ABOUT TDM
|
CLAIMANT
The Czech Republic
Represented by the Minister of Finance of the Czech Republic, Bohuslav Sobotka
Ministerstvo financi
Letanska 15, 118 10 Prag 1
The Czech Republic
Counsel
1. Attorney Tore Wiwen-Nilsson
Box 4291, 203 14 Malmö
2. Attorney Stefan Brocker
Box 2235, 403 14 Gothenburg
3. Attorney Malin Pålsson
Box 4291, 203 14 Malmö
RESPONDENT
CME Czech Republic B.V.
Hoogoorddreef 9, 1101 BA Amsterdam Zuid-Ost
The Netherlands
Counsel
1. Attorney Hans Bagner
Box 1703, 111 87 Stockholm
2. Attorney Robert Romlöv
Box 11025, 404 21 Gothenburg
3. Attorney Paolo Fohlin
Box 11025, 404 21 Gothenburg
THE MATTER
Appeal of arbitration award
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TABLE OF CONTENTS
Page
JUDGMENT OF THE COURT OF APPEAL
Exclusion of an arbitrator from the deliberations
Failure to take into consideration applicable law
Excess of mandate - joint tortfeasors
Excess of mandate - decision regarding determination of damages
Excess of mandate - previous investors and earlier violations
Exclusion of an arbitrator from the deliberations
Failure to take into consideration applicable law
Excess of Mandate - joint tortfeasors
Excess of mandate- decision concerning determination of thedamages
Excess of mandate- prior investors and previous violations
Exclusion of an arbitrator from the deliberations
Excess of mandate - joint tortfeasors
Excess of mandate - decision concerning determination of the damage*
Excess of mandate - previous investors and prior violations
The judgment of the Court of Appeal may not be appealed
JUDGMENT OF THE COURT OF APPEAL
1. The Court of Appeal denies the Czech Republic's motion that the Court of Appeal declare invalid or, alternatively, set aside the arbitration award issued in Stockholm on September 13, 2001 in the arbitration between CME Czech Republic B.V. and the Czech Republic.
2. The Czech Republic shall compensate CME Czech Republic B.V. for its litigation costs in the amount of thirty-four million kronor (SEK 34,000,000) and interest pursuant to section 6 of the Interest Act (SFS 1975:635) commencing on the date the Court of Appeal's judgment until such time as payment is made.
In August 1992, a Czech company, Central European Television (hereinafter "CET 21") applied to the Czech Council for Radio and Television Broadcasts (hereinafter the "Media Council") for a broadcasting license (hereinafter the "license") in accordance with the Czech Media Act. The application was seconded by Central European Development Corporation GmbH (hereinafter "CEDC"), which is a German company and ultimately controlled by a US citizen, Ronald S. Lauder. During the application process for the license, CET 21 was represented principally by the Czech citizen, Dr. Vladimir Železný.
On February 9, 1993, the Media Council formally issued a license to CET 21. The license was subject to certain conditions. According to the Media Act, the license could not be assigned.
A model for the business, which included the formatio n of a new Czech company, Ceská nezavista televizni spolecnost, spol.s.r.o. (hereinafter “ČNTS”) was developed to run TV Nova. In addition to CEDC, a Czech savings bank would finance the new company. In order to form ČNTS, CET 21, CEDC, and the Czech sa vings bank entered into a Memorandum of Association and Investment Agreement, dated May 4, 1993 (hereinafter the "1993 MOA"). According to the 1993 MOA, inter alia , CET 21 would contribute to ČNTS, as payment for the shares in ČNTS which the company was to acquire, "unconditionally, unequivocally, and on an exclusive basis" the right to use, exploit, and maintain the license. The occurrences referred to as the 1993 events pertain to the Media Council's alleged refusal to accept CEDC as a foreign shareholder of CET 21 (the holder of the license), and the Media Council's requirement that a structure would be created in which CEDC was to participate in CET 21 by holding shares in ČNTS. This is described in the relevant arbitration award as the “split structure”.
CME Media Enterprise B.V. (hereinafter “CME Media”), a Dutch company which was also ultimately controlled by Lauder, acquired CEDC's shareholdings in ČNTS in August 199 4.
By virtue of an amendment to the Media Act, which entered into force on 1 January, 1996 and resulted in the repeal of many of the conditions which were associated with the license, CET 21 applied to the Media Council in January 1996 for the revocation of certain conditions. CET 21's application was granted and the conditions were repealed.
In 1996, the MOA was amended pursuant to which CET 21's contribution to ČNTS, “the use of the License”, was replaced with “the use of the know-how of the License”. A provision was also to be incorporated in the 1993 MOA which would thwart any other party (with the exception of CET 21) from using the license (hereinafter the 1 9 96 MOA). CET 21 and ČNTS entered into a service agreement dated May 21, 1997 (hereinafter the “service agreement”) which governed CET 21's responsibility for programming and ČNTS' rights and obligations, as an exclusive service company, regarding the ope ration of TV Nova.
The occurrences referred to as the 1996 events pertain to the coercion exercised by the Media Council on ČNTS to relinquish its exclusive right of use to the license pursuant to the 1993 MOA in order, instead, to obtain an exclusive right to the use of the know-how of the license in accordance with the 1996 MOA and to consent to the other amendments to the agreements with CET 21; the coercion consisted primarily of an administrative law procedure commenced by the Media Council against ČN TS for broadcasting without a license.
In 1996 and 1997, CME Media purchased shares in ČNTS and increased its stake in ČNTS to 93.2 per cent. In May 1997, CME Media transferred its interest in ČNTS to the wholly-owned subsidiary, CME Czech Republic B.V. (hereinafter “CME”), also a Dutch company, in accordance with the Agreement on Transfer of Participation Interest (hereinafter the “transfer agreement”). Later that year, CME increased its interest in ČNTS to 99 per cent.
On March 2, 1999, the Media Cou ncil held a meeting with Železný, as representative of CET 21. On March 3, 1999, CET 21 sent a letter to the Media Council as a consequence of the discussions conducted at the meeting. On March 15, 1999, the Media Council responded in a letter to CET 21 and TV Nova. On April 19, 1999, CME dismissed Železný as Managing Director of ČNTS. However, Železný remained as the Managing Director of CET 21. CET 21 terminated its service agreement with ČNTS on August 5, 1999 on the grounds that ČNTS had failed to d eliver a daily report of broadcasts, which allegedly constituted a material breach of contract. CET 21 also ceased using the ČNTS' services.
The 1999 events pertain to the alleged actions and omissions undertaken by the Media Council in 1999, inter alia, by the issuance of the letter of March 15, 1999 and the failure to retract said letter.
On February 22, 2000, CME demanded arbitration (hereinafter the "Stockholm proceedings") against the Czech Republic (hereinafter the "Republic") in accordance with the bilateral investment protection treaty between the Netherlands and the Republic (Agreement on Encouragement and Reciprocal of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic), dated April 29, 1991 (hereinafter the "Treaty"). CME commenced the proceedings on the basis of alleged violations of the Treaty by means of the 1993, 1996, and 1999 events.
On July 21, 2000, an arbitral tribunal was composed pursuant to the Treaty by the two arbitrators appointed by the parties, Judge Stephen M. Schwebel (appointed by CME) and Juris Doctor Jaroslav Hándl (appointed by the Republic), appointing Dr. Wolfgang Kühn as the Chairman (hereinafter the "Stockholm Tribunal").
In November 2000, the parties in the Stockholm proceedings agreed that the proceedings would be bifurcated. One of the disputed issues in the matter was the determination of which issues would be examined by the Stockholm Tribunal in the first and second phases respectively. In any case, however, the issue of whether the Republic had violated the Treaty and was per se liable for damages would be examined during the first phase of the proceedings while, in any case, the issue as to the amount of damages would be examined in the second phase of the proceedings.
Between April 23 and May 2, 2001, the final hearing was conducted in Stockholm. The Stockholm Tribunal thereafter convened in Düsseldorf for deliberations in the beginning of June 2001. The meeting was preceded by certain correspondence between the arbitrators. The correspondence continued after the Düsseldorf meeting up to the issuance of the arbitration award in the case in Stockholm on September 13, 2001 (hereinafter the "Stockholm award").
The majority of the Stockholm Tribunal found that the Republic had violated the Treaty through actions and omissions relating to the Media Council in 1996 and 1999, but not in 1993. In its decision, the Tribunal stated that the Republic was liable to redress the injury incurred by CME as a consequence of the Republic's violation of the Treaty by paying the fair market value of CME's investment as such was prior to the violation by the Republic of the Treaty in 1999, in an amount to be determined by the Stockholm Tribunal during the second phase. In the second phase of the Stockholm proceedings, the award was issued on March 14, 2003 in which the amount of damages was determined.
The Stockholm award was signed by only two of the three arbitrators, Kühn and Schwebel. The dissenting arbitrator, Hándl, issued a dissenting opinion dated September 11, 2001 which was appended to the Stockholm award. Hándl resigned his appointment as arbitrator on September 19, 2001.
On September 3, 2001, an arbitration award was issued in London between Lauder and the Republic (hereinafter the "London award"). Lauder initiated the arbitration (hereinafter the "London proceedings") against the Republic on August 19, 1999 pursuant to the bilateral investment protection treaty applicable between the US and the Republic (Treaty Between the United States of America and the Czech and Slovak Federal Republic Concerning the Reciprocal Encouragement and Protection of Investment), prepared on October 22, 1991 (hereinafter the "American Investment Protection Treaty").
Lauded commenced the London proceedings claiming that the Republic had violated the American Investment Protection Treaty. The alleged violation of the American Investment Protection Treaty consisted of the same actions and omissions by the Media Council which CME asserted in the Stockholm proceedings. The arbitral tribunal in the London proceedings (hereinafter the "London Tribunal") unanimously agreed that only the 1993 events constituted a violation of the American Investment Protection Treaty, but that such violation did not, however, give rise to any liability of the Republic for damages. The London Tribunal dismissed Lauder's claim for damages.
Both the Stockholm proceedings and London proceedings applied the arbitration rules promulgated by the United Nations Commission on International Trade Law (hereinafter the "UNCITRAL rules").
Pursuant to Article 9 of the Treaty, the Republic demanded, in the autumn of 2001, consultations with the Netherlands regarding the interpretation and application of the Treaty. In this context, "Agreed Minutes" were prepared from which it is evident that the parties reached a common position regarding certain issues, inter alia, the applicable interpretation of Article 8.6 of the Treaty and the assignment of claims which took place in accordance with the Treaty.
The Republic has moved that the Court of Appeal declare invalid the Stockholm award in accordance with section 33 of the Arbitration Act (SFS 1999:116) or, alternatively, that the Court of Appeal set aside the Stockholm award pursuant to section 34 of said Act.
CME contests the Republic's motions.
The parties have claimed compensation for their litigation costs.
1. The Stockholm award and the manner by which it was rendered are obviously incompatible with the basic principles of the Swedish legal system. In addition, two of the arbitrators, who comprised the majority of the Stockholm Tribunal, exceeded the mandate of the Stockholm Tribunal and committed procedural errors as set forth below. Each of the grounds pertaining to the exclusion of an arbitrator from the deliberations and the Stockholm Tribunal's lack of jurisdiction as a consequence of lis pendens and res judicata, as well as the various grounds invoked by the Republic collectively, constitute such serious errors that they are covered by section 33 of the Arbitration Act.
1.1 The majority of the Stockholm Tribunal excluded one of the arbitrators, Hándl, from crucial parts of the deliberations of the Stockholm Tribunal.
1.2 The Stockholm Tribunal failed to apply the law which the Stockholm Tribunal was obligated to apply pursuant to the Treaty, i.e. Czech law and general principles of international law.
