 However, he then sought to limit the Resolution's significance, arguing, inter alia, that the Constitutional Court was not called upon to rule on this specific question, nor was it empowered to do so.240 Respondent's Reply urged that Resolution 8-P must be disregarded both because the treaty at issue there did not contain a "to the extent" clause,"241 and by invoking the reasoning of a dissent to the Court's opinion.242 Be this as it may, the Tribunal finds the Constitutional Court's discussion to be a persuasive indication of how Respondent's senior jurists understand the domestic legal effect of provisionally applied treaties.
211.
To like effect, although less detailed in its discussion of the issue, is Ruling VAS-13594/09 of the Russian Federation Supreme Arbitrazh Court in December 2009.243 The Court's ruling in this matter again shows that it regarded a provisionally applied treaty - there, an air transport agreement between Russia and Germany exempting airport services for covered carriers from value-added and similar taxes - as having domestic legal effect, and as supplanting otherwise governing legal rules.
212.

The Supreme Arbitrazh Court affirmed lower courts' decisions finding that the provisionally applied treaty entitled Lufthansa to exemption from VAT to which it was otherwise legally subject. As the Court explained:

"In accordance with Paragraph 7 of the Joint Declaration of the Government of the Russian Federation and the Government of the Federal Republic of Germany regarding the Agreement on Air Travel of 14.07.1993, the latter is subject to temporary application by the Contracting States.

The temporary application of an international treaty means that the treaty can operate before all actions necessary for that treaty's entry into force under the domestic laws of each signatory (Article 25 of the [VCLT]).

Accordingly, the Agreement on Air Travel [...] has been applied by the Contracting States from the moment of signing of the Joint declaration of 14.07.1993.

In accordance with Article 6(6) of the Agreement on Air travel [...] the Contracting parties reciprocally grant exemptions from sales taxes or similar indirect taxes on goods and services provided to any designated airline of the other Contracting party [...]

The courts found [...] grounds for application, inter alia, of the Agreement on Air Travel [...] in determining the tax rate."244

213.
Respondent's Reply245 and Professor Asoskov's Second Expert Opinion point out that the Court found Lufthansa entitled to immunity from VAT under both the air transport agreement and a separate statutory provision, so there was no question of which had priority.246 While perhaps correct, this interpretation seems to miss the point. The quoted passage indicates that the Court found that the provisionally applied agreement, standing alone, was sufficient to relieve Lufthansa of an otherwise applicable legal obligation to pay VAT on services it received.247
214.
Respondent cited in support of the contrary view a case in which the Supreme Court held that a treaty with China concluded by Respondent's Government regulating the border customs regime, and not submitted for ratification, did not supersede federal laws imposing criminal penalties on the regulated conduct. The Tribunal doubts the relevance of this case. It did not involve provisional application of a treaty that is subject to ratification (like the ECT) and, hence did not implicate the constitutional and statutory provisions providing domestic legal sanction for provisional application. Moreover, again unlike the present case, the border customs regime involved treaty provisions that directly conflicted with Respondent's Criminal Code and Criminal Procedure Code.248

(c) Positions of Respondent's Executive Branch

215.

The actions of representatives of Respondent's Executive Branch during and after the ECT negotiations are also inconsistent with Respondent's present view that it cannot fully apply the ECT provisionally. In its 16 December 2004 Resolution authorizing signature of the ECT, Respondent's Government called for the Final Act of the ECT Conference to include five carefully phrased Declarations intended to assure consistency of Respondent's ECT obligations with its domestic law and its international obligations, presumably including during the period of provisional application.249 These did not reflect any concern regarding Article 26.250

216.
Respondent's delegation also obtained the inclusion of still other interpretive Declarations or other comparable actions designed to shape or limit Respondent's commitments under the ECT, including a Declaration and Understanding to Article 1(6), a Joint Declaration with the European Commission regarding Annex G(4), a Decision under Article 10(7) permitting Respondent to require legislative approval for companies with foreign participation to lease federally-owned property, and a notification of Respondent's intention to apply certain restrictions on transfers under Article 14. Again, none of these Declarations, qualifications or explanations of Respondent's obligations under the ECT suggested any doubts regarding Respondent's ability to provisionally apply any other aspect of the ECT.
217.
When the Energy Charter Conference Secretariat "asked all delegations wishing to make a request to be excepted from provisional application to notify it", Respondent made no such request under either Article 45(1) or Article 45(2)(a) ECT.251 On the contrary, Respondent joined a declaration adopted in the Sixteenth Plenary Session of the Energy Charter Conference stating that "a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty."252
218.
At the conclusion of the Energy Charter Conference in December 2002, Respondent's delegation publicly stated that, "[t]he Russian Federation has yet to ratify the Energy Charter Treaty, but as a Signatory Country, it implements the Treaty from the day it entered into force."253 As a conscientious and experienced participant in multilateral negotiations, the Respondent would have been mindful of the obligation to observe treaties, including treaties being provisionally applied, in good faith. Accordingly, it presumably would have wished to make clear in such a statement that its provisional application was subject to a significant limitation. Nothing of the sort was said, suggesting that, at least as of December 2002, Respondent perceived no such limitation.
219.

Thereafter, Respondent's Government submitted the ECT to the legislature for the approval preliminary to ratification, accompanied by an explanatory statement.254 This statement recites, inter alia :

• At the time of signing of the ECT, the provision on provisional application was in conformity with the Russian legal acts. For that reason, the Russian side did not make declarations as to its inability to accept provisional application (such declarations were made by 12 of the 49 ECT signatories),

• The provisions of the ECT are consistent with Russian legislation.255

220.
Professor Asoskov's Second Opinion explains this statement as simply an expression that the ECT - and presumably Article 26 - did not require the amendment of any existing legislation or the adoption of any implementing legislation.256
221.
Thereafter, the Russian Foreign Ministry included on its website until at least 23 May 2007 materials affirming, without limitation or qualification, that "[t]he Russian Federation applies it [the Energy Charter Treaty] on a provisional basis in accordance with Part 2 of the Vienna Convention and section 23 of the Federal Law on International Treaties."257 Again, the Ministry's public statement did not indicate that Respondent was not provisionally applying Article 26, a provision the Ministry presumably knew would be important to potential investors assessing the security of possible future investments.
222.

The first suggestion of Respondent's present position of record in this case appears in Respondent's 20 August 2009 communication to the ECT Depository (the Government of Portugal) pursuant to Article 45(3) ECT, giving notice of termination of provisional application. It states:

"[i]n accordance with Article 45(3)(a) of the E.C.T. [...] with the present the Russian Federation declares that it does not intend to become a participant in the said Treaty. The Russian Federation also confirms that in accordance with Article 45(1) of the Treaty, it did not apply provisionally any treaty provision to the extent that such provisional application was inconsistent with the Constitution, laws or regulations of the Russian Federation."258

223.
This carefully worded communication does not in fact say that Respondent did not provisionally apply Article 26 ECT or any other specific ECT provision. Instead, it largely mirrors the language of Article 45(1) ECT. However, insofar as it may be intended to show that Respondent did not provisionally apply Article 26 during the previous five years, the Tribunal is skeptical. The document was submitted after arbitral proceedings against Respondent based on Article 26 of the ECT were well advanced, and must be considered in that light.259
224.
In any case, the communication demonstrates that Respondent did not see the lack of legislative approval during the nearly five-year period following signature as affecting its continuing obligation to provisionally apply the Treaty. This necessarily follows from Article 45(3) ECT, which conditions termination of provisional application on delivery of an appropriate notification to the depositary. It also necessarily follows from Article 23(3) of the FLIT,260 which provides that Respondent's provisional application of a treaty "shall be terminated upon notification to the other States that apply the treaty provisionally of the intention of the Russian Federation not to become a party to the treaty. Thus, under both the ECT and Respondent's domestic law, provisional application continued until proper notice was given to the other treaty parties. This was not accomplished until August 2009.261

(d) Conclusion

225.
For the foregoing reasons, the Tribunal concludes that Respondent has failed to show that provisional application of Article 26 ECT is inconsistent with its constitution, laws or regulations. Accordingly, even assuming the interpretation of Article 45(1) ECT advocated by Respondent, this Tribunal has jurisdiction under Article 26 to hear the claims in this arbitration.

B. Denial of Benefits Under Article 17 ECT

1. Does Article 17(1) ECT Give Rise to a Jurisdictional Challenge?

226.

Part III of the ECT, captioned "Investment Promotion and Protection", establishes the Contracting Parties' substantive obligations regarding protection of investments. Article 17(1) of Part III then provides:

"Each Contracting Party reserves the right to deny the advantages of this Part to:

(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized [...]"

