Mabco v. Kosovo, Decision on Jurisdiction, Dissenting Opinion by Arbitrator August Reinisch, 30 oct. 2020

1.

I am afraid but I am unable to concur with my co-arbitrators’ view that this Tribunal would have jurisdiction over the present dispute.

2.

This is indeed a highly complex story of an attempt to make an investment in the tourism sector of the Kosovo through participating in the privatization of the Grand Hotel Prishtina. However, to consider that it actually amounted to an "investment" made by the Claimant in order to fall under the ratione materiae and ratione personae jurisdiction of an ICSID tribunal would just require too many leaps of faith.

3.

While the story is indeed perplexingly strange and full of factual difficulties, as outlined in the majority’s factual background,¹ it is also a relatively simple contractual dispute concerning a share purchase agreed upon between private parties.

4.

Mr. Behgjet Pacolli, a highly successful businessman and prominent politician of Kosovo and Swiss nationality, together with Mr. Ejupi, the founder and owner of NTSH Eurokoha-Reisen, entered into an agreement with Mr. Zelqif Berisha. Mr. Berisha, the owner and director of UTC/Unio Commerce, had successfully bid for the privatization of Grand Hotel, but was unable to pay the entire purchase price. Mr. Pacolli and Mr. Ejupi agreed to participate in this privatization venture by providing part of the unpaid purchase price to UTC to be then paid to the privatization agency of the Kosovo (KTA/PAK). Under an agreement between the three businessmen, Mr. Pacolli, Mr. Ejupi and Mr. Berisha, apparently orally entered into sometime around April 2006 and put into writing in the so-called Agreement of Good Understanding,² Mr. Pacolli and Mr. Ejupi would participate with a 40% and a 20% share in the hotel project obliging the two to make cash infusions of 4 million and 1 million Euro, respectively, and Mr. Berisha to hand over to the former their shares after a period of two years.

5.

On this obligation Mr. Berisha reneged, triggering a law-suit by Mr. Pacolli before the courts in the Kosovo. While Mr. Pacolli prevailed in these proceedings at first instance,³ he lost on appeal.⁴

6.

Mabco, the Claimant in this arbitration, a Swiss company founded and controlled by Mr. Behgjet Pacolli, appeared neither in the contractual arrangements, nor in the legal proceedings. It was always Mr. Behgjet Pacolli who acted in his own name when trying to obtain the shares contractually⁵ and subsequently in litigation.⁶

7.

Also in lengthy discussions with the PAK concerning the fulfilment of the privatization requirements of Grand Hotel and the eventual withdrawal of the shares, it was Mr. Behgjet Pacolli and/or his brother Mr. Selim Pacolli, representing him, who acted.⁷

8.

The Claimant Mabco comes into play in a letter by a Kosovo lawyer writing to the PAK on 20 June 2012, a few days after the Kosovo-Switzerland Bilateral Investment Treaty (BIT)⁸ entered into force. In this letter, Mabco is referred to as a "working unit" of MABETEX GROUP⁹ and the PAK is informed that "MABETEX group has sustained a serious moral and pecuniary damage and shall never agree with your decision on withdrawal of shares."¹⁰

9.

In the end, it appears that attempts were made to acquire shares in the privatization of the Grand Hotel Prishtina, but so far these attempts have been unsuccessful, not leading to an "investment" in Kosovo, but to a contractual claim against UTC/Unio Commerce.

10.

I believe it is the assessment of these facts where I am unable to follow the majority’s views and not really the legal prerequisites. We seem to concur that in order to be protected under the BIT¹¹ and/or the Kosovo Foreign Investment Law (FIL)¹² an "investment" must have been made and, for an ICSID tribunal to exercise jurisdiction ratione materiae, the dispute must "directly aris[e] out of an investment."¹³ We also agree that in order to fall under the Tribunal’s jurisdiction ratione personae, the Claimant, a company incorporated in Switzerland must have made the investment and not Mr. Pacolli, a dual Swiss and Kosovo national, since his latter nationality would prevent him from bringing an ICSID claim pursuant to Article 25(2)(a) of the ICSID Convention.¹⁴

11.

In my view, the present case fails on jurisdictional grounds for two main reasons, first because no investment has been made and second because any attempts to make an investment were made by a dual Swiss-Kosovo national and not by the Swiss claimant.

