Case Overview

In *Hydro S.r.l. v. Albania*, an investor-state arbitration administered by the International Centre for Settlement of Investment Disputes (ICSID) under the 1991 Italy-Albania Bilateral Investment Treaty, the Tribunal rendered a final award addressing claims related to two distinct sets of investments: the Kalivaç hydroelectric power project and the Agonset media group. The Claimants, a group of Italian companies and individuals, alleged that Albania had breached its treaty obligations, primarily through expropriation and failure to provide fair and equitable treatment (FET), in relation to both investments. The Tribunal ultimately dismissed all claims concerning the Kalivaç project but found that Albania had unlawfully expropriated the Claimants' investment in the Agonset media group, awarding significant damages. An ad hoc Committee subsequently rejected Albania's application to annul the Award.

Procedural History

The Claimants filed a Request for Arbitration on June 10, 2015, and the Tribunal was constituted in November 2015. An early phase of the proceedings involved the Claimants' successful application for provisional measures, which recommended that Albania suspend domestic criminal and extradition proceedings against two of the individual Claimants, Mr. Francesco Becchetti and Mr. Mauro De Renzis. This recommendation was subsequently enforced by a UK court, which in May 2016 stayed the extradition proceedings against the individuals, finding that Albania's attempt to proceed constituted an abuse of process. After extensive written submissions and a hearing on jurisdiction and the merits in September 2017, the Tribunal issued its Final Award on April 24, 2019. Albania subsequently filed an application for annulment on August 22, 2019. On April 2, 2021, the ad hoc Committee issued its decision, rejecting the application in its entirety. Following the rejection of Albania's annulment application, the Claimants initiated enforcement proceedings in various jurisdictions. In the Netherlands, they sought to attach Albanian state assets held by third parties, including Shell and San Leon Durresi B.V., related to oil exploration agreements. The Dutch state intervened, arguing that the attachments violated Albania's sovereign immunity from execution under international law. In a January 2021 judgment, The Hague District Court largely sided with the Dutch state, finding that the Claimants had failed to meet their burden of proving that the attached assets were used or intended for use for non-public, commercial purposes. The court ordered the lifting of most attachments, but carved out a narrow exception for Albania's indemnity claims against Shell, which it deemed to be for a private purpose (satisfying third-party claims) and therefore not immune from execution. Enforcement efforts also took place in Belgium, where the Claimants attached air navigation fees owed to Albania but collected by EUROCONTROL. Albania and its state-owned air navigation service provider, ALBCONTROL, challenged the attachment, arguing the funds belonged to ALBCONTROL and were, in any event, protected by sovereign immunity because they were used for non-commercial, public purposes. In a March 2022 judgment, the Brussels Court of First Instance rejected these arguments. The court found that Albania was the true owner of the funds and that they were used for commercial purposes, citing ALBCONTROL's status as a for-profit company, its payment of dividends to the state, and its commercial investments. The court concluded the funds were not immune from execution and, while lifting the original attachment on a technicality related to its timing, immediately authorized the Claimants to proceed with a new, identical attachment. In April 2022, Albania initiated a new phase by filing an Application for Revision of the Award. As the original Tribunal could not be reconstituted—with the original chair, Michael Pryles, and Respondent's appointee, Ian Glick, declining to participate—the parties proceeded to form a new tribunal. The Claimants re-appointed their original arbitrator, Charles Poncet, while Albania appointed Robert Anderson, and Grant Hanessian was appointed as the new chair. Albania subsequently challenged Mr. Poncet's appointment, arguing that a member of the original tribunal was precluded from serving on a newly constituted revision tribunal. In a decision dated December 1, 2022, the two unchallenged arbitrators, Mr. Anderson and Mr. Hanessian, dismissed the proposal. They found that the ICSID rules do not prohibit the partial reconstitution of an original tribunal for revision proceedings and that Mr. Poncet's appointment was therefore permissible.

Key Issues and Positions

Jurisdiction

Albania raised several jurisdictional objections, arguing that the BIT did not permit claims by multiple claimants concerning multiple disputes. It also contended that the treaty did not protect indirect or passive investments, that certain share transfers related to the Agonset investment constituted an abuse of rights, and that the Italian-based part of the Agonset business (Agonset.it) was outside the territorial scope of the BIT. The Claimants countered that their various claims stemmed from a single, coordinated campaign of harassment by the Albanian state, constituting one dispute, and that the BIT's language and object and purpose supported jurisdiction over their claims.

