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UNCITRAL Arbitration Proceedings CME Czech Republic B.V. (The Netherlands) vs. The Czech Republic

FINAL AWARD issued in Stockholm, Sweden, in the UNCITRAL Arbitration Proceedings between

and

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I. The Dispute

A. Background of the Dispute

(1) The Parties

1. The Claimant, CME Czech Republic B.V., is a corporation organized under the laws of the Netherlands. The Respondent, the Czech Republic, is a sovereign State, represented in these proceedings by its Ministry of Finance.

(2) The Introduction of Arbitration Proceedings

2. CME Czech Republic B.V. (CME) initiated these arbitration proceedings on February 22, 2000 by notice of arbitration against the Czech Republic pursuant to Art. 3 of the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

(3) The Netherlands / Czech Republic Bilateral Investment Treaty

3. CME initiated this arbitration as a result of alleged actions and inactions by the Czech Republic claimed to be in breach of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, executed on April 29, 1991 (hereinafter: "the Treaty"). The Treaty entered into force in the Czech and Slovak Federal Republic on October 1, 1992 and, after the Czech and Slovak Federal Republic ceased to exist on December 31, 1992, the Czech Republic succeeded to the rights and obligations of the Czech and Slovak Federal Republic under the Treaty.

(4) CME's "investments" under the Treaty

4. CME holds a 99% equity interest in Ceská Nezávislá Televizní Spolecnost, spol. s r.o. ("CNTS"), a Czech television services company. CME maintains that, among other things, CME's ownership interest in CNTS and its indirect ownership of CNTS' assets qualify as "investments" pursuant to Art. 1 (a) of the Treaty. CME and these investments, therefore, are thereby entitled to the protection and benefits of the Treaty.

(5) CME's shareholding

5.CME acquired its 99% ownership interest in CNTS in steps. It acquired 5.8% shares in 1997 by purchasing the Czech holding company NOVA Consulting, which owned these shares, and by purchasing, in May 1997, 93.2% from CME's affiliated company, CME Media Enterprises B.V., which, in turn, in 1996 had acquired 22% of the shares in CNTS from the Ceská Spontelna a.s. (Czech Savings Bank) and 5.2% from CET 21 Spol. s.r.o. (CET 21).

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6. Earlier, in 1994, CME Media Enterprises B.V. had acquired a 66% shareholding in CNTS from the Central European Development Corporation GmbH ("CEDC"). That German corporation was under the same ultimate control as CME and CME Media Enterprises, through Central European Media Enterprises Ltd., a Bermuda corporation, in turn controlled by Mr. Ronald S. Lauder, an American industrialist with domicile in the United States of America.

7. CEDC (with a share of 66%), CET 21 (with a share of 21%) and the Czech Savings Bank (with a share of 22%) were co-founders of CNTS, formed as a joint venture company in 1993 with the object of providing broadcasting services to CET 21.

(6) The Broadcasting License

8. CME's investments (its ownership interest in CNTS and its indirect ownership of CNTS' assets) are related to a license for television broadcasting granted by the Czech Media Council, empowered to issue licenses by the Czech Republic's Act on the Operation of Radio and Television Broadcasting, adopted on October 30, 1991, Act No. 468/1991 Coll. (hereinafter, the "Media Law"). This license was granted to CET 21, acting in conjunction with CEDC, for the purpose of the acquisition and use of the license for broadcasting throughout the Czech Republic. CME's and its predecessors' investments in this joint venture, principally between CEDC and CET 21, are the object of the dispute between the parties.

9. In late 1992 and early 1993, CEDC, on the invitation of CET 21, which was owned by five Czech nationals and advised by Dr. Vladimír Zelezny, a Czech national, participated in negotiations with the Czech Media Council (hereinafter: "the Council") with the goal of the issuance of the Broadcasting license to CET 21 with a participation therein, either directly or indirectly, by CEDC.

10. The Council issued the license to CET 21 on February 9, 1993 to operate the first nationwide private television station in the Czech Republic. The decision granting the license acknowledged CEDC's substantial involvement of foreign capi tal necessary to begin television station activities and the conditions attached to the license acknowledged CEDC's partnership with the holder of the license, CET 21.

(7) The Formation of CNTS

11. Instead of CEDC taking a direct share in CET 21 (as initially contemplated), and instead of a license being issued jointly to CET 21 and CEDC (also so contemplated), the partners of CET 21 and Dr. Zelezny agreed with CEDC and the Media Council to establish CEDC's participation in the form of a joint venture, CNTS. The Media Council quickly came to the view that such an arrangement would be more acceptable to Czech Parliamentary and public opinion than one that accorded foreign capital a direct ownership or licensee interest.

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(8) The CNTS Memorandum of Association

12. A Memorandum of Association was made part of the license conditions, defining the co-operation between CET 21 as the license holder and CNTS as the operator of the broadcasting station. CET 21 contributed to CNTS the right to use the license "unconditionally, unequivocally and on an exclusive basis" and obtained its 12% ownership interest in CNTS in return for this contribution in kind. Dr. Zelezny served as the general director and chief executive of CNTS and as a general director of CET 21. CNTS' Memorandum of Association ("MoA") was, after close consideration by the Media Council, approved by the Council on April 20, 1993 and, in February 1994, CNTS and CET 21 began broadcasting under the license through their newly-created medium, the broadcasting station TV NOVA.

(9) CNTS' Broadcasting Services

13. CNTS provided all broadcasting services, including the acquisition and production of programs and the sale of advertising time to CET 21, which acted only as the license holder. In that capacity, CET 21 maintained liaison with the Media Council. It was CET 21 that appeared before the Media Council, not CME, though Dr. Zelezny's dual directorships of CET 21 and CNTS did not lend themselves to clear lines of authority.

(10) TV NOVA's success

14. TV NOVA became the Czech Republic's most popular and successful television station with an audience share of more than 50%, with USD109 million revenues and USD 30 million net income in 1998. CME claims to have invested totally an amount of USD140 million, including the afore-mentioned share purchase transactions for the acquisition of the 99% shareholding in CNTS, by 1997. The audience share, the revenues and amount of the investment are disputed by the Respondent.

(11) The Change of Media Law

15. As of January 1, 1996, the Media Law was changed. According to the new Media Law, license holders were entitled to request the waiver of license conditions (and Media Council regulations imposed in pursuance of those conditions) related to non-programming. Most of the license holders applied for this waiver, including CET 21, with the consequence that the Media Council lost its strongest tool to monitor and direct the license holders.

(12) The Amendment of the Memorandum of Association

16. As a consequence of certain inter-actions between the Media Council and CET 21, including CNTS, the shareholders of CNTS in 1996 agreed to change CNTS' Memorandum of Association ("the MoA") and replaced CET 21's contribution "Use of the license" by "Use of the Know-how of the license". In conjunction with the change of the contribution of the use of the license, CET 21 and CNTS entered into a Service Agreement. That Agreement thereafter was the basis for the broadcasting services provided by CNTS to CET 21 for operating TV NOVA. The circumstances, reasons and events12related to, and the commercial and legal effects deriving from this revision, are in dispute between the parties.

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(13) The 1999 Events

17. In 1999, after exchanges between the Media Council and Dr. Zelezny, the character and the legal impact of these exchanges being in dispute between the parties, CET 21 terminated the Service Agreement on August 5, 1999 for what it maintains was good cause.

18. The reason given for this termination was the non-delivery of the day-log by CNTS to CET 21 on August 4, 1999 for the following day. CET 21 thereafter replaced CNTS as service provider and operator of broadcasting services by other service providers, with the consequence that CNTS' broadcasting services became idle and, according to CME, CNTS' business was totally eliminated.

(14) CME's Allegations

19. CME claims that CNTS, the most successful Czech private broadcasting station operator with annual net income of roughly USD 30 million, has been commercially destroyed by the actions and omissions attributed to the Media Council, an organ of the Czech Republic.

20. CME claims, inter alia, that a signed merger and acquisition agreement between CME's interim parent company and the Scandinavian broadcaster and investor Scandinavian Broadcasting System ("SBS") was vitiated by these actions and omissions of the Media Council. CME accordingly suffered damage of more than USD 500 million, which was the value allocated by that agreement and by the joint venture partners to CNTS in 1999 before the disruption of the legal and commercial status of CNTS as a consequence of the Media Council's actions and omissions. CME claims that the Media Council, in breach of the Treaty, in 1996 coerced CME into amending the MoA thereby forcing CNTS to give up the exclusive right of the "use" of the broadcasting license and that the Media Council in 1999 in collusion with Dr. Zelezny lent its support to the destruction of CNTS' business.

21. The Czech Republic strongly disputes this contention and the purported underlying facts, maintaining that, inter alia, the loss of investment (if any) is the consequence of commercial failures and misjudgements of CME and, in any event, that CME's claim is part of a commercial dispute between CNTS and Dr. Zelezny, for which the protection of the Treaty is not available.

(15) The Prague Civil Court Proceedings

22. On August 9, 1999, CNTS sued CET 21 for having terminated the Service Agreement on August 5, 1999 without cause. The Prague District Court on May 4, 2000 judged13that the termination was void; the Court of Appeal, however, upheld the validity of the termination. The Czech Supreme Court, on November 14, 2001, reversed the Court of Appeal decision and referred the law-suit back to the lower instance (the Prague City Court) for further clarification and decision. On July 4, 2002, the City Court of Prague rejected CNTS' claim. The reason given was that CNTS' petition dated August 9, 1999 as well as the modified petition dated May 15, 2002, in the view of the City Court of Prague was vague and, therefore, unenforceable. Further, the City Court held that the modified petition was not based on the decisive facts already alleged but rather on other circumstances, which were not specified in the filing dated August 9, 1999. The Tribunal understands that CNTS has appealed this decision. A decision on the appeal was still pending when these arbitration proceedings were closed on November 14, 2002.

(16) The ICC Arbitration CME Media vs. Dr. Zelezny

23. On April 26, 1999 CME Media Enterprises B.V. Amsterdam (CME Media), a corporation affiliated to the Claimant, filed a request for ICC arbitration against Dr. Zelezny, alleging that Dr. Zelezny had breached a non-competition clause and other provisions of the share purchase agreement with CME Media, under which CME Media had acquired from Dr. Zelezny the Czech corporation Nova Consulting a.s. (Nova Consulting), which in turn held 5.8% equity interest in CNTS.

24. On November 9, 2001 the ICC Tribunal rendered a Final Award ordering Dr. Zelezny to pay to CME Media USD 23.350.000 plus 5% p.a. interest on certain amounts, CME Media being ordered to return the Nova Consulting shares to Dr. Zelezny upon receipt of full payment of principal and interest. At its closing submissions on November 12, 2002 the Claimant stated that CME eventually had received the full amount awarded in the ICC arbitration. It earlier had claimed that Dr. Zelezny had fraudulently eluded payment with assistance from Czech authorities.

(17) The London Arbitration

25. On August 19, 1999, Mr. Lauder initiated UNCITRAL Arbitration Proceedings against the Respondent under the Treaty between the United States of America and the Czech and Slovak Federal Republic Concerning on the Reciprocal Encouragement and Protection of Investment of October 22, 1991 (the "U.S. Treaty"). Mr. Lauder requested that the Respondent be ordered to take such actions as are necessary to restore the contractual and legal rights associated with Mr. Lauder's investment in the Czech Republic (the "London Arbitration"). The London Arbitration in substance dealt with the same dispute that is the object of these proceedings. The London Tribunal in its Final Award dated September 3, 2001 found that the Respondent breached the U.S. Treaty, when the Media Council disallowed a direct investment in CET21 by a Lauder- controlled company. Nevertheless, the London Tribunal rejected the claim, finding that Mr.14Lauder did not [bring] "sufficient evidence that any measure or action taken by the Czech Republic would have had the effect of transferring his property or depriving him of his rights to use his property or even interfering with his property rights"(London Final Award para. 222, 201, 202).

(18) Investment Dispute and Breach of Treaty

26. CME contents that the dispute between the parties is a dispute "between one contracting party and an investor of the other contracting party concerning an investment of the latter" as defined by Art. 8 (1) of the Treaty. As such, it is the position of CME that the dispute is subject to arbitration pursuant to Art. 8 (2) through 8 (7) of the Treaty.

27. CME alleges that the Czech Republic has breached each of the following provisions of the Treaty:

B. Relief Sought

(1) Relief Sought by CME Czech Republic B.V.

28. In its Notice of Arbitration, CME requested the Tribunal to provide a "relief necessary to restore CNTS' exclusive rights to provide broadcasting services for TV NOVA and thereby restore to CME the economic benefit available under the arrangement initially approved by the Council" (restitutio in integrum). During the proceedings, CME amended the Relief Sought and requested the Tribunal to give the Relief to the Claimant described below. The parties instructed the Tribunal that, if damages are to be awarded, the Tribunal shall not decide on the quantum at the first phase of the proceedings but at the Quantum Phase.

