Date of dispatch to the parties: 4 October 2013
TABLE OF CONTENTS
TABLE OF ABBREVIATIONS
A. THE PARTIES
1. The Claimant
1. Metal-Tech Ltd.1 (“Metal-Tech” or “the Claimant”) is a manufacturer of ceramic powders, metals and metal derivatives, including molybdenum products.2 It is a public company organized under the laws of the State of Israel, with its offices at Beer-Sheva 84874, Ramat Hovov St., P.O. Box 2412, Israel.
2.The Claimant has been represented in this arbitration by:
• Covington & Burling LLP
Mr. O. Thomas Johnson, Jr. (until 6 April 2012)
Ms. Marney Cheek
Mr. Eugene D. Gulland (from 18 April 2012)
Mr. Jonathan Gimblett
Mr. John F. Scanlon
Mr. Alexander Berengaut
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2401
United States of America
Tel: +1 202 662 6000
Fax: +1 202 662 6291
Ms. Carmen Martínez López
London WC2R 1BH England
Tel:+44 20 7067 2000 Fax:+44 20 7067 2222
• Ms. Maayan Bar, Adv
Sea & Sun, Suite 4410
8, Herzl Rosenblum Street
Tel Aviv, 69379
2. The Respondent
3. The Respondent is the Republic of Uzbekistan (“Uzbekistan” or the “Government” or the “Respondent”).
4. The Respondent has been represented in this arbitration by:
• White & Case LLP
Ms. Carolyn B. Lamm
Ms. Andrea J. Menaker
Mr. William Currier
Mr. Frank Panopoulos
Mr. Lee A. Steven
Mr. Brody K. Greenwald
Ms. Kristen M. Young
701 13th Street, N.W.
Washington, DC 20005
United States of America
Tel: + 1 202 626 3605
Fax: + 1 202 639 9355
•Ministry of Justice of the Republic of Uzbekistan
Mr. Muzraf Ikramov (First Deputy Minister of Justice)
Mr. Davronbek Akhmedov
5 Sayilgoh Street
Republic of Uzbekistan
Tel/Fax: + 998 71 233 35 98
B. MAIN FACTS
5. The following summary is meant to give a general overview of the present dispute. It does not include all facts which may be of relevance, particularly as they emerged from the extensive evidence gathered at the hearings. To the extent relevant or useful, additional facts will be discussed in the Tribunal’s analysis of the disputed issues.
1. The Uzbek Molybdenum Industry
6. As a result of a significant increase in the demand for molybdenum in the 1960s and 1970s, the Uzbek molybdenum industry flourished in the 1980s. With the collapse of
the Soviet Union, it then experienced a downturn.3 Following its declaration of independence, Uzbekistan sought to attract foreign investment to revive the industry.
7.Beginning in December 1998 and continuing through 1999, Metal-Tech and the Uzbek government conducted negotiations concerning a joint venture to build and operate a modern plant for the production of molybdenum products. The joint venture was to be formed between Metal-Tech, on the one hand, and Uzbek Refractory and Resistant Metals Integrated Plant (“UzKTJM”) and Almalik Mining Metallurgy Combinate (“AGMK”), two companies owned by the Government and involved in the molybdenum industry, on the other. AGMK produces molybdenum concentrate from raw deposits of copper and other minerals and sells it to others who use it to produce various molybdenum products.4 It is the only company that mines molybdenum in Uzbekistan.5 UzKTJM is the primary producer and exporter of molybdenum products in Uzbekistan.6
8. Due to the outdated technology used by AGMK, the molybdenum concentrate it produced was of low quality and did not meet world market standards. As a result, it could not be exported. While the industry standard required molybdenum concentrate to have a concentration of 51%, AGMK’s concentrate contained no more than 30% of molybdenum.7 In addition, AGMK lost significant quantities of molybdenum, copper, and rhenium in the extraction process. It was also incapable of extracting the available osmium, and its extraction process produced gases that polluted the environment.8
9. UzKTJM, AGMK’s only local customer, could not use AGMK’s low-quality molybdenum concentrate to produce molybdenum trioxide (a high-end derivative product of molybdenum concentrate) that met international standards. Neither could it produce higher-grade products, such as molybdenum tiles and wire, to sell on the world market. In addition, UzKTJM’s technology and equipment was outdated; it frequently broke down while processing AGMK’s low-quality molybdenum concentrate. As a result, UzKTJM operated at 15-20% capacity. By 1998, it was losing money and falling into debt.9
10. It was against this background that a joint venture was to be formed with the Claimant. The Claimant was to contribute its technology, know-how and access to international markets as well as part of the financing needed for a new plant. UzKTJM and AGMK were to make their contributions in the form of buildings, constructions, machines, and equipment.10 According to the Claimant, the most important contribution of AGMK was the raw molybdenum, which would be processed by the joint venture. AGMK being the only company in Uzbekistan to mine molybdenum, the joint venture would have no raw material, and thus no purpose, if it did not receive AGMK’s raw molybdenum.11
2. Feasibility Study
11. During the course of the negotiations, Metal-Tech prepared a draft feasibility study that set out what the Claimant expected to achieve by entering into the joint venture. The Ministry of Economy and Ministry of Finance reviewed this draft feasibility study and advised Metal-Tech how Metal-Tech would have to revise the feasibility study before the Government could approve the proposed project.12
12. In a revised feasibility study dated 29 August 1999 (the “Feasibility Study”), Metal-Tech detailed its proposed USD 17.5 million investment project.13According to the Claimant, the Feasibility Study was prepared on the basis of the “shared understanding” with the Uzbek government that the joint venture was specifically created to process AGMK’s low quality concentrate into pure molybdenum oxide that could be sold on the international market.14 The Feasibility Study, according to the Claimant, was a mere analytical tool to show how the proposed project would be planned and executed.
3. Resolutions Nos. 15 and 29F
13. The Feasibility Study was presented to the Uzbek authorities on 29 August 1999. On 29 September 1999, the Cabinet of Ministers of the Republic of Uzbekistan provided its comments. On 18 January 2000, on the basis of the Feasibility Study, the Cabinet of Ministers issued Resolution No. 1515 and Resolution No. 29-F,16 which authorized the creation of the joint venture Uzmetal Technology (“Uzmetal” or the “JV”).
14. Resolution No. 15 was issued to “effectively use copper and molybdenum deposits Kalmokar and SaryCheku (Tashkent Region), to process molybdenum products and increase the export potential of the Republic”.17Resolution No. 29-F was issued to approve “the technical and economical justification” for the creation of Uzmetal.18 As set out in the Resolution, the value of the project, including construction works, amounted to USD 19,398,000. Uzmetal was to create 109 workplaces and produce 600 tons of molybdenum products per year. The construction of the new plant was to be completed within 12 months. Uzmetal was given five years to repay its loans taken from Metal-Tech and from the National Bank of Uzbekistan (“NBU”) as described below (¶17).
15. Pursuant to Article 2 of Resolution No. 15, Uzmetal’s share capital amounted to USD 1 million19 distributed among Metal-Tech (50%), UzKTJM (30%) and AGMK (20%). Metal-Tech was to make a capital contribution of USD 500,000 or Soum 60,500,000. UzKTJM and AGMK were to make their contributions in kind as set out above (¶10). Article 2 further provided that Uzmetal’s main purpose was “to develop the processing of molybdenum products at AGMK and to manufacture molybdenum products at UzKTJM using state-of-the-art technology”. The volumes and terms of export of Uzmetal’s products were to be defined in separate agreements with Metal-Tech.
16. Article 3 of Resolution No. 15 provided that “all molybdenum-containing products manufactured by AGMK shall be processed by JV Uzmetal Technology, while by- products shall remain in the possession of AGMK”. Article 3 further provided that Uzmetal was to return the metal-containing cake left over from the processing of molybdenum to AGMK.
17. Articles 4 to 6 of Resolution No. 15 dealt with the financing of the project. Under Article 4, Uzmetal was authorized to take a loan from Metal-Tech in the amount of USD 2.624 million (15% of the contract value) for a period of three years. An Israeli bank was to grant another loan to NBU for the remaining USD 14.866 million (85% of the contract value) for a period of five years. Uzmetal was to repay both loans out of its revenues in foreign currency. Pursuant to Article 6, the Uzbek Minister of Finance was authorized to guarantee these loans on behalf of the Government.
18. Resolution No. 15 also granted several benefits to Metal-Tech. For example, according to Article 10, Uzmetal was exempted from paying customs duties for a period of five years (except for customs clearance charges). Uzbekistan also agreed to issue working permits and visas for Uzmetal’s foreign employees and to exempt them from paying consular fees or state duty. Moreover, Metal-Tech’s bank was exempted from paying taxes on the income of non-resident personnel.20
4. Charter and Constituent Contract of Uzmetal
19. On 28 January 2000, Metal-Tech, UzKTJM and AGMK adopted the Charter of the Joint Venture Uzmetal Technology (the "Charter”)21 and signed the Constituent Contract About Creation and Activity of Uzbek-Israeli Joint Venture Uzmetal Technology (the "Constituent Contract”)22, incorporating Uzmetal as a limited liability corporation in Uzbekistan.
20. According to Article 2.1 of the Charter and Article 2.1 of the Constituent Contract, the purpose of Uzmetal was the “manufacture of pure molybdenum and products from it and realization, reception of the profit, including currency”. Article 2.1 of the Charter further provided that Uzmetal’s “basic tasks” would be the following:
“- organization of manufacture for processing of molybdenum industrial product on OAO "Almalik GMK" and introduction of modern technology for manufacturing of molybdenum production on UZKTJM;
- maintenance of UZKTJM with clean molybdenum raw material from OAO «ALMALIK GMK» and loading of a part of its capacities;
- expansion of commercial and public connections between the State of Israel and Republic of Uzbekistan.”
21. In addition, Article 2.2 of the Constituent Contract provided that Uzmetal would have as a “main task”:
“- to create on UZKTJM and on OAO “Almalik GMK” a modern manufacture of pure molybdenum and products from it with a high export potential.”
22. According to Article 4.1 of the Charter, Uzmetal’s “bodies of management” were the General Meeting of the Participants, the General Director and the Auditing Commission. The highest power in the JV was with the General Meeting of the Participants.23
23. On 23 March 2000, the JV was registered with the Ministry of Justice.
5. Contract No. 0150500/U
24. On 15 May 2000, Metal-Tech and Uzmetal entered into Contract No. 0150500/U (the “EPC Contract”) for the sale of goods and services by Metal-Tech to Uzmetal. Under the Construction Contract, Metal-Tech agreed to build a new roasting plant in Almalik and to upgrade the facilities in Chirchik.24 Uzmetal in turn agreed to purchase from Metal-T ech equipment, know-how, and installations needed to modernize the molybdenum production at the AGMK and UzKTJM facilities.25
25. On 19 July 2000, Supplementary Agreement No. 126 was concluded, modifying several provisions of the Construction Contract.27
26. In 2002, the construction and upgrading of the facilities in Almalik and Chirchik was completed. Operations commenced on 1 October 2002.28
6. Export Contract No. 180800EX
27. On 12 November 2000, Metal-T ech and Uzmetal concluded Export Contract No. 180800EX (the “Export Contract”), pursuant to which Uzmetal agreed to sell all of its molybdenum production to Metal-Tech.29 Metal-Tech was then to sell the products on the world market and to pay Uzmetal with the proceeds from these sales. Uzmetal would ship the products directly to the purchasers, pursuant to shipping instructions received from Metal-Tech, and the purchasers would pay Metal-Tech under their separate sale contracts with Metal-Tech.30
7. Consulting Contracts
28. On 15 December 2000 and 3 March 2003, Metal-Tech entered into consulting agreements with MPC International Investments and Consultants GmbH (“MPC”), a Swiss limited liability company founded on 20 July 1998. As of 14 May 2012, MPC’s shareholders were BV Chemie Pharmacie Holland (45%) (“CPH”), Bordeaux Intertrade Inc. (45%) (“Bordeaux”), and Mr. Wouter Hans Müller (10%).31 Mr. Müller is also the Director of MPC. On 25 October 2004, Metal-Tech entered into another consulting agreement with MPC-Tashkent, the “daughter enterprise” of MPC (“MPC” and “MPC- Tashkent” are collectively referred to as the “MPC Companies”).
29. In addition, on 1 October 2004, Metal-Tech entered into three individual consulting agreements with Messrs Victor Mikhailov, Uygur Sultanov and Igor Chijenok (collectively referred to as the “Consultants”). On 28 February 2005, Metal-Tech entered into a further contract with the Consultants. Payments under this contract were made to Lacey International Corp. (“Lacey International”).
30. The Parties disagree about the purpose of these consulting agreements. While the Claimant submits that these were legitimate consulting contracts, the Respondent argues that they were a sham meant to cover the Claimant’s illegal payments to Government officials or to persons closely connected to the Government.
8. Origin of the Present Dispute
31. On 22 May 2002, at the General Meeting of Participants of Uzmetal, the then General Director, Mr. Shwa, informed the Participants that the new facilities would soon start to operate and that by the end of 2002, 100-150 tons of finished molybdenum products would be manufactured and sold by Uzmetal.32
32. On the basis of Resolution No. 15, on 14 June 2002, AGMK and Uzmetal concluded Contract No. 07-1335 under which Uzmetal undertook to deliver to AGMK “off-gas, generated in the course of firing of molybdenum middling product [...]”.33
33. On 26 July, 2002, AGMK and Uzmetal concluded a framework agreement, entitled Contract No. 12-1614, by which AGMK agreed to sell to Uzmetal its molybdenum concentrate. Uzmetal agreed to return “all by-products – cake with the metals it contains – obtained after reprocessing of the molybdenum middling product” to AGMK.34Over the years, this agreement was amended.
34. Uzmetal’s facilities started operating on 1 October 2002. The Parties are in disagreement over the date when Uzmetal should have commenced operations. They also diverge on whether the delays in setting up the facilities were minor or major and whether or not they were attributable to Metal-Tech.