1.3 The Stockholm Tribunal lacked jurisdiction to examine the case per se due to lis pendens and res judicata since: (i) the London proceedings were commenced prior to the Stockholm proceedings; (ii) the Stockholm proceedings involved the same claims, grounds, and damage, and the same investments and factual circumstances in general, and violations of essentially the same treaty obligations as the London proceedings; (iii) the defendants in the Stockholm proceedings and London proceedings were identical and, in practice, the petitioners were the same; and (iv) the London award was issued prior to the Stockholm award. The conflicting outcome of the Stockholm award is unacceptable from a legal standpoint. The existence and content of the parallel proceedings were invoked by the Republic as grounds for dismissal. The Stockholm Tribunal was fully aware of the pending London proceedings. Before the Stockholm award was issued, the Stockholm Tribunal also knew that the arbitration award had been issued in the London proceedings, and the outcome thereof.
1.4 The Stockholm Tribunal based the Stockholm award on the existence of "joint tortfeasors", a ground not invoked by CME in the Stockholm proceedings and which had not been referred to as a fact. Nor had it been the subject of legal argument by any of the parties.
1.5 In violation of the instructions given by the parties, the Stockholm Tribunal examined issues concerning the amount of damages.
Should the Court of Appeal set aside the Stockholm award only with respect to the excess of mandate pertaining to the determination of damages, paragraph 624 (2) of the Stockholm award is to be worded as follows: "The Claimant is entitled to damages to be determined at a second phase of this arbitration."
1.6 The Stockholm Tribunal exceeded its mandate when it applied the Treaty to the alleged violations which occurred during a time the investment was held by an investor other than CME.
2. The Republic was not the cause of any of the errors referred to in section 1 above.
3. Collectively or individually, the errors asserted in section 1 above have, or at least likely have, affected the outcome of the Stockholm proceedings.
In addition, the Republic has contested the assertion that any of the grounds of appeal are barred or that the Republic may be deemed to have waived objections in any respect as asserted by CME.
1. CME denies that the Stockholm award and the manner by which it was rendered are obviously incompatible with the basic principles of the Swedish legal system. In addition, it denies that both arbitrators who constituted the majority of the Stockholm Tribunal exceeded the mandate of the Stockholm Tribunal and committed the errors asserted by the Republic.
1.1 The types of errors asserted in section 1.1 do not constitute grounds for invalidation pursuant to section 33 of the Arbitration Act but, rather, should be evaluated in accordance with section 34 of said Act. CME denies that Hándl was excluded crucial parts of the determinations of the Stockholm Tribunal. Hándl was afforded the opportunity to participate at all stages of the deliberations and he was also afforded sufficient time in which to assert his views on all disputed issues. In any case, the alleged error has not affected the outcome of the case.
1.2 The Stockholm Tribunal did not exceed its mandate in the manner asserted by the Republic in section 1.2, and did not act as amiable compositeur. Rather, the Stockholm Tribunal resolved the dispute on the basis of law. Nor was any procedural error committed in this respect which likely affected the outcome of the Stockholm proceedings. The failure to apply Czech legal rules which were not invoked in the Stockholm proceedings cannot constitute an excess of mandate or procedural error.
The interpretation of the choice of law provision in Article 8.6 of the Treaty fell within the purview of the Stockholm Tribunal's mandate and, in the event the Stockholm Tribunal committed an error in the interpretation of the Treaty, such constitutes only a substantive error and does not form a basis of appeal. In any case, the Stockholm Tribunal interpreted the choice of law provision correctly and applied the Treaty and international law, and took into consideration Czech law when the Tribunal examined the issue of whether the Republic had violated the Treaty. Furthermore, the Republic's assertions regarding Czech law are incorrect, and the outcome of the Stockholm proceedings would not have been different had additional Czech legal rules been applied or considered.
In any case, the Republic has caused the alleged errors or, alternatively, the Republic may be deemed to have waived the right to assert the alleged errors. Accordingly, this ground for appeal is barred.
1.3 The type of error asserted by the Republic in section 1.3 does not constitute a ground for invalidating pursuant to section 33 of the Arbitration Act but, rather, is to be assessed only in accordance with section 34 of the said Act. In the event the Republic's claim in this respect is also to be interpreted as an appeal, the basis of appeal invoked is barred since the Republic expressly waived objection to, and denied the existence of, lis pendens and res judicata in the Stockholm proceedings.
Even if the Republic's claim is examined in accordance with section 34 of the Arbitration Act, and even if its basis of appeal may not be deemed to be barred, the claim cannot be granted. The Stockholm Tribunal has, namely, the jurisdiction to examine the matter on its merits since the principles of res judicata and lis pendens are not applicable to this type of international dispute. Even if they were deemed to be applicable, they have not constituted an impediment to examination of the dispute since: (i) Lauder and CME are not the same party; (ii) Lauder and CME invoked different substantive agreements in support of their respective claims; and (iii) the issues disputed in the Stockholm proceedings were not covered by the arbitration agreement applicable in the London proceedings.
1.4 The Stockholm Tribunal examined only issues falling within its mandate and based its decision only on the facts which had been invoked by the parties. The Stockholm award was not based on any type of liability principle pertaining to joint tortfeasors or on any principle regarding joint and several liability for coordinated effort towards a common goal but, rather, on the fact that the Republic, via the Media Council, violated the Treaty and that the Republic was thereby deemed to have caused CME injury. The Stockholm Tribunal referred to joint tortfeasors only as a case of contributory causes when the Stockholm Tribunal decided the issue of causality, including the issue of whether the injury was a foreseeable consequence of the actions of the Media Council. The causality issue fell within the mandate of the Tribunal and, furthermore, pertained to a substantive issue which may not be reviewed by means of appeal. The fact that the Stockholm Tribunal referred to joint tortfeasors had no effect on the outcome of the Stockholm proceedings.
In any case, the Republic may be deemed to have stipulated to the examination of the issue. At any rate, the Republic may be deemed to have waived its right to assert the alleged excess of mandate. Accordingly, the basis of appeal is barred.
1.5 The Stockholm Tribunal did not exceed its mandate when the Tribunal determined that the Republic was liable to pay damages equal to the fair market value of CMS's investment.
It was within the mandate of the Tribunal to examine this issue since (i) the examination of the issue was covered by the agreement entered into in November 2000 regarding bifurcation of the Stockholm proceedings; (ii) the examination of the question was, in any case, covered by the final claim made by CME in writing during the final hearing.
By challenging the claim under (ii) and its failure to object, the Republic, in any case in conjunction with the final hearing, is deemed to have stipulated to the examination of the issue. At any rate, the Republic may thereby be deemed to have refrained from asserting that an examination of the issue is tantamount to an excess by the arbitrators of their mandate. The ground for appeal is thereby barred.
In the event the Court of Appeal finds that the Stockholm Tribunal exceeded its mandate by determining that the Republic was liable to pay damages equal to the fair market value of the investment, the Stockholm award is to be set aside in part. Paragraph 624 (2) of the Stockholm award must, in such case, be worded as follows: "The Respondent is obligated to remedy the injury that Claimant suffered as a result of the Respondent's violation of the Treaty".
1.6 The arbitration agreement covered an examination of violations of the Treaty which allegedly took place both prior to and after CME's acquisition of the investment in May 1997. On this basis alone, the arbitrators had jurisdiction to examine the issue of violations committed prior to 1997. In any case, the arbitrators had jurisdiction to examine the issue regarding previous violations in that the issue was incorporated in the Stockholm proceedings without any assertion by any of the parties that the issue was not covered by the proceedings.
In any case, the Republic forfeited the right to assert that the issue was not covered by the arbitration agreement or that an examination of the issue would exceed the mandate of the arbitrators since the Republic did not, in its Statement of Defence, assert any objection, which the Republic was obligated to do pursuant to Article 8.5 of the Treaty and Article 21 (3) of the UNCITRAL rules and because the Republic, during the final hearing, expressly waived the right to assert that the issue was not covered by the arbitration agreement or the mandate of the arbitrators.
In any case, the ground for appeal was barred by section 34, second paragraph of the Arbitration Act since the Republic, at any rate, may be deemed to have refrained from asserting that the issue was not covered by the arbitration agreement or that the examination of the issue exceeded the mandate of the arbitrators since the Republic participated in the proceedings without objection.
The examination of the question whether CME's investment was protected with respect to violations committed prior to CME's acquisition of the investment constituted an examination on the merits, and the determination by the arbitrators of the issue thus constituted a substantive assessment. Even if the Stockholm Tribunal made an erroneous assessment in this context, which they did not, such does not constitute a ground for appeal.
Exclusion of an arbitrator from the deliberations
Following the final hearing in the Stockholm proceedings, Kühn sent to Hándl and Schwebel a list of questions by fax dated May 14, 2001. The fax states, inter alia, that the list of questions was completed on May 9 but the fax was not sent before May 14. Several items in the list addressed the significance of Czech law, inter alia, in sections III, IV, and VI. On May 15, 2001, that is the day after it was sent, Schwebel replied to the list of questions. The reply was arranged in accordance with Kühn's arrangement in the list of questions and, in the reply, Schwebel discussed, inter alia, the import of Czech law. It is also apparent from the reply that Schwebel received a letter from Kühn on May 11. Hándl never received the letter and the Republic has no information regarding the contents of the letter. On May 23, 2001, Hándl replied to the list of questions. It is apparent from the answer, inter alia, that he contributed views on Czech law and the implication of Czech law with respect to certain issues. In certain respects, Hándl reached the same conclusions as the London Tribunal.
On May 24, 2001, Schwebel sent a fax which stated, inter alia, that Kühn requested that he submit comments to arguments which had been asserted by the Republic's counsel, Professor Lowe, in the Stockholm proceedings. At no time did Kühn request that Hándl comment on Professor Lowe's argument. On May 25, 2001, another fax was sent from Kühn to Hándl and Schwebel, and from Hándl to Kühn.
Hándl was present at the meeting in Düsseldorf. However, the meeting lasted only one day, on June 1, 2001. At the meeting, a document was handed out to which Hándl had not had prior access. This document was a memorandum from Schwebel regarding Hándl's comments pertaining to the investment protection according to the Treaty, an expanded list of questions from Kühn, and comments from Kühn to Hándl's reply to the list of questions. It is apparent from the expanded list of questions that it was completed on May 28. It is apparent from the document containing Kühn's comments to Hándl's responses that it was completed on May 25. Notwithstanding the aforementioned, the documents were not distributed prior to June 1. Furthermore, it is apparent from Kühn's comments to Hándl's reply that Czech law was discussed, but the reasoning was not reiterated during the deliberations or in the Award. A comparable document in which Kühn commented on Schwebel's reply to the list of questions does not exist. Hándl was not afforded any opportunity to study these documents before they were taken up for discussion at the meeting, which was a clear disadvantage for him. Conducting the deliberations during the period of one day was altogether too little time for such a complex case as was to be determined by the arbitrators. At the meeting, Kühn and Schwebel ignored all of Hándl's comments without any discussion or specific explanation.
It is apparent, inter alia, from Hándl's notes of June 6, 2001 that many questions were left open at the meeting in Düsseldorf. In addition, it is apparent that Kühn and Schwebel referred, as regards the issue of damages, to certain issues in connection therewith which should be determined during the second phase of the proceedings. Some of the issues raised by Kühn in his list of questions are not addressed by Hándl in his notes from memory and there are no notes which indicate that the deliberations were concluded at the Düsseldorf meeting. Purely factually, the deliberations were not concluded at that time. It is apparent from the notes that the arbitrators agreed at the meeting that Kühn would prepare a first complete draft of the arbitration award which was to be sent both to Schwebel and Hándl for their review and comments. The draft was to be sent to them on July 15, 2001.