29. At the First Phase of the proceedings Claimant sought an award:

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30. Claimant confirmed that it has withdrawn its request for the remedy of restitutio in integrum.

31. In its Skeleton Quantum Arguments dated November 4, 2002, the Claimant requested the following relief: 16 [after (c)]

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(2) Relief Sought by the Czech Republic

32. The Czech Republic at the First Phase of the proceedings sought an award that:

33. In its Skeleton Closing Submissions Respecting Quantum of November 4, 2002 the Czech Republic seeks a further partial award or order in the following terms:

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C. Procedure

I. The appointment of the Tribunal

34. After having initiated the arbitration proceedings, the Claimant appointed Judge Stephen M. Schwebel, Washington, and the Respondent JUDr. Jaroslav Hándl, Prague, as party-appointed arbitrators. Both arbitrators appointed Dr. Wolfgang Kühn, Düsseldorf, as Chairman of the Arbitral Tribunal on July 19, 2000, which appointment was accepted by the Chairman on July 21, 2000. On September 19, 2000, Dr. Hándl resigned as arbitrator (after the Tribunal rendered a Partial Award on September 13, 2001 (PA), which Dr. Hándl refused to sign). On October 18, 2001 the Respondent appointed Mr. Ian Brownlie C.B.E., Q.C. as arbitrator.

II. The First Phase of the proceedings

(1) Procedural Orders (First Phase)

35. During the first phase of the proceedings, the Tribunal issued various procedural orders in particular related to the exchange of written submissions, the language of the proceedings and the production of documents, hearing dates and payment of costs (Partial Award para. 34 seq.).

36. In accordance with Art. 16 of the UNCITRAL Rules, the place of arbitration was determined to be Stockholm. The Tribunal convened a procedural meeting with counsel of the parties on November 17, 2000. The Tribunal and the parties agreed on the Arbitrators' fees (hourly rates).

37. On September 22, 2000 the Claimant submitted its Statement of Claim. 38."On November 9, 2000 the Respondent submitted its Statement of Defense. In its Statement of Defense the Respondent raised, inter alia, the defense of jurisdiction stating that the Tribunal lacked jurisdiction, or, in the alternative, that CME's claim was inadmissible.

39. On November 14, 2000 the Claimant submitted a Request for Production of Documents describing the requested documents broadly as Media Council's records and documents (Partial Award para. 38), which request was contested by Respondent on November 16, 2000 as being too broad and unsubstantiated and, therefore, not in compliance with the International Bar Association Rules on Taking Evidence in International Commercial Arbitration adopted on June 1, 1999 ("IBA Rules").

(2) The Procedural Hearing (First Phase)

40. For the hearing of November 17, 2000, the parties jointly submitted an agenda. Under the first topic, Claimant suggested the co-ordination of this arbitration with the Lauder18vs. the Czech Republic arbitration (the London Arbitration). The Claimant's proposal to have the two proceedings inter-linked in their timing was not pursued because the parties were in disagreement.

41. In respect to this and other procedural issues the Tribunal, on November 17, 2000, issued Order No. 5. The Tribunal decided that no separate hearing on jurisdiction or the admissibility of the claim was to be held.

42. In respect to Procedures for Taking Evidence, the parties proposed to apply the IBA Rules with the exception of certain non-agreed provisions (Partial Award para. 45). The parties agreed that witness statements and testimony provided in the London Arbitration may be referred to in this arbitration.

43. In accordance with Art. 15.1 of the UNCITRAL Arbitration Rules, the Tribunal decided to conduct the arbitration in the manner it considers appropriate. For this purpose, the Tribunal decided, to the extent appropriate, to apply the IBA Rules.

44. With respect to the determination of the amount of any damage award, the parties jointly informed the Tribunal that they were in agreement that the hearing on the merits should be devoted to resolving issues of liability and the appropriate form of remedy. If the determination of a quantum of monetary damages was necessary - for example, because the Arbitral Tribunal were to order a remedy referred to in para. 111 or para. 112 of Claimant's Statement of Claim - that quantum should be established in further proceedings, so that the briefs and witness statements will not at this stage deal with the amount of monetary damages.

45. The Claimant submitted its Reply Memorial on December 22, 2000 and the Respondent its Sur-Reply on February 14, 2001.

46. By Order No. 6 dated December 22, 2000, the Tribunal by majority decision instructed the Respondent to produce certain documents requested by the Claimant, deleting however certain documents from the list requested (Partial Award para. 53).

(3) The Tribunal's Decision on Interim Remedies (First Phase)

47. On March 3, 2001 the Arbitral Tribunal by Order Q 8 decided not to take a decision on Interim Remedies. The Tribunal stated inter alia:

In respect to the Respondent's request regarding the disclosure by the Claimant of all pleadings, submissions and evidence submitted by CME Media Enterprises B. V. in the ICC Arbitration Proceedings between CME Media Enterprises B. V. and Dr. Zelezny, the Tribunal is not in a position to order the requested discovery, as the Parties of the ICC Arbitration Proceedings are different from the Parties to these proceedings. The Tribunal understands, however, that the ICC Award of the afore-mentioned proceedings was published on the internet on the CME pages. The Arbitral Tribunal, therefore, instructs the Claimant to submit as soon as possible to the Arbitral Tribunal and to the Respondent the ICC Award to the extent available to the public on the internet. The Tribunal assumes that the

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Respondent's demand for disclosure of the ICC proceeding will be sufficiently met by the disclosure of the ICC Award. (PA para. 64)

48. The Claimant in accordance with Order No. 8 submitted to the Tribunal the ICC Award. The Respondent declared:

"The Czech Republic continues to participate in this Arbitration under protest and reserves all its rights, in particular its rights under Swedish Arbitration Act, Art. V (2) (b) of the New York Convention 1958 and principles of public policy generally."

(4) Further conduct of proceedings (First Phase)

49. The parties submitted 22 written witness statements and attached to their submissions copies of some 300 documents comprising several thousand pages. They further attached binders comprising several thousand pages of authorities in support of their respective memorials.

(5) The Stockholm Hearing (First Phase)

50. From April 23, 2001 to May 2, 2001 the hearing took place in Stockholm. Ten witnesses were heard (Partial Award para. 72). The parties presented their case and submitted post-hearing briefs. The parties submitted to the Tribunal the verbatim record of the examination of witnesses taken at the London Arbitration.

III. The Partial Award

51. On September 13, 2001 the Tribunal rendered a Partial Award, signed by Dr. Wolfgang Kühn and Judge Stephen M. Schwebel, whereas Dr. Jaroslav Hándl refused to sign and submitted a dissenting opinion, dated September 11, 2001.

52. The Tribunal decided as follows:

53. The Tribunal decided on the costs for the First Phase (Partial Award para. 624). The Tribunal further stated:20

This Partial Award is final and binding in respect to the issues decided herein. The legal seat of the proceedings is Stockholm, Sweden.

The Tribunal will continue the arbitration proceedings in order to decide on the quantum of the Claimant's claim upon request of one of the Parties.

IV. The Quantum Phase of the Proceedings

(1) Continuation of proceedings

54. On September 17, 2001 the Claimant requested the continuation of the arbitration proceedings related to the quantum of the Claimant's case. The Tribunal by letter dated September 20, 2001 instructed the parties that the arbitration shall continue.

(2) Order No. Q 1 dated October 30, 2001

55. On October 19, 2001 the Respondent requested adjournment of the proceedings sine die. On October 19, 2001 the Claimant requested rejection of a stay of the proceedings.

56. On October 30, 2001 the Tribunal issued the Order No. Q 1 (excerpt).

(3) Order No. Q 2 dated November 6, 2001

57. In a telephone conference on November 6, 2001 between the Chairman and the Parties' representatives the time schedule was agreed in amendment of Order No. Q 1. 20 [after 1.]

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(4) Procedural Hearing in London on January 22, 2001 and Order No. Q 3

58. At the procedural hearing the parties discussed the further conduct of the proceedings and in particular the Respondent's request for Adjournment of Quantum Phase. On February 14, 2002 the Tribunal issued the Order No. Q 3 (excerpt).

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Further the Tribunal issued the agreed timetable for the parties' submissions.

(5) Order Q 4 of the Tribunal of February 19, 2002 on the Claimant's Request to Limit the Production of Documents

59. By submission dated February 1, 2001, the Claimant requested the Tribunal to limit the production of documents by ordering that the Claimant is not obligated to produce (i) documents concerning CME and the subsidiaries for years after 1999, and (ii) documents concerning CNTS, and other CME affiliates' internal thinking about how to handle matters with Dr. Vladimír Zelezný. The Respondent opposed the Claimant's request. The Tribunal decided as follows:

The Claimant was instructed to disclose the Post-1999 CME and subsidiary information to the Respondent. This disclosure is limited to that information that has been disclosed or should have been disclosed in an ordinary conduct of business to CME Limited auditors and should include in particular the information that has already been disclosed and is generally disclosed to the SEC and financial analysts. The Respondent was instructed to confirm that it will not disclose the received information and the documentation from the Claimant to any Third Party including Dr. Zelezny and that the Respondent's advisors shall enter into a suitable Confidentiality Agreement. The Claimant should provide such level of information as is generally provided in the normal conduct of business to the company's auditors.

The Claimant was instructed to submit all documents related to facts and findings concerning their relations with Dr. Vladimír Zelezný, except internal strategy papers for dealing with Dr. Vladimir Zelezný.

(6) Order No. Q 5 dated February 28, 2002

60. The Tribunal issued Order No. Q 5 in clarification of Order No. Q 3.

(7) Order No. Q 6 dated April 16, 2002

61. Having received the Respondent's request for a revised time-table by its submission dated April 9, 2002 and the Claimant's response dated April 15, 2002, the Tribunal, issued the following revised time-table by Order No. Q 6 [after 1.]

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(8) Order No. Q 7 dated April 23, 2002

62. The time schedule for the proceedings was finally agreed with the parties' representatives by modifying Order No. Q 7:

(9) Order No. Q 8 dated June 3, 2002

63. In receipt of the Respondent's submission dated April 30, 2002 with a specification of missing documents and the Claimant's response thereto dated May 15, 2002, and further in receipt of the Respondent's request dated May 29, 2002 to order the Claimant to disclose further documents the Tribunal rendered Order Q 8.

64. The Tribunal clarified the scope of disclosure concerning the Respondent's Document Request dated February 20, 2002. The Claimant was not obligated to submit privileged documents such as documents originated by its in-house or external legal advisors to the extent that such legal advice is related to legal proceedings or disputes between the Claimant and the Respondent and/or its agencies including the Media Council. Legal opinions related to other disputes shall be disclosed, unless restricted by the Tribunal (as for example in respect to disputes with Dr. Zelezný) or privilege for other reasons is granted.

65. Documents of advisors to Claimant shall be disclosed to the extent that these documents are in the possession of the Claimant and/or its affiliated companies or should have been transmitted by the advisor to the Claimant in the ordinary course of business (no advisor's internal working papers are to be disclosed).

66. The redaction of documents shall be limited to privileged subjects as identified in order No. Q 4 related to Dr. Zelezný or as otherwise specified. The Claimant was not obligated to disclose its internal strategizing or advice received about the Claimant's and/or its affiliated companies' legal disputes and proceedings versus the Respondent and/or its agencies

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67. The Claimant was instructed to submit CME Ltd. Board of Directors' minutes dated June 14, 1999, June 28, 1999, October 25, 1999, and November 17, 1999 and the minutes of headquarters meeting dated December 5, 1996 unredacted except in respect to privileged subjects as defined in para. 1 and 4 above and the forensic investigation report by Deloitte and Touche of April 1999 unless privileged.

68. The Claimant was instructed to submit the agreements related to the transferring of shares or participation interests as itemized by the Respondent in its request 8 dated May 29, 2002 unless the Claimant could specify that the afore-mentioned agreements are not in the Claimant's possession or cannot be obtained by the Claimant by due effort or are privileged. The Claimant was instructed to submit the written proposal provided by SBS to CME Ltd. in February 1999 as well as the Bear Sterns fairness opinion and the SBS disclosure schedule, unless the Claimant lacked possession of these documents and cannot obtain possession by due effort.