227.
Claimant acknowledges that it has no substantial business activities in Cyprus.262

(1) Parties' Submissions

(a) Respondent's submissions

228.
Respondent contends that it is entitled to deny and, by invoking the right reserved to it by Article 17 ECT in its Memorial on Jurisdiction,263 has denied to Claimant the advantages of Part III ECT, given that "Claimant is a passive conduit" that has no "substantial business activities" in Cyprus, and "is controlled by the US directors of the board of the Stichting."264
229.
Respondent maintains that, since the jurisdiction of a tribunal under Article 26(2) ECT is limited to "disputes [...] which concern an alleged breach of an obligation [...] under Part III", it is "incumbent on Claimant, at the jurisdictional phase, to establish that it has a prima facie cause of action under Part III" and that "[a]n alleged breach of an obligation under Part III is thus a necessary predicate of jurisdiction."265 Respondent contends that it has denied Claimant the advantages of Part III by exercising its reserved right under Article 17 ECT. Hence, Claimant cannot assert a cause of action under Part III ECT. The facts alleged by Claimant cannot come "within the reach of Articles 10(1) and 13 ECT invoked in the Notice of Arbitration", so there can be no prima facie case.266 Therefore, "all claims must be dismissed for lack of jurisdiction" or, alternatively, "be declared inadmissible."267
230.
Respondent dismisses as irrelevant the contrary rulings by arbitral tribunals in Plama v. Bulgaria, Hulley Enterprises v. Russia and Stati v. Kazakhstan invoked by Claimant.268 In particular, Respondent asserts that "[n]either the Plama tribunal, nor the Hulley Enterprises and Stati tribunals, explained how there can be a dispute concerning an alleged breach of an obligation under Part III if a Contracting Party denies the investor the advantages of Part III ECT."269

(b) Claimant's submissions

231.
Claimant advances three alternative grounds for dismissing Respondent's Article 17(1) objections: (i) "Respondent's denial of benefits challenge cannot constitute a challenge to jurisdiction"; (ii) "Respondent failed to exercise its alleged entitlement under Article 17(1) to deny benefits to Claimant until its letter to the Tribunal of 11 April 2014, and such notice of denial has no retrospective effect"; and (iii) "the cumulative requirements of Article 17(1) have not been met on the facts in any event."270
232.
Regarding the first of these three alternative grounds, Claimant urges that there is "no doubt that the reservation of the right to deny benefits pursuant to Article 17(1) applies only to 'this Part' of the ECT, i.e., only to Part III" as opposed to Part V ECT, which contains Article 26 establishing the right to arbitration.271
233.

Relying on the tribunals' findings in, inter alia, Plama v. Bulgaria,272Hulley Enterprises v. Russia,273Stati v. Kazakhstan274 and Khan Resources v. Mongolia,275 Claimant contends that "the dispute resolution procedure provided in Article 26, Part V is unaffected by any operation of Article 17(1)"276 and that "every ECT tribunal to have considered the issue has found against Respondent's case."277 Claimant quotes the Plama tribunal's observation that:

"[...] interpreted in good faith in accordance with their ordinary contextual meaning, the denial applies only to advantages under Part III. It would therefore require a gross manipulation of the language to make it refer to Article 26 in Part V of the ECT [...] the contrary approach would clearly not accord with the ECT's object and purpose. Unlike most modern investment treaties, Article 17(1) does not operate as a denial of all benefits to a covered investor under the treaty but is expressly limited to a denial of the advantages of Part III of the ECT."278

234.
Claimant rejects Respondent's reliance on the findings of tribunals in Libananco v. Turkey, Liman Caspian Oil v. Kazakhstan, Petrobart v. Kyrgyz Republic and Amto v. Ukraine.279 These cases do not "cast any doubt on the consistent interpretation of ECT tribunals highlighted by Claimant."280
235.
Finally, Claimant stresses that "Respondent cannot turn an inadmissibility claim into a jurisdictional objection."281 To this effect, Claimant relies on the published opinions of Professors Walid Ben Hamida and Zachary Douglas.282

(2) Tribunal's Decision on Claimant's First Objection

236.

The Tribunal does not accept Respondent's contention that the invocation of Article 17(1) deprives it of jurisdiction by eliminating the existence of any dispute regarding compliance with obligations under Part III ECT. Respondent cited in support of this contention the decisions of the investment arbitration tribunals in Liman Caspian Oil, Libananco and Petrobart.283 However, it is not apparent how any of the cited cases supports the proposition that successful invocation of Article 17 deprives the Tribunal of jurisdiction:

• The relevant discussion in Liman v. Caspian Oil v. Kazakhstan holds that an exercise of the Article 17 reserved right requires an explicit action by the state concerned, and that any such action can only operate with prospective effect.284

• The tribunal in Libananco Holdings v. Turkey examined the meaning of the term "third state" in Article 17, an issue not presented here.285

Petrobart v. Kyrgyz Republic's discussion germane to Article 17 addressed the identity of the entity or persons who owned or controlled the claimant.286

237.
By its terms, an exercise of the right reserved under Article 17(1) is limited to the protection extended to Investors under Part III ECT. The Contracting Parties' consent to jurisdiction is contained in Article 26, in Part V ECT. In Article 26(3), each Contracting Party gives unconditional consent to submission of "a dispute" to international arbitration. "Dispute" is not defined, but Article 26(1) refers to disputes between a Contracting Party and an Investor "relating to an investment of the former in the territory of the latter [...] which concern an alleged breach of an obligation under Part III [...]". Respondent therefore contends that, as it has denied Claimant the protections of Part III ECT, Claimant can make no prima facie claim under that Part. Hence, the Tribunal has no jurisdiction and should dismiss the claims forthwith.
238.
This argument goes too far. It might be correct only if both conditions for the exercise of Article 17(1) have been met, and if the right it reserves has been properly exercised with retrospective effect. If Respondent is correct as to all of these elements, the Tribunal may be without jurisdiction, or else the claims would be inadmissible.
239.
However, the ECT does not empower Respondent to be its own judge of these matters. Respondent's consent to jurisdiction in Article 26(3) necessarily extends to a tribunal's jurisdiction to determine whether the conditions triggering that consent have been met. This Tribunal, and not Respondent, must determine whether the conditions for the exercise of Article 17(1) have been met, and, if so, what the legal consequences may be. As the Khan and other tribunals have concluded, "the question of the application of Article 17 is therefore one for the merits, not jurisdiction."287
240.
Nevertheless, the Parties agreed to treat issues relating to Article 17(1) as preliminary questions, an agreement reflected in their extensive arguments regarding interpretation of the Article at the hearing. Accordingly, the Tribunal will proceed in the manner agreed by the Parties.

2. Can Article 17 ECT Be Invoked with Retrospective Effect?

(1) Parties' Submissions

(a) Respondent's submissions

241.
Respondent maintains that Article 17(1) ECT empowers it to deny the benefits of Part III ECT to Claimant "at any time", including after the commencement of arbitral proceedings, provided the provision's requirements are fulfilled.288 Respondent finds supporting authority in several decisions by investment treaty tribunals construing clauses said to be similar to Article 17 in the United State-Ecuador and United States-Bolivia BITs and in the Dominican Republic-Central America Free Trade Agreement ("DR-CAFTA"), including the decisions in Guaracachi v. Bolivia, Ulysseas v. Ecuador, Pac Rim v. El Salvador, and EMELEC v. Ecuador.289
242.
Disputing Claimant's denial of the relevance of these treaties, Respondent contends that: (i) "the language of the denial-of-benefits clauses in the US-Bolivia and US-Ecuador BITs and DR-CAFTA does not differ in the relevant wording from that of Article 17 ECT";290 and (ii) application of the denial-of-benefits clauses in the US-Ecuador and US-Bolivia BITs and DR-CAFTA 'to the entire Treaty' is [ir]relevant to the question of when a State may exercise its right to deny benefits." At the hearing, Counsel for Respondent urged that these US bilateral investment treaty cases should be given particular weight, contending that the ECT incorporates or reflects the US approach to denial of benefits.291
243.
Respondent highlights the holding of the Guaracachi v. Bolivia tribunal, that "[w]henever a BIT includes a denial of benefits clause, the consent by the host State to arbitration itself is conditional and thus may be denied by it, provided that some objective requirements concerning the investor are fulfilled."292 Hence, Bolivia could successfully invoke the denial-of-benefits clause in the US-Bolivia BIT in its statement of defense.293
244.
Similarly, the tribunal in Ulysseas v. Ecuador found that there was "no valid reason to exclude retrospective effects" of a denial of advantages declaration.294 Respondent also refers to Professor Douglas's view that Article 17(1) ECT does not require a Contracting Party to "exercise that right [to deny the advantages of Part III] in relation to a specific entity until it is expedient to do so."295
245.