On June 7, 2001, Schwebel sent a fax to Kühn which indicates that Kühn requested that Schwebel conduct an analysis of the assignment of liability upon the transfer of shares. The fax reveals that the deliberations were ongoing. On June 20, 2001, Hándl sent a fax in which he presented his views regarding certain documents and stated that he would be back in Prague on July 25, 2001. Hándl also appended a supplement to his views during the meeting in Düsseldorf. On July 10, 2001, Schwebel sent a fax to which he appended a memorandum regarding the manner in which American law regulated the assignment of rights in conjunction with share transfers. It is apparent from the fax that it was Kühn who requested that he do so.
On July 30, 2001, Kühn sent a 175-page draft award to Schwebel and Hándl (hereinafter the "First Draft"). Kühn requested that Schwebel and Hándl review and comment on the content as soon as possible. It is not clear from the documents appended to the fax whether the deliberations had been concluded. It may be gleaned from the pages covering the award which were appended to the fax that the draft award was completed by July 25.
As early as August 2, 2001, Schwebel notified Kühn and Hándl that he would send his comments to the First Draft during the afternoon of the same day. Schwebel sent his comments to Kühn, but not to Hándl. Most of Schwebel's comments were linguistic in nature, but he also had substantive comments. At no time did Hándl receive Schwebel's comments and, accordingly, he did not have the possibility to express a view thereon. Schwebel also wrote that he wanted the arbitration award to be signed prior to August 17, 2001.
During the evening of August 3, 2001, Kühn's secretary sent a fax to Hándl and asked whether he wished to receive the communication between Kühn and Schwebel as well as a fax to Schwebel in which reference was made to interim draft award which Hándl never received. The fax is dated August 2, 2001. On August 6, 2001, Hándl requested that Kühn grant him at least 14 work days to submit his comments regarding the First Draft. Hándl stated, inter alia, that he intended to criticize the award in certain respects and that the suggestion that the award be signed on August 17 must be regarded as an attempt to outmaneuver him. He also stated that he wanted to receive the communication which had been exchanged between Kühn and Schwebel.
On August 7, 2001, Kühn demanded that Hándl immediately submit his comments to the First Draft and that such comments consist of proposals for amendments and corrections of facts and spellings. Kúhn also stated in the fax that a majority had been formed at the meeting in Düsseldorf. Furthermore Kühn stated, inter alia, that he had worked out a proposal with linguistic assistance from Schwebel and that the changes Schwebel had proposed were only linguistic. On the same day, Kühn sent a "final draft" of the award (hereinafter the "Second Draft"). On August 8, 2001, Schwebel sent a fax in which he indicated, inter alia, the types of comments which Hándl was to provide in respect of the draft award, and stated that Hándl could write a dissenting opinion and that "the substance of the opinion" was clear at the meeting in Düsseldorf.
On August 8, 2001, Kühn sent a fax to Hándl and asked whether he wanted to have Schwebel's handwritten comments. On August 9, 2001, Hándl reacted to Kühn's and Schwebel's letters of August 7 and 8, 2001 and stated, inter alia, that he did not regard the deliberations as concluded and that he had not understood that he would be held responsible if the award was delayed. Hándl also stated that he would limit his comments in order to avoid being accused of delaying the award. The correspondence of August 7 and 8, 2001 between the arbitrators with respect to the Second Draft reveals, inter alia, that Kühn and Schwebel did not wish to conduct further discussions with Hándl, that they were of the opinion that the deliberations had been concluded in Düsseldorf, and that they were not interested in Hándl's opinions.
Hándl submitted his comments on August 16, 2001, i.e. 13 days after he received the First Draft, which was less time than he had requested. Since he only had a limited time in which to review and ponder the draft award, he did not have the possibility to submit his views on all issues raised. Hándl sent his comments regarding the First Draft by fax both to Kühn and Schwebel. In his comments, Hándl r aised the issue of Železný's role and stated that it was Zelexný who caused the injury and that the Media Council was not liable for the injury, and the Republic could only be imputed proportional liability in the event the Republic was found liable. In addition, Hándl addressed the issue of Czech law regarding the assignment of rights, the 1993 and 1996 MOAs, the administrative law proceedings, and coercion. It is also apparent from his comments that, on many points, he applied the same reasoning as the London Tribunal, inter alia, with respect to the Media Council's letter of March 15, 1999. It further appears that Hándl was not of the opinion that the deliberations had been concluded at the meeting in Düsseldorf.
Kúhn did not respond to Hándl's comments prior to August 29, 2001, nearly two weeks later. Kühn dismissed all of Hándl's views and, the same day, sent another "final draft" of the award (hereinafter the "Third Draft"). A copy for signature was to be sent several days later. It may be gleaned from Kühn's response that it was completed on August 21. During the time which transpired between August 16 up to and including the time at which the response was sent on August 29, some discussions must have taken place between Kühn and Schwebel regarding the manner in which they were going to proceed.
On Saturday, September 1, 2001, Kühn sent a fax to Hándl dated August 31, 2001. Appended thereto was an additional "final draft" (hereinafter the "Fourth Draft") to the award and separate signature pages dated August 31, 2001, which were already signed by Kühn. The Draft and signature pages were also sent by courier to Hándl. As of a consequence of the Fourth Draft, Hándl was definitively denied any possibility to comment on the Third Draft on time. Nonetheless, the award was amended following such date. Hándl responded and confirmed receipt on September 3, 2001. On that day, the London Tribunal issued the London award in which all claims against the Republic were denied. The award was widely disseminated and became known to Kühn. On September 4, 2001, Kühn requested that Hándl send the signature pages directly to Schwebel and noted that further amendments were to be made to the award. On the same day, Hándl received another 33 pages with corrections to the award from Schwebel.
On September 5, 2001, Hándl stated that he would not sign an award to which the signature pages in the original were not appended and returned the signature pages to Kühn. Hándl also pointed out, inter alia, that the award could not be dated before it was signed by all of the arbitrators. It was Hándl's opinion that the arbitration award was to be dated at the time it was signed by the last arbitrator, particularly since the award was still subject to amendments.
On Friday, September 7, 2001, Kühn sent to Hándl six complete and undated copies of the award (hereinafter the "Fifth Draft") for signature which Hándl, as a consequence of the interceding weekend, received on Monday, September 10, 2001. Kühn requested that Hándl sign and send to Schwebel all copies of the award for his signature. Hándl informed Kühn on the same day that he did not intend to sign the award. On September 11, 2001, Hándl sent his dissenting opinion to Kúhn and Schwebel in which he explained why he would not sign the award.
On September 11, 2001, Hándl sent the award to Schwebel for signature. This was the same day in which the United State was attacked and it was impossible to send anything to the US by air on that or subsequent days. On the same day, Hándl stated in a fax to Kúhn that he was entitled not to sign the award and that he would append a dissenting opinion. On that day Kühn expressed his views regarding the deliberation process. At this stage Kühn wrote "for the record". Notwithstanding the difficulties in communications with the US, the Stockholm award was sent to the parties on September 14, 2001, signed both by Kühn and Schwebel, and dated September 13, 2001.
On September 23, Hándl gave notice of his resignation as arbitrator and appended to the parties and other arbitrators what he had told the Republic's Minister of Finance regarding the reasons for his resignation. The stated reasons were, inter alia, that the other two arbitrators, particularly Kühn, had excluded him and deliberated without him.
The First Draft was a far cry from a complete draft of the Stockholm award. After the First Draft had been sent to Hándl and Schwebel, a number of amendments and supplements were made which were crucial for the outcome of the case and which incorporated new legal arguments. Hándl received no information from Kühn or Schwebel as to why these new paragraphs were incorporated in the draft or on whose initiative or request this took place. Hándl was not allowed to participate in any discussions regarding these new paragraphs, and Hándl was under the impression that the two other arbitrators were involved in the amendments made to the draft of the Stockholm award in August 2001. Hándl only had five days to review the 175-page First Draft prior to the commencement of the distribution of the next, and many subsequent drafts, all of which were designated "final draft", and had no opportunity to submit his views on a draft before the distribution of the subsequent draft. In addition, Hándl neither expected nor could expect that entirely new sections which contained substantive legal issues would be incorporated in a "final draft" without any prior discussion. At some point, probably commencing June 2001 and onwards, the two arbitrators ceased to include Hándl in their continued discussions. No internal arrangement of work in the Stockholm proceedings could be agreed upon.
In the First Draft of the award, the issue of causality was addressed, and it appears from the draft that the Tribunal concluded that the Republic had caused the injury. This is set forth, inter alia, in paragraphs 427, 520, and 590.
The Second Draft contained both amendments which were marked and amendments which were unmarked. This is apparent, inter alia, in paragraphs 11, 13, 26, 401, 408, 424, 427, 469, 533, 551, 584, and 586. The amendments were not only linguistic in nature. In the marked paragraphs, 598-604, substantial amendments and supplements were made to the reasons for the award regarding expropriation.
The Third Draft also contained amendments which were not marked. There was also marked text which did not have amendments, e.g. paragraph 393. The work of reviewing the draft was thereby rendered more difficult. Important amendments were also incorporated in paragraphs 580-585, which was a section regarding joint tortfeasors. These paragraphs were entirely new and were based upon commentary to the draft Articles on State Responsibility which were adopted by the United Nations International Law Commission (hereinafter the "ILC") during its summer meeting which was held between July 2 and August 10, 2001. The term "tortfeasors" was used for the first time. Paragraph 581 reproduced a citation referring to national law which was derived from the commentary to Article 31. Paragraph 582 characterized the Media Council's actions as a "tort". In the second, erroneously numbered paragraph 581, reference is made to the sections which do not address the case to be adjudicated by the arbitrators. It appears that the Tribunal incorporated parts of citations from various parts of the commentary in the award and "rearranged" them. In the second, erroneously numbered paragraph 582, the Tribunal discussed causality and proximity issues.
Article 31 of the draft Articles on State Responsibility addresses Reparation. In footnote 500, under paragraph 12 in the ILC commentary to Article 31, there is a paragraph which was cited in the award, with the exception that the award uses "international law" in lieu of "national law". The Tribunal also used in the erroneously numbered paragraph 581 a citation from the commentary to Article 31 and incorporated a case therefrom in the Third Draft. Article 31, however, addresses a state's liability vis-à-vis other states, not vis-à-vis private legal subjects. Paragraphs 580-585 were added to that part of the award which addresses causality, which is not addressed in Article 31. Article 47 addresses situations in which there are several contributing states.
The term, joint tortfeasor, which does not exist in international law, was of determinative significance for the position of the majority that the Republic was liable for damages pursuant to the Treaty. The majority also based its decision regarding which principles were to be applied for the determination of the amount of damages on this term. Only in the Third Draft did Hándl discover this issue. The ILC commentary was not available prior to the latter part of August 2001. Hándl was not sent a copy of the ILC commentary by Kühn or Schwebel. The Fourth Draft was sent to Hándl only two days after he had received the Third Draft. Hándl was not afforded any opportunity to review and express an opinion regarding the term "joint tortfeasor", and the references to the ILC commentary in the Stockholm award before Kühn demanded that he sign the award.
Paragraphs 613-616 of the Third Draft were also new and addressed the Reparation claim. The term, fair market value, was raised for the first time in paragraph 616. Amendments were also made to paragraph 617, which was reflected in paragraph 620. Neither compensation in general nor particular principles for the determination of the compensation had been addressed by the Stockholm Tribunal prior to the Third Draft. Nor, in this case either, was Hándl afforded the opportunity to submit his comments before he was requested to sign the arbitration award. Nor was Hándl afforded, at this late stage, any opportunity to attempt to prevent the majority of the Stockholm Tribunal from exceeding the parties' agreement to separate the liability issue from the determination of damages.
Kühn and Schwebel had discussed and added the section regarding joint tortfeasors, damages, and the ILC commentary without affording Hándl the opportunity to participate in this work.