(10) Order No. Q 9 dated June 14, 2002

69. On June 11, 2002 the Respondent requested that the Tribunal shall order the Claimant to release two of CME's former CEOs, Mr. Fertig and Mr. Delloye, who gave testimony at the First Phase, from their confidentiality undertakings for the Quantum Phase, which request the Claimant rejected. The Tribunal rendered Order No. Q 9 (excerpt):

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(11) Order No. Q 10 dated July 9, 2002

70. On July 3, 2002 the Claimant requested issuance of an interim order providing that the issue to be resolved in this quantum phase of the arbitration is limited to the determination of the fair market value of 99% of CNTS as of 1995, as set forth in para. 624 (2) of the Partial Award, along with the ancillary matters such as the determination of interest and any offsetting recoveries obtained through Czech civil and administrative proceedings; and the Tribunal will neither take evidence or testimony on, nor will otherwise address, arguments by Respondent seeking further adjudication of issues resolved in the Partial Award, including the preclusive effect of the Lauder arbitration, causation, and Claimant's standing to assert a claim for the 1996 breach.

71. The Tribunal issued the following Order No. Q10:

(12) Order No. Q 11 dated August 1, 2002

72. The Tribunal considered the Respondent's request dated July 31, 2002 to order the Claimant to provide for the appearance of certain witnesses and the Claimant's response dated July 31, 2002 and issued Order No. Q 11 (excerpt):

The Tribunal orders the Claimant in accordance with Article 4.11 of the IBA Rules of Evidence to use its best efforts to provide for the appearance of the following individuals for testimony at the forthcoming evidentiary hearing beginning on September 2, 2002 in London: Mr. Ronald Lauder, Mr. Len Fertig, Mr. Michel Delloye, Ms. Laura DeBruce, Dr. Martin Radvan or alternatively Mr. Jan Vavra, Mr. Harry Sloan or alternatively Mr. Woody Knight.

The Respondent shall at the latest by August 16, 2002 identify with greater specificity the subjects relevant to quantum on which they propose to examine these witnesses, preferably also by listing the key questions relevant to quantum for the witnesses (Art. 25.2 UNCITRAL Arbitration Rules).

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The Parties are in particular referred to the Tribunal's Order No. Q 9 para. 8 dated June 14, 2002 and Order No. Q 10 last sentence, dated July 9, 2002, which the Parties also shall take into account when agreeing on a time table for the forthcoming hearing.

(13) Order No. Q 12 dated August 7, 2002

73. In receipt of the Respondent's request for additional disclosure of documents dated August 5, 2002, the Tribunal issued Order Q 12.

74. The Tribunal instructed the Claimant to disclose certain specified documents or categories of documents in compliance with the previous Tribunal's Orders related to the disclosure of documents. If the Claimant was not possessor or owner of the respective documents, the Claimant was obligated to use its best efforts to provide the documents.

75. The documents instructed to be disclosed included specific indicative offers made by made by certain investors for an investment in and/or the acquisition of shares of CME Ltd. or for a merger with CME Ltd. between December 1998 and August 5, 1999.

76. Further the Tribunal instructed the Claimant to provide unredacted versions of nine exhibits specified by Respondent unless the redactions were justified due to privilege in accordance with the Tribunal's previous orders.

77. Further the Tribunal instructed the Claimant to provide additional specific documents in accordance with the Respondent's request, which list comprises some further fifteen identified documents or category of documents.

78. The Tribunal advised the Respondent that the request for additional disclosure of documents was not in compliance with the agreed time table for the proceedings and should not cause any delay.

(14) Order No. Q 13 dated August 17, 2002

79. The Tribunal considered the Claimant's submissions dated August 12, 15, 16, 2002 and the Respondent's submissions dated August 14, 15, 2002 dealing with the timing of the forthcoming hearing. The Tribunal took note of the Respondent's proposal to restrict the forthcoming hearing to the cross examination of factual witnesses, which proposal deviated from the time-table for the hearing as agreed between the Tribunal and the parties. The Tribunal noted that the Respondent had not yet complied with the Tribunal's instruction by Order No. Q 11 dated August 1, 2002 to specify the subjects of witness interrogation and requested the Respondent again to comply with the instruction without delay. The Tribunal issued the following Order Q 13:

The Tribunal established the time schedule for the parties for the evidentiary hearing in London scheduled from September 2 to September 13, 2002.

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The Tribunal informed the parties that the Tribunal is prepared to resume its sittings on November 11, 2002 through November 16, 2002 for such elements of the hearing which remain uncompleted namely any examination of factual witnesses and closing arguments.

(15) Clarification of Order No. Q 13 dated August 21, 2002

80. In response to the Claimant's request dated August 20, 2002 for clarification of the Tribunal's Order Q 13, the Tribunal advised the parties that Order No. Q 13 does not change the Tribunal's prior orders directing that each party has half of the allocated hearing time. The Tribunal advised that it may deviate from this principle, if appropriate, to safeguard each party's being given an equal opportunity to present its case in an appropriate manner. This shall apply in particular in respect to the cross-examination of the parties' experts Dr. Copeland and Mr. Paine.

(16) Order No. Q 14 dated October 15, 2002 (issued after the London Hearing)

81. The Tribunal in receipt of the Respondent's request dated October 11, 2002 for a postponement of the hearing for closing arguments scheduled for November 11 - 14, 2002, and the Claimant's response thereto, dated October 13, 2002 and the Respondent's letter to the Tribunal, dated October 14, 2002, adopted Order No. Q 14 (excerpt).

The Respondent's request for a postponement of the final hearing is denied, as it has been scheduled for several months and the parties, in the view of the Tribunal, have had and have sufficient time to prepare their final pleadings. No new facts may be submitted since the evidentiary hearing was closed on September 13, 2002.

The Tribunal will deal with any payments received by the Claimant, to the extent appropriate, in the final hearing and the Final Award. The Tribunal cannot defer the final hearing on the grounds that the Czech State Prosecutor's investigations or that the proceedings in the Svea Court of Appeal are pending, as both proceedings are legally unrelated to this arbitration. The Tribunal has the duty towards both parties to conduct these proceedings at a normal pace and in accordance with the agreed time table.

(17) The Parties' Submissions (Quantum)

82. The Parties submitted their written pleadings in accordance with the agreed time schedules.

1. The Parties' Briefs

83. The parties submitted the following briefs:

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2. The Parties' Expert Reports and Witness Statements

84. The Parties submitted (inter alia) expert's reports and witness statements

85. The Respondent further submitted

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86. The parties submitted extensive documentation and interpretations of their experts' reports and numerous authorities in support of their legal positions (several thousand pages). According to the parties' information the documents disclosed by Claimant to Respondent in two data rooms in Prague and London comprised more than one million documents.

(18) The Netherlands and Czech Governments' Delegations agreed "Common Position" on the (Dutch) Treaty

87. Art. 9 of the Treaty provides that either State can at any time call on the other for "consultations" with a view to resolving any issue of interpretation and application of the Treaty. After the issuance of the Partial Award, the Czech Republic decided to call for such consultations with the Kingdom of the Netherlands. The Czech Government made clear its concern over a number of aspects of the Partial Award which were in its view inconsistent with the Treaty. It also made clear the intention of the Czech Republic to challenge the Partial Award.

88. Three issues in particular arose from the Partial Award which the Czech Government considered were suitable for consultation under Article 9 of the Treaty:

89. Representatives of the Netherlands and the Czech Republic held a series of meetings to discuss the issues raised and decided at their last meeting in The Hague on 4-5 April 2002 that they had reached "common positions" on all three issues, which common positions should be recorded in the Agreed Minutes dated July 1, 2002. The Agreed Minutes have been formally signed and exchanged between the two Governments, and are in the view of the Respondent binding statements on the meaning and application of the Treaty.

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90. The common positions of the two contracting parties on the three issues are as follows (excerpt):

91. The arbitral tribunal shall decide on the basis of the law. When making its decision, the arbitral tribunal shall take into account, [in particular] though not exclusively, each of the four sources of law set out in Article 8.6. The arbitral tribunal must therefore take into account as far as they are relevant to the dispute the law in force of the contracting party concerned and the other sources of law set out in Article 8.6. To the extent that there is a conflict between national law and international law, the arbitral tribunal shall apply international law.

92. Each investor which qualifies under the IPPA [i.e. the Treaty] is entitled to the protection of the IPPA from the time the investment is acquired by that investor. Investors are free to assign their investments protected by the IPPA. A claim which the first investor has under the IPPA may pass to a second qualifying investor if that claim has been transferred to the second investor either expressly or impliedly by operation of the law applicable to the transfer and the claim so transferred will be available to the first investor. If the first investor's claim does not so pass to the second investor, the first investor may still be able to make the claim.

93. Although it might be undesirable that investors submit the same subject matter to different arbitral tribunals under different IPPA's, the Treaty does not deal with this situation. If the contracting parties wish to address this issue further, it could be dealt with either by future amendment of the IPPA or within the framework of a multilateral investment protection agreement, taking into account the complexity of the matter and the various situations which may occur.

(19) The Evidentiary Hearing (Quantum Phase)

94. At the evidentiary hearing in London from September 2 till September 13, 2002 (11 days of hearing) the parties presented their case and interrogated the witnesses / experts: Fred Klinkhammer, Howard Knight, Michael Finkelstein, John Schwallie, Petr Kotrlik, Len Fertig, Laura Debruce, Milan Cimirot, Ronald Lauder, David Stogel, Thomas Copeland, Michael Vanderkaden, Michael Delloye, Kip Meek, Jonathan Paine, John Brimacombe.

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95. The parties after having submitted their skeleton closing arguments on November 4, 2002 submitted their final pleadings at the hearing in London November 11 - November 14, 2002. At the end of the hearing the Tribunal declared the arbitration formally closed (Art. 29 (1) UNCITRAL Arbitration Rules).

II. The Position of the Claimant (Quantum)

I. Scope of issues Quantum Phase (Claimant)

(1) Scope of issues to be determined in the Quantum phase

96. In accordance with the parties' agreement, the first phase of this proceeding resolved all issues of liability and the appropriate form of relief to be awarded (Partial Award para. 48, 615). The sole remaining issue to be determined in this "quantum" phase of the arbitration is what constitutes full reparation for the "genuine value" of the Claimant's investment in the Czech Republic.

97. The Tribunal has already determined, correctly, that the appropriate form of relief is full reparation corresponding with "the fair market value of Claimant's investment as it was before consummation of Respondent's breach of the Treaty in August 1999." Id. para. 618. Claimant's investment, which the Respondent caused to become nearly valueless by its conduct in violation of the Treaty, was its 99% ownership interest in CNTS, the operational and economic centerpiece of TV Nova. The value of the Claimant's lost investment is properly calculated as 99% of the value of CNTS as of August 5, 1999, the day CNTS' business was destroyed, reduced by the residual value of CNTS that the Claimant could capture thereafter.

98. The definition of fair market value has been well established in international law as "the price that a willing buyer would pay a willing seller in circumstances in which each had good information, each desired to maximize his financial gain, and neither was under duress or threat." Starrett Housing Corp. v. Iran (Final Award), Award No. 314-24-1 (1987), reprinted in 16 Iran-U.S. CI. Trib. Rep. 112, 201; see also Jerome Ortscheidt, La réparation du dommage dans l'arbitrage commercial international 199 (2001). The Claimant's submission presents four different approaches for assessing the value of Claimant's investment.

99. The fair market value of CNTS as of August 5, 1999 was USD 560 million. Claimant's damages are determinable from this figure by subtracting (a) 1% to take account of Claimant's 99% interest, (b) 5.8% deemed to be regained from Dr. Zelesny and (c) an additional sum to take account of CNTS' residual value after its business was destroyed.

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(2) The four approaches to value CNTS are as follows:

(a) The Value Ascribed to CNTS by SBS as a Willing, Arms'-Length Purchaser

100. One indication of CNTS' fair market value is the value that a willing purchaser actually ascribed to CNTS at the time, in the context of competitive, arms'-length negotiations. As the evidence demonstrated in the merits phase of this proceeding, during late 1998 and early 1999 Central European Media Enterprises, Ltd., the Claimant's parent company ("CME" or "CME Ltd"), was negotiating a potential merger with SBS Broadcasting, S.A. ("SBS"), culminating in a contract executed in late March 1999. That contract never led to a closing, because SBS elected to terminate the contract and pay a termination penalty rather than complete the transaction after the Media Council's violations of Claimant's rights culminated in CET 21's severance of all business dealings with CNTS on August 5, 1999. Although the negotiations and the contract with SBS related to a purchase of all of CME, SBS undertook an extensive, detailed and rigorous assessment of the value of CNTS as the most important component by far of the CME package. SBS also reassessed that value as CME's ability to deliver CNTS as the economic centrepiece and exclusive operator of TV Nova became progressively less certain. The declarations of Michael Finkelstein, Chief Executive Officer of SBS, and David Stogel, SBS's Vice-President for Development, establish that the value this willing arms'-length buyer attached to CNTS, if CNTS could be assured of a legally protected exclusive economic position respecting TV Nova, was approximately USD600 million.