Respondent contests Claimant's reliance on the Plama v. Bulgaria tribunal's interpretation of Article 17 ECT, citing Professor Walde's criticism of that decision:

"[...] standard practice has been to consider 'denial of benefits' as an objection that a host State can raise against diplomatic protection, and its successor, investment arbitration against companies controlled from outside the treaty. The Plama tribunal did not look towards such practice; there was no indication in the travaux or elsewhere that Article 17(1) ECT was intended by the drafters (accepting a US proposal to adopt US practice) as anything else."296

246.
Respondent submits that Luxtona is "owned or controlled by third State citizens or nationals and does not have substantial business activities in its State of incorporation."297 As a consequence, Respondent submits, Luxtona was "on notice that the [Respondent] may deny it the advantages of Part III of the ECT" and "no legitimate expectations [...] could have been frustrated by Respondent's denial of benefits."298 Accordingly, nothing prevents it from successfully invoking Article 17(1) ECT in its Memorial.299
247.
At the hearing, counsel for Respondent observed that the wording of Article 17(1) does not clearly indicate whether Article 17(1) can be invoked with retrospective effect, so as to deny Claimant the protections of Part III at the time its claim arose.300 Nevertheless, counsel urged that it must be so interpreted in light of the policies underlying the ECT, in particular the principle of reciprocity of obligations, which in counsel's submission plays an important role in the treaty.301 Counsel urged that cases considering the ECT's denial of benefits clause, notably Plama v. Bulgaria, were flawed in this regard because they proceeded from a narrow and selective conception of the ECT, wrongly ignoring the treaty's objective of gaining "complementarities and mutual benefits" in energy relations.302

(b) Claimant's submissions

248.
Claimant counters that "Article 17(1) does not operate automatically. To be effective, the reserved right to deny the benefits of Part III must be positively exercised, and it has no effect until it is exercised"303 and "[w]hen exercised, the denial of benefits has no retrospective effect."304 Otherwise, "the exercise of a Contracting Party's right to deny benefits in the way Respondent suggests constitutes 'a retrospective withdrawal of previously existing consent to arbitrate', which is not allowed under Article 26 of the ECT."305
249.
In Claimant's view, "Respondent did not exercise this right [to deny benefits] until its letter to the Tribunal of 26 May 2014."306 Claimant denies that Respondent's declaration had retrospective effect, and so did not deprive Claimant of the protection of Part III when the events giving rise to these claims occurred. "Respondent is not entitled to deny Claimant the benefit of the protections contained in Part III until after 26 May 2014 in any event."307
250.
Claimant maintains that ECT signatories "chose to reserve to host states an exercisable right to deny benefits at some point in the future."308 Highlighting tribunals' findings in Plama v. Bulgaria, Liman Caspian Oil v. Kazakhstan and Hulley Enterprises v. Russia,309 Claimant submits that "Article 17(1) has to be positively exercised in order to effect a denial of benefits."310
251.
Claimant disputes the relevance of decisions applying US BITs and DR-CAFTA, deeming them to be "of no assistance"311 and recalls the Pac Rim v. El Salvador Tribunal's observation that the denial of benefits issue under DR-CAFTA "does not [...] resemble the more limited issue under Article 17(1) of the [ECT]."312 Claimant distinguishes the ECT from the US-Bolivia BIT that the Guaracachi v. Bolivia tribunal interpreted to include denial of benefits as part of the "package of benefits afforded under the BIT."313 In contrast, Claimant asserts that "[c]onsent to arbitrate under ECT Article 26 is not part of the 'package of benefits' that a host State can deny under Article 17."314 Instead, Article 26(3) contains a Contracting State's "unconditional consent to the submission of a dispute to international arbitration" subject to exceptions not applicable here.315
252.
For Claimant, "[u]nless and until the reserved right to deny benefits to the claimant is exercised by the host state, any investor investing in the host state has the legitimate expectation that it is entitled to the protections of the ECT."316 Further, "Article 17(1) has prospective (rather than retrospective) effect" in light of the object and purpose of the ECT in promoting "long-term co-operation in the energy field."317 Claimant again cites the findings of the tribunals in Plama v. Bulgaria, Liman v. Kazakhstan, Hulley Enterprises v. Russia and Khan Resources v. Mongolia in support of its view.318
253.

Claimant contends that its interpretation is consistent with fundamental principles of good faith treatment of investors and legal certainty.319 To this effect, Claimant quotes the tribunal's finding in Khan Resources v. Mongolia :

"[...] good faith interpretation does not permit the Tribunal to choose a construction of Article 17 that would allow host states to lure investors by ostensibly extending to them the protections of the ECT, to then deny these protections when the investor attempts to invoke them in international arbitration."320

254.
Claimant dismisses the academic commentary cited by Respondent,321 noting that Professor Walde's criticism of the Plama v. Bulgaria tribunal is "not without personal bias since he made these arguments as the respondent State's testifying expert in the Plama case."322 Claimant also dismisses Respondent's reliance on Professor Ben Hamida's opinion, which is, according to Claimant, "based on his incorrect premise that the right of denial operates automatically, which is why the denial can have retrospective effect."323
255.
Finally, Claimant asserts that, following the tribunals' decisions in Plama v. Bulgaria and Hulley Enterprises v. Russia, where Respondent raised the same objections, it should have known that it had to "make proactive use of [its] rights under Article 17, otherwise [it] might lose the benefit of this right."324 In this respect, Claimant suggests that a Contracting State "could deny the benefits to a whole class of investors at once by 'a general declaration in a Contracting State's official gazette [...] or a statutory provision'"325 or "a statement published to the Energy Charter Secretariat could potentially promulgate a State's policy in this respect."326

(2) The Tribunal's Decision

256.
As counsel for Respondent observed at the hearing,327 the ordinary meaning of the key language in Article 17(1) - "[e]ach Contracting Party reserves the right to deny the advantages of this Part to [...]" - does not address whether an invocation of this reserved right relates back in time to deprive an existing investment of treaty protections with respect to past events. Accordingly, the Tribunal again must look to the interpretive rules of Article 31 and 32 VCLT. Article 17(1) must be construed in good faith, in accordance with the ordinary meaning to be given to its terms in their context, and in the light of the treaty's object and purpose.
257.
Some of the VCLT's interpretive elements are not present here. The Parties did not point to any useful indications in the ECT's context; there are no subsequent agreements among the Parties; and there is no body of consistent State practice relevant to interpretation (unless perhaps prior decisions of arbitral tribunals can be seen as state practice, a controversial view advanced by Professor Reisman that is by no means widely accepted.328) The Tribunal accordingly turns to two VCLT factors that may be of assistance, beginning with the treaty's object and purpose. As the Khan v. Mongolia tribunal observed: "[t]his question of interpretation is not solved by reference to the terms of Article 17(1). It is therefore necessary to investigate with particular attention the "object and purpose" of the Treaty."329 The Tribunal will also consider relevant rules of international law, as indicated by Article 31(3)(c) VCLT.
258.
Establishing a clear or dominant object and purpose of a complex multilateral instrument like the ECT can be difficult. Not surprisingly, the Parties offered differing views in this regard.
259.
At the hearing, counsel for Respondent emphasized the importance of assuring reciprocity of obligations, drawing on the ECT's purpose as stated in its Article 2, of achieving long term energy development based on "complementarities and mutual benefits."330 Respondent found in this principle a defense against allowing "free loaders", investors from non-party States seeking the ECT's benefits. Respondent disputed an argument advanced by Claimant, and reflected in some tribunal awards construing the ECT, that giving retrospective effect to denials of benefits would deprive investors of certainty. In Respondent's view, investors concerned about uncertainty can structure their investments to avoid the possibility of an Article 17 denial of benefits. Respondent added that Article 17 potentially affects only a small universe of shell companies; affording them certainty does not deserve priority over the ECT's purpose of seeking complementarities and mutual benefits.331
260.
Respondent also discounted a suggestion made by Claimant and in Plama v. Bulgaria, that a Contracting Party concerned about "freeloaders" could make some form of public statement exercising its reserved right with prospective effect, so that future investors potentially falling under Article 17 would have clear notice of their position. In counsel's view, the wording of Article 17 does not permit such general forward-looking statements, and instead requires case-by-case assessment of whether its requirements are met in a specific case.332
261.
In contrast, Claimant understood the ECT's promise of legal stability to be the most important value in assessing the ECT's object and purpose. For Claimant, prior to the exercise of the right, the ECT is in force with respect to, and protects, an investment. This creates a stable legal situation that cannot be retroactively undone by an exercise of the right reserved by Article 17(1). In Claimant's view, the Plama v. Bulgaria tribunal's suggestion of a general declaration by a State affirming its intention to prospectively deny the ECT's benefits is consistent with the language and purpose of Article 17(1), and offers States that wish to do so a means to bar claims by prospective "shell company" claimants.
262.

Article 2 ECT, captioned "Purpose of the Treaty," provides:

"[t]his Treaty establishes a legal framework in order to promote long-term co-operation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the [1991 European Energy] Charter."

263.
Respondent emphasizes the reference to "complementarities and mutual benefits" urging that Article 17 should be construed in a manner that best promotes this end.333
264.

However, Article 2's statement of purpose also calls for consideration of the "objectives and principles of the [European Energy] Charter." As noted previously, the 1991 European Energy Charter provides that its signatories "will ensure that international rules on the protection of industrial, commercial and intellectual property are respected." The Charter then lists the following among a number of agreed implementing measures:

"[i]n order to promote the international flow of investments, the signatories will at national level provide for a stable, transparent legal framework for foreign investments, in conformity with the relevant international laws and rules on investment and trade.