35. On 17 October 2002, Uzmetal and Metal-Tech concluded Export Contract No. 1. Under this contract, Uzmetal undertook to sell Metal-Tech 150 tons of molybdenum oxide for the total amount of USD 1,218,000.35
36. The Parties dispute whether Uzmetal and Metal-T ech fulfilled their contractual obligations during operation from October 2002 until mid-2006. In particular, the Parties disagree on the scope of Metal-Tech’s obligations and whether Metal-Tech complied with these obligations. It is undisputed, however, that Uzmetal made a profit in 2005 and that on 26 May 2006, the Uzmetal General Meeting of Participants decided to distribute dividends.36
37. On 12 June 2006, the Public Prosecutor’s Office for the Tashkent Region initiated criminal proceedings on the ground that officials of Uzmetal had abused their authority and caused harm to Uzbekistan. These proceedings focused on Mr. Krespel, the General Director of Uzmetal, who had negotiated and signed the Export Contract and its amendments on behalf of Uzmetal.37
38. On 18 July 2006, Uzbekistan’s Cabinet of Ministers adopted Resolution No. 141.38 This Resolution abrogated Article 3 of Resolution No. 15, namely Uzmetal’s rights to
purchase raw materials.39 According to the Claimant, the resolution cancelled its exclusive right to export Uzmetal’s refined molybdenum oxide.40
39. On 21 July 2006, AGMK notified Uzmetal of its intention to terminate the supply contract in force at the time between AGMK and Uzmetal, i.e. Contract No. 12-17 of 5 January 2006. The Parties dispute whether Resolution No. 141
40. On 25 July 2006, AGMK sent Uzmetal a draft agreement for terminating Contract No. 12-17, which Uzmetal did not sign.41 A few months later, on 25 December 2006, AGMK initiated proceedings against Uzmetal before the Economic Court of Tashkent Region requesting that the Court cancel Contract No. 12-17.42
41. By letter dated 27 December 2006, UzKTJM requested that Uzmetal pay UzKTJM’s share of the dividends, i.e. USD 162,859,175.55, before the close of the calendar year in accordance with Uzmetal’s Charter and the decision of the Uzmetal General Meeting of Participants of 26 May 2006.43 UzKTJM renewed this request in a letter of 23 February 2007.44
42. On 26 January 2007, the Economic Court of the Tashkent Region declared that Contract No. 12-17 shall be terminated.45 That court’s decision was confirmed on appeal on 26 March 200746 and on 21 May 2007.47
43. On 22 May 2007, UzKTJM initiated proceedings against Uzmetal before the Commercial Court of the Tashkent Region seeking the distribution of its share of UzKTJM’s dividends decided on 26 May 2006.48
44. The Commercial Court of the Tashkent Region awarded the relief sought by UzKTJM on 18 June 2007 and ordered Uzmetal to distribute the unpaid dividends to its shareholders.49
45. On the same day, Uzmetal initiated court proceedings before the Tashkent District Economic Court to invalidate the decision taken at Uzmetal’s General Meeting of participants on 26 May 2006 to distribute dividends.50 On 19 July 2007, the Court dismissed Uzmetal’s claims and upheld the validity of the decision.51
46. On 31 July 2007, UzKTJM initiated bankruptcy proceedings against Uzmetal before the Economic Court of Tashkent Region on the basis of Uzmetal’s failure to pay the dividends.52 It is disputed between the Parties whether these bankruptcy proceedings were fair and whether they were conducted in accordance with Uzbekistan’s Bankruptcy Law.
47. On 2 August 2007, UzKTJM’s bankruptcy claim was accepted by the Court and a temporary manager, Mr. Bakhriev, was appointed.53 A few days later, on 7 August 2007, the Commercial Court of the Tashkent Region appointed an external auditor, the audit company Bukhgalter.54
48. On 31 August 2007, Metal-Tech submitted its claims in the bankruptcy proceedings to the temporary manager, who rejected the claims on 12 September 2007.55 The Parties dispute whether this rejection of Metal-Tech’s claims was proper.
49. On 4 and 5 September 2007, AGMK and UzKTJM submitted their respective claims in Uzmetal's bankruptcy, which the temporary manager accepted.56
50. On 17 September 2007, the first meeting of Uzmetal’s creditors took place with UzKTJM and AGMK as the only recognized creditors (Metal-Tech's claims having been
rejected). At this meeting, UzKTJM and AGMK voted to liquidate of Uzmetal.57 On 18 October 2007, the Economic Court of the Tashkent Region accepted the liquidation of Uzmetal.58 On 14 January 2008, the Uzbek Court of Cassation upheld the Economic Court’s ruling by declaring Uzmetal bankrupt and initiating liquidation proceedings.59
51. A number of creditors’ meetings were held during the course of the liquidation proceedings, specifically on 9 November 2007, 3 January 2008, 22 February 2008, and 15 October 2008. Metal-Tech did not attend these meetings.60 At the creditors’ meeting of 15 October 2008, a liquidation plan was finalized and the creditors approved, inter alia, the transfer of Uzmetal’s property to UzKTJM and AGMK.61
52. On 20 October 2008, the report on the completion of the liquidation proceedings was submitted to the Commercial Court of the Tashkent Region.62 On 18 November 2009, the Economic Court of the Tashkent Region closed the liquidation proceedings.63
53. As a result, on 30 December 2009, Uzmetal was delisted from the state registry of legal entities.64
54. According to the Claimant, all of Uzmetal’s assets are presently jointly or individually owned by AGMK and UzKTJM, both of which are, in turn, controlled by Uzbekistan.65
II. PROCEDURAL HISTORY
A. INITIAL PHASE
55. On 26 January 2010, Metal-Tech submitted a Request for Arbitration (the “Request” or “RA”) to the International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre”), accompanied by 16 exhibits (Exh. C-1 to C-16). In its Request, Metal-Tech sought the following relief:
“Claimant requests that an ICSID tribunal be appointed to hear the claims set forth in this Request for Arbitration, and that the tribunal render an award in favor of Claimant:
(i) Declaring that Respondent has breached its obligations under Article 9 of the Law on Foreign Investments by failing to accord to Claimant and its investment fair and equitable treatment in accordance with the norms and standards of international law;
(ii) Declaring that Respondent has breached its obligations under Article 9 of the Law on Foreign Investments by failing to accord to Claimant and its investment full and constant protection and security;
(iii) Declaring that the Respondent has breached Article 19 of the Law on Foreign Investments through its breach and repudiation of the Joint Venture Agreement and Uzmetal Charter;
(iv) Declaring that the Respondent has breached Article 3 of the Law on Guarantees and Measures for the Protection of Rights of Foreign Investors by failing to ensure that legislative acts do not have retroactive effect prejudicing a foreign investor and its investments;
(v) Declaring that the Respondent has breached Article 5 of the Law on Guarantees and Measures for the Protection of Rights of Foreign Investors and Article 10 of the Law on Foreign Investments by expropriating Claimant's property without due process of law and without payment of prompt, adequate, and effective compensation; (vi) Declaring that the Respondent has breached the investor guarantees set forth in Appendix 1 of Resolution No. 548;
(vii) Declaring that Respondent has breached its obligations under Article 2.2 of the Israel-Uzbekistan Bilateral Investment Treaty by failing to accord Claimant's investment fair and equitable treatment;
(viii) Declaring that Respondent has breached its obligations under Article 2.2 of the Israel-Uzbekistan Bilateral Investment Treaty by failing to accord to Claimant's investment full and constant protection and security;
(ix) Declaring that Respondent has breached its obligations under Article 2.2 of the Israel-Uzbekistan Bilateral Investment Treaty by taking unreasonable and discriminatory measures that impair the management, use, enjoyment, and disposal of Claimant's investment;
(x) Declaring that Respondent has breached Article 5 of the Israel- Uzbekistan Bilateral Investment Treaty by expropriating Claimant's investment without complying with the requirements of the Treaty relating to due process and payment of prompt, adequate and effective compensation;
(xi) Declaring that Respondent has violated its obligations under customary international law by breaching the international minimum standard of treatment of foreign investors and by expropriating Claimant's investment without either due process or prompt, adequate, and effective compensation;
(xii) Ordering the Respondent to pay to the Claimant full compensation in accordance with the Israel-Uzbekistan Bilateral Investment Treaty and customary international law including, without limitation, compensation for damages in an amount to be established in the proceeding, plus interest thereon in accordance with applicable law;
(xiii) Ordering the Respondent to pay all costs and expenses of this arbitration, including the fees and expenses of the tribunal and the cost of legal representation, plus interest thereon in accordance with applicable law; and
(xiv) Such other or additional relief as may be appropriate under the applicable law or may otherwise be just and proper.”66
56. On 4 February 2010, the Secretary-General of ICSID registered the Claimant’s Request for Arbitration.
57. By letter dated 9 February 2010, the Claimant proposed that an arbitral tribunal be constituted and consist of three arbitrators, one appointed by each party, and the President of the Tribunal appointed by agreement of the parties.
58. On 4 March 2010, the Respondent agreed to the Claimant’s proposal, in accordance with Arbitration Rule 2(1)(b) of the ICSID Arbitration Rules.
59. On 26 March 2010, the Claimant informed ICSID that it appointed Mr. John M. Townsend, a national of the United States, as arbitrator in this case.
60. On 30 April 2010, the Respondent informed ICSID that it appointed Mr. Claus von Wobeser, a national of Mexico, as arbitrator in this case. Messrs Townsend and von Wobeser subsequently accepted their appointments.
61. By letters of 17 June and 18 June 2010, the Parties informed ICSID of their agreement to appoint Prof. Gabrielle Kaufmann-Kohler, a national of Switzerland, as presiding arbitrator. On 22 June 2010, Prof. Kaufmann-Kohler accepted her appointment.
62. By letter dated 28 June 2010, ICSID informed the Parties and the Tribunal that the Tribunal was constituted and that the proceedings were deemed to have commenced as of that date. ICSID also informed the Parties and the Tribunal that Ms. Janet Whittaker would serve as the Secretary of the Tribunal. Subsequently, on 21 November 2012, Ms. Geraldine Fischer replaced Ms. Whittaker.
63. On 3 August 2010, the Tribunal held its first session by teleconference. At the session, the Parties expressed their agreement that the Tribunal had been properly constituted (ICSID Arbitration Rule 6) and stated that they had no objections to the appointment of any of the members of the Tribunal. In addition, the calendar for the proceedings and procedural matters were addressed.
64. The first session was audio-recorded and copies of the recording were deposited in the ICSID archives and subsequently sent to the Parties. Minutes were drafted, signed by the President and the Secretary of the Tribunal, and transmitted to the Parties on 3 September 2010.
B. WRITTEN PHASE ON JURISDICTION AND MERITS
65. On 11 November 2010, the Respondent submitted its Memorial on Jurisdiction, Admissibility, and Bifurcation (“Mem. J.”), in accordance with the procedural calendar set out in Annex 2 to the Minutes. The Respondent’s Memorial was accompanied by Exhibits R-1 to R-110, eight witness statements and one expert report, and legal authorities (Exhibits RLA-1 to RLA-100).
66. On 11 February 2011, the Claimant submitted its Statement of Claim and Counter- Memorial on Jurisdiction and Bifurcation (“Mem. M.”) in accordance with the procedural calendar. The Statement of Claim was accompanied by Exhibits C-1 to C-93, legal authorities (Exhibits CLA-1 to CLA-44), and two witness statements and two expert reports.
67. On 24 February 2011, a procedural hearing on the issue of bifurcation took place in Washington, D.C. The procedural hearing was audio-recorded and a real time transcription was made. Copies of the transcript and the audio-recording were sent to the Parties and the Tribunal on 25 February and 28 February 2011 respectively.
68. On 8 March 2011, the Tribunal issued Procedural Order No. 1 (“PO 1”), according to which the Parties were advised that issues of jurisdiction and admissibility would be considered together with the merits and that the proceedings would be bifurcated between jurisdiction and liability, on the one hand, and quantum, on the other.
69. By letter dated 20 May 2011, the Respondent requested an extension of the deadline for filing its Counter-Memorial on the Merits and Reply on Jurisdiction from 26 May 2011 to 2 June 2011, and a corresponding one-week extension of some of the remaining deadlines set forth in the procedural calendar.
70. The Tribunal granted the Respondent’s request on 23 May 2011. It also issued a revised procedural calendar for the proceedings, replacing the procedural calendar set out in Annex 2 to the Minutes of the First Session.
71. On 2 June 2011, the Respondent submitted its Counter-Memorial on the Merits and Reply on Jurisdiction (“C-Mem. M.”) in accordance with the revised procedural calendar. The Respondent’s Counter-Memorial was accompanied by Exhibits R-19 to R-21, R-29, R-85, and R-110 to R-506, legal authorities (Exhibits RLA-101 to RLA-169) and by 17 witness statements and two expert reports. Subsequently, the Respondent submitted corrected versions of some of its exhibits and legal authorities.
72. On 16 June 2011, each Party filed simultaneous document production requests. On 23 June 2011, each filed its objections to the other Party’s requests and, on 30 June 2011, its replies to the other Party’s objections. On 14 July 2011, the Tribunal issued Procedural Order No. 2 (“PO 2”) ruling on the Parties’ requests for document production. On 28 July 2011, the Parties produced the required documents. In its production, the Claimant redacted some information as it was allegedly related to third parties.
73. On 9 September 2011, the Claimant submitted its Reply on Merits and Rejoinder on Jurisdiction (“Reply M.”). The reply was accompanied by Exhibits C-92 to C-202, legal authorities (Exhibits CLA-45 to CLA-95), and three witness statements and one expert report.
74. On 15 November 2011, the Claimant requested that the Tribunal amend the dates set forth in the revised procedural calendar for the designation of witnesses and experts and the submission of documents for cross and redirect examination.
75. On 23 November 2011, the Respondent submitted its Rejoinder on the Merits (“Rej. M.”) in accordance with the revised procedural calendar. The Respondent’s Rejoinder was accompanied by Exhibits R-507 to R-658, as well as Exhibits R-85, R-150, R-305, R-311, R-339, R-344, R-350, R-382, R-383, R-468, R-473, and R-486. It was also accompanied by legal authorities RLA-170 to RLA-189 and nine witness statements and two expert reports.
76. On the same day, the Respondent informed the Tribunal that it had recently become aware of details concerning a criminal investigation by the Prosecutor General’s Office of Uzbekistan into the activities of several joint venture companies operating or having operated in Uzbekistan, including Uzmetal. The alleged criminal enterprise involved kickback payments to individuals, including Uzbek government officials and individuals affiliated with the Claimant and Uzmetal. The Respondent requested that, in light of this
investigation, the Tribunal postpone the forthcoming hearing and order the Claimant to produce unredacted copies of all documents responsive to Respondent’s document production requests Nos. 14, 15, 17, 30, 35, 50, and 51.
77. On 1 December 2011, the Tribunal informed the Parties that the pre-hearing conference call scheduled for 6 December 2011 was postponed to 7 December 2011. It also advised them that it had ruled on the Claimant’s request of 14 November 2011 that they should: (i) designate the witnesses for cross-examination by no later than 6 December 2011; (ii) submit the documents for cross-examination by no later than 20 December 2011; and (iii) submit the documents for redirect examination by no later than 3 January 2012. The Tribunal added that it would hear presentations by the Parties on the postponement of the hearing and the production of unredacted documents during the 7 December telephone conference.