12.

This result corresponds to the object and purpose of investment protection, i.e. to protect existing investments against interference by host states, not to support claimants in their contractual disputes with private parties about the fulfilment of their obligations. In essence, this is what the dispute presented by the Claimant is all about, a contractual dispute concerning a share purchase agreed upon between private parties, Mr. Pacolli and Mr. Ejupi, on the one side, and Mr. Berisha, on the other side.¹⁵

13.

This dispute should be distinguished from the dispute regarding the withdrawal of the Grand Hotel shares from UTC by the PAK, which resulted from UTC’s non-fulfilment of the privatization requirements and may be viewed as a dispute between UTC and the host state. It is undoubted that neither Mr. Pacolli nor Mabco ever acquired Grand Hotel shares. Thus, any dispute about the withdrawal exists between the privatization agency, PAK, and the party whose shares have been withdrawn, UTC.

14.

Contrary to the majority’s view, acknowledging that "Claimant is not entirely clear or consistent as to the exact nature of the investment it claims to have acquired in respect of the Grand Hotel shares,"¹⁶ but still finding that "a claim of entitlement to ownership of the shares"¹⁷ constitutes an "investment",¹⁸ I have difficulties in concluding that a contractual entitlement to receive shares constitutes an "investment" within the meaning of Article 1 of the BIT or Article 2 of Kosovo’s Foreign Investment Law 2005¹⁹/2014²⁰,²¹ on the one hand, and in the sense of Article 25 of the ICSID Convention, on the other hand.

15.

We agree that in ICSID arbitration the "investment" criterion, both under the ICSID Convention and the instrument conferring consent to ICSID arbitration, i.e. the BIT or the applicable host state legislation, must be fulfilled. This follows from the well-established, double-barrelled test, as expressed by the ICSID tribunal in CSOB v. Slovak Republic²² and affirmed by many other tribunals.²³

16.

In the present case, this implies that Claimant must have made an "investment" in the sense of Article 25 of the ICSID Convention and either Article 1 of the Kosovo-Switzerland BIT 2011 or Article 2 of Kosovo's Foreign Investment Law 2005/2014.

17.

Article 1(1) Kosovo-Switzerland BIT 2011 provides in relevant part:

"The term 'investment' means every kind of asset established or acquired by an investor of one Contracting Party in the territory of the other Contracting Party that has such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk, including: [...] (b) a company, or shares, parts or any other kind of participation in a company; (c) claims to money or to any performance having an economic value, except claims to money arising solely out of commercial contracts for the sale of goods and services; [...]."²⁴

18.

It thus defines as investment "every kind of asset established or acquired by an investor of one Contracting Party in the territory of the other Contracting Party."²⁵ It does require that an asset must have been "established" or "acquired", it does not include the attempt to acquire an asset. The BIT's definition is thus fairly clear in its aim to protect investments on the basis of "established or acquired" assets.

19.

The text of the BIT is also explicit in not merely containing a broad, asset-based definition of investment. In addition, it incorporates some of the elements developed by ICSID tribunals in the so-called Salini-test,²⁶ such as "the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk."²⁷ Thereby, it makes clear that not every asset listed should qualify as an investment.²⁸ Rather, assets qualify as investment if they are established or acquired as a result of (usually) a capital commitment, held and operated in order to receive returns, with all the uncertainties associated with entrepreneurial risk. In this regard, I agree with the majority that suggested as a test "[...] that a claim to money can qualify as an investment provided that it "entail[s] a 'transfer of resources into the economy of the host state by the claimant entailing the assumption of risk in expectation of a commercial return.'""²⁹ However, I do not agree with the majority's conclusion that "a claim of entitlement to ownership of the shares" could already constitute an "investment."³⁰

20.

Once shares, constituting participation in a company, have been acquired they would constitute an investment under the definition of the BIT. However, to view attempts to acquire shares as claims to performance having an economic value and thus "investments" would extend the notion of investment to any claim to obtain whatever has been contractually stipulated, whether real property, intellectual property rights, shares or other rights, without the characteristics required for an "investment", i.e. acquiring assets used in order to produce gain or profit with the assumption of risk.

21.

