INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
WILLIAM ARCHIBALD RAND
Applicant
– V –
REPUBLIC OF SERBIA
Respondent
(ICSID Case No. ARB/18/8)
19 July 2024
SQUIRE
PATTON BOGGS
nstlaw/&Stankovic Partners
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1. Mr. William Archibald Rand (“Mr. Rand”) files for annulment because the Tribunal1 failed to state reasons with respect to most aspects of its decision on quantum and the Tribunal manifestly exceeded its powers when it refused to exercise jurisdiction over a part of Mr. Rand’s claims. Failure to state reasons and manifest excess of powers are annullable errors under Article 52 of the ICSID Convention. Thus, the Award2 must be annulled in the relevant parts.
2. The Tribunal’s decision on quantum follows from Tribunal’s correct determination that it has jurisdiction under the Canada-Serbia BIT with respect to Mr. Rand’s 75.87% beneficial shareholding in BD Agro (“Beneficially Owned Shares”), that Serbia’s seizure of the Beneficially Owned Shares violated the standard of fair and equitable treatment under Article 6 of the Canada-Serbia Treaty and that, as a result, Serbia must fully compensate Mr. Rand for the harm caused to him by the illegal seizure.3 The Tribunal further correctly stated that such compensation must correspond to the equity value of Mr. Rand’s shareholding and that BD Agro’s equity value shall be calculated as the difference between the fair market value of BD Agro’s assets and the total value of BD Agro’s liabilities, both as of the valuation date of 21 October 2015 (“Valuation Date”).4 Mr. Rand does not seek annulment of any of these determinations.
3. The Tribunal’s annullable error with respect to its decision on quantum is that when calculating the value of BD Agro’s assets and liabilities, the Tribunal failed to provide any reasoning, or provided contradictory, irreconcilable and/or insufficient reasoning for most of its conclusions. According to settled case law of ICSID annulment committees, both the absence of any reasoning and the provision of contradictory,
1 The tribunal consisted of Prof. Gabrielle Kaufmann-Kohler (President), Mr. Baiju S. Vasani and Prof. Marcelo G. Kohen (“Tribunal”). ↩
2 The award in the original arbitration was issued on 29 June 2023 and supplemented by the Decision on Claimants’ Request for a Supplementary Decision dated 27 October 2023 (“Award”). The Award was rendered under the Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments, which entered into force on 27 April 2015 (“Canada-Serbia BIT”), and the Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal Promotion and Protection of Investments, which entered into force on 23 December 2005 (“Serbia-Cyprus BIT” and, with the Canada-Serbia BIT, “Treaties”). ↩
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irreconcilable and/or insufficient reasoning constitute a failure to state reasons within the meaning of Article 52(1)(e) of the ICSID Convention.5
4. First and foremost, the Tribunal failed to state reasons for its conclusions on the value of BD Agro’s most valuable asset—i.e. 279 hectares of prime land designated for construction of business and commercial areas (“Construction Land”). The Construction Land is located in Dobanovci, at the outskirts of the Serbian capital Belgrade, close to the Belgrade international airport.
5. The Tribunal failed to state reasons for its conclusions on the value of the Construction Land because its reasoning was clearly contradictory, irreconcilable and/or insufficient. In a nutshell, the Tribunal rejected expert evidence submitted by Claimants because it allegedly conflicted with certain valuation principles adopted by the Tribunal—and then the Tribunal based its valuation entirely on expert evidence submitted by Serbia that clearly conflicted with these same principles.
6. To give just one example, the Tribunal rejected several contemporaneous valuations and other evidence relied on by Mr. Rand’s valuation expert, Dr. Richard Hern, because the evidence was not based on actual comparable transactions—and then the Tribunal agreed with the evidence proposed by Serbia even though that evidence was also not based on any comparable transactions.
7. The Tribunal compounded its blatant contradictions with respect to the importance of actual comparable transactions when it chose to ignore, without a word of explanation, key evidence on two actual comparable transactions with construction land located in the immediate vicinity of the Construction Land—with one of the transactions relating to land actually abutting BD Agro—that had taken place only a few months before the
5 E.g. CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶¶ 116, 141, CLA-189; Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee, 22 December 1989, ¶ 6.107, CLA-184; Updated Background Paper on Annulment for the Administrative Council of ICSID dated 5 May 2016, ¶ 107, CLA-183; Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶¶ 173-191, CLA-188; Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, ¶¶ 122-123, CLA-190; Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶ 21, CLA-187. ↩
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Valuation Date.6 These two transactions indicated a total value of the Construction Land of EUR 87 million, i.e. EUR 45 million more than the value eventually adopted by the Tribunal.7
8. The Tribunal’s reasoning on the valuation of BD Agro’s remaining assets unfortunately fares no better. In fact, there is no reasoning at all—the Tribunal did not provide any reasons for its valuation of BD Agro’s other assets. All that the Tribunal did was to include in the Award a table with values that it assigned to individual categories of BD Agro’s assets. The Tribunal, however, did not provide any explanation for how it arrived at the individual values and why it considered these values reasonable.
9. The Tribunal’s reasoning with respect to its valuation of BD Agro’s liabilities is also contradictory and insufficient. For example, while the Tribunal refused to rely on evidence post-dating the Valuation Date when valuing BD Agro’s assets, the Tribunal repeatedly relied on such post-valuation evidence to calculate BD Agro’s liabilities.
10. The parts of the Tribunal’s decision on quantum that suffer from absent, contradictory, irreconcilable and/or insufficient reasoning should be annulled for failure to state reasons. These parts are clearly identified in Mr. Rand’s Request for Relief and Annex A to this Memorial on Annulment.
11. In addition to the failure to provide reasons for its decision on quantum, the Tribunal manifestly exceeded its powers when it refused to exercise its jurisdiction over: (i) Mr. Rand’s 3.9% indirect shareholding in BD Agro (“Indirect Shareholding”); and (ii) loans that Mr. Rand provided to BD Agro for: (A) the purchase and transport of BD Agro’s new herd (approximately EUR 2.2 million); and (B) the payment to herd management experts for services provided to BD Agro (approximately EUR 160,000) (“Loans”).
6 The Tribunal’s failure to provide any comments on key evidence extensively discussed by both Parties is an annullable error on its own. See TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 131, 135, CLA-186. Here, the Tribunal’s error was even worse because it occurred in the context of the Tribunal’s contradictory reasoning on comparable transactions. ↩
7 Danijela Ilić First Expert Report dated 23 January 2020 (“Ilić First ER”), Appendix 2, table 2.6; Award, ¶ 707. ↩
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12. The Tribunal refused to exercise jurisdiction over Mr. Rand’s indirect shareholding in BD Agro because, according to the Tribunal, “[t]he Claimants have proffered no evidence whatsoever of Mr. Rand’s alleged contribution of EUR 0.2 million to acquire [his indirect] 3.9% stake in BD Agro.”8 The Tribunal’s decision constitutes a manifest excess of powers for three independent reasons.
13. First, the Tribunal completely neglected to take account of and apply the Canada-Serbia BIT, which defines investment as “a share, stock or other form of equity participation in an enterprise”.9 Instead, the Tribunal elevated the typical characteristics of an investment under the controversial Salini test into firm jurisdictional requirements under Article 25 of the ICSID Convention. The Tribunal, thus, departed from established case law providing that there is no need to investigate whether the claimant satisfies additional conditions to the ownership of shares.10
14. Second, the Tribunal failed to inform Mr. Rand that it would apply the Salini test and require evidence of his “contribution” with respect to the Indirect Shareholding. The Tribunal did not inquire about the existence of such “contribution” during Mr. Rand’s oral testimony at the hearing, nor did it invite the Parties to address this issue in their post-hearing briefs, even though the Tribunal went into great detail of other areas where they wanted the parties to elaborate upon.
15. Third, the Tribunal ignored the existence of numerous contributions made by Mr. Rand towards BD Agro in relation to his Indirect Shareholding, despite clearly recognizing these contributions in relation to his 75.87% interest in BD Agro through the Beneficially Owned Shares.
16. The Tribunal refused to exercise its jurisdiction over Mr. Rand’s claims related to the Loans because the Loans allegedly: (i) are excluded from the definition of investment
9 Canada-Serbia BIT, Article 1, definition of “investment”, CLA-001. ↩
10 E.g. The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 316, CLA-198; Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, ¶ 542, CLA-199; Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, ¶ 148, CLA-091; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016, ¶ 158, CLA-160. ↩
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under the Canada-Serbia BIT; and (ii) lack the minimum duration required under the ICSID Convention. Neither of these arguments is tenable.
17. The Canada-Serbia BIT specifically lists “loan[s] to an enterprise” as an investment under letter (d) in the definition of “investment” in Article 1.11 The Tribunal’s analysis should have stopped there. BD Agro is an enterprise within the meaning of Article 1 of the Canada-Serbia BIT because it is “an entity constituted or organized under applicable law”.12 Therefore, Mr. Rand’s Loans manifestly are a protected investment under the Canada-Serbia BIT.
18. The Tribunal’s conclusion that the Loans allegedly do not represent an “investment” under the ICSID Convention is equally manifestly incorrect. According to the Tribunal, this is because the Loans lack the duration allegedly required by the controversial Salini test.13 However, the ICSID Convention does not prescribe any specific duration for an investment to exist.14 At best, duration can be viewed as a common characteristic of an investment, but not as an element that is necessarily required for the existence of an investment.15 As explained above, in line with the case law of other ICSID tribunals, the Tribunal should not have applied the Salini test in the present case.16
19. In any case, Mr. Rand has held a major part of the Loans since 2008, i.e. he had been holding them for seven years as of the Valuation Date and for a decade as of the date when the arbitration started. The smaller remaining part of the Loans has been held by Mr. Rand since 2013, i.e. Mr. Rand had been holding them for more than two years as of the Valuation Date and for more than five years as of the commencement of the
11 Canada-Serbia BIT, Article 1, definition of “investment”, item (d), CLA-001. ↩
12 Canada-Serbia BIT, Article 1, CLA-001. ↩
14 E.g., Philippe Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award, 27 November 2000, ¶ 13.6, CLA-087; Lanco Int’l, Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, 8 December 1998, ¶ 4, CLA-088; M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶¶ 159-60, RLA-034; Ambiente Ufficio SPA and others v. The Argentine Republic, ICSID Case No. ARB/08/09, Decision on Jurisdiction and Admissibility, 8 February 2013, ¶ 453, CLA-089. ↩
15 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award dated 31 October 2012, ¶ 303, CLA-067; M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶ 165, RLA-034. ↩
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arbitration. Clearly, by any measure, Mr. Rand held the Loans for a substantial duration. The Tribunal, however, completely failed to assess the actual duration of the Loans.
20. Indeed, while the Tribunal stated that it was “not convinced that [the Loans] satisfy the duration criteria of the objective definition of investment in Article 25(1) of the Convention”,17 it did not provide any explanation for this conclusion. The Tribunal did not explain what it considered to be sufficient duration, nor why Mr. Rand’s Loans did not satisfy such duration—whatever it might be.
21. Thus, the Tribunal manifestly exceeded its powers when it refused to exercise jurisdiction under the Canada-Serbia BIT and the ICSID Convention with respect to Mr. Rand’s claims related to the Indirect Shareholding and the Loans. These jurisdictional decisions should be annulled in their entirety.
22. This Memorial is structured as follows:
a. Section I is this Introduction;
b. Section II sets out the Factual Background of the case;
c. Section III describes the Award and the grounds for its annulment;
d. Section IV explains that the Tribunal failed to state reasons on which it based its conclusions on quantum;
e. Section V explains that the Tribunal has manifestly exceeded its powers by refusing to exercise jurisdiction over certain claims;
f. Section VI demonstrates that the Tribunal’s decision on costs must be annulled because it is based on other annullable parts of the Award; and
g. Section VII sets out Mr. Rand’s Request for Relief.
23. This Memorial annexes a number of exhibits (e.g. CE-[x]) and legal authorities (e.g. CLA-[x]) numbered consecutively following those submitted in the arbitration. Claimants also re-submit exhibits and legal authorities submitted with the Application for Partial Annulment of the Award dated 24 February 2024 (“Application”).
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24. BD Agro was a dairy farm located at the outskirts of Serbia’s capital Belgrade, close to the Belgrade international airport. Once a model farm of the communist regime, it found itself in serious difficulties in the 1990s and early 2000s. It suffered from significant underinvestment, with its equipment being outdated and its buildings in dire need of a major overhaul.
25. Despite these issues, BD Agro had a great potential as both a dairy farm and real estate investment. This is because it owned 1,690 hectares of land—including several hundred hectares of land located near the town of Dobanovci, an area with strong potential for future commercial development.18
26. When Serbia put BD Agro up for privatization, the Deputy Minister of Economy wrote to Mr. Rand and advertised the potential for development of BD Agro’s land, touting its unique location as follows:
a. just 20 km from Belgrade and 5 km from the Belgrade international airport;19
b. close to the E70 highway, which runs through the so-called Pan-European Corridor X, and to which it was supposed to be connected by a planned road called “Sremska gazela”;20 and
c. proximity to the Danube river.21
27. The strategic location of BD Agro’s land (denoted as “BD Agro A/B/C”) is depicted in red on the following map:22
19 E-mail from L. Jovanović to W. Rand, 16 May 2005, p. 1, CE-013. ↩
20 European route E70, Wikipedia, accessed on 9 December 2018, CE-150; Official Gazette of the City of Belgrade Year LII Number 59 (31 December 2008), General Regulation Plan for the “BD Agro” Complex, Zones A, B and C in the Suburb of Dobanovci, Municipality of Surčin, section B.2.1, p. 59, CE-143. ↩
21 E-mail from L. Jovanović to W. Rand, 16 May 2005, p. 1, CE-013. ↩
22 Igor Markićević Third Witness Statement dated 3 October 2019 (“Markićević Third WS”), ¶ 107; First Dr. Richard Hern First Expert Report dated 16 January 2019 (“Hern First ER”), ¶¶ 58, 66. ↩
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[Map showing the location of BD Agro relative to Belgrade and surrounding areas]
Labels on map:
- Ugrinovci
- Belgrade bypass
- E-70 highway
- Dobanovci
- Zone A
- Zone B
- Zone C
- Belgrade airport
- Surčin
- Danube
- Borča
- Belgrade city center
- Sava
- Belgrade
28. In 2005, Mr. Rand purchased 70% of the shares in BD Agro (“Privatized Shares”),23 which had been put up for a sale in a public auction organized by the Privatization Agency of the Republic of Serbia and Montenegro (“Privatization Agency”).24 Mr. Rand decided to participate in the auction through Mr. Djura Obradović, a Canadian-Serbian businessman, with whom Mr. Rand had had a business relationship in Serbia. Messrs. Rand and Obradović agreed that, if they succeed in the auction, Mr. Obradović would be the nominal owner and Mr. Rand would be the beneficial owner of the Privatized Shares.25
29. Messrs. Rand and Obradović were successful and, on 4 October 2005, the Privatization Agency and Mr. Obradović entered into an agreement on sale of the Privatized Shares (“Privatization Agreement”).26 Under the Privatization Agreement, Mr. Obradović was to pay a purchase price of approximately EUR 5,549,000, payable in six instalments over a period of five years, and to make an additional investment in BD Agro of approximately EUR 2 million.
30. The EUR 2 million additional investment in BD Agro was made by October 2006,27 through an in-kind contribution of assets against the issuance of new shares in BD
23 William Rand First Witness Statement dated 5 February 2018 (“Rand First WS”), ¶¶ 13, 22. ↩
25 Rand First WS, ¶ 17; Djura Obradović First Witness Statement dated 20 September 2017 (“Obradović First WS”), ¶ 7. ↩
26 Privatization Agreement with Annexes dated 4 October 2005, CE-017. ↩
27 Privatization Agreement with Annexes dated 4 October 2005, Article 5.2.1, CE-017; Confirmation of the Privatization Agency of the Completion of Investment dated 10 October 2006, CE-018. ↩
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Agro. With the new shares, Mr. Rand’s beneficial shareholding in BD Agro increased to 75.87%.28
31. The purchase price was fully paid by 8 April 2011.29 As a result, and as confirmed by the Tribunal in the Award, the Privatization Agreement was fully consummated.30
32. The Tribunal correctly concluded that Mr. Rand was the beneficial owner of the Beneficially Owned Shares nominally owned by Mr. Obradović.31 The Tribunal also correctly concluded that Mr. Rand was an investor within the meaning of Article 25 of the ICSID Convention because he “was the one bearing the financial burden of the investment”32 and “the funds for the acquisition of the Beneficially Owned Shares came from Mr. Rand”.33
33. After entering into the Privatization Agreement in October 2005, Mr. Rand was appointed to the Board of Directors of BD Agro and became personally involved in its management. The farm was in a dire condition. As Mr. Rand put it at the hearing:34
29 Confirmation of the Privatization Agency on the Buyer’s Full Payment of the Purchase Price dated 6 January 2012, CE-019. ↩
34 Transcript, Hearing on Jurisdiction and Merits, Day 2, dated 13 July 2021, 3:15-4:09 (Rand). ↩
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15 Q. Mr Rand, could you please describe to the Tribunal the 16 conditions of the farm that you witnessed before the 17 privatization of BD Agro? 18 A. When I first went out to the farm, prior to the auction, 19 the farm was in a very decrepit state. I was shocked by 20 first of all the way the animals were treated, because 21 they were yoked and kept in one spot their whole life, 22 standing on concrete. They were milked there, fed there 23 and when we finally re-organised it and they could walk, 24 some of them were not able to walk, their hooves were 25 totally broken. PAGE 4 (09:08) 01 The kitchen, where all the people that worked there 02 were given lunch, the kitchen had about six or seven 03 inches of water, the people in the kitchen all were 04 wearing rubber boots because of the water. The food was 05 something that was terrible, the workers were all -- 06 they were never given any clothes, gloves, overalls, 07 boots, so they were dressed very, very poorly in what 08 later in the year, when the cold came, was absolutely 09 terrible conditions. It was very sad.
34. In March 2006, Mr. Rand had BD Agro adopt a new business plan, calling for an investment of more than EUR 12 million into the development and modernization of BD Agro’s facilities over the next three years.35 In furtherance of its business plan, BD Agro purchased state-of-the-art equipment, such as an automated milking parlor and equipment to increase the production of crops used to feed the cows. In addition, BD Agro completely overhauled its buildings, stables and barns and put in place a new system of connections between stables and pastures.36
35. The below photographs taken during Mr. Rand’s visit of BD Agro in July 2008 show just a few examples of the tremendous improvements made under Mr. Rand’s ownership:37
35 Rand First WS, ¶¶ 26-29; William Rand Second Witness Statement dated 3 October 2019 (“Rand Second WS”), ¶ 29. ↩
36 Rand First WS, ¶¶ 26-29; Rand Second WS, ¶ 29. ↩
37 Photographs from Mr. Rand’s visit of BD Agro, July 2008, CE-415. ↩
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36. In addition to these improvements, BD Agro’s herd was replaced with new cows from the best genetic lines of the Holstein-Friesian breed. The new herd was purchased almost exclusively in Canada and flown to Serbia on chartered Boing 747 aircraft.38
37. Mr. Rand’s commitment and continuous investments enabled BD Agro to become one of the biggest dairy farms in the Balkans, recognized as “the most modern cow farm not only in Serbia, but also in Europe”39 and “the largest European installation of this type”:40
39 K. Živanović, Where cows listen to Beethoven, Plave strane, 27 November 2010, CE-026. ↩
40 K. Živanović, Where cows listen to Beethoven, Plave strane, 27 November 2010, CE-026. ↩
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Visiting the most modern farm in Serbia, BD Agro
Where Cows Listen To Beethoven
[...]
38. As a result of its modernization program, BD Agro was transformed into one of the leading raw milk producers in the region. Imlek—the largest milk processing company in Serbia and the entire Balkans region—repeatedly recognized BD Agro as one of its most important suppliers of raw milk.41
39. The value of BD Agro further increased in 2008, when Serbia adopted the General Regulation Plan that officially designated the Construction Land—the strategic position of which was described above—for construction of business and commercial areas (such as plants, warehouses, administrative business facilities, malls and hotels).42
40. The purchase of the Beneficially Owned Shares and successful overhaul of BD Agro was financed, in part, by further investments made by Mr. Rand. In 2008, Mr. Rand financed the purchase and transport of BD Agro’s new herd in the amount of approximately EUR 2.2 million.43 BD Agro never repaid that amount to Mr. Rand.
41 Record Holding Farmer’s day, Privredni pregled, 5 March 2012, CE-027. ↩
42 Hern First ER, ¶ 57; Official Gazette of the City of Belgrade Year LII Number 59 (31 December 2008), General Regulation Plan for the “BD Agro” Complex, Zones A, B and C in the Suburb of Dobanovci, Municipality of Surčin, sections B.1.2, C.2 and C.3, pp. 57, 66 and 67, CE-143. ↩
43 Confirmation of wire transfer from W. Rand to Willjill Farms Inc. for CAD 175,000.00 executed on 3 April 2008; Confirmation of wire transfer from W. Rand to Willjill Farms Inc. for CAD 607,759.50 executed on 21 October 2008; Confirmation of wire transfer from W. Rand to Willjill Farms Inc. for ↩
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Later, in 2013-2015, Mr. Rand paid approximately EUR 160,000 for services provided to BD Agro by herd management experts.44 These direct expenses of EUR 2.2 million and EUR 160,000 constituted the Loans, which were provided to BD Agro by Mr. Rand.
41. Between October 2008 and October 2012, Mr. Rand also acquired the Indirect Shareholding, which he purchased and held through his wholly-owned company, Marine Drive Holding d.o.o. (“MDH Serbia”).45
42. In February 2011, the Privatization Agency started to allege various violations of the Privatization Agreement by Mr. Obradović and threatened to terminate the Privatization Agreement.46 The allegations were unfounded. Further, the threat of termination was unlawful. The Tribunal confirmed in the Award that the Privatization Agency was not entitled to terminate the Privatization Agreement after it was fully consummated in April 2011:
In light of these elements, the Tribunal concludes that the Privatization Agreement could not be terminated after 8 April 2011 for an alleged breach of Article 5.3.4 that had occurred before that date. Therefore, the termination of the Agreement was unlawful.47
43. Messrs. Rand and Obradović repeatedly explained to the Privatization Agency that there had been no violation of the Privatization Agreement, but such efforts were to
CAD 199,816.00 executed on 22 December 2008; Confirmation of wire transfer from W. Rand to Willjill Farms Inc. for CAD 460,216.00 executed on 24 December 2008, CE-021; Confirmation of wire transfer from W. Rand to Sea Air International Forwarders of CAD 695,030.90 executed on 21 October 2008; Confirmation of wire transfer from W. Rand to Sea Air International Forwarders of CAD 124,100.92 executed on 9 December 2008, Confirmation of wire transfer from W. Rand to Sea Air International Forwarders of CAD 309,415 executed on 22 December 2008, CE-022; Confirmation of wire transfer from W. Rand to Trudeau International Livestock for CAD 443,080.00 executed on 21 October 2008, CE-023; Confirmation of wire transfer from W. Rand to BD Agro for EUR 219,000.00 executed on 5 December 2008, CE-024.