78. The pre-hearing conference call took place on 7 December 2011, during which matters relating to the organization of the forthcoming hearing were addressed and the Parties made oral submissions on the Respondent’s request to postpone the forthcoming hearing and its request for the production of unredacted documents.
79. By letter dated 8 December 2011, the Tribunal confirmed that it had decided not to postpone the hearing. It noted that it was providing its decision by way of a letter for the Parties to be advised as promptly as possible and indicated that it would issue an order providing the reasons for such decision and addressing the Respondent’s application for further document production and the organization of the forthcoming hearing.
80. Accordingly, it followed up on 13 December 2011, with Procedural Order No. 3 (“PO 3”), which also dealt with the Respondent’s request for production of unredacted documents. To protect potentially sensitive information relating to third parties, the Tribunal proposed to appoint an independent confidentiality advisor to review unredacted copies of certain documents. The Tribunal proposed Mr. Brooks Daly of the Permanent Court of Arbitration (“PCA”) for that role and gave the parties until 15 December 2011 to object to Mr. Daly’s appointment. Both Parties subsequently agreed to Mr. Daly’s appointment.
81. On 16 December 2011, the Respondent submitted a corrected version of its Counter- Memorial, together with corrected versions of witness statements and expert reports.
82. On 22 December 2011, the Tribunal issued Procedural Order No. 4 (“PO 4”) on a request filed by the Respondent in connection with the review of Exhibits R-636 and C- 194, and on matters of witness examinations.
83. On 13 January 2012, the Tribunal issued Procedural Order No. 5 (“PO 5”) on matters relating to Mr. Daly’s review of documents, document production issues, and confidentiality.
84. On 15 January 2012, the Tribunal issued Procedural Order No. 6 (“PO 6”) on the organization of the evidentiary hearing.
C. JANUARY HEARING AND FURTHER SUBMISSIONS
85. A hearing on jurisdiction and liability was held at the World Bank’s Washington D.C. office between 23-28 January 2012 (“January Hearing”) in accordance with the procedural calendar.
86. At the January Hearing, three facts came to light of which the Tribunal had been unaware: (a) the February 2005 consulting agreement (“February 2005 Consulting Agreement”) between Metal-Tech, Ltd. and Messrs Uygur Sultanov, Igor Chijenok, and Victor Mikhailov was an amendment to or a replacement of earlier agreements that had been in place since 1998; (b) the Consultants primarily or exclusively engaged in what was described as “lobbyist activity,” rather than in the activities set out at page 107 of Exhibit R-101, namely, assistance with the operation, production, and delivery of the joint venture’s products; and (c) the Consultants had been compensated by payments totalling approximately USD 4 million. In light of these new elements, at the close of the January Hearing, the Tribunal indicated that it had decided to order the Parties to produce additional information and documents, pursuant to its powers under Article 43 of the ICSID Convention, which would be reflected in a procedural order issued after the hearing.
87. Accordingly, on 10 February 2012, the Tribunal issued Procedural Order No. 7 (“PO 7”) restating the directions on the production of documents and post-hearing submissions given at the close of the January Hearing. It ordered the Parties to produce certain documents by 27 February 2012 and to submit their first post-hearing submissions by 19 April 2012, and their reply post-hearing submissions, not exceeding 20 pages, by 25 May 2012.
88. In a letter to the Tribunal of 28 February 2012, the Claimant proposed to limit its production as contemplated by PO 7. Consequently, on 13 March 2012, the Tribunal issued Procedural Order No. 8 (“PO 8”) clarifying the information required to be produced by the Claimant pursuant to PO 7.
89. On 16 March, 2012, the Claimant produced the relevant documents including the payment schedule contemplated by PO 7 and modified by PO 8 (the “Payment Schedule”). In addition, the Claimant submitted a “Statement of Ariel (Aik) Rosenberg in Response to Procedural Order No. 7 dated 16 March, 2012” (“the Rosenberg Statement”). On the same day, the Respondent produced documents responding to PO 7, including the Second Statement of Mr. Esemurat Kanyazov dated 28 February 2012 (“Kanyazov WS II”).
90. By letter dated 16 March 2012, the Respondent proposed a confidentiality order to cover the service record of Mr. Uygur Sultanov (the brother of the former Prime Minister and one of the Consultants). As the Claimant had consented to the proposed confidentiality order, the Tribunal endorsed the order in Procedural Order No. 9 dated 2 April 2012 (“PO 9”).
91. On 22 March 2012, the Respondent requested the Tribunal to strike the Rosenberg Statement from the record and, on 28 March 2012, it asked for an order that the Claimant produce certain documents.
92. On 17 April 2012, the Tribunal issued Procedural Order No. 10 (“PO 10”), in which it struck the Rosenberg Statement from the record because it had been filed contrary to the applicable rules. It also noted that it would be assisted by receiving further information about the services provided by the Consultants. Specifically, it directed the Claimant to submit information about the payments made to each individual Consultant, specifying (a) the specific services rendered, (b) which Consultant rendered the service, and (c) when the services were rendered. The Tribunal also asked for responses to the following questions:
a) Where payments were made to companies (i.e., MPC Companies or Lacey International):
• For which individual Consultant were these payments meant?
• What was the amount paid to each individual Consultant?
• What service was the payment intended to remunerate?
• When was this service rendered?
b) Where payments were made to individual Consultants:
• What service was the payment intended to remunerate (beyond mere reference to the contracts under which the service was rendered)?
• When was this service rendered?
93. The Tribunal further stated that this information would best be supplied in a revised written statement of Mr. Rosenberg, which should be accompanied by a brief written submission, if useful, and by "relevant contemporaneous documents concerning the Claimant's submission that services were effectively rendered by the Consultants" (¶75, PO 10). Together with this submission, the Claimant was invited to supplement the Payment Schedule to reflect the additional information sought by the Tribunal.
94.The Respondent was given an opportunity to file a rebuttal witness statement together with a brief submission limited to issues contained in the revised statement by Mr. Rosenberg and the Claimant’s submission and relevant contemporaneous documents by 14 May 2012. Further, the Parties were given until 17 May 2012 to request an additional hearing for the purpose of examining Mr. Rosenberg and/or the Respondent’s additional witness (if any). They were informed that the additional hearing, if any, would take place on 28 or 29 May, 2012 in Washington, D.C. or New York, NY and that a pre-hearing conference call would be conducted on 21 May 2012 at 11:00 a.m. (Washington, D.C.-time) (“Procedural Conference Call”). Finally, the time limits for the first round of post-hearing submissions was extended to 18 June 2012 and for the reply post-hearing submissions to 23 July 2012.
95. On 1 May 2012, the Claimant submitted the Third Witness Statement of Mr. Ariel Rosenberg of the same date (“Rosenberg WS III”). The Claimant informed the Tribunal that it would only be available for an additional hearing on 29 May 2012. On 15 May 2012, the Respondent submitted the Third Witness Statement of Victor Mikhailov dated 14 May 2012 (“Mikhailov WS III”) in rebuttal of the Rosenberg WS III. The Respondent also submitted a witness statement of Mr. Nodirjon Juraev dated 14 May 2012, and an Expert Report by Mr. Juval Aviv of the same date. The Respondent informed the Tribunal that Mr. Mikhailov would be available for examination by videoconference on 29 May 2012.
96. In its letter to the Tribunal dated 16 May 2012, the Claimant notified the Tribunal that it intended to cross-examine Mr. Mikhailov. On the next day, the Respondent notified the Tribunal that it intended to cross-examine Mr. Rosenberg.
97. On 17 May 2012, the Secretary of the Tribunal, acting on the instructions of the Tribunal, confirmed to the Parties that, in accordance with PO 10 and further to the Claimant’s letter dated 16 May 2012, an additional hearing would take place on 29 May 2012 at the offices of the World Bank in Washington, D.C. (“May Hearing”).
98. In its letter of 14 May 2012, the Respondent informed the Tribunal that Mr. Mikhailov would be available for examination by video link. On 16 May 2012, the Claimant objected to a videoconference and requested that Mr. Mikhailov testify in person. The Claimant also requested the production of all the documents on which Mr. Mikhailov had relied when preparing his latest witness statement. Finally, the Claimant requested that the Aviv Report be struck from the record. In subsequent correspondence, the Respondent objected to all these requests. During the pre-hearing conference call conducted on 21 May 2012, the Tribunal heard the Parties' oral submissions on these issues.
99. On 22 May 2012, the Tribunal issued Procedural Order No. 11 (“PO 11”) on the Claimant’s requests. It held that because Mr. Mikhailov was detained in Uzbekistan, he would testify by video link from a neutral location in Tashkent, preferably from the World Bank's local offices. It rejected the Claimant’s request to strike the Aviv Report from the record and directed the Respondent to produce, by 24 May 2012, the documents relied on by Mr. Mikhailov in preparing his latest witness statement or a statement by Mr. Mikhailov confirming that he had not relied on any documents (other than those already produced) in preparing his statement. The Tribunal also issued several directions concerning the organization of the May Hearing.
D. MAY HEARING
100. On 29 May 2012, the hearing took place as scheduled. Mr. Rosenberg was examined at the offices of the World Bank in Washington, D.C., while Mr. Mikhailov was examined by video conference, with the Tribunal in Washington and Mr. Mikhailov at the Ministry of Justice in Tashkent. Ms. Menaker, Messrs Currier and Savransky of White & Case and Messrs Kanyazov, Juraev, Meliev and Shadibaev from the Ministry of Justice attended the examination of Mr. Rosenberg by video link from Tashkent.
During Mr. Mikhailov’s examination, only Ms. Menaker and Mr. Currier of White & Case and Ms. Aurélia Antonietti (Team Leader/Legal Counsel, ICSID), were present in the Tashkent conference room. The representatives of the Ministry of Justice did not attend. The hearing arrangements in Tashkent were supervised by Ms. Aurélia Antonietti, who was in the hearing room at all times.
101. On 18 June 2012, in accordance with PO 10, the Parties submitted their first round of post-hearing submissions (“C-PHB 1” and “R-PHB 1”).
102. In a letter to the Tribunal of 6 July 2012, the Respondent submitted three commentaries on provisions of the Uzbek Criminal Code dealing with bribery, marked as Exhibits R-681 through R-683. The Respondent stated that it was submitting these documents in advance of the time limit for the reply post-hearing briefs “so that both parties will have an equal opportunity to comment thereon.” On 9 July 2012, the Claimant objected to the introduction of these materials into the record “in the interests of the equality of the parties and procedural good order.”
103.On 12 July 2012, the Tribunal issued Procedural Order No. 12 (“PO 12”) on such new documents and granted the Respondent’s request. To ensure that the Claimant had sufficient opportunity to express itself on the content of these documents, the Tribunal extended the page limit for the Claimant’s reply post-hearing submission. It also invited the Parties to submit their reply post-hearing submissions by 2 August 2012.
104. On 2 August 2012, the Parties submitted their reply post-hearing submissions (“C-PHB 2” and “R-PHB 2”).
105. The Claimant submitted its cost statement on 1 August 2012 (“C-CB 1”) and the Respondent included its cost statement in its First Post-Hearing Submission (“R-CB 1”). Replies on costs were submitted simultaneously on 22 August 2012 (“C-CB 2” and “R-CB 2”).
