Title
CME Czech Republic B.V. vs. The Czech Republic, Partial Award of September 13, 2001, at http://ita.law.uvic.ca/documents/CME-2001PartialAward.pdf
Content
98

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H. The Analysis of the Tribunal

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112

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II. The Substance of the Claimant‘s Case

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115

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2. The Merits of the Claimant‘s Case under the Treaty

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125

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(2) The Media Council in 1996 coerced CME to abandon the legal security for its investment in the Czech Republic

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144

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533" The Czech Republic and/or the Media Council are as a matter of principle not debarred from amending or altering the basis for CME's investment, subject to acquired rights and treaty obligations. This is a question of the Czech Republic's national sovereignty. However, any such action should have been done under due process of law, providing just compensation to the deprived investor (Art. 5 of the Treaty). The silent and coerced vitiation of CME's basis for its investment does not fulfil such a requirement and is, therefore, under the standards of the Treaty, and the rules of international law, a breach of treaty obligations.

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164

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(6) The Respondent breached the Treaty

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(i) The obligation not to deprive the Claimant of its investment (Treaty Article 5)

591" The Claimant's expropriation claim under Article 5 of the Treaty is justified. The Respondent, represented by the Media Council, breached its obligation not to deprive the Claimant of its investment. The Media Council's actions and omissions, as described above, caused the destruction of CNTS' operations, leaving CNTS as a company with assets, but without business. The Respondent's view that the Media Council's actions did not deprive the Claimant of its worth, as there has been no physical taking of the property by the State or because the original Licence granted to CET 21 always has been held by the original Licensee and kept untouched, is irrelevant. What was touched and indeed destroyed was the Claimant's and its predecessor's investment as protected by the Treaty. What was destroyed was the commercial value of the investment in CNTS by reason of coercion exerted by the Media Council against CNTS in 1996 and its collusion with Dr. Zelezný in 1999.

592" The reversal of the Media Council's position in respect to CME's investment (after Council members were replaced by the Czech Parliament in response to criticism of the Licence granted to CET 21 in conjunction with the foreign investment in CNTS) might have been motivated by the new Media Law as of January 1, 1996. However, this does not justify the Council's new interpretation of the legal situation or other regulatory necessities seen by the Council in 1996 and there is no justification for the Council's actions in 1996, enforcing the amendment of 1993 arrangements.

593" The Respondent's defence that this interference in 1996 did not do any harm, as "The Czech Court determined that, as a matter of law as well as a matter of fact, CNTS had the exclusive right to provide certain television services to CET 21 before CNTS took the step that terminated the 1997 Service Agreement and that step, of course, was the withholding of the daily programme log on the 4th August 1999", is not convincing. In particular, the Defendant's view: "That step plainly had nothing whatever to do with the Czech Authorities", is unsustainable. The amendment of the MOA by replacing the licence-holder's contribution of the Licence by167 the worthless "use of the know-how of the Licence" is nothing else than the destruction of the legal basis ("the safety net") of the Claimant's investment. This destruction was clearly caused by the Czech State, acting through the Media Council.

594" The Respondent's claim that the Media Council has never reversed its attitude to exclusivity, as it accepted exclusivity in 1993, but also accepted exclusivity in the amended provisions in 1996, is not supported by the clear wording of the documents. The contrary is the case, as already explained above. The Respondent's contention that the Media Council consistently tried to make clear that it was not concerned by the question of exclusivity but by the question of the danger that an exclusive arrangement may lead to an unlawful transfer of the Licence, is not convincing. The clear facts speak against it. The Council, according to its own interpretations in its reports to the Czech Parliament, reversed its assessment of the legal situation in respect to the validity of the 1993 split structure and took the necessary steps to implement this view by coercing the change in the 1993 legal arrangements.

595" The Respondent's further argument that the Council, in its internal deliberations, never discussed the matter of exclusivity until recently, might well be the case. Indeed, the Council's interference in 1996, enforcing the amendment of the MOA, was much more far reaching. The Council forced the shareholders of CNTS to replace CET 21's contribution of "use of the Licence" by a worthless substitute, carrying a similar name. The amendment was extracted from CNTS by the institution of administrative proceedings which sprung from the Media Council's own assessment of the events. As already dealt with above, the Respondent's argument that the 1993 arrangement was not better than the 1996 amended arrangement is not convincing.