44 Overview of Payments to Mr. David Wood dated April 2013-January 2014, CE-062; Overview of Payments to Mr. Gligor Calin dated May 2013-January 2015, CE-068. As concluded by the Tribunal, these payments were made by Mr. Rand through Rand Investments. See Award, ¶ 274. ↩
45 Mr. Rand is the sole shareholder of MDH Serbia and MDH Serbia holds a 3.9% share in BD Agro. See Award, ¶ 21. ↩
46 Notice of the Privatization Agency on Additional Time Period, 24 February 2011, CE-031. ↩
47 Award, ¶ 615 (emphasis added). ↩
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no avail. The Privatization Agency did not genuinely nor meaningfully engage with Messrs. Rand and Obradović and simply repeated its allegations and threats.
44. The Privatization Agency also arbitrarily refused to remove its pledge over the Privatized Shares, despite being required to do so. The Tribunal found that “the record bears out that the Agency well knew that on payment of the full purchase price on 8 April 2011, it was bound to release the pledge.”48
45. Meanwhile, due to its extensive investments and temporary adverse market conditions,49 BD Agro found itself in a position where it needed to improve its liquidity and decrease its financing costs. Mr. Rand hired new experienced management50 and tried to establish strategic partnerships to address this situation.51 However, these efforts were hampered by the uncertainty created by the Privatization Agency’s continuing arbitrary and illegal refusal to remove the pledge over the Privatized Shares. Potential partners approached by BD Agro were concerned about the pledge and were unwilling to enter into a cooperation with BD Agro and deploy substantial capital unless the pledge was released, and the Beneficially Owned Shares were transferred into the nominal ownership of Mr. Rand or his family.52
46. Therefore, to shore up its liquidity, BD Agro decided to adopt a so-called pre-pack reorganization plan to decrease its financing costs.53 Under Serbian law, pre-pack reorganization plans provide for the implementation of creditor-approved measures designed to strengthen the financial situation of a company. A pre-pack reorganization
49 See Claimants’ Memorial dated 16 January 2019 (“Claimants’ Memorial”), ¶ 127. ↩
50 Confirmation of the Serbian Business Register Agency on the Members of Management Board and Board of Directors of BD Agro, CE-072. ↩
51 E.g. Email from I. Markićević to W. Rand dated 3 September 2013, CE-276; Email from I. Markićević to B. Bogdan dated 23 September 2013, CE-277; Email from W. Rand to M. Bogićević and I. Markićević dated 27 September 2013, CE-278; Email from I. Markićević to S. Živanović dated 6 October 2013, CE-279; Email from I. Markićević to E. Broshko dated 28 November 2013, CE-280. ↩
52 E.g. Igor Markićević Second Witness Statement dated 16 January 2019 (“Markićević Second WS”), ¶¶ 42, 45; Erinn Broshko Second Witness Statement dated 16 January 2019 (“Broshko Second WS”), ¶¶ 25-26. ↩
53 Claimants’ Reply dated 4 October 2019 (“Claimants’ Reply”), ¶¶ 260, 261. ↩
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plan needs to be approved by a majority of creditors, voting in classes depending upon the nature of their receivables, and also by the competent courts.54
47. On 25 November 2014, BD Agro submitted its pre-pack reorganization plan to the Commercial Court in Belgrade.55 Then, on 6 March 2015, BD Agro submitted an amended pre-pack reorganization plan, containing an updated valuation of BD Agro’s real estate. This valuation was prepared by Mr. Pero Mrgud, a Serbian licensed court expert (“Mrgud Valuation”).56 Mr. Mrgud estimated the value of the Construction Land to be EUR 87 million.57
48. On 25 June 2015, the Commercial Court in Belgrade held a hearing where the required majority of creditors voted in favor of the amended pre-pack reorganization plan.58
49. Mr. Rand’s efforts came to naught when, on 28 September 2015, the Privatization Agency unlawfully terminated the Privatization Agreement59 and, on 21 October 2015, seized the Beneficially Owned Shares.60 By doing so, the Privatization Agency took over majority ownership and control over BD Agro. The Tribunal confirmed that “Serbia was in control of BD Agro from 21 October 2015.”61
50. The Privatization Agency’s conduct was not only harmful to BD Agro and its business, but also unlawful under international law. As the Tribunal found in the Award, the Privatization Agency’s conduct constituted a breach of the fair and equitable treatment standard provided in Article 6 of the Canada-Serbia BIT.62
54 Claimants’ Memorial, ¶ 150. ↩
55 BD Agro’s submission accompanying the Pre-pack Reorganization Plan received by the Commercial Court in Belgrade on 25 November 2014, CE-085. ↩
56 Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci, December 2014, p. 4, CE-175. ↩
57 Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci, December 2014, p. 14, CE-175. ↩
58 Claimants’ Memorial, ¶ 175; Court hearing minutes dated 25 June 2015, CE-039. ↩
59 Notice on Termination of the Privatization Agreement dated 28 September 2015, CE-050. ↩
60 Decision of the Privatization Agency on the Transfer of BD Agro’s Capital dated 21 October 2015, CE-105. ↩
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51. Following the seizure of the Beneficially Owned Shares, the Privatization Agency took over control of BD Agro. In November 2015, the Privatization Agency directed BD Agro to commission a valuation of the company. This new valuation was prepared by Confineks d.o.o. Beograd (“Confineks”), another Serbian licensed court expert.
52. Confineks submitted its valuation on 5 December 2015 (“First Confineks Valuation”). According to the First Confineks Valuation, the value of BD Agro’s Construction Land was EUR 66 million.63 BD Agro’s fair market value as of 31 December 2014, calculated as the total value of its assets less the total value of its liabilities, was EUR 57 million.64
53. Serbia accepted the First Confineks Valuation on several occasions. To begin with, BD Agro—controlled by Serbia at the time—submitted a new reorganization plan on 11 January 2016, which fully relied on the First Confineks Valuation.65 This reorganization plan was approved by BD Agro’s shareholders, with the Privatization Agency voting its expropriated 75.87% shareholding in the company.66
54. Furthermore, the First Confineks Valuation was used in the preparation of BD Agro’s financial statements for 2015 and the following years. The 2015 financial statements were again approved by BD Agro’s shareholders, including the Privatization Agency exercising, once again, the decisive vote.67
55. In January 2016, i.e. at the time when BD Agro continued to be controlled by Serbia, BD Agro tasked Confineks to prepare an updated valuation as of 31 December 2015. Confineks submitted this updated valuation on 4 February 2016 (“Second Confineks Valuation”). According to the Second Confineks Valuation, the value of BD Agro’s
63 Hern First ER, ¶ 78; Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci, December 2015, section 4, pp. 45-48, CE-142. ↩
64 Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci, December 2015, p. 15, CE-142. ↩
65 Second pre-pack reorganization plan, 11 January 2016, p. 24, CE-369. ↩
66 Minutes from the General Assembly of BD Agro AD Dobanovci dated 27 February 2016, pp. 1, 6-7 (pdf), CE-370. ↩
67 Minutes from the General Assembly of BD Agro Dobanovci dated 30 June 2016, p. 4, CE-366. ↩
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Construction Land was EUR 68 million.68 BD Agro’s fair market value as of 31 December 2015, calculated as the total value of its assets less the total value of its liabilities, was EUR 56 million.69
56. The Second Confineks Valuation was also accepted by Serbia. For example, on 17 February 2016, BD Agro—still controlled by Serbia—wrote to the Commercial Court in Belgrade in response to a creditor’s request for the initiation of bankruptcy proceedings. It submitted to the court the Second Confineks Valuation and noted that it “undoubtedly demonstrates that the appraised value of capital of the company is significantly positive and amounts to 56,358,939.00 euros.”70
57. On 30 August 2016, i.e. less than a year after the Privatization Agency taking over control and management of BD Agro, Serbian courts declared BD Agro’s bankruptcy.71 As a result of the Privatization Agency’s utter mismanagement of BD Agro, all employees lost their jobs and livelihoods and the creditors received only a small fraction of their receivables.
58. BD Agro’s bankruptcy was also the final blow to Mr. Rand’s investment, as it rendered all the remaining assets held by Mr. Rand—i.e. the Indirect Shareholding and the Loans—worthless.
59. Despite seizing the Beneficially Owned Shares and destroying Mr. Rand’s other investments in BD Agro, Serbia did not offer to pay any compensation to Mr. Rand, not even to return the purchase price paid for the Privatized Shares. It also failed to respond to Claimants’ notification of a dispute. Thus, on 9 February 2018, Claimants filed their Request for Arbitration and initiated arbitration proceedings.
68 Hern First ER, ¶ 79; Confineks d.o.o. Beograd, Report on the Valuation of Assets, Liabilities and Capital of BD Agro AD Dobanovci dated January 2016, section 4, pp. 96-102, CE-172. ↩
69 Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci, January 2016, p. 5, CE-172. ↩
70 Letter from BD Agro to the Commercial Court in Belgrade dated 17 February 2016, p. 2 (emphasis added), CE-372. ↩
71 Decision of the Commercial Court in Belgrade on opening bankruptcy proceedings over BD Agro dated 30 August 2016, CE-109. ↩
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60. On 29 June 2023, the Tribunal issued the Award. As a starting point, the Tribunal correctly upheld its jurisdiction over Mr. Rand’s investment in the Beneficially Owned Shares, by a majority decision. The Award concluded that “the evidence [...] unequivocally demonstrates that Mr. Rand was the investor involved in BD Agro’s acquisition and operation”.72 It was Mr. Rand who made the entire contribution towards the acquisition of the Beneficially Owned Shares,73 and who bore the full risk associated with the investment into the Beneficially Owned Shares.74
61. The Tribunal, however, inexplicably declined jurisdiction ratione materiae over Mr. Rand’s remaining investments in BD Agro—the Indirect Shareholding and the Loans.75 As Mr. Rand explains in detail further in this Memorial, the Tribunal committed several annullable errors when arriving at these conclusions.
62. On the merits, the Tribunal correctly attributed the actions of the Privatization Agency to Serbia. In the Tribunal’s words, these actions “involved the exercise of governmental authority” as “[n]o private party could have done so”.76
63. The Award further concluded that, on 28 September 2015, the Privatization Agency wrongfully terminated the Privatization Agreement for an alleged violation of its Article 5.3.4. The alleged violation of Article 5.3.4, however, could not justify the termination because Article 5.3.4 only applied during the term of the Privatization Agreement:
The Buyer will not encumber with pledge the fixed assets of the subject during the term of the Agreement, except for the purpose of securing claims towards the subject accrued based on regular business activities of the subject, that is, except for the purpose of acquiring of the funds to be used by the subject.77
77 Privatization Agreement, 4 October 2005, Art. 5.3.4, CE-017. ↩
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64. The Award correctly held that the prohibition contained in Article 5.3.4 ceased to exist in April 2011, when the purchase price was fully paid. Thus, the Privatization Agency was not entitled to terminate the Privatization Agreement in September 2015,78 i.e. almost four and a half years after the obligation set out in Article 5.3.4 ceased to apply:79
The full purchase price was paid on 8 April 2011. As the obligation contained in Article 5.3.4 ceased on that date, it could not be breached thereafter. This is a matter of simple logic. [...]
In light of these elements, the Tribunal concludes that the Privatization Agreement could not be terminated after 8 April 2011 for an alleged breach of Article 5.3.4 that had occurred before that date. Therefore, the termination of the Agreement was unlawful.
65. The Award also correctly concluded that the subsequent seizure of the Beneficially Owned Shares by the Privatization Agency on 21 October 201580 represented a breach of the fair and equitable treatment standard provided in Article 6 of the Canada-Serbia BIT:81
As the termination of the Agreement was unlawful, the seizure of the Beneficially Owned Shares, which was the direct consequence of the termination and was carried out in the exercise of sovereign powers, was wrongful as well and meets the threshold for finding a breach of Article 6 of the Treaty.
66. The Award stated that “the Agency’s seizure of the Beneficially Owned Shares deprived Mr. Rand of the entirety of his investment [therein].”82 The Tribunal then proceeded to quantify Mr. Rand’s damages. By doing so, the Tribunal upheld Mr. Rand’s alternative claim that the entire compensation due for the fair market value of the Beneficially Owned Shares be awarded to Mr. Rand (as opposed to the other Claimants in the arbitration).83
67. On quantum, the Tribunal calculated the amount of compensation due to Mr. Rand as that part of BD Agro’s equity value corresponding to Mr. Rand’s 75.87% share in BD
80 This was the date chosen by the Tribunal (and the parties) as the valuation date. See Award, ¶ 682. ↩
83 Claimants’ First Post-Hearing Brief dated 27 September 2021 (“Claimants’ First PHB”), ¶ 353. ↩
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Agro, plus interest accrued from the Valuation Date.84 The Tribunal calculated BD Agro’s equity value by subtracting the total value of BD Agro’s liabilities from the total value of its assets.85
68. When calculating the equity value, the Tribunal correctly concluded that BD Agro was a going concern as of the Valuation Date and rejected the bankruptcy sales discount proposed by Serbia.86 The Tribunal also correctly identified relevant categories of assets and liabilities entering into the valuation.
69. However, the Tribunal then either failed to provide any reasons, or provided contradictory reasons, for how it arrived at the value of BD Agro’s assets and liabilities. In addition, the Tribunal also ignored evidence that was highly relevant for the valuation of BD Agro’s most valuable asset—the Construction Land. As already explained in the Application and as Mr. Rand further demonstrates below, the Tribunal’s failure to state reasons and to consider relevant evidence are annullable errors.
70. In the operative part of the Award, the Tribunal ordered Serbia to pay EUR 14,572,730 to Mr. Rand, together with interest at the average EURIBOR for 6 months deposits plus 2% per annum, compounded semi-annually, until the date of payment.87 However, the operative part did not specify the date from which interest would accrue. Consequently, upon Claimants’ request, the Tribunal issued the Supplementary Decision, clarifying that the interest should accrue from 21 October 2015—i.e. the date of the breach.88
71. On 12 January 2024, Serbia wired EUR 17,587,154.56 to Mr. Rand’s bank account.
72. As explained above, there are two main reasons for which the Award should be partially annulled.
88 Decision on the Claimants’ Request for a Supplementary Decision dated 27 October 2023, ¶ 47(a). ↩
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73. First, the Tribunal failed to provide reasons for many key aspects of its calculation of the amount of compensation awarded to Mr. Rand. Specifically, the Tribunal did not provide any reasons whatsoever for the valuation of six out of seven main categories of BD Agro’s assets valued by the Tribunal.89 Mr. Rand addresses these issues in detail in Section IV.C below.
74. In addition, the Tribunal’s reasoning provided with respect to other inputs relevant for its calculation of damages is in material respects inconsistent and contradictory. To provide just one example, while the Tribunal first rejected the use of information originating after the Valuation Date, stating it was “well accepted that the information used for valuation should originate on or before the valuation date”,90 it subsequently repeatedly relied on such evidence.91 Mr. Rand addresses contradictions in the Tribunal’s reasoning in detail in Sections IV.B.1 and IV.D below.
75. Finally, the Tribunal failed to consider crucial evidence put forward by the Parties in connection with the valuation of BD Agro’s most valuable asset—the Construction Land.92 The evidence omitted by the Tribunal clearly shows that the value of the Construction Land was much higher than the value estimated by the Tribunal.93 Mr. Rand addresses this error in Section IV.B.2 below.
76. As Mr. Rand demonstrates in Section IV.A below, ad hoc committees have repeatedly confirmed that a lack of reasoning, contradictory reasoning and/or the failure to address evidence all represent grounds for an annulment under Article 52(1)(e) of the ICSID Convention (the failure to state reasons).
77. Second, the Tribunal incorrectly, and without providing any relevant reasoning, declined to exercise its jurisdiction over:
a. Mr. Rand’s claims related to his Indirect Shareholding in BD Agro; and
90 Award, ¶ 693 (third bullet point)(ii). ↩
93 Hern First ER, ¶¶ 68, 70. ↩
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b. Mr. Rand’s claims related to the Loans provided to BD Agro.
78. As Mr. Rand demonstrates in Sections V.B and V.C below, the Tribunal did so even though it clearly had jurisdiction over these claims. As Mr. Rand explains in Section V.A below, the Tribunal’s failure to exercise its jurisdiction represents a ground for annulment under Article 52(1)(b) of the ICSID Convention (manifest excess of powers). Moreover, the Tribunal’s denial of jurisdiction over the Loans simultaneously represents a failure to state reasons, as explained in Section V.C.
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79. The obligation to state reasons flows from Article 48(3) of the ICSID Convention, which unequivocally imposes on the arbitral tribunal the obligation to “deal with every question submitted to the Tribunal and state the reasons” on which the award is based.94
80. Furthermore, Articles 48(3) and 52(1) of the ICSID Convention require, as a minimum, “that parties can understand the reasoning of the Tribunal, meaning the reader can understand the facts and law applied by the Tribunal in coming to its conclusion.”95 The MINE ad hoc committee—a leading authority on the issue—held that the requirement to state reasons can be satisfied only if the award enables the reader to follow the tribunal’s reasoning:
[T]he requirement to state reasons is satisfied as long as the award enables one to follow how the tribunal proceeded from Point A. to Point B. and eventually to its conclusion, even if it made an error of fact or of law.96
81. Other ad hoc committees have expressed similar views.97
82. Pursuant to Article 52(1)(e) of the ICSID Convention, a failure to state the reasons on which an award is based requires its annulment:
Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the
94 ICSID Convention, Article 48(3) (emphasis added), CLA-017. ↩
95 Updated Background Paper on Annulment for the Administrative Council of ICSID dated 5 May 2016, ¶ 105, CLA-183. ↩
96 Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee, 22 December 1989, ¶ 5.09 (emphasis added), CLA-184. ↩
97 See e.g., Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, ¶ 64, RLA-155; Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision (Annulment Proceeding), 5 February 2002, ¶¶ 79, 81, CLA-185; TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 87, 124, CLA-186; Mr. Patrick Mitchell v Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶ 21, CLA-187; Venezuela Holdings, B.V., et al v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Annulment, 9 March 2017, ¶ 118, RLA-002; Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 163, CLA-188. ↩
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following grounds: [...] (e) that the award has failed to state the reasons on which it is based.98
83. It is widely accepted in ICSID annulment jurisprudence that an award falls short of the requirement to state reasons in the following circumstances, among others:
a. absence of reasons for an award or its particular aspect;99
b. contradictory reasons;100
c. insufficient or inadequate reasons;101 and
d. failure to observe relevant evidence.102
84. All of these circumstances arise in the present case. In this Section IV, Mr. Rand addresses the instances where the Tribunal failed to state reasons with respect to its conclusions on quantum. The Tribunal’s failure to state reasons with respect to its conclusions on jurisdiction over Mr. Rand’s claims related to the Indirect Shareholding and the Loans is addressed in Section V, together with an explanation
98 ICSID Convention, Article 52(1)(e) (emphasis added), CLA-017. ↩
99 See e.g., CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152. The ad hoc committee found a breach of Article 52(1)(e) of the ICSID Convention on the basis that “there is a significant lacuna in the Award, which makes it impossible for the reader to follow the reasoning on this point”; see also Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶ 141, CLA-189. ↩
100 See e.g., Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee, 22 December 1989, ¶ 6.107 (“[T]he requirement that the Award must state reasons on which it is based is in particular not satisfied by contradictory reasons.”), CLA-184; see also Updated Background Paper on Annulment for the Administrative Council of ICSID dated 5 May 2016, ¶ 107, CLA-183; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶ 116, CLA-189; Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶¶ 173-191, CLA-188. ↩
101 Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, ¶¶ 122-123 (“[E]ven short of a total failure, some defects in the statement of reasons could give rise to annulment [...]. [...] Insufficient or inadequate reasons refer to reasons that cannot, in themselves, be a reasonable basis for the solutions arrived at.”), CLA-190; see also Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶ 21, CLA-187. ↩
102 The ad hoc committee in TECO v. Guatemala found that the Tribunal’s decision was annullable because the tribunal “failed to observe evidence which at least had the potential to be relevant to the final outcome of the case” which resulted in the Tribunal’s line of reasoning being difficult to understand. TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 131, 135, CLA-186. ↩
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that the Tribunal’s denial of jurisdiction over these claims also represents a manifest excess of powers.
85. ICSID annulment jurisprudence shows that an award falls short of the requirement to state reasons if the reasons provided are contradictory.103 Reasons are contradictory when they effectively cancel each other out, thereby not permitting the parties to understand the decisions of ICSID tribunals.104
86. An award also falls short of the requirement to state reasons if the reasons provided are insufficient or inadequate. Reasons are insufficient or inadequate if they cannot, in and of themselves, be a reasonable basis for the solutions arrived at.105
87. The Tribunal’s reasoning was clearly contradictory, irreconcilable and/or insufficient with respect to its conclusions on both the value of the Construction Land, being BD Agro’s most valuable asset, and certain liabilities of BD Agro. Mr. Rand addresses these deficiencies with the Tribunal’s reasoning in detail below.
88. The Tribunal failed to state reasons for its valuation of the Construction Land because its reasoning regarding the valuation of the Construction Land and the choice of
103 See e.g., Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee, 22 December 1989, ¶ 6.107, CLA-184; see also Updated Background Paper on Annulment for the Administrative Council of ICSID dated 5 May 2016, ¶ 107, CLA-183; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶ 116, CLA-189; Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶¶ 173-191, CLA-188. ↩
104 Caratube International Oil Company LLP v. Republic of Kazakhstan (I), ICSID Case No. ARB/08/12, Decision on the Annulment Application of Caratube International Oil Company LLP, 21 February 2014, ¶102, CLA-016; Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 281, CLA-192. ↩
105 Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, ¶¶ 122-123, CLA-190; see also Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶ 21, CLA-187. ↩
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evidence relevant for the valuation thereof is contradictory. Therefore, the Tribunal’s decision on the value of the Construction Land should be annulled.