106. The Tribunal closed the proceedings on the date of dispatch of this Award.
III. POSITIONS OF THE PARTIES AND RELIEF REQUESTED
A. THE CLAIMANT’S POSITION AND REQUEST FOR RELIEF
107. In its written and oral submissions, Metal-Tech made the following main submissions:
i. The justifications advanced by Uzbekistan for Resolution No. 141, namely that Uzmetal had failed to perform a number of the tasks set forth in Resolution No. 15 and in the founding documents (i.e. Uzmetal’s Charter and the Constituent Contract), are without merit. Uzmetal had the right to decide for itself what products to manufacture and in what volumes. Based on this right and on market realities during the relevant period, Uzmetal took the business decision to focus on production and sale of pure molybdenum oxide, to which neither UzKTJM nor AGMK objected. Thus, Uzbekistan’s actions were illegitimate and designed to seize Uzmetal’s assets. The government, together with AGMK and UzKTJM, worked in league with the shared objective of depriving the Claimant of its investment;67
ii. In any event, even if Resolution No. 15 required Uzmetal to produce fabricated products, Uzmetal’s non-compliance would not have justified revocation of the guarantees forming the basis of the Claimant’s investment. Further, the Respondent’s new allegations in respect of Resolution No. 15 and the founding documents did not form the basis of Resolution No. 141 at the time, and should not be entertained by the Tribunal now. In any case, the Respondent’s allegations are baseless as neither the Claimant nor Uzmetal violated the founding documents or Resolution No. 15. For instance, pursuant to Appendix 2 of Resolution No. 15, the Claimant could contribute either USD 500,000 or 60,500,000 Soum. Therefore, Uzbekistan’s assertion that the Claimant could only contribute USD 500,000 is wrong;68
iii. In reliance on Resolution No. 141, AGMK stopped supplying molybdenum to Uzmetal. As a result, Uzmetal was forced to cease operations, as there was no feasible alternative source of supply. On the other hand, UzKTJM immediately
benefited from Resolution No. 141 as all of AGMK’s raw material went to UzKTJM;69
iv. Uzbekistan breached its obligations under the Agreement between the Government oiv. f the State of Israel and the Government of the Republic of Uzbekistan for the Promotion and Reciprocal Protection of Investments of 4 July 1994 (the "Treaty" or the "BIT") and Uzbek Law. First, by enacting Resolution No. 141, which deprived Metal-Tech of the expected economic benefits of its investment, Uzbekistan expropriated Metal-Tech’s investment without compensation in violation of Article 5 of the BIT.70 The deprivation inflicted by Resolution No. 141 was compounded by the decision of the Economic Court of the Tashkent Region to void Uzmetal’s supply contract with AGMK.71 It was then completed by the illegitimate bankruptcy proceedings against Uzmetal, which were designed to transfer all of Uzmetal’s assets to AGMK and UzKTJM. Additionally, the expropriation was unlawful because Uzbekistan discriminated against Metal-Tech on the grounds of its nationality;72
v. Second, by issuing Resolution No. 141, Uzbekistan violated its obligation to accord Israeli investments fair and equitable treatment pursuant to Article 2(2) of the BIT, namely its obligation not to frustrate the legitimate expectations engendered by the representations and commitments which it made and on which the Claimant relied in making its investment;73
vi. Third, by adopting Resolution No. 141 and thereby revoking its commitments made to and relied on by Metal-Tech, Uzbekistan subjected Metal-Tech’s investment to unreasonable and discriminatory measures in violation of Article 3 of the BIT. Uzbekistan’s measures against Uzmetal were taken in wilful disregard of due process and proper procedure. Further, Metal-Tech was singled out for arbitrary treatment as part of the Government’s reaction to criticism from Western democracies;74
vii. Fourth, Uzbekistan violated its obligation to provide full protection and security to Metal-Tech’s investment in violation of Article 2(2) of the BIT. In particular, by revoking the legal guarantees set forth in Resolution No. 15, the Respondent violated its obligation to provide Metal-Tech with a secure commercial and legal environment. Moreover, by not intervening when UzKTJM denied Uzmetal access to its facilities in Chirchik, Uzbekistan violated its obligation to provide Claimant’s investment with physical security;75
viii. Finally, even if Uzbekistan did not violate the standards of treatment set forth in the BIT, it is still liable for violating several of its own foreign investments laws, which standards of treatment are incorporated into the BIT through Article 11 of the BIT. Uzbekistan has also consented to ICSID arbitration of claims arising under its foreign investments laws in the foreign investment laws themselves.76 For instance, the Respondent has violated the stabilization clause contained in Article 3 of the Law on Guarantees by adopting and immediately applying Resolution No. 141 to Metal-Tech’s investment only six-and-a-half years after the date of the initial investment;77
ix. Uzbekistan’s wrongful measures resulted in the total deprivation of Metal- Tech’s 50% interest in Uzmetal and its exclusive right to export molybdenum oxide without compensation.78 Metal-Tech is thus entitled to reparation in accordance with the standards prescribed by international law for wrongful acts;79
x. Contrary to the Respondent’s allegations, the Tribunal has jurisdiction over the present dispute. The legality requirement in the BIT must be interpreted as a bar to jurisdiction only where the establishment of the investment was tainted by illegality. It does not apply where the unlawful act is committed in the course of the operation of the investment.80 Further, in application of the most favoured nation provision in Article 3(2) of the BIT, the Tribunal must assert jurisdiction on the basis of the more favorable definition of investment under Article 1(1) of
the Greece-Uzbekistan BIT, which includes no legality requirement.81 In the event that the Tribunal were to deny the MFN claim, Metal-Tech still has not violated Uzbek law: Uzmetal was constituted and operated in accordance with Uzbek law;82 and,
xi. Again contrary to the Respondent’s allegations, the counterclaims are not directly concerned with the subject matter of this dispute, which involves Uzbekistan’s violations of international law with respect to the Claimant’s investment. Hence, Article 8 (1) of the BIT is not sufficiently broad to include counterclaims. Finally, even assuming that the Tribunal has jurisdiction, Uzbekistan’s counterclaims should be dismissed because they are insufficiently pled.83
108. For these reasons, in its Reply on Merits and Rejoinder on Jurisdiction, Metal-Tech requested the following relief:
“323. For the reasons set forth above, Claimant respectfully requests that the Tribunal:
o exercise jurisdiction under Article 8 of the Israel-Uzbekistan BIT over Metal-Tech’s claims described in its Request for Arbitration, Part IV of its Statement of Claim, and Part I of its Reply on Merits;
o deny Respondent’s objections to jurisdiction described in Uzbekistan’s Memorial and Reply on Jurisdiction;
324. Claimant further requests that the Tribunal:
o findthatRespondenthasviolateditsobligationsundertheBIT by:
a) unlawfully expropriating Metal-T ech’s investment in Uzbekistan without paying prompt, adequate and effective compensation;
b) failed to accord fair and equitable treatment to Metal- Tech’s investment;
c) subjected Metal-Tech’s investment to unreasonable and discriminatory measures; and
d) failed to accord full protection and security to Metal- Tech’s investment.
o find that Respondent has violated its obligations under its own Foreign Investment Laws by:
a) violating the stabilization clause contained in Article 3 of the Law on Guarantees; and
b) violating Article 18 of the Law on Foreign Investments by failing to reorganize or liquidate Metal-Tech’s investment in accordance with the law and by denying Metal-Tech the right to recover its share of the investment in the event that it is liquidated;
o deny Respondent’s defenses on the merits described in Sections III.G to III.L. of Respondent’s Counter-Memorial on Merits.
325. Claimant further requests that the Tribunal decline to exercise jurisdiction over Respondent’s counterclaims, to which it fleetingly refers in Section III.N of its Counter-Memorial on Merits. In the alternative, Claimant requests that the Tribunal dismiss Respondent’s counterclaims for the reasons set forth in Section II of Metal-Tech’s Reply on Merits.
326. Claimant further requests that the Tribunal order further proceedings on the issue of quantum and eventually order Respondent to pay compensation to the Claimant in the amount of $173,962,625.
327. Finally, Claimant requests that the Tribunal order Respondent to pay interest on the above amount at a reasonable commercial rate, compounded from 18 July 2006 until full payment has been made; and to order Respondent to pay Claimant’s costs in this arbitration, including all attorney’s and expert-witness fees, and to bear sole responsibility for compensating the Tribunal and the International Centre for the Settlement of Investment Disputes.”84
109. In its first post-hearing submission, Metal-Tech referred to the relief requested earlier and summarized it as follows:
“For the reasons set forth above, Metal-Tech renews its request for relief as presented in its written memorials and its oral arguments at the hearing. The Tribunal should find for Metal-Tech on all claims, reject Respondent’s jurisdictional objections, defenses, and counterclaims, and order Respondent to pay the costs of this proceeding.”85
B. THE RESPONDENT’S POSITION AND REQUEST FOR RELIEF
110. In its written and oral submissions, the Respondent put forward the main following submissions:
i. The Tribunal lacks jurisdiction over this dispute because the Claimant’s investment was “implemented”, i.e. made and operated, in violation of Uzbek law.86 In particular, the Claimant engaged in corruption and made fraudulent and material misrepresentations to gain approval for its investment.87 It also implemented its investment unlawfully by unjustly enriching itself and defrauding the JV, the Uzbek partners and the State. Contrary to the Claimant’s allegations, in the absence of clear and unambiguous language to that effect, Article 1(1) of the BIT cannot be expanded to cover investments that are unlawfully implemented via the most favoured nation clause in the BIT. In any case, the jurisdiction of the Tribunal cannot be based on the Greece- Uzbekistan BIT via the MFN clause because the Claimant’s investment was not only operated, but also made in violation of Uzbekistan’s laws. The requirement that investments must be made in accordance with the host State’s law is implied in BITs, including the Greece-Uzbekistan BIT, irrespective whether they contain a legality clause or not;88
ii. The Tribunal also lacks jurisdiction over claims for violation of Uzbek and customary international law because Uzbekistan has not agreed to arbitrate these claims. In particular, Articles 8 and 11 of the BIT do not provide any foundation for claims based on national and customary international law;89
iii. Alternatively, the claims should be dismissed because they are inadmissible on account of the Claimant's unlawful conduct. Under the “clean hands” doctrine, the Claimant should not be allowed to pursue its claims because it has engaged in significant misconduct directly related to its investment;90
iv. Uzbekistan has not breached any of its obligations under the Israeli-Uzbekistan BIT. First, Resolution No. 141 did not expropriate the Claimant’s investment because it did not have the effect of a “taking”. It did not deprive Metal-Tech of all or substantially all of its investment, but merely voided Article 3 of Resolution No. 15 which granted Uzmetal the privilege to purchase all of AGMK’s
molybdenum middlings.91 The Resolution did not prohibit AGMK from continuing to supply molybdenum middlings to Uzmetal and did not prevent Uzmetal from purchasing molybdenum raw material from other sources.92 In any event, the Resolution is not expropriatory because it was legitimately enacted in response to the Claimant’s wrongdoing.93 Further, none of the actions taken in the bankruptcy proceedings by the judicial receiver who served as interim and later liquidation manager of Uzmetal are attributable to the Respondent and the acts of the Uzbek courts in Uzmetal’s bankruptcy proceedings did not expropriate the Claimant’s investment as the courts acted in conformity with Uzbek law.94 Finally, the transfer of Uzmetal’s assets to AGMK and UzKTJM was lawful and even if it was not, AGMK’s and UzKTJM’s acts are not attributable to the State;95
v. Second, the Claimant could not have legitimately expected that its investment would remain entitled to the benefits granted under Resolution No. 15 despite its failure to comply with its obligations under that Resolution and its efforts to unjustly enrich itself to the detriment of the joint venture, the Uzbek parties and Uzbekistan. Resolution No. 141 was legitimately enacted in direct response to the Claimant’s unlawful conduct and failure to fulfill its obligations under Resolution No. 15;96
vi. Third, Resolution No. 141 was legitimately enacted and therefore does not constitute unreasonable treatment in violation of the BIT. The investment would not have been approved, and the exclusive supply arrangement would not have been granted, but for Metal-Tech’s representations that Uzmetal would comply with the obligations specified in Resolution No. 15.97 Since Uzmetal did not comply with its obligations, it was reasonable to expect that the Respondent would revoke the benefits granted in return for these obligations. Further, in light of the multiple notifications that Uzmetal was not performing and the warnings by the Government that there would be “serious consequences” if Uzmetal did not fulfill its obligations set forth in the approved Feasibility Study
and Resolution No. 15, the Claimant cannot assert that it was surprised by the enactment of Resolution No. 141 or that it had not been given any prior notice.98 Moreover, the bankruptcy proceedings were reasonable and conducted in conformity with Uzbek law. In any event, UzKTJM’s actions in the bankruptcy proceedings cannot be attributed to Uzbekistan. Finally, Resolution No. 141 was based on the Claimant’s failure to deliver on its promises and did not discriminate against the Claimant on the basis of its nationality;99
vii. Fourth, Uzbekistan did not cause any physical damage to Metal-Tech’s investment in Uzbekistan. Therefore, Uzbekistan did not violate the full protection and security clause in Article 2 of the BIT. The Claimant is wrong in contending that the obligation to afford full protection and security extends beyond physical protection to legal security. The BITs full protection and security clause does not operate as a legal stabilization agreement that guarantees the absolute stability of Resolution No. 15 irrespective of Claimant’s actions;100
viii. Finally, even if the Tribunal were to find that it has jurisdiction over claims for violation of Uzbek law, the Respondent has not breached any of its laws. In particular, the so-called stability clause in Article 3 of the Law of Guarantees is inapplicable as Resolution No. 141 does not fall within the types of “legislation” to which the protections of Article 3 apply. Further, even if Resolution No. 141 was covered by Article 3, the Claimant has not given notice that the change in legislation worsened its investment conditions, which notice was required to trigger the application of Article 3;101 and,
ix. The Respondent is entitled to bring counterclaims to recover for damages sustained as a direct result of the Claimant’s unlawful conduct. These counterclaims fall within the ICSID’s jurisdiction and the Parties’ consent to arbitration provided in Article 8(1) of the BIT. They also arise directly out of the subject matter of the dispute pursuant to Article 46 of the ICSID Convention and Article 40 (1) of the ICSID Arbitration Rules.102
111. For these reasons, in its Rejoinder on the Merits, the Respondent requested that the Tribunal “dismiss Metal-Tech’s claims in their entirety and issue a decision in favor of Respondent in respect of its Counterclaims. Respondent furthermore respectfully requests that it be awarded all the expenses and costs associated with defending against Claimant’s claims.”103
112. In its first post-hearing submission, the Respondent sought the following relief:
“For all of the reasons set forth in Respondents submission to the Tribunal, at the Hearing and above, Respondent respectfully requests that the Tribunal:
(1) Dismiss Metal-Tech’s claims in their entirety for lack of jurisdiction, inadmissibility, or on the merits;
(2) enter a decision in favor of Respondent in respect of all of its counterclaims;
(3) if the Tribunal reaches the merits the Tribunal should decide:
(A) Respondent has not breached the fair and equitable treatment standard under the treaty;
(B) Respondent has not impaired by unreasonable and discriminatory measures Metal-Tech’s management, maintenance, use enjoyment or disposal of its investment;
(C) Respondent has not failed to provide full protection and security to Metal- Tech’s investment;
(D) Respondent has not expropriated Metal-T ech’s investment without just compensation; and,
(E) Respondent has not violated the foreign investment laws of Uzbekistan.
(4) award all costs and expenses associated with defending against Claimants claims.”104
113. The Respondent submits that the claims must be dismissed before reaching the merits on the following grounds: first, because the Tribunal lacks jurisdiction under the express terms of the BIT and, second, because Uzbek law does not provide an independent basis for jurisdiction. The Respondent also invokes the inadmissibility of the claims. Following some preliminary matters discussed in Section IV.A, the Tribunal will consider the Parties’ arguments on jurisdiction and specifically on legality under the BIT in Section IV.B, and then address their submissions on Uzbek law in Section IV.C. It will then conclude on the claims in Section IV.D, before dealing with the counterclaims in Section IV.E.
A. PRELIMINARY MATTERS
114. Prior to entering the merits of the Parties' positions, the Tribunal will address the relevance of previous decisions or awards in Section IV.A.1, the scope of this Award in Section IV.A.2, and the applicable legal framework in Section IV.A.3.
1. Relevance of Previous Decisions and Awards
115. In support of their positions, both Parties have relied on previous decisions or awards, either to conclude that the same solutions should be adopted in the present case or in an effort to explain why this Tribunal should depart from a solution reached by another tribunal.
116. The Tribunal's view is that it is not bound by previous decisions of ICSID or other arbitral tribunals. At the same time, it is of the opinion that it should pay due regard to earlier decisions of international tribunals. The Tribunal is further of the view that, unless there are compelling reasons to the contrary, it has a duty to follow solutions established in a series of consistent cases comparable to the case at hand, but subject, of course, to the specifics of a given treaty and of the circumstances of the actual case. By doing so, it will meet its duty to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.105
2. Scope of this Award
117. In PO 1, the Tribunal decided to join the Respondent's objections to jurisdiction and admissibility to the merits on the ground that they were closely related to the merits. At the same time, it bifurcated the proceedings between jurisdiction and liability, on the one hand, and quantum on the other, because damage quantification (if applicable) could be easily heard in isolation from the rest of the case. As will be seen in the course of its analysis, the Tribunal has come to the conclusion that it has no jurisdiction over the Claimant's claims. Thus, the Award does not address liability issues.
118. Further, in its Counter-Memorial, the Respondent raised certain counterclaims, as according to it, the Tribunal’s lack of jurisdiction over the claims does not affect the
counterclaims. In Section IV.E below, the Tribunal will thus analyze the Respondent’s counterclaims.
