Czech Republic v European Media Ventures SA

Hearing date: 6 September 2007

Further written submissions received on: 7 September, 5 and 18 October 2007

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Simon

Introduction

In this claim the Czech Republic applies to set aside an Award on Jurisdiction dated 15 May 2007 pursuant to section 67(1)(a) of the Arbitration Act 1996, on the grounds that the arbitral tribunal lacked substantive jurisdiction. The Award was made in arbitration proceedings between a Luxembourg company, European Media Ventures S.A. ('EMV'), which is the claimant in the arbitration, and the Czech Republic, which is the respondent.

The arbitration was begun by EMV against the Czech Republic under the arbitration provision (Article 8) of a Bilateral Investment Treaty 1 ('the Treaty') between the Czechoslovak Socialist Republic and the Belgian-Luxembourg Economic Union. The full title of the Treaty is, 'Agreement Between the Belgian-Luxembourg Economic Union and the Czechoslovak Socialist Republic Concerning the Reciprocal Promotion and Protection of Investments'. The Treaty was concluded on 24 April 1989; and, in accordance with its terms, came into force on 13 February 1992. From 1 January 1993 the Czech Republic succeeded to the rights and obligations of the Czechoslovak Socialist Republic and became a Contracting Party.

The arbitration is governed by the UNCITRAL Arbitration Rules and the seat of the arbitration is London. The arbitral tribunal comprises Lord Mustill (Chairman), Dr Julian Lew QC, and Professor Christopher Greenwood QC, CMG.

In the arbitration EMV claims for loss and damage against the Czech Republic arising out of the indirect expropriation of its investment in a Czech television station 'TV3'. The facts of the dispute are otherwise largely immaterial to this application.

Although a large amount of learning and authority was deployed at the hearing of the application and subsequently 2, the challenge to the award raises a single and discrete question of law concerning the scope of the Tribunal's jurisdiction under Article 8 of the Treaty.

The terms of the Treaty

The relevant provisions of the Treaty for interpreting the scope of the Tribunal's jurisdiction are:

Article 3

1. Investments made by investors of one of the Contracting Parties in the territory of the other Contracting Party may not be expropriated or subjected to other measures of direct or indirect dispossession, total or partial, having a similar effect, unless such measures are:

(a) taken in accordance with a lawful procedure and are not discriminatory;

(b) accompanied by provisions for the payment of compensation, which shall be paid to the investors in convertible currency and without delay. The amount shall correspond to the real value of the investments on the day before the measures were taken or made public.

…

3. The provisions of paragraphs 1 and 2 are applicable to investors of each Contracting Party, holding any form of participation in any company whatsoever in the territory of the other Contracting Party.

Article 7

1. Any dispute relating to the interpretation or the application of the present Agreement shall be settled, as much as possible, between the Contracting Parties by means of diplomatic channels.

2. Failing settlement by such means, the dispute shall be submitted to a mixed Commission, composed of representatives from the Contracting Parties. This commission shall meet without delay, at the request of one or other of the Contracting Parties.

3. If the dispute cannot be settled in this manner within a period of six months from the date of the start of negotiations, it shall be submitted to an arbitral tribunal, at the request of one of the Contracting Parties.

…

Article 8

1. Disputes between one of the Contracting Parties and an investor of the other Contracting Party concerning compensation due by virtue of Article 3 Paragraphs (1) and (3), shall be the subject of a written notification, accompanied by a detailed memorandum, addressed by the investor to the concerned Contracting Party. To the extent possible, such disputes shall be settled amicably.

2. If the dispute is not resolved within six months from the date of the written notification specified in Paragraph (1), and in the absence of any other form of settlement agreed between the parties to the dispute, it shall be submitted to arbitration before an ad hoc tribunal.

…

The Preamble of the Treaty records that the Contracting States desired, among other things:

… to strengthen their economic cooperation by creating conditions favourable for the making of investments by the investors of one of the Contracting Parties in the territory of the other Contracting Party …

The issue in the case is the extent of the Tribunal's jurisdiction under Art.8(1). This involves the meaning of the words:

[d]isputes between the Contracting Parties and an Investor of the other Contracting Party concerning compensation due by virtue of Art.3 paragraph (1) and (3) of the Treaty'. (emphasis added).

In short summary, the Czech Republic contends that the Tribunal's jurisdiction is limited to disputes as to the amount of compensation to be paid to an investor following expropriation; in other words, it is limited to issues of quantification. EMV contends that the Tribunal is conferred with jurisdiction to make an award of compensation following expropriation; in other words, the jurisdiction extends not simply to the amount of compensation, but to whether compensation should be paid to the investor.

The Tribunal found, in relation to the words of Art.8(1), that the phrase 'concerning compensation' was clearly intended to limit the jurisdiction of a tribunal established under Art.8. 3 Having found that this phrase operated so as to limit the jurisdiction of an arbitral tribunal, it was necessary to identify the proper scope of that limitation. The Tribunal provided its interpretation of that limitation as follows:

It would seem to exclude from that jurisdiction any claim for relief other than compensation (e.g. a claim for restitution or a declaration that a contract was still in force).

The Czech Republic criticises this conclusion as short on reasoning and unsupported by authority. EMV submits that the Tribunal's conclusion was correct and fully justified both on analysis and authority.

The parties' submissions on the issue, in summary

Each side submitted that its interpretation:

i) accorded with the rules on interpretation of treaties contained in the Vienna Convention and customary International law; and

ii) gave effect to the ordinary meaning of the words of Article 8.

The Czech Republic further submitted as follows.

i) The Treaty was signed by the Czechoslovak Socialist Republic in 1989 before the political changes which brought about democratic elections and market reforms. It was the policy of Communist States at the time to agree to arbitration with private investors in relation to disputes as to the amount of compensation following expropriation. The wider agreements to arbitrate with investors, which are now usual in modern Bilateral Investment Treaties ('BITs') were avoided by Communist States as impermissible intrusions on their sovereignty. During sessions of the Belgian Parliament dealing with the incorporation of the Treaty into Belgian law, the policy of the Czechoslovak Socialist Republic was expressly acknowledged on behalf of the Belgian Government; and the fact that it was reflected in the terms of Art.8 of the Treaty was recognised by the Belgian Senate. Following the political changes which led to the ending of Communist power in Czechoslovakia, the Czech Republic adopted consent to arbitration in wide terms: for example, consent regarding 'any disputes arising out of an investment' and 'all investment disputes'. 4

ii) The circumstances in which the Treaty was concluded show an intention to confine the right to arbitrate in Art.8 to disputes about the level of compensation to be awarded.

iii) The terms of Art.7 of the Treaty provide the mechanism for dispute resolution and were intended to apply to the determination of liability in a case of expropriation of the investment. The usual considerations of diplomatic protection would apply to any resort to Art.7 and, for this reason, was more acceptable to the Czechoslovak Socialist Republic at the relevant time. It is unnecessary for liability for an expropriation under Art.3 to be actionable before an arbitral tribunal constituted pursuant to Art.8 in order to give effect to Article 3. First, Art.3 is actionable before an arbitral tribunal constituted pursuant to Article 7. Secondly, since the Treaty has direct effect in the municipal law of the Czech Republic, an investor can challenge the legality of any State expropriation in the municipal courts.

iv) The terms of Art.8(1) of the Treaty confirm the limited scope of the Contracting Parties' consent to arbitration. If the Contracting Parties had intended that an arbitral tribunal constituted under Art.8 should have jurisdiction to determine the liability of a Contracting Party for an expropriation, the words 'compensation due by virtue of' would have been omitted.

EMV submitted in answer.

i) The object of the...