89. When deciding on the value of the Construction Land, the Tribunal had available the following types of evidence:106
a. evidence from actual transactions involving parts of the Construction Land, which implied a value of EUR 15 to 23 per square meter,107 giving a total value of the Construction Land of EUR 42 million to EUR 64 million;
b. comparable transactions, namely:
i. Dobanovci transactions, implying a value of EUR 20 per square meter,108 giving a total value of EUR 56 million;
ii. additional two Dobanovci transactions submitted by Serbia, implying an average value of EUR 31.17 per square meter,109 giving a total value of EUR 87 million;
iii. Pazova transactions, implying a value of EUR 20 to 27 per square meter,110 giving a total value of EUR 56 million to EUR 75 million; and
iv. Batajnica transactions, implying a value of EUR 28 to 37 per square meter,111 giving a total value of EUR 78 million to EUR 103 million;
c. contemporaneous valuations of comparable construction land prepared by the Serbian Tax Authority, implying a value of EUR 22 per square meter,112 giving a total value of EUR 61 million; and
106 E.g. Claimants’ Memorial, ¶ 542; Hern First ER, ¶ 62; Ilić First ER, ¶¶ 9.21, 9.88-9.91. ↩
109 Ilić First ER, Appendix 2, table 2.6. ↩
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d. contemporaneous valuations of BD Agro’s land prepared by various Serbian valuators, namely:
i. the First Confineks Valuation, estimating the value at EUR 24 per square meter,113 giving a total value of EUR 67 million;
ii. the Second Confineks Valuation, estimating the value at EUR 24 per square meter,114 giving a total value of EUR 67 million in total; and
iii. the Mrgud Valuation, estimating the average value at EUR 30 per square meter,115 giving a total value of EUR 84 million in total.
90. Despite all the evidence listed above, Serbia argued that the Tribunal should base its decision solely on so-called asking prices, i.e. prices that are not from actual sale transactions but, instead, are only prices derived from advertisements of land for sale.116 Serbia’s real estate expert, Ms. Ilić, identified five—and only five—such asking prices,117 and these asking prices were—without any further analysis—adopted by Serbia’s quantum expert, Mr. Cowan.118
91. The Tribunal’s treatment of this evidence was entirely contradictory. The Tribunal:
a. stated that land located in the Batajnica area was not comparable to the Construction Land—but then accepted Serbia’s reliance on an asking price for land in the same area;119
b. rejected Dr Hern’s reliance on the Batajnica transactions post-dating the Valuation Date, but accepted Serbia’s reliance on asking prices with unknown dates;120
117 Ilić First ER, p. 145(pdf). ↩
118 Sandy Cowan Second Expert Report dated 24 January 2020 (“Cowan Second ER”), ¶ 6.5. ↩
119 See infra ¶¶ 93-102; Award, ¶ 693(third bullet point); Ilić First ER, p. 145(pdf). ↩
120 See infra ¶¶ 103-108; Award, ¶ 693(third bullet point); Ilić First ER, Appendix 2, table 2.6, p. 145(pdf). ↩
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c. refused Dr. Hern’s reliance on the First Confineks Valuation because it was not based on “comparable transactions”—but then accepted Serbia’s valuation, which was only based on five asking prices and no comparable transactions;121
d. rejected Dr. Hern’s use of the Mrgud Valuation because Mr. Mrgud relied on asking prices—but then accepted Serbia’s valuation based solely on asking prices;122
e. provided insufficient and contradictory reasoning for its acceptance of a 30% discount to the value of the Construction Land;123 and
f. accepted Ms. Ilić’s valuation of the Construction Land even though it contradicted the Tribunal’s findings on appropriate valuation methodology.
92. These contradictions in the Tribunal’s reasoning constitute a failure to state reasons and warrant annulment of its decision on the valuation of the Construction Land. Each of the Tribunal’s contradictions is explained in greater detail below.
93. One type of evidence that Claimants relied on in the arbitration were the so-called “Batajnica transactions”. These transactions reflected market value assessments made by the Serbian Tax Administration based on comparable transactions for several land plots in the Batajnica area.124
94. Claimants’ valuation expert, Dr. Hern, concluded that the land in Batajnica was comparable to the Construction Land.125 The same was also confirmed by Claimants’ real estate valuations expert, Mr. Grzesik.126
121 See infra ¶¶ 109-114; Award, ¶ 693(first bullet point). ↩
122 See infra ¶¶ 115-121; Award, ¶¶ 692-694; Ilić First ER, ¶¶ 9.89-9.1 (correctly should be 9.93). ↩
123 See infra ¶¶ 122-143; Award, ¶¶ 695-697. ↩
126 First Expert Report of Krzystof Grzesik dated 3 October 2019, ¶¶ 6.14.-6.16. ↩
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95. The Tribunal rejected Dr. Hern’s reliance on the Batajnica transactions, stating that, in the Tribunal’s opinion, “[t]here are [...] major differences between the Batajnica land and [the Construction Land] that make the former an unsuitable comparator”.127
96. However, the Tribunal then based its valuation solely on five asking prices identified by Ms. Ilić—even though one of these five asking prices was for land in Batajnica:128
Asking prices No. Type of land City Municipality Cadastral Municipality Address Size (m²) Asking price (€) Asking price (€/m²) Adjusted asking price (€/m²) Description Year Date Source Link 1 Construction Land Beograd Surčin Dobanovci Dobanovačka petlja 30,000 700,000 23.33 21.00 Plot in the industrial zone, on the right side when going from Belgrade, asphalt to the plot 2015 n/a asking prices www.imovina.net 2 Construction land Beograd Surčin Dobanovci Beogradska obilaznica 36,100 450,000 12.47 11.22 Near corridor 10 and loop, along the highway. OMV pump is 1km away. The plot is in an industrial area. Ownership 1/1. On 8.12.2013 at the price of 542.000eur (15.01 eur/m2) while on 16.5.2014 price was lowered to 450.000eur (12.47eur/m2) 2015 n/a asking prices www.srbijaspace.com 3 Construction land Beograd Surčin Dobanovci 71,500 1,072,500 15.00 13.50 Agricultural land in an industrial area, close to the Nelt and Pepsi factories. Land road to the plot, there is water, electricity, sewage 2014 jan 14 asking prices www.imovina.net 4 Construction land Beograd Zemun Batajnica 4,300 103,000 23.95 21.56 Plot in the industrial zone of Gornji Milanovac near the railway line to Zemun, asphalt to the plot. 2013 feb 13 asking prices www.realitica.com 5 Construction Land Beograd Surčin Dobanovci 16,000 400,000 25.00 22.50 Plot in the industrial zone. Ownership 1/1. The plot is 1km away from the highway, 15km from Belgrade, 7km airport 2014 mar 14 asking prices www.aria-nekretnine.org Adjustment is applied for negotiation and willignes of seller to reduce the starting asking price
97. Thus, while the Tribunal refused to rely on prices of land in Batajnica identified by Claimants because they were, allegedly, not comparable to the Construction Land, the Tribunal accepted asking prices from the same area identified by Serbia. The Tribunal did so without any explanation whatsoever.
98. A similar situation arose in the annulment proceedings in Tidewater v. Venezuela, where Venezuela complained in the annulment proceedings that “the Tribunal has established elements for the determination of the market value of Respondents’ business and of the appropriate amount of compensation for the lawful expropriation” and then “it has fixed the amount in contradiction to these elements.”129
99. Specifically, the Tidewater tribunal rejected a 1.5% risk premium as unreasonable and concluded that a 14.75% risk premium should apply instead. However, at the same time, the tribunal awarded damages in the amount calculated based on the 1.5% risk premium.130
127 Award, ¶ 693(third bullet point). ↩
128 Ilić First ER, p. 145(pdf)(emphasis added). ↩
129 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 161 (emphasis added), CLA-188. ↩
130 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 186, CLA-188. ↩
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100. The ad hoc committee held that “the Tribunal contradicted its own analysis and reasoning by quantifying its estimation using one concrete criterion [...] which it had rejected as unreasonable.”131 The ad hoc committee then went on to conclude that “one part of the Award, where a genuinely contradictory reasoning on the amount of compensation cancels out another reasoning with respect to the same compensation, must be annulled.”132
101. The Tribunal’s valuation of the Construction Land is a key input in its valuation of BD Agro as a whole. The difference between the value of the Construction Land adopted by the Tribunal and the value calculated based on the price per m² implied by the Batajnica transactions is between EUR 36 million and 61 million.133
102. An absence of reasoning by a tribunal on an outcome-determinative aspect of an award requires an annulment of the respective part.134 In the words of the Pey Casado v. Chile I committee, “as long as there is no express rationale for the conclusions with respect to a pivotal or outcome-determinative point, an annulment must follow”.135
103. Another reason for which the Tribunal rejected the use of the Batajnica transactions was that the Tribunal categorically refused to rely on any evidence post-dating the Valuation Date, i.e. 21 October 2015:136
131 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 193, CLA-188. ↩
132 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 196, CLA-188. ↩
133 Award, ¶¶ 691, 707; Hern’s updated analysis, Land ABC TRX, CE-908. ↩
134 See e.g., CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152. The ad hoc committee found a breach of Article 52(1)(e) of the ICSID Convention on the basis that “there is a significant lacuna in the Award, which makes it impossible for the reader to follow the reasoning on this point”; see also Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶ 141, CLA-189. ↩
135 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 86, CLA-192. ↩
136 Award, ¶ 693(third bullet point)(ii). ↩
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ii. It is well accepted that the information used for valuation should originate on or before the valuation date. The Batajnica assessments, dating from March to August 2016, do not meet this requirement.557 Mr. Grzesik admitted that he was not sure when the assessments actually took place.558
104. After rejecting Claimant’s evidence (including the Batajnica transactions), the Tribunal then accepted the valuation of the Construction Land by Mr. Cowan, which incorporates, with no adjustments, Ms. Ilić’s valuation of the Construction Land. Ms. Ilić’s—and thus Mr. Cowan’s—valuation is based on only five asking prices, two of which are represented by Ms. Ilić as being from 2015, without further specification:
Asking prices No. Type of land City Municipality Cadastral Municipality Address Size (m²) Asking price (€) Asking price* (€/m²) Adjusted asking price* (€/m²) Description Year Date Source Link 1 Construction land Beograd Surčin Dobanovci Dobanovačka petlja 30,000 700,000 23.33 21.00 Plot in the industrial zone, on the right side when going from Belgrade, asphalt to the plot 2015 n/a asking prices www.imovina.net 2 Construction land Beograd Surčin Dobanovci Beogradska obilaznica 36,100 450,000 12.47 11.22 Near corridor 10 and loop, along the highway. OMV pump is 1km away. The plot is in an industrial area. Ownership 1/1. On 8.12.2013 at the price of 542.000eur (15.01 eur/m2) while on 16.5.2014 price was lowered to 450.000eur (12.47eur/m2) 2015 n/a asking prices www.srbijaspace.com
105. Nowhere in the alleged advertisements does it state that the listings are from 2015, and Ms. Ilić’s unsubstantiated representation to that effect is insufficient to conclude whether this evidence pre-dates or post-dates the Valuation Date of 21 October 2015. Thus, the Tribunal contradicted itself when it accepted this evidence after having rejected the Batajnica transactions as post-dating the Valuation Date.
106. In addition, Ms. Ilić did not offer any support for her representation that the two asking prices were published in 2015. In fact, the documentary evidence provided by Ms. Ilić in support of these two asking prices does not include any indication of the date when the respective announcements were published.137
107. The Tribunal’s reasoning is thus once again contradictory—the Tribunal first ruled out any evidence post-dating the Valuation Date, but then accepted Serbia’s valuation of the Construction Land based on evidence with unknown dates. As the Tidewater committee correctly concluded, if a tribunal provides contradictory reasoning on the same point, the corresponding part of its award “must be annulled.”138
137 Asking prices for KO Dobanovci, RE-561. ↩
138 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 196, CLA-188. ↩
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108. The Tribunal’s contradictory reasoning related to the price of the Construction Land goes to the core of the valuation of the Construction Land and is, thus, a pivotal and outcome-determinative point.139 Enough to say, the difference between the valuation of the Construction Land using the Batajnica transactions and the Tribunal’s valuation is between EUR 36 million and EUR 61 million.140
109. Dr. Hern supported his EUR 22 per m² lower bound valuation of the Construction Land by reference to the First Confineks Valuation, which valued the Construction Land at EUR 24 per m².141
110. The First Confineks Valuation was commissioned by BD Agro, based on directions from the Privatization Agency in November 2015 and valued the Construction Land at approximately EUR 67 million.142
111. Since seizing the Beneficially Owned Shares and taking control of BD Agro, Serbia accepted the First Confineks Valuation on at least the following four occasions:
a. BD Agro submitted a new reorganization plan on 11 January 2016, which fully relied on the First Confineks Valuation;143
b. BD Agro’s shareholders, with the Privatization Agency exercising the decisive vote, approved the reorganization plan at BD Agro’s shareholders’ meeting;144
139 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 86, CLA-192. ↩
140 Award, ¶¶ 691, 707; Hern’s updated analysis, Land ABC TRX, CE-908. ↩
142 Hern First ER, ¶ 78; See supra, ¶ 89(d)(ii). ↩
143 Second pre-pack reorganization plan, 11 January 2016, p. 24, CE-369. ↩
144 Minutes from the General Assembly of BD Agro AD Dobanovci dated 27 February 2016, pp.1, 6-7 (pdf), CE-370. ↩
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c. BD Agro used the First Confineks Valuation in the preparation of its financial statements for 2015 and the following years;145 and
d. the 2015 financial statements were again approved by BD Agro’s shareholders, with the Privatization Agency exercising the decisive vote.146
112. Despite Serbia’s contemporaneous acceptance of the First Confineks Valuation, the Tribunal refused to rely on the First Confineks Valuation because it “does not refer to evidence of comparable transactions”.147 However, the Tribunal’s valuation of the Construction Land is not based on comparable transactions either. On the contrary, the Tribunal adopted the valuation proposed by Ms. Ilić—which is based solely on five asking prices and no comparable transactions.148
113. Thus, again, much like in Tidewater, “the Tribunal contradicted its own analysis and reasoning by quantifying its estimation using one concrete criterion [...] which it had rejected as unreasonable.”149
114. The First Confineks Valuation valued the Construction Land at approximately EUR 67 million, i.e. EUR 25 million more than the EUR 42 million valuation accepted by the Tribunal.150
115. Dr. Hern relied on the Mrgud Valuation for his EUR 30 per m² upper bound valuation of the Construction Land.151 The Mrgud Valuation valued the Construction Land at
145 Minutes from the General Assembly of BD Agro Dobanovci dated 30 June 2016, p. 4, CE-366. ↩
146 Minutes from the General Assembly of BD Agro Dobanovci dated 30 June 2016, p. 4, CE-366. ↩
147 Award, ¶ 693(first bullet point). ↩
149 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 193, CLA-188. ↩
150 Award, ¶¶ 691, 707; Hern’s updated analysis, Confineks land valuation and Land ABC TRX, CE-908. ↩
151 Hern First ER, ¶ 89, B. Taking the value of land calculated by Mr. Mrgud, the equity value of BD Agro was more than EUR 71 million. See Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci dated December 2014, CE-175. See also Claimants’ Memorial, ¶ 520. ↩
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approximately EUR 84 million, corresponding to EUR 30 per m².152 The Mrgud Valuation relied exclusively on asking prices.153
116. The Tribunal rejected Dr. Hern’s reliance on Mr. Mrgud’s contemporaneous valuation. In support of its decision, the Tribunal cited Mr. Grzesik’s testimony at the hearing, pursuant to which “asking prices are the lowest level of evidence that you can use in a valuation.”154
117. That asking prices carry the lowest evidentiary value was, in fact, undisputed between the Parties. Serbia’s expert, Ms. Ilić, also accepted in her reports that asking prices have the lowest evidentiary value155 and should be used only in absence of appropriate actual transaction data.156 Ms. Ilić agreed that only actual transaction data represents “primary evidence”157 and “primary market evidence”,158 which is of the “highest relevance”.159
118. However, the Tribunal then based its valuation of the Construction Land on the valuation proposed by Ms. Ilić, which was also based solely on five and only five asking prices,160 even though appropriate actual transaction data was available. Specifically, Ms. Ilić presented in her reports—but excluded from her valuation— evidence of two actual transactions with two land plots in Dobanovci. One land plot, which actually abuts BD Agro’s property, sold at EUR 28.4 per m² in July 2015 (i.e.
152 Supra ¶ 89(d)(iii). Pero Mrgud (December 2014), Report on the Valuation of the Market Value of Building Land in the BD Agro Complex Zones A, B and C in the Town of Dobanovci, section 6, pp.16-20 (English translation), CE-175. ↩
153 Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci dated December 2014, p. 15, CE-175. ↩
154 Award, ¶ 693(second bullet point); Tr., Hearing on Jurisdiction and Merits, Day 7, 80:24-81:2 (Grzesik). ↩
155 Ilić First ER, ¶ 4.9; Danijela Ilić Second Expert Report dated 16 March 2020, ¶ 5.3. ↩
156 Ilić First ER, ¶ 9.20 (“a valuer seeks comparable sales and/or asking prices, where sales are not available or not appropriate”). ↩
157 Ilić First ER, ¶ 4.27 (“Dr. Hern simply disregards the primary evidence- actual sale prices from the exhibit CE-182 (min = 2 €/m2) and applies information that cannot be considered market evidence, such as Dec 2015 Confineks report”). ↩
158 Ilić First ER, ¶ 4.33 (“Notwithstanding that Dr. Hern already had primary market evidence as comparables [...] he additionally applied information which cannot be considered market evidence”). ↩
159 Ilić First ER, ¶ 10.1 (“I have applied the market evidence, which is of highest relevance, actual sale prices recorded in RGA and where necessary I have also applied adjusted asking prices.”). See also Ilić First ER, ¶¶ 4.30, 8.9. ↩
160 Award, ¶¶ 694, 696; Ilić First ER, ¶ 9.92 and Appendix 2, table 2.6. ↩
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only three months before the Valuation Date).161 The other land plot, which is located in another industrial zone in the close vicinity of BD Agro, sold at EUR 33.95 per m² in August 2015 (i.e. only two months before the Valuation Date).162
[Map showing BD Agro and surrounding areas with specific land plots highlighted]
Labels on map:
- Petrovčić
- Zone A
- Zone B
- Zone C
- Sremska Gazela
- EUR 28.4/m²
- Dobanovci
- EUR 33.95/m²
- BD Agro farm
- Railway
- Bečmen
- Surčin
119. Thus, the Tribunal rejected Dr. Hern’s EUR 30 per m² valuation that was “based on weighted average price used in Mr. Mrgud’s valuation” because the Mrgud Valuation relied on asking prices, which the Tribunal found to carry the lowest evidentiary weight. However, the Tribunal then accepted Ms. Ilić’s valuation, even though it relied solely on five asking prices. The Tribunal’s approach is even more contradictory because Ms. Ilić relied on asking prices despite the existence of highly relevant actual transaction data, which Ms. Ilić herself recognized as “appropriate for comparison to BD Agro construction land”163—but inexplicably chose to disregard.164
120. As a result, the Tribunal made the same annullable error as the Tidewater tribunal, i.e. it “contradicted its own analysis and reasoning by quantifying its estimation using one
161 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
162 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
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concrete criterion [...] which it had rejected as unreasonable.”165 Akin to the annullable errors in Tidewater, the Tribunal first refused to rely on asking prices, but then accepted Ms. Ilić’s valuation based solely on asking prices. The Tribunal’s contradictory reasons are irreconcilable and warrant annulment of the respective part of the Award.
121. This error had a material impact on BD Agro’s valuation. Mr. Mrgud estimated, based on asking prices, that the market value of BD Agro’s Construction Land was EUR 87 million.166 The Tribunal rejected Mr. Mrgud’s valuation for his reliance on asking prices and then accepted Serbia’s valuation, also based on asking prices, of EUR 42 million.167 The difference is EUR 45 million.168
122. In the Award, the Tribunal accepted a 30% discount to the value of the Construction Land169 proposed by Ms. Ilić, which she admitted had no support besides her “experience in valuation of land.”170 Mr. Rand will show in this section that: (i) the Tribunal has not provided sufficient reasoning for the magnitude of the discount; (ii) the Tribunal itself suggested that a discount based solely on an expert’s judgement is arbitrary; and (iii) the Tribunal’s reasoning for applying any discount is insufficient, inadequate and contradictory.
123. First, the Tribunal’s only attempt at justifying the magnitude of the discount was that “[f]ailing more precise indications in the record about the size of this deduction, it appears reasonable to the Tribunal to accept the 30% discount applied by Ms. Ilić.”171
165 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 193, CLA-188. ↩
166 Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci, December 2014, p. 14, CE-175. ↩
168 Award, ¶ 707; Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and C in the town of Dobanovci, December 2014, p. 14, CE-175. ↩
170 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
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124. The Tribunal did not provide any further reasoning for its decision that the discount should be 30%, rather than any other percentage. The only reasoning of the Tribunal is, therefore, that it disagrees with Claimants, who argued that no discount should be applied. However, having found that there should be some discount, the Tribunal is expected to provide an understandable analysis of what the exact percentage of the discount should be. Instead, the Tribunal completely resigned on its seminal duty to provide reasoning on this point.
125. The 30% size of the discount applied by the Tribunal is therefore without explanation. The Tribunal’s lack of reasoning can be likened to the case of Perenco v. Ecuador, where the ad hoc committee partially annulled the underlying award for insufficient reasoning with respect to the tribunal’s valuation of a loss of opportunity.