3. Legal Framework
119. This arbitration is brought under the Treaty, which is thus the primary source of law for this Tribunal. As this arbitration is an ICSID arbitration, the ICSID Convention is also a relevant source of law in respect of jurisdictional and procedural matters. The interpretation of these two instruments is governed by customary international law as codified by the Vienna Convention on the Law of Treaties (“Vienna Convention” or "VCLT").106
120. In this context, the Tribunal notes that Uzbek law recognizes and prioritizes treaties and generally accepted norms of international law. This is, in particular, evident from the Preamble of the Constitution of the Republic of Uzbekistan,107 from the Law on Foreign Investments of 30 April 1998108 and from the Law on Guarantees and Measures of Protection of Foreign investors' Rights of 30 April 1998 (the “Law on Guarantees”).109
B. JURISDICTIONAL OBJECTIONS TO TREATY CLAIMS Applicable Law
1. Applicable Law
121. The Tribunal's jurisdiction is governed by the ICSID Convention and by the BIT. Where these treaties are silent on an issue that is relevant to determine jurisdiction, e.g. the manner in which consent is given, such issue is subject to customary international law,
unless the treaties refer to municipal law. This is in particular so when an investment treaty requires that an investment be made in accordance with host State law.
a. ICSID Convention
122. Jurisdiction under the ICSID Convention is governed by Article 25(1), which reads as follows:
"The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."
123. For a tribunal to have jurisdiction under Article 25(1) of the ICSID Convention, four conditions must be satisfied: (i) the arbitration must be between a Contracting State and a national of another Contracting State, (ii) there must be a legal dispute arising directly out of (iii) an investment, and (iv) the Contracting State and the investor must have consented in writing to ICSID arbitration. In addition, of course, the ICSID Convention must have been applicable at the relevant time.110 Finally, it is the duty of a tribunal established on the basis of a treaty to verify its jurisdiction under that treaty, even if the parties have not objected to it.
124. There is no dispute between the Parties – and rightly so – on the fulfilment of the first condition of nationality. The Republic of Uzbekistan and Israel are each parties to the ICSID Convention. The Claimant is a company organized under the laws of the State of Israel. As such, it is a national of Israel, i.e. it is a “national of another Contracting State” as defined by Article 25(2)(b) of the ICSID Convention. There is no issue either about the applicability of the ICSID Convention ratione temporis. Uzbekistan signed the ICSID Convention on 17 March 1994, and ratified it on 26 July 1995, with an effective date of 25 August 1995. Israel, for its part, signed the Convention on 16 June 1980, and ratified it on 22 June 1983, with an effective date of 22 July 1983.
125. In connection with the second and third conditions, the Parties agree about the existence of a legal dispute. They also agree that the Claimant has made an investment in the sense that it has committed resources to a project in Uzbekistan. However, they diverge on whether such investment must be in conformity with law and,
if so, whether it actually was. The Parties' disagreement thus hinges on the necessity that the allocation of resources be in conformity with the law. In other words, they diverge on whether the definition of the term “investment” contained in Article 25(1) includes a requirement of legality.
126. The Claimant submits that “... Article 25 [does not contain] any requirement that investments be entered into in good faith or made in accordance with host state law, and the Tribunal should not incorporate additional jurisdictional requirements ... at Uzbekistan’s request.”111 The Tribunal agrees with the Claimant’s position.
127. The Tribunal does not share the view expressed for instance in Phoenix pursuant to which compliance with the laws of the host State and respect of good faith are elements of the objective definition of investment under Article 25(1) of the ICSID Convention.112 In the Tribunal’s view, the Contracting Parties to an investment treaty may limit the protections of the treaty to investments made in accordance with the laws and regulations of the host State. Depending on the wording of the investment treaty, this limitation may be a bar to jurisdiction, i.e. to the procedural protections under the BIT, or a defense on the merits, i.e. to the application of the substantive treaty guarantees. Similarly, a breach of the general prohibition of abuse of right, which is a manifestation of the principle of good faith, may give rise to an objection to jurisdiction or to a defense on the merits. This does not mean that these elements are part of the objective definition of the term “investment” contained in Article 25(1) of the ICSID Convention.
128. Bearing these clarifications in mind, the Tribunal finds that the Claimant’s investment, which consists in a 50% participation in Uzmetal, a joint venture established under the laws of the Republic of Uzbekistan, meets the objective definition of investment as understood to be contained in Article 25(1) of the ICSID Convention and thus fulfills the second condition set in such provision.
129. Turning now to the third condition which requires consent to ICSID arbitration, the Tribunal notes that the Claimant consented to ICSID jurisdiction in a letter of 13 July 2009 and subsequently by filing its Request for Arbitration. The Respondent has expressed its consent to ICSID jurisdiction in Article 8(1) of the BIT. However, the Respondent submits that it “consented to arbitrate only those disputes concerning
lawfully implemented investments. Where, as here, the investment at issue was made and implemented contrary to the laws and regulations of the Republic of Uzbekistan, Respondent has not granted its consent to arbitrate before ICSID a dispute concerning that investment.”113 Whether the Respondent’s consent covers the present dispute depends on the content of the BIT and in particular on Article 8(1) thereof. If the requirements set in Article 8(1) are not met, then the Respondent has not consented to submit the present dispute to ICSID arbitration and the ratione voluntatis condition required by Article 25(1) of the ICSID Convention is not satisfied. The analysis of Article 8(1) of the BIT follows.
130. The following provisions of the BIT are relevant:
• Article 12, which deals with the BITs temporal scope of application: “The provisions of this Agreement shall apply to investments made on
or before the entry into force of this Agreement.”114
• Article 8, which provides for dispute settlement as follows:
“1. Each Contracting Party hereby consents to submit to the International Centre for the Settlement of Investment Disputes (hereinafter: the "Centre") for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington on 18 March 1965 any legal dispute arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.
3. If any such dispute should arise and cannot be resolved, amicably or otherwise, within three (3) months from written notification of the existence of the dispute, then the investor affected may institute conciliation or arbitration proceedings by addressing a request to that effect to the Secretary-General of the Centre, as provided in Article 28 or 36 respectively of the Convention. The Contracting Party which is a party to the dispute shall not raise as an objection at any stage of the proceedings or enforcement of an award the fact that the investor which is the other party to the dispute has received, in pursuance of an insurance contract, an indemnity in respect of some or all of his or its losses.
4. Neither Contracting Party shall pursue, through the diplomatic channel, any dispute referred to the Centre, unless:
(a) the Secretary-General of the Centre or a conciliation commission or an arbitral tribunal constituted by it decides that the dispute is not within the jurisdiction of the Centre; or
(b) the other: Contracting Party should fail to abide by or to comply with any award rendered by an arbitral tribunal”.
• Article 1(1), which defines "investments" as follows:
“The term ’investments’ shall comprise any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made, including, but not limited to:
a) movable and immovable property, as well as any other rights in rem, in respect of every kind of asset;
b) rights derived from shares, bonds and other kinds of interests in companies;
c) claims to money, goodwill and other assets and to any performance having an economic value;
d) rights in the field of intellectual property, technical processes and know-how;
e) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.”
• And Article 1(3), which defines "investors" as follows:
“The term “investor” shall comprise:
With respect to investments made in the Republic of Uzbekistan:
a) Natural persons who are nationals of the State of Israel who are not also nationals of the Republic of Uzbekistan; or
b) Companies including corporations, firms or associations incorporated or constituted in accordance with the law of the State of Israel, which are not directly or indirectly controlled by nationals or permanent residents of the Republic of Uzbekistan."
131. It is undisputed that the ratione personae conditions provided in Articles 8 and 1(3) and the ratione temporis requirement set in Article 1 are met. It is equally common ground that the pre-requisite for the submission of a claim to ICSID arbitration provided in Article 8(3) is satisfied. Indeed, despite an attempt by the Claimant, the Parties were unable to resolve the dispute amicably.115 By contrast, while the Parties agree that Article 1(1) contains a legality requirement, they diverge on the scope of such requirement, an issue to which the Tribunal will turn below in Section IV.B.3. Before doing so, however, the Tribunal must address the Claimant's most favored nation or MFN argument in Section IV.B.2. Indeed, the Claimant argues that on the basis of Article 3 of the BIT, it is entitled to import a definition of investment from a third party
treaty that comprises no legality requirement and, therefore, jurisdiction is not conditional on a lawful investment.
2. Legality Requirement and MFN
a. Claimant’s Position
132. The Claimant submits that the most favored nation provision in Article 3(2) of the Treaty requires that the Tribunal incorporate the more favorable definition of “investment” of Article 1(1) of the Greece-Uzbekistan BIT into the Israel-Uzbekistan BIT.
133. The Claimant argues that while normally the definition of “investment” is not considered as “treatment” under an MFN provision, the parties to the Treaty expressly agreed that the definition of “investment” in Article 1(1) of the Treaty could lead to more or less favorable treatment for investors. In support of this proposition, the Claimant relies on Article 7(c) of the Treaty.
134. According to the Claimant, the language of Article 7(c) of the Treaty makes clear that the parties intended the term “treatment” in Article 3(2) to include more favorable treatment accorded to investors resulting from the definition of “investment” in Article 1(1) of the Treaty. Were it otherwise, there would have been no need for the exception in Article 7(c) of the Treaty. For the Claimant, “[t]he contemplated exception demonstrates that the parties considered whether more favorable treatment accorded to investors under the MFN clause would encompass broader definitions of investment contained in BITs with third parties, and Israel and Uzbekistan concluded that it would. They then concluded that there would be a narrow exception to this principle for definitions of investment that appeared in pre-1992 Israeli BITs.”116 Further, the Claimant submits that other Uzbek BITs do not contain such an exception.
135. Accordingly, the Claimant concludes that Metal-Tech may avail itself of a more favorable definition of “investment” found in a BIT that Uzbekistan has entered into with a third party. The Greece-Uzbekistan BIT, does not exclude substantive protections to investors whose investments are initiated or operated in violation of host State law or operated in violation of host State law.117 If the Tribunal adopts Uzbekistan’s
interpretation of the definition of investment in the Israel-Uzbekistan BIT, Israeli investors “would be treated less favorably than Greek investors with respect to their management, maintenance, and use of their investments in Uzbekistan.”118
136. In response to the Respondent’s reliance on prior decisions holding that a MFN clause does not apply to the definition of investment, the Claimant submits that all of the decisions cited interpreted MFN provisions in treaties that do not contain exceptions like the one in Article 7(c) of the Treaty.119 The language of Article 7(c) shows that the parties intended to include the definition of investment within the scope of Article 3(2) of the Treaty. Any other interpretation would reduce part of Article 7 to “inutility,” a result that is contrary to well-established principles of treaty interpretation.120
137. To the Respondent’s comparison with other treaties, the Claimant replies that such an approach is not in accordance with the principles of treaty interpretation set forth in the Vienna Convention. There is no rationale for the Respondent’s proposition that, because in other treaties Israel negotiated an exception that focused on the repatriation provisions of Article 6 of the Treaty, Article 7(c) in the Treaty should be read the same way. Article 7 of the Treaty refers not only to the repatriation provisions of other investment treaties entered into by Israel before 1992, but also to the definition of “investment” in those pre-1992 investment treaties. If Israel’s only concern in respect of the MFN provision was its extension to the repatriation provisions in Article 6, it would not have been necessary to include the definition of “investment” in Article 7(c) of the Treaty. The reference to Article 6 itself would have been sufficient for this purpose.121
138. Finally, according to the Claimant, the Respondent’s submission that a legality requirement is to be read into the BITs definition of investment, must be rejected as “it would require the Tribunal to incorporate its own language into [the BIT], in contravention of the Vienna Convention’s mandate to interpret a treaty in good faith
according to the ordinary meaning of its terms in context.”122 Principles of good faith should not be incorporated into a treaty to alter the jurisdictional requirements of the ICSID Convention and the applicable BIT. Further, the decisions cited by Uzbekistan in support of its argument are easily distinguishable. In both Phoenix Action v. Czech Republic and Gustav Hamester v. Ghana, the BITs contained legality clauses requiring that investments be made in accordance with host state law. The discussions of the application of the international legal principles of good faith were therefore obiter dicta. In any event, according to the Claimant, even assuming that a legality requirement can be implied if the treaty is silent, such a requirement would exclude jurisdiction “only for serious illegalities committed during the establishment of an investment.”123 All of the cases cited by the Respondent confirm that a legality clause may be implied in a BIT only in respect of conduct during the initiation of the investment.
b. Respondent’s Position
139. According to the Respondent, applying the MFN clause in the manner proposed by Claimant “would improperly circumvent the basic prerequisite that an investment first be covered under one treaty before receiving the benefits of a second treaty.”124 Tribunals have consistently rejected attempts to use the MFN clause to circumvent the scope of treaty coverage, including the definition of a qualifying investment.125 In Société Générale v. Dominican Republic for instance, the tribunal denied an attempt to use an MFN provision to access a broader definition of investment in another treaty.126 The tribunal in Yaung Chi Oo Trading v. Myanmar also followed a similar approach.127 Moreover, the tribunal in Tecmed v. Mexico concluded that an MFN clause “cannot be used to circumvent the core matters which determine whether an investor may access a treaty’s substantive protections.”128
140. The Respondent submits that it is a “fundamental principle” that an MFN provision cannot be used to circumvent basic treaty coverage requirements to defeat the treaty’s
established boundaries. To the Respondent, “[to] do otherwise would undermine the intentions of the Contracting Parties when agreeing to such parameters, and would allow a claimant not otherwise entitled to any protections under a treaty to enjoy both the benefits of that treaty and a more favorable third-party treaty.”129 The Respondent points out that the Claimant had not identified any case where an investor was permitted to expand the definition of investment through an MFN clause.130 The Respondent insists that consistent with the decision of the tribunal in Plama and in later cases, an MFN clause should not be read to expand the definition of investment unless the Contracting Parties’ “clearly and unambiguously expressed” their intent to authorize such an approach.131
141. According to the Respondent, the Claimant rests its MFN argument on an erroneous interpretation of the exceptions under Article 7 of the Treaty. Article 7(c) of the Treaty was included to address Israel’s concerns regarding repatriation provisions appearing in several of its pre-1992 BITs.132 When Article 7(c) of the Treaty is viewed along with other investment treaties containing similar MFN exceptions specifically identifying the repatriation provisions of the Poland, Hungary, and Romania BITs, it becomes clear that by including Article 7(c) in the Treaty, Israel sought to avoid extending the MFN clause in the Treaty to the repatriation provisions in these pre-1992 BITs. This position is also confirmed by commentary which states that the intent was to preclude the application of the pre-1992 currency transfer restrictions through the operation of the MFN clause.133 The reference in Article 7(c) of the Treaty to the definition of the term “investment” must be read in this context.