As the tribunal in Clorox v. Venezuela³¹ found "under its common meaning, an investment consists of deploying money or other goods in the hope of receiving a benefit," which in its view "basically corresponds to the Latin etymology of the words 'investment’ and 'invest,’ which imply an input (in) and a return (versus, vertere)"³² Also the tribunal in Saba Fakes v. Turkey³³ correctly emphasized "that the criteria of (i) a contribution, (ii) a certain duration, and (iii) an element of risk [...] derive from the ordinary meaning of the word 'investment’, [...], one is required to contribute a certain amount of funds or know-how, one cannot harvest the benefits of such contribution instantaneously, and one runs the risk that no benefits would be reaped at all, as a project might never be completed [...]."³⁴

22.

As noted by the majority,³⁵ Kosovo’s 2005 Foreign Investment Law defines "investment" as "any asset that has (i) been contributed to a Kosovo business organization in return for an ownership interest in that business organization;"³⁶ and continues to define the term "asset", among others, as "any item of value, whether tangible or intangible, and includes, but is not limited to, the following and similar items: a. movable and immovable property, including rights in and to such property such as a mortgage, lien, pledge, lease or servitude; [...] d. claims or rights to money, goods, services, and performance under contract;"³⁷

23.

In a similar way, Kosovo’s 2014 Foreign Investment Law defines "investment" as an "asset owned or otherwise lawfully held [...] for the purpose of conducting lawful commercial activities", it does not define "investment" as assets attempted to be acquired.

24.

Specifically, the definition of "investment" in Article 2 of Kosovo's Foreign Investment Law 2014 provides as follows:

"[...] any asset owned or otherwise lawfully held by a Foreign Person in the Republic of Kosovo for the purpose of conducting lawful commercial activities, including but not limited to: [...]

1.4.3. cash, securities, commercial paper, guarantees, shares of stock or other types of ownership interests in a (sic!) the Republic of Kosovo or foreign business organization; bonds, debentures, other debt instruments;

1.4.4. claims or rights to money, goods, services, and performance under contract;"³⁸

25.

Like the BIT, the Foreign Investment Law does not regard any "asset" as an "investment." Rather, it defines as "investment" "[...] any asset owned or otherwise lawfully held [...] for the purpose of conducting lawful commercial activities."

26.

While I agree that claims to performance under contract sometimes may form assets held for the purpose of conducting lawful commercial activities, this is not the case here since the claim to receive shares could not yet be viewed as commercial activity by which one conducts business.³⁹

27.

Most importantly, the ratione materiae jurisdiction under the ICSID Convention is lacking since the attributes of even a scaled-down Salini test have not been met. Indeed, most ICSID tribunals have limited the original Salini-test, which mentioned next to "contributions, a certain duration of performance of the contract and a participation in the risks of the transaction" "the contribution to the economic development of the host State of the investment as an additional condition."⁴⁰ Today, most ICSID tribunals hold that in fact only "the three objective criteria of (i) a contribution, (ii) a certain duration, and (iii) an element of risk are necessary elements of an investment."⁴¹

28.

I concur with the majority that contribution to the economic development of the host state has fallen out of favour⁴² and that it should not be seen as a separate jurisdictional requirement.⁴³ However, I disagree with the majority's application of the core requirements of the Salini test, which demands that a substantial commitment is made in order to acquire assets which are being used over a certain period of time for entrepreneurial purposes, i.e. aimed at producing profit and return. Whether one would like to emphasise the expectation of regular profit and return or the implicit risk of such use does not seem to be important, but what is important is that the notion of investment implies the acquisition of some assets for economic purposes.⁴⁴

29.

Where only a transfer of money is made, leading to a claim to acquire assets, this in itself does not yet constitute an investment. As long as the contractual claim to ownership to assets has not been fulfilled by the other party, the usual commercial, counterparty risk materialized, but not yet an investment risk as a typical characteristic of an investment.⁴⁵

30.

What is needed for an investment to exist is both a contribution and something created by such contribution, i.e. ownership or control of (at least potentially) wealth-creating assets.⁴⁶

31.

In determining whether there is an "investment" in the sense of Article 25 of the ICSID Convention I agree with those ICSID tribunals that use "a fact-specific and holistic assessment"⁴⁷ and stress that the Salini -elements⁴⁸ should not be characterized "as jurisdictional requirements but merely as typical characteristics of investments under the Convention."⁴⁹

32.