126. The Perenco tribunal disregarded all approaches to calculation of damages proposed by the claimant172 and then “simply ‘acknowledged’ that it has discretion and decided to award ‘a nominal value.””173 However, the ad hoc committee considered that “[n]o explanation whatsoever is given as to what is the concept of a nominal value or the reason to award a nominal value as opposed to any other value.”174 Therefore, the ad hoc committee concluded that the tribunal failed to state reasons for its decision to award compensation for a loss of profit, and for the amount of that compensation.175
127. In the present case, like in Perenco, the Tribunal failed to provide any explanation for why a 30% discount, rather than “any other value”, should apply. By applying the insufficiently explained 30% discount, the Tribunal lowered the value of BD Agro’s assets by up to approximately EUR 25 million.176
128. Second, during the hearing, the President of the Tribunal stated that a discount based solely on an expert’s judgement is arbitrary:
172 Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Annulment, 28 May 2021, ¶¶ 462-464, CLA-193. ↩
173 Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Annulment, 28 May 2021, ¶ 466, CLA-193. ↩
174 Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Annulment, 28 May 2021, ¶ 466, CLA-193. ↩
175 Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Annulment, 28 May 2021, ¶ 469, CLA-193. ↩
176 Hern’s updated analysis, Assets, CE-908. ↩
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THE PRESIDENT: That is about the principle of the discount, but then the level of this discount, can you explain better why you come to 30%? I know you are saying this is a matter of judgment, but then one exercises judgment in consideration of a number of factors, otherwise it becomes arbitrary, so how do you justify your 30%?177
129. Ms. Ilić did not refer to any factors—much less any evidence—that she considered in coming to her determination.178 By accepting Ms. Ilić’s arbitrary 30% discount, the Tribunal directly contradicted the position it took during the hearing.
130. Third, the Tribunal did not provide any tenable reasons for its acceptance of any discount. The purported reasons for a discount set forth in the Award were twofold:
a. that “the representative comparables chosen by Ms. Ilić and BD Agro’s land were of a different size” and “the large area of BD Agro’s land on sale may have pushed the price down”;179 and
b. that “[w]hile the comparators had access to the roads and other infrastructure, this was not the case for BD Agro’s land”.180
131. Neither of these reasons justifies the Tribunal’s decision.
132. The justification of a discount by the difference in size of the comparable land plots was originally proposed by Serbia’s real estate expert Ms. Ilić, who originally seemed to justify the discount by the size of her comparators being smaller than the size of individual cadastral parcels constituting the Construction Land.181 However, the size of the parcels constituting the Construction Land is actually smaller than the median size of the comparators used by Ms. Ilić:182
177 Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, 170:22-171:02 (emphasis added). ↩
178 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
181 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
182 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
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When comparing construction land sale transactions with construction land in Dobanovci, owned by BD Agro, I use representative (median) transacted size and median price (eur/m2). Given that median size of BD Agro construction land cadastral parcels in Dobanovci is 17,372m2263 and median transacted size of construction land is 30,000m2 m2 with a median price of 21eur/m2. I apply downward adjustment of 30%
133. Thus, during cross-examination, Ms. Ilić abandoned her position, confirmed that the size of the Construction Land was not a reason for the 30% discount, and tied the discount to an alleged absence of infrastructure:
Ms. Ilić: (Interpreted) It is correct, the last sentence, it says I applied an adjustment of 30% as a reflection of my experience in valuation of land. This relates to the existence of infrastructure and access road.
Mr. Pekař: So you apply no discount or bonus or premium, I should have said, based on the size of land, do you?
Ms. Ilić: (Interpreted) No, I was of the opinion here, since this is construction land, that this is a median, approximate median size.183
134. The Tribunal’s reliance on the principle that smaller land plots are more valuable per m² than larger land plots therefore does not justify its decision to apply a discount to the value of the Construction Land established on the basis of Ms. Ilić’s comparators. In fact, following the Tribunal’s logic, the cadastral parcels constituting BD Agro’s Construction Land—being smaller than the comparators—should be more valuable than the comparators chosen by Ms. Ilić, and no discount was warranted.
135. Furthermore, the Tribunal’s reliance on the principle that smaller land plots are more valuable per m² than larger land plots is contradictory also because the Tribunal admitted that “BD Agro may have been able to split its land in smaller parcels before selling it, making any discount on the sale of the land as a whole inapposite.”184 Thus, the Tribunal itself stated that there is no reason to apply any discount on the basis of the size of the land plots.
183 Transcript, Hearing on Jurisdiction and Merits (Ilić), Day 7, dated 19 July 2021, 166:04-166:12. ↩
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136. The Tribunal also failed to state reasons with respect to the second purported justification given for a discount, i.e. the alleged difference in access to infrastructure. This is because the Tribunal’s reasoning with respect to that purported justification is insufficient and inadequate.
137. The Tribunal purported to justify its conclusion that Mr. Cowan’s and Ms. Ilić’s comparators had access to infrastructure by reference to Serbia’s exhibit including the respective five announcements. Mr. Cowan, Serbia’s quantum expert, admitted at the hearing that it is not possible to identify the specific location of the land plots from these announcements.185 As a result, it is impossible to establish where exactly these land plots are located, and whether they have infrastructure comparable to the Construction Land.
138. The Tribunal attempted to overcome that admission by stating that the description of the land plots in the announcements explained that they had access to infrastructure. However, that is not the case:
a. the first announcement only states that an asphalt road leads to the plot—it does not mention any infrastructure on the plot;
b. the second announcement only states that infrastructure is in the vicinity of the plot;
c. the third announcement states that there is a dirt road leading to the plot and infrastructure is 100 meters away;
d. the fourth announcement states that there is an asphalt road leading to the land plot and that there is electricity, but it does not mention any other infrastructure; and
e. the fifth announcement only mentions a highway 1 km away from the plot.186
139. Ms. Ilić admitted at the hearing that BD Agro’s farm has access to infrastructure and the Construction Land is adjacent to it.187 Thus—same as with respect to Ms. Ilić’s
185 Transcript, Hearing on Jurisdiction and Merits (Cowan), Day 8, dated 20 July 2021, 143:17-146:19. ↩
186 Asking prices for KO Dobanovci, RE-561. ↩
187 Transcript, Hearing on Jurisdiction and Merits (Ilić), Day 7, dated 19 July 2021, 155:19. ↩
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asking prices—infrastructure is in the vicinity of the Construction Land. Therefore, no discount on the basis of availability of infrastructure is justified.
140. Finally, the clear arbitrariness of the discount is confirmed by the fact that the Tribunal applies the same discount also to BD Agro’s Other Construction Land in Dobanovci, which—as Ms. Ilić admitted—has access to the roads and other infrastructure:188
At the Valuation Date, BD Agro owned, in total, 736 hectares of land in cadaster municipality Dobanovci, municipality Surčin243. All land is registered as agricultural and at the Valuation Date it was used as agricultural land. BD Agro Farm is predominantly built on parts of parcels nos. 5521/1 and 5522/2 and on parts of parcels nos. 4684, 5416, 5415, and 5527, and although they are registered as agricultural land, this is construction land, since these parcels have access from public road and they are serviced with necessary infrastructure for operation of the farm. All other BD Agro cadastral parcels are not serviced with infrastructure and do not have access from public roads.
141. An award must be annulled in case of insufficient or inadequate reasons, which are such reasons that “are insufficient to bring about the solution or inadequate to explain the result arrived at by the Tribunal”.189
142. This flaw is clearly present in the Tribunal’s reasoning in relation to the discount. The only purported reasons given for the discount—i.e. the size of the Construction Land and its access to infrastructure—are not capable of justifying the Tribunal’s acceptance of the discount. The Tribunal’s reasoning implies that a smaller surface area and better access to infrastructure increase the value of land plots. However, the comparators used in the valuation adopted by the Tribunal are larger land plots than the individual land plots constituting the Construction Land. Similarly, the comparators do not have better access to infrastructure. Therefore, these reasons are insufficient and inadequate to justify the Tribunal’s decision to apply a discount. Following the reasoning of the Soufraki committee,190 the Tribunal’s decision to apply a discount must be annulled.
189 Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, ¶ 126, CLA-190; see also Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶ 21, CLA-187. ↩
190 Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, ¶¶ 122-123, CLA-190. ↩
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143. It follows from the above that the Tribunal’s reasoning concerning the 30% discount applied by the Tribunal to the value of the Construction Land is seriously flawed— both with respect to the need to apply the discount as such, as well as with respect to the magnitude of the discount. The Tribunal’s flawed reasoning is also clearly outcome-determinative. Even accepting the price per meter squared of the Construction Land proposed by Ms. Ilić based on asking prices, i.e. EUR 21 per m², the 30% discount lowers the value of the Construction Land by EUR 18 million.191
144. As shown above, the Tribunal concluded that the proper methodology for the valuation of the Construction Land must comply with the following key principles:
1. the valuation should be based on actual comparable transactions as the primary, most relevant, evidence;192
2. asking prices have the lowest evidentiary value and the valuation should not rely on asking prices with no corresponding information about dates and sources of these prices;193
3. the valuation should only rely on evidence from comparable areas—the Tribunal specifically identified Batajnica as a noncomparable area;194
4. the valuation should only rely on evidence pre-dating the Valuation Date;195
5. a discount is justified where evidence used in the valuation relates to comparable land with better access to infrastructure;196 and
191 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
192 Award, ¶ 693(first bullet point). ↩
193 Award, ¶ 693(second bullet point). ↩
194 Award, ¶ 693(third bullet point). ↩
195 Award, ¶ 693(third bullet point). ↩
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6. smaller land plots are more valuable per m² than comparable larger land plots.197
145. Contradicting itself, the Tribunal accepted Ms. Ilić’s valuation—even though it does not comply with any of the above key principles.
146. First, Ms. Ilić’s valuation does not comply with the first key principle because it does not rely on any actual comparable transactions. Ms. Ilić’s valuation is based on five, and only five, asking prices—even though Ms. Ilić herself identified highly relevant actual comparable transactions.198 As explained above, Ms. Ilić presented in her reports evidence of two actual transactions with two land plots: one for land that actually abuts BD Agro’s property, sold at EUR 28.4 per m² in July 2015 (only three months before the Valuation Date),199 and the other for land located in another industrial zone in the close vicinity of BD Agro, sold at EUR 33.95 per m² in August 2015 (only two months before the Valuation Date).200
147. Ms. Ilić excluded these transactions from her valuation because, according to Ms. Ilić, the land plots subject to these transactions are not comparable to the Construction Land due to their location.201 Ms. Ilić reached this, clearly incorrect, conclusion even though one of these land plots actually abuts BD Agro’s property and the other land plot is located in another industrial zone in the close vicinity of BD Agro.202
148. The Tribunal did not address these two actual comparable transactions in the Award at all—even though the Tribunal concluded that actual comparable transactions represent primary, most relevant, evidence and Claimants repeatedly relied on these two transactions and stressed their importance for the valuation of the Construction Land.203
198 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
199 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
200 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
202 Tr., Hearing on Jurisdiction and Merits, Day 7, 149:25-150:21 (Ilić). ↩
203 Award, ¶ 693(first bullet point); Transcript, Hearing on Jurisdiction and Merits, Day 7, dated 19 July 2021, 62:2-62:12 (Grzesik); Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, ↩
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149. Thus, the Tribunal contradicted its own first key valuation principle when it ignored, without any explanation, these two actual comparable transactions and accepted Ms. Ilić’s valuation which relied solely on five asking prices to the exclusion of available highly relevant actual comparable transactions.
150. Second, Ms. Ilić’s valuation does not comply with the Tribunal’s second key principle because it relies solely on five asking prices, i.e. the evidence with the lowest evidentiary value, even though relevant comparable market evidence was available.
151. Moreover, Ms. Ilić relies on these five asking prices without providing proper information about their dates and sources. To begin with, the links provided by Ms. Ilić do not lead to the specific advertisements she relies upon. Moreover, these advertisements also cannot be found on individual websites and, thus, cannot be verified.
152. Furthermore, with respect to the first two listings in Ms. Ilić’s table highlighted below, Ms. Ilić represents that these asking prices are allegedly from “2015”. However, the corresponding listings submitted by Ms. Ilić do not include any date. Ms. Ilić’s claim that these two asking prices are from 2015 is, thus, completely unsupported:204
| Asking prices | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| No | Type of land | City | Municipality | Cadastral Municipality | Address | Size (m²) | Asking price (€) | Asking price (€/m²) | Adjusted asking price (€/m²) | Description | Year | Date | Source | Link |
| 1 | Cosntruction land | Beograd | Surčin | Dobanovci | Dobanovačka petlja | 30,000 | 700,000 | 23.33 | 21.00 | Plot in the industrial zone, on the right side when going from Belgrade, asphalt to the plot | 2015 | n/a | asking prices | www.imovina.net |
| 2 | Cosntruction land | Beograd | Surčin | Dobanovci | Beogradska obilaznica | 36,100 | 450,000 | 12.47 | 11.22 | Near corridor 10 and loop, along the highway. OMV pump is 1km away. The plot is in an industrial area. Ownership 1/1. On 8.12.2013 at the price of 542.000eur (15.01 eur/m2) while on 16.5.2014 price was lowered to 450.000eur (12.47eur/m2) | 2015 | n/a | asking prices | www.srbijaspace.com |
| 3 | Cosntruction land | Beograd | Surčin | Dobanovci | 71,500 | 1,072,500 | 15.00 | 13.50 | Agricultural land in an industrial area, close to the Nelt and Pepsi factories. Land road to the plot, there is water, electricity, sewage. | 2014 | jan.14 | asking prices | www.imovina.net | |
| 4 | Cosntruction land | Beograd | Zemun | Batajnica | 4,300 | 103,000 | 23.95 | 21.56 | Plot in the industrial zone of Certa blithe near the railway line to Zemun, asphalt to the plot. | 2013 | feb.13 | asking prices | www.realitica.com | |
| 5 | Cosntruction land | Beograd | Surčin | Dobanovci | 16,000 | 400,000 | 25.00 | 22.50 | Plot in the industrial zone. Ownership 1/1. The plot is 1km away from the highway, 15km from Belgrade, 7km airport | 2014 | mar.14 | asking prices | www.srbija-nekretnine.org | |
153. Finally, the location of the land plots relating to the advertisements relied upon by Ms. Ilić cannot be determined based on the evidence provided by Ms. Ilić.205 Mr. Cowan,
204 15:13-16:1 (Hern); Claimants’ First PHB, ¶¶ 296, 308-312; Claimants’ Second Post-Hearing Brief dated 22 October 2021 (“Claimants’ Second PHB”), ¶ 120(b). Ilić First ER, Appendix 2, table 2.6, p. 145(pdf) (emphasis added); Asking prices for KO Dobanovci, RE-561. ↩
205 Asking prices for KO Dobanovci, RE-561. ↩
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Serbia’s quantum expert, specifically confirmed this fact during his cross- examination.206
154. By accepting Ms. Ilić’s valuation of the Construction Land, based solely on five asking prices with no verifiable information about the dates of two of these asking prices and location of the land plots related to any of these prices, and no access to original versions of individual listings, the Tribunal contradicted its second valuation principle.
155. Third, Ms. Ilić’s valuation does not comply with the Tribunal’s third key principle because it relies on evidence from areas that the Tribunal concluded were not comparable to the Construction Land. Specifically, one of the five asking prices used by Ms. Ilić concerns a land plot located in Batajnica—even though the Tribunal identified Batajnica as non-comparable area.207 By accepting Ms. Ilić’s valuation based on evidence from the Batajnica area, the Tribunal clearly contradicted its third key principle for valuation of the Construction Land.
156. Fourth, Ms. Ilić’s valuation does not comply with the Tribunal’s fourth key principle—rejection of evidence post-dating the Valuation Date—because the date of two out of five asking prices used by Ms. Ilić cannot be determined.208 Therefore, it is impossible to discern whether this evidence pre-dates or post-dates the Valuation Date. By accepting Ms. Ilić’s valuation of the Construction Land—based on evidence with an unclear date—the Tribunal contradicted its fourth valuation principle.
157. Fifth, Ms. Ilić’s valuation does not comply with the Tribunal’s fifth key principle. This is because her valuation of the Construction Land includes a 30% discount, even though there is no evidence of differences between the Construction Land and asking prices used by Ms. Ilić that would warrant such a discount.
158. Ms. Ilić’s entire valuation of the Construction Land relies on five asking prices. The only evidence submitted by Ms. Ilić to support these asking prices are screenshots of purported real estate advertisements. However, as explained above, these advertisements reveal that the land plots offered therein do not have better access to
206 Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, 143:17-146:18 (Cowan). ↩
207 Ilić First ER, Appendix 2, table 2.6, p. 145(pdf). ↩
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infrastructure than the Construction Land.209 The advertisements also do not point to any other differences that would warrant the discount applied by Ms. Ilić.
159. By accepting the 30% discount applied by Ms. Ilić without any evidence of differences in the infrastructure available on land plots subject to Ms. Ilić’s asking prices and on those of the Construction Land, and without evidence of any other differences warranting such discount, the Tribunal clearly contradicted its fifth valuation principle.
160. Finally, Ms. Ilić’s valuation does not comply with the Tribunal’s sixth key principle, because it applies a discount to the value of BD Agro’s Construction Land, even though the size of the parcels constituting the Construction Land is actually smaller than the median size of the comparators used by Ms. Ilić.210 The median size of the land plots advertised in the announcements used as evidence by Ms. Ilić is 30,000 m², while the median size of the plots constituting the Construction Land is 17,000 m².211
161. Thus, under the Tribunal’s sixth principle, a premium, rather than a discount, should be applied to valuation of the Construction Land. By accepting the 30% discount, the Tribunal clearly contradicted its sixth key valuation principle.
162. The above makes it clear that the Tribunal’s acceptance of Ms. Ilić’s valuation of the Construction Land is irreconcilable with the Tribunal’s own conclusions on key principles to be applied to the Construction Land’s valuation. Thus, same as in the Tidewater, the tribunal “contradicted its own analysis and reasoning by quantifying its estimation using one concrete criterion [...] which it had rejected as unreasonable.”212 In fact, the Tribunal did so with respect to all six valuation principles it identified as relevant for valuation of the Construction Land. This is yet another reason for which the Tribunal’s decision on valuation of the Construction Land should be annulled.
209 Asking prices for KO Dobanovci, RE-561. See supra, ¶ 138-139. ↩
210 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
211 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
212 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 193, CLA-188. ↩
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163. Indeed, if the Tribunal followed the first four valuation principles it itself formulated, it would have necessarily concluded that none of the five asking prices identified by Ms. Ilić should be relied upon in valuating the Construction Land. This fact is demonstrated by the following table summarizing contradictions between the individual asking prices and the Tribunal’s valuation principles:
| Breach of the 1st valuation principle? | Breach of the 2nd valuation principle? | Breach of the 3rd valuation principle? | Breach of the 4th valuation principle? | Result | |
| Asking price 1 (Dobanovci, EUR 21/m2) |
Yes Not an actual comparable transaction. |
Yes Evidence with the lowest value, even though relevant comparable market evidence available. Unsupported information about the date and missing information about the exact location. |
Yes Impossible to confirm whether the area is comparable due to missing information about the location. |
Yes Impossible to confirm whether it pre-dates the Valuation date due to unsupported information about the date. |
X |
| Asking price 2 (Dobanovci, EUR 11.22/m2) |
Yes Not an actual comparable transaction. |
Yes Evidence with the lowest value, even though relevant comparable market evidence available. Unsupported information about the date and missing information about the exact location. |
Yes Impossible to confirm whether the area is comparable due to missing information about the location. |
Yes Impossible to confirm whether it pre-dates the Valuation date due to unsupported information about the date. |
X |
| Asking price 3 (Dobanovci, EUR 13.50/m2) |
Yes Not an actual comparable transaction. |
Yes Evidence with the lowest value, even though relevant comparable market evidence available. Missing information about the exact location. |
Yes Impossible to confirm whether the area is comparable due to missing information about the location. |
No | X |
| Asking price 4 (Batajnica, EUR 21.56/m2) |
Yes Not an actual comparable transaction. |
Yes Evidence with the lowest value, even though relevant comparable market evidence available. |
Yes Located in Batajnica, which the Tribunal identified as noncomparable area. |
No | X |
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| Breach of the 1st valuation principle? | Breach of the 2nd valuation principle? | Breach of the 3rd valuation principle? | Breach of the 4th valuation principle? | Result | |
| Missing information about the exact location. | |||||
| Asking price 5 (Dobanovci, EUR 22.50/m2) |
Yes Not an actual comparable transaction. |
Yes Evidence with the lowest value, even though relevant comparable market evidence available. Missing information about the exact location. |
Yes Impossible to confirm whether the area is comparable due to missing information about the location. |
No | X |
164. In addition, even if the Tribunal correctly relied on the asking prices identified by Ms. Ilić (quod non), but followed its fifth and/or sixth valuation principle, it would have necessarily concluded that no discount should be applied to these asking prices.
165. In the Award, the Tribunal addressed evidence on which Claimants relied for their upper and lower bound of the Construction Land’s value.213 Specifically, the Tribunal addressed the evidence from the Serbian tax authorities, the First Confineks Valuation, BD Agro’s actual transactions, the Mrgud Valuation and the Batajnica transactions.214 The Tribunal’s rejection of this evidence clearly suffers from a lack of reasoning, as explained above.
166. In addition, the Tribunal completely ignored—without any explanation—other relevant evidence relied on by Claimants for valuation of the Construction Land. Specifically, the Tribunal ignored:
a. documents from the Serbian Tax Administration based on actual comparable transactions in the Nova Pazova and Stara Pazova regions;215
b. the Second Confineks Valuation;216 and
215 Hern First ER, ¶¶ 64, 68. ↩
216 Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci, January 2016, CE-172. ↩
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c. the two highly relevant actual comparable transactions with construction land at Dobanovci from 2015 presented by Ms. Ilić (these transactions were described in detail in paragraph 118 above).217
167. This evidence supports a significantly higher value of the Construction Land than the value ultimately adopted by the Tribunal. For example, the Pazova transactions point to a value of 20 to 27 EUR per m²,218 much higher than the 14.7 EUR per m² adopted by the Tribunal.219 Dr. Hern explained that he used the Pazova transactions in his valuation because they were comparable to the Construction Land:220
The transactions labelled as “Pazova” relate to acquisitions of land in the Nova Pazova and Stara Pazova regions (as highlighted in yellow in Figure 3.2).48 The Pazova areas are broadly comparable to BD Agro’s land in Dobanovci: they are fully developed49 with access to the E70 and E75 roads,50 but are further away from Belgrade and the airport. Based on data from 2013 and 2016, the Pazova transactions support prices in a range of 20 to 27 EUR/m².
