Coropi Holdings Limited, Kalemegdan Investments Limited and Erinn Bernard Broshko v Republic of Serbia - ICSID Case No. ARB/22/14 - Claimant's Memorial - 31 March 2023
Country
Year
2023
Summary
Source: icsid.worldbank.org
IN THE MATTER OF INVESTMENT DISPUTE UNDER THE AGREEMENT
BETWEEN SERBIA AND MONTENEGRO AND THE REPUBLIC OF CYPRUS ON
RECIPROCAL PROMOTION AND PROTECTION OF INVESTMENTS AND
UNDER THE AGREEMENT BETWEEN CANADA AND THE REPUBLIC OF
SERBIA FOR THE PROMOTION AND PROTECTION OF INVESTMENTS
COROPI HOLDINGS LIMITED AND KALEMEGDAN INVESTMENTS LIMITED (CYPRUS)
AND
MR. ERINN BERNARD BROSHKO (CANADA)
CLAIMANTS
-v-
THE REPUBLIC OF SERBIA
RESPONDENT
MEMORIAL
31 March 2023
TABLE OF CONTENTS
I. INTRODUCTION
A. Preliminary statement
B. Organization of the Memorial
II. THE PARTIES
A. The Claimants
B. Respondent
III. FACTUAL BACKGROUND
A. Obnova's pre-privatization history
1. In 1948, Obnova was founded and allocated land at Dunavska 17-19
2. In the 1960s, Serbia allocated to Obnova land at Dunavska 23
B. Obnova's privatization on 12 September 2003
C. The City of Belgrade's adoption of the 2003 RP on 22 September 2003
D. Obnova's first attempts to register the right to its premises
E. Acquisition of Obnova's shares by Mr. Obradovi
F. The City of Belgrade's 2006 decision to draft a detailed regulation plan of the area comprising Obnova's premises
G. Possibility to convert right of use into ownership under the 2009 Law on Planning and Construction
H. Obnova's continued efforts to obtain the missing permits for its buildings
I. Cypriot Claimants' acquisition of the Cypriot Obnova Shares in 2012
J. Obnova's rights upon Cypriot Claimants' investment
K. The adoption of the 2013 DRP on 20 December 2013
1. Content of the 2013 DRP
2. Expropriatory effect of the 2013 DRP on Obnova's rights
3. Obnova's right to compensation under Serbian law
L. Adoption of the 2015 DRP
M. Serbia's decision to demolish Obnova's buildings
N. MLI's acquisition of 10% of Obnova's shares in 2017
O. Serbia's refusal to compensate Obnova
1. Land Directorate's response regarding premises at Dunavska 17-19
a. Obnova's buildings are not temporary and Obnova does not have an obligation to demolish them
b. The Land Directorate did not even attempt to identify relevant buildings
c. It is irrelevant that the buildings located at Dunavska 17-19 were not "subject of privatization"
d. The City of Belgrade is not the owner of Obnova's buildings
e. Erroneous registration of the City of Belgrade's purported ownership is irrelevant
2. Land Directorate's response regarding Obnova's premises at Dunavska 23
IV. JURISDICTION
A. Claimants meet the jurisdictional requirements of the Treaties
1. Jurisdiction ratione personae
a. Coropi and Kalemegdan are investors protected under the Serbia-Cyprus BIT
b. Mr. Broshko is an investor protected under the Canada-Serbia BIT
2. Jurisdiction ratione materiae
a. The Cypriot Claimants' investments are protected under the Serbia-Cyprus BIT
b. Mr. Broshko's investment is protected under the Canada-Serbia BIT
3. Jurisdiction ratione temporis
B. The Claimants' claims meet the jurisdictional requirements of the ICSID Convention
1. There is a legal dispute between Claimants and Serbia
2. The dispute between Serbia and Claimants arises directly out of an investment
3. The dispute between Claimants and Serbia is a dispute between a Contracting State and a national of another Contracting State
4. Claimants and Serbia consented in writing to submit their dispute to the Centre
a. Cypriot Claimants complied with the requirements under Article 9(2) of the Serbia-Cyprus BIT
b. Mr. Broshko complied with the requirements under Article 24(1)(a) of the Canada-Serbia BIT
V. SERBIA VIOLATED ITS OBLIGATIONS UNDER THE TREATIES
A. Serbia unlawfully expropriated the Cypriot Claimants' investment
1. Serbia expropriated the Cypriot Claimants' investment
2. The expropriation of Cypriot Claimants' investment was unlawful
a. Serbia failed to show that the expropriation of Obnova's premises was in the public interest
b. Serbia did not grant Cypriot Claimants due process
c. Serbia acted discriminatorily
d. Serbia did not provide any compensation for the expropriation of Obnova's premises
B. Serbia failed to provide fair and equitable treatment to Claimants' investment
1. The FET standard under the Treaties