(b) The Value Attached to CNTS in Arms'-Length Negotiations with Dr. Zelezný

101. A second indication of the fair market value of CNTS can be derived from the price CME paid in August 1997 to purchase Nova Consulting (of which Dr. Zelezny owned 100%), whose sole asset was a 5.8% interest in CNTS. This price of USD 28,537,500 was based on an understanding that CME would pay Dr. Zelezny an amount corresponding with 5.8% of the aggregate value of CNTS, and that other buyers were willing to pay at least that much if CME declined to do so. The parties concluded, at arms' length, that this aggregate value was about USD 500 million, corresponding almost exactly with a valuation multiple of ten times CNTS' 1997 earnings before interest, taxes, depreciation and amortization (commonly known as "EBITDA"). Attachment of this multiple to CME' 1998 EBITDA yields a valuation of USD 542 million.

(c) Expert Valuation of CNTS Based on Financial Analysis

102. Dr. Thomas Copeland (Monitor Group), one of the world's leading authorities on company valuation, determined CNTS' value as of August 5, 1999 by the standard methods commonly used by buyers and sellers when valuing a company like CNTS for a prospective purchase or sale. These methods of valuation are (i) a discounted cash flow ("DCF") analysis, in which Dr. Copeland develops future cash flow projections for CNTS as of 1999 and discounts the future expected cash flow stream to present value by applying a weighted average cost of capital taking appropriate account of the risk associated with achieving that cash flow, and (ii) a trading multiple analysis, in which34Dr. Copeland determined (based on reviews of the value of comparable companies as determined by market trading in their stock) a factor or "multiple" that, when multiplied by a measure of financial performance such as EBITDA, yields a valuation of CNTS.

103. Dr. Copeland's DCF analysis, the most widely employed approach to the valuation of a going concern, depends for its accuracy - as most other valuation methods do not -on projections of the company's future performance. As the starting point for this analysis, Dr. Copeland reviews the reliability of the forecasts of CNTS' future performance generated by CNTS and CME in February 1999. The declaration of John Schwallie, former Chief Financial Officer of CME and former Finance Director of CNTS, explains the bases for these forecasts (which were prepared under his supervision) and the reasons why he believed they were well-founded (as subsequent events have shown them to be). In addition, the declaration of Fred Klinkhammer, CME' President and Chief Executive Officer, describes important characteristics of CNTS and the Czech television marketplace that are relevant to the validation of the CNTS forecasts and the valuation conclusions drawn from them.

104. Dr. Copeland concludes that the "enterprise value" of CNTS as of August 5, 1999 was USD 556 million, to which he adds a "control premium" of the kind that willing buyers typically pay to acquire companies, which he calculates to be USD 100 million.

(d) Valuation of CNTS in Professional Independent Analysts' Reports

105. The fourth approach to valuing CNTS is based on the contemporaneous reports of eight stock and bond market analysts who presented valuations of CNTS on a standalone basis in the course of following CME from 1997 through 1999. As described in Mr. Schwallie's declaration, these assessments reflect professional estimates of CNTS' value by disinterested analysts whose job was to assess value for the guidance of clients' investment strategies. Their analyses reflect confidence in CNTS' future prospects, with the most thorough reports consistently arriving at higher valuations of the company. These analysts' assessments are consistent with the other indicia of CNTS' value. Although the lowest and highest of all analysts' estimates of CNTS' value are substantially different from each other, the overwhelming majority of the reports provide estimates within a much narrower band. Six of the eight analysts presented average valuations between USD 504 and USD 691 million, and the average of these valuations was USD 578 million.

106. These independent approaches support a valuation of CNTS for the purpose of the Tribunal's award at USD 560 million. The USD 560 million number is very close to Dr. Copeland's opinion that CNTS' August 5, 1999 enterprise value was USD 556 million, and is supported as well by the other indications of value that cluster tightly around USD 560 million. This figure reflects a conservative approach to valuation.

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107. The residual value of Claimant's interest in CNTS after CET 21's severance, net of the costs for CNTS and net of the amount required to wind up CNTS' affairs, amounts to about USD 27.5 million.

108. Under settled law, and in order to provide the Claimant with full compensation, the Claimant is also entitled to recover interest on the award, running from August 5, 1999, the date when it experienced the loss, to the date when the Respondent makes full and complete satisfaction of the Tribunal's quantum award. The Claimant submits that the proper measure of interest on the award is the Czech statutory rate of 12.0% p.a..

II. Claimant's Statement of Facts supporting the Claim

(1) TV Nova's Dominance in the Czech Market

109. Shortly after TV Nova first began to broadcast its signal in early 1994, it became a phenomenal success. With the technical capacity to reach virtually every Czech television receiver in the country and an immediately popular combination of independent news, local programming and western productions that shattered the monotony of the state-run television, TV Nova soared to an astonishing 70% audience share a year after its first broadcast (1999 Zenith Media report: Television to Europe to 2008, noting that TV Nova achieved a 70% audience share in 1995). TV Nova quickly established it self as one of the world's greatest broadcasting success stories. (February 4, 1999 Donaldson, Lufkin and Jenrette ("DLJ") report).

110. In short order, TV Nova also became the market leader for the placement of nationwide advertisements in the Czech Republic. This accomplishment was the recipe for TV Nova's enormous profitability. Advertising revenues constituted approximately 90% of TV Nova's total revenues, and TV Nova took 70% of all TV advertising revenues in the country. TV Nova's financial success was directly related to its success in placing advertising, and its success in placing advertising reflected not only the quality of its programming but also the unique characteristics of the Czech television market.

111. Before TV Nova began operations in the Czech Republic in 1994, advertisers who sought to reach a national Czech audience had only three alternatives: the numerous newspapers with exclusively local or uneven regional circulation; one or more of several radio stations with limited reach, audiences and advertising power; or one of the two state-run nationwide television stations individually known as CT1 and CT2 (collectively "Czech TV"), which were subject to strict programming and advertising requirements.

112. Unsatisfied with these existing choices, advertisers (both domestic companies and international corporations breaking into the Czech market) flocked to TV Nova, which ensured enthusiastic viewers as well as a virtually national audience. (February 18, 1999 Morgan Stanley Dean Witter ("MSDW") report). TV advertising became the adver-36tising medium of choice for nationwide reach. Quickly and successfully capitalizing on this opportunity, CNTS became profitable on an operating basis not in the originally projected three years that would have constituted a rapid pace for a TV enterprise, but in just three months. Revenues increased by 1996 to more than USD 100 million per year with a profit of roughly USD 30 million per year (or USD 51 million pre-tax profit).

113. TV Nova's dominance of audience share was achieved by eclipsing Czech TV. Although CT1 and CT2 controlled broadcast signals that (like TV Nova's signal) had the technical ability to reach nearly every Czech home (ARBO Media Television Market report January-June 2001), Czech TV was required by law to show a range of "public interest" programming and operated under a self-imposed ceiling of 38% for foreign acquired content. (Art. 9 Media Law as of 1999; 1999 Kagan Media report at para. 204). The programming aired on Czech TV was consequently far less popular than TV Nova, which purchased the rights to major sporting events and high quality foreign programming and developed local formats that viewers wanted to watch. While TV Nova's audience share ran consistently in the range of 55-65% or even higher before CET 21 severed relations with CNTS on August 5, 1999, the combined audience share of CT1 and CT2 captured an incomplete portion of the remainder (at 4 ARBO report - "Evolution of Audience Share"; at 29-30 2001 Zenith Report).

114. While TV Nova enjoyed enormous television audience share, its share of the television advertising market has been even more pronounced (at 20 1999 Zenith report; at para. 205 1999 Kagan report). Strict limitations on advertising that hampered Czech TV did not apply to TV Nova. Czech TV was initially restricted to allocating a maximum of 3% of daily airtime to commercials, and, effective at the start of 1996, that figure was reduced to 1% (Art. 7(1) 1991 Media Law; Art. I(7) 1996 Media Law amendment). TV Nova's maximum commercial time was set at 10% (increasing to 15% with the 2001 revision of the Media Law). Starting in early 1995, TV Nova was permitted to interrupt programs for commercials (an approach that was more attractive for advertisers because it kept commercial viewership higher and facilitated matching with the format of foreign programming designed with commercial breaks), while Czech TV remained subject to an almost complete prohibition on such interruptions. These programming and advertising constraints continue today and as a consequence the public television stations have taken a "much lower" share of advertising expenditure than they do viewing (at 21 1999 Zenith report).

115. TV Nova's huge audience share, combined with these advertising restrictions on the public stations, have made TV Nova the preeminent vehicle for the placement of nationwide advertising in the Czech Republic. These factors created a situation where by 1999, a typical prime-time peak slot on TV Nova was seen by an estimated one in every four adults in the Czech Republic (at 20 1999 Zenith report), and TV Nova could sell ten times the number of advertising slots compared to the public stations.

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(2) Barriers to Competition for Market Share Against TV Nova

116. TV Nova was able to gain its dominant position, and was expected in 1999 to maintain that dominance going forward, because of the unusually high barriers to entry of alternative competitors for nationwide advertising time. (at 15 February 4, 1999 DLJ report). Under a set of international treaties allocating the broadcast spectrum between the Czech Republic and adjoining countries to prevent interference with each other's signals, the Czech portion of the broadcast spectrum has capacity for only four television stations having national or nearly national coverage. The four current slots are occupied by the two state-run Czech TV stations and two private commercial stations, TV Nova and TV Prima. Under Czech legislation, these two private stations are entitled to an automatic renewal of their current licenses, at the expiration of those licenses, for another twelve years. (Art. 12.8 2001 Media Law).

117. The other private TV station, TV Prima, has never been a strong competitor of TV Nova. Initially founded in 1993 as a local station, it has always had a much smaller audience share than TV Nova and has been far less able to afford quality programming sufficient to make it a viable competitor (at 21 1999 Zenith report). Prima has transformed itself from a local station to one falling just short of national coverage by putting together a collection of local and regional stations into a single entity. That effort raised its technical penetration (that is, the percentage of Czech homes that can receive its signal) to about 70% in 1998, and up to 88% in 2001 (at 21 1999 and at 30 2001 Zenith reports), but at a cost that has kept the company under a heavy debt burden. For most of the station's existence, including during 1999, it has struggled financially and has not been able to acquire high quality programming. Prima's audience share increased slightly in response to the significant fall-off in TV Nova's share immediately following CET 21's severance of relations with CNTS on August 5, 1999, and thereafter, but that increase in audience share has only placed TV Prima in the range of 17% or 18% - still far behind Nova. (at 4 ARBO report - "Evolution of Audience Share"). This increase in viewership has not altered TV Nova's dominance of the advertising market, and TV Prima's lack of full national reach has limited its ability to attract advertising.

118. The nature of the Czech television market creates enormous structural barriers to competition from other regional and foreign broadcasters. One regional company, known as Galaxie until it failed financially and now known as TV3 (and facing the threat of failure again), has tried to compete, but its limited total penetration as a non-national station has made it unable to generate the necessary funds to purchase high quality programming or for the expensive process of acquiring and operating a group of strung-together broadcasting facilities (at 21 1999 Zenith report noting 26% penetration for Galaxie as of year-end 1998). Its audience share has never exceeded about 1% (at 4 ARBO report).

119. While a few broadcast stations in neighboring countries have transmitted their signals into the Czech Republic, they, too, have had no significant effect. Czech viewership of38programming in a different language has been and is expected to remain small (at 23 1999 Zenith report indicating that the total audience share for all broadcasters other than TV Nova, Prima and Czech TV ranged between 2% and 3.9% from 1995-98). Regional broadcasters also have not made any substantial inroads into TV Nova's position, because any entity that lacks sufficient nationwide penetration to reach a substantial majority of the limited number of possible homes will be unable to generate the advertising revenues necessary to purchase competitive programming and otherwise to operate itself profitably. Thus, although the signals of some foreign stations are accessible in the Czech Republic, their market share has been and is expected to remain very small.

120. Penetration by cable companies and by satellite has similarly remained modest, and of a scale that has no material effect on TV Nova's share of the Czech advertising market. Cable penetration grew from 6% of households in 1993 to an estimated 19% in 1998 (at 24 1999 Zenith report). This level was, and has remained, far behind the level of cable penetration in other European countries. The expense of installing cable infrastructure, the popularity of TV Nova as an existing nationwide station (and the most watched program on cable), and the difficulty of competing effectively with new programming have combined to make cable ventures limited and unprofitable. Additional high quality programming for broadcast on cable would be difficult to acquire, since TV Nova already has long-term deals with the major U.S. sources of programming. Dubbing foreign programming into Czech also adds substantial costs, and local production in the Czech Republic is expensive. In a country with a population of only 10 million people in 3.5 million homes and its own language (the only language in which programming is likely to achieve substantial viewership), the expenditure necessary for a new entrant to obtain even a small share of the limited Czech market has generally been substantially greater than the expected return from that expenditure.