142. In any event, according to the Respondent, the international legal principle of good faith precludes the application of an MFN clause to circumvent the definition of investment in an investment agreement. A requirement that investments are to be made in accordance with law is implied in investment treaties whether or not they contain an express legality clause.134 Thus, the Phoenix tribunal observed that “this condition – the
conformity of the establishment of the investment with the national laws – is implicit even when not expressly stated in the relevant BIT.”135 Tribunals in Hamester and Plama have found the same.136 Consequently, according to the Respondent, the Claimant cannot rely on the Greece-Uzbekistan BIT to bypass the requirement that Claimant’s investment be made in accordance with host State law.
143. Article 3 of the Treaty provides for MFN treatment of investments and investors in the following terms:
“1. Neither Contracting Party shall, in its territory, subject investments or returns or investors of the other Contracting Party to treatment less favorable than that which it accords to investments or returns of investors of any third state.
2. Neither Contracting Party shall, in its territory, subject investors of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investments, to treatment less favorable than that which it accords to . . . investors of any third state.”
144. The question that must be resolved here is whether this MFN obligation extends to the definition of investment in Article 1(1) of the BIT, which requires that investments be "implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made". For the reasons given below, the Tribunal finds that this is not the case.
145. As a general matter, the Tribunal notes that, ordinarily, an MFN clause cannot be used to import a more favorable definition of investment contained in another BIT. The reason is that the defined terms “investments” and “investors” are used in the MFN clause itself, so that the treatment assured to investments and investors by Article 3 necessarily refers to investments and investors as defined in Article 1 of the BIT. In other words, one must fall within the scope of the treaty, which is in particular circumscribed by the definition of investment and investors, to be entitled to invoke the
treaty protections, of which MFN treatment forms part. Or, in fewer words, one must be under the treaty to claim through the treaty.
146. The tribunal in Société Générale v. Dominican Republic applied the same reasoning. There, the claimant contended that, although it did not meet the definition of investment as contained in the Dominican Republic-France BIT, it met the one contained in the DR-CAFTA. The Société Générale tribunal found that the investor had made an investment under the basic treaty, but rejected the proposed alternative: “[e]ach treaty defines what it considers a protected investment and who is entitled to that protection, and definitions can change from treaty to treaty. In this situation, resort to the specific text of the MFN clause is unnecessary because it applies only to the treatment accorded to such defined investment, but not to the definition of ‘investment’ itself” (emphasis added).137 Indeed, the Claimant itself concedes that an MFN clause will ordinarily not extend to the definition of an investment.138In the same vein, the tribunal in Berschader v. Russia, interpreting a MFN clause applying to "all matters covered by the present Treaty", considered that definitions "deal with matters which have no relations to the treatment of investors", with the result that it was "very difficult to see how a MFN clause could possibly apply to these provisions".139
147. Here, the Claimant argues that Article 7(c) of the BIT changes this position. To the Claimant, Article 7(c) shows the Parties’ intention to extend the MFN clause to the definition of investment (including the legality requirement), or else they would not have made an exception for pre-1992 treaties. The Respondent denies this position and submits that the reference to "the definition of investment" in Article 7(c) cannot be isolated from the rest of Article 7(c) and must be understood in the context of the repatriation provisions referred to in that sub-article.
148. To resolve the issue, the Tribunal must interpret Article 7(c) of the BIT, for which it turns to the Vienna Convention. Under the Vienna Convention, a treaty must be interpreted "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose" (Article 31(1)). To confirm the meaning established pursuant to this rule (among other
purposes), one may have recourse to supplementary means of interpretation, which include the circumstances of the treaty’s conclusion (Article 32 of the VCLT).
149. Article 7 of the BIT, which was already quoted in part above, reads in full as follows:
The provisions of this Agreement relative to the grant of treatment not less favourable than that accorded to the investors of either Contracting Party or of any third state shall not be construed so as to oblige one Contracting Party to extend to the investors of the other the benefit of any treatment, preference or privilege resulting from:
(a) any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation;
(b) any existing or future customs union, free trade area agreement or similar international agreement to which either Contracting Party is or may become a party;
(c) the definitions of "investment" (Article 1, paragraph 1) and "reinvestment" (Article 1, paragraph 2) and the provisions of Article 6 contained in Agreements entered into by the State of Israel prior to January 1, 1992.
150. To the Tribunal, the Claimant’s interpretation carves out the reference to "the definition of investment" from the text of Article 7(c). This is contrary to Article 31(1) of the VCLT that requires the interpreter to take account of the context of the terms, a concept that is defined in broad terms in paragraph 2 of that same provision.
151. Article 7(c) does not end at “the definition of investment.” Rather, it goes on to refer to “the definition of reinvestment” and also to “the provisions of Article 6...”, i.e. the repatriation provisions. If, as the Claimant contends, the reference to “the definition of investment” is to be given a separate and independent meaning, it is unclear why it would appear in the context of “reinvestment” and repatriation, both of which are concepts intricately linked to and dependent on the definition of investment. Indeed, the concept of reinvestment and repatriation both first require an investment. On a textual and contextual basis, therefore, investment, reinvestment and repatriation used in the same provision appear linked to each other.
152. The Tribunal’s conclusion is further strengthened if one looks at the overall structure of Article 7. Article 7(a) and (b) both list the avenues through which investors are
foreclosed from claiming beneficial treatment: an international agreement relating to taxation (7(a)) and a customs union or free trade agreement (7(b)). These are thus distinct concepts arranged in separate subparagraphs. There is no reason why the definition of investment could not have been addressed in a separate subparagraph as well, if, as the Claimant suggests, the reference to “investment” is to be considered independently of the rest of the text of Article 7(c) of the Treaty.
153. Still within the context of the terms of the treaty, the Tribunal’s view is also supported by looking at Article 7(c) in relation to Article 3. Article 3 of the BIT states two negative propositions: that neither Contracting Party shall subject investors of the other Contracting Party, or their investments, to less favorable treatment than it accords to investors of other states, or their investments. A definition is not a form of treatment; it simply establishes the baseline of what is entitled to MFN treatment. The fact that one form of investment may be entitled to MFN treatment under one treaty, while a different form of investment is entitled to MFN treatment under another treaty, does not mean that there is a breach of the MFN standard.
154. The Claimant contests this view by relying on Article 7(c). It contends that as Article 7(c) expressly excludes the definition of investment from treaties entered into by Israel prior to 1 January 1992, a contrario it impliedly includes the definition of investment from treaties entered into by Israel after 1 January 1992. However, there is no reason why this should be the case. The fact that the Contracting Parties contemplated that the MFN clause of the Treaty could be argued to apply to the definition of investment in other treaties entered into by Israel before 1992, at least in the context of the repatriation clauses of those treaties, does not necessarily mean that they intended to endorse such an application for all other treaties.
155. This is all the more so as there patriation provisions of the pre-1992 Israel BITs that are removed from the scope of the MFN clause by Article 7(c) are peculiar provisions that reflect particular exchange controls in effect when those BITs were entered into. The State of Israel may have wished to foreclose complications that could have been introduced into later treaties by those provisions and their accompanying definitions of investment. This does not necessarily mean that it intended for the definitions in other treaties to become interchangeable by means of the MFN clauses in later treaties.
156. This understanding also appears correct considering that the requirement of legality of the investment is spelled out in the clearest terms in Article 1 of the BIT and that it is
common ground that, as a general matter at least, the existence of an investment falling within the scope of that provision is a condition sine qua non of treaty protection. Any exception to these clear rules would have to be stated in no uncertain terms, which is obviously not so here.
157. In sum, the ordinary meaning of the terms interpreted in their context lead the Tribunal to conclude that Article 7(c) does not provide for the application of MFN treatment to the definition of investment under Article 1(1) of the BIT.
158. The object and purpose of the Treaty is neutral for present purposes. The Preamble emphasizes, on the one hand, “economic cooperation to the mutual benefit of both countries” as well as an “increase [of] prosperity in both states”, and, on the other, an intention to create “favorable conditions for greater investments by investors” as well as “the promotion and reciprocal protection of investments” and “the stimulation of individual business initiative”. In other words, the Preamble refers to both the private interests of the investor as well as the public interests of the state. It is thus of little assistance in the present context.
159. Another consideration, however, is more helpful. While the Tribunal does not benefit from any travaux préparatoires of the BIT, it notes that other investment treaties entered into by Israel confirm the meaning of Article 7(c) as it results from the foregoing analysis. In the Tribunal's view, these other treaties on the same subject matter can be taken into account as supplementary means of interpretation pursuant to Article 32 of the VCLT.140
160. A number of Israeli BITs contain a provision similar to Article 7(c) of the Treaty. Interestingly, these BITs clearly indicate that the reference to “investment” and “reinvestment” is meant in the limited context of the repatriation provisions of the pre- 1992 treaties. This is so for instance of the 1997 Israel-Moldova BIT the pertinent annex of which reads as follows:
“Taking into consideration the provisions of Article 6 [the repatriation provision] of the Agreements for the Promotion and Reciprocal
Protection of Investments entered into by the Government of the State of Israel with the Governments of Poland, Hungary and Romania in 1991;
The provisions of Article 3 [the MFN provision] shall not be construed so as to oblige the State of Israel to extend to investors of the Republic of Moldova the benefits of any treatment, preference or privilege resulting from the definitions of ‘investment’ or ‘reinvestment’ and the provisions of Article 6 contained in the [BITs] entered into by the Government of the State of Israel with the Governments of Poland, Hungary and Romania in 1991.”141
161. The link between investment and repatriation in the pre-1992 treaties is even more striking in the Israel-Thailand BIT. That treaty contains an Article 7(d) essentially identical to Article 7(c) of the (Uzbek) BIT.142 More importantly, the treaty contains an annex, which explains the rationale behind including Article 7(d):
“In the latter part of 1991 the State of Israel entered into Agreement for the Reciprocal Promotion and Protection of Investments with Poland, Hungary and Romania.
Since 1991, a process of liberalisation has modified the regulations to the point where the language of those three agreements no longer reflect the current right of repatriation provided in the regulations.
That being the case and in order to avoid the need to constantly revisit and modify these agreements, the State of Israel has undertaken negotiations to modify those three agreements by replacing the language of Article 6 therein with the current Article 6.
The Government of the State of Israel shall notify the Government of the Kingdom of Thailand when the said agreements will be (modified) amended so as to render Article 7(d) unnecessary. Upon such notification, Article 7(d) shall become null and void.” 143
162. This rationale confirms the Tribunal's understanding of the Israel-Uzbekistan BIT. It is clear that Article 7(c) of the Treaty is to be limited to the repatriation provisions in the pre-1992 Israeli BITs. Thus, contrary to what the Claimant suggests, the reference to “definition of 'investment'” in Article 7(c) does not have a life of its own. It is not independent of the repatriation provisions in the pre-1992 treaties. Quite the opposite: the intention behind the reference to “definition of 'investment'” was to limit the application of the MFN obligation with respect to the repatriation provision in the pre- 1992 treaties.
163. For these reasons, the Tribunal concludes that the Claimant cannot rely on Article 3(2) of the Treaty to avoid the express requirement of compliance with host state law provided in Article 1(1) of the Treaty. Having reached this conclusion, the Tribunal can dispense with reviewing whether there exists an implied requirement of compliance with host State law or with the good faith principle.
3. Scope of the Legality Requirement
164. Article 1(1) of the BIT defines investments as "any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made" (emphasis added). In other words, it contains a legality requirement, the scope of which is circumscribed in terms of subject-matter (laws and regulations) and time (the time of implementation). While the former raises no specific issues in the present context (sub-section (a)), the latter is heavily disputed (sub- section (b)).
a. Subject Matter of the Legality Requirement
165. There is no relevant divergence between the Parties concerning the subject-matter of the legality requirement. It is not contested that the provisions of Uzbek law prohibiting corruption fall within the subject-matter scope of the legality requirement contained in
Article 1(1) of the Treaty.144 The Tribunal agrees with this view. In general, on the basis of existing case law, it considers that the subject-matter scope of the legality requirement covers: (i) non-trivial violations of the host State's legal order (Tokios Tokelés145, LESI146 and Desert Line147), (ii) violations of the host State's foreign investment regime (Saba Fakes148), and (iii) fraud – for instance, to secure the investment (Inceysa149, Plama150, Hamester151) or to secure profits.152 There is no doubt that corruption falls within one or more of these categories.
166. The Tribunal is certainly aware that the Respondent alleges instances of illegal conduct other than corruption, which other instances may or may not fall within these categories. In light of the weight that the corruption issue gained in the later part of the proceedings, the Tribunal will focus its analysis on that type of unlawful behavior. And in light of the conclusion that it will reach on the corruption defense, it will dispense with reviewing the other allegations of illegality.
b. Time of the Legality Requirement
i. Respondent’s Position
167. According to the Respondent, Article 1(1) of the BIT uses the word “implemented” to define the type of investments to which the Treaty’s protections apply. Interpreting this provision leads to the conclusion that an investor forfeits any right under the BIT in
respect of investments that are “made, carried out, or operated in an unlawful manner”.153
168. In support of this proposition, the Respondent submits that Article 1(1) uses and juxtaposes both the words “implemented” and “made” in the same sentence, suggesting that the drafters understood and wished to emphasize the difference in meaning between these two terms. To the Respondent, “[w]here two words with overlapping but different meanings appear in the same sentence, they should not be interpreted synonymously.”154 The proper interpretation of Article 1(1) of the BIT, therefore, is that the law of the place where the investment is made or established governs the question of whether the investment has been implemented, i.e., made, carried out, or operated, legally.
169. Further, the Preamble to the BIT explains that the Contracting Parties desired to “intensify economic cooperation to the mutual benefit of both countries,” “create favorable conditions for greater investments,” and “increase prosperity in both states.” Seen in this wider context, there is no legitimate purpose in protecting investments that are implemented unlawfully, because such investments do not benefit or otherwise increase the prosperity of the host State.
170. Moreover, according to the Respondent, Uzbekistan’s concern that foreign investors comply with Uzbekistan’s laws is underscored in its Foreign Investment Law which emphasizes the foreign investor’s duty to comply with Uzbek laws in the following terms:
“When execut[ing] investment activity on the territory of the Republic of Uzbekistan, the foreign investor [is obligated] to observe the current legislation of the Republic of Uzbekistan [and] to pay taxes and effect other payments in accordance with the legislation of the Republic of Uzbekistan.”155
171. The Respondent also submits that the BIT was made in English, Uzbek, and Hebrew, all three texts being “equally authentic”, but the English prevailing “[i]n case of differences in interpretation”. The Uzbek and Hebrew texts of the BIT confirm that the legality requirement obliges the investor to make and operate its investment lawfully.