Merits

Regarding the Kalivaç project, the Claimants argued that Albania's actions, including failures to issue permits and its subsequent re-tendering of the concession, amounted to expropriation and a breach of FET. Albania responded that the Claimants had voluntarily abandoned the project due to financial difficulties long before the state actions in question. Concerning the Agonset investment, the Claimants alleged that a politically motivated campaign—encompassing spurious tax audits, a criminal investigation for money laundering, the seizure of corporate assets, and the freezing of bank accounts—constituted a creeping expropriation designed to silence a media outlet critical of the government. Albania defended its actions as a legitimate, non-discriminatory exercise of its regulatory and police powers in response to suspected financial crimes.

Annulment

In its application for annulment, Albania argued that the Tribunal had failed to state the reasons upon which the Award was based, a ground for annulment under Article 52(1)(e) of the ICSID Convention. The application targeted three specific aspects of the Award: (1) the jurisdictional finding that the BIT protected indirect investments; (2) the merits finding on expropriation, which Albania argued treated the Agonset investment inconsistently across the jurisdictional, merits, and damages sections; and (3) the quantum analysis, specifically the Tribunal's determination of a 3% projected audience share for the media business.

Tribunal/Court Reasoning and Holdings

Jurisdiction

The Tribunal dismissed all of Albania's jurisdictional objections. It found that the BIT permitted multiparty arbitration and that the various claims were sufficiently intertwined to constitute a single dispute, stemming from an alleged political campaign against the Claimants. The Tribunal held that the BIT protected the Claimants' indirect investments and rejected the abuse of rights argument, finding that the share transfers related to Agonset had legitimate commercial purposes, including compliance with Albanian media law. It also determined that the Italian entity, Agonset.it, was an integral and non-severable part of the overall investment in Albania, bringing it within the Tribunal's jurisdiction.

Merits

The Tribunal rejected all claims related to the Kalivaç project. It found that the Claimants had abandoned the project by June 2014, prior to the alleged expropriatory acts. The Tribunal concluded that the project's failure was due to the Claimants' inability to secure financing, not state misconduct. Consequently, Albania's subsequent actions could not have expropriated an already-abandoned investment, and the related FET claims failed for lack of causation. Conversely, the Tribunal upheld the claim that Albania had unlawfully expropriated the Agonset investment in breach of Article 5 of the BIT. The Tribunal concluded that the series of state actions was not a bona fide exercise of police powers but a politically motivated campaign. It found that the criminal investigations were based on flawed premises and that the state's actions, culminating in the June 2015 Seizure Decisions, effectively destroyed the business by making it impossible to operate or access financing. The Tribunal drew an inference of improper motive from statements by the Prime Minister, the government's close ties to Agonset's commercial competitors, and Albania's failure to substantiate the criminal allegations when challenged by INTERPOL.

Annulment

The ad hoc Committee rejected all of Albania's grounds for annulment. Regarding jurisdiction, the Committee found that the Tribunal's reasoning on the protection of indirect investments, while highly concise, was intelligible and sufficient to meet the standard of the Convention. On the merits, the Committee read the Award as a whole and concluded there was no annullable inconsistency or logical gap in the Tribunal's treatment of the Agonset investment; the expropriation finding was understood to apply to the entire integrated business. On quantum, the Committee held that the Tribunal's reasoning for its damages calculation was perfectly intelligible, noting that tribunals have a special degree of discretion in quantum matters and that the Tribunal had properly weighed the evidence and explained its adjustments.

Disposition / Relief

The Tribunal ordered the Republic of Albania to pay the successful Claimants a total of €99,487,000 in damages for the expropriation of their interests in Agonset. The damages were calculated based on a discounted cash flow (DCF) valuation as of March 31, 2018. The Tribunal also awarded pre- and post-award interest at a rate of LIBOR + 3%, compounded quarterly. All claims related to the Kalivaç project were rejected. On costs, the Tribunal ordered Albania to pay 75% of the Claimants' legal and other costs, amounting to €8,222,238.53, and 100% of the Claimants' share of the arbitration costs, amounting to USD 645,183.42. The subsequent application for annulment was rejected, with the Committee ordering Albania to bear the majority of the costs of the annulment proceeding.