168. Similarly, the Second Confineks Valuation valued the Construction Land at 24 EUR per m².221 The Tribunal ignored the Second Confineks Valuation when deciding on the value of the Construction Land, but then used the Second Confineks Valuation in its valuation of BD Agro’s liabilities.222
169. Finally, the two actual comparable transactions in Dobanovci from 2015 presented by Ms. Ilić support an average price of 31.17 EUR per m².223 This is again significantly higher than the 14.7 EUR per m² adopted by the Tribunal.224
217 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
223 Ilić First ER, Appendix 2, table 2.6 at p. 142(pdf). ↩
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170. Importantly, Claimants repeatedly relied on this part of Ms. Ilić’s evidence.225 Dr. Hern expressly stressed the importance and relevance of these transactions during his presentation at the hearing:226
Dr. HERN: Having said that, and this is something that I was also not able to respond to in my reports because it came too late, but I think Ms Ilić did identify some transaction evidence that is indeed very relevant, and we talked a bit about this yesterday, but there are two particular transactions that Ms Ilić identified for very similar land to BD Agro’s land; indeed that land, for one of the transactions, is located right next to BD Agro’s farm, and you can see here on slide 17 the transaction of €28.4/m2 at a very similar date to the date we are talking about here in 2015, and the land is located right next to BD Agro’s farm, where the road that passes past that transaction goes into BD Agro’s farm and then connects to Zones A, B and C.
[Map 1 Content]
[Map 2 Content]
225 Transcript, Hearing on Jurisdiction and Merits, Day 7, dated 19 July 2021, 62:2-62:12 (Grzesik); Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, 15:13-16:1 (Hern); Claimants’ First PHB, ¶¶ 296, 308-312; Claimants’ Second PHB dated 22 October 2021, ¶ 120(b). ↩
226 Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, 15:13-16:1 (Hern); Opening presentation of Dr. Hern dated 20 July 2021, slide 17. ↩
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171. Claimants also referred to this evidence in their post-hearing submissions, explaining that Ms. Ilić incorrectly excluded the evidence because the two transactions were allegedly close to a residential area—but then she admitted at the hearing that there were in fact no residential buildings next to them:227
Curiously, the Dobanovci transactions were identified—and then unjustifiably disregarded—by Serbia’s expert, Ms. Ilić. In her reports, Ms. Ilić claimed that she excluded these two transactions because they were allegedly close to a residential area.329 However, during her cross-examination, Ms. Ilić admitted that the land subject to one of these transactions was actually right next to the land on which BD Agro’s farm is located330 and that there were no residential buildings next to it.331
172. Indeed, Ms. Ilić admitted at the hearing that the land plot close to BD Ago’s premises was surrounded by fields to the north and west, by non-residential buildings to the east and by BD Agro’s premises to the south:228
23 Q. If we just look in greater detail, so would you agree 24 with me, the north and west of point C, there are 25 fields?
01 A. (Interpreted) Yes. 02 Q. Across the street to the east, we can see some pretty 03 substantial roofs which definitely do not belong to 04 residential buildings, would you agree with that? 05 A. (Interpreted) Yes. 06 Q. And south, we have the complex of the farm, don’t we? 07 A. (Interpreted) Yes.
173. In their post-hearing submissions, Claimants also explained that, after Ms. Ilić’s original position proved untenable, she changed her position and argued that the land plot next to BD Agro’s farm was allegedly not comparable to the Construction Land because it was connected to a municipal road. However, Ms. Ilić eventually conceded that the very same road extended also to the Construction Land:229
227 Claimants’ First PHB, ¶ 309. ↩
228 Tr., Hearing on Jurisdiction and Merits, Day 7, 150:23-151:07 (Ilić). ↩
229 Claimants’ First PHB, ¶ 310. ↩
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310. Probably aware that her position was untenable, Ms. Ilić changed her position and argued during the Hearing that the land plot next to BD Agro’s farm was allegedly not comparable to the Construction Land in Zones A, B and C because it was connected to a small municipal road.332 However, Ms. Ilić eventually conceded that the very same road actually extends also to Zones B and C:Mr. Pekař: Are you aware, Ms Ilic actually, that this asphalt road, which is here named as Ulica Ive Lole Ribara, then extends to Zones B and C?
Ms. Ilić: Yes, it does not extend to the entire zones. It goes partly through the farmland, but not until the end of the plot.333
174. Thus, Claimants clearly concluded in their post-hearing submissions that this actual comparable transaction dealing with a land plot literally across the street from BD Agro from July 2015, only three months before the Valuation Date, was—by far—the most relevant piece of evidence for the valuation of the Construction Land:230
As a result—and as explained by Dr. Hern—the EUR 28.4 per m² price for the land plot in the immediate vicinity of BD Agro shows that the market price for the Construction Land in Zones A, B and C should be even higher because the latter will be connected to a major road with direct access to the E70 highway.335
175. The Tribunal simply ignored this evidence and did not comment on it at all in the Award. Had the Tribunal done so, it would have had to recognize that its valuation of the Construction Land of EUR 14.7 per m² is seriously understated and unjustifiable.
176. The ad hoc committee in Teco v. Guatemala confirmed that tribunals commit an annullable error when they ignore relevant evidence. The Teco ad hoc committee concluded that the Teco tribunal’s decision was annullable because the tribunal “failed to observe evidence which at least had the potential to be relevant to the final outcome of the case.”231 According to the Teco ad hoc committee, this error made the tribunal’s reasoning impossible to understand:
The Committee wishes to point out that it cannot determine whether the evidence that was ignored by the Tribunal would have had an impact on the Award or not. What can be ascertained at the annulment stage is that the Tribunal failed to observe evidence which
230 Claimants’ First PHB, ¶ 312. ↩
231 TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶ 135, CLA-186. ↩
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at least had the potential to be relevant to the final outcome of the case. Due to the Award’s lack of analysis of the above mentioned evidence and in spite of having had the benefit of the Parties’ submissions and of the entire annulment record before it, the Committee could not understand the Tribunal’s reasoning on the loss of value claim and whether the Tribunal dismissed it because it could not determine the actual value of EEGSA or its but for value.232
177. On this basis, the Teco ad hoc committee concluded that a tribunal cannot simply gloss over evidence emphasized by the parties, without any analysis and without explaining why it found that evidence insufficient or unpersuasive:
While the Committee accepts that a tribunal cannot be required to address within its award each and every piece of evidence in the record, that cannot be construed to mean that a tribunal can simply gloss over evidence upon which the Parties have placed significant emphasis, without any analysis and without explaining why it found that evidence insufficient, unpersuasive or otherwise unsatisfactory. A tribunal is duty bound to the parties to at least address those pieces of evidence that the parties deem to be highly relevant to their case and, if it finds them to be of no assistance, to set out the reasons for this conclusion.233
178. In a similar vein, when assessing the price per m² of the Construction Land, the Tribunal ignored the evidence described above, and primarily the Dobanovci transactions—introduced by Serbia and accepted by Claimants. As explained above, that evidence clearly had “the potential to be relevant to the final outcome of the case” because it suggested a significantly higher valuation of the Construction Land than that adopted by the Tribunal in the Award. For example, the two Dobanovci transactions indicate a value of comparable land of EUR 31.17 per square meter,234 giving a total value of the Construction Land of EUR 87 million—i.e. EUR 45 million higher than the Tribunal’s valuation of EUR 42 million.235
* * *
179. In conclusion, the Tribunal’s valuation of the Construction Land is clearly based on contradictory reasoning and ignores highly relevant contemporaneous evidence.
232 TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 135-136 (emphasis added), CLA-186. ↩
233 TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶ 131 (emphasis added), CLA-186. ↩
234 Ilić First ER, Appendix 2, table 2.6. ↩
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Importantly, the Tribunal’s contradictory and insufficient reasoning with respect to its valuation of the Construction Land is profoundly outcome-determinative.
180. For example, according to the evidence rejected by the Tribunal based on contradictory reasons, the value of the Construction Land would be between EUR 67 and 103 million. This is between EUR 25 and 61 million more than the actual value adopted by the Tribunal, being EUR 42 million.236 Similarly, with no other changes made, application of a 30% discount to the value of the Construction Land, for which the Tribunal also provided contradictory and insufficient reasons, lowered the value of BD Agro’s assets by up to EUR 25 million.237
181. The Tribunal’s contradictory and insufficient reasoning falls short of the requirement to state reasons under Article 48(3) of the ICSID Convention and, as such, represents an error annullable under Article 52(1)(e) of the ICSID Convention.
182. In the Award, the Tribunal concluded that Serbia must fully repair the harm caused to Mr. Rand by its illegal seizure of the Beneficially Owned Shares.238 Therefore, in the quantum part of the Award, the Tribunal had to decide on the compensation due to Mr. Rand for the loss of his 75.87% beneficial shareholding in BD Agro.
183. The Tribunal first determined the value of BD Agro’s equity as of the Valuation Date and then awarded 75.87% of that value (plus interest) to Mr. Rand:239
Accounting for these adjustments, the value of 100% of the shares in BD Agro on 21 October 2015 was 19.7 million.594 Mr. Rand indirectly owned 75.87% of BD Agro’s shares, through Rand Investments (in which he had a 100% shareholding) and Sembi (in which he held a 97.5% shareholding),595 resulting in a valuation of EUR 14,572,730. To this figure, interest should be added at 6-month average EURIBOR + 2%, compounded semi- annually until the date of payment (see above, §706).
236 See supra, ¶¶ 101, 108, 114, 121; Award, ¶ 707. ↩
237 See supra, ¶ 127; Award, ¶ 707. ↩
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184. To calculate BD Agro’s equity value, the Tribunal subtracted the total value of BD Agro’s liabilities from the total value of its assets as of the Valuation Date.240 When calculating the value of BD Agro’s assets, the Tribunal divided the assets into two categories: (i) farm assets, and (ii) non-farm assets.241 The farm assets included: (a) agricultural land; (b) “other fixed assets”; (c) “current assets”; and (d) deferred tax assets.242 The non-farm assets included: (e) “Dobanovci Development Land”, which is designated as the Construction Land in this Memorial; (f) “other construction land”; and (g) “Novi Becej”.243
185. The Tribunal assigned the following values to these categories of assets:244
| At 21 October 2015 in EUR m | Value in EUR m |
| Dobanovci Development Land [Construction Land] | 41.9 |
| Other Construction Land | 1.3 |
| Novi Becej | 0.2 |
| Non-farm assets | 43.4 |
| Agricultural land | 6.4 |
| Other fixed assets | 18.8 |
| Current assets | 5.0 |
| Deferred tax assets | 0.1 |
| Farm Assets | 30.3 |
| Total assets | 73.7 |
186. The Tribunal did so without providing any reasons for how it calculated the value of the six highlighted categories of assets.
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187. A complete absence of reasons for an award is undisputably a reason for annulment of the respective part.245 In the words of the Pey Casado v. Chile (I) committee, “as long as there is no express rationale for the conclusions with respect to a pivotal or outcome-determinative point, an annulment must follow”.246
188. Similarly, the ad hoc committee in CMS v. Argentina decided to annul the award issued in the original proceedings because it found that there was “a significant lacuna in the Award, which [made] it impossible for the reader to follow the reasoning [...]” of the tribunal.247
189. This being said, the Tribunal’s failure to state reasons with respect to its valuation of (i) agricultural land; (ii) “other fixed assets”; (iii) “other construction land”; and (iv) deferred tax assets could be excused by the fact that the Parties’ valuations of these categories of assets were not widely different and the Tribunal’s valuation was always between the values advocated by the Parties. Therefore, Mr. Rand does not request annulment of the parts of the Award addressing the valuation of these assets.
190. Mr. Rand, however, requests annulment of the parts of the Award addressing the valuation of the remaining two categories of assets for which the Tribunal did not state any reasons: (i) “current assets”; and (ii) “Novi Becej”. These two categories are discussed in detail below.
245 See e.g., CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152. The ad hoc committee found a breach of Article 52(1)(e) of the ICSID Convention on the basis that “there is a significant lacuna in the Award, which makes it impossible for the reader to follow the reasoning on this point”; see also Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985, ¶ 141, CLA-189. ↩
246 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 86, CLA- 192. ↩
247 CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152. ↩
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191. The Tribunal’s list of assets includes a category labelled “Novi Becej” valued at EUR 0.2 million.248 The Tribunal did not provide any explanation of the assets included in that category, nor did it provide any reasoning on their EUR 0.2 million value.249
192. The utter lack of the Tribunal’s reasoning makes it impossible to discern what specific assets are supposed to be included in the category. This lacuna is important because the Parties’ valuations of BD Agro’s assets in Novi Bečej significantly diverged.
193. Claimants’ position was that, as of the Valuation Date, BD Agro’s assets in Novi Bečej included co-ownership of a building of cultural significance, the Dundjerski castle, and agricultural, forest and construction land surrounding the castle.250 Claimants argued that at all of the above assets should be included in the valuation of BD Agro. Relying on contemporaneous valuations approved by Serbia,251 Claimants valued these assets at EUR 0.8 million.252
194. Conversely, Serbia’s valuation did not take into account BD Agro’s ownership of the castle. Although Serbia’s real estate valuation expert, Ms. Ilić, recognized the castle’s existence and BD Agro’s ownership, she failed to reflect it in her calculations.253 Ms. Ilić estimated the value of BD Agro’s land in Novi Bečej, without the castle, at EUR 0.2 million.254 Serbia’s quantum expert, Mr. Cowan, then simply adopted the number calculated by Ms. Ilić—thus again ignoring BD Agro’s ownership of the castle.255
195. Due to the Tribunal’s lack of reasoning, it cannot be known whether the Tribunal’s valuation included all categories of assets pleaded by Claimants or not. Furthermore, the Tribunal did not explain why it valued “Novi Becej” at EUR 0.2 million. As
250 E.g. Hern First ER, ¶ 116. ↩
251 Valuation prepared by Confineks d.o.o. Beograd in December 2015 pursuant to the instructions of Ms. Radmila Knežević, the Privatization Agency’s representative administering the expropriated 75.87% shareholding in BD Agro. See Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci dated December 2015, CE-142. ↩
253 Ilić First ER, ¶¶ 9.75-9.78. ↩
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explained above, EUR 0.2 million represent the value assigned to BD Agro’s land at Novi Bečej—without the castle—by Serbia’s expert. It is unclear whether the Tribunal simply adopted this value,256 in which case it would be unclear why the Tribunal decided to exclude the castle from the valuation, or whether the Tribunal arrived at the EUR 0.2 million value in another manner.
196. As of the Valuation Date, BD Agro also owned other assets, including receivables from sales, inventories, short-term financial investments and cash, as reported in its balance sheet.257 Mr. Cowan valued the “current assets” at EUR 5 million, using the Second Confineks Valuation.258
197. Claimants’ valuation expert, Dr. Hern, valued BD Agro’s current assets as a part of a wider category, which he labelled “Other Current and Non-Current Assets” and valued at EUR 7.4 million:259
| Other Current and Non-Current Assets | Net Book Value (EUR million) |
| Receivables from sales | 3.8 |
| Receivables from specific operations | 1.0 |
| Inventories | 0.6 |
| Accrued Expenses | 0.0* |
| Other Receivables | 0.1 |
| Short-term financial investments | 0.4 |
| Value Added Tax | 0.0* |
| Cash and Cash Equivalents | 0.7 |
| Intangible Assets | 0.0* |
| Immovables, plant and equipment under construction | 0.8 |
| Other immovables, plant and equipment | 0.0* |
| Advances for immovables, plant and equipment | 0.0* |
| Total Value of Other Current and Non-Current Assets | 7.4 |
| Note: * Values reported as 0.0 reflect positive values which rounded to EUR million; I convert the values reported in RSD to EUR using the EUR/RSD rate as of 21 October 2015 of 119.9, as reported by the National Bank of Serbia. Source: BD Agro AD Dobanovci Original Financial Statements for 2015, dated 31 December 2015 (English translation), CE-140; NBS exchange rate data, CE-137. | |
198. The “current assets” consist of the first eight subcategories on Mr. Hern’s list and are valued at EUR 6.6 million. The “non-current assets” consist of the last four
256 Ilić First ER, ¶ 10.2; Cowan Second ER, ¶ 4.3. ↩
258 Sandy Cowan Third Expert Report dated 16 March 2020 (“Cowan Third ER”), ¶ 4.4. ↩
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subcategories and are valued at EUR 0.8 million.260 Mr. Cowan included the “non- current assets” in his valuation of “other fixed assets.”
199. The Tribunal valued the “Current assets” at EUR 5 million.261 Again, the Tribunal did not provide any reasoning for this decision. It, therefore, cannot be known whether the Tribunal simply adopted the valuation of Mr. Cowan—which is flawed and based on evidence post-dating the Valuation Date (i.e. the Second Confineks Report)262—or whether the Tribunal calculated this value in some other way. In addition, it cannot be known what specific assets the Tribunal intended to include in this category.
* * *
200. As explained above, the Pey Casado (I) and CMS ad hoc committees found that where there is “a significant lacuna in the Award”,263 or in other words “no express rationale for the conclusions with respect to a pivotal or outcome-determinative point, an annulment must follow”.264 These findings are directly applicable to the absence of the Tribunal’s reasoning with respect to the “Novi Becej“ and “current assets” categories.
201. Similarly, the ad hoc committee in Watkins Holdings v. Spain confirmed that “[a] mere statement by the tribunal of its findings without more would not constitute reasons in an award.”265 While the Watkins Holdings committee eventually did not annul the award in question, it was because the committee concluded that the tribunal’s
260 Hern First ER, ¶ 121. As explained above, these assets were included by Mr. Cowan in the “Other fixed assets” category, except the “Intangible Assets”. ↩
262 The issues with Mr. Cowan’s reliance on the Second Confineks Valuation is that it is not correct, because Confineks applies certain write-offs to receivables without any reason. Dr. Hern addressed this problem in his reports. See Hern First ER, ¶ 122. ↩
263 CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶ 97, RLA-152. ↩
264 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 86, CLA- 192. ↩
265 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶ 133, CLA-207. ↩
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reasoning could be followed based on other parts of the award266 or found the lack of reasons not to be outcome determinative.267
202. The Tribunal in the present case did not provide any “express rationale for the conclusions” regarding the value of individual categories of BD Agro’s assets discussed above, thus creating “a significant lacuna in the Award”. Furthermore, the Tribunal’s decision regarding the value of BD Agro’s assets is evidently outcome- determinative, as it has a direct impact on the valuation of Mr. Rand’s claim. The difference in valuation of these two categories of assets by the Parties was approximately EUR 2.2 million.268
203. In the part of the Award rejecting Claimants’ valuation of the Construction Land, the Tribunal made it clear that it would not rely on any evidence post-dating the Valuation Date, i.e. 21 October 2015:269
ii. It is well accepted that the information used for valuation should originate on or before the valuation date. The Batajnica assessments, dating from March to August 2016, do not meet this requirement.557 Mr. Grzesik admitted that he was not sure when the assessments actually took place.558
204. The Tribunal then used this conclusion as one of the reasons for its rejection of the Batajnica comparable transactions, relied upon by Claimants.270 The Tribunal further
266 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶¶ 158, 229, CLA-207. ↩
267 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶¶ 178, 208, CLA-207. ↩
268 See supra, ¶¶ 193, 195, 198-199. ↩
269 Award, ¶ 693(third bullet point)(ii). ↩
270 Award, ¶ 693(third bullet point)(ii). ↩
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applied this principle—that evidence post-dating the Valuation Date should not be taken into account—in other parts of the Award, namely:
a. when determining that BD Agro is a going concern:271
International valuation standards define a going concern as “a business enterprise that is expected to continue operations for the foreseeable future.”525 While it is true that BD Agro was experiencing financial difficulties, on the valuation date, it was not in bankruptcy. Its Amended pre-pack reorganization plan had been adopted by a majority of creditors, including a number of companies experienced in the dairy business.526 By voting in favour of the reorganization, these companies expressed that they considered that BD Agro’s business would continue to operate for the foreseeable future. The Agency too appears to have recognized this fact when it approved BD Agro’s 2015 financial statements.527 The Tribunal thus finds that, on the valuation date, BD Agro was a going concern.b. when rejecting Serbia’s arguments relating to court proceedings initiated in 2018:272
Serbia excludes certain lands subject to court disputes with [ZZ] Buducnost Dobanovci and Inter Kop. These court proceedings were initiated in 2018,531 almost three years after the valuation date. Serbia has not advanced a cogent reason why events occurring after the valuation date should be taken into account. Its own expert, Ms. Ilić, testified that only reasons existing at the time of the valuation could present a potential reason for excluding land from valuation;532
205. However, the Tribunal then completely disregarded its own refusal to use evidence post-dating the Valuation Date and used such evidence to make several determinations related to the value of BD Agro’s liabilities. Specifically, the Tribunal:
a. accepted Serbia’s correction to the value of BD Agro’s debt vis-à-vis Banca Intesa, which was based solely on events and evidence post-dating the Valuation Date;273
b. relied on the Second Confineks Valuation—prepared in January 2016, i.e. several months after the Valuation Date—for the value of BD Agro’s
272 Award, ¶ 690, first bullet point. ↩
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liabilities, specifically its court proceedings liabilities274 and its total estimated liabilities:275
Total estimated liabilities (excluding deferred tax liabilities): Relying on the figures included in the Second Confineks Valuation and his own analysis, Mr. Cowan submits that BD Agro’s estimated liabilities were EUR 42.2 million. Dr. Hern reaches a lower figure of EUR 37.8 million. The Second Confineks Valuation determined that BD Agro’s liabilities amounted to EUR 40.4 million. That amount was also used as the basis for liability values in BD Agro’s 31 December 2015 Financial Statements. To that amount, Mr. Cowan added EUR 1.8 million because the principal amount of a Banca Intesa (later Agrounija) loan accounted for in the Second Confineks Valuation increased,577 resulting in an increase in the interest payable thereon (and thereby increasing BD Agro’s liabilities by that amount).578 The Tribunal finds Mr. Cowan’s approach reasonable;
c. relied on BD Agro’s 2015 financial statements, prepared as of 31 December 2015 and approved on 30 June 2016, being well after the Valuation Date, to value the total estimated liabilities276 and the court proceedings liabilities:277
Court proceedings: Mr. Cowan includes EUR 200,000 in BD Agro’s liabilities. The Tribunal agrees, as the item was included in BD Agro’s 2015 financial statements.584
206. The two different positions taken by the Tribunal regarding the use of post-valuation evidence cannot logically coexist with one another. Indeed, when faced with a similar situation, the ad hoc committee in Pey Casado v. Chile (I) annulled the affected part of the award for failure to provide reasons.