They affirm that it is important for the signatory States to negotiate and ratify legally binding agreements on promotion and protection of investments which ensure a high level of legal security and enable the use of investment risk guarantee schemes."334

265.
While these Charter provisions appear in a separate instrument, Article 2 ECT makes them relevant to understanding the ECT's object and purpose. They indicate that the legal regime envisioned by Article 2 ECT includes national legal frameworks characterized by stability and transparency and reflecting international legal principles on investment and trade.
266.
Thus, both elements identified by the Parties - mutual benefit (and hence reciprocity), and legal stability - can be found among the ECT's purposes potentially relevant to interpretation. However, the instrument places particular emphasis upon the need for stability and legal security for investors. In this regard, the Tribunal notes that major parts of the ECT - Part III captioned "Investment Promotion and Protection" and Part V ("Dispute Settlement") - exist to provide legal stability and protection for investments. As discussed below, a number of past tribunals have understood the ECT in this vein, viewing the protection and stability of investment as fundamental aspects of the treaty important to a proper interpretation of Article 17.
267.

Article 31(3)(c) VCLT also directs the Tribunal to take account of rules of international law applicable in relations between the Parties. While there is no single international law rule addressing retroactivity, the Tribunal observes that retrospective changes in international legal protections to the detriment of those previously relying upon them often are disfavored in international law. In the jurisprudence of International Court of Justice and other international courts and tribunals, mutual consent to jurisdiction, once perfected, cannot be terminated by the act of one party.335 An analogous principle is reflected in the law of treaties. Article 70 VCLT defines the consequences of termination of a treaty. Under Article 70(1)(b), "[u]nless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty [...] (b) does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination." Judge Robert Jennings sharply criticized the North American Free Trade Agreement parties for adopting an interpretive statement that Sir Robert saw as an unacceptable effort to change the governing law in a case already underway, deeming this to be "against the most elementary rules of the due process of justice."336 In like vein, the Pac Rim v. El Salvador tribunal (which gave effect to a denial of benefits under DR-CAFTA) indicated concern regarding the time at which a claim of denial of benefits must be made under such treaty:

"[i]n a different case under different arbitration rules, this [...] question might have caused this Tribunal certain difficulties given the importance of investor-state arbitration generally and, in particular, the potential unfairness of a State deciding, as a judge in its own interest, to thwart such an arbitration after its commencement."337

268.
While by no means determinative, the apparent bias in international law against giving retrospective effect to legally significant actions should be considered in identifying the correct interpretation of Article 17.
269.
The VCLT does not identify the awards of arbitration tribunals as a factor in interpretation, and, as often noted, there is no rule of precedent in international investment arbitration. Nevertheless, both Parties cited in their arguments prior awards believed to support their positions. The Tribunal has carefully considered the reasoning of these awards in assessing the interpretation of Article 17.
270.

The Tribunal is thus mindful of a number of unequivocal decisions by several experienced ECT tribunals denying retrospective effect to invocations of Article 17(1). These tribunals have considered the ECT's most relevant purpose for purposes of interpreting Article 17(1) to be to provide a stable and predictable legal regime for international investment in the energy sphere. Plama v. Bulgaria is a leading illustration, although, as Respondent points out, it has drawn distinguished critics.338 As seen by the Plama v. Bulgaria tribunal:

"161. The covered investor enjoys the advantages of Part III unless the host state exercises its right under Article 17(1) ECT; and a putative covered investor has legitimate expectations of such advantages until that right's exercise. A putative investor therefore requires reasonable notice before making any investment in the host state whether or not that host state has exercised its right under Article 17(1) ECT. At that stage, the putative investor can so plan its business affairs to come within or without the criteria there specified, as it chooses. It can also plan not to make any investment at all or to make it elsewhere. After an investment is made in the host state, the "hostage-factor" is introduced; the covered investor's choices are accordingly more limited; and the investor is correspondingly more vulnerable to the host state's exercise of its right under Article 17(1) ECT. At this time, therefore, the covered investor needs at least the same protection as it enjoyed as a putative investor able to plan its investment. The ECT's express "purpose" under Article 2 ECT is the establishment of "... a legal framework in order to promote long-term co-operation in the energy field... in accordance with the objectives and principles of the Charter"... It is not easy to see how any retrospective effect is consistent with this "long-term" purpose.

162. In the Tribunal's view, therefore, the object and purpose of the ECT suggest that the right's exercise should not have retrospective effect."339

271.

The Khan v. Mongolia tribunal was of like mind:

"426. The Treaty seeks to create a predictable legal framework for investments in the energy field. This predictability materializes only if investors can know in advance whether they are entitled to the protections of the Treaty. If an investor [...] who falls within the definition of "Investor" at Article 1(7) of the Treaty and is therefore entitled to the Treaty's protections in principle, could be denied the benefit of the Treaty at any moment after it has invested in the host country, it would find itself in a highly unpredictable situation. This lack of certainty would impede the investor's ability to evaluate whether or not to make an investment in any particular state. This would be contrary to the Treaty's object and purpose.

[...]

429. It is difficult to imagine that any Contracting Party, whatever its general policy regarding mailbox companies, would refrain from exercising its right to deny the substantive protections of the ECT to an investor who has already commenced arbitration and is claiming a substantial sum of money. A good faith interpretation does not permit the Tribunal to choose a construction of Article 1(7) that would allow host states to lure investors by ostensibly extending to them the protections of the ECT, to then deny these protections when the investor attempts to invoke them in international arbitration."340

272.

Other decisions similarly denying retrospective effect to invocations of Article 17(1) include:341

Stati v. Kazakhstan: "Art. 17 ECT would only apply if a state invoked that provision to deny benefits to an investor before a dispute arose and Respondent did not exercise this right."342

Yukos Universal Limited (Isle of Man) v. the Russian Federation: "[...] an exercise of the reserved right of denial [...] can only be prospective in effect from the date of that Memorial. To treat denial as retrospective would, in the light of the ECT's 'Purpose,' as set out in Article 2 of the Treaty [...] be incompatible "with the objectives and principles of the Charter." Paramount among those objectives and principles is "Promotion, Protection and Treatment of Investments" as specified by the terms of Article 10 of the Treaty. Retrospective application of a denial of rights would be inconsistent with such promotion and protection and constitute treatment at odds with those terms."343

Liman Caspian Oil v. Kazakhstan : "[t]he Tribunal considers that the above mentioned notification requirement [...] can only lead to the conclusion that the notification has prospective but no retroactive effect. Accepting the option of a retroactive notification would not be compatible with the object and purpose of the ECT, which the Tribunal has to take into account according to Article 31(1) of the VCLT, and which the ECT, in its Article 2, expressly identifies as "to promote long-term co-operation in the energy field". Such long-term co-operation requires, and it also follows from the principle of legal certainty, that an investor must be able to rely on the advantages under the ECT, as long as the host state has not explicitly invoked the right to deny such advantages. Therefore, the Tribunal finds that Article 17(1) of the ECT does not have retroactive effect."344

273.

The Tribunal recognizes that the trend of ECT tribunals' denying retrospective effect to invocations of Article 17(1), while strong, is not entirely clear-cut. As the Khan v. Mongolia tribunal observed,

"[t]wo decisions concerning the interpretation of Article 17(1) of the ECT, Petrobart Limited v. Kyrgyz Republic ("Petrobart") and [Amto LLC v. Ukraine]345 directly proceeded to consider whether on the facts of the case the relevant entity fell within the description of Article 17(1) of the ECT, "on the basis that the benefits would be denied if the conditions of Article 17 were fulfilled," "as if the exercise of the [host state's] right [to deny benefits] could be made upon the exercise of the investor's rights, that is, at the outset of the arbitration." In Amto, as in Plama, the tribunal examined the purpose of the ECT, but attached a particular significance to the reciprocal nature of the ECT and to the reference to "complementarities" and "mutual benefits" in the expression of the Treaty's objective in its Article 2."346

274.
As the Plama v. Bulgaria tribunal observed, the Amto LLC v. Ukraine tribunal did not address the possible retrospective effect of invoking Article 17(1), instead concluding that the substantive conditions for denying benefits under Article 17(1) were not present. "The Respondent has no right to deny the Claimant the advantages of Part III as AMTO has substantial business activities in the territory of Latvia."347 Accordingly, "the Tribunal does not need to determine [...] whether respondent can exercise its right to deny advantages at any time, including after the initiation of an arbitration."348
275.

The Petrobart Limited v. The Kyrgyz Republic award also does not address whether invocation of Article 17(1) can have retrospective effect. The tribunal instead observed that "[n]either before nor after the present proceedings did the Kyrgyz Republic invoke Article 17, expressing the wish to deny the advantages of Part III of the Treaty to Petrobart [...]"349 In any case, the tribunal found that the two conditions for invoking Article 17(1) were not met. "Both of these conditions must be present for Article 17(1) to apply and in this case neither of them applies to Petrobart."350

276.
Respondent referred to a group of non-ECT cases arising under U.S. bilateral investment treaties and DR-CAFTA (which often reflects the approach and language of U.S. bilateral treaties). Several tribunals applying these treaties have found that invocation of their denial of benefits clauses negates a Contracting Party's consent to jurisdiction, so the claims fail for want of jurisdiction.
277.