In the Fourth and Fifth Drafts, similar amendments were made. In addition, there are two final versions of the award in which the paragraphs are numbered differently. The work of finalizing the arbitration award thus continued even after the Third Draft had been distributed.
The fact that Hándl stated in his dissenting opinion that he had notified Kühn and Schwebel of his views cannot be regarded as though Hándl participated in the discussion concerning the joint tortfeasors since this term, as well as the paragraphs regarding damages and the ILC commentary, were not known prior to the Third Draft on August 29, 2001. Nor can the text on page 20 of the dissenting opinion concerning "tortfeasor" be regarded as a confirmation that Hándl had discussed the issue with the two other arbitrators. It is at this juncture that Hándl first expresses his views regarding "tortfeasors".
Hándl did not attempt to intentionally delay the rendering of the Stockholm award. It appears obvious, however, that the majority of the Stockholm Tribunal wanted to deliver the Stockholm award effective as of August 31, 2001 notwithstanding that they were not ready to deliver it until later. There is no other explanation for pre-dating. The reason for this must have been that the majority was concerned that the London award would entail res judicata in relation to the Stockholm award. The final hearing in the London proceedings commenced seven weeks prior to the final hearing in the Stockholm proceedings, March 5, 2001 compared with April 23, 2001. The London Tribunal conducted deliberations in the case from the conclusion of the final hearing on March 13, 2001 until the issuance of the London award on September 3, 2001.
Failure to take into consideration applicable law
The conclusions reached by the Stockholm Tribunal in the Stockholm award raised a number of questions which, pursuant to the choice of law provisions in Article 8.6 of the Treaty, were to be determined by application of Czech law. These issues concerned, inter alia, the protection afforded the original investor pursuant to the 1993 MOA, the commencement of the administrative law procedure in 1996, and the alleged coercion in conjunction therewith, the relationship between the 1996 MOA and the 19 93 MOA, the service agreement, what transpired when CME acquired the interests in ČNTS from CME Media Enterprises B.V. (hereinafter “CME Media”) in 1997, the Media Council's letter of March 15, 1999 and the alleged cooperation with Železný, the obligation of the Media Council to intervene, and the termination of the service agreement. These questions could only be resolved by the application of Czech law. The Stockholm Tribunal had an obligation to comply with the choice of law clause and, in accordance with the same, an obligation to apply Czech law. The Stockholm Tribunal did not apply Czech law with respect to the aforementioned issues and went so far as to openly disregard Czech law. When the Stockholm Tribunal did not apply Czech law, it could not determine issues raised in the Stockholm proceedings in a correct manner. Nor could the Stockholm Tribunal apply international law or any other legal system with respect to the aforementioned issues, and did not reach its decision on the basis of law. The outcome of the case would have been different had the Stockholm Tribunal applied Czech law.
The Stockholm Tribunal was composed of a jurist with expertise in international law, Schwebel, a jurist with expertise in Czech law, Hándl, and a jurist with expertise in commercial law and international arbitration, Kühn. The parties expected that the Stockholm Tribunal would make use of this collective expertise when it decided the case and believed that Czech law would be consulted, inter alia, in light of the fact that there was a Czech jurist on the Stockholm Tribunal. The Stockholm Tribunal also had an obligation to investigate the content of the applicable law, i.e. Czech law. The Republic's appointment of Hándl as an arbitrator provided the Republic with a well-founded right to anticipate that Hándl's expertise would be taken into consideration by the Stockholm Tribunal. Hándl's expertise in Czech law was necessary for the determination of the dispute. The exclusion of Hándl from the Stockholm Tribunal's deliberations resulted in Czech law being ignored in the Stockholm award.
The expectation that Czech law would be consulted and applied was initially shared by the arbitrators which, inter alia, is apparent from the fact that, following the final hearing in Stockholm, Kühn entrusted Hándl with consulting Czech law and Schwebel with consulting international law. The Republic invoked Czech law in the Stockholm proceedings and argued in detail regarding Czech law in its written submissions, inter alia, in the Statement of Defence, in the Sur-Reply, and in Written Closing Submission, and in conjunction with the final hearing before the Stockholm Tribunal. The Republic stated, for example, that the Media Council's role was to monitor and enforce the Media Act, which it was empowered and obligated to do in accordance with Czech law. The Republic also submitted translations of, inter alia, the Media Act, the Administrative Procedures Act, and the Act governing the Media Council. However, in many respects, the burden of proof during the Stockholm proceedings rested with CME. The parties argued both Czech law and international law in the Stockholm proceedings, and the Stockholm Tribunal posed questions concerning Czech law and international law during the final hearing. The failure to apply applicable law could not be discovered before the Stockholm award had been issued. There was nothing against which the Republic could protest during the Stockholm proceedings.
The Republic has stated that the Stockholm Tribunal disregarded Czech law in the award, inter alia, as follows.
The Tribunal should have analyzed the manner in which the original investment made by CEDC 1993 was to be characterized and, in such context, investigated a large number of questions covering, inter alia, company law and contract law. The Tribunal concluded, without any legal analysis, that the 1993 MOA and the split structure were a "carefully designed scheme", that it was in compliance with Czech law, and that it was the basis for CEDC's investment.
The Tribunal concluded, without legal analysis, that "The use of 'know-how' of a broadcasting Licence is meaningless and worthless" and that the 1996 contribution to the MOA of "the use of the know-how of the License" was quite a worthless and meaningless right. The Stockholm Tribunal conducted no analysis of the value of CET 21's contribution to ČNTS in 1993 of the exclusive use of the broadcasting license. When the Tribunal noted which protection the investment enjoyed according to the 1993 MOA compared with the 1996 MOA, the Tribunal did not take into account Czech law but, rather, looked to the actual chain of events in order to find support for its reasoning that the protection had deteriorated. The Tribunal asserted that the service agreement could be terminated and concluded more easily without analyzing whether this was legally the case argued around the legal proceedings which were commenced in the Czech Republic. The Stockholm Tribunal stated in paragraph 476 that the protection enjoyed by the investors pursuant to Czech civil law and in Czech courts was not significant to the conclusions of the Tribunal.
The Stockholm Tribunal addressed whether the Media Council's actions in 1996 could constitute coercion or whether the amendments to the MOA were voluntary. The Tribunal, in this context, questioned whether the "opinion" rendered by Dr. Barta in which he concluded that the split structure was not compatible with law and that the measures should be taken and concluded that it involved coercion. The Tribunal stated that it was not necessary to examine the Czech administrative law aspect of the question and how the Media Council's actions were to be adjudged according to Czech law, and whether the structure was legal according to Czech law. Instead, the Tribunal went directly to the Treaty and made an assessment based thereon.
In paragraph 575, the Tribunal described the cause of the collapse of CME's investment and stated that it was the Media Council's actions and omissions. In the conclusion in paragraph 590, the Tribunal stated it was not, in this context, necessary to consult Czech law in order to determine if the Media Councils' actions were in accordance with Czech law but, rather, asserted that the Treaty could be consulted directly to determine whether the actions involved a breach of the Treaty. This was not, however, possible since the Treaty did not answer these questions.
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It is also apparent from the arbitrators' correspondence and statements that the majority did not apply, nor considered that it was necessary to apply, Czech law. Czech law was raised in the list of questions prepared by Kühn. Kühn posed questions regarding Czech law and the question whether Czech law was to apply was raised. The reasoning, however, was never followed through. Schwebel stated in his response to the list of questions that he interpreted Article 8.6 of the Treaty to "take into account" entails a freer formulation than "apply". Of the arbitrators, Schwebel was of the opinion that Czech law need not be applied. Rather, the Treaty could be directly consulted in order to determine whether CME had incurred an injury. Characteristic of Schwebel's position was that he devoted himself to opining in lieu of investigating Czech law and the provisions thereof. For example, Schwebel did not analyze the difference between CET 21's contribution to ČNTS in 1993 and 1996, and whether the contribution could be retracted. Instead, Schwebel referred to the fact that the Media Council was of the opinion that the contribution of 1993 was legal. In addition, Schwebel did not know what the change in the 1 996 MOA entailed according to Czech law, nor did he concern himself with investigating the impact. Hándl was of the opinion that the amendments to the 1996 MOA did not entail any change, but his opinion was not afforded any weight in the award. However, the award stated, notwithstanding that the arbitrators were not clear regarding the situation following the deliberations in Düsseldorf, without any analysis pursuant to Czech law or any other legal system, that the protection afforded by the 1996 MOA had deteriorated and that the contribution of the know-how pursuant to the license in 1996 was meaningless and worthless. Schwebel also devoted himself to speculation and not an analysis of Czech law when the issue of the impact of CME's consent to the 1996 MOA, as expressed in the transfer agreement of 1997, was analyzed. On the other hand, Hándl asserted that CME was bound by its consent pursuant to Czech law. However, the majority did not pay heed to Hándl, but found, without any analysis of Czech law, that CME was not bound by the consent in such a way that CME could not bring claims based on the 1996 MOA. Also as regards the import of the Media Council's letter of March 15, 1999, the majority did not take into account Czech law but, rather, engaged in speculation.
An example of the issues in which the Stockholm Tribunal did not apply Czech law and, where appropriate, international law, and in which the outcome of the case would thereby have been different, the Republic states as follows.
The legal grounds for the investment
The Stockholm Tribunal concluded that “the split structure” was the basis of the investment and that it was a well-defined legal basis therefor. However, the Tribunal did not make any analysis of what CET 21's contribution to ČNTS consisted of and how it was to be defined. The Tribunal did not investigate which rights CEDC acquired through its investments in the Czech Republic and what protection the 1993 MOA afforded the investment. The Tribunal did not state, nor did it refer to, any law which explained why the 1993 MOA afforded greater protection than the 1996 MOA, nor did it state in any other manner what had occurred from a legal perspective.
The Republic referred, with respect to this issue, to Czech law and stated objections based on Czech law. Had the Stockholm Tribunal applied Czech law, they would had determined that the only rights acquired by the CEDC through its investment were contractual rights vis-à-vis CET 21 and that it was only CET 21 which obtained the broadcasting license pursuant to Czech law.
Changes in 1996 and 1997 in the contractual relationships with CET 21
The Tribunal did not conduct an analysis of what had occurred in conjunction with the change to the MOA 1996 and the execution of the service agreement. The Tribunal assumed that the legal protection was lost and stated, without legal support therefor, the value of the contribution of "know-how" of the license.
Dr Radvan was a Czech lawyer who participated in the negotiations concerning the 1996 MOA, and testified during the proceedings as a witness regarding the facts in the case and not regarding the import of Czech law. During the proceedings, the Tribunal did not attach any importance to Dr. Radvan's testimony regarding the import of Czech law but, rather, requested a written opinion of another person. His testimony cannot be taken as a pretext that the Tribunal based its opinion on Czech law. Nor can the statement of CME's corporate counsel regarding the legal protection in 1993 compared with the protection in 1996 be taken as a pretext therefor since she did not testify regarding the import of Czech law but, rather, regarding the facts. Independent appraisers also concluded that the value of the contribution was the same in 1993 as it was in 1996.
The content and effect of 1993 MOA and the 1996 MOA and the service agreement should have been adjudged according to Czech law. Without analyzing the content and effect pursuant to Czech law of the contractual relationships between CET 21 and ČNTS in 1993 compared with 1996 and 1997, and the content of the revocation of the terms and conditions of the license, it was not possible for the Stockholm Tribunal to determine whether CME/ ČNTS had lost its legal safety net. Had the Stockholm Tribuna l applied Czech law, it would have concluded that CET 21 would have been able to broadcast TV Nova notwithstanding the provisions of the 1993 MOA and found that CME/ ČNTS had not lost any legal protection by virtue of the 1996 events.