Applying these considerations to the present facts indicates that much remains mysterious about the various money transfers back and forth in April 2006. Still, I understand that one may possibly recognize a contribution in the form of a transfer of 4 million Euro from Mabco (via NTSH Eurokoha-Reisen) to UTC for the purpose of acquiring shares in the Grand Hotel Prishtina. However, even this assumption remains highly problematic.

33.

For the following reasons, I cannot concur with the majority’s assessment of the facts constituting "positive evidence that Mabco made the transfer of funds in connection with the Grand Hotel acquisition."⁵⁰

34.

While the majority criticizes the Respondent offering a possible alternative explanation for the 4 million Euro transfer as "sheer conjecture,"⁵¹ it seems to take at face value the statements of Claimant’s witnesses without any documentary evidence that the payment was indeed made for the privatization of the Grand Hotel. In fact, the majority seems to apply a prima facie test to the question whether an investment existed.⁵²

35.

In my view, a prima facie test is appropriate only when it comes to assessing whether the claims raised are capable of constituting breaches of the applicable BIT or investment law.⁵³ However, when it comes to establishing whether the ratione materiae requirement of an "investment" is fulfilled, the claimant has to prove the facts which are critical for the jurisdiction of a tribunal.⁵⁴

36.

What the record reveals is that on 28 April 2006 (after various unsuccessful attempts) a transfer of 4 million Euro was made from Mabco to NTSH Eurokoha-Reisen. What the record does not reveal is whether this transfer was made for purposes of acquiring the shares in Grand Hotel. For the majority there "are good indications of the purpose for which the transfer was made, and Respondent offers no serious alternative explanation for it."⁵⁵ However, the payment order concerning the initial transfer made by Mabco to NTSH Eurokoha-Reisen did not expressly indicate that it represented Mabco's share for the Grand Hotel. Rather, the order merely noted "Agreement" as payment motive.⁵⁶ Whether the 21 April 2006 payment of Euro 4,011,676.00 from NTSH Eurokoha-Reisen to UTC⁵⁷ can be viewed as "onward transfer"⁵⁸ may create some chronological difficulties. In addition, the absence of documentary evidence requires some conjecture to assume that the money was subsequently transferred from UTC to KTA.⁵⁹ In my view, the majority's assessment that the 4 million Euro transfer from Mabco to NTSH Eurokoha-Reisen was made in "connection with the Grand Hotel acquisition"⁶⁰ is based on Claimant's circumstantial evidence and as such insufficient to establish that a contribution has been made.

37.

Even if one would be willing to view the 4 million Euro transfer from Mabco to UTC in April 2006 as the contribution for acquiring an investment in the Kosovo, the other typical elements of an investment are still missing. The party receiving this "contribution", UTC, failed to comply with its contractual obligation to deliver the shares. Thus, all that occurred was a transfer of money for the purchase of shares. Since the seller of the shares failed to fulfil its part of the deal, the would-be investor, Mabco or Mr. Pacolli, failed to acquire any assets with which it would have been possible to engage in economic activities aimed at producing profit and return over a certain period of time. This sentiment is very well captured by Mr. Pacolli who testified during the hearing that he had received nothing for the 4 million Euro⁶¹ and that on the basis of the agreement with Mr. Berisha of UTC he had intended to start investing in the hotel project.⁶²

38.

Thus, the only typical characteristic of an "investment" that may be recognized in the present facts is a contribution made in order to acquire assets that could be used for the purpose of producing a profit. The other elements, such as a certain duration and an element of risk are missing as a result of the failure to actually acquire an asset in return for the money contribution. Tellingly, the majority’s finding of the element of duration is made conditionally "if" an investment had in fact been made. Similarly, its conclusion that there was risk is premised on the assumption that shares were in fact obtained.⁶³

39.

In my view, a "holistic assessment" of the facts leads to the conclusion that one cannot qualify the Claimant’s activities as an investment under Article 25 ICSID Convention.

40.

The majority’s approach, regarding not only shares, embodying participation in a corporate entity, but also a claim to entitlement to ownership of such shares as "investments" in effect transforms a purchase agreement for the acquisition of assets into an investment.

41.