596" The Respondent's further argument, also already rebutted above, that the 1993 legal arrangements did not prevent CET 21 from obtaining broadcasting services from other providers, goes against the exclusivity of the 1993 arrangement in the MOA.

597" The Respondent's further argument, according to which the efficacy of the 1993 arrangement has never been tested, is also not convincing.168 The Czech Civil Courts tested the arrangements. The Czech Appeal Court's view that CNTS' refusal to deliver the 4th August daily log gave good cause for CET 21 to terminate the Service Agreement is a clear proof of the fragile character of the (coerced) 1996 amendment. Since 1996, the legal safety net for the investment was based on the fragile structure of a Service Agreement which could be terminated by CET 21 under any given or invented reason, creating by this an intolerable uncertainty for a long-term investment.

598" In this respect, it would be superfluous to say that the contribution of "the use of a Licence" (approved by the regulator) provided substantially more legal safety for CNTS than the bilateral Service Agreement whose legal uncertainty is demonstrated by the sequence of the following events and the differing court decisions on this subject by the Regional Commercial Court of Prague, the Appellate Court of Prague and the Czech Appeal Court's decision pending when the hearing of these arbitration proceedings were closed.

599" The Respondent's argument that no loss occurred in 1996 and 1997 as a direct consequence of the legal changes in 1996 and that CME was in the position to equally enjoy its investment after the implementation of the 1996 arrangements, is not convincing. Legal protection (and safety nets, as the Respondent's representatives said) prove their strength not at the day of implementation but at the day of breach. The enforced or coerced waiver of legal protection was per se a substantial devaluation of the Claimant's investment. The persons involved, including the representatives of the Media Council, CET 21 and CNTS and also CNTS' shareholders, clearly understood the character and the impact of the enforced changes on the protection of CNTS' operations as exclusive service provider for CET 21. The Media Council deprived the Claimant of its investment's security by requiring CME in 1996 to enter into a new MOA and thereby giving up the exclusive right to use the Licence and further, in 1999, by actively supporting the licence-holder CET 21, when it breached the exclusive Service Agreement with CNTS.

600" The Council, after having issued on March 15, 1999 a regulatory letter to CNTS and CET 21 requesting the implementation of the non-exclusive service arrangement in support of Dr. Zelezný's openly disclosed inten-169tion to harm the foreign investor, was obligated to rectify the situation. In the least, the Council should have withdrawn the March 15, 1999 letter and made clear that the 1996 contractual relations were not in breach of the Media Law. However the Media Council, although frequently notified by CNTS and CME of the consequences of its actions and failures to act, remained silent or disclaimed jurisdiction and so supported the vitiation of the Claimant's investment.

601" The basic breach by the Council of the Respondent's obligation not to deprive the Claimant of its investment was the coerced amendment of the MOA in 1996. The Council's actions and omissions in 1999 compounded and completed the Council's part in the destruction of CME's investment.

602" The Media Council, by its actions and omissions in 1996 and 1999, caused the damage suffered by the Claimant. Causation arises because the Media Council intentionally required CNTS to give up the right of the exclusive use of the Licence under the MOA. The Media Council's possible motivation for such action -- to obtain regulatory control again over the broadcasting operation of CET 21 after the new Media Law came into force in 1996 -- is irrelevant. A change of the legal environment does not authorize a host State to deprive a foreign investor of its investment, unless proper compensation is granted. This was and is not the case. Furthermore, it must be noted that the change of the 1993 legal arrangement in 1996 as required by the Media Council, for whatever reasons, does not justify the Council's collaboration in the assault on CME's investment by supporting CET 21's breach of the Service Agreement in 1999. The Respondent, therefore, is obligated to remedy the damages which occurred as a consequence of the destruction of Claimant's investment.

603" Of course, deprivation of property and/or rights must be distinguished from ordinary measures of the State and its agencies in proper execution of the law. Regulatory measures are common in all types of legal and economic systems in order to avoid use of private property contrary to the general welfare of the (host) State. The Council's actions and inactions, however, cannot be characterized as normal broadcasting regulator's regulations in compliance with and in execution of the law, in par-170ticular the Media Law. Neither the Council's actions in 1996 nor the Council's interference in 1999 were part of proper administrative proceedings. They must be characterized as actions designed to force the foreign investor to contractually agree to the elimination of basic rights for the protection of its investment (in 1996) and as actions (in 1999) supporting the foreign investor's contractual partner in destroying the legal basis for the foreign investor's business in the Czech Republic. The actions and inactions affected the value of CME's shares in CNTS, such shares being clearly a "foreign investment" in accordance with the Treaty, as already dealt with above (see also the TRADEX case as cited above).