The Tribunal does not share Respondent's view that the treaties applied in these cases are not materially different from Article 17(1). They are materially different. These treaties' denial of benefits clauses provide that a State party may deny to an investor "the benefits of the treaty" - the entire treaty, including the State's consent to arbitration. Thus, Article XII of the US-Bolivia bilateral investment treaty at issue in Guaracachi v. Bolivia provides:

"Each party reserves the right to deny to a company of the other Party the benefits of this Treaty if nationals of a third country own or control the company and [...] (b) the company has no substantial business activities in the territory of the Party under whose laws it is constituted or organized."351

278.

Article 10.12.2 of DR-CAFTA is similar in concept:

"[s]ubject to Articles 18.3 (Notification and Provision of Information) and 20.4 (Consultations), a Party may deny the benefits of [Chapter 10 of DR-CAFTA] to an investor of another Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of any Party, other than the denying Party, and persons of a non- Party, or of the denying Party, own or control the enterprise."352

279.
The Tribunal does not find useful guidance for interpreting Article 17(1) ECT in these decisions involving U.S. bilateral investment treaties or DR-CAFTA. As the Pac Rim v. El Salvador tribunal pointed out, "the benefits denied under CAFTA Article 10.12.2 include all the benefits conferred upon the investor under Chapter 10 of CAFTA, including both Section A on 'Investment' and Section B on 'Investor-State Dispute Settlement.'"353 Thus, decisions applying these provisions have regularly viewed invocations of these clauses to nullify the State's consent to arbitration, and hence to deprive the tribunal of jurisdiction over an investor's claims.
280.
In contrast, Article 17(1) (which is contained in Part III of the ECT) is limited to denial of "the advantages of this part," that is, the substantive protections of investors contained in Part III ECT. Thus, a successful invocation of the right reserved by Article 17(1) does not by its terms alter or nullify the State's consent to jurisdiction.
281.
This significant difference in approach led the Pac Rim v. El Salvador tribunal to conclude that decisions under the ECT did not assist in construing DR-CAFTA because the "jurisdictional issue under CAFTA does not therefore resemble the more limited issue under Article 17(1) of the Energy Charter Treaty [...]".354 The converse is also true. Decisions applying the broader denial of benefits clauses under DR-CAFTA and U.S. BITs offer little help in construing Articled 17(1).

(3) Conclusion

282.
For the foregoing reasons, the Tribunal decides that the invocation of Article 17(1) does not reach back in time to deprive existing Investments of the protections of Part III of the ECT. (This decision is without prejudice to Respondent's contention that Claimant is not an Investor with a protected Investment.)
283.
Nevertheless, for completeness, the Tribunal will also consider the situation that would exist if Respondent's interpretation should prevail. Were the conditions set out in Article 17(1) of the ECT met, so that Respondent's invocation of the right reserved to it by Article 17(1) deprived Claimant of the protections of Part III of the ECT?

3. Is the Claimant Owned or Controlled by Nationals of a Third State?

284.
The Tribunal has decided that an ECT Contracting Party's exercise of the right reserved by Article 17(1) ECT does not have retrospective effect, and thus does not deny Claimant's Investment the protections of Part III ECT. Nevertheless, for completeness, the Tribunal also considers here whether the conditions required for the invocation of Article 17(1) have in fact been met. The Tribunal concludes that they have not, because Respondent has failed to establish that ineligible third country nationals controlled Claimant within the meaning of Article 17(1).
285.
Article 17(1) provides that each Contracting party "reserves the right to deny the advantages" of Part III ECT to "a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized."
286.
Claimant acknowledges that it does not carry on business activities in Cyprus.355 Accordingly, the question is whether "citizens or nationals or a third state own or control" it for purposes of Article 17(1). This requires the Tribunal to determine whether "citizens or nationals" of the United States "own or control" the FPH Stichting, the Netherlands entity that indirectly owns Claimant. Respondent contends that four U.S. nationals on the Stichting's board do indeed control the Stichting.

(1) Parties' Submissions

(a) Respondent's submissions

287.

Respondent contends that, for purposes of Article 17(1), control "includes control in fact, including a financial or equity interest in a company, the 'ability to exercise substantial influence over its management and operation, and the selection of members of its board of directors or other managing body'."356 Respondent finds support for this interpretation in ECT Understanding No. 3, approved by the ECT Parties when the Convention was adopted.357 Respondent contends that control over Claimant in this sense is, and has at all times been, exercised by U.S. nationals, and thus by nationals of a state that is not an ECT Party.358

288.
Respondent contends that, as of its incorporation in November 2003 until September 2005, Claimant was an indirect wholly-owned subsidiary of Yukos Oil through a chain of offshore holding companies, including Yukos CIS Investment Limited, incorporated in Armenia, and its subsidiaries Yukos Hydrocarbons and Kenzain Limited, both incorporated in the British Virgin Islands.359 In September 2005, Yukos Oil created the Stichting. Shortly thereafter, Yukos CIS Investment Limited contributed its Yukos shares to a Dutch company, Wincanton Holding B.V., which in turn contributed the shares to its subsidiary, another Dutch company called Financial Performance Holdings B.V.360 Wincanton Holding B.V. then transferred its shares in Financial Performance Holdings B.V. to the Stichting, in exchange for depository receipts.361 As a result, "[t]he Stichting controls Luxtona through its 100% shareholding in [Financial Performance Holdings B.V.], which in turn owns 100% of Yukos Hydrocarbons, which in turn owns 100% of Luxtona."362
289.
Respondent emphasizes that the Stichting exercises its voting and other shareholder rights "at its sole discretion" and that it "also controls the selection of Luxtona's managing directors."363 Relying on the opinion of its expert, Professor Tjittes, Respondent contends "the members of the Stichting's Board are [...] vested with powers equivalent to the combined powers of a Dutch company's directors and of its shareholders."364 The Stichting, in turn, "has no owners and is managed and controlled solely by its Board", which "represents the Stichting" and "adopts resolutions by absolute majority" of its members.365 The majority of the Stichting's Board members, according to Respondent, has "at all times [...] consisted of US citizens", the United States not being an ECT Contracting Party.366 At the hearing, counsel for Respondent urged in this regard that the purpose of Article 17(1) is to go to substance rather than form: "its entire purpose is to look through the legal artifices through which investment may be made, and that its focus is to uncover who really controls the company."367 Counsel further urged that Article 17(1)'s reference to "citizens or nationals" shows the need to inquire beyond corporate or other legal structures, and to identify the individuals concerned.368
290.
Respondent therefore concludes that U.S. nationals control the Investor. "Any majority decision [of the Stichting's Board [...] requires at least two Americans to affirmatively be supporting the decision. So control is control in fact, and the fact is that no decision can be taken without at least two US directors. However the decisions are made, they're always driven by the US directors."369
291.
For Respondent (i) the fact that "the directors act collectively as the Stichting's Board is immaterial";370 (ii) that "the Stichting's directors have a duty to comply with applicable Dutch law and exercise their powers subject to the ultimate control by the Dutch courts does not mean that they do not control the Stichting";371 and (iii) that the Directors of the Stichting must exercise their control in the interest of the Stichting and its interested parties is also irrelevant to determining 'control' for purposes of Article 17(1) ECT".372 In support of its argument, Respondent relies on the Hulley Enterprises v. Russia tribunal's finding that the claimant in that case "was controlled by a Guernsey company that was the trustee of a Guernsey Trust, even if it was required to exercise its powers in the 'most expedient [way] for the benefit of all or any of the beneficiaries' and required the protector's prior or simultaneous consent to take several key decisions."373