The verb in the Uzbek text is “қўлланилади,” which translates as “used”. The Hebrew text contains the word “םימשוימה” which translates as “applied” or “put to use.” Like “implemented”, the words “used” and “applied” connote ongoing action: if an investment must be used or applied in accordance with law, it must be operated in compliance with law and remain compliant with law.
172. Finally, the Respondent insists that the Claimant has conceded that the ordinary meaning of the term “implement” includes both the idea of establishing or making, on the one hand, and of performing, effecting, executing, or fulfilling, on the other.156
173. In response to the Claimant’s reference to the term “implemented” in Article 6(1) of the Treaty, the Respondent submits that the presence of the word implement in Article 6(1) does not alter the ordinary meaning of the term in Article 1(1) of the Treaty. Article 6(1) refers to something in place on a certain day. In that particular context, “implemented” takes a meaning akin to “made” or “put into effect”. In Article 1(1) of the BIT, the term “implemented” is used in an entirely different context. There is no “on the day” clause in Article 1(1) of the BIT, which would suggest that the same interpretation must be given to the word “implement” in Articles 1(1) and 6 of the BIT. Further, unlike the English version of the BIT, which uses the term “implemented” in both provisions, the Uzbek text employs two different words. The Uzbek words used in Article 6(1), “амалга оширилган,” are the ones that appear in Article 1(1) for the English word “made,” not for the word “implemented".
174. In reply to the Claimant’s submission that the Respondent’s interpretation renders treaty protection illusory, the latter argues that denial of jurisdiction does not prevent a tribunal from hearing both jurisdictional and merits arguments together in appropriate circumstances. In cases in which the legality of the investment is intertwined with the merits, tribunals may join jurisdiction to the merits. Further, there is no serious risk that de minimis violations of law could be exploited by a host State as a jurisdictional bar. Tribunals have rejected the possibility that trivial violations of host State law may bar jurisdiction.157 Finally, where (as here) “a treaty explicitly limits its protection to investments established and carried out in accordance with the law, the investor cannot be heard to complain about having to establish or defend the legality of its operations.”158 According to the Respondent, such a requirement is all the more
fundamental here in light of Uzbekistan’s Foreign Investment Law, which requires foreign investors to observe its laws and comply with contractual undertakings.
175. For all these reasons, the Respondent concludes that since the Claimant has made and operated its investment in violation of Uzbek laws, it may not invoke the Treaty’s protections in respect of its investment. Consequently, the Tribunal lacks jurisdiction over the Claimant’s claims.
ii. Claimant’s Position
176. The Claimant argues that Article 1(1) of the BIT refers only to the establishment of an investment (not its operation) and that there is no evidence that the establishment of Uzmetal was illegal.
177. A careful review to the relevant language shows that the legality requirement in the BIT focuses on the establishment of the investment. The phrase “implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made” in Article 1(1) does not modify the term “investment” but applies to the word “assets.” The word “implement” is defined in the Oxford English Dictionary as “to complete, perform, carry into effect (a contract, agreement, etc.)”. Consequently, “[t]he most reasonable interpretation of the language in Article 1(1) [of the BIT] is that an asset that is “completed,” “performed,” or “carried into effect” in accordance with local law is an asset that, at a single point in time, has been established according to local law.”159
178. Further, the Claimant submits that the ordinary meaning of the word “implemented” in Article 1(1) of the BIT, when viewed in context and in light of the object and purpose of the Treaty, covers all assets established in accordance with local law. Articles 6(1) and 8(1) of the BIT provide important context in this regard.
179. Referring first to the context, the Claimant points to Article 6(1) of the BIT which provides that “[e]ach Contracting Party, shall, in respect of investments, guarantee to investors of the other Contracting Parties all the rights and benefits . . . which were in force on the day the current investment was implemented.” In Article 6, the parties used the word “implement” to refer to the initiation of an investment at a single point in time. It would be wrong to assume that the parties intended the word “implemented” to mean something entirely different in Article 1(1), particularly when “implemented” is used in both articles to describe an action taken with respect to investments. The
Hebrew text of the Treaty leads to the same conclusion, as there the same word for “implemented” is used in both Articles 1(1) and 6(1). The Uzbek text does use two different words in Articles 1(1) and Article 6(1) respectively, “but given the use of identical terms in the English and Hebrew versions of Articles 1(1) and 6, the most reasonable interpretation of the Uzbek text is that these words express the same concept in both Article 1(1) and Article 6.”160
180. In further relation with the context, under Article 8(1) of the BIT, the parties agreed to submit to arbitration “any legal dispute” arising between a Contracting Party and an investor of the other Contracting Party “concerning an investment of the latter in the territory of the former”. Article 8(1) thus applies to “any legal dispute”. It is not limited to disputes concerning the application of the treaty. If the Respondent’s jurisdictional argument was accepted, it would mean that a tribunal would lack jurisdiction to consider “any legal dispute” between the parties if the tribunal accepted that the claimant at any point in time had violated any provision of Uzbek law. This logic, to the Claimant, is flawed as by following it, “any breach of contract claim between a foreign investor and any party in Uzbekistan could be used to effectively deny the foreign investor protection under the BIT, even where that party is not a state actor and the alleged breach has nothing to do with the state action.”161 The Claimant submits that such an interpretation would render the substantive protections under the BIT meaningless. The Claimant insists that the definition of “investment” in Article 1(1) of the Treaty should not be interpreted in a manner “that limits consent to jurisdiction and requires all local law claims to be heard only at the jurisdictional stage of the proceedings.”162
181. Turning then to the object and purpose of the Treaty, the Claimant insists that, contrary to the Respondent’s contention that its interpretation of Article 1(1) of the BIT is in line with the Preamble of the BIT, Uzbekistan’s interpretation would allow the State to avoid a hearing on the merits merely by raising violations of its laws perpetrated in the course of the investment. This is inconsistent with promoting foreign investment, as it renders a foreign investor’s right to pursue arbitration against the host state illusory.
182. The Claimant adds that the circumstances surrounding the conclusion of the Treaty confirm its interpretation of Article 1(1) as a traditional legality clause. The fact that the definition of investment in the BIT is the same as that in the Israel Model BIT, and that
Israel’s policy at the time was to protect as many Israeli investments abroad as possible, supports an interpretation of “investment” in Article 1(1) in the BIT as all referring to investments established in accordance with law.
183. Finally, the Claimant underlines that Uzbekistan has not cited a single case in which a tribunal denied jurisdiction based on a finding that the investor had violated some local law in the operation of an investment. Replying to the Respondent’s argument that “implemented” and “made” being used in the same sentence must have distinct meanings, the Claimant submits that the only case relied on by the Respondent in this respect is inapposite, and, in fact, supports the fundamental principle that treaty language must be interpreted in its context.163
184. In connection with the Respondent’s reliance on the Uzbek and Israeli versions of the BIT, the Claimant submits that the words used in Hebrew and Uzbek have a wide range of potential meanings, “some of which connote an ongoing action and some of which designate an action at a single moment in time.”164 When the word “implement” is interpreted in the relevant context, the only logical conclusion is that Article 1(1) refers to those investments established in accordance with local law.
185. Essentially, the question is whether “implemented” means “established” or “established and operated”. The Tribunal reaches the conclusion that it means the former for the following reasons.
186. First and foremost, one must recall the precise language of Article 1(1) in its relevant part. Article 1(1) provides that “[t]he term ‘investments’ shall comprise any kind of assets, implemented in accordance with the laws and regulations” (emphasis added). The controversial word “implemented” applies to “assets” and not to “investments”. That wording is consonant with definitions found in many treaties that refer to investments as “any kind of assets invested”. Without the benefit of travaux préparatoires showing the contrary, the reader is naturally inclined to assimilate the two formulas. It indeed comes to mind that the drafters of this BIT may have sought to avoid the tautology inherent in the usual definition by using a word different from the
one they were defining. They may have replaced “invested” by “implemented” for the sake of good drafting without changing the substance of the definition.
187. Looking at the ordinary meaning of “implemented”, it is true that the word can mean “made, carried out, operated, completed, performed, carried out into effect” and the Parties do not disagree in this respect. But the question is not simply what implement means but rather what it means in its context in relation to “assets”. When is an asset “made, carried out into effect, operated, completed”?
188. Looking to the Hebrew and Uzbek versions to elucidate the ordinary meaning is not more helpful. The Hebrew word is translated as “applied” and the Uzbek term as “used”. When affixed to the term “assets”, the first one tends to indicate a one time action such as established, while the second would rather signify a continuous action analogous to operate.
189. By contrast, a review of the context of the term being interpreted provides more indications. First, as the Claimant points out, Article 6(1) of the Treaty which deals with repatriation of investment, guarantees to investors “the rights and benefits regarding the unrestricted transfer of their investments and returns which were in force on the day the current investment was implemented” (emphasis added). In this phrase, the word implemented clearly identifies the one-time initial action of establishment. The Respondent objects that the context is different and, therefore, unhelpful to interpret the term in Article 1(1). The Tribunal does not find this objection convincing. Indeed, the language in Article 6(1) undoubtedly demonstrates that the word “implement” can be used to designate initial establishment at a particular point in time. Similarly, Article 1(2) speaks of “assets invested”, which tends to support the idea that, in the context of the Treaty, the word “implemented” is used as a synonym for “invested.”
190. The Respondent has also drawn the Tribunal’s attention to the fact that, in addition to “implement,” Article 1(1) uses the word “made” (“The term "investments" shall comprise any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made” (emphasis added)). It infers from the use of distinct words that they must necessarily have a different meaning. The Tribunal cannot follow this argument. Further to the reasons expressed above, it notes that the word “made” is always juxtaposed to “investment” in the treaty (e.g. Art. 1(1), 1(2), 1(3), 2(2), 12, 14). It is not employed to characterize assets, which are said to be “implemented” ((Art. 1(1)) or “invested” (Art. 1(2) and Art. 6 which refers to “capital invested”). Significantly, as was emphasized above, investments are also
deemed “implemented", which tends to confirm that there is no difference of substance between “implemented” and “made”.
191. Having followed the textual and contextual approach prescribed by the VCLT to interpret the meaning of the word “implement” in Article 1(1) of the Treaty, the Tribunal does not see the need to address the Respondent’s argument that the word “implement” should be interpreted in a manner consistent with Uzbekistan’s foreign investment laws.
192. Last, the Tribunal notes that the object of purpose of the Treaty, which also comes into play in the interpretation under the VCLT, is of no assistance for present purposes. As it underlined above, the object and purpose is a balanced one that takes into account both the private interests of the investor and the public interest of the State. It is true that the Claimant relies on Israel’s policy to secure broad protection for its investors. Even though it reaches a conclusion that is in line with this policy, the Tribunal does so on other grounds, as it is not persuaded that this policy reflects the common intention of the Contracting States.
193. In summary, on the basis of its reading of Article 1(1) taken in its context, the Tribunal concludes that the term “assets implemented” refers to the time when the investment was made. In other words, the Treaty requires that the investment must be legal when it is initially established. Article 1 simply does not address whether or not the investment must be operated lawfully after it is in place.
4. Key Facts
194. The Tribunal will now turn to reviewing whether the Claimant’s investment in Uzbekistan was made in compliance with the law at the time when it was established. Before doing so, however, the Tribunal will set forth the main facts related to corruption in the present section, and will also address a number of threshold matters relevant to the assessment of the evidence in the record in sub-section (5). Thereafter, it will examine whether the investment complied with host state law in sub-section (6) and then with international law principles and international public policy in sub-section (7), prior to providing its conclusion in sub-section (8).
195. According to the Respondent, by promising to pay several individuals to obtain or influence the Government’s approval of its investment project, the Claimant violated
Uzbek laws on bribery as well as transnational principles and international public policy prohibiting corruption.165
196. In this section, the Tribunal provides an overview of the main facts in the record that it considers determinative of the outcome of these proceedings. It will revert to them in more detail where appropriate in connection with the application of the relevant rules.
197. The Tribunal recalls that at the January Hearing, Mr. Rosenberg, the Claimant's Chairman and CEO, was shown a prospectus issued by the Claimant on 9 May 2005 in connection with a public financing at that time.166 The prospectus disclosed that the Claimant had paid consultants for assistance with the operation of the joint venture in Uzbekistan, including production and delivery of products. In the course of examination, Mr. Rosenberg admitted that the Consultants were paid for services other than those set out in that prospectus. Mr.Rosenberg also conceded that the Consultants were paid a total of approximately USD 4 million during the period from 2001 to 2007:
“Q. How much money have you paid these gentlemen, and over what period of time?
A. We paid about $4 million in the span from 2001 until 2007.”167
“PRESIDENT KAUFMANN-KOHLER: You mentioned, if I took my notes correctly, that you paid them 4 million from 2001 to 2007. Is that correct? Can you confirm that?
THE WITNESS: Yes, I can confirm that.”168
198. Later, from the Payment Schedule submitted by the Claimant, it emerged that Claimant had actually paid USD 3.5 million to the Consultants and had paid further sums totalling USD 900,000 to Mr. Ibragimov.
b. Amounts of Payments
199. The size of the payments made to the Consultants is another striking fact, especially when seen in connection with the amount of the Claimant's capital investment and in
the local context.169 The Claimant paid USD 3.5 million to the Consultants170 and USD 900,000 to Mr. Ibragimov. By comparison, Resolution No. 15 provided for an initial capital contribution from Metal-Tech of USD 500,000 or 60,500,000 Uzbek Soum.171 Subsequently, the Claimant claims to have made an additional capital contribution of USD 2 million.172 Moreover, pursuant to Resolution No. 29-F, the value of the Project was USD 19,398,000.173 Thus, the total payments made by the Claimant to the Consultants exceeded its initial cash contribution to the venture and amounted to nearly 20% of the entire project cost. The proportion – or rather the disproportion – is striking. It is also worth noting that Uzmetal never paid any dividends.174
200. When assessing these amounts, one should further bear in mind that the Consultants were three Uzbek citizens allegedly hired to provide services “on the ground” in Uzbekistan,175 where the cost of living is lower than in other countries. For instance, Mr. Rosenberg testified that Mr. Mikhailov’s salary at Uzmetal was less than USD 100 per month.176 Mr. Mikhailov’s employment contract with Sanavita GmbH, his full-time employer, similarly provided for a monthly salary of 4,500 Uzbek Soum.177 Yet, for services rendered to Metal-Tech, Mr. Mikhailov received a “bonus” of USD 5,000 per month, fifty times his salary from Uzmetal.178 Similar “bonus” payments were made to Messrs Sultanov and Chijenok.179
201. The appearance created by the high level of the payments is not dispelled by the reasons which the Claimant puts forward to explain these amounts. The Claimant’s explanation that the Consultants were lobbyists and lobbyists do not work for Uzbek minimum wage is unhelpful. It was not disputed that Uzbek law does not recognize the
concept of a lobbyist. More important, none of the Consultants was qualified to render lobbying services. Mr. Rosenberg himself described Mr. Chijenok as “an office man who advised on administrative issues such as tax and insurance” and who “provided analytical marketing reports and information on local regulations”180 and not principally as a lobbyist. Similarly, the Claimant did not advance any evidence that Mr. Sultanov or Mr. Mikhailov was competent to provide lobbying services.