121. After CET 21 severed its relationship with CNTS in 1999, CNTS carefully considered offering a cable service in the Czech Republic. Although CNTS had a substantial advantage over other potential entrants, in that it already had operating production facilities, a trained staff and a substantial library of program materials in the Czech language, it was unable to develop a business model for cable or satellite transmission in the Czech Republic that would be financially viable, much less competitive. Other potential entrants would face far greater impediments to competing with TV Nova to a degree that would harm its financial position.

122. These characteristics of the Czech television and advertising markets were, and in 1999 were expected to remain, a substantial part of the reason for TV Nova's enormous success. Although CME conservatively assumed for the purposes of its forecasts in early 1999 that TV Nova's dominant share of the total television advertising market in the Czech Republic would diminish somewhat over time, there was no structural or competitive reason for this change to take place; apart from the reduction in viewership39caused by the severance of the relationship between CET 21 and CNTS, for which CME certainly did not plan before 1999 (at 29 2001 Zenith report).

(3) CNTS's historical performance

123. The financial statements of CNTS for each of the years of its operation of TV Nova, running from 1994 through the first half of 1999, were reviewed and approved by the independent accounting firm Arthur Andersen as part of its annual independent audits of CME for purposes of CME's United States public filings of consolidated financial statements. Arthur Andersen found that these statements fairly presented CNTS's financial position in accordance with United States generally accepted accounting principles ("GAAP"). The corresponding CNTS financial statements prepared for local Czech statutory audits during this period, presented in Czech crowns, were also reviewed and approved by Arthur Andersen.

124. The following table summarizes CNTS's revenues, broadcast cash flow ("BCF") and EBITDA for each of the full years of CNTS's operation, 1994-98, in Czech crowns:

[The chart can be viewed at http://ita.law.uvic.ca/documents/CME-2003-Final_001.pdf]

125. As this chart shows, CNTS was a company that, as of 1999, had experienced remarkable growth, stability and success. Even the most significant adverse financial event of the second half of the 1990s - the late summer 1998 Russian debt crisis, which precipitated a near collapse of the ruble, a worldwide drop in stock indexes and a huge reduction in investor confidence in the financial prospects of companies in Russia and nearby Central European countries - touched Nova's growth only very slightly and temporarily. Market analysts and financial advisors to CME correctly expected Nova to shake off any slowdown in its growth as a result of the Russian debt crisis over a rela-40tively short period. (at 1-2 February 18, 1999 MSDW report). CNTS faced no major financial vulnerabilities, apart from the threat to its continued legal entitlement to exploit the economics of the CET 21 license on an exclusive basis, during this period. It funded its own operations and generated substantial and reliable earnings for CME, which reinvested those earnings in part to increase its interest in CNTS from 66% to the 99% it has held since August 1997.

(4) CME'S Forecasts for CNTS

126. In late 1998 and early 1999, CME pursued in earnest a merger with SBS. CME's internal Finance Department created a set of long-term projections of future performance for CME and for each separate television company in which CME held an interest. CME's forecasts for CNTS was prepared by and under the supervision of John Schwallie as Chief Financial Officer of CME in February 1999 (the "1999 Forecasts"). These projections were reviewed and their substance endorsed (after substantial due diligence) by SBS as an intended acquirer of CME. CME re-issued these forecasts without alteration in March 1999.

127. These forecasts were intended to represent a responsible estimate of CNTS' future performance for which CME faced the prospect of being held accountable by SBS. CME and its internal financial staff felt substantial incentive to project as responsibly and accurately as possible in these circumstances, not least because the projections were being prepared for their expected future employers, who would be likely to evaluate their new Finance Department employees based largely on CNTS' achievement of the projected outcomes. Reflecting CME's goals of both accuracy and avoidance of overstating projected results, so that the forecasts would be achieved, several components of CME's projections were purposely conservative.

128. As the assumptions page of CME's 1999 Forecasts makes clear, the primary drivers of the projections, and of CNTS' profitability generally, were the overall size of the Czech television advertising market and CNTS' share of that market. CNTS' financial personnel developed their projections of its future gross advertising revenues and net advertising revenues (after the discounting from the stated price on rate cards that is customary in the Czech Republic) primarily through talking to the major advertising agencies about their plans and expectations, visiting the largest sponsors of advertising and potential future major sponsors, and talking regularly and intensively with CNTS' marketing personnel. CME and CNTS tested the advertising projections against projections derived from a financial review of historic growth rates, current market and macroeconomic forces and trends, and assessments by market research and consulting and marketing organizations (like Zenith Media, Kagan Media and ARBO Media) that made a business of generating projections for the Czech marketplace.

129. These sources indicated that the Czech advertising market generally, and television advertising in particular, would continue to grow in the long term and even during the short term period (February 18, 1999 MSDW report at 4, February 4, 1999 DLJ report).41The Czech Republic had followed the general commercial experience of emerging economies that as gross domestic product ("GDP") increases over time, advertising spending as a percentage of GDP tends also to increase, and that as advertising spending increases, television advertising spending as a percentage of advertising spending tends to increase even further. This general multiplicative effect had led to substantial growth, and it offered TV Nova substantial prospects for continued growth.

130. That growth rate was expected to be somewhat lower over 1999 than the rates in the prior two years, but it was equally expected that strong growth in the television advertising market would resume after 1999, once the impact of the Russian crisis had fully abated. It was estimated that television advertising expenditure as a percentage of all ad spending would grow from 50% to 54% in the Czech Republic between 1999 and 2001, in an environment where total spending was also expected to rise (at 24 1999 Zenith report). Annual advertising spending in the Czech Republic in 1997 was USD 22 per capita, well below that of other European countries like the Netherlands (USD 38), Sweden (USD 41), Belgium (USD 54), Denmark (USD 53), Italy (USD 59), the U.K. (USD 73) and Norway (USD 99).

(5) Actual Development

131. Settled law makes clear that the Tribunal's valuation of the Claimant's investment in CNTS based on the company's market value should be accomplished by reference to conditions at the time of the loss, since a willing buyer would not have known what future events would bring in negotiating a purchase with a willing seller at that time. See Phillips Petroleum Co. Iran v. Iran, Award No. 425-39-2 (1989), reprinted in 21 Iran U.S. CI. Trib. Rep. 79, 128. Nevertheless, comparison of CME's projections against actual results for the period since the forecasts were prepared reinforces the reasonableness of using those forecasts in valuing CNTS. The following table compares CME's projection of TV Nova's television advertising revenues (denominated "net spot revenues" on page two of the 1999 forecasts with actual advertising revenues.

[The chart can be viewed at http://ita.law.uvic.ca/documents/CME-2003-Final_001.pdf]

132. As this comparison makes clear, CME's forecasts under-predicted the revenues from advertising that are the central driver of TV Nova's profitability. If not for the reduction of audience share that followed in immediate reaction to the CET 21 severance of dealings with CNTS, and that has continued thereafter - a development CME did not project - these forecasts could have been expected to understate the reality even further (at 4 ARBO report). The chairman of CET 21's primary current service company,42Czech Production 2000, has recently estimated that TV Nova's advertising revenues will grow further this year. (November 26, 2001 Tyden interview).

133. Although the figures for TV Nova's net income after the split from CNTS are not available, the profits previously received exclusively within CNTS being now distributed among several service companies, as well as CET 21, it is reasonable to conclude that TV Nova's 1999 and 2000 advertising revenues that exceeded CME's 1999 projections led to even higher net income than CME had projected. As reported by the Czech Republic's Ministry of Finance, actual inflation rates in those years (an important cost component) were only 2.1% and 3.9% respectively, (at 7 2001 Czech Republic Macroeconomic Forecast), far below the 8% figure CME had employed in the projections (at 1 1999 Forecasts). Moreover, TV Nova had substantial room to maintain continued high profitability by exerting more discipline on programming commitments and other expenditures that were projected very conservatively in the 1999 Forecasts.

134. The 1999 Forecasts presented a reasonable prediction of future results. Responsible estimation, incorporation of margins to account for error and the monetary incentive to predict accurately make the 1999 Forecasts a solid and appropriate foundation from which to determine CNTS's 1999 market value.

(6) The particular value of CNTS to CME

135. Stand-alone valuation of CNTS does not fully capture its particular value to CME, as CME's only source of cash from operations, and as a pivotal strategic asset for Central Europe.

136. At the time of the Czech Republic's breaches of the Treaty and Claimant's loss of TV Nova, CNTS' substantial profitability stood in marked contrast to the results of CME's development efforts in Ukraine, Slovakia, Slovenia, Romania, Poland and Hungary. Only one other CME station had yielded any positive EBITDA or positive cash flows as of the end of 1998. No other station had generated positive net income. Operational difficulties in Poland had led to unrecoverable losses of more than USD 80 million leading to 1998 losses and charges against income of USD 45 million, and withdrawal from that market in December 1998. A CME-sponsored station in Hungary had led to USD 31 million of operating losses and write-offs in 1998, an anticipation of USD 8 million more in write-offs in 1999 and an anticipated total loss of USD 65 million. Ukraine's economy had been hit hard by the Russian debt and currency crisis, and the company's television development effort in Germany had not succeeded.

137. All of these stations were following the conventional pattern of television stations (never experienced at CNTS), of sustaining several years' losses before they could achieve a profit. Although CME expected that each of these stations would become profitable with time - and each is EBITDA positive today - their prospects depended on CME's ability to tolerate and fund their unprofitable and sometimes expensive development periods. CME had consequently borrowed approximately USD 170 million,43through bonds it issued to public bondholders, to finance these stations' development, placing itself under substantial debt burdens in 1999. The proceeds of these bond offerings had been used primarily to fund CME's stations whose operations were not yet profitable. CNTS had not placed any demands on these loans. CNTS' substantial profits and dividends in the years before 1999 had been reinvested in TV Nova, through capital expenditures and in the purchases of interests in CNTS by which CME's 66% interest was increased to 99%. Future expected profits from CNTS were viewed as a critical source of funding for service of CME's debt load, weathering startup losses in other countries and continuing the company's expansion.

138. CNTS freed CME from subservience to its debt obligations and prevented those obligations from intruding on CME's ability to effectuate its business plans. CNTS' profits prevented the risk of default on the bonds, and gave business partners strong reason to collaborate on station development rather than to try to break away from CME.

139. All of these critical values were lost when Claimant's investment in CNTS was destroyed in August 1999. This was compounded by the great reduction in investor confidence in CME's ability to sustain its operations elsewhere in the face of the destruction of its dominant investment. In these respects, valuing CNTS on a stand alone basis significantly understates the loss CME suffered from the destruction of its business in 1999.

(7) CME'S Investment should be valued by reference to what a Willing Buyer SBS, thought it was worth

140. One of the best possible indicators of an enterprise's fair market value is what an actual willing buyer thinks it is worth. (Brower & Brueschke, The Iran-United States Claims Tribunal 589 (1998), ("in valuing going concerns, ... where an active market exists for the expropriated entity the actual market value must be granted"); A marketplace-generated valuation of a destroyed investment should carry powerful probative force, INA Corp. v. Iran, Award No. 184-161-1 (1985), reprinted in 8 Iran-U.S. Cl. Trib. Rep. 373, 382-83, (awarding claimant what it had paid for the shares of the expropriated entity in an arms'-length transaction approximately one year before the taking, on the basis that nothing had occurred in the intervening months to lessen the value of its investment, and remarking that claimant's request for this award was "not only reasonable, but in fact conservative" because the entity's value "had, if anything, increased in the year following [claimant's] investment"); Saghi v. Iran, Award No. 544-298-2 (1993), reprinted in 29 Iran-U.S. CI. Trib. Rep. 20, 49, (accepting actual purchase and sale prices, pre-dating expropriation by five years, with appropriate adjustments, as "potentially important evidence" of the asset's market value, and weighing that evidence more heavily than post hoc valuations).

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(8) SBS's Valuation of CNTS

141. SBS intensified its interest in acquiring CME in the latter part of 1998. The value of CNTS was a major reason for SBS's interest in CME. As the core source of CME's profitability, the most successful private television enterprise in the former Soviet bloc region, the only current cash-generator in the CME station group and an operation with enormous continuing promise, CNTS represented the largest component by far of CME's value. Its ability to generate cash that could be used to fund station development and expansion throughout the company was another major attraction.