(b) Claimant's submissions

292.
Claimant counters that, under Article 17(1) ECT, Respondent must show that "the Investor is owned or controlled by citizens or nationals of a third state."374 Claimant asserts that, pursuant to Article 24(1) of the UNCITRAL Arbitration Rules and in line with various tribunals' findings,375 Respondent bears the burden of proof to show that this test has been met, and that Respondent "is wholly unable to do so."376
293.
According to Claimant, Respondent acknowledges that "Luxtona's shares are wholly and indirectly owned by a Dutch entity, FPH Stichting, which is incorporated in a Contracting State (the Netherlands)."377 Respondent's various assertions regarding control, including that "Claimant is controlled by nationals of a third state because of the US citizens who currently sit on the Board of FPH Stichting" are "plainly wrong and run contrary to universal principles of corporate law, as well as the specific provisions of Dutch law."378
294.
Claimant emphasizes that "[i]ndividual directors do not control FPH Stichting and each director's individual circumstances, motives or nationality are not relevant in the performance of his/her functions."379 Moreover, Claimant points out that "the board of FPH Stichting is a Dutch body irrespective of the nationalities of its individual members, and it is the board (as a Dutch entity), not its individual members, that (subject to the ultimate supervision of the Dutch courts) makes decisions over FPH Stichting."380
295.
Claimant disputes Respondent's reliance upon Understanding No. 3's definition of "control" under Article 1(6), contending that "the context of the two provisions is very different, and the definition in Article 1(6) has no application to Article 17(1).381 Instead, for Claimant, "the determination of questions of 'control' [...] is always linked to and based on ownership of a shareholding interest in the legal person in question."382 In Claimant's view, "the Board of FPH Stichting collectively pursues its line of business in the interests of all its stakeholders [...] and must abandon any line of business that proves to be incompatible with such interests."383
296.
Citing multiple authorities, Claimant contends that "no tribunal has ever found 'control' in the absence of a certain participating interest"384 and that control over a corporate entity prima facie lies in ownership with voting rights of a majority of the entity's shares. However, in the absence of such majority control, other factors that would complement a minority interest with the power to influence the decisions made by the corporate entity, might be considered, i.e., to establish de facto control.385
297.
Claimant asserts that "without any participating interest, none of the individuals or entities in question are the real investors behind the claimant entity claiming the benefits of a treaty."386 This is consistent with the object and purpose of ECT Article 17(1), which aims "to prevent non-signatory States from free-loading on the benefits of the ECT."387 "The real purpose of the denial of benefits, is to identify the real investor, and to deny, or have the ability, the right to deny the benefit to a real investor, if that real investor is located outside a contracting state and has no substantial business activities inside a contracting state."388 In this regard, Claimant stresses that, in this case, the United States "does not benefit from an Investment under the ECT from the fact that some of its nationals are directors of the FPH Stichting."389
298.
As a matter of Dutch law, Claimant posits that the individual directors of the Stichting do not "control" in the same manner as shareholders.390 Claimant asserts that, as opposed to shareholders, "[b]oard members are under a fiduciary duty to act in the best interests of the FPH Stichting (and other stakeholders identified in its Articles), and may not pursue their own interests."391 Further, "shareholders do not act and do not have to act collectively when making decisions or exercising their rights."392 In response to Respondent's reliance on the Hulley Enterprises v. Russia case in this respect,393 Claimant posits that "[t]he deciding factor in the Hulley Enterprises case was the fact that the corporate trustee company held the legal title to the GML shares (i.e., had legal control)."394
299.
Claimant disputes Respondent's contention that Article 17(1) requires that control be traced back to natural persons, contending that the Ulysseas v. Ecuador case cited in support of this proposition is inapposite because the treaty at issue there specifically defined nationals as natural persons.395

(2) Tribunal's Decision

(a) Burden of Proof

300.
Respondent contends that citizens of a third state - the United States of America - in fact control Claimant within the meaning of Article 17(1). Under Article 24(1) of the UNCITRAL Arbitration Rules governing this proceeding, Respondent, as the party asserting this contention as a defense, bears the burden of proving the facts on which it relies.396 As the Pac Rim v. El Salvador tribunal observed, it is "primarily for the Respondent to establish" that the elements of a denial of benefits clause have been satisfied.397 The Ulysseas v. Ecuador tribunal agreed: the burden of proving that the conditions for denying the protection of the treaty involved "is to be borne by Respondent as the party advancing this specific defence to the Tribunal's jurisdiction."398 The Amto LLC v. Ukraine tribunal similarly observed that "when a respondent alleges that the claimant is of the class of Investors only entitled to defeasible protection, so that the respondent can exercise its power to deny [treaty protection], then the burden passes to the respondent to prove the factual prerequisites of Article 17 on which it relies."399

(b) The Meaning of Control

301.
Accordingly, the Respondent has the burden of establishing that citizens or nationals of a non-ECT Party "control" Luxtona. (Respondent does not contend that such citizens or nationals "own" Luxtona.) Both Parties agree that Article 17(1) is intended to give Contracting Parties a means to combat "freeloaders." For Claimant, "Article 17 is designed to prevent non-signatory States from free-loading on the benefits of the ECT."400 Respondent agrees that "Article 17 is a means of preventing freeloaders from non-signatory states from enjoying the benefits of the treaty."401 However, the Parties have different understandings of how to identify these "freeloaders," reflecting different understandings of "control".
302.
Article 17(1)'s wording does not illuminate the meaning of "control". For Respondent, "control" means control-in-fact,402 emphasizing in this regard the elements of Understanding No. 3. Respondent also assigns significance to Article 17(1)'s reference to "citizens or nationals," urging that these require the Tribunal to disregard corporate or legal structures and instead to identify specific natural persons exercising control. For Respondent, Article 17(1)'s "entire purpose is to look through the legal artifices through which investment may be made, and that its focus is to uncover who really controls the company."403 Under this understanding, Article 17(1) requires the Tribunal to identify natural persons.404
303.
In contrast, for Claimant, Article 17(1)'s "owned or controlled" requirement requires a tribunal to identify the person or entity that in fact stands to benefit, directly or indirectly, from a potential award. Here, the entity that would stand to benefit from any future award would be the Stichting, indisputably a Netherlands entity and not a "free-rider". No third country "free-rider" stands to gain economically from a successful claim.405 Claimant also disputes the relevance of the nationalities of the Stichting's individual Board members, denying that Article 17(1) equates control to the identities and nationalities of individual Board members. Instead, Claimant urges that under Dutch law, the Stichting has separate legal personality and is not owned or controlled, nor can it legally be owned or controlled, by any second party.406 Claimant also points to numerous investment cases said to show that some equity interest is required to establish control of an investment; here no outside person or entity has such an interest in the Stichting.407
304.
As explained below, the Tribunal concludes that Respondent has not met its burden of establishing that Claimant is owned or controlled by "citizens or nationals" of a State not party to the ECT.
305.
While the Tribunal does not accept that Understanding No. 3 is determinative of the meaning of "control" in the separate context of Article 17(1), elements of that Understanding offer useful insights. The Tribunal agrees that assessing control for purposes of Article 17(1) should involve "examination of the actual circumstances in each situation" and consideration of "all relevant factors." It also agrees, as explained above, that the Respondent has the burden of proving its claim of control.
306.
Here, the "actual circumstances" presented are unusual. There is no claim of ownership. The U.S. "citizens or nationals" said to control the Claimant by reasons of their positions as directors of the Stichting are not alleged to have any ownership or other financial interest in the Claimant. It is not contested that the Stichting, which is undisputedly a Netherlands entity with separate legal personality, indirectly owns the Claimant. It is not contested that the Stichting, not its individual directors, holds and is entitled to exercise any rights stemming from that indirect ownership.
307.
The "actual circumstances" also involve the distinctive legal characteristics of a Netherlands Stichting and the powers and obligations of individual directors of such a body. In this regard, the Parties and their respective experts on the legal regime of Stichtings under Dutch law devoted extensive attention to the Stichting's legal characteristics, the nature of its decision-making, the powers of its directors, and relevant provisions of Dutch statutory and case law. Claimant considered a Stichting's board acting collectively, not individual board members, as the relevant decision-maker for purposes of assessing control. Claimant viewed board members as heavily constrained in their actions and decisions by Dutch legislation and jurisprudence requiring them to act disinterestedly for the benefit of the Stichting. For its part, Respondent disputed the extent and significance of the legal limitations on board members' discretion, urging that the four Stichting board members with U.S. nationality retained significant autonomy, such that they must be seen as U.S. persons controlling the Stichting and - ultimately - the Claimant.408
308.
The Tribunal finds more persuasive in this regard the expert evidence of Claimant's expert, Professor Justice Willems, whose written and oral testimony was consistent and convincing regarding relevant issues of ownership and control under Dutch law. Both Justice Willems and Respondent's Expert, Professor Dr. Riemert Pieter Jan Lucris Tjittes, agreed that under Dutch law, the Stichting "has no owners or shareholders and is managed and controlled entirely by its board of directors."409 The key difference between the two distinguished experts lay in their differing appreciations of the powers and responsibilities of the Stichting's board and of its members.
309.
In Justice Willems' view, Dutch law makes the board of a Stichting the key - and indeed, sole - organ of its governance and control. It must by law act collectively and collegially,410 and for this purpose, its board members' nationalities are irrelevant.411 It must act in accordance with the object of the foundation as laid down in its articles of association,412 here involving furthering the interests of the Stichting and various Yukos-related entities and stakeholders. In Justice Willems' opinion, the Stichting's board members act as fiduciaries, independently of inconsistent outside instructions, to promote the ends laid down in the articles of association.413 Directors therefore cannot use their position to advance their own interests, and doing so would contravene their legal obligations.414 They can have no economic interest in the investment as directors, other than their remuneration.
310.
Professor Tjittes disputed this conception, minimizing the legal limitations on Stichting's board members freedom of action,415 instead comparing them to shareholders in a corporation who have the power to control their company.
311.
The Tribunal is not persuaded, however, by Professor Tjittes' evidence, which did not satisfactorily contravene Justice Willems' conclusion that "[t]here is a fundamental difference between the board of a stichting, which is never allowed to act in its own interest, and the shareholder of a company, who in principle can and may act in his own interest."416 Given the central position of the collective board - and not of its individual directors - in the Stichting's governance under Dutch law, and the limitations on directors' actions stemming from their roles as fiduciaries, the Tribunal is persuaded of Judge Willem's conclusion that "the nationality of any individual board member has no bearing on the FPH Stichting."417
312.
This conclusion is reinforced by the Tribunal's understanding of the purpose of Article 17(1), which both Parties agreed was conceived to counter "freeloaders". The conception of Article 17(1)'s role in fending off "freeloaders" advanced by the Claimant fits more logically with the ECT's structure and purpose. The ECT Parties sought to create a mechanism by which investors from non-ECT countries could be denied the economic benefits of the ECT without their home countries bearing any of its burdens. Hence, assessing control for purposes of Article 17(1) requires realistic assessment of the economic realities. The four individuals who are alleged to control the Stichting are legally barred from deriving economic benefit from their role, other than any compensation they may receive as directors' fees (a matter on which there was no dispute and no evidence). Any future funds gained through arbitral awards in favor of the Claimant stand to benefit the Stichting and those whose interests it is bound to promote. They would not accrue to individual board members, except to the contingent extent some small proportion of future recoveries might eventually trickle down to any of them who hold Yukos shares (on which there again was no evidence).
313.
The Tribunal also doubts Respondent's argument that Article 17(1)'s wording compels a tribunal to identify natural persons in assessing ownership or control. The ECT does, as Respondent notes, refer to the citizenship or nationality of natural persons, as it does in the definition of "Investor" in Article 1(6) and again in discussing key personnel in Article 11(2). However, it also speaks of entities that are not natural person as nationals at Article 26(7). Moreover, Respondent's interpretation could lead to odd, indeed implausible, results. In a hypothetical case where a large publicly traded corporation incorporated in a third State was said to own or control an investment in an ECT party, Respondent's interpretation would require a tribunal to identify the nationalities of individual shareholders in order to assess whether they (or perhaps a majority of them) hold disqualifying passports. Doing so would be extremely burdensome, if not impossible.
314.
Accordingly, the Tribunal finds that Respondent has failed to establish that Claimant was owned or controlled by citizens or nationals of a non-ECT Party within the meaning of ECT Article 17(1).