Commencement of administrative law proceedings and coercion
The Stockholm Tribunal found that the Media Council commenced the administrative law proceedings in 1996 for the purpose of coercing CET 21 and ČNTS into dissolving the exclusive relationship and bring about the en d of the 1993 "split structure". The issue of whether coercion existed was of determinative significance to the outcome of the case. Without concluding that coercion existed, the Tribunal could not reach the conclusion rendered by the Tribunal.
The award refers, inter alia, in paragraph 515 to "unlawful pressure" and in paragraph 516 to "unlawful acts", but it does not refer to any legal system upon which such are based. Within international law, there is nothing other than physical coercion. Professor Vagts' article, to which the Tribunal referred in paragraph 517 of the award, does not constitute international law, and Professor Vagts himself emphasized that the statements in the article did not constitute international law. The reference to Professor Vagts' article is not tantamount to the application by the Tribunal of international law since reference to the article falls outside the scope of the application of international law. The Tribunal did not apply any legal system at all. According to Czech law, certain conditions must be satisfied in order for coercion to be deemed to exist. The act which constitutes coercion must, inter alia, be unlawful. In addition, according to Czech law, actions which are coerced are void. Where, following the cessation of coercion, a party who is subject to such coercion invokes a legal act which came about under such coercion, the legal act is no longer regarded according to Czech law as having come about under coercion.
Had the Tribunal analyzed the administrative law proceedings according to Czech law, the Tribunal would have found that, in accordance with the Media Act, the Media Council had an obligation to commence proceedings in the event there was a suspicion of a crime under the Media Act. Since the Media Council had an obligation to commence administrative law proceedings against ČNTS, there can be no talk of coercion pursuant to Czech law. Instead of applying Czech law, the Tribunal stated that it was not necessary to determine whether the Media Council's actions were compatible with Czech law, that it was not obligated to deter mine the Czech administrative law aspect of the issue, and that it was not the duty of the arbitral tribunal to determine whether the Media Council's actions were compatible with Czech law. Instead, the Tribunal stated that it need only determine whether the Media Council's actions were compatible with the Treaty.
The Republic invoked Czech law regarding the Media Act and the Media Council's obligations and the Administrative Procedures Act, inter alia, in its Statement of Defence and during the final hearing in the Stockholm proceedings.
The London Tribunal analyzed these questions on the basis of Czech law and concluded that the commencement of the administrative law proceedings was a normal procedure for the Media Council.
Had the Stockholm Tribunal applied Czech law, the Tribunal would have concluded that the Media Council was obligated to ensure compliance with the Media Act, that the Media Council had not acted unlawfully, and that the administrative law proceeding could not entail coercion. Had the Tribunal concluded that the amendments of the 1996 MOA occurred under coercion, the Tribunal would have also concluded that they were void and, accordingly, no amendment would have been made to the 1993 MOA.
Transfer agreement between CME Media and CME
The Stockholm Tribunal failed to apply Czech law when it analysed the import of the transfer of the shares in ČNTS from CME Media to CME in accordance with the transfer agreement. The Stockholm Tribunal reach the conclusion in its award that CME's consent to the 1996 MOA was effective only as between the shareholders, and that the consent did not entail a waiver of rights pursuant to the Treaty which arose due to the violations prior to CME's acquisition of the shares in ČNTS. The Tribunal conducted no analysis of Czech law notwithstanding that Czech law undisputedly governed the transfer. The Republic made obj ections regarding the import of the consent according to Czech law. Neither international law nor the Treaty contains any rule which could have applied to the assessment of the issue. Instead, Kühn charged Schwebel with carrying out an investigation to see whether there were any analogies which could drawn from American law on the issue.
According to Czech law, a party is bound by the provisions included in the agreement, and the Tribunal could have concluded, by an application of Czech law, that CME was bound by Article 4 of the transfer agreement. Pursuant to Czech law, CME was required to provide such consent as provided by CME in Article 4. By granting its consent, CME approved the 1996 MOA and the alleged amendments vis-à-vis the 1993 MOA, including the alleged coercion. According to Czech law, claims inuring to a person do not follow the shares in a share transfer. Nor did CME Media transfer any claims to CME. Had the Stockholm Tribunal applied Czech law in order to determine the significance of the content of the transfer agreement, the Stockholm Tribunal would not have concluded that CME was able to assert the claims based on the alleged coercion in 1996.
The Media Council's letter of March 15, 1999
The Stockholm Tribunal failed to apply Czech law and international law when it analysed the Media Council's letter of March 15, 1999 to CET 21. The conclusion drawn from the letter by the Stockholm Tribunal was that the Media Council had assisted CET 21 in eliminating ČNTS. The Stockholm Tribunal concluded that the issuance of the Media Council's letter of March 15, 1999 and the failure to revoke such letter were violations of the Treaty. The Stockholm Tribunal concluded, without any legal support, that such a letter was a letter entailing a formal and binding decision (regulatory letter) of the supervisory authority for broadcasts, and that the letter contained requirements and not recommendations. The Republic's standpoint in the proceedings was that the letter could not have the legal effects as ascribed by the Tribunal.
After having applied Czech law, the London Tribunal found that the letter was not intended to, nor could it have, any legal consequence since it was only an expression of the supervisory authority's general understanding of the correct interpretation of the Media Act.
Had the Stockholm Tribunal applied Czech law, it would have reached the conclusion that the letter could not have had the legal effect ascribed by the Tribunal. By failing to apply Czech law regarding the legal status of the letter, the Stockholm Tribunal reached the conclusion that the letter could eliminate exclusivity in accordance with the service agreement and weaken the legal protection. Neither Czech law, international law, nor the Treaty provided any support for the conclusion that the mere issuance of a letter by a state supervisory authority could eliminate an exclusivity clause in an agreement between two private entities. The Stockholm Tribunal did not apply any legal system when it reached its conclusions.
Possible intervention by the Media Council
The Stockholm Tribunal failed to apply Czech law or international law in determining whether the Media Council could or should have revoked the letter of March 15, 1999. The award contains no analysis of Czech law as to whether the Media Council could and should have revoked the letter.
The Stockholm Tribunal found that the Media Council could have, not later than a certain time, clarified the legal situation and remedied its intervention by revoking its letter of March 15, 1999. The Stockholm Tribunal also stated, without providing any legal grounds therefor, that the Media Council was not entitled to refrain from "regulatory clarification". When the Stockholm Tribunal reached these conclusions, the Stockholm Tribunal failed to take into account the Media Council's authority pursuant to Czech law. The Stockholm Tribunal's conclusion that the Media Council was obligated to protect CME's investment was not based on any legal analysis of Czech law, international law, or the Treaty.
Had the Stockholm Tribunal taken into account Czech law, it would have found that the Media Council could only have acted in accordance with Czech legislation and that there was no possibil ity for the Media Council to intervene in a private dispute as that existing between CET 21 and ČNTS.
Termination of the service agreement
The Stockholm Tribunal failed to apply international law or Czech law when it analysed the alleged termination of the service agreement by CET 21. At the time of the Stockholm proceedings, litigation was underway in Czech courts regarding the termination of the service agreement. According to international law, the Stockholm Tribunal was not entitled to disregard judgments issued by the Czech courts in these disputes only to replace the judgment of the courts with its own assessment. The Stockholm Tribunal could not disregard the decisions of the Czech courts as an interpreter of Czech law. Without analysing the termination of the service agreement according to Czech law, the Tribunal reached the conclusion that it was CET 21 that had committed a breach of contract.
In order for the Stockholm Tribunal to have been able to state that there was a violation of international law, the Tribunal must have found that the Czech judgment itself, or the Czech legal system, entailed a violation of the Treaty, e.g. in that CME was denied justice or due to the fact that the judgment or the legal system are incompatible with some rule according to international law.
The London award found that the Republic had an obligation to make its legal system available to CME, which the Republic also had. For its part, the Stockholm Tribunal criticised the Czech courts and declared that it was not the role of the Stockholm Tribunal to take decisions regarding the legal protection which a foreign investor enjoyed for its investment according to Czech civil law and in the Czech civil court system. The Tribunal also stated that the fact that two different conclusions were reached in the two instances which had examined the termination showed that the investment was fragile.
Joint tortfeasors
The Stockholm Tribunal applied neither international law nor Czech law when it introduced the legal concept of "joint tortfeasors" in the Stockholm award. The conclusion regarding joint tortfeasors was determinative to the outcome of the Stockholm proceedings since the Republic could not have been held liable for Železný's actions without such a determination. In support of its assertion regarding joint tortfeasors, the award contained a short citation from an ILC commentary which referred to Dr. Weir's chapter in “The International Encyclopaedia of Comparative La w". The ILC commentary does not constitute applicable international law. Dr Weir's work was neither a work about Czech law nor international law but, rather, concerned comparative national law. The term, joint tortfeasors, postulated by the Tribunal exists neither in international law nor in Czech law. A physical or legal entity cannot be jointly liable for damages together with a state entity according to national law. A state may be liable according to international law, and a physical or a legal entity may only be liable according to international law. Accordingly, a state and a physical or a legal person cannot be jointly and severally liable for damages for a "tort" according to international law. The Stockholm Tribunal has postulated a term without support in any applicable legal system. This is not a question of the erroneous application of international law but, rather, the non-application of international law to a determinative issue.
Obligations as senior executive
The Stockholm Tribunal f ound that Železný had breached his obligations as a senior executive of ČNTS notwithstanding that this fact had not been invoked either by CME or the Republic. The Stockholm Tribunal drew this conclusion without stating which obligations a senior executi ve has in a Czech company vis-à-vis the company according to Czech law. The Tribunal stated, without providing any legal basis or any support in Czech or any other law, inter alia , that Dr Železný's open breach of his obligations according to company and c ivil law was a massive, clear, and conscious violation of his obligations as Managing Director, a violation of law which must be adjudged to be a serious crime in all legal systems. The aforementioned conclusion was determinative for the Stockholm Tribunal's opinion that the Republic and Železný were joint tortfeasors and that the Republic thereby breached the Treaty in 1999. The conclusion regarding Dr Železný's actions was reached without any analysis of Czech law.
The Stockholm Tribunal failed to apply Czech law when it reached the aforementioned conclusions. The Stockholm Tribunal did not apply international law or any other legal system. Had the Stockholm Tribunal applied applicable law when it reached the aforementioned conclusions, the outcome of the case would have been different.
The principles of lis pendens and res judicata are a part of the ordre public and the principles are applicable between arbitration proceedings in different countries and which follow from different bilateral investment protection treaties. The Stockholm Award is thereby invalid. In any event, the Stockholm Tribunal committed a procedural error by not dismissing CME's claim during the proceedings with reference to the principle of lis pendens, and after the issuance of the London award with reference to the principle of res judicata.
The identity criteria between the London proceedings and the Stockholm proceedings were fulfilled. The London proceedings and the Stockholm proceedings concerned the same investment, the same alleged treaty violations, the same facts, the same injury, the same claims for, firstly, restitution and, secondly, damages, the same parties, and the same grounds.
Both Lauder and CME invoked the same legal grounds based on their respective bilateral investment protection treaties. The two investment protection treaties provide the same protection notwithstanding that they are variously drafted and there is no great difference between them. The linguistic differences are insignificant. The obligations of the Republic pursuant to the two investment protection treaties are essentially identical. A claim pursuant to any of the treaties leads to the same legal consequences. In both arbitration proceedings, CME did not take the position that the treaties were different. In a letter of March 10, 2000 from CME's counsel to the London Tribunal, it was stated that the treaties were indistinguishable documents, which was also stated in CME's Notice of Arbitration and Statement of Claim in the arbitration proceedings.
