SCC tribunal dismisses claims brought by British company and its shareholders against the Czech Republic

Anglia Auto Accessories Ltd. v. Czech Republic (SCC Case No. V 2014/181) and Ivan Peter Busta and James Peter Busta v. Czech Republic (SCC Case No. V 2015/014)

A tribunal administered by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) dismissed all claims brought against the Czech Republic by British company Anglia Auto Accessories and two of its shareholders, Ivan Busta and James Busta. The case was initiated in 2014 based on the bilateral investment treaty between the United Kingdom and the Czech and Slovak Federal Republic (BIT).

In 2014 the SCC decided to split the case into two proceedings: one for the claims brought by the company and another for those brought by the shareholders. The same arbitral tribunal decided the two cases, and many controversial issues overlapped.

Common preliminary issues: applicability of intra-EU BITs and jurisdiction over claims for breaches of FET and full protection and security

In both cases the tribunal faced the issues of (i) whether the BIT had been terminated upon the Czech Republic’s accession to the European Union and (ii) whether the tribunal had jurisdiction to determine breaches of Article 2(2) of the BIT—which provides for fair and equitable treatment (FET) and full protection and security—in view of the restricted wording of the dispute resolution provision.

Disagreeing with the Czech Republic, and noting that the objection “was barely pursued at the Final Hearing” (Anglia award, para. 113), the tribunal understood there was no incompatibility between the BIT and the Treaty on the Functioning of the European Union (TFEU), because the treaties do not have the same subject matter. It also noted that neither the Czech Republic nor the United Kingdom sought to terminate the BIT.

The tribunal also dismissed the Czech Republic’s argument of partial incompatibility between the BIT and the TFEU, holding that the investor–state dispute settlement provision of the BIT was compatible with Article 267 TFEU and with the jurisdiction of the European Court of Justice (ECJ) to interpret and apply the TFEU.

Under the BIT’s dispute resolution provision, only disputes pertaining to certain articles of the BIT could be referred to arbitration. Article 2(2) was not among those listed; thus, the Czech Republic argued that the tribunal lacked jurisdiction to hear claims for breaches of Article 2(2).

The claimants invoked the most-favoured-nation (MFN) provision to rely on a more favourable dispute resolution clause contained in a different treaty, but the tribunal, relying mostly on the straightforward language used in the BIT, sided with Czech Republic and found that it only had jurisdiction over alleged breaches of Article 5 (on expropriation).

The jurisdictional issue in Anglia’s case: whether a commercial award is an investment

Anglia’s claim arose out of its attempt to enforce a 1997 arbitral award against a former business partner in the Czech Republic. Its main submission was that the Czech judiciary, due to its inactivity, had unlawfully expropriated the value of the arbitral award. The parties disputed whether the award in favour of Anglia was an investment in the first place.

Having set aside the Salini test as inapplicable to an arbitration brought under the SCC Arbitration Rules, because it related to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), the tribunal turned to the task of interpreting the definition of investment embedded in the BIT. It held that the award qualified as a “claim to money or to performance under contract having financial value” within the meaning of Article 1(a) of the BIT (Anglia award, para. 153).

The admissibility issue in the shareholders’ case: whether shareholders can bring claims in respect to loss or damage to company assets

The shareholders’ claim for expropriation was related to the loss of goods owned by Sprint CR, a Czech-based company in which they were the sole shareholders. Claiming that certain assets of Sprint CR had been expropriated, they sought compensation for the value of those assets.

The Czech Republic alleged that shareholders did not have standing to bring claims related to loss or damage to company assets. In its view, only losses incurred as a result of a decrease in the value of shares would give shareholders standing to bring claims.

The tribunal understood that the shareholders’ claim was one of indirect expropriation and held that, as such, it was encompassed by the BIT.

As Anglia had filed a claim for damages with the Czech courts, the Czech Republic raised a lis pendens objection. The tribunal dismissed it, reasoning that the cases were pending in distinct legal orders, each with distinct claimants and different causes of action.

Tribunal dismisses Anglia’s indirect expropriation claim based on Czech courts’ failure to enforce arbitral award

Anglia entered the Czech market in 1990 through a joint venture with Kyjovan, a local manufacturing cooperative. Following some business disputes, in 1997 Anglia obtained an award in a commercial arbitration against Kyjovan and sought to enforce it in Czech courts in four proceedings initiated between 1998 and 1999.

While acknowledging that Anglia experienced difficulties in the lengthy enforcement proceedings, the tribunal dismissed the claim that the proceedings amounted to expropriation. Applying the test set forth in Plama v. Bulgaria, it reasoned that, as Anglia managed to recover 77 per cent of the principal amount under the 1997 award, it had not been permanently deprived of the value of its investment in whole or significant part. Moreover, it concluded that delays in the proceedings “cannot be said to have been caused by the inaction of the Czech Courts” (Anglia award, para. 298).

Tribunal dismisses shareholders’ indirect expropriation claim based on police conduct 

Sprint CR had goods stored in a warehouse. Among hostilities, Kyjovan began to move these goods out of the warehouse. Although notified, the Czech police did not intervene to prevent that because it assumed Kyjovan was acting on legitimate grounds; subsequently the police located the goods and handed them back to Sprint CR.

According to the shareholders, only one-third of the goods taken out of the warehouse was returned. The Czech Republic, on the other hand, “denie[d] that any goods were missing, and t[ook] the position that all goods were ultimately returned to Sprint CR” (Ivan & James Busta award, para. 390). Most of the dispute centred on the Czech police’s failure to make an itemized list of the goods recovered and handed back to Sprint CR.

Based on the facts and circumstances of the case, the tribunal acknowledged that a discrepancy between the goods removed and the goods returned likely existed, but held that it had not been established “that the conduct of the Police, both on that date and subsequently, amounted to an act of expropriation” (Ivan & James Busta award, para. 437).

Allocation of costs

The tribunal did not find it appropriate to apply the “costs follow the event” approach. Noting that each party had partly prevailed and partly failed on its contentions, it decided that each party should bear its own costs, as well as half the costs of the arbitration.

Notes: The tribunal was composed of Yas Banifatemi (President appointed by the SCC, French national), August Reinisch (claimants’ appointee, Austrian national) and Philippe Sands (respondent’s appointee, French–British national). The March 10, 2017 awards are available in English at http://www.italaw.com/sites/default/files/case-documents/italaw8556.pdf (Anglia) and http://www.italaw.com/sites/default/files/case-documents/italaw8558.pdf (Ivan & James Busta).

Inaê Siqueira de Oliveira is a Law student at the Federal University of Rio Grande do Sul, Brazil.