C. Is There an Investment Protected by the ECT?

315.

The Tribunal's Procedural Order No. 1, issued following consultations with and agreement of the Parties, states:

"2.1 The Parties have agreed that that the proceedings are to be bifurcated, and that certain of Respondent's jurisdiction and admissibility objections should be heard as preliminary questions. The jurisdiction and admissibility objections that the Parties have agreed should be heard in the first phase ("Jurisdictional Phase") are as follows:

[...]

(b) The Yukos shares allegedly held by Claimant are not "investments" within the meaning of Article 1(6) of the ECT; [...]"

316.
The Tribunal accordingly received extensive arguments regarding Respondent's contentions that Claimant was not an "Investor" with an "Investment" protected by the ECT. As explained below, the Tribunal concludes that at this stage, it cannot decide these issues, and accordingly defers them to the merits stage.
317.

However, for completeness, the Tribunal sets out here the Parties' arguments on these issues at this stage of the proceedings. The three main disputed issues may be summarized as follows:

1. Does Claimant's "Investment" Amount to an Investment by Yukos Oil in its own Shares?

2. Does the ECT Protect Investments of Nationals of a Contracting State in the Territory of, and with Resources from, that Same Contracting State?

3. Do Claimant's Shares Lack the Inherent Characteristics of "Investments" under Article 1(6) ECT?

1. Does Claimant's "Investment" Amount to an Investment by Yukos Oil in its own Shares?

(1) Parties' Submissions

(a) Respondent's submissions

318.
Respondent submits that any "Investment", as defined by Article 1(6) ECT, in the Shares "was in economic substance an investment by a Russian company, Yukos Oil Company, in its own shares, made with funds generated by its production and trading operations in Russia."418 Respondent advances multiple arguments in this regard.
319.
Respondent's Memorial contends that the evidence initially submitted by Claimant "does not show that and, if so, when Carenet transferred the Yukos Shares to Claimant" nor "that Claimant paid for the Yukos Shares" nor "that Carenet transferred the Yukos Shares to Luxtona's depositary account and, if so, when it transferred them.419 There is also insufficient evidence "to meet Luxtona's burden of proving that it 'paid' Carenet for the Yukos Shares."420
320.
The Tribunal understands that evidence subsequently submitted by Claimant does show that the shares at issue were transferred to Luxtona, and that payment was made to Carenet for the shares. However, as discussed below, Respondent disputes the economic reality and legal significance of these transactions.
321.
As to Claimant's assertion that the Shares were purchased from Carenet "as part of a group restructuring", Respondent contends that "this intra-Yukos group transfer of Yukos shares was devoid of economic substance and merely shifted Yukos Oil Company's own funds and shares from one of its off-shore subsidiaries to another."421 Respondent asserts that the Shares "were in economic substance Yukos Oil Company's treasury shares" and that "both Luxtona, the purported purchaser, and Carenet, the purported seller, were wholly-owned by Yukos Oil Company."422 In this respect, Claimant's witness Mr. Bruce Misamore has confirmed, according to Respondent, that "Luxtona itself played no part in the transfer of funds."423 Carenet and other Yukos Oil subsidiaries were considered as "within [Yukos Oil's] accounting consolidation perimeter, meaning that Yukos Oil Company controlled them and reported their assets and liabilities together with its own for its U.S. GAAP financial statements."424
322.
Respondent submits that Yukos Oil treated "Carenet in particular [...] as part of its own 'treasury', and its shares held by Carenet as its own 'treasury' shares for accounting purposes."425 As such, the shares cannot qualify as an "Investment" "because by their very nature treasury shares, irrespective of the applicable law under which they were issued, cannot amount in substance to an equity participation in a company."426 According to Respondent, Yukos Oil represented and treated the treasury shares held by Carenet as shares that it owned and could freely dispose of.427 Furthermore, Respondent argues that Yukos Oil intended to use the shares as part of its stock-based compensation plan, started in April 2001, which constrained Luxtona's freedom to dispose of them.428 Under the plan, Yukos Oil employees "obtained the ability to acquire shares at some point in the future at a given price (or for free), but until they did so, the shares remained 'in treasury' held by a Yukos subsidiary."429 Offshore subsidiaries were used "to avoid Russian corporate law hurdles and Russian taxes, not in furtherance of an economic venture."430
323.
Respondent contends that "Luxtona's purported acquisition of the Yukos Shares was funded with intra-Yukos-group 'loans'", described as "vehicles to funnel profits generated by [Yukos Oil's] Russian subsidiaries among its offshore subsidiaries and eventually back to Yukos Oil Company."431 In this regard, Respondent posits that "[d]uring the period from 1999 to 2003, Yukos Oil Company caused its production subsidiaries to sell their oil to trading companies in Russia's low tax regions", which went on to "transfer the oil amongst themselves, increasing the selling price at each stage", so that profits would accrue in the low-tax regions.432 Respondent claims that the trading companies' financial results "were consolidated with those of Yukos Oil Company"433 and that their profits were "cycled among Yukos companies" by means of intra-Yukos-group "loans."434
324.
Respondent claims that the Yukos group structured similar "loans" to be "non-recourse such that the 'borrower' did not have any actual repayment risk", suggesting that "the same approach" might have been used in the present case.435 In this regard, Respondent observes that "Luxtona appears to have had no operating revenue, no business other than holding the Yukos Shares, and no prospects otherwise for earning funds with which it could pay back a bona fide loan."436 According to Respondent, "Luxtona acknowledged that it never faced any risk of having to 'repay' the loan with its own funds" and that such repayment would lead to its insolvency.437
325.
Specifically, Respondent claims that in 2002 and 2003, two of Yukos Oil's trading subsidiaries - Fargoil and Ratibor - paid as dividends "large amounts, representing the proceeds of sales of oil in Russia" to their immediate parent companies incorporated in Cyprus, named Nassaubridge and Dunsley, respectively.438 Nassaubridge and Dunsley, in turn, were "indirectly owned or controlled by Yukos Oil Company" through, inter alia, two companies incorporated in the British Virgin Islands, named Brittany and Brill.439 Brittany was the parent of Brill, which in turn was the parent of Carenet.440
326.
According to Respondent, Brill financed Carenet's acquisition of the Shares through an "intra-Yukos group 'loan'."441 The terms of this loan were, according to Respondent, "not those of an arm's-length transaction."442 Similarly, Brittany apparently financed Luxtona's subsequent alleged acquisition of the Shares from Carenet.443 Any funds received by Carenet from Luxtona would have allowed the former to repay the loan received from its parent Brill, thereby "closing the loop of funds: Brittany-Luxtona- Carenet-Brill-Brittany."444
327.
In summary, Respondent contends that any funds used to acquire the Shares "were Yukos Oil Company's own [...] from the time they were generated by Yukos Oil Company's Russian subsidiaries until the time they appear to have passed through Claimant to another Yukos off-shore company."445 Hence, the Shares "remained in terms of economic substance 'treasury shares' at all relevant times" their transfer was "devoid of economic substance," and "Claimant was a mere conduit in a cycle of intra-Yukos-group transfers of funds and assets."446 Respondent dismisses Luxtona's reliance on formalism and emphasis on the separate legal personalities of the entities involved vis-à-vis Yukos Oil.447 Respondent cites numerous purported irregularities relating to Luxtona's corporate requirements,448 in particular that "Luxtona neither discussed the alleged acquisition of the Yukos Shares from Carenet in any director or shareholder meeting, nor formally resolved to acquire the shares, nor even convened an internal meeting when Carenet failed to deliver the shares on time."449

(b) Claimant's submissions

328.