This would render the distinction between a contractual obligation and an investment largely meaningless and, in my view, impermissibly expands the notion of "investment."

42.

I also have to part ways with the Tribunal’s majority in regard to its conclusion "that, notwithstanding Mr. Pacolli’s having very often used his own name rather than Mabco’s, the investment was in fact Mabco’s."⁶⁴

43.

Rather, the "doubt in the Tribunal’s thinking that he was acting on these occasions in the name of Mabco"⁶⁵ leads me to believe that it would be wrong to disregard all the documentary evidence we have before us and to rely on after-the-fact testimony of Claimant’s witnesses, stating that everyone knew that "when Mr. Pacolli negotiated and signed agreements, he did so on behalf of the relevant entity within the Mabetex group, which in the construction and engineering sector would have been Mabco"⁶⁶ and that such had been common practice in Kosovo.⁶⁷

44.

Therefore, I cannot follow the majority’s determination "that, factually, Mr. Pacolli acted in his dealings with the KTA and the PAK, as well as with UTC and NTSH, in a representative capacity."⁶⁸

45.

In my view, looking at the documentary evidence on record there is not much that would support the assumption that "Mr. Pacolli acted in a representative capacity."

46.

As already outlined above,⁶⁹ in all contemporaneous documents it was Mr. Behgjet Pacolli and not Mabco, who acted in the attempt to participate in the Grand Hotel privatization. Had it really been Mabco that entered into the Agreement of Good Understanding⁷⁰ it seems curious that it was nowhere mentioned and when court proceedings were brought it is strange that Mabco did not appear as plaintiff. Equally, it is surprising that when engaged in protracted communications with the PAK, trying to avert the impending withdrawal of shares, it was always Mr. Behgjet Pacolli and not Mabco who acted.

47.

Given that Mr. Behgjet Pacolli is an experienced businessman one would expect him to be clear in his dealings when he is acting in his own name and when in the name of one of his companies.

48.

To rely on an alleged practice in the Kosovo according to which everyone knew that "when Mr. Pacolli negotiated and signed agreements, he was understood as doing so on behalf of [one of his companies]"⁷¹ cannot suffice to absolve the Claimant of its burden of proof to establish that Mr. Pacolli actually negotiated and acted on its behalf.

49.

We can all speculate about different business practices. It may equally well be that Mr. Pacolli acted in his personal capacity because he was a well-known and successful businessman with whom an agreement was sought to invest in the Grand Hotel privatization, rather than with Mabco, S.A., a Swiss société anonyme with a share capital of 100,000,00 CHF.⁷²

50.

Such speculations cannot overcome Claimant’s failure to establish that Mr. Pacolli’s activities should in fact be attributed to Mabco.

51.

That Mabco enters the scene in June 2012 is less surprising. The entry-into-force of the Kosovo-Switzerland BIT on 13 June 2012 certainly did not go unnoticed in legal circles.

52.

It thus made strategic sense for Mr. Pacolli’s lawyer to refer to Mr. Pacolli as "a legal representative of MABETEX GROUP — working unit MABCO CONSTRUCTION S.A. headquartered in Lugano, Switzerland" and to threaten in regard to the PAK’s decision on the withdrawal of shares "legal steps for the implementation of rights under legal procedures, the latter as provided for in international law, agreement on protection of foreign investments signed by Government of the Republic of Kosovo and Swiss Government."⁷³

53.

However, such re-interpretation of the factual record should be viewed as what it is: an impermissible attempt to overcome the jurisdictional obstacle for Mr. Pacolli, as a Swiss-Kosovo dual national, to have an ICSID tribunal hear his claims. Of course, also this is speculation.

54.

My point is that it is the task of ICSID tribunals to assess whether there is sufficient evidence that the core jurisdictional requirements are fulfilled.⁷⁴ In my view, this is not the case in regard to two crucial ratione materiae and ratione personae requirements.

55.

I would thus have preferred this Tribunal to declare that it lacks jurisdiction over the present dispute.

Mabco v. Kosovo

Documents de l'affaire

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

Dissenting Opinion by Arbitrator August Reinisch

I. Introduction

II. Was There an Investment?

A. The Kosovo-Switzerland BIT

B. The Foreign Investment Law

C. The ICSID Convention

III. Was an Investment Made by the Claimant?

IV. Conclusion

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