207. Specifically, the Pey Casado (I) tribunal had refused to consider an expropriation which took place before the BIT’s entry into force, however, at the same time, based its calculation of damages on a contemporaneous valuation prepared in connection with the expropriation. The ad hoc committee concluded that the tribunal failed to
274 Award, ¶ 699(iv), footnote 584 and 707. ↩
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state reasons, as the reasons were contradictory—and annulled the part of the award addressing damages:
285. The Tribunal’s use of the expropriation-based damage calculation is manifestly inconsistent with its decision a few paragraphs earlier that such an expropriation-based damage calculation is irrelevant and that all evidence and submissions relevant to such a calculation could not be considered.
286. While the Committee recognizes that arbitral tribunals are generally allowed a considerable measure of discretion in determining quantum of damages, the issue in the present case is not per se the quantum of damages determined by the Tribunal. Nor does the problem lie per se in the Tribunal’s chosen method of calculating the damages suffered by the Claimants. The issue lies precisely in the reasoning followed by the Tribunal to determine the appropriate method of calculation, which, as demonstrated above, is plainly contradictory.278
208. Similarly in MINE v. Guinea, the award was annulled in part concerning damages because the tribunal adopted a calculation inconsistent with its previous analysis of the parties’ damages theories. According to the MINE committee, the “Tribunal could not, without contradicting itself, adopt a ‘damages theory’ which disregarded the real situation and relied on hypotheses which the Tribunal itself had rejected as a basis for the calculation of damages.”279
209. The conclusions of the Pey Casado (I) and MINE ad hoc committees are clearly applicable also in the present case. Same as in those cases, the Tribunal contradicted itself when it used in its valuation evidence post-dating the Valuation Date, even though it previously rejected reliance on such evidence.
210. The impact of the evidence post-dating the Valuation Date on the Tribunal’s valuation is consequential and significant. The correction to the value of BD Agro’s debt vis-à- vis Banca Intesa inflated the Tribunal’s valuation of BD Agro’s liabilities by EUR 1.8 million.280 The Tribunal’s use of the evidence post-dating the Valuation Date for the valuation of BD Agro’s total estimated liabilities inflated the result by EUR 4.4
278 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶¶ 285-286 (emphasis added), CLA-192. ↩
279 Maritime International Nominees Establishment v. Republic of Guinea (II), ICSID Case No. ARB/84/4, Decision for Partial Annulment of the Arbitral Award, 22 December 1989, ¶ 6.107 (emphasis added), CLA-184. ↩
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million.281 Finally, the Tribunal’s use of evidence post-dating the Valuation Date for the valuation of BD Agro’s liabilities related to court proceedings inflated the valuation of liabilities by EUR 0.2 million.282
211. When assessing BD Agro’s liabilities, the Tribunal included in its calculation the so- called “redundancy payments”. These are payments that BD Agro’s government- appointed management voluntarily agreed to make to BD Agro’s employees whose employment was terminated under a redundancy program adopted by that management after Serbia seized the Beneficially Owned Shares of BD Agro—i.e. after the Valuation Date.283
212. The Tribunal, however, concluded that the redundancy payments were mandatory to BD Agro also on the Valuation Date—pursuant to Annex 1 of the Privatization Agreement:
While the Claimants submit that the redundancy program was voluntary, they offer no authority in support. In any event, BD Agro was obliged to prepare a redundancy program in accordance with Annex 1 of the Privatisation Agreement.284
213. This conclusion is in direct contradiction to the Tribunal’s finding that the Privatization Agreement ceased to apply upon the full payment of the purchase price in 2011.285 These two conclusions simply cannot stand together—if the Privatization Agreement ceased to apply in 2011, then BD Agro could not have had any obligations under the Privatization Agreement as of the Valuation Date of 21 October 2015.
214. In addition, the Tribunal’s statement that “[w]hile the Claimants submit that the redundancy program was voluntary, they offer no authority in support” is false.286 Claimants’ valuation expert referred to authorities which clearly prove the opposite:
283 Dr. Richard Hern Second Expert Report dated 3 October 2019 (“Hern Second ER”), ¶ 182. ↩
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Mr Cowan’s inclusion of redundancy costs in the bankruptcy and indeed a going concern scenario is incorrect. The bankruptcy costs of EUR 0.7 million referred to in the January 2016 Reorganisation plan relate to a voluntary redundancy programme put in place by BD Agro’s government appointed management after BD Agro was expropriated. They are therefore not relevant for the valuation of BD Agro’s assets as of the date of expropriation, as no such programme was envisaged to be implemented by the old management prior to expropriation. This is evident from the fact that no such redundancy costs are included in the March 2015 Reorganisation plan. Indeed, this programme was only available to government controlled companies and hence could not have been implemented by BD Agro prior to expropriation.287
215. By including in its calculation of BD Agro’s liabilities the redundancy payments made after the Valuation Date, the Tribunal clearly contradicted its previous conclusion that BD Agro’s valuation should not rely on any evidence post-dating the Valuation Date.288 The Tribunal also provided contradictory reasoning because it concluded that the redundancy payments were due, on the Valuation Date, under the Privatization Agreement—even though it previously stated that the Privatization Agreement ceased to apply in April 2011.289
216. By disregarding Claimants’ evidence and incorrectly including the redundancy payments in BD Agro’s valuation, the Tribunal artificially decreased BD Agro’s equity value by EUR 0.7 million.290
217. In the Award, the Tribunal stated that the conversion fee “must be calculated on the basis of the previous year’s tax assessment”.291 However, the Tribunal then accepted Serbia’s calculation of the conversion fee, which was not based on the previous year’s tax assessment.
218. It was undisputed in the arbitration that the valuation of the Construction Land needed to reflect a conversion fee payable to Serbia for formally changing the status of the
287 Hern Second ER, ¶ 182 (emphasis added). ↩
288 Award, ¶ 693(third bullet point)(ii). ↩
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Construction Land in the real estate registry. The Parties agreed that the amount of the conversion fee was to be deducted from the total value of the Construction Land. The Parties also agreed that the conversion fee should be calculated as 50% of the average price of equivalent agricultural land. The only point of disagreement was the value of equivalent agricultural land.292
219. Claimants’ expert, Dr. Hern, calculated the value of equivalent agricultural land based on his valuation of BD Agro’s own agricultural land in a range of 0.7 to 2.9 EUR per m².293 Respondent’s expert, Ms. Ilić, claimed to have used the previous year’s tax assessments of the Serbian Tax Authority to determine the value of equivalent agricultural land.294
220. The Tribunal stated that it accepted the position of Serbia’s expert, Ms. Ilić, that the average price of equivalent agricultural land should be based on the previous year’s tax assessment.295 The Tribunal also stated that it accepted Ms. Ilić’s calculation of the conversion fee—amounting to EUR 3.1 million.296
221. However, in her calculation of the conversion fee, Ms. Ilić did not use the previous year’s tax assessment for all the valued land. Specifically:
a. for the land in Bečmen, Ms. Ilić used her own calculation of market value of the average price of equivalent agricultural land of EUR 4.3 per m² as the basis for her calculation of the conversion fee—while the tax assessment was
292 E.g. Hern Second ER, ¶¶ 175-177. ↩
294 Tr., Hearing on Jurisdiction and Merits, Day 7, 178:10-178:16 (Ilić). ↩
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EUR 0.72 per m².297 Ms. Ilić, thus, clearly did not use the previous year’s tax assessment—as is clear from her report:298
When comparing agricultural land sale transactions with land owned by BD Agro, I use representative (median) transacted size and median price (€/m2). Given that agricultural cadastral parcel in Bečmen, owned by BD Agro is of size of 227,021m2 and median transacted size of agricultural land is 1,920 m2 with a median price of 6.1 €/m2214, I applied downward adjustment for the size of 30% as a reflection of my experience in valuation of agricultural land.
Having regard to the content of this valuation, I am of the opinion that the Market Value of the BD Agro owned agricultural land in Becmen, of 227,021m2, is 4.3 €/m2
[...]
Having regard to the contents of this valuation, I am of the opinion that the Market Value of the BD Agro owned construction land in Becmen, of 150,280m2217, is 6.7 €/m2
or 1,006,876 €
minus fee for change of use218
80,631m2 x 4.3 €/m2 x 0.5 = 173,357€
MV 833,519 €
b. for the Construction Land, Ms. Ilić used a price of EUR 3.4 per m², which does not correspond to the previous year’s tax assessment—the tax assessment was
297 See the price for agricultural land in zone 7 from the Secretariat of Finance decision of RSD 87 - Official Gazette of the City of Belgrade Year LIX Number 70 (30 November 2015), Decision on Determining the Amount of Average Price of Square Meter of Appropriate Immovable for Zones in the Territory of the City of Belgrade for the Purpose of Determining Property Tax for the Year 2016, CE-166. This price was converted to EUR using the average monthly EUR/RSD rate from January 2015 to September 2015 of 120.7, as reported by the National Bank of Serbia - NBS exchange rate data, CE-137. BD Agro’s construction land in Bečmen is located in Zone 7 – see 2015 zoning decision, Official Gazette of the City of Belgrade, no. 55/2013, 87/2014 and 69/2015 (2015), Decision on Determining the Zones and most Equipped Zones in the Territory of the City of Belgrade for the Purpose of Determining Property Tax, CE-168. ↩
298 Ilić First ER, ¶¶ 9.48-9.49. ↩
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EUR 1.94 per m² 299—and in fact is not explained anywhere in her reports.300 Based on this arbitrary number, Ms. Ilić arrived at a value of the conversion fee of EUR 2,910,425:301
Having regard to the contents of this valuation, I am of the opinion that the Market Value of the BD Agro owned construction land in Dobanovci, of 2,852,015 m2264, is 14.7 eur/m2
or 41,924,620 eur
minus fee for change of use265
1,712,015m2 x 3.4eur/m2 x 0.5 = 2,910,425 eur
MV 39,014,194 eur
222. Given that the Tribunal simply adopted Ms. Ilić’s calculation, it again acted in contradiction with its own previous reasoning. On one hand, the Tribunal made an unequivocal conclusion that the conversion fee should be calculated based on the previous year’s tax assessment; and on the other hand, it accepted Ms. Ilić’s valuation that did not follow this approach.
223. This error of the Tribunal is again akin to the Tidewater case, where the Tribunal contradicted the valuation element that it previously stated should be used (in that case the country risk premium). Like in Tidewater, “one part of the Award, where a genuinely contradictory reasoning on the amount of compensation cancels out another reasoning with respect to the same compensation, must be annulled.”302
299 See the price for agricultural land in zone 5 from the Secretariat of Finance decision of RSD 234 - Official Gazette of the City of Belgrade Year LIX Number 70 (30 November 2015), Decision on Determining the Amount of Average Price of Square Meter of Appropriate Immovable for Zones in the Territory of the City of Belgrade for the Purpose of Determining Property Tax for the Year 2016, CE- 166, converted to EUR using the average monthly EUR/RSD rate from January 2015 to September 2015 of 120.7, as reported by the National Bank of Serbia - NBS exchange rate data, CE-137. BD Agro’s construction land in Dobanovci is located in Zone 5 – see 2015 zoning decision, Official Gazette of the City of Belgrade, no. 55/2013, 87/2014 and 69/2015 (2015), Decision on Determining the Zones and most Equipped Zones in the Territory of the City of Belgrade for the Purpose of Determining Property Tax, CE-168. ↩
300 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
301 Ilić First ER, ¶ 9.1 (correctly should be 9.93). ↩
302 Tidewater Inc. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶ 196, CLA-188. ↩
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224. The Tribunal’s contradictory reasoning is further exacerbated by the fact that, when describing its approach to calculation of the conversion fee, the Tribunal referred to values of agriculture land that were never used by either of the Parties:303
the agricultural price as basis. In his expert report, Mr. Grzesik reaches an agricultural land price of EUR 1.85 million, to which he applies a conversion fee of EUR 1.5 million. By contrast, Ms. Ilić arrives at an agricultural land price of EUR 3.4 million to which she applies a conversion fee of EUR 3.1 million. In her first report579 and at the hearing, Ms. Ilić furnished a detailed explanation for her approach580 and explained why the fee must be calculated on the basis of the previous year’s tax assessment.581 Mr. Cowan then used Ms. Ilić’s conversion fee amount in his expert report.582 The Tribunal finds Ms. Ilić’s reasons plausible. In the absence of any contrary indications provided by the Claimants, it adopts the conversion fee used by the Respondent’s experts;
225. Importantly, same as with respect to the previous issues, the impact of the Tribunal’s decision on the conversion fee is significant. Compared to Claimants’ valuation, the Tribunal inflated the conversion fee and thus decreased the damages awarded to Mr. Rand by up to EUR 2.4 million, i.e. representing approximately 17% of the total amount awarded to Mr. Rand.304
226. Another item included by the Tribunal in BD Agro’s liabilities was a category of liabilities labeled by the Tribunal as “court proceedings”. The Tribunal’s only explanation for the inclusion of these liabilities in BD Agro’s valuation is that “Mr. Cowan includes EUR 200,000 in BD Agro’s liabilities. The Tribunal agrees, as the item was included in BD Agro’s 2015 financial statements.”305
304 Award, ¶ 707; Hern’s updated analysis, Assets, CE-908. ↩
305 Award, ¶ 699(iv) (emphasis added). ↩
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227. However, BD Agro’s 2015 financial statements only include costs of court proceedings in the amount of RSD 50,000, i.e. approximately EUR 417:306
| 405 | 5. Provisions for litigation expenses | 0430 | 50 |
228. To add to the overall confusion, in the footnote to its aforementioned statement, the Tribunal refers to the Second Confineks Valuation, rather than to the financial statements as such.307 As in BD Agro’s 2015 financial statements, the Second Confineks Valuation also estimates the court proceeding costs at RSD 50,000, i.e. approximately EUR 417:308
| (in thousands of dinars) | ||||
| Group of ac-counts, ac-counts | POSITION | ADP | Book value | Estimated mar-ket value on De-cember 31, 2015 |
|---|---|---|---|---|
| [...] | ||||
| 404 | 4. Provisions for employee salaries and other benefits | 0429 | ||
| 405 | 5. Provisions for litigation costs | 0430 | 50 | 50 |
| 402 and 409 | 6. Other long-term provisions | 0431 | ||
229. The Tribunal’s decision on this point is, therefore, again contradictory. In fact, as shown above, the very documents which the Tribunal identifies as the basis for its decision show that the Tribunal inflated the value of liabilities related to court proceedings by approximately 48,000%.
230. Furthermore, as another inconsistency, both the Second Confineks Valuation and the 2015 financial statements post-date the Valuation Date and, as explained above, the
306 EUR/RSD rate as of 21 October 2015 was 119.9, as reported by the National Bank of Serbia. National Bank of Serbia Website - Exchange Rate EUR to RSD (2019), https://www.nbs.rs/internet/english/ dated 11 January 2019, CE-137. See BD Agro AD Dobanovci Original Financial Statements for 2015 dated 31 December 2015, CE-140. ↩
308 Confineks d.o.o. Beograd, Report on the Valuation of Assets, Liabilities and Capital of BD Agro AD Dobanovci dated January 2016, p. 32 (item 405), CE-172. ↩
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Tribunal made it clear that it would not rely on any evidence post-dating the Valuation Date.
231. To calculate BD Agro’s equity value, the Tribunal subtracted the total value of BD Agro’s liabilities from the total value of its assets.309 When calculating the value of BD Agro’s liabilities, the Tribunal divided them into the following six categories: (i) total estimated liabilities; (ii) conversion fee; (iii) payment to Canadian suppliers; (iv) court proceedings; (v) capital gains tax; and (vi) redundancy payments:310
| Total estimate liabilities | (42.2) |
| Conversion fee | (3.1) |
| Payment to Canadian suppliers | (2.2) |
| Court proceedings | (0.2) |
| Capital Gains Tax | (5.7) |
| Redundancy payments | (0.7) |
| Total liabilities | 54.1 |
232. The Tribunal did not provide sufficient reasons for its valuation of the total estimated liabilities and the capital gains tax at EUR 5.7 million.
233. The capital gains tax was deduced from the value of BD Agro’s assets by both Mr. Cowan and Dr. Hern to reflect the capital gains tax that BD Agro would have to pay if it were to sell its assets.311 The Parties agreed that the tax should correspond to 15% on any increase in the value relative to the original purchase price for these assets.312
311 Hern First ER, ¶ 144; Cowan Second ER, ¶ 6.12. ↩
312 Hern First ER, ¶ 150; Cowan Second ER, ¶ 6.12. ↩
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234. However, the experts disagreed on the actual amount of the tax. Dr. Hern argued that, given the lack of all information required to calculate the capital gains tax,313 the most appropriate approach is to proxy the value of the capital gain tax by deferred tax liabilities reported in BD Agro’s 2015 annual accounts. This approach led to capital gain tax of EUR 3.1 million.314 Mr. Cowan, on the other hand, attempted to calculate the capital gain tax himself—even though he admitted he did not have all necessary information to do so315—and estimated its value at EUR 5.7 million.316
235. The Tribunal accepted the value of the capital gains tax calculated by Mr. Cowan (EUR 5.7 million) because, in the Tribunal’s words, Mr. Cowan’s approach to the calculation of the capital gains tax was “objective and logical”.317 The Tribunal, however, failed to provide any explanation for why that was supposedly the case. Indeed, the following is the only reasoning provided by the Tribunal for this decision:
v. Capital gains tax: Dr. Hern and Mr. Cowan disagree on the applicable capital gains tax. Dr. Hern calculates capital gains tax by using the “deferred tax liabilities” in BD Agro’s 2015 balance sheet as a proxy for the
capital gains, based on the Claimants’ instruction.585 By contrast, Mr. Cowan deducts the book value of BD Agro’s tangible assets (i.e. BD Agro’s land, plant, equipment and biological assets) as of 31 December 2013 as a proxy for the purchase price, from the value of land according to Ms. Ilić and applies a 15% capital gain tax rate.586 The Tribunal adopts Mr. Cowan’s approach, which it finds objective and logical.
236. The Tribunal did not provide any explanation for why it considered Serbia’s approach objective and logical, nor why it believed that Claimants’ approach was not objective and/or logical. The lack of reasoning, same as with respect to BD Agro’s assets,
313 In their Reply, Claimants explained that requested the production of relevant documents by Serbia during the document production process. However, while Serbia produced certain documents, a number of documents were missing. Without the missing documents, Claimants were unable to calculate applicable taxes that should be reflected in the valuation of BD Agro’s assets. See Claimants’ Reply, ¶¶ 1376-1379. ↩
315 Cowan Second ER, ¶ 6.11. ↩
316 Cowan Second ER, ¶ 6.12. ↩
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prevents Mr. Rand (or any other reader) from following—much less understanding— the Tribunal’s conclusion.
237. Adopting an expert’s opinion without any explanation, especially where the other party specifically takes an issue therewith, constitutes a failure to provide reasons.318 In Teinver v. Argentina, the ad hoc committee concluded that not addressing the parties’ argument that “was so important that it would clearly have been determinative of the outcome” warranted annulment of the award.319
238. And this is exactly the case here—the Tribunal simply adopted Mr. Cowan’s number, without any relevant explanation as to why it did so, even though there was a dispute between the Parties about the number.320 The Tribunal did not address any of the arguments raised by Claimants in relation to Serbia’s calculation of the capital gains tax even though these arguments were clearly determinative for the calculation of the tax.
239. The Tribunal thus committed an annullable error. Once again, this error is clearly outcome-determinative. The difference between the Parties’ calculation of the capital gains tax is EUR 2.6 million, i.e. approximately 18% of the total amount awarded to Mr. Rand (without interest).321
240. When explaining its approach to valuation of BD Agro’s liabilities, the Tribunal clearly stated that it was calculating the amount of total estimated liabilities “excluding deferred tax liabilities”, i.e. taxes that are expected to be owed and payable as of a later date.322
318 SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Individual Opinion of Fernando Piérola Castro dated 22 February 2022, ¶¶ 42-49, CLA-208. ↩
319 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Annulment, 29 May 2019, ¶ 210, RLA-162. ↩
321 Hern First ER, ¶ 34; Cowan Second ER, ¶ 6.12; Award, ¶¶ 707, 708. ↩
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7. Liabilities
699. It is common ground that liabilities must be deducted from assets to get to the near asset value of BD Agro. The Parties’ experts had different opinions, however, on a number of elements of BD Agro’s liabilities and, consequently, on their total amount:
i. Total estimated liabilities (excluding deferred tax liabilities): Relying on the
241. Later on in the Award, the Tribunal included a table with values it decided to assign to BD Agro’s assets and liabilities. However, this table no longer makes it clear whether the value of “total estimate liabilities” calculated by the Tribunal includes “deferred tax liabilities” or not:323
| Total estimate liabilities | (42.2) |
| Conversion fee | (3.1) |
| Payment to Canadian suppliers | (2.2) |
| Court proceedings | (0.2) |
| Capital Gains Tax | (5.7) |
| Redundancy payments | (0.7) |
| Total liabilities | 54.1 |
242. Thus, it is unclear whether the final value of “total estimate liabilities” adopted by the Tribunal included “deferred tax liabilities” or not. Importantly, this is not a mere theoretical question. If the final value of “total estimate liabilities” adopted by the Tribunal includes “deferred tax liabilities”, it would mean that the Tribunal contradicted its previous conclusion that “total estimate liabilities” should be calculated without “deferred tax liabilities”.
243. In addition, it would also mean that the Tribunal double-counted the value of the capital gains tax. Indeed, the capital gains tax would be included in the Tribunal’s calculation twice: first, as a separate item valued at EUR 5.7 million; and, then again, (ii) as a part of “deferred tax liabilities”, which in BD Agro’s case represent deferred payments of the capital gains tax.324
324 Notes to Financial Statements of BD Agro for year 2008, point 40, CE-419; Notes to Financial Statements of BD Agro for year 2009, point 40, CE-593; BD Agro’s financial statements for 2013, point 24, CE-828. ↩
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244. Specifically, the Tribunal included in its calculation of liabilities a separate EUR 5.7 million for “Capital Gains Tax”.325 This amount of the capital gains tax was, thus, added to the EUR 42.2 million value that the Tribunal assigned to the “total estimated liabilities” and that, according to the Tribunal, was taken from: (i) the Second Confineks Valuation;326 and (ii) BD Agro’s 2015 financial statements:327
| Total estimate liabilities | (42.2) |
| Conversion fee | (3.1) |
| Payment to Canadian suppliers | (2.2) |
| Court proceedings | (0.2) |
| Capital Gains Tax | (5.7) |
| Redundancy payments | (0.7) |
| Total liabilities | 54.1 |
245. However, the EUR 42.2 million liability figure, set out in the Second Confineks Valuation and BD Agro’s 2015 financial statements, already included EUR 3.1 million of deferred tax liability. As explained above, this deferred tax liability corresponded to the contemporaneously estimated amount of the capital gains tax.328
246. As a result, if the EUR 42.2 million value that the Tribunal assigned to the “total estimated liabilities” includes “deferred tax liabilities”, the Tribunal would have double-counted the value of the capital gains tax. By doing so, the Tribunal would have artificially inflated BD Agro’s liabilities by the value of “deferred tax liabilities”, i.e. EUR 3.1 million.