142. SBS undertook substantial efforts to assess CNTS' value. The efforts included a rigorous review of CNTS' historical results, the study and due diligence assessment of CME-generated projections of CNTS' future performance, generation of SBS's own "sensitized" internal projections for CNTS, and substantial efforts to understand the emerging threat to CNTS' exclusive entitlement to use, exploit and benefit from the license for TV Nova.

143. The correct SBS valuation of CNTS for the purpose of this proceeding is its valuation of CNTS freed from uncertainty over CNTS' future entitlement to such exclusivity, since valuations for purposes of compensation after a taking should be made without reference to diminutions in value associated with the previously sown seeds of the ultimate taking (here, the 1996 forced amendment of the CNTS MOA) or with the threat of the taking. (Amoco Int'l Finance Corp. v. Iran, Award No. 310-56-3 (1987), reprinted in 15 Iran-U.S. CI. Trib. Rep. 189, 265, "the effects of the prospects of expropriation on the market price of the expropriated assets must be eliminated for the purpose of evaluating the compensation to be paid, since they are artificial and unrelated to the real value of such assets"); INA Corp. v. Iran, supra, at 380; Sedco Inc. v. NIOC, Award No. 309-129-3 (1987), reprinted in 15 Iran-U.S. Cl. Trib. Rep. 23, 45).

144. The valuations SBS performed in early 1999 point to a value of CNTS in the range of USD 600 million. That is the number that SBS's Executive Committee members frequently mentioned internally as their view of CNTS' value if the issue of its right to exclusivity could be resolved, although they invariably attached an estimated "peace premium" to achieving that value. It is also the number that the SBS executives who put together the financial analysis of the proposed transaction attached to a standalone CNTS, without the threat to its ability to continue its business as before.

145. On February 19, 1999, Mr. Knight (Chief Operating Officer) and David Stogel (Vice President in the company's business development department) presented to the SBS Board a valuation report. This report was developed to support SBS's proposal to acquire CME for the price of .725 shares of SBS stock for every share of CME stock, while also taking responsibility for CME's adjusted net debt of approximately USD 133 million. The report included a set of projections of future CNTS performance drawn from SBS's evaluation of CME's 1999 forecasts, presenting results that were quite close to those that CME had presented to SBS as part of the merger negotiations

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146. On February 22, 1999, Messrs. Knight and Stogel also generated a CNTS-specific valuation analysis, for the purpose of addressing the effect of the dispute in the Czech Republic. The Knight and Stogel analysis of CNTS arrived at a pre-adjustment enterprise value for CNTS of USD 476.52 million, which they obtained by attaching a multiple of 9.1x to CNTS' projected 2001 station operating cash flows ("STOCF"), a measure closely similar to EBITDA, of USD 52.365 million. It also was subject to several adjustments.

147. First, in presenting CNTS' STOCF for this valuation, Messrs. Knight and Stogel did not include annual management fees payable from CNTS to CME (and which would be paid to SBS after a merger), projected to be USD 4.034 million in 2000. Because these fees would be directly attributed to CNTS if it were valued on a standalone basis, this cash flow needed to be added to projected STOCF to value CNTS alone.

148. Second, the valuation erroneously attached a 9.1x multiple to CNTS' projected 2001 STOCF, when the multiple should have been attached to CNTS' projected 2000 STOCF, which was USD 3.721 million lower. The 9.1x multiple was described in the analysis as reflecting a 20% discount from SBS's internal projected 2001 STOCF multiple (11.4x), but that was actually SBS's internal projected cash flow multiple for 2000.

149. Third, the 20% discount from SBS's own implied multiple that Messrs. Knight and Stogel used in applying the 9.1x multiple was only attached to CNTS because of SBS's uncertainty about CNTS' continued entitlement to all revenues from TV Nova and CME's expected need to pay a "peace premium" to Dr. Zelezný to resolve the challenge to CNTS' entitlement to the earnings of TV Nova, which would reduce the value of what SBS was acquiring. At that point, SBS was assuming that the "peace premium" would include giving Dr. Zelezný and other CET 21 shareholders an additional 18% interest in CNTS, in connection with a merger of CNTS and CET 21, and giving Dr. Zelezný a USD 27 million cash payment, nominally characterized as an annuity to be paid upon renewal of the TV Nova license. As Mr. Stogel explains in his declaration, absent the uncertainty over CNTS' position and the assumed cost of resolving the challenge to CNTS' position, the applicable multiple would have been at least equal to SBS's internal 2000 STOCF multiple, because only a multiple of that level would fully reflect CNTS' profitability (far above that of any SBS property), powerful market position, maturation, earning capacity and value as a cash generator. Application of that 11.4x multiple to CNTS' projected 2000 STOCF (including management fees) yields a valuation for CNTS of USD 600.529.000.

(9) Synergies of the SBS/CMS merger

150. SBS's valuations of CNTS on a standalone basis significantly understated its actual value to SBS and the value that CME reasonably expected to receive from the proposed merger, given the substantial synergies to be realized in the form of added revenues and opportunities for cost-avoidance in the merged company. CME and SBS independently (and without sharing their full analyses with each other at the time)46reached remarkably consistent views about the expected nature and scope of these synergies. The two principal components were (i) synergies flowing from aggregation of the program purchasing power of the two companies, which would allow the combined entity to buy premium programming at lower prices, and (ii) the savings to be realized from combining broadcast activities in the two countries (Hungary and Slovenia) where both companies had television operations. The parties projected that TV Nova's buying power alone would account for at least half of the anticipated synergies, which SBS forecasted to total some USD 42 million in increased annual profits by 2002 (compared with CME's forecasts of more than USD 40 million in 2002). Application of the average "expected case" value of USD 58.86 per share by year-end 2000 that SBS's analysis projected to the interest that CME's former shareholders would hold in the combined company including these synergies, based on SBS's February 1999 offer of .725 of its shares for each of CME's 28.686 million fully diluted shares, indicates the midpoint of SBS's internal projections of expected value associated with CME shares merged into SBS was USD 1.224 billion by the end of 2000.

(10) The Frustration of SBS's Acquisition Effort

151. SBS's February 1999 acquisition offer at a .725 share exchange ratio would unquestionably have been higher if not for the expectation built into that offer that the CME entity to be acquired would include only 81% of CNTS and would have its assets further reduced by the payment of a cash "peace premium" to Dr. Zelezný, and if not for the substantial issue of whether CNTS was assured of a continuing exclusive entitlement to exploit the economies associated with operating TV Nova that stimulated consideration of this payment. Reflecting that concern, SBS's offer recited as a condition precedent that CME and Dr. Zelezný would have to execute a binding agreement resolving all issues about CNTS' exclusive positions. CME and SBS hoped these issues could be solved with the proposed conveyances to Dr. Zelezný and his partners and agreement to merge CNTS and CET 21.

152. During the period following the February SBS Board presentation, adverse developments in the Czech Republic further drove down the transaction price for the merger. Senior members of SBS's management became personally involved in CME's negotiations with Dr. Zelezný and met with the Media Council, but were unable to achieve a breakthrough. SBS also learned of the March 15, 1999 letter from the Czech Media Council supporting Dr. Zelezný's contention that the exclusivity enjoyed by CNTS was contrary to Czech law. The events surrounding this letter made clear to SBS that any financial resolution with Dr. Zelezný was significantly less likely, and would have to be at a much higher price than originally thought.

153. By the time CME and SBS executed the agreement by which SBS was to acquire CME on March 29, 1999, concern over CME's ability to deliver an intact CNTS and over the possible cost of doing so, prompted a further reduction in the transaction price - to .547shares of SBS stock for every share of CME stock. This slippage was almost entirely attributable to the deteriorating situation in the Czech Republic.

154. The merger contract reflected SBS's unwillingness to proceed with the transaction without TV Nova. While the contract recited that further adverse developments in the Czech Republic would not justify termination, it also expressly permitted SBS, upon payment of a fee, to terminate the agreement if its Board rejected it.

155. After CET 21 severed all dealings with CNTS on August 5, 1999, there was no longer any prospect that SBS would carry out the acquisition of CME. On September 28, 1999, SBS formally announced that it would not consummate the transaction and terminated the merger agreement. In SBS's press release of the same day SBS stated that it paid a negotiated USD 8.25 million termination fee rather than proceed with the transaction.

(11) Value of CNTS under the Nova Consulting Transaction in August 1997

156. The price agreed upon between CME and Dr. Zelezný when CME purchased Dr. Zelezný's 100% interest in Nova Consulting, which owned a 5.8% share in CNTS, is another indication of CNTS' value. Under a Share Purchase Agreement executed on August 11, 1997, CME agreed to purchase this interest for a base purchase price of USD 28,537,500.

157. CME's decision whether to pay the proposed purchase price took into account Dr. Zelezný's apparent ability to sell the 5.8% interest in CNTS to a third party for a price "at or above this value." The agreed upon base purchase price for 5.8% of CNTS corresponds with an August 1997 valuation of 100% of CNTS at USD492 million. This valuation could only have grown in 1998, as the company's revenues and profits increased. The valuation for CNTS implied by the Share Purchase Agreement's base price provisions was equal to almost exactly ten times CNTS' 1997 EBITDA. Applying this multiplier to CNTS' 1998 EBITDA yields a fair market value figure of about USD 542 million.

(12) Value of CNTS confirmed by Expert Analysis

(a) Dr. Copeland's and Monitor Group's Analysis

158. Monitor's report relies on several methods to determine the value of CNTS as of August 5, 1999. These methods - discounted cash flow (DCF), trading multiple, and analyst valuation - comprise the most common means by which buyers and sellers come to conclusions about company value.

(b) DCF valuation method

159. Dr. Copeland's primary approach to valuing CNTS is the DCF methodology, which yields an "enterprise value" for the company as of August 5, 1999 of USD 556 million. The DCF method derives the value of a company based on its long-term ability to gen-48erate cash and is the most informative and consistently reliable method of valuing companies.

160. Three factors establish a DCF valuation: (i) the company's projected future operating cash flows (that is, cash receipts minus cash payments, such as debt service), estimated for each year over a finite forecast period; (ii) the "continuing value" of the company based on expected cash flows growing at a constant rate after the forecast period; and (iii) a discount rate, applied to each of the projected future cash flows, which determines the present value of those future cash flows. The discount rate is based on a company's weighted average cost of capital.

161. International arbitral tribunals have recognized the DCF method's utility in the context of compensation for the destruction or taking of going concerns where no active market for the asset exists. The Iran-U.S. Claims Tribunal and ICSID tribunals have utilized the DCF method for calculating the quantum of damages in cases of expropriation. In Amco Asia Corp. v. Republic of Indonesia, an ICSID tribunal explained that it had used the DCF method because "while there are several methods of valuation of going concerns, the most appropriate one is to establish the net present value of the business, based on a projection of the foreseeable net cash flow during the period to be considered." Amco Asia Corp. v. Republic of Indonesia, ICSID Case No. ARB/81/1 (1984), 1 ICSID Rep. 413, 501 (1993), (Amco Asia I). The Iran-U.S. Claims Tribunal also calculated compensation using the DCF method. Starrett Housing, supra, and Phillips Petroleum, supra. As the Tribunal explained in Phillips Petroleum, "a prospective buyer of the asset would almost certainly undertake [a] DCF analysis to help it determine the price it would be willing to pay and DCF calculations are, therefore, evidence the Tribunal is justified in considering in reaching its decision on value." Phillips Petroleum, supra, at 123, Amoco Int'l Finance Corp., supra, at 258, (DCF method properly employed when restitutio in integrum equivalent contemplated by the Factory at Chorzow case is the appropriate standard of compensation); Brower and Brueschke, supra, at 589, ("Where an active market does not exist, the DCF method has proved a valuable tool to approximate fair market value."); World Bank Guidelines on the Treatment of Foreign Direct Investment, adopted September 21, 1992, reprinted in 31 I.L.M. 1363, 1383 (1992), (compensation for taking of "a going concern with a proven record of profitability" is presumptively reasonable if determined "on the basis of the discounted cash flow value").

(a) Dr. Copeland's DCF analysis

162. Dr. Copeland applied this valuation methodology to CNTS as of August 5, 1999. The first step in this analysis, determining CNTS' predicted future cash flows, started from CME's 1999 Forecasts for CNTS. Dr. Copeland tested these projections against the forecasts of independent industry analysts, noting that CME's advertising revenue forecasts for CNTS were very closely in line with the "consensus net advertising revenue49forecast" generated by five market and industry analysts who published forecasts for CNTS in late 1998 and early 1999, prior to the destruction of CNTS' business.