Claimant emphasizes as a matter of principle, that:

"[...] the express language of Articles 1(6) and 1(7) ECT establish that the Yukos Shares are an Investment: i.e., 'shares [...] in a company' that are "owned or controlled directly or indirectly by an Investor.' The Yukos Shares are 'shares [...] in a company', they were at all relevant times 'owned' by Claimant Luxtona and Luxtona was at all relevant times an Investor (i.e., 'a company [...] organized in accordance with the law applicable in that Contracting Party [Cyprus]')."450

329.

Claimant acknowledges that it is "a former, indirect, wholly-owned subsidiary of Yukos Oil" and that "[f]unds held by Yukos Oil's offshore subsidiaries represented profits from crude oil and crude oil products trading and investment operations."451 That said, Claimant emphasizes that it:

"[...] was at all relevant times an independent, non-Russian legal entity and remains so [...] Claimant engaged in legal activity protected under the ECT. While that activity was part of the broader business strategy of its now expropriated parent, that provides no basis for effectively ignoring Claimant's separate legal status, piercing several layers of corporate veils (without saying so) and effectively folding Claimant into Yukos Oil Company, a company rendered non-existent in 2007 by Respondent's illegal acts."452

330.
Claimant asserts that the source of the funds used to acquire the Shares is irrelevant.453 As to the process of acquiring the Shares, Claimant affirms that "Luxtona agreed to buy 54,988,075 Yukos Oil shares at the then market price of US$ 13 per share (total consideration US$ 714,844,975) from Carenet'454 and that ultimately "Luxtona transferred US$ 714,844,975 to Carenet as consideration for this purchase,"455 which was financed through a loan granted by Brittany.456 Here, Claimant emphasizes that "the loan was not made by a commercial bank, it was made as part of a group restructuring that will not in all respects be on the same terms as if the entities involved were unrelated companies and a commercial bank."457
331.
Claimant dismisses Respondent's characterization of the purchase of the Shares as "devoid of economic substance," maintaining that this would "ignore completely the separate legal personalities of the companies involved."458
332.

Claimant contends that the Shares "were not [...] treasury shares in the way in which Russia tries to use the term," namely "under a Russian law concept as shares that a company owns in itself as a single legal entity."459 In his Second Statement, Mr. Misamore says that "[i]n the hands of Luxtona, the YUKOS Shares are ordinary shares that could be freely sold and transferred, including to third parties outside the YUKOS group and were accounted for in Luxtona's accounts accordingly."460 This is evidenced by a decision of the Russian Tax Ministry.461 Citing the decision in British Caribbean Bank Limited (Turks & Caicos) v. The Government of Belize, Claimant asserts that "[a]bsent illegality, there is of course nothing wrong with a subsidiary owning shares in its parent."462 In addition, Claimant relies on the expert opinion of Dr. Barry Jay Epstein to contend that:

"[i]ndeed, inasmuch as treasury stock by definition refers to shares of the reporting entity that have been reacquired after having previously been authorized and issued, it must immediately be understood that Yukos Oil shares held by Luxtona could not be presented as treasury shares in the Luxtona financial statements, inasmuch as these were not shares authorized and issued, and subsequently reacquired, by Luxtona."463

333.

Claimant dismisses Respondent's argument that disposal of the Yukos Shares was restricted because they were to be used as part of Yukos Oil's compensation plan as "factually wrong and legally irrelevant."464 Claimant asserts that it had not committed the Yukos Shares for use in Yukos Oil's employee compensation plan and that, in any event, "Respondent has provided no rationale for why that should remove the Yukos Shares from the Article 1(6)(b) ECT definition of Investment" if Claimant "had committed to make some or all of the Yukos Shares available for use in the employee compensation plan."465 In this respect, Claimant relies on Mr. Misamore's Second Statement providing that:

"[...] there were no restrictions on the ability of Carenet to sell or otherwise dispose of the YUKOS Oil shares it owned and any duty it may have had to assist YUKOS Oil in meeting its obligations under the stock-based compensation plan was minimal and extinguished by early 2004 [...]"466

334.
According to Claimant, "the 'economic substance' of the Yukos Shares remained at all times" with Claimant, who "had the economic exposure of the Yukos Shares with all the risk of market volatility shared by unaffiliated investors" as well as "the rights to any declared and paid dividends" and that it "could have sold the Yukos Shares at any time."467
335.
Finally, Claimant contends that Respondent's observation "that the Yukos entities involved in Claimant's purchase of the Yukos Shares 'were within Yukos Oil Company's accounting consolidation perimeter,"468 "has nothing to do with, and cannot alter, the legal nature and economic substance of transactions"469 and that, in any event, the funds borrowed by Claimant to purchase the Shares were not Russian funds.470 Referring to the findings of various other tribunals,471 Claimant maintains that there cannot be "any conceivable legal reason for piercing Claimant's corporate veil to say that the actual purchaser was Yukos Oil itself."472
336.
According to Claimant, Respondent's position would be tantamount to saying that "when a State expropriates a company within its territory [...] investment treaties [...] provide no protection to foreign affiliates or subsidiaries of the expropriated company."473 For Claimant, the "flawed logic" behind this proposition, apparently drawing on U.S. GAAP accounting principles, is that "the illegal expropriation of the parent must be said to include the 'deemed expropriation' of all of its foreign subsidiaries and their assets, leaving any surviving subsidiary companies with no right to complain."474 Such a position is "untenable" for finding "no support in investment treaty jurisprudence" and running "directly counter to the express language of the ECT."475

2. Does the ECT Protect Investments of Nationals of a Contracting State in the Territory of, and with Resources from, that Same Contracting State?

(1) Parties' Submissions

(a) Respondent's submissions

337.
Respondent emphasizes that investment treaties such as the ECT, specifically its Part III and V, "are aimed at promoting and protecting solely foreign, not domestic investment".476 Respondent cites Article 2 of the ECT "which describes the ECT's purpose as 'establish[ing] a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits in accordance with the objectives and principles of the [European Energy] Charter'."477 Accordingly, Respondent posits that the international protections of the ECT should not be afforded to an "'Investment' made by a Russian company in its own shares, with Russian resources" finding this "squarely incompatible with the ECT's object and purpose and the intentions of the ECT Contracting States."478
338.
In addition, Respondent argues that, under general international law, "a national is not allowed to bring a claim against its own State" including through companies in which such a national holds a controlling interest.479 Relying on the ICJ's Barcelona Traction case, Respondent also posits that "[c]ustomary international law does not impose any obligations on States and does not accord rights with respect to investments made by their own nationals", that "a State is not guilty of a breach of international law for injuring one of its own nationals" and that it is "free under customary international law to treat investments made by its own citizens, 'as it pleases'."480
339.
Respondent submits that the Tribunal should interpret the ECT taking this rule into account, in accordance with Article 31(3)(c) VCLT as well as Article 26(6) ECT, which does not cover disputes relating to domestic investments and does not allow a national to bring a claim against its own state.481 In support of its position, Respondent cites a number of commentaries.482
340.
Respondent further rejects Claimant's interpretation of the 2006 ILC Draft Articles on Diplomatic Protection, arguing that "[i]nvestments made in an ECT Contracting State by that State's own nationals with domestic capital channeled through offshore conduits are protected neither under the ECT nor under customary international law."483
341.
Respondent cites decisions by investment treaty tribunals rendered with regard to similarly worded clauses in other treaties, including the decisions in Phoenix v. Czech Republic, ST-AD v. Bulgaria, National Gas v. Arab Republic of Egypt, Loewen v. United States, Bayview v. Mexico and Vito Gallo v. Canada.484
342.
For instance, Respondent cites Phoenix v. Czech Republic as involving "a restructuring of a domestic Czech investment", submitting that "[t]he Phoenix tribunal held that 'BITs are not deemed to create a protection for rights involved in purely domestic claims, not involving any significant flow of capital, resources or activity into the host State's economy'."485 Respondent contends that Claimant's acquisition of the Shares "did not involve any flow of foreign capital into or contribution to Respondent's economy and therefore does not qualify as a 'foreign investment'."486
343.
Finally, Respondent dismisses the decisions cited by Claimant as either "clearly distinguishable"487 or not concerning "an investment made by a national of the respondent State in the territory and with resources from the respondent State."488 Respondent cites the award in Venoklim v. Venezuela as further support.489

(b) Claimant's submissions

344.