247. Importantly, potential double-counting of the capital gains tax would not represent only an error in the Tribunal’s computations. It would also represent a reason for an annulment.
248. Dr. Hern, Claimants’ valuation expert, explained the double-counting issue in his reports—when addressing the calculation of the capital gains tax by Mr. Cowan,
326 Award, ¶ 699(i); Cowan Third ER, ¶ 4.4; Confineks d.o.o. Beograd, Report on the Valuation of Assets, Liabilities and Capital of BD Agro AD Dobanovci dated January 2016, CE-172. ↩
327 Award, ¶ 699(i); Notes to the 2015 Financial Statements, CE-171. ↩
328 Confineks d.o.o. Beograd, Report on the Valuation of Assets, Liabilities and Capital of BD Agro AD Dobanovci dated January 2016, section 3.2, p.43, CE-172; Hern Second ER, ¶¶ 15, 172-173. ↩
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Serbia’s quantum expert. Mr. Cowan, same as the Tribunal, relied on the Second Confineks Valuation and included in his valuation total liabilities in the amount of EUR 42.2 million. At the same time, and again same as the Tribunal, Mr. Cowan added to this value EUR 5.7 million for capital gains tax.
249. Dr. Hern explained in his expert report that Mr. Cowan’s calculation represented double counting:329
6.1.1.1. Mr Cowan double counts capital gains tax
172. Mr Cowan uses the value of net assets reported in the February 2016 Confineks report of EUR 56.4 million as a starting point of his valuation. He then subtracts EUR 3.1 million of capital gains tax, approximated by the deferred tax liabilities reported in the February 2016 Confineks report. However, the deferred tax liability is already included as part of the liabilities in the February 2016 Confineks report which Mr Cowan subtracts from the value of assets to calculate the net asset value as the starting point.130 Mr Cowan therefore double counts the capital gains tax: once by subtracting the deferred tax (proxy of capital gains tax) as part of the liabilities included in the February 2016 Confineks report to derive a net asset (equity) value and a second time by subtracting again the same value of deferred tax liability from the equity value calculated in the first step.
250. If the Tribunal indeed calculated BD Agro’s liabilities in the same way as Mr. Cowan, which seems to be the case, Dr. Hern’s observations directly apply also to the Tribunal’s calculation. Yet, the Tribunal did not deal with Dr. Hern’s comments in any way.
251. The Tribunal’s decision is thus annullable because of the Tribunal ignored an outcome-determinative argument. As explained above, the Teinver ad hoc committee confirmed that not addressing the parties’ argument that “was so important that it would clearly have been determinative of the outcome” warrants annulment.330 As explained above, potential double counting inflates BD Agro’s liabilities by EUR 3.1 million. Arguments related to this double-counting thus clearly represent arguments that “would clearly have been determinative of the outcome”.
329 Hern Second ER, ¶ 172. Dr. Hern made his observation in response to Mr. Cowan’s first expert report. In his second expert report, Mr. Cowan increased the amount of capital gains tax from EUR 3.1 million to EUR 5.7 million. As a result, the capital gains tax used by Mr. Cowan no longer corresponded to the amount of BD Agro’s deferred tax liabilities. However, this fact does not change the conclusion that including the full amount of both the capital gains tax and deferred tax liabilities when calculating BD Agro’s liabilities leads to double counting. ↩
330 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Annulment, 29 May 2019, ¶ 210, RLA-162. ↩
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252. According to Article 52(1)(b) of the ICSID Convention, “either party may request annulment of the award” if “the tribunal manifestly exceeded its powers.”331 It is widely accepted that the manifest excess of powers includes an ICSID tribunal’s failure to exercise jurisdiction.332
253. For example, the ad hoc committee in Soufraki concluded that "manifest and consequential non-exercise of one's full powers conferred or recognized in a tribunal's constituent instrument such as the ICSID Convention and the relevant BIT, is as much a disregard of the power as the overstepping of the limits of that power."333
254. With regard to the term “manifest”, there are two approaches taken by ICSID ad hoc committees.
255. On one hand, some committees have interpreted “manifest” to mean “substantial” or “serious”, i.e. such excess of powers that has serious consequences.334 For example, the committee in Vivendi v. Argentina assessed a decision rejecting jurisdiction on the basis that the claims were contractual in nature. The Vivendi committee concluded
331 ICSID Convention, Article 52(1)(b), CLA-017. ↩
332 E.g. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, ¶ 86, RLA-155; Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/07, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, ISCID Case No. ARB/02/7, 5 June 2007, ¶ 43, CLA-190; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10, Decision on Annulment, 16 April 2009, ¶ 80, CLA-194; Lucchetti v Peru, ICSID Case No. ARB/03/4, Decision on Annulment, 5 September 2007, ¶ 99, CLA-209; Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Decision on Annulment, June 14, 2010, ¶ 41 CLA-116; Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Decision on the Annulment Application, February 21, 2014, ¶ 75, CLA-016; Schill SW, Malintoppi L, Reinisch A, Schreuer CH, Sinclair A, eds. Schreuer's Commentary on the ICSID Convention: A Commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 3rd ed. Cambridge University Press; 2022, Article 52, ¶ 196, CLA-206. ↩
333 Houssein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/07, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, ISCID Case No. ARB/02/7, 5 June 2007, ¶ 43, CLA-190. ↩
334 Schill SW, Malintoppi L, Reinisch A, Schreuer CH, Sinclair A, eds. Schreuer's Commentary on the ICSID Convention: A Commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 3rd ed. Cambridge University Press; 2022, Article 52, ¶ 161. CLA-206. ↩
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that the tribunal manifestly exceeded its powers by declining jurisdiction over contractual claims that could have—in the committee’s view—given rise to a Treaty breach.335 The Vivendi committee did so even though the excess of powers was not obvious, in the sense that committee had to go into significant analysis to explain the excess of powers committed by the tribunal.
256. This approach is in line with the opinion of the committee in Pey Casado, which found that “an extensive argumentation and analysis do not exclude the possibility of concluding that there is a manifest excess of power, as long as it is sufficiently clear and serious".336
257. On the other hand, some ad hoc committees interpret the term “manifest” as meaning “clear, obvious and without need for further debate or investigation".337 According to this view, the excess does not have to be serious, but must be “discerned with little effort and without deeper analysis".338
258. While Mr. Rand recognizes these differences, the above-described discussion is purely academic with respect to the present case. The Tribunal had—and should have exercised—jurisdiction over all claims of Mr. Rand under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal’s failure to do so was both substantial and serious, as required under the first approach, and clear and obvious, as required under the second approach.
259. Besides being a beneficial owner of the Beneficially Owned Shares, Mr. Rand also held a 3.9% shareholding in BD Agro through his 100% owned Serbian company,
335 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, ¶¶ 104–112, 115, RLA-155. ↩
336 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶ 70, CLA-192. ↩
337 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶ 76, CLA-207. ↩
338 Schill SW, Malintoppi L, Reinisch A, Schreuer CH, Sinclair A, eds. Schreuer's Commentary on the ICSID Convention: A Commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 3rd ed. Cambridge University Press; 2022, Article 52, ¶ 155, CLA-206. ↩
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MDH Serbia. The Indirect Shareholding qualifies as a covered investment under Article 1 of the Canada-Serbia BIT, which defines “investment” as, among other things, “(b) a share, stock or other form of equity participation in an enterprise”.339 Serbia did not dispute this fact in the arbitration.
260. Nonetheless, the Tribunal rejected jurisdiction over Mr. Rand’s Indirect Shareholding, stating that "[t]he Claimants have proffered no evidence whatsoever of Mr. Rand's alleged contribution of EUR 0.2 million to acquire MDH Serbia's 3.9% stake in BD Agro."340
261. The Tribunal’s decision constitutes a manifest excess of powers for three reasons:
262. Each of these reasons is discussed seriatim below.
339 Canada-Serbia BIT, Article 1, definition of “investment”, CLA-001. ↩
341 Canada-Serbia BIT, Article 1, definition of “investment", CLA-001. ↩
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263. The Tribunal rejected jurisdiction over Mr. Rand’s Indirect Shareholding on the grounds that Mr. Rand did not prove the existence of any “contribution” in relation to the Indirect Shareholding.342 The Tribunal considered the existence of a contribution necessary, because it chose to apply the so-called Salini test. According to the Tribunal, the word “investment” in Article 25(1) of the ICSID Convention has its inherent meaning, which includes “a contribution or allocation of resources".343
264. The Tribunal’s recourse to the Salini test to establish whether Mr. Rand’s indirect ownership of the Indirect Shareholding constitutes an investment within the meaning of Article 25 of the ICSID Convention constitutes an annullable error.
265. It is undisputed that subparagraph (b) of the definition of “investment” in Article 1 of the Canada-Serbia BIT defines an “investment” as “a share, stock or other form of equity participation in an enterprise".344 It is equally undisputed that the Indirect Shareholding meets that definition.
266. The analysis under Article 25 of the ICSID Convention is no different. Numerous ICSID tribunals have confirmed that “there is no need to investigate how a shareholder acquired its interest in the entity holding the investment or whether it satisfies additional conditions to the ownership of shares.”345
267. To provide just one example, the tribunal in Lopez-Goyne v. Nicaragua addressed a case where claimants acquired shares in a company, which held the investment in Nicaragua. The claimants acquired the shares in the holding company for consideration and some of them subsequently made substantial disbursements and
344 Canada-Serbia BIT, Article 1, definition of "investment", CLA-001. ↩
345 See e.g. The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 316, CLA-198; Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, ¶ 542, CLA-199; Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, ¶ 148, CLA-091; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016, ¶ 158, CLA-160. ↩
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personal non-monetary contributions related to the holding company and, by extension, to the investment.346 However, the claimants were unable to reconstruct the paper-trail regarding their payment for the shares in the holding company.347
268. The Lopez-Goyne tribunal stated that it did not need to investigate whether the claimants satisfied any conditions beyond evidencing their indirect ownership of the shares in the investment.348 The tribunal concluded that “[a]s a matter of fact, ownership of shares generally is considered sufficient, save in special circumstances.”349 The “special circumstances” would be, according to the tribunal, “a risk of abuse or circumvention of the jurisdictional requirements".350 No such “special circumstances” exist in this case and the Tribunal did not point to any such circumstances in the Award. To the contrary, the Tribunal rejected Serbia’s objection based on alleged abuse of process.351
346 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 321, CLA-198. ↩
347 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 321, CLA-198. ↩
348 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 316, CLA-198. ↩
349 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 319, CLA-198. ↩
350 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶ 316, CLA-198 citing Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, ¶ 542, CLA-199; Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, ¶ 148, CLA-091; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016, ¶ 158, CLA-160. ↩
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269. Other tribunals also expressly rejected the suggestion that an investment would need to satisfy any requirements other than those stated in the relevant investment treaty.352 For example, the tribunal in M.C.I. Power v. Ecuador concluded that it was a deliberate decision of the drafters of the ICSID Convention to leave the definition of “investments” to the state-parties to the Treaties:
From a simple reading of Article 25(1), the Tribunal recognizes that the ICSID Convention does not define the term “investments". The Tribunal notes that numerous arbitral precedents confirm the statement in the Report of the Executive Directors of the World Bank that the Convention does not define the term "investments" because it wants to leave the parties free to decide what class of disputes they would submit to the ICSID.353
270. Indeed, an over-reliance on the so-called Salini test in interpretation of Article 25(1) of the ICSID Convention has been heavily criticized by a number of tribunals.354 The pertinent issue with this approach was notably articulated by the tribunal in Awdi v. Romania, which explained that “the Salini criteria may be useful to describe typical characteristics of an investment, but they cannot, as a rule, override the will of the parties, given the undefined and somewhat flexible term used by the drafters of the ICSID Convention.”355
271. The Tribunal in Garanti Koza v. Turkmenistan, following the decisions of SGS v. Paraguay and BIVAC v. Paraguay, further clarified that the definition of “investment” in the BIT should apply as long as “the nature of the Claimant's investment itself nor the definition of ‘investment' in the BIT ‘exceed[s] what is permissible under the
352 Philippe Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award, 27 November 2000, ¶ 13.6, CLA-087; Lanco Int'l, Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, 8 December 1998, ¶ 48, CLA-088; M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶¶ 159-60, RLA-034; Ambiente Ufficio SPA and others v. The Argentine Republic, ICSID Case No. ARB/08/09, Decision on Jurisdiction and Admissibility, 8 February 2013, ¶ 453, CLA-089. ↩
353 M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶¶ 159-60, RLA-034. ↩
354 E.g. Theodoros Adamakopoulos and others v. Republic of Cyprus, ICSID Case No. ARB/15/49, Decision on Jurisdiction, 7 February 2020, ¶ 294, CLA-210; Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 October 2012, ¶ 294, CLA-067. ↩
355 Mr. Hassan Awdi, Enterprise Business Consultants Inc. and Alfa El Corporation v. Romania, ICSID Case No. ARB/10/13, Award, 2 March 2015, ¶ 197, CLA-026. ↩
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Convention' or is ‘absurd or patently incompatible with [the] object and purpose' of the ICSID Convention.”356
272. Neither the definition of “investment” in the BIT, nor the nature of Mr. Rand’s Indirect Shareholding, contradicts the limits or object and purpose of the ICSID Convention. It cannot be seriously argued that considering an indirect shareholding in a Serbian joint stock company as an “investment” would be in any manner incompatible with the ICSID Convention.
273. The Tribunal’s reference to the Quiborax and Caratube II cases, stating that “mere ownership" of shares is not a proof of actual commitment of resources, is inapposite.357 These cases are inapplicable to the case at hand because of significant differences in the factual background.
274. The section of the Caratube II award quoted by the Tribunal is in fact a summary of the respondent’s (Kazakhstan’s) position on the existence of an investment by the claimant, Mr. Hourani.358 It does not set out the findings of the Caratube II tribunal. The Caratube II tribunal did not elaborate on the requirement to make a contribution at all, because it found that there was no agreement to arbitrate Mr. Hourani’s claims.359 Moreover, unlike Mr. Rand, Mr. Hourani did not make any non-monetary contributions towards his investment.360
356 Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Award, 19 December 2016, ¶ 241, CLA-211; SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010, ¶ 93, CLA-041; Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. The Republic of Paraguay, ICSID Case No. ARB/07/9, Decision of the Tribunal on Objections to Jurisdiction, 29 May 2009, ¶ 94, CLA-212. ↩
358 Award, ¶ 272; Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/13/13, Award, 27 September 2017, ¶¶ 675, 687, CLA-028. ↩
359 Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/13/13, Award, 27 September 2017, ¶ 690, CLA-028. ↩
360 Caratube International Oil Company LLP v. Republic of Kazakhstan (I), ICSID Case No. ARB/08/12, Award, 5 June 2012 ¶ 451, RLA-011. ↩
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275. The Quiborax case referred to by the Tribunal is easily distinguishable from the present case because the circumstances in Quiborax were extremely peculiar.361 The decisive ground for the Quiborax tribunal’s denial of jurisdiction over one of the claimants was that the claimant: (i) had received one share gratuitously and solely in order to comply with a formality under the host State’s corporate law; and (ii) made no subsequent contribution towards the investment either.362
276. In contrast, Mr. Rand’s investment in the Indirect Shareholding was not made to comply with any legal formality, but instead made to increase his equity interest in BD Agro. In addition, Mr. Rand made significant personal non-monetary contributions to BD Agro throughout the duration of his investment—as the Tribunal itself confirmed.363 These key differences make the Quiborax decision inapplicable.364
277. Most importantly, the ad hoc committee in Malaysian Historical Salvors v. Malaysia fittingly observed that it is the underlying investment treaties that bestow jurisdiction upon ICSID—not the other way around—and their importance should not be ignored by questionable interpretations of the term “investment” under Article 25(1) of the ICSID Convention:
It is those bilateral and multilateral treaties which today are the engine of ICSID's effective jurisdiction. To ignore or depreciate the importance of the jurisdiction they bestow upon ICSID, and rather to embroider upon questionable interpretations of the term “investment” as found in Article 25(1) of the Convention, risks crippling the institution.365
278. The Malaysian Historical Salvors committee concluded that the tribunal exceeded its powers when it ignored the fact that the relevant Treaty interpreted the term
361 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶¶ 319-321, CLA-198 with reference to Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, ¶¶ 232-233, RLA-024. ↩
362 Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, ¶¶ 232-233, RLA-024. ↩
364 The Lopez-Goyne Family Trust and others v. Republic of Nicaragua, ICSID Case No. ARB/17/44, Award, 1 March 2023, ¶¶ 319-321, CLA-198. ↩
365 Malaysian Historical Salvors Sdn, Bhd v. Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, 16 April 2009, ¶ 73, CLA-194. ↩
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“investment” broadly, and instead elevated the typical characteristics of an investment into jurisdictional conditions of Article 25(1) of the ICSID Convention and ignored the intention of the drafters of the ICSID Convention to leave the definition of “investment” to the underlying investment treaties:
It is [the committee’s] considered conclusion that the Tribunal exceeded its powers by failing to exercise the jurisdiction with which it was endowed by the terms of the Agreement and the Convention, and that it "manifestly” did so, for these reasons:(a) it altogether failed to take account of and apply the Agreement between Malaysia and the United Kingdom defining “investment” in broad and encompassing terms but rather limited itself to its analysis of criteria which it found to bear upon the interpretation of Article 25(1) of the ICSID Convention;
(b) its analysis of these criteria elevated them to jurisdictional conditions, and exigently interpreted the alleged condition of a contribution to the economic development of the host State so as to exclude small contributions, and contributions of a cultural and historical nature; [and]
(c) it failed to take account of the preparatory work of the ICSID Convention and, in particular, reached conclusions not consonant with the travaux in key respects, notably the decisions of the drafters of the ICSID Convention to reject a monetary floor in the amount of an investment, to reject specification of its duration, to leave 'investment' undefined, and to accord great weight to the definition of investment agreed by the Parties in the instrument providing for recourse to ICSID.366
279. In the present case, the Tribunal also incorrectly elevated the typical characteristics of an investment to jurisdictional conditions, in conflict with the will of the contracting parties to the Canada-Serbia BIT and the ICSID Convention. Much like in Malaysian Historical Salvors, such excess of the Tribunal’s powers must therefore be considered manifest.
280. Thus, for this reason alone, the Tribunal manifestly exceeded its powers when it declined jurisdiction over Mr. Rand’s Indirect Shareholding in BD Agro and such jurisdictional decision must be annulled.
366 Malaysian Historical Salvors Sdn, Bhd v. Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, 16 April 2009, ¶ 80, CLA-194. ↩
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281. In the Award, the Tribunal correctly concluded that it “is required to apply the law on its own motion, provided always that it gives the Parties an opportunity to comment if it intends to base its decision on a legal theory that was not addressed and that the Parties could not reasonably anticipate.”367 However, the Tribunal then surprisingly rejected jurisdiction over Mr. Rand’s Indirect Shareholding because Mr. Rand did not provide any evidence of his “contribution” in relation to that investment,368 even though the Tribunal never inquired about this issue with Mr. Rand and never informed Mr. Rand that he was required to make such a showing.
282. Mr. Rand was a witness in the arbitration and was examined at the hearing for over 1.5 hours both by Serbia’s counsel and by all Members of the Tribunal.369 Yet, at no point was Mr. Rand asked by either Serbia or the Tribunal about how he acquired the Indirect Shareholding and how much he paid for it. In fact, the Tribunal did not raise this issue at all during the hearing and did not ask the Parties to address this issue in their post-hearing briefs, even though the Tribunal went into great detail of other areas where they wanted the parties to elaborate upon.370
283. Had the Tribunal asked Mr. Rand to prove the existence of his contribution to acquire the Indirect Shareholding, he would have been more than happy to provide oral testimony and conclusive documentary evidence showing the existence of such contribution.
284. Instead, the Tribunal took Mr. Rand by surprise when it deviated from established case law that does not require proof of the existence of contribution with respect to shares owned by the investor and, without any warning, concluded that Mr. Rand failed to carry his burden of proof with respect to the existence of his “contribution of EUR 0.2
369 Transcript, Hearing on Jurisdiction and Merits, Day 2, dated 13 July 2021, pp. 1-60 (Rand). ↩
370 Transcript, Hearing on Jurisdiction and Merits, Day 8, dated 20 July 2021, 174:09-176:02. ↩
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million to acquire MDH Serbia's 3.9% stake in BD Agro,” for whatever that may mean.371
285. Mr. Rand respectfully submits that the Tribunal’s approach constitutes an independent instance of the Tribunal’s manifest excess of powers with respect to its denial of jurisdiction over the Indirect Shareholding and, thus, an independent ground for annulment of this jurisdictional decision.
286. Finally, even if the Tribunal’s unexpected decision to require evidence of Mr. Rand’s “contribution” in relation to the Indirect Shareholding was somehow justified, and it is not, such evidence was clearly on the record.
287. In the Award, the Tribunal concluded that contribution exists where the investor bears the financial burden of an investment.372 When concluding that Mr. Rand bore the financial burden, and thus made contribution, with respect to the Beneficially Owned Shares, the Tribunal pointed out, inter alia, the following elements:373
374 Share Purchase Agreement, 19 September 2005, Art.5, CE-015. ↩
375 Award, ¶ 238 and fn. 114. ↩
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376 Award, ¶ 238 and fn. 115. ↩
377 Award, ¶ 238 and fn. 116. ↩
378 Award, ¶ 238 and fns. 117 and 118. ↩
379 Award, ¶ 238 and fns. 121-123. ↩
380 Award, ¶ 238 and fn. 124. ↩
381 Award, ¶ 238 and fn. 127. ↩
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288. Inexplicably, the Tribunal concluded that all of the above-listed contributions pertained solely to Mr. Rand’s investment in the Beneficially Owned Shares—even though it is clear that at least points (c)(iv), (d), (e) and (f) are equally linked to Mr. Rand’s Indirect Shareholding, which Mr. Rand had acquired between October 2008 and October 2012.385 By failing to consider Mr. Rand’s investment in the Beneficially Owned Shares together with his Indirect Shareholding, the Tribunal reached the untenable conclusion that his contributions towards BD Agro are relevant and sufficient for one part of his shareholding, but not for the other.