163. Dr. Copeland critically evaluated the reasonableness of each assumption contained in CME's 1999 forecasts - probing their bases and testing them against the historical operations of CNTS, general economic expectations, publicly available information and his general business knowledge. Dr. Copeland and Monitor recognized in their analysis the conservative nature of CME's approaches to its forecasts. For example, where CME had forecasted Czech inflation rates of 8% to 7% from 1999 through 2005, as a purposefully conservative measure given the Czech Republic's announced program to reduce inflation to 4% to 5%, Monitor concluded that these projections in particular would have been too conservative by August 1999, by which time it was clear that inflation would be far lower (it ended up at 2.1% for 1999 and 3.9% for 2000). In other instances, Dr. Copeland either recognized that the projections were conservative but adopted them, as in the case of ad discounts and acquired programming expenditures, or attached further explicitly conservative modifications to the forecasts to increase his confidence that they could be viewed as entirely reliable, as in the case of projected capital expenditures and several of CME's operating expense projections.

164. To these revenue and expense numbers, and to the resulting conclusions about continuing value of CNTS after the forecast period, Dr. Copeland applied a discount rate based on the weighted average cost of capital in accordance with conventional valuation practice. This calculation is necessary to determine the current value of a stream of cash flows extending into the future. It involves a process of attaching a notional optimal capital structure to a standalone CNTS (here Dr. Copeland used a 30% debt-70% equity structure), determining a risk-discounted return rate on equity and debt, and using that rate to reduce projected future earnings streams to a present value.

165. The resulting enterprise valuation of USD 556 million reflects CNTS' value as of August 1999 on a stand alone basis.

(b) Trading Multiple Valuation based on the ratio of Enterprise Value to EBITDA for Comparable Companies

166. Dr. Copeland tested his DCF analysis through a "trading multiple analysis" in which he calculated values for CNTS based on the average ratio of 1998 enterprise value to EBITDA for 29 comparable broadcasting companies whose stock is publicly traded in securities markets around the world. Dr. Copeland separated the companies into three geographic regions - the United States, Europe and Asia - to examine comparability of broadcasting companies around the world. While Dr. Copeland's analysis showed no significant variation in EBITDA multiples for broadcasting companies based on geography, the European broadcasting companies had an average EBITDA multiple of 10.6x. When applied to CNTS' 1998 EBITDA of USD54.9 million, this multiple yields a value of USD 582 million. As is evident from the SIBS analysis described above, and from the analysts' reports described below, this trading multiple approach to valuation50is also a common method by which buyers and sellers value companies that are going concerns

(c) The Value Attached to CNTS by Professional Stock and Bond Analysts in Reports Issued from 1997 to 1999

167. As a check on the figures generated by the foregoing techniques, Dr. Copeland also reviewed the valuations placed on CNTS by eight separate financial institutions' published analyst reports from 1997 to 1999. These represent all reports by such analysts that CME or Monitor was able to locate that attached a value to CNTS as a standalone entity. The evaluations of value in those reports are discussed more fully below.

168. Dr. Copeland's best estimate of the enterprise value of CNTS as of August 5, 1999, "were it traded freely in a liquid market without any change of control" and assuming it were not threatened with loss of its longstanding economic position respecting TV Nova, is USD 556 million.

(d) The Value ascribed to CNTS by Professional Analysts

169. The valuations of CNTS by SBS, CME and Dr. Copeland are confirmed by valuations of Claimant's investment in the TV Nova enterprise performed by professional stock and bond analysts from eight separate financial institutions between early 1997 and early 1999. A chart submitted by Claimant summarized the methodology and valuation of CNTS in every published analyst's report known to CME that separately considered the value of CNTS during this period.

170. These analysts presented their estimates as specialists in the markets in which CME competed and as experts in estimating companies' value. While the most extreme high and low valuations and the precise methodologies used for valuing CNTS spread over a fairly wide range, the analysts' collective general assessments of value strongly corroborate the results of other methods of valuation.

171. The analysts' reports yield valuations ranging from a high of USD 835 million (at 4 January 24, 1997 Prudential Securities report), to a low of USD 354 million (at 1 December 14, 1998 Schroder report). The core value range across the reports is much narrower than this, though, with six of the eight analysts producing average valuations of between USD 504 and USD 691 million. If each analyst is given equal weight (by averaging all of each individual firm's valuations and treating that average as a single estimate), the mean valuation is USD 572 million. If the high and low figures are excluded, the mean rises to USD 578 million (Monitor Report at 23-24).

172. Six of the eight institutions generating an analyst report that valued CNTS (Arnhold and S. Bleichroeder, DLJ, ING Barings, MSDW, Smith Barney, and Schroder and Company) did so by way of a trading multiple methodology, which took a relevant financial measure of the company for a given year and multiplied that number by a figure designed to estimate the discounted value of the firm's future earnings, including any expected51growth in earnings (Monitor Report at 19-23). The benchmarks chosen for these valuations were EBITDA and BCF. The average valuation of CNTS by these analysts applying a "trading multiple" approach to valuation was USD 543 million.

173. Of the remaining analysts, one (SBC Warburg) performed a full DCF valuation based on actual and projected future cash flows for the years 1995-2005, arriving at a valuation of USD 566 million for 100% of CNTS. A second (Prudential) employed an unelaborated DCF methodology that resulted in a value range across three reports of USD 701 million to USD 835 million, including a specific 1999 valuation of USD 742 million (after adjustment to reflect the value of 100% of the company at 6 Prudential Securities reports dated January 24, 1997, January 20, 1998 and June 2, 1998, respectively).

174. In general, the analyst reports that provided valuations on the higher end of the range were conspicuously more thorough than the reports that generated somewhat lower valuations. For example, DLJ performed thorough due diligence in support of its extensive February 1999 report valuing CNTS at nearly USD 700 million. The report's primary author, Mark McFadden, not only consulted with CME executives regarding the valuation model, but also personally visited Dr. Zelezný and other CNTS personnel in Prague and met with other CME station chiefs in Poland and elsewhere in Central Europe in researching his analysis. The resulting report gave particular attention to TV Nova's dominance in the rapidly growing Czech advertising market and to the barriers to new players' entering that market. Although reaching a USD 691 million valuation (after adjustment) on the basis of a 12.5x 2000 BCF multiple, the report also concluded that CNTS' promising future prospects could readily support application of an even higher 12.5x EBITDA multiple (which, using DLJ's own projections, would correspond with a valuation of USD 773 million).

175. Similarly, the analyst of Prudential visited several of CME's stations, and valued CNTS in 1998 at USD 708 million (somewhat lower than its 1997 valuation due to the devaluation of the Czech currency). Prudential's broad-ranging report emphasized that CME was "positioned to gain solid ad market share and to generate significant cash flows over the long term." ING Barings also explained, in a July 1998 report, that several of the unique aspects of CNTS' market position - including dominant audience share and viewing habits more favorable than those of Western Europe - contributed to an "explosive growth environment" in which its USD 538 million valuation of CNTS could be described as "conservative."

176. By contrast, two of the three reports valuing CNTS at less than USD500 million were the conservative estimates of bond analysts, whose analytical goal was to assess the default risk for CME's bonds rather than to pinpoint the value of its shares. (MSDW reports dated August 13, 1998 and February 18, 1999). The third was a summary one page document, by far the sketchiest of the available assessments of CNTS alone, that provided no discussion about CNTS and offered no explanation for valuing CNTS on52the basis of a low 7x EBITDA multiple. (Monitor Report at 22-23; December 14, 1998 Schroder report).

(13) Valuation Result USD 560 million

177. The valuation of CNTS at USD 560 million falls below the midpoint of the range of results from the various methodologies that have been employed. While it is USD 4 million more than what Dr. Copeland concluded, it is below the valuation SBS attached to a stand alone CNTS with its rights unencumbered and is less than the average valuation of the independent analysts.

178. This valuation takes no account of the control premium typically associated with a willing buyer's purchase of a controlling interest in a going concern. As the Monitor Report explains (at 25-27), the history of recent purchases of broadcasting companies and related enterprises, and conventional business experience generally, indicate that the price agreed upon by purchasers and sellers of a controlling interest in a successful, cash-generating entity like CNTS will reflect a premium over the equity value revealed in an analyst's report or in an analysis of enterprise value based on current trading prices or a seller's forecasts. That premium typically reflects the purchaser's belief that with control of the acquired entity it can derive greater value from the entity than the current owner. The control premium that a willing buyer could be expected to have attached to purchasing CNTS in 1999, and that Claimant could be expected to have attached to selling it, amounts to about 18% of the total enterprise value (Monitor Report at 27). This premium, amounting to USD 100 million on a USD 556 million valuation, is an identifiable component of the value on which a willing buyer and willing seller can be expected to have agreed for CNTS, and is therefore an entirely valid component of quantum. Claimant has not included the premium component in the final CNTS valuation figures.

179. Claimant has not included in its quantum claim the lost synergies that would have attached to the SIBS purchase if the destruction of Claimant's investment had not first reduced and ultimately eliminated SBS's willingness to buy CME.

(14) Value of CNTS in 1999, minus the Residual Value of CNTS

180. Claimant recognizes that the recovery of the value of its investment in CNTS should also be reduced by an amount corresponding with the residual value of CNTS that Claimant could capture after CNTS' business was destroyed. That value has three components: (i) the assets of CNTS that have been liquidated and upstreamed since CET 21 cut off business dealings with it; plus (ii) the liquidatable value of CNTS' remaining assets today; minus (iii) the costs of winding up CNTS, liquidating assets and maintaining a shell operation to pursue either the recovery of CNTS' prior position or the orderly shutdown of any remaining activities. The total net residual value of CNTS under this approach is about USD 27.5 million, which is calculated as follows:

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181. CNTS' dividends upstreamed to Claimant after August 5, 1999, in February 2000, March 2001 and April 2001, amount to USD 19,127,000. This figure includes cash on hand at the time of CET 21's severance of relations and final payments by advertisers shortly after August 5 for prior showings of advertisements, as well as proceeds from the sale of programming rights and certain moveable assets including CNTS' programming library, the value of which fell radically after CNTS lost its vehicle for broadcasting the programs. Those sales have reflected Claimant's efforts to minimize its losses from the destruction of CNTS' business.

182. CNTS still has a modest residual value, attached to its empty buildings and to equipment that is not readily saleable. The total estimated market value of these assets is approximately USD 10,565,000. The residue of CNTS' prior library of films and television shows is virtually without value, since the rights to broadcast most of these programs have expired.

183. As of September 30, 2001, CNTS also had cash on hand of USD 2,096,000, plus net receivables of USD 2,591,000, most of which arose from the sale of equipment such as a new mobile ENG van, and some programming rights. These figures are offset by CNTS' payables, accrued liabilities and other liabilities, which amounted to USD 1,656,000 as of September 30, 2001. They are also offset by the ongoing costs of maintenance of the company and by the final liquidation costs running from September 30, 2001. The ongoing maintenance costs relate primarily to the skeleton staff that exists today to administer CNTS, to pursue recovery of CNTS' prior position and ultimately to pursue an orderly shutdown. CME's current estimate of the costs of ongoing maintenance from September 30, 2001 through an assumed windup of CNTS on December 31, 2002 amounts to USD2,166,000. CME also estimates that the costs of achieving final liquidation of CNTS' assets, such as selling its building and remaining assets, will total USD 2,986,000.

(15) Claimant's Recovery should not be reduced based on the possibility of a favourable outcome in the Czech Court Proceedings

184. The Tribunal observed in the Partial Award that it might inter alia have to be determined in the quantum phase, or in a later national enforcement proceeding, whether Claimant's recovery based on the lost value of CNTS should be subject to the possibility of reduction, depending on the developments in the CNTS action against CET 21 in Czech court.

185. In respect to the Czech proceedings there is no danger of any double recovery by the Claimant. Czech law prevents such an occurrence. Furthermore, the Claimant has expressly undertaken to prevent any such outcome.

186. The Czech Supreme Court's November 14, 2001 decision cancelled the High Court's decision that CET 21 had properly terminated its Cooperation Contract with CNTS based on the non-delivery of the daily broadcasting plan on August 5, 1999. Instead of54reinstating the Prague Regional Commercial Court's finding that this termination had been improper, though, the Court merely concluded that the record had not been made sufficiently on this point to support either of the lower courts' rulings. As a result, the Court remanded to the Prague City Court (which has replaced the Regional Commercial Court) for development of a record and a determination of whether the non-delivery of a daily broadcasting plan had constituted such a pivotal breach and threat to the license as to justify termination. The Supreme Court's decision also led to the necessity for CNTS to itemize all activities respecting TV Nova that it contends it is contractually entitled to engage in on an exclusive basis.