Notwithstanding that Lauder and CME were not precisely the same legal entity, they were to be regarded as the same party with respect to the issue of lis pendens and res judicata. Lauder and CME constitute shareholders at different levels in the chain of companies which Lauder used to make his investment in ČNTS. Lauder owned and owns a minority of the shares in the parent company, Central Media Enterprises Ltd, which, in turn, through inactive wholly-owned subsidiaries, owns 99 per cent of the shares in ČNTS. However, Lauder was and is a controlling share holder of the parent company, which made it possible for him to exercise control over CME and over the companies in the CME group. Such control was also a necessary condition in order for Lauder to be able to bring his claim pursuant to the American Investment Protection Treaty. Lauder was the only shareholder who was, the entire time, a constant in the chain of companies which controlled ČNTS from 1993 until the Stockholm proceedings.
CME revealed the identity between CME and Lauder when CME's counsel, in both proceedings, proposed that the London proceedings and the Stockholm proceedings be consolidated. It was the same representative for Lauder and CME, Frederic T. Klinkhammer, who instructed the same lawyers to represent Lauder in the London proceedings and CME in the Stockholm proceedings and who also participated during both proceedings.
It would not have been possible to resolve the problem of two awards against the Republic merely by setting off the amount which the Republic was to pay, inter alia, due to company and tax law rules.
Also according to English law, the legal effect does not only extend to the same party in a strict sense, but can also be extended and, by the application of English law, the London award's legal effect affects the Stockholm proceedings.
The Republic immediately and persistently objected to parallel proceedings by invoking various grounds during the Stockholm proceedings, and was under the impression that either the London or Stockholm proceedings would be forced to cease. It is true that the Republic did not invoke the legal-technical import of the doctrines of lis pendens and res judicata when it objected, but the Republic moved for dismissal and stay. This was due, inter alia , to the existence of the large number of disputes regarding CME, CET 21, ČNTS, and Železný, in addition to the disputes between Lauder/CME and the Republic which the Republ ic also referred to in the Stockholm proceedings. This is apparent, inter alia, from the Republic's Statement of Defence, Sur-Reply, and its opening statement in the Stockholm proceedings. The Republic invoked all circumstances in the Stockholm proceedings which were invoked in the existing case regarding lis pendens and res judicata notwithstanding that the Republic did not use the same legal labels in the Stockholm proceedings.
The Republic did not raise any new objection regarding res judicata after the London award was rendered since the proceedings at that time had been concluded and the Stockholm Tribunal had deliberated for four months. The Stockholm Tribunal was aware the entire time that there were London proceedings. On a number of occasions, Kühn telephoned the parties' legal counsel to find out whether the London Tribunal had rendered its award. The arbitrators in the Stockholm Tribunal learned of the London award when it was issued. When the London award was issued, the Stockholm Tribunal should have stayed the proceedings to consult the parties.
Immediately after CME demanded the arbitration proceedings, CME wanted the proceedings to be consolidated. The Republic was of the opinion that it was not lawful to allow both proceedings to proceed, and that it was not possible to consolidate the cases pursuant to the respective treaties but, rather, that CME/Lauder could choose which proceeding they wanted to pursue. The Republic was left only to continue to object and hope that one of the proceedings would be terminated. Consolidating the proceedings was also incompatible with the Republic's position that neither of the proceedings could be pursued according to the respective Investment Protection Treaties. The Republic did not state that its actions constituted a waiver of the right to assert the principles of lis pendens and res judicata in subsequent proceedings.
Excess of mandate - joint tortfeasors
CME did not invoke joint tortfeasors or the grounds therefor in the case. Joint tortfeasors was used only one time throughout the entire proceedings, which was during the penultimate day during the final hearing. CME also made a reference to "concurrent causation". CME did not invoke the necessary legal facts for the use of joint tortfeasors.
In order for the Stockholm Tribunal to be able to determine damages, an unacceptable act or omission must first have occurred - a principle upon which liability is based - on which a claim could be based and, secondly, causation must have exist between the act or omission and the injury incurred. The term, joint tortfeasors, exists in national law and, to the extent the term was used in the award, the term entails that there must exit a coordinated action between several "tortfeasors" towards a common goal. Joint tortfeasors is a principle on which liability is based, and not a principle of concurrent causation.
Joint tortfeasors is referred to by CME's counsel in the reasoning pertaining to the Media Counsel's role and pertaining to causation and the proximity arguments. CME talked about causation between the Media Council's actions and omissions and the injury incurred, and stated that liability existed for states even in conjunction with concurrent causation. CME's counsel stated, inter alia, that a state could be liable notwithstanding the existence of other intermediate events in the chain of causation, but no reference was made that someone had committed a "tort", neither Železný nor the Media Council, nor that one or more was a joint tortfeasor and that this principle was to be applied. CME claimed that there was direct causation between the Media Council's acts in 1996 and 1999 and the injury incurred through the termin ation of the service agreement, and that the termination of the service agreement was an intervening act which did not sever the causal link. CME did not assert that two persons acted towards a common goal, nor did it invoke the necessary requisites for the application of joint tortfeasors. Counsel for the Republic referred to the principles of causation and foreseeability when he stated that it was a correct summary of the principles rendered by CME, not the principle of joint tortfeasors.
The Stockholm Tribunal found that the 1996 events gave rise to an injury due to the fact that the investment's safety net was weakened and that the value of the in-kind property - CET 21's contribution of the exclusive use of the license - was exhausted. The Tribunal did not find coordination between Železný and the Media Council at this time but, rather, to the contrary, at this time, Železný worked against the Media Council. It does not appear in the award that, in 1996, the Media Council could foresee what would occur in 1999 when the service agre ement was terminated. In paragraph 585, the Tribunal stated that the Media Council, in 1996, could foresee that the safety net would be ruined, but not that the Media Council could foresee what would subsequently transpire. The Tribunal did not find the Media Council's actions and omissions in 1999 caused any injury directly, but that there was coordination between the Media Council and Železný in order to undermine the exclusivity and that the Media Council supported Železný. The Tribunal also found that it was Železný's termination of the service agreement which eliminated the exclusivity, which led to the injury in the form of a decli ne in revenues and that the Media Council could foresee this event in 1999. According to the Stockholm Tribunal, the actions in 1996 were the decisive attack on CME's investment since the Tribunal found that the Media Council compelled amendments to the MOA.
In order for the Stockholm Tribunal to be able to impute liability to the Republic notwithstanding that it was Železný who was the direct cause of the injury through termination of the service agreement, the Tribunal was compelled to assume that, in 1996, the Media Council could foresee Železný's actions in 1999. The Tribunal could not do so since Železný worked against the Media Council at this time. Nor could the Tribunal find that it would be the most proximate cause of the injury. The Tribunal could not, by means of a normal damages argument, find that the Media Council and the Republic could be liable for the injury. However, the Tribunal was compelled to find a link between the injuries caused by the termination of the service agreement and the Council's actions and omissions, and therefore introduced the concept of joint tortfeasors. The Media Council was found by the Tribunal to be a joint “tortfeasor”, together with Železný, without such having been invoked by CME, in causing the injury incurred by CME's investment. Their actions were coordinated. The concept and reasoning therefor were incorporated in paragraphs 580-585 only in the Third Draft of the award.
In paragraph 580, the Tribunal stated that liability could be imputed to states notwithstanding concurrent causes. In addition, the Tribunal stated in paragraph 581 that international law contains the principle of joint tortfeasors. In paragraph 582, the Tribunal stated that it was not only Železný who was a “tortfeasor” but also the Media Council, and subsequently that the principle of joint tortfeasors applies in this case, which was fundamental to the Tribunal's assessment. Accordingly, the Tribunal stated that there were two tortfeasors a nd the principle of joint tortfeasors applied in this case. In this way, the Media Council could be held liable for the injury which occurred as a consequence of Železný's actions. In paragraph 583, the Tribunal reiterated that liability could be impute d notwithstanding other events in the chain of causation which were not related to the state. In paragraph 585, the Tribunal stated the terms which are generally used in an analysis of causation giving rise to liability, which is more in the way of a general analysis. In paragraph 585, the Tribunal stated that the Media Council, in 1996, did not foresee what would happen in 1999 but, rather, that the Media Council could foresee that the safety net would be removed and that the Media Council supported Železný in 1999, i.e. that they were joint tortfeasors.
There was nothing against which the Republic could object during the Stockholm proceedings, given that the Stockholm Tribunal had applied the principle of joint tortfeasors only after the Stockholm award was delivered. Nor had CME invoked the principle of joint tortfeasors or claimed that anyone had committed a "tort". As noted above, joint tortfeasors is a principle regarding liability for damages, not regarding causation, as a consequence of which the Republic did not have cause to object to the principle.
Without the conclusion that there existed joint tortfeasors, the Republic could not have been held liable for the injury incurred by CME's investment and the outcome of the case would have been different.
Excess of mandate - decision regarding determination of damages
At CME's request, the parties agreed to bifurcate the liability issue and the determination of damages into two sub-proceedings. In accordance therewith, the Stockholm Tribunal was instructed not to decide upon any damages prior to the determination of the liability issue in an interim award. In the first proceedings, the parties charged the Stockholm Tribunal with deciding whether there was a breach of the Treaty. The Stockholm Tribunal went further in its award and took a decision regarding which injuries would be compensated and rendered, inter alia, assessments regarding joint tortfeasors.
The limits on what the Stockholm Tribunal could decide upon were determined by Article 8 of the Treaty and Agreed Minutes. The parties further limited the Stockholm Tribunal's mandate by their presentations during the proceedings, inter alia, through the Notice of Arbitration, the Statement of Claim, and instructions and submissions to the Stockholm Tribunal.
In CME's Notice of Arbitration and Statement of Claim, CME argued all matters in the Stockholm proceedings and not only the first part which was addressed in the Stockholm award. Originally, CME's claims extended to restitutio in integrum (restitution) alternatively/and damages. In the pleadings pertaining to the entire proceeding, reference was made to fair market value. What was presented in those documents thus had significance to the mandate of the Stockholm Tribunal throughout the Stockholm proceedings, but was not insignificant to the scope of the Stockholm Tribunal's mandate in the first phase of the proceedings.
Following the parties' agreement to bifurcate the liability issue and determination of damages, CME did not argue in its Reply.Memorial of December 22, 2000 that the Republic would pay damages equal to the fair market value of the investment. CME only reiterated its basic position that, in the event the Stockholm Tribunal was of the opinion that the Treaty had been violated, the Republic would be obligated to pay restitution or damages. The Stockholm Tribunal would, in the first phase of the proceedings, only declare whether or not a violation of the Treaty had occurred.
In his opening statement in the Stockholm proceedings, CME's counsel stated orally that the restitution claim had been withdrawn. Accordingly, only the issue of whether the Republic had breached the Treaty remained. In addition, CME's counsel asserted a claim which was in accordance with the agreement of the parties, namely that the Stockholm Tribunal was to establish that the Republic had violated the Treaty and that CME had a right to damages in an amount which would be established in later proceedings. CME's counsel did not refer to fair market value in the claim.
During the last day of the final hearing, the parties submitted the specifics of their claims in writing and reference was made in CME's claim, for the first time since the bifurcation agreement to compensation equal to the fair market value of the investment. This claim did not accord with the agreement between the parties and the Stockholm Tribunal. At this time, the parties had, ever since the agreement was reached, been in agreement that the principles governing the determination of damages would be addressed in the second phase of the proceedings, and this question had not been addressed during the proceedings. When the Stockholm Tribunal requested written pleadings, the Tribunal probably wanted CME to clarify its position due to the withdrawal of the restitution claim.
In its Post-Hearing Brief, which was submitted to the Tribunal on May 25, 2001, CME stated that it was seeking "an award declaring that Respondent has breached the Treaty and that Claimant is entitled to damages to be determined at a second phase of this proceeding, plus costs". In its summary, CME accordingly did not refer to fair market value. CME stated, quite simply, that it was seeking a declaratory award according to which the Republic had violated the Treaty and that CME was entitled to damages. Questions concerning the grounds, causality, and other questions of this type pertaining to fair market value were not addressed. This pleading was in compliance with the bifurcation agreement.