289. The Tribunal’s failure to consider any of the above contributions as a contribution related to the Indirect Shareholding is a clear and obvious fallacy, discernable with very little effort. Given that the consequence of this error is denial of jurisdiction that the Tribunal undisputably had, this excess also seriously impacted the outcome of the case.
290. Indeed, the Indirect Shareholding represents a 3.9% share in BD Agro. Even accepting the Tribunal’s flawed valuation of BD Agro’s equity, the Tribunal’s refusal to exercise
382 Award, ¶ 238 and fn. 128. ↩
383 Award, ¶ 238 and fns. 129-131. ↩
384 Award, ¶ 238 and fn. 132. ↩
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jurisdiction over claims related to the Indirect Shareholding decreased compensation awarded to Mr. Rand by almost EUR 800 thousand.386
291. The Tribunal declined jurisdiction over the Loans provided by Mr. Rand to BD Agro.387 These Loans consisted of approximately EUR 2.2 million provided by Mr. Rand to BD Agro in 2008 to finance purchases of new cows and their transport from Canada to Serbia, as well as another EUR 160,000 provided by Mr. Rand to BD Agro in 2013 to finance the services of herd management experts.
292. Mr. Rand’s EUR 2.2 million payment on behalf of BD Agro was recognized as Mr. Rand’s claim in the bankruptcy of BD Agro.388 As such, it clearly represents an investment in the form of “a loan to an enterprise”, covered under letter (d) of Article 1 of the Canada-Serbia BIT.389
293. The same holds true for Mr. Rand’s EUR 160,000 payment to herd management experts. These payments were made by Mr. Rand in BD Agro’s stead.390 As a result, Mr. Rand acquired a corresponding claim against BD Agro, which the Tribunal recognized in the Award.391
294. The Tribunal’s refusal to exercise jurisdiction over claims related to the Loans represents a manifest excess of power because the Tribunal:
388 Commercial Court in Belgrade Decision number 9. St-321/2015 (30 March 2018), Decision on the List of Determined and Contested Claims, p.2 (English translation), CE-136. ↩
389 Canada-Serbia BIT, Art. 1(d), CLA-001. ↩
390 Award, ¶ 274 (“through Rand Investments, Mr. Rand also paid approximately EUR 160,000 to remunerate the services provided to BD Agro by herd management experts Messrs. Wood and Calin”). ↩
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295. As regards jurisdiction under the Canada-Serbia BIT, “loan[s] to an enterprise” are specifically listed as an investment under letter (d) in the definition of “investment” in Article 1.392 The Tribunal’s analysis should have stopped there. BD Agro is an enterprise within the meaning of Article 1 of the Canada-Serbia BIT because it is “an entity constituted or organized under applicable law”.393 Therefore, the Loans are a protected investment under the Canada-Serbia BIT.
296. The Tribunal, instead, focused on a carve-out from the protection of the Canada-Serbia BIT set out in Articles 1(k) and 1(l) thereof, which excludes claims to money arising from simple commercial loans, commercial sales and otherwise not in connection with another investment:394
but "investment" does not mean:(k) a claim to money that arises solely from:
(i) a commercial contract for the sale of a good or service by a national or enterprise in the territory of a Party to an enterprise in the territory of the other Party, or
(ii) the extension of credit in connection with a commercial transaction, such as trade financing; or
(l) any other claim to money;
that does not involve the kinds of interests set out in subparagraphs (a) to (j).395
392 Canada-Serbia BIT, Article 1, definition of “investment”, item (d), CLA-001. ↩
393 Canada-Serbia BIT, Article 1, CLA-001. ↩
395 Canada-Serbia BIT, Article 1, definition of “investment”, items (k) and (l) (emphasis added), CLA-001. ↩
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297. The Tribunal completely ignored the plain meaning of that provision, which carves out claims to money stemming from commercial transactions. The Tribunal also ignored the last sentence, emphasized above, which makes it clear that the carve-out in subparagraphs (k) and (l) only applies if the investment under Articles 1(k) and/or (l) “does not involve the kinds of interests set out in subparagraphs (a) to (j) [of Article 1]."
298. The Tribunal had correctly concluded that Mr. Rand held a protected investment in the Beneficially Owned Shares under subparagraph (b). The Loans were clearly linked to and involved that investment. Thus, the last sentence applies and the Loans are— without any doubt—not subject to the exclusion under Articles 1(k) and (l) of the Canada-Serbia BIT.
299. The same conclusion stems from the nature of the Loans. The Loans do not arise from a one-off commercial contract for the sale of a good or service between Mr. Rand and BD Agro. Mr. Rand made the payments to the benefit of BD Agro and, hence, his equity interest therein. There was no exchange of money, goods or services between Mr. Rand and BD Agro.
300. The Loans cannot be separated from Mr. Rand’s role as the majority owner of BD Agro. The Loans do not represent a one-off provision of funds by a third-party intermediary which has no other interest in the investment. Mr. Rand provided the Loans only because of his investment in the Beneficially Owned Shares and the Indirect Shareholding. The Loans were intended to increase the value of the Beneficially Owned Shares and the Indirect Shareholding by making it possible for BD Agro to acquire new cows and more effectively manage its herd. Thus, the Loans “involved” the Beneficially Owned Shares and the Indirect Shareholding within the meaning of the last sentence of the definition of investment under Article 1 of the Canada-Serbia BIT.
301. This interpretation of subparagraphs (k) and (l) is in line with the well-established interpretation of a nearly identical carve-out under NAFTA Article 1139(i) and (j), which reads:
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but investment does not mean,(i) claims to money that arise solely from
(i) commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party, or
(ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph (d); or
(j) any other claims to money,
that do not involve the kinds of interests set out in subparagraphs (a) through (h);
302. The tribunals interpreting this NAFTA clause in Canadian Cattlemen v. USA, Apotex v. USA and Koch Industries v. Canada confirmed that the carve-out constitutes an exclusion of “mere cross-border trade interests” from treaty protection.396 All of these three tribunals concurred that “something more permanent is necessary, such as a commitment of capital or other resources in the territory of a Party to economic activity in such territory,” in order for a claim to be treated as an investment.
303. The Loans were certainly not “a mere cross-border trade interest." They were part of Mr. Rand’s long-term investment in BD Agro, and were clearly a “commitment of capital [...] to economic activity” in the territory of Serbia.
304. Therefore, the Loans cannot be excluded from investment protection by virtue of Articles 1(k) and (l) of the Canada-Serbia BIT. If the Tribunal’s reasoning to the contrary was accepted, all shareholder loans made by an investor would be excluded as well. That is clearly not the intention of the Canada-Serbia BIT, which explicitly defines as an investment “a loan to an enterprise”.397
305. The Tribunal’s decision to reject jurisdiction over the Loans under the Canada-Serbia BIT amounts to a manifest excess of powers. It is “manifest" in that the rejection has
396 The Canadian Cattlemen for Fair Trade v. United States of America (formerly Consolidated Canadian Claims v. United States of America), UNCITRAL, Award on Jurisdiction, 28 January 2008, ¶ 144, CLA-213; Apotex Inc. v. The Government of the United States of America, ICSID Case No. UNCT/10/2, Award on Jurisdiction and Admissibility, 14 June 2013, ¶ 233, CLA-214; Koch Industries, Inc. and Koch Supply & Trading, LP v. Canada, ICSID Case No. ARB/20/52, Award of the Tribunal, 13 March 2024, ¶¶ 367-370, CLA-215. ↩
397 Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments, Article 1(d), CLA-001. ↩
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“clear and serious implications" as required in the Vivendi case,398 because it contradicts the plain wording of Article 1 of the Canada-Serbia BIT with the consequence of the wrongful rejection of jurisdiction. Moreover, it is also “manifest” in that it is "clear, obvious and without need for further debate or investigation” as required in the Watkins case,399 because the contradiction is evident from a brief and superficial reading of the Award, the Canada-Serbia BIT and established case law.
306. As a result, the Tribunal’s decision to deny jurisdiction over the Loans under the Canada-Serbia BIT should be annulled.
307. The Tribunal’s conclusion that the Loans allegedly do not represent an “investment” under the ICSID Convention is equally manifestly incorrect. According to the Tribunal, this is because the Loans lack the duration allegedly required by the controversial Salini test.400
308. As explained above, in line with the case law of other ICSID tribunals, the Tribunal should not have applied the Salini test in the present case.401 Neither the relevant definition of “investment” in the BIT, nor Mr. Rand’s Loans, contradict the limits or object and purpose of the ICSID Convention and are, thus, an “investment”.
309. In any case, the ICSID Convention does not prescribe any specific duration for an investment to exist.402 At best, duration can be viewed as a common characteristic of
398 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, ¶ 115, RLA-155. ↩
399 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶ 76, CLA-207. ↩
402 E.g. Philippe Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award, 27 November 2000, ¶ 13.6, CLA-087; Lanco Int'l, Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, 8 December 1998, ¶ 48, CLA-088; M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶¶ 159-60, RLA-034; Ambiente Ufficio SPA and others v. The Argentine Republic, ICSID Case No. ARB/08/09, Decision on Jurisdiction and Admissibility, 8 February 2013, ¶ 453, CLA-089. ↩
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an investment, but not as an element that is necessarily required for the existence of an investment.403
310. The Canada-Serbia BIT is clear that an investment covered under letter (d) of Article 1 is “a loan to an enterprise”, without requiring any specific duration of such a loan.404
311. As concluded by the committee in Malaysian Historical Salvors, the Tribunal’s failure to observe the jurisdictional scope of a BIT and elevating typical characteristics of an investment to jurisdictional requirements, both resulting in an erroneous denial of jurisdiction, constitute a manifest excess of powers annullable under Article 52 of the ICSID Convention.405
312. The only explanation that the Tribunal gave for the requirement of duration was that “[a]s held by many investment awards”, investment must be “made for a duration”.406 The Tribunal did not specify what duration would have been sufficient—it only stated that the Loans did not meet the alleged requirement of “a duration.”407
313. However, even a cursory review of the decisions of the “other tribunals” referred to by the Tribunal shows that, even if the criterion of “duration" applied, it was met in the present case because the duration of the Loans was sufficient.
403 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award dated 31 October 2012, ¶ 303, CLA-067; M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, ¶ 165, RLA-034. ↩
404 Canada-Serbia BIT, definition of “investment", Article 1(d), CLA-001. ↩
405 Malaysian Historical Salvors Sdn, Bhd v. Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, 16 April 2009, ¶ 80, CLA-194. ↩
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314. For example, the Deutsche Bank v. Sri Lanka tribunal found that a hedging agreement for twelve months satisfied the alleged requirement of “duration”. The Deutsche Bank tribunal stated:
With respect to duration, the Tribunal once again agrees with Schreuer that “[duration] is a very flexible term. It could be anything from a couple of months to many years". Further, the Tribunal concurs with the statement made by the Tribunal in Romak SA v. Republic of Uzbekistan, holding that “short-term projects are not deprived of ‘investment' status solely by virtue of their limited duration. Duration is to be analysed in light of all the circumstances, and of the investor's overall commitment". While this Tribunal is aware that Romak was not an ICSID case, the analysis equally applies to proceedings under the ICSID Convention. As the ICSID Tribunal noted in MCI v. Ecuador, the 'duration' characteristic is not necessarily an element that is necessarily required for the existence of an investment, but is to be considered a mere example of a typical characteristic.408
315. In contrast to the duration of twelve months in Deutsche Bank, Mr. Rand held the EUR 2.2 million bulk of the Loans since 2008, i.e. he held them for seven years as of the Valuation Date and for a decade as of the date when the arbitration started. The remaining EUR 160,000 part of the Loans were held by Mr. Rand since 2013, i.e. Mr. Rand held them for more than two years as of the Valuation Date and for more than five years as of the commencement of the arbitration. Clearly, by any measure, Mr. Rand held the Loans for a substantial duration. The Tribunal, however, completely failed to assess the actual duration of the Loans.
316. The Tribunal also failed to consider that the payments made by Mr. Rand on BD Agro’s behalf were part of an overall economic venture—i.e. Mr. Rand’s investment in the Indirect Shareholding and Beneficially Owned Shares. In CSOB v. Slovak Republic, a loan was considered to be an investment because the tribunal found that it was part of an overall economic operation:
An investment is frequently a rather complex operation, composed of various interrelated transactions, each element of which, standing alone, might not in all cases qualify as an investment. Hence, a dispute that is brought before the Centre must be deemed to arise directly out of an investment even when it is based on a transaction which, standing alone, would not qualify as an investment under the
408 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award dated 31 October 2012, ¶ 303 (emphasis added), CLA-067. ↩
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Convention, provided that the particular transaction forms an integral part of an overall operation that qualifies as an investment.409
317. In Sempra v. Argentina, the tribunal found that loans made in connection with another investment also constituted a protected investment:
Despite the fact that the commercial papers, notes, bonds and negotiable instruments, as the instruments have been variously described, are not different from any other issuance of obligations, they were still made by a qualifying investor as a substitute for financial obligations previously undertaken in the context of the financing of the same investment. Such loans were in fact part of the investment's continuing financing arrangements, and were interposed at a moment when only the investor was available to make them [...]. To the extent that the loans were made in connection with a legitimate business purpose, as they in fact were, there is no reason to exclude them from the protected investment.410
* * *
318. In conclusion, the Tribunal’s rejection of jurisdiction over the Loans is annullable for the Tribunal’s manifest excess of powers. The decision of the Tribunal represents a “manifest” excess of power because it: (i) has “clear and serious implications,” as required in the Vivendi case;411 and (ii) contradicts and disregards the plain wording of Article 1 of the Canada-Serbia BIT.
319. Moreover, the Tribunal’s decision is also “manifest” because it is “clear, obvious and without need for further debate or investigation” as required in the Watkins case.412 The Tribunal applied Articles 1(k) and (l) of the Canada-Serbia BIT even though this provision clearly cannot apply to the Loans due to their nature and their clear link to Mr. Rand’s other investments in BD Agro, which were clearly recognized by the Tribunal.
320. The Tribunal’s refusal to exercise jurisdiction over the Loans had a significant impact on the damages. By refusing to exercise its jurisdiction over the Loans, the Tribunal
409 Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999, ¶ 72, CLA-003. ↩
410 Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, ¶¶ 214-215, CLA-052. ↩
411 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, ¶ 115, RLA-155. ↩
412 Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶ 76, CLA-207. ↩
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decreased the amount of compensation due to Mr. Rand by the value of these loans, being EUR 2.4 million.
321. Besides manifestly exceeding its powers, the Tribunal failed to state any reasons for its conclusion that the Loans allegedly do not represent an “investment" under the ICSID Convention:413
The Claimants allege that Mr. Rand made payments of approximately EUR 2.2 million for the replacement of BD Agro's herd. In addition, through Rand Investments, Mr. Rand also paid approximately EUR 160,000 to remunerate the services provided to BD Agro by herd management experts Messrs. Wood and Calin. The Tribunal is not convinced that these payments satisfy the duration criteria of the objective definition of investment in Article 25(1) of the Convention. For instance, the payment of consulting fees by Rand Investments does not have a significant duration, and the Claimants have not established the contrary.
322. The last two sentences are the only commentary given by the Tribunal in the entire Award with respect to its decision on the alleged lack of duration of the Loans. Not only did the Tribunal completely neglect its key duty to provide reasoning for its decision, it did not state what duration would have been required.
323. The annulment committee in MINE v. Guinea made it clear that “the requirement that an award has to be motivated implies that it must enable the reader to follow the reasoning of the Tribunal on points of fact and law".414 Because of the Tribunal’s absence of any explanation, the Award does not allow the reader to follow the Tribunal’s reasoning on either the points of fact, or the points of law. The Tribunal did not state what duration it believes is required under Article 25 of the ICSID Convention. The Tribunal also did not state on which facts it relied upon to conclude that the Loans did not meet the alleged requirement for a “duration”. This absence of reasoning is all the more striking because the Loans would clearly have met the duration required by all other ICSID tribunals that applied the requirement.415
414 Maritime International Nominees Establishment v. Republic of Guinea (II), ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee, 22 December 1989, ¶ 5.08 (emphasis added), CLA-184. ↩
415 E.g. Salini v Morocco, ICSID Case no. ARB/00/4, Decision on Jurisdiction, 23 July 2001, ¶ 54: “The transaction, therefore, complies with the minimal length of time upheld by the doctrine, which is from ↩
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324. Consequently, the Tribunal’s failure to explain the alleged duration criterion, and its failure to consider the actual duration of the Loans, represents a failure to state reasons and, thus, constitutes a ground for annulment under the ICSID Convention.416
416 2 to 5 years", CLA-020; RFCC v Morocco, ICSID Case No. ARB/00/6, Decision on Jurisdiction, 16 July 2001, ¶ 62: “L'opération satisfait ainsi à la durée minimale observée par la doctrine qui est de 2 à 5 ans", CLA-195; Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006, ¶¶ 93–95, CLA-217; Malaysian Historical Salvors v Malaysia, Award, 17 May 2007, ¶¶ 110, 111, CLA-216. ↩
See Section IV.A above.
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325. The Tribunal’s decision on costs must be annulled because it is based on other annullable parts of the Award. Specifically, the Tribunal ordered the Parties to each bear half of the costs of the proceedings and bear their own legal and other costs.417 The Tribunal based its decision inter alia on the fact that: (i) Mr. Rand was successful with only some of his claims; and (ii) Mr. Rand was awarded only a small part of the damages that he claimed in the arbitration.418
326. Thus, the Tribunal’s decision on costs is based on the Tribunal’s decisions on jurisdiction and quantum, which are annullable for failure to state reasons and manifest excess of powers. As a result, the decision on costs must follow the same fate and be annulled as well.
327. This principle was confirmed, for example, by the ad hoc committee in MINE v. Guinea, which stated that “[t]he award of costs cannot survive the annulment of that portion of the Award with which it is inextricably linked.”419 The same approach was followed by the committee in Teco v. Guatemala, where the award on costs was based on Guatemala having been partially successful on quantum. Because the committee annulled the decision on quantum, which was the basis for the tribunal’s decision on costs, the tribunal’s decision on costs was annulled as well.420
419 Maritime International Nominees Establishment v. Republic of Guinea (II), ICSID Case No. ARB/84/4, Decision for Partial Annulment of the Arbitral Award, 22 December 1989, ¶ 6.112, CLA-184. ↩
420 TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 361-362, CLA-186. ↩
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328. Based on the above, Mr. Rand requests that:
329. Mr. Rand reserves the right to modify the request for relief, including the list of specific paragraphs that should be annulled, in further pleadings.
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Submitted on behalf of Mr. William Archibald
Rand
Signature
Rostislav Pekař
Matej Pustay
Helena Švandová
SQUIRE PATTON BOGGS
Signature
Nenad Stanković
STANKOVIC & PARTNERS
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| Paragraph of the Award | Grounds for annulment | Reasons | Paragraphs in this Memorial |
|---|---|---|---|
| 228 | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 263-280, 308 |
| 232 second sentence | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 263-280, 308 |
| 237 first, second and last sentence | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 263-280, 308 |
| 270-273 | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Indirect Shareholding, even though it clearly qualifies as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 259-290 |
| 274 third and last sentence | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal did not provide reasons for this decision. | ¶¶ 307-324 |
| 275 | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for this decision. | ¶¶ 307-324 |
| 277 first sentence after “Beneficially Owned Shares” | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID | ¶¶ 259-324 |
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| Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. | |||
| the word “only” in first and second sentence of paragraph 281 | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. | ¶¶ 259-290, 307-324 |
| the word “only” in paragraph 290 | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. | ¶¶ 259-290, 307-324 |
| 333 | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for this decision. | ¶¶ 295-306 |
| 343 third sentence | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 295-306 |
| 344-345 | Manifest excess of powers | The Tribunal incorrectly denied jurisdiction over Mr. Rand’s Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. | ¶¶ 295-306 |
| 471 the second part of the first sentence starting with the word “but” | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. | ¶¶ 252-324 |
| 693-697 | Failure to state reasons | The Tribunal provided contradictory, irreconcilable and insufficient reasons for its valuation of the Construction Land. | ¶¶ 85-181 |
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| 699 (i), (ii) and (iv) – (vi) | Failure to state reasons | The Tribunal provided contradictory, irreconcilable and insufficient reasons for its valuation of BR Agro’s liabilities. | ¶¶ 203-251 |
| 707 except items “Other Construction Land”, “Agricultural land", "Other fixed assets", "Deferred tax assets" and "Payment to Canadian suppliers" | Failure to state reasons | The Tribunal failed to state any reasons or provided contradictory, irreconcilable and insufficient reasons for its valuation of BR Agro’s assets and liabilities. | ¶¶ 79-251 |
| 708 first sentence, the second part of the second sentence starting with "resulting" and the last sentence | Failure to state reasons | The Tribunal’s conclusion on the valuation of BD Agro, based on lacking and contradictory reasoning providing with respect to the valuation of BD Agro’s assets and liabilities. | ¶¶ 79-251 |
| 716 | Dependency on annullable parts of the Award | The Tribunal’s decision on costs must be annulled because it is based on other annullable parts of the Award. | ¶¶ 325-327 |
| 717 (b) to the extent it relates to Mr. Rand’s claims under the Canada-Serbia BIT | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. | ¶¶ 252-324 |
| 717 (d) before "together" | Failure to state reasons | The Tribunal failed to state any reasons or provided contradictory, irreconcilable and insufficient reasons for its valuation of BR Agro’s assets and liabilities. | ¶¶ 79-251 |
| 717 (e) and (f) | Dependency on annullable parts of the Award | The Tribunal’s decision on costs must be annulled because it is based on other annullable parts of the Award. | ¶¶ 325-327 |
| 717 (g) to the extent it relates to (i) claims for damages and (ii) | Manifest excess of powers and failure to state reasons | The Tribunal incorrectly denied jurisdiction over the Indirect Shareholding and Loans, even though they clearly qualify as “investment” under both the Canada-Serbia BIT and the ICSID | ¶¶ 79-251, 252-324 |
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| Mr. Rand’s claims under the Canada-Serbia BIT | Convention. The Tribunal also did not provide reasons for its decision to deny jurisdiction over the Loans. The Tribunal failed to state any reasons or provided contradictory, irreconcilable and insufficient reasons for its valuation of BR Agro’s assets and liabilities. |