2. Serbia breached the FET standard when it de facto expropriated Cypriot Claimants' investment
3. Serbia breached the FET standard by refusing to compensate Obnova for the expropriation of its property
C. Serbia impaired Claimants' investment by unreasonable and discriminatory measures
1. Standard under the Treaties
2. Serbia impaired Cypriot Claimants' investments by unreasonable and discriminatory measures when it expropriated Obnova's premises
3. Serbia impaired Claimants' investments by unreasonable and discriminatory measures when it refused to provide compensation to Obnova
D. Serbia breached its obligations under the umbrella clause
VI. CLAIMANTS ARE ENTITLED TO COMPENSATION FOR THEIR LOSSES
A. Cypriot Claimants suffered losses of EUR 26.2 million
1. Breaches claimed by Cypriot Claimants
2. Serbia must provide Cypriot Claimants with full reparation for breaches of its obligations under the Serbia-Cyprus BIT
3. The full reparation standard requires payment of the fair market value
4. The valuation date should be the date of the award
5. Cypriot Claimants are entitled to interest
a. Interest shall be calculated pursuant to Serbian law
b. Alternatively, Cypriot Claimants are entitled to interest equal to 6-month average EURIBOR + 2%, compounded semi-annually
c. The tribunal shall award the same pre-award and post-award interest
6. The but-for fair market value of Obnova's premises is EUR 38.2 million
a. Methodology used to value Obnova's premises
b. Residual value of Obnova's premises
i. Development parameters
ii. Pre-construction period
iii. Revenues generated by the potential development
iv. Costs related to the potential development
v. Summary of residual valuation
c. Cross-checks used by Dr. Hern
i. Cross-check based on data from the Serbian Statistical Office
ii. Cross-check based on comparable land transactions
d. Summary of Dr. Hern's valuation of Obnova's premises
7. Cypriot Claimants suffered a loss of EUR 26.2 million
B. Mr. Broshko suffered a loss of EUR 3.8 million
1. Breaches claimed by Mr. Broshko
2. Serbia must provide Mr. Broshko with full reparation for breaches of its obligations under the Canada-Serbia BIT
3. Obnova is entitled to EUR 38.2 million compensation under Serbian law
a. Under Serbian law, Serbia is obliged to compensate Obnova for the expropriation of its premises
b. Compensation due to Obnova is EUR 38.2 million
4. The value of Mr. Broshko's interest in Obnova's compensation
claim is EUR 3.7 million
VII. REQUEST FOR RELIEF
I. INTRODUCTION
A. Preliminary statement
1. Serbia has decided to use Claimants' land in central Belgrade, worth EUR 38.2 million, for the construction of a bus loop--and refuses to pay any compensation. Thus, Claimants have started this arbitration to obtain compensation for their EUR 30 million share in the value of the land.
2. Claimants are the owners of the Serbian company Preduzee za prikupljanje, preradu i promet sekundarnih sirovina Obnova AD Beograd (Stari grad) ("Obnova"). Obnova has had for decades a permanent right to use land in two locations in Belgrade's city center, at Dunavska 17-19 and Dunavska 23:1
3. Obnova built a number of buildings at both locations and these buildings became Obnova's property upon its privatization in 2003. In 2009, Obnova also acquired the right to convert its right to use the land into ownership.
4. The high value of Obnova's land was due to its strategic location near the Danube river and Port of Belgrade in the Belgrade city center and it being zoned for commercial and residential use under the "Master Plan for the City of Belgrade 2021" that the City of Belgrade adopted in 2003 ("2003 RP").2 Obnova's land is also designated for commercial and residential use under the City of Belgrade's General Urban Plan from 2016 ("2016 RP").3
5. In December 2013, Serbia decided to use Obnova's premises for the construction of a bus loop and its access roads. This decision, enacted by the City of Belgrade in the "Detailed Regulation Plan for Roadways: Dunavska, Tadeusa Kosuska, Dubrovacka, Trolleybus and Bus Terminus in Dorol, Municiplaity of Stari Grad" ("2013 DRP"), immediately deprived Obnova of any prospect of realizing the value of its premises in a commercial transaction as it could no longer be developed. It also eliminated Obnova's right to convert its right to use the land into ownership.