It is apparent from the award that questions concerning the determination of damages would be addressed at the second phase of the proceeding, e.g. in paragraphs 415 and 525. The question concerning the calculation of damages, i.e. that the Republic would compensate CME for fair market value, was incorporated only in the Third Draft; paragraphs 615-618 of the final award. It was in this draft that a reference to joint tortfeasors was incorporated, which was part of the determination of what liability could be imputed to the Republic. The Stockholm Tribunal established that the Republic would be liable for the entire injury. The Stockholm Tribunal concluded that the Republic would compensate CME by paying "a sum corresponding to the value which a restitution in kind would bear" which was "the fair market value" of CME's investment. By incorporating reasoning in the award pertaining to the principles for the determination of the damages, the Stockholm Tribunal addressed important questions which had been reserved for the second phase of the proceedings, e.g. with respect to the issue of whether more than one party was liable for damages and that this could affect the amount to be paid.
No argumentation was presented during the proceedings regarding the issues of the principles for the determination of damages, e.g. concerning contribution and adjustment or regarding "genuine value" in the Treaty equal to "fair market value". Neither CME nor the Republic invoked any principles for the determination of the damages during the proceedings.
The term, fair market value, exists in the American investment protection treaty but not in the Treaty. It is probable that CME obtained the term from this source. Nor is fair market value equivalent to "just compensation", which is what the Treaty prescribes.
During the second phase, CME moved for compensation in an amount equal to the fair market value of the investment. The Republic introduced in the proceedings, inter alia, arguments pertaining to the questions regarding which standard would be used for the calculation of damages which, among other things, raised issues that should have been addressed when determining how the damages were to be calculated. The Republic argued, inter alia, the manner in which CME's injury would be determined and the manner in which the valuation should be carried out. During the proceedings, CME claimed that the Republic attempted to incorporate questions which did not pertain to the determination of fair market value in the dispute but which, rather, related to other ways of calculating the damages. The fact that the Tribunal decided on compensation equal to fair market value meant, according to CME, that they eliminated a number of objections which the Republic could have made.
Determining damages equal to the fair market value of the investment is in no way natural but, rather, there are a number of other ways of calculating compensation.
Prior to the Stockholm award, the Republic could not know that the Stockholm Tribunal reached its decision in such a manner.
In the event the Court of Appeal only sets aside the Stockholm award in this respect, according to the Republic, paragraph 624 (2) is to be worded as follows: "The Claimant is entitled to damages, if any, to be determined at a second phase of this arbitration".
The proposed wording is in accord with CME's Post-Hearing Brief, which ultimately determined CME's claim in the first phase of the Stockholm proceedings.
Excess of mandate - previous investors and earlier violations
The original investment in the Republic was made by the German company, CEDC, in 1993. In 1996, 93.2 per cent of the shares in ČNTS were owned by CME Media. In April 29, 1997, CME was formed. In May 21, 1997, CME made its investment in the Republic through the acquisition of CME Media's interests in ČNTS.
The Treaty affords protection when the investment is made and does not protect an investment made by an investor against events which occurred prior to the investment. As set forth in the Agreed Minutes and the Treaty, it is possible to assign rights according to the Treaty in two different ways. There are no international law rules which address the relevant questions in the case pertaining to the assignment of rights in accordance with bilateral Investment Protection Treaties. CME Media did not assign to CME any rights in accordance with the Treaty.
The transfer of the interests in ČNTS between CME Media and CME was governed by Czech law. According to the transfer agreement, CME acquired interests in ČNTS without reservation. CME acquired the company with the alleged reduced value as a consequence of the 1996 MOA.
In its Statement of Defence in the Stockholm proceedings, the Republic claimed that CME was compelled to show that CME was an investor according to the Treaty. This was a jurisdictional objection pursuant to Article 21.3 of the UNCITRAL rules. Thereupon the Republic made a reservation that it wanted to be able to develop the issue regarding CME's right to bring a claim if the company could prove that it was an investor according to the Treaty.
CME presented evidence regarding the transfer, to which the Republic responded by saying that CME presented evidence that the company was an investor but the Republic also made a reservation that CME, in any case, did not have a right to bring the claim pursuant to the Treaty.
During the first day of the final hearing, the Republic asserted that CME did not have any right to bring a claim based on amendments to the 1996 MOA, and that CME had not acquired a right to any claims which its predecessor could have brought against the Republic as a consequence of its activities in the Media Council. Such a claim fell beyond the mandate of the Stockholm Tribunal since no investor could base a claim on a violation asserted to have taken place before the investment was made. In the transfer agreement, CME had expressly accepted the wording of the MOA following the amendments in 1996 when CME made its investment in 1997. The asserted objection was maintained through the final hearing and in subsequent documents, and it is this objection that is asserted by the Republic in this case. The Republic claimed that the arbitration clause in Article 8 of the Treaty did not cover claims based on violations of the Treaty before CME made its investment.
The Republic did not refrain from making the aforementioned objection. It is also an absolute objection which cannot be waived since the Treaty does not cover such a claim. The Treaty was entered into between two sovereign states and there was no possibility for the parties in the Stockholm proceedings to expand the scope of the agreement through a waiver of the asserted type and thereby empower the Stockholm Tribunal to render decisions regarding previous violations in the manner in which the Tribunal did; this is irrespective of whether the Tribunal has examined the issue as a substantive issue or not. In order for the Stockholm Tribunal to have been able to examine the issue, it would have been necessary that the rights according to the Treaty had been transferred to CME in the manner prescribed in the Agreed Minutes.
Exclusion of an arbitrator from the deliberations
Hándl participated in both the oral hearing in Stockholm and the deliberations in Düsseldorf, received and reviewed all drafts of the Stockholm award before the award was issued, informed the other arbitrators of his views before the award was issued, and wrote a dissenting opinion comprising approximately 11,000 words. Hándl had the same possibilities as the other arbitrators to present and discuss his opinions. Hándl's possibilities to participate were the same since he had access to the same documentation and had the same time at his disposal as the other arbitrators. Between the conclusion of the final hearing and the date of issuance of the award, Hándl had ample time to review the draft award and comment thereon, which he also did.
On May 14, 2001, Kühn distributed a list of questions which comprised four pages of single-spaced text and was aimed at facilitating the deliberations. The list of questions contained 37 questions divided under six sub-headings. The list of questions covered all important issues in the case, namely applicable law, the jurisdiction of the Stockholm Tribunal, the status of the investment in accordance with the Treaty, whether CME's legally protected status had been violated, the extent to which CME was caused any loss, and the significance of the termination in 1999 of the service agreement between ČNTS and CET 21. On May 15, 2001, Schwebel sent a 13-page long memorandum to both Kühn and Hándl. On May 23, 2001, after having had access to Schwebel's comments for over a week, Hándl sent Kühn a 15-page long memorandum containing replies to Kühn's que stions in which he described in detail his position on many issues. It is evident from the reply that Hándl and Schwebel had different opinions on many issues but that they presented their opinions on all questions and neither of them was excluded from submitting a reply.
On May 24, Schwebel sent both Kühn and Hándl his analysis of the arguments raised by the Republic in its final pleading with respect to international law. At the time, Schwebel had not received Hándl's memorandum and expressed his disquiet with respect thereto.
Prior to the meeting in Düsseldorf and after having received Hándl's memorandum, Schwebel wrote a comment to Hándl's argument as to why CME had not made any investment which was protected under the Treaty. Kühn made a revised presentation of the main issues which were to be addressed at the meeting in Düsseldorf which, through one of a few changes, took specifically into consideration Hándl's questions concerning administrative law in the Republic and compiled a detailed written comment to Hándl's memorandum of May 23, 2001, which he attached to the memorandum.
The entire Tribunal was present at the meeting in Düsseldorf and submitted comments regarding relevant issues in the case. There was a lively exchange of views during the deliberations. In his notes from memory from the meeting, Hándl listed 12 points which the arbitrators had discussed. Hándl presented his comments but they were not accepted by the other arbitrators. Hándl was of one opinion and Schwebel and Kühn of another. Hándl's comments were not rejected by Kühn and Schwebel without a discussion or detailed explanation and the majority of the Stockholm Tribunal had not decided to disregard the opinions Hándl might have. Hándl made it clear at the end of the meeting that he did not wish to receive any incomplete drafts of the Arbitral award but, rather, wished to wait until a complete draft was available.
In a letter dated June 6, 2001, which was also sent to Schwebel and Hándl, Kühn notified the parties that the Stockholm Tribunal had held deliberations in Düsseldorf on June 1 and 2 and as to the time expended so far by the arbitrators. Hándl raised no objections to the description of the time he had expended.
Following the deliberations, on June 7, 2001, Schwebel sent by fax a brief explanation as to why he believed that the parties had not debated whether CME might be deemed to be an investor in accordance with the Treaty, notwithstanding that a German company had made the initial investment. The issue had been addressed by Hándl in his reply to Kühn's list of questions and by Schwebel in the memorandum he distributed during the deliberations. From the conclusion of Schwebel's fax, it is evident that in May 2001 Kühn had not already assigned Schwebel the task of studying the issue of assignments of rights in connection with transfers of shares but, rather, that this request was made at the deliberations in Düsseldorf. Hándl raised no objection whatsoever to Schwebel's study in this part of his memorandum of June 20, 2001. Hándl further stated in his memorandum of June 20 that he had postponed his vacation in order to be back in Prague on July 25, 2001.
On July 30, 2001, Hándl received from Kühn an essentially complete draft of the arbitration award. This First Draft was 175 pages long, of which 97 pages contained a neutral and non-controversial description of the conduct of the Stockholm proceedings and the parties' claims and arguments. The remaining pages contained the Stockholm Tribunal's award and the reasons for the award. The draft contained in all essential respects what would become the final award. In the award, only the words "in 1999" were incorporated in the second point of paragraph 599. The First Draft contained all of the decisions that the Tribunal was required to make. In the reasons for the award, the destruction of CME's investment was addressed point by point, as was the fact that the Republic had violated the Treaty.
Schwebel sent his relatively modest comments to Kühn on August 2, 2001. The faxed letter was sent to both Kühn and Hándl but comments were sent only to Kühn. At this point in time, Kühn and Schwebel were in agreement regarding the award and the reasons for the award.
Kühn incorporated Schwebel's amendments and notified Hándl thereof. From Hándl's fax of August 6, one can also read that Hándl did not wish to receive the intermediate draft in which the amendments had been incorporated. Hándl wished to have almost one month at his disposal in order to submit comments to the First Draft. Hándl stated that he wanted the time not merely to suggest amendments to the award but also to provide critical comments. Kühn informed Hándl regarding his contacts with Schwebel with respect to the proposed corrections described by Schwebel in his fax to Kühn of August 2, 2001 and Kühn gave Hándl the possibility to review them and comment on them. This aforesaid is also evident from Hándl's reply of August 6, 2001 to the fax from Kühn.
On August 7, 2001, Kühn wrote that he had amended the award in certain places and stated that amendments which had been inserted on the advice of Schwebel had not been marked specifically and that Hándl could review Schwebel' handwritten amendments. Kühn also wished Hándl to review the award and provide his comments as soon as possible. Kühn was of the opinion that they had exchanged views at the meeting in Düsseldorf and that the opinion of the majority on key issues was clear after the meeting. Kühn was disturbed by the time that Hándl wished to have at his disposal and the timetable. Kühn did not think it appropriate that Hándl's dissenting opinions should be incorporated in the award. On August 9, 2001, Hándl wrote to Kühn that he indeed wished to have an opportunity to once again fully present his views in order to attempt to persuade the other arbitrators to change their opinions, but that his views which differed from those of the majority should not constitute a part of the award.