604" The expropriation claim is sustained despite the fact that the Media Council did not expropriate CME by express measures of expropriation. De facto expropriations or indirect expropriations, i.e. measures that do not involve an overt taking but that effectively neutralize the benefit of the property of the foreign owner, are subject to expropriation claims. This is undisputed under international law (G. Sacerdoti page 382 as cited above, referring to numerous precedents such as the German Interests In Polish Upper Silesia case, 1926, PCIJ, Series A, No. 7, reprinted in M. Hudson, ed., I World Court Reports 475 (1934); see also Southern Pacific Properties (Middle East) Ltd. v. Egypt, ICSID Case No. ARB/84/3 (1992), 32 I.L.M. 993, 1993, dealing also with the expropriation of contractual rights of the operating company).

605" Furthermore, it makes no difference whether the deprivation was caused by actions or by inactions. [See Biloune, et al. v. Ghana Investment Centre, et al. 95 I.L.R. 183, 207-10 (1993); also published in the Yearbook Commercial Arbitration XIX (1994, page 11) and see also the International Technical Products Corp. v. Iran Award No. 196-302-2 (1985), 9 Iran-US CTR Rep. 273, page 239].

606" In the Metalclad Corporation v. United Mexican States case (ICSID Case No. ARB (AF)/97/1 (2000) in respect to NAFTA Article 1110 (expropriation), the ICSID Tribunal stated that an expropriation under this provision included not only open, deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or incidental interference with use171 of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably to be expected economic benefit of property even if not necessarily to the obvious benefit of the host State. Thus, by permitting or tolerating the conduct of the municipality, which the tribunal had held amounted to an unfair and inequitable treatment that breached Article 1105, and by participating or acquiescing in the denial to the investor of the right to operate, notwithstanding the fact that the project had been fully approved and endorsed by the federal Government, the State Party must in the tribunal's opinion have taken a measure tantamount to expropriation in violation of Article 1110 (1). This view of the ICSID Tribunal is supported by the Biloune award as cited above.

607" Expropriation of CME's investment is found as a consequence of the Media Council's actions and inactions as there is no immediate prospect at hand that CNTS will be reinstated in a position to enjoy an exclusive use of the licence as had been granted under the 1993 split structure (even if the Czech Supreme Court would re-instate the Regional Commercial Court decision). There is no immediate prospect at hand that CNTS can resume its broadcasting operations, as they were in 1996 before the legal protection of the use of the licence was eliminated.

608" In this respect, the Iran-United States Claims Tribunal stated: "A deprivation or taking of property may occur under international law through interference by a State in the use of that property or with the enjoyment of its benefits, even where legal title to the property is not affected. [Citations omitted.] While assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely ephemeral. The intent of the government is less important than the effects of the measures on the owner, and the form of the measures of control or interference is less important than the reality of their impact." (see Tippetts, Abbett, McCarthy, Stratton v. TAMS/Affa Consulting Engineers of Iran et al. of 29.06.1984; 6 Iran-United States CTR, 219 et seq. page 225 as confirmed by Phelps Dodge Corp. et al v. 2. Iran, Award172 No. 217-99-2 (1986), reprinted in 10 Iran - U.S. Cl. Trib. Rep. 121 (1987); see also Sea-Land Service, Inc. v. Iran, 6 Iran-United States C.T.R. 149 at 166):"A finding of expropriation would require, at the very least, that the Tribunal be satisfied that there was deliberate governmental interference with the conduct of Sea-Land's operation, the effect of which was to deprive Sea-Land of the use and benefit of its investment."

609" In the case before this Tribunal, the situation is even clearer. The object of the Media Council in 1996 was to amend the 1993 split structure by removing the exclusive use of the licence from CNTS to CET 21, the only company which under the new Media Law in force as of January 1, 1996 was under control of the Council. This deprivation of CNTS' "exclusive use of the Licence" was compounded by the Media Council's actions and inactions of 1999. This qualifies the Media Council's actions in 1996 and actions and inactions in 1999 as expropriation under the Treaty.

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