202. Further, if the Consultants had engaged in lawful lobbying, they would have rendered their services in a transparent manner – not under consulting contracts shrouded in secrecy.181 Payments too could have been made and received directly rather than through interconnected offshore companies.
203. Similarly, for the reasons discussed below (see e.g., ¶¶205, 262), the Tribunal is unable to follow the Claimant’s next explanation for the large payments made to the Consultants according to which the work that the Consultants performed extended back to 1998 and that the Consultants provided “immense assistance”.182 Witnesses from the molybdenum industry testified that they had never even heard of Mr. Sultanov being involved in the industry, and Mr. Mikhailov’s qualifications pertain largely to the pharmaceutical industry (see e.g., ¶¶212, 343). Indeed, despite repeated requests (see section IV.B.5(b)), the Claimant was unable to produce any meaningful contemporaneous documentation establishing that the Consultants did provide assistance.
c. No Services or Proof of Services
204. A third fact that caught the Tribunal's particular attention is that the consulting agreements required payments to be made to the Consultants irrespective of services provided. For instance, under the 15 December 2000 contract (pursuant to which the Claimant paid about USD 2.4 million to MPC183), Mr. Rosenberg testified that “none of the consultants had to prove any documents or supply any documents to the services.”184 Similarly, under the three contracts executed between the Claimant and each of the three Consultants in 2004 (pursuant to which the Claimant paid USD
95,000 each to Messrs Chijenok and Sultanov, and USD 105,000 to Mr. Mikhailov185), Mr. Rosenberg admitted that “we didn’t ask for any proof of services”186. He further conceded that “[the Consultants] didn’t have any documents supporting any services... because it wasn’t required.”187 Further, for the payments made under the contracts with MPC Tashkent (pursuant to which the Claimant paid USD 90,000 to MPC Tashkent188), the Claimant was unable to establish any link between the payments and any services.
205. The documents which the Claimant produced in an effort to establish “the types of services provided by [the Consultants]”189 do not support the submission that legitimate services were rendered by the Consultants since 1998. First, most of the services evidenced by these documents were services which could only be performed after 2000, when Uzmetal was established. For instance, services such as assistance with standard certifications,190 hiring of guards,191 getting VAT exemptions192, could only be performed once Uzmetal was operational. Indeed, Mr. Rosenberg himself admitted that some of these documents concerned services rendered after Uzmetal was established.193 Second, some of the documents are either undated,194 or are dated much after 1998.195 The only exception to this is the letter of 30 July 1998 written by Mr. Rosenberg to Messrs Ibragimov and Mikhailov,196 which Mr. Rosenberg conceded does not concern Uzmetal.197
206. Among other requests for evidence, the Tribunal specifically invited the Claimant in PO 10 to specify the services rendered in return for each payment to the Consultants. For each payment, the Tribunal asked Metal-Tech to explain “[w]hat service was the payment intended to remunerate.” The Claimant failed to provide this information, accepting that “[t]he nature of the contracts were such that Metal-Tech cannot provide the Tribunal with a detailed chart of the information requested.”198
207. In this context, the Tribunal notes with concern the Claimant’s repeated failure to provide evidence justifying the services rendered by the Consultants in return for their substantial compensation. Although the Claimant had several opportunities to do so, and was on notice that the evidence requested would be of importance to the Tribunal’s determination, it was nonetheless unable to establish that the Consultants actually performed any legitimate services for the Claimant at the time of establishment of the Claimant’s investment.
d. Lack of Qualification of the Consultants
208. As a fourth factor, it struck the Tribunal that none of the Consultants possessed any professional qualification to perform the services for which they were allegedly retained. According to the Claimant, the Consultants were hired to provide “the same services that Washington lobbyists provide every day.”199 Further, Mr. Rosenberg testified that the “main thing” of interest to Metal-Tech was that the Consultants had been dealing in the molybdenum industry prior to being involved with Uzmetal.200 He also alleged that the Consultants provided assistance on technical and financial matters. The contracts entered into with the Consultants provided that the Consultants were to “perform marketing investigations in ... Uzbekistan”,201 “perform negotiations with the Uzbek experts and different organizations”,202 “give the consulting services concerned with application of the legislation and statutory acts”.203 A review of the qualifications of the Consultants demonstrates, however, that they lacked the necessary background to perform such services. None of them had any prior experience with the molybdenum industry, much less technical credentials in that field.
209. At the time of the establishment of the Claimant’s investment, Mr. Chijenok was responsible for human resources functions at the Office of the President of Uzbekistan,204 with responsibilities such as examining the qualifications of applicants for vacancies.205 This hardly qualifies Mr. Chijenok to assist with technical and financial matters. He lacked any prior experience in the molybdenum industry, or indeed in any
field other than government administration, as Mr. Rosenberg later admitted.206 It is therefore more than surprising that the Claimant employed him to “explain the basic tendencies and directions of economic policy of Uzbekistan”207 and “to perform negotiations with Uzbek experts”.208 It is also surprising that, in the absence of relevant qualifications, the Claimant paid USD 95,000 to Mr. Chijenok personally, plus his shares in the USD 2,492,908 paid to the MPC Companies and the USD 774,781 paid to Lacey International (designated as payee by the Consultants under the consultancy agreement of 28 February 2005209).
210. Similar observations apply to Mr. Sultanov. Mr. Sultanov was a police investigator who retired after achieving the rank of Police Colonel; he had not worked in any capacity since April 1992.210 Despite the Claimant’s allegations that Mr. Sultanov was retained to provide lobbying services,211 the Claimant failed to produce any evidence that he was qualified to do so. Moreover, Deputy Minister Kanyazov testified that Mr. Sultanov was not and had never been listed in any of the State registries for providing advocacy or tax consulting services.212 His testimony was not rebutted.
211. Further, despite initially testifying that only Mr. Sultanov worked in the molybdenum industry, Mr. Rosenberg himself later admitted that he had only heard of Mr. Sultanov’s experience and did not know and never asked whether Mr. Sultanov was an engineer, a metallurgist, or had any other expertise relevant to the Claimant’s investment.213 There is no evidence on record that Mr. Sultanov had any experience in the molybdenum industry. It is therefore again difficult to understand that the Claimant employed him to “advise by preparation of the necessary documentation, elaboration of the feasibility studies”;214 “to perform negotiations with the Uzbek experts”.215 It is equally surprising that, despite his lack of qualifications, Mr. Sultanov received substantial amounts: USD 95,000 was paid to him personally plus his shares in the USD 2,492,908 paid to the MPC Companies and the USD 774,781 paid to Lacey International (designated as payee by the Consultants under the consultancy
agreement of 28 February 2005216). The only possible basis for such payments to Mr. Sultanov, it seems to the Tribunal, would have been his relationship to the Prime Minister of Uzbekistan, which is discussed below.
212. Finally, as to Mr. Mikhailov, he himself denied having performed many of the services the Claimant alleges he rendered.217 He also admitted that he was not qualified to perform some these services.218 Mr. Mikhailov’s qualifications pertain largely to the pharmaceutical industry. For instance, Mr. Mikhailov had held a position as pharmaceutical science advisor at Hoechst AG, Germany. When he started as the Claimant’s consultant, he was the Head of the Representative Office of Sanavita GmbH of Germany.219 In fact, before it referred to Mr. Mikhailov as “consultant to Metal-Tech Ltd. and a senior member of the Uzmetal management team”,220 Metal- Tech itself had downplayed Mr. Mikhailov’s importance, relying on his testimony where he had described himself as “a manager of a newspaper business in Uzbekistan.”221 In sum, the Tribunal finds that Mr. Mikhailov was largely unqualified to provide the consulting services that the Claimant alleges he provided. Here again, although unqualified for the task, Mr. Mikhailov was paid USD 105,000 personally plus his shares in the USD 2,492,908 paid to the MPC Companies and the USD 774,781 paid to Lacey International (designated as payee by the Consultants under the consultancy agreement of 28 February 2005222).
e. Sham Consulting Contracts
213. Since the analysis is limited to events surrounding the establishment of the Claimant’s investment (¶193 above), the Tribunal does not deem it necessary to review each of the consulting contracts. Rather, the Tribunal will focus on the December 2000 Contract between the Claimant and MPC, which, by its own terms, refers to past activities including the preparation of the Feasibility Studies.223
214. The December 2000 Contract was the first written contract between the Claimant and MPC. Under this contract, MPC undertook a wide range of obligations, which are described as follows:
"2.1 MPC has taken and will take the following obligations:
2.1.1 MPC and its management will negotiate and coordinate all matters related to Uzbekistan Government and/or official bodies.
2.1.2 To perform marketing investigations in the Republic of Uzbekistan in the interest of Metek and to provide Metek with all information concerning prices as received by the Uzbek Partner from competitors, supporting assistance during all negotiations which have resulted in the optimal conditions for 'the contract' as well as local action to secure timely and full financial settlement of 'the Contract' and other contracts related thereto.
2.1.3 MPC has fully participated in the preparation of the Feasibility Studies which form an integral basis for 'the contract' and other agreements related thereto.
2.1.4 To keep providing Metek with all relevant information on the legal and economical implication of 'the contract' and agreements related thereto, in accordance with Uzbek legislation.
2.1.5 To inform Metek full details of any payment made by the Uzbek Partner under 'the contract' within 2 days after any transfer made by the Uzbek Partner.
2.1.6 To advise of any change of regulations and/or activities, which may jeopardize Uzmetal's and/or Metek's interest in Uzbekistan.224
215. Metal-Tech’s obligation was to pay “consultancy fees” or “commissions” to MPC whenever debt was repaid by the “Uzbek Partner” in amounts specified in Annex I totalling USD 3,226,000 (later updated in Annex I(a) to USD 3,032,883).225 The December 2000 Contract would be cancelled if the performance of the EPC Contract stopped.226 Finally both parties to the December 2000 Contract agreed to keep any information related to the contract “fully secret and confidential”.227
216. Several elements in the December 2000 Contract attract the Tribunal's attention:
(i) First, neither Mr. Sultanov nor Mr. Mikhailov (who allegedly required the Claimant to enter into the contract with MPC) was qualified to fulfill most of the “obligations” listed in the contract. For instance, while the Contract provides that “MPC has fully participated in the Feasibility Studies”, the Tribunal has found
that neither Mr. Mikhailov nor Mr. Sultanov had the qualifications to do so (see e.g., ¶¶209-212). In fact, Mr. Mikhailov specifically denied that he prepared or assisted with preparing the Claimant’s feasibility studies, and added that he, “like Mr. Sultanov and Mr. Chijenok, did not have this expertise.”228 Thus, the obligations provided in the December 2000 Contract appear to be nothing more than a smokescreen – neither MPC, nor Messrs Sultanov or Mikhailov were qualified to fulfill the obligations assumed through in the contract. Nor, for that matter, was Mr. Chijenok (the Tribunal has established that Mr. Chijenok was involved in the Project since 1998; see ¶¶312-319).
(ii) Second, under the December 2000 Contract, Metal-Tech was to make periodic payments to MPC. These payments were not contingent on the fulfilment of the obligations listed in the contract. In effect, the payments were “automatic” and their amount was predetermined: once Uzmetal received monies from Bank Leumi, on receipt of invoices from MPC, payments were due within ten days. MPC was not required to provide proof of services to receive payment. Mr. Rosenberg confirmed this understanding at the hearing:
“Q. But the three consultants did not have to submit any evidence of their performance to obtain the payment under Annex 1 of the December 2000. It was, as you testified, the success of the venture.
A. The Agreement, as you saw it, doesn't require any supporting document to their service.“229
“A. As I said in the Agreement of December 2000, none of the consultants had to prove any documents or supply any documents to the services.”230
(iii) Third, the Claimant was unable to show that any services were actually rendered in return for the payments. For instance, in support of its submission that Mr. Mikhailov assisted in the preparation of the Feasibility Study, Mr. Rosenberg initially relied on a letter of 13 January 1998. However, as he later admitted, the feasibility study contemplated in the letter was not for the Uzmetal project.231 Additionally, although the Draft Feasibility Study and the Revised Feasibility Study list the various individuals involved in their preparation, none of
the Consultants is mentioned.232 The Claimant’s inability to produce convincing evidence is reviewed later in this award and the Tribunal refers to that review (section IV.B.5(b)).
217. This said, it is true that the Claimant has produced some documents that, according to it, “[are] illustrative of the types of services provided by [the Consultants].”233 Some of these documents, according to the Claimant, establish that the Consultants actually carried out activities under the December 2000 Contract. The Tribunal finds it difficult to agree with this position. Indeed, for the reasons mentioned (¶¶205, 262), the Tribunal has found that none of the documents on which the Claimant relies (whether under the December 2000 Contract or otherwise) convincingly show that the Consultants rendered any legitimate services at the time of establishment of the Claimant’s investment.
218. For all these reasons, the Tribunal comes to the conclusion that the December 2000 Contract cannot be regarded as a genuine agreement and must be deemed a sham designed to conceal the true nature of the relationship among the parties to it.
f. Lack of Transparency of Payee
219. Another troubling circumstance lies in the lack of transparency of the Consultants' payment arrangements. The Payment Schedule produced by the Claimant evidences that less than 8% of the payments were made to the Consultants directly. The balance, more than 92%, was paid to companies established in Switzerland (MPC), Tashkent (MPC Tashkent) and the British Virgin Islands (Lacey International).234
220. The Consultant’s company, MPC, was established in Switzerland on 20 July 1998.235 Its major shareholders were B.V. Chemie Pharmacie Holland in Amsterdam (“CPH”) and Bordeaux Intertrade Inc. (“Bordeaux”) of Tortola, which each owned 45% of MPC’s shares.236 Bordeaux was a BVI company incorporated on 9 June 1998.237 The founders