187. This result means renewed development of evidence, written submissions and hearings, another lower court decision that will not be enforceable until tested on appeal to the High Court, and a possible second recourse to the Supreme Court before there is even a final determination on the merits of this dispute. Although the Claimant believes CNTS' position is well-founded, the ultimate outcome of this process remains entirely uncertain, and no final resolution can be expected for at least two more years.

188. Even the most favorable possible outcome of this proceeding would not result in recovery of relief by CNTS at any time soon after a final decision on the merits. As this Tribunal has previously noted, a favorable final award in CNTS' action "will not remedy the Claimant's investment situation. CET 21 may well, at any time, terminate again the Service Agreement for good cause, whether given or not, thereby recurrently jeopardizing the Claimant's investment" (Partial Award Art. 414). Public comments by Dr. Zelezný strongly support this finding, indicating that this is precisely what CET 21 has planned. Following the High Court's ruling in favor of CET 21 last December, Dr. Zelezný stated at a press conference that CET 21 had planned for a possible negative ruling by preparing to force an immediate new "breach" of the Cooperation Agreement that would allegedly serve as grounds for CET 21 to once again terminate relations.

189. The risk of non-compliance with an award in CNTS' favour is exacerbated by positions asserted by members of the Czech Media Council and the Parliamentary Media Commission respecting the meaning of provisions in the new Media Law that became effective in 2001, requiring that that every license-holder operate the television station "in its own name" and "on its own account." The Chairman of the Czech Parliamentary Media Commission, a member of that Commission, and the current Chairman of the Media Council have indicated at a meeting of the Parliamentary Media Commission on November 28, 2001 their belief that exclusivity of contracts between television license holders and so-called service providers is not allowed under the revised Media Law. These assertions further confirm the risk that CET 21 or the Media Council, or both, would react to a final court decision ordering CNTS restored to its prior position with opposition or evasion rather than compliance.

190. Moreover, the prospects of enforcing a positive judgment are uncertain.

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191. The Czech Supreme Court's decision consequently does not alter the reality that the prospects for a meaningful recovery in CNTS' action are uncertain, and relegated to the distant future. Even assuming a final enforceable and enforced decision restoring CNTS to its prior position, however, the restoration effort would take approximately one year and cost CNTS at least USD 39 million, assuming sincere CET 21 cooperation, during which time CNTS would not yet be able to perform all of the functions it was performing in 1999 in the same measure as before. Full restoration simply could not be accomplished without CET 21's full cooperation. CET 21's full cooperation is, however, hard to imagine.

(16) Interest Claim 12% p.a.

192. Claimant is entitled to interest on the principal sum of its award running from August 5, 1999, the date of Claimant's loss. Although international law does not specify any methodology for calculating the appropriate rate of interest, and tribunals have differed substantially in the measures they have awarded, the fundamental principle is clear: the award of interest should ensure the full compensation of the claimant. Full compensation requires the interest to run from the date of the Claimant's loss until final payment (Southern Pacific Properties (Middle East) Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/84/3 (1992), reprinted in 32 I.L.M. 993, 981-82 (1993)).

193. Under Czech statute and administrative regulation, binding on Czech state bodies as well as private parties, the interest rate payable in the event of a finding of liability is fixed at double the Czech National Bank's official discount rate prevailing on the first day of delay in repayment of the debtor's monetary obligation. (Art. 517 Czech Civil Code; Art. 1 June 8, 1994 Czech Ministry of Justice Decree). This fixed rate remains applicable regardless of economic conditions or the positions of the parties. The discount rate was 6.0% throughout August of 1999, so that the applicable interest rate is 12.0%, running from the day after the Respondent defaulted on its obligation until the date of payment.

194. The setting of the interest rate at double the discount rate reflects the determination by the Czech Ministry of Justice, which promulgated this interest rule, that this is the rate that properly compensates victims of a wrong for the time value of delayed payment of funds to which they become entitled in an action. In light of the Czech State's official legal position on what constitutes fair compensation for delays in payment, the Tribunal should apply at least that rate to the delay in payment for the investment loss experienced in the Czech Republic by Claimant, whose business was solely centered in the Czech Republic. That result accords also with Article 8 (6) of the Treaty, which authorizes the Tribunal to consider "the law in force of the Contracting Party concerned" (that is, Czech law) and with the provision in Article 3 that the "full security and protection" accorded to foreign investors "shall not be less than that accorded [...] to investments of its own investors."

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195. Claimant's own borrowing rates in the Czech Republic support application of the 12.0% statutory interest rate. On August 1, 1996, CME borrowed CZK 850 million from the Czech Savings Bank ("CSB") to fund CME's purchase of CSB's shares in CNTS and agreed to pay interest on this loan at a rate of 12.9%. That interest rate remained in effect continuously thereafter, including in August 1999 (with an outstanding principal balance of CZK 547.6 million on August 5), until CME renegotiated the loan in October 2001. The current terms apply a variable rate corresponding with 3.5% over the twelve month Prague Interbank Offered Rate ("PRIBOR Rate") - 4.94% on this quarter's calculation date, November 27 - yielding a current interest obligation of 8.44%. As of August 2002, the blended interest rate on this loan over the three years since Claimant lost its investment will have been almost identical to the 12% statutory rate.

196. If interest were to be based on Claimant's borrowing rate or any other benchmark other than the Czech statutory rate, the Final Award should provide for annual compounding of the interest award. Tribunals hearing investment dispute cases have been increasingly awarding compound interest in relation to the valuations of property or property rights, in recognition of the financial reality that earned interest is put to use as working capital, and that simple interest consequently does not provide a full recovery.

III. The Position of the Respondent

(1) The Tribunal's Obligation to Reconsider the Partial Award

197. Respondent complained in its Statement of Defense respecting Quantum dated July 1, 2002 that the Claimant had not sufficiently complied with the Tribunal's orders to produce documents and alleged that the Claimant sought to frustrate the proceedings, which is evidenced by the Tribunal's orders. Further, the Claimant in the view of the Respondent failed to plead issues to be resolved at the Quantum Phase.

198. The Respondent's view is that the Tribunal first is obliged to reconsider the Partial Award due to the rendering of the Final Award of the London Tribunal and due the "Common Position" of the Czech Republic and the Netherlands on the interpretation of the Treaty.

1. The Final Award of the London Tribunal

199. The Respondent's view is that the rule of res judicata must be applied by the Tribunal at the Quantum Phase. To the extent that the Partial Award differs from the London Final Award, the terms of the latter must prevail. The London Final Award not only was res judicata at the time the Partial Award was issued; it remains res judicata for the Quantum Phase and, therefore, cannot be ignored by the Tribunal.

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(i) Res Judicata as it applies to these proceedings

In traditional theory, the principal of res judicata presupposes the identity of subject matter, cause of action and parties. The nature of international arbitration, however, where parallel arbitrations and the risk of conflicting awards arise out of bilateral investment treaties ("BIT's"), produces factors that differ from those found in national court or arbitration proceedings.

(ii) same subject matter and same cause of action

200. The parallel proceedings in London and Stockholm derived from the same circumstances, concerned the same subject matter. Both Mr. Lauder and CME invoked the same cause of action under the respective BITs, i.e. claiming that the Czech Republic breached identical obligations under each BIT to: provide fair and equitable and full protection and security; prohibit arbitrary and discriminatory conduct; and prohibit expropriation without compensation. The slight differences in language between the two treaties could have no effect.

201. The Respondent refers to the Southern Bluefin Tuna case (Australia and New Zealand v. Japan, Award on Jurisdiction and Admissibility (2000) 39 ILM 1359 at 1388), where the tribunal indicated that a reference to two different treaties does not necessarily indicate that there are two distinct claims.

202. In these proceedings, the differences between the two treaties (the U.S. Treaty and the Dutch Treaty) are insignificant compared with the differences between the two Conventions in the Southern Bluefin Tuna case. The rights upon which CME relies are essentially the same in the London and the Stockholm proceedings.

203. In both arbitrations, Mr. Lauder and CME sought, primarily, reinstatement of the benefit of the common investment and, secondarily, damages from the Czech Republic as a result of allegedly suffering loss of that same investment. In both arbitrations, virtually identically written pleadings were filed, the same witnesses submitted virtually the same witness statements, substantially the same arguments were made to the two tribunals by the same counsel, instructions given by the same representatives of the parties, and this Tribunal had access to the same testimony given to the London Tribunal.

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(iii) Same parties

204. There is no absolute requirement of "identity" of parties in Swedish procedural law. There is a general principle that the parties must be the same; but the rule is to be interpreted in accordance with the purpose of the principle of res judicata, i.e. that a third party shall not be restricted by submissions made by other parties in protecting its rights.

205. International tribunals have increasingly disregarded the separation of different legal entities within the same corporate group and the distinction between a shareholder and its corporate vehicles. International arbitration cases have considered parties which constitute "one and the same economic reality" as the same party.

206. BITs aim to protect investors who have directly or indirectly invested in the host state. It is not unusual that, for tax planning purposes, international investments are undertaken through a chain of entities in different jurisdictions. Many BITs protect the ultimate investor who is at the top of the chain of entities, whether he has a direct or indirect investment. From the perspective of the investor's State, a BIT is entered into by that State in order to protect its natural or legal persons when investing in another State, even if the investment is made via legal persons in other jurisdictions.

207. Accordingly, BITs have the effect of "lifting the corporate veil" to the benefit of the ultimate shareholder. The ultimate shareholder is thereby given a right of action to bring a claim in his own name in relation to the loss suffered by a company in which he is a direct or indirect shareholder. Mr. Lauder exercises control over CME, which is the sole basis on which he could commence the London Proceedings. The CME Ltd's 10 K Filing for 2001 stated that the London proceedings were initiated by Mr. Lauder "in his personal capacity as a U.S. national who owns or controls (by virtue of his voting over the Company) an investment in the Czech Republic".

208. The Respondent submits that the standard of "virtual identity" or "essentially the same" identity is appropriate in this case. This standard implies that, where closely related parties (in a financial and legal sense) are present, res judicata applies. Both BITs, the U.S. Treaty and the Dutch Treaty, look to the underlying nationality of the investor, not to his formal identity.

209. Mr. Lauder claimed through CME, which was one of the links in the extended chain between himself and the investment in the Czech Republic. All of the companies in the chain (except the parent company, CME Ltd.) are wholly-owned and non-operative, and under the effective control of Mr. Lauder.

210. Mr. Lauder sought restitution of the license for the benefit of CNTS, through himself in London Proceedings and through CME in these Stockholm Proceedings. The ultimate interests in any damages that might be awarded in either case are the same.

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211. Under Article III of the New York Convention, which has been incorporated into Swedish law through the Arbitration Act 1999 (Section 53), the Tribunal having its seat in Sweden, is bound to recognize the Final Award made in London, which became final and binding on 3 September 2001 by virtue of Section 58(1) of the Arbitration Act (UK) 1996, also for the Quantum Phase.

2. The effect of the London Final Award on these proceedings

212. This Tribunal cannot undo the findings of the Partial Award; but it cannot base its decision on quantum on matters decided in the Partial Award, if the London Final Award has held differently.

213. If the Media Council did not deprive Mr Lauder of his "legal security" in breach of the U.S. Treaty, it did not deprive CME of that same "legal security" in breach of the Dutch Treaty. Thus, the Czech Republic has no liability for any losses suffered by Mr. Lauder or CME for a "deprivation" which the London Tribunal has held did not occur.

214. According to the London Tribunal, the issuance of the letter of the Media Council dated March 15, 1999 was not a breach of the U.S. Treaty and did not deprive CNTS of the exclusivity of its relationship with CET 21. The same must be true for the purpose of the Dutch Treaty, and the Respondent has no liability for any losses suffered by Mr. Lauder or CME for a harm which the London Tribunal has held did not occur.

215. The overall effect of even these two elements of the Final Award binding this Tribunal is that CME's entire claim for damages is bound to fail. Despite the fact that this Tribunal is bound to proceed on the basis of the Partial Award on liability, the amount of damages that flow from that liability is nil because no losses for which the Media Council or the Czech Republic are responsible can be determined in the light of the London Final Award.

3. The common positions bind this Tribunal

216. The Respondent's position in respect to the agreed minutes on the Common Position of the delegates of The Netherlands and the Czech Republic is that the two contracting States reserved to themselves the exclusive competence to decide on how the Treaty should be interpreted and applied. The Tribunal has no more competence to state how the Treaty shall be interpreted and applied than any one of the State parties unilaterally. To the extent that a tribunal makes an incorrect interpretation or misapplies the Treaty, the States parties can overrule the tribunal's mistake. The power to cancel or change the award lies with the courts of competent jurisdiction in the country where the arbitration took place.

217. The common positions, representing the interpretations and application of the Treaty agreed between its contracting parties, are conclusive and binding on the Tribunal.

4. The Effect of the Common Positions

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