The Second Draft was distributed eight days after the First Draft. Seven paragraphs, 598-604, which related to the expropriation claim, had been added to the draft. The paragraphs addressed one of the five obligations that CME alleged the Republic had breached and the issue whether the Media Council's actions could be deemed to constitute expropriation. No new independent arguments were added but, rather, the supplement was a development of analyses made previously. In addition, a number of linguistic adjustments were made in light of Schwebel's corrections. The linguistic changes were not marked. The actual conclusions in the award were not changed.
Hándl wrote a 23-page long criticism of the award which he sent to his fellow arbitrators on August 16, 2001, 18 days after having received the First Draft. The issues addressed by Hándl in his document had largely already been taken up during the deliberations, as is evident from Hándl's reply to Kühn's list of questions and his notes from memory. The issues addressed by Hándl included, inter alia, Železný's roll, the 1993 and 1996 MOAs, and the administrative law proceedings in 1996. The issues which he had not previously addressed included, inter alia , CEDC's transfer of shares in ČNTS. Kühn awaited these comments notwithstanding his wish that th e award be issued promptly.
In a fax dated August 29, 2001, Kühn described point by point his views regarding Hándl's letter of August 16. Kühn's reply contained a description as to why he did not share Hándl's opinions and as to which parts of Hándl's proposed changes he accepted. Schwebel's fax to Kühn of August 29, 2001, which Kühn forwarded to Hándl on August 30, 2001, clarified Schwebel's position regarding Hándl's comments and the fact that Schwebel regarded Kühn's reply as excellent.
The Third Draft was distributed simultaneously with Kühn's reply to Hándl's criticism. The draft contained changes which were probably due to Kühn's desire to demonstrate and clarify to Hándl why the latter was in error. The amendments which were inserted addresse d Źelezný's role and the fact that his behaviour was included in the causal chain, but that the behaviour did not affect the Republic's liability since the injury was foreseeable based on the Media Council's actions and omissions. From a memorandum prepa red by Hándl dated November 5, 2001 it is evident that Hándl believed that the new paragraphs in the Third Draft came about as a result of his comments. The addition of paragraphs 580-583, which in effect were six paragraphs, occurred in the part of the award that addressed the issue whether the Media Council's actions had caused any injury. Hándl had previously argue d that it was Źelezný's actions - and not the Media Council's - that were the cause of the injury, as is evident from Hándl's reply to Kühn's list of questions. In the Third Draft, in addition to the aforementioned supplement, sections were added concern ing "reparation", and amendments were made to the section concerning costs. No amendments were made to the conclusions in the award. Hándl was not excluded from the deliberations insofar as certain amendments were incorporated in the Third Draft.
After August 29, 2001, only entirely non-controversial amendments were incorporated into the award. These consisted of linguistic amendments and a correction of a decision regarding payment of costs as a consequence of the Republic having made a payment which the Republic was ordered to make. On August 31, 2001, the Fourth Draft was sent to Hándl, which was largely identical to the Third Draft. On September 3, 2001, Hándl had received the Third and Fourth Drafts and had, on this occasion, no objection to signing a separate signature page. On September 4, Kühn notified the arbitrators that he would not use the signature page prior to being requested to do so by the fellow arbitrators. On September 4, Hándl received 33 pages containing supplements which had been prepared by Schwebel and which contained corrections of spelling errors and similar corrections. These did not result in any amendments to the award other than certain general linguistic changes which were incorporated into the Fifth Draft of September 5. Hándl himself did not believe that the supplements were of any significance.
On September 5, 2001 Hándl announced that he would not sign the separate signature page and requested the definitive and appended versions of the award and averred several times that he would sign the award. At this point it can be noted that Hándl did not wish the Stockholm award to be dated before the London award, which by that time had been made public.
Hándl did not sign the arbitration award but, rather, forwarded the copies to Schwebel without any signature. Hándl appended instead a dissenting opinion. Hándl's dissenting opinion contained 12 sections and his arguments accorded largely with what he had stated during the deliberations. Hándl expressed his opinion regarding the majority's assessment of joint tortfeasors, whereupon he stated that the majority were not correct on this issue and that, in his opinion, the Republic was neither a tortfeasor nor a joint tortfeasor. Hándl also expressed his opinion regarding determination of the damages. The dissenting opinion also contained errors as early as the introductory section, in which Hándl stated that Kühn and Schwebel wished to blame the Republic. Hándl also stated that he had presented the argument in the dissenting opinion to the other arbitrators and, primarily, to the chairman.
After having resigned as arbitrator, Hándl prepared and submitted a document containing arguments as to the manner in which the award might be appealed, and handed over to the Republic's counsel all documents to which he had access in the Stockholm proceedings.
CME was unaware that Hándl had been provided with a copy of the ILC commentary. The document was publicly available and Hándl did not request Kühn or Schwebel to provide him with it. Hándl never demanded further meetings for deliberations or telephone conferences, nor did he raise any new issues for discussion.
Hándl attempted to delay the Stockholm proceedings and thereby made it possible that the London award might be issued before the Stockholm award, which conclusion the Stockholm Tribunal majority also reached when it held that Hándl had deliberately delayed the issuing of the Stockholm award.
Failure to take into consideration applicable law
The fundamental issue i n dispute which the Stockholm Tribunal was obliged to adjudicate was whether the Media Council's actions or omissions, in relation to ČNTS, entailed that the Republic had violated the provisions of the Treaty. The Stockholm Tribunal stated also in paragr aph 590 of the award that its task was to determine whether the Republic had violated the Treaty. The Stockholm Tribunal carefully considered applicable law and did not act as amaible compositeur. The Stockholm award is based on sources of law that are relevant for the assessment of a claim which is based on a violation of the Treaty, i.e. the investment protection provisions in the Treaty, and international law. In its assessment on the merits of the dispute, the Stockholm Tribunal took into consideration other issues with respect to legal and factual circumstances, to the extent such were relevant.
The Republic devoted little attention to Czech law during the Stockholm proceedings. The relevant Czech law related to the Media Act, the Media Council, and the Czech Administrative Procedure Act. In the Stockholm proceedings, the Republic presented no evidence regarding Czech law corresponding to that which has been presented in the instant case and referred neither to the Czech Commercial Code nor the Civil Code. Of the legal experts retained by the Republic, it was not a Czech lawyer but rather an English professor of international law, Professor Lowe, who solely expressed opinions regarding international law. However, the Republic's team of lawyers in the Stockholm proceedings also included Czech lawyers.
At the time they answered Kühn's list of questions, Schwebel and Hándl held differing views regarding the purport of the choice of law clause in the Treaty, but both considered what it entailed and deemed themselves as bound by it. Hándl believed, inter alia, that Czech law should take precedence. At the time of the Düsseldorf meeting, Kühn also regarded himself as bound by the choice of law clause but did not share Hándl's opinion that the clause meant that precedence be accorded to Czech law. The issue of applicable law was addressed during the deliberations of the arbitrators and all of the arbitrators regarded themselves as bound by the choice of law clause.
The Stockholm award is based on an analysis of the Treaty and applicable law. The following can be cited as examples of instances in which the Stockholm Tribunal applied international law and the Treaty.
- In the award, the Stockholm Tribunal carefully analysed the concepts that governed CME's right to demand arbitration, e.g. "investment dispute" and "investors".
- The Stockholm Tribunal investigated whether the Czech authorities had approved the legality of the original investment. The Stockholm Tribunal verified whether the split structure was legal in order to seek whether prior investors could have relied on the actual approval, which was an assessment that the Stockholm Tribunal conducted on the basis of international law.
- CME argued in the arbitration proceedings, inter alia, that a deprivation/ expropriation had taken place, which was a claim based on the provisions of the Treaty. CME claimed that there had been coercion and that the company had been deprived of its investment. In its assessment whether expropriation existed, the Stockholm Tribunal found that CME and its predecessor had been able to rely on the Media Council's approval of the split structure. The Tribunal further described when a public authority's behaviour might constitute deprivation and expropriation in accordance with international law. The Tribunal assessed that the Media Council's behaviour could be attributable to normal administrative law measures. In addition, the Tribunal described when an expropriation might pertain and that such might be the case even in the event of failure to act. The Tribunal subsequently referred to sources of international law with the regard to expropriation, such as various cases, before the Tribunal concluded that the Media Council's actions in 1996 and the actions and omissions in 1999 were to be deemed expropriation under the Treaty.
- In paragraphs 575-585 of the award, the Stockholm Tribunal carefully examined whether a breach of the Treaty had occasioned any injury. In this section, the Tribunal also addressed an objection raised by the Republic with respect to causality.
- In paragraphs 615-618, the Stockholm Tribunal addressed the principle governing the determination of damages and, also in this section, the Tribunal referred to sources of international law.
None of the examples cited by the Republic provide support for the view that the Stockholm Tribunal failed to apply governing law, entailing that the Tribunal acted as amiable compositeur. The Stockholm Tribunal reached its decisions based on law and applied the sources of law stated in the choice of law clause to the extent such was necessary. The application made by the Tribunal was also correct.
The Stockholm Tribunal was not obliged to take into consideration Czech law to the extent claimed by the Republic, as is evident, inter alia, from the following examples.
In both the appeal and in the Stockholm proceedings the Republic has addressed the Media Council's role. During the Stockholm proceedings, however, the Media Council's role was not in dispute and, accordingly, there was nothing for the Stockholm Tribunal to decide upon in this regard. Nor was it disputed that it was not possible to assign the license pursuant to the Media Act and, in addition, the parties were agreed that CET 21's contribution of the exclusive use of the license to ČNTS did not entail an assignment of the license. It was not disputed that CET 21 was the sole holder of the license and only CET 21 could assert rights as a consequence thereof. In the Stockholm proceedings, CME did not argue that it held any rights as licensee. In addition, the parties were agreed that CEDC was not a "direct participant" in the license application and this matter was not a matter for adjudication in the Stockholm proceedings. CME did not invoke any rights as direct participant in accordance with the Media Act but, rather, argued that it was an investor under the Treaty and had been able to rely on an approval from the Czech authorities. The parties were agreed that the purport of the 1993 and 1996 MOAs was subject to Czech law.
In paragraph 467, the Stockholm Tribunal stated that "The Tribunal is not to decide on the Czech Administrative Law aspect of this question", which does not mean that the Stockholm Tribunal chose to disregard Czech law. The Stockholm Tribunal found that Dr. Barta's statement that the Media Council was not entitled to decide upon approval of the split structure did not address the international law aspect of the issue and noted that Dr. Barta's opinion was not in accordance with the Republic's obligations under the Treaty. The issue of the Media Council's approval having violated Czech Administrative Law was not relevant under international law and CME could not have based any claim on the Media Council having violated Czech Administrative Law. What was relevant was that there existed an approval from the Media Council in 1993 and that the approval could not be changed without the investor receiving compensation. The Republic thus was not entitled to weaken the structure which the Republic had previously approved. The Stockholm Tribunal thereupon conducted an assessment whether Czech law was relevant to the issue of whether the Treaty had been breached.
In paragraph 590, the Stockholm Tribunal stated that "It is not the task of the Arbitral Tribunal to judge whether these actions are in compliance with the Czech law and regulations", which does not provide any support for the view that the Stockholm Tribunal failed to apply law. The statement was made in a section in which the Stockholm Tribunal summarized its assessment whether the Republic had breached the Treaty. The issue which was relevant for the Stockholm Tribunal was whether the Media Council's actions were in accordance with the Treaty or whether they constituted a violation thereof, and the Stockholm Tribunal was of the opinion that the issue should be determined on the basis of the provisions of the Treaty.
The Stockholm Tribunal's statement in paragraph 476 that "It is not the Tribunal's role to pass a decision upon the legal protection granted to a fo