6. Stunningly, the City of Belgrade designated Obnova's premises for a bus loop even though the City owned a much larger land plot specifically zoned for traffic infrastructure literally across the street from Obnova's premises. To add insult to injury, the City then rezoned its own land to residential use in the "Detailed Regulation Plan for the area between the streets: Francuska, Cara Dusana, Tadeusa Kosuska and the existing Dorol railway, the Municipality of Stari Grad adopted in 2015" ("2015 DRP"). Thus, the City of Belgrade arbitrarily picked Obnova's premises for the construction of traffic infrastructure even though they were zoned for commercial and residential use, and converted its own land designated for traffic infrastructure into very valuable land for residential construction.
7. Under Serbian law, such a change in the spatial regulation of Obnova's land requires the payment of compensation. Such compensation would be agreed to between the City of Belgrade and Obnova or, failing such an agreement, determined by the Serbian courts in an amount equal to the fair market value of the expropriated property and rights as of the date of the court's decision.
8. However, in 2021, the City of Belgrade expressly refused Obnova's request for compensation as a result of the expropriatory effects of the 2013 DRP. By so doing, the City of Belgrade clearly breached Serbian law.
9. The refusal to provide compensation violated not only Serbian law, but also two international investment treaties that protect the three claimants in this arbitration.
10. Kalemegdan Investments Limited ("Kalemegdan") is a Cypriot company that has been, since April 2012, the owner of 14,142 shares in Obnova, which represent approximately 70% of Obnova's total share capital (the "Cypriot Obnova Shares"). Coropi Holdings Limited ("Coropi"; together with Kalemegdan, "Cypriot Claimants") is another Cypriot company that has been the beneficial owner of the Cypriot Obnova Shares since the same date. Cypriot Claimants are protected under the Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal Promotion and Protection of Investments, which entered into force on 23 December 2005 and was published in the Official Gazette of Serbia and Montenegro No.14/05 (the "Serbia-Cyprus BIT").4
11. Mr. Erinn B. Broshko ("Mr. Broshko"; together with Cypriot Claimants, "Claimants") is a Canadian national whose Serbian company, Maple Leaf Investment d.o.o. Beograd - Stari Grad ("MLI"), purchased approximately 10% of Obnova's shares in 2017. Mr.
Broshko is protected under the Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments, which entered into force on 27 April 2015 (the "Canada-Serbia BIT"; the Canada-Serbia BIT and the Serbia-Cyprus BIT being, together, the "Treaties").5
12. The loss incurred by Claimants as a result of Serbia's breaches of the Treaties can be easily calculated--it is the loss in the value of their respective shareholdings in Obnova, which reflects the decrease in the fair market value of Obnova's assets and rights stemming from the adoption of the 2013 DRP and Serbia's failure to provide any compensation in respect thereof.
13. The standard of compensation is the same under both Serbian and international law and requires Serbia to compensate Claimants for the decrease in the fair market value of Obnova's assets and rights calculated as of the date of this Tribunals' award.
14. The damages due to Claimants would be the same regardless of whether the Tribunal finds a breach of one, two or any combination of the treaty standards invoked by Claimants. This is because all losses sustained by Claimants stem directly from only two specific measures--adoption of the 2013 DRP and Serbia's express refusal to provide Obnova any compensation in respect thereof. Each of these measures caused the same loss to Claimants.
15. Claimants' valuation expert, Dr. Richard Hern from NERA Economic Consulting, estimates the damages due to Claimants at: (i) EUR 26.2 million due to Kalemegdan or Coropi; and (ii) EUR 3.8 million due to Mr. Broshko.
16. Claimants served on Serbia written notifications of this investment dispute on 16 June 2021 (the "Cypriot NoD")6 and 23 November 2021 (the "Canadian NoD")7 and invited Serbia to settle it amicably. Serbia did not respond. The cooling-off periods under the Treaties, therefore, lapsed without Serbia engaging in any amicable settlement process.
As a result, Claimants were left with no choice but to initiate these arbitration proceedings.
...
VII. REQUEST FOR RELIEF
406. Claimants request that the Tribunal issues an award:
a. declaring that Serbia has breached the Serbia-Cyprus BIT with respect to Kalemegdan and Coropi;
b. declaring that Serbia has breached the Canada-Serbia BIT with respect to Mr.
Broshko and MLI;
c. ordering Serbia to pay compensation to Cypriot Claimants of no less than EUR 26.2 million;
d. ordering Serbia to pay compensation to Mr. Broshko and MLI of not less than EUR 3.8 million;
e. ordering Serbia to pay interest on any amounts awarded at the rate of Serbian statutory default interest rate from 31 March 2023 until the payment is made in full;
f. ordering Serbia to pay the costs of this proceeding, including costs of legal representation; and
g. ordering such other relief as the Tribunal may deem appropriate in the circumstances.
407. Claimants reserve the right to supplement or otherwise amend their claims and the relief sought.
Submitted on behalf of Kalemegdan, Coropi and Mr. Broshko
...