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Procedural Background and Jurisdictional Ruling
This Partial Award, rendered in an UNCITRAL arbitration administered by the Permanent Court of Arbitration, addresses jurisdictional challenges and liability in a dispute between Saluka Investments B.V. (a Dutch entity) and the Czech Republic. The claims arise under the 1991 Bilateral Investment Treaty between The Netherlands and the Czech and Slovak Federal Republic concerning Saluka's investment in Investiční a Poštovní banka (IPB).
The Tribunal first addressed the Respondent's jurisdictional objections. The Czech Republic argued that Saluka was not a bona fide investor but a mere shell company for the Nomura Group, which was not a protected investor under the Treaty. It contended that Saluka lacked genuine economic links to the Netherlands and that its claim constituted an abuse of rights. The Tribunal unanimously dismissed these objections, affirming its jurisdiction. It held that Saluka satisfied the Treaty's definition of an "investor" as a legal person constituted under Dutch law and that its shareholding in IPB qualified as an "investment." The Tribunal declined to import requirements not present in the Treaty text, such as a "genuine economic link" test, or to pierce the corporate veil in the circumstances of the case.
Analysis of Merits and Tribunal's Findings
On the merits, the Tribunal analyzed Saluka's claims under Articles 3 (Fair and Equitable Treatment) and 5 (Expropriation) of the Treaty. The Claimant alleged that the Czech Republic's measures, culminating in the forced administration of IPB and its subsequent transfer to a competitor, amounted to an unlawful expropriation and a breach of the FET standard.
The Tribunal found that the Respondent had not breached Article 5. It concluded that the imposition of forced administration on IPB by the Czech National Bank was a legitimate, non-discriminatory regulatory action taken within the State's police powers to address a severe banking crisis and maintain financial stability. The measure was deemed a permissible regulatory act not requiring compensation, despite its destructive effect on Saluka's investment.
However, the Tribunal found that the Czech Republic had breached its obligations under Article 3 of the Treaty. The violation of the Fair and Equitable Treatment (FET) and non-impairment standards stemmed from two primary grounds. First, the State's discriminatory response to the systemic "bad debt" problem in its banking sector, where it provided substantial financial assistance to IPB's competitors while excluding IPB, created an impossible environment for the bank's survival and lacked reasonable justification. Second, the Government unreasonably frustrated the good faith efforts of IPB and its shareholders to negotiate a cooperative solution, demonstrating a lack of even-handedness, consistency, and transparency. The Tribunal also found that the government's circulation of negative information contributed to a bank run, further impairing the investment.
Decision and Operative Part
The Tribunal unanimously held that it possessed jurisdiction, that the Czech Republic had not breached Article 5 of the Treaty, but that it had acted in breach of Article 3. Having established liability, the Tribunal bifurcated the proceedings and retained jurisdiction to determine the appropriate redress, including questions of quantum, in a subsequent phase of the arbitration. Questions of costs were also reserved.
