PCA Case No. 2018-42

IN THE MATTER OF AN ARBITRATION UNDER THE TREATY BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE REPUBLIC OF ESTONIA
FOR THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF INVESTMENT

-and-

THE UNCITRAL ARBITRATION RULES, 1976

-between-

ELA USA, Inc. (U.S.A.)

(the “Claimant”)

-and-

THE REPUBLIC OF ESTONIA

(the “Respondent”)

AWARD

Tribunal
Judge Bruno Simma (Presiding Arbitrator)
Professor Hélène Ruiz Fabri
Judge Peter Tomka

Registry
Permanent Court of Arbitration

21 February 2025

GLOSSARY OF DEFINED TERMS AND ABBREVIATIONS

Submissions

Other Terms and Abbreviations

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I. INTRODUCTION

A. THE PARTIES AND THEIR REPRESENTATIVES

1. The claimant in this arbitration is ELA USA, Inc. (the “Claimant” or “ELA”), a company incorporated under the laws of the State of Minnesota and existing under the laws of the State of Florida, United States of America (“United States” or “U.S.”), with its registered address at 148 South Arabella Way, St. John, Florida 32259. The Claimant is represented in these proceedings by Professor Barry Appleton of Appleton & Associates International Lawyers LP, 121 Richmond St. W, Suite 602, Toronto, Ontario M5H 2K1, Canada, and Mr. Edward Mullins of Reed Smith LLP, 200 S Biscayne Blvd., Suite 2600, Miami, Florida 33131, United States, and previously also by Ms. Nabeela Latif of Appleton & Associates International Lawyers LP and Ms. Cristina Cárdenas of Reed Smith LLP.

2. The respondent in this arbitration is the Republic of Estonia, a sovereign State (the “Respondent” or “Estonia” and, together with the Claimant, the “Parties”). The Respondent is represented in these proceedings by Ms. Kairit Kirsipuu, and previously by Ms. Elin Uusväli, Mr. Marko Aavik and Mr. Viljar Peep, of the Ministry of Justice of Estonia, Suur-Ameerika 1, 10122 Tallinn, Estonia, and the following counsel: Mr. Toomas Vaher, Mr. Anton Sigal, Ms. Maria Teder, and Ms. Mailis Meier (until 1 November 2021) of Ellex Raidla Advokaadibüroo OÜ, Kaarli pst 1 / Roosikrantsi 2, EE-10119 Tallinn, Estonia.

B. OVERVIEW OF THE DISPUTE

3. The dispute arises out of the Claimant’s alleged investments in a seaport in Tallinn, Estonia, known as the Seaplane Harbor, or Lennusadam, which the Claimant claims to have operated through its – partly indirect – subsidiaries, AS BPV (“BPV”), AS Verest (“Verest”), OÜ Agrin Partion (“Agrin”), and AS ELA Tolli (“ELA Tolli”).¹

4. According to the Claimant, the Respondent improperly interfered with the Claimant’s operation of its investments from 1999 through a combination of administrative and criminal actions, and use of discriminatory measures and physical force, in breach of the fair and equitable treatment (“FET”) standard, the most-favored-nation (“MFN”) treatment standard, as well as the national treatment (“NT”) standard under the Treaty between the Government of the United States of America and the Government of the Republic of Estonia Concerning the Encouragement and Reciprocal Protection of Investment, dated 19 April 1994, which entered into force on 16 February 1997 (the “Treaty” or “US-Estonia BIT”).² The Claimant further argues that the Respondent expropriated its alleged investments through the acts of the Estonian judiciary without paying compensation in breach of the Treaty.

¹ Notice of Arbitration, ¶¶ 13, 16. ↩

² Notice of Arbitration, ¶¶ 4-10. ↩

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5. The Respondent requests that the Tribunal dismiss the Claimant’s claims in their entirety.³ According to the Respondent, the Claimant’s claims fall outside the Tribunal’s jurisdiction and are inadmissible because: (i) the Tribunal lacks jurisdiction ratione personae under Article I(1)(a) of the Treaty because the true identity of the Claimant is unclear,⁴ and the only link between the Claimant and the alleged investments is Mr. Rotko, an Estonian national;⁵ (ii) the Tribunal lacks jurisdiction ratione materiae because the Claimant failed to prove ownership or control of investments in Estonia within the meaning of the Treaty,⁶ and the alleged investments were obtained illegally and in bad faith;⁷ (iii) the Tribunal lacks jurisdiction ratione temporis over the Claimant’s claims because they pertain to measures taken by the Respondent before the entry into force of the Treaty on 16 February 1997;⁸ (iv) the claims are time-barred under the principles of acquiescence and extinctive prescription;⁹ and (v) the Tribunal lacks jurisdiction over the Claimant’s claim for moral damages.¹⁰ In any event, the Respondent denies that it breached any obligation under the Treaty.¹¹

II. PROCEDURAL HISTORY

A. COMMENCEMENT OF THE ARBITRATION AND CONSTITUTION OF THE TRIBUNAL

6. By letter dated 1 August 2017 (the “Notice of Dispute”), the Claimant notified the Respondent of the existence of an investment dispute between the Parties and of its intention to seek recourse to arbitration under Article VI of the Treaty in the event the dispute could not be settled amicably. The Respondent did not respond to the Claimant’s Notice of Dispute.¹²

7. On 18 April 2018, the Claimant initiated these arbitration proceedings by serving a Notice of Arbitration on the Respondent pursuant to Article VI of the Treaty and Article 3 of the 1976 version of the UNCITRAL Arbitration Rules (the “1976 UNCITRAL Rules”).

8. On 26 June 2018, the Claimant appointed Professor Hélène Ruiz Fabri as arbitrator in these proceedings. Her contact details are:

Professor Hélène Ruiz Fabri
22 avenue Alphand

³ Statement of Defense, ¶ 53. ↩

⁴ Statement of Defense, ¶¶ 20-23. ↩

⁵ Statement of Defense, ¶¶ 24-27. ↩

⁶ Statement of Defense, ¶¶ 29-30; Counter-Memorial, ¶¶ 33-36; 426-444; Rejoinder, ¶¶ 3-21, 287-302. ↩

⁷ Statement of Defense, ¶¶ 31-37; Counter-Memorial, ¶¶ 37; 466-476; Rejoinder, ¶ 24 (where, unlike in the Statement of Defense and the Counter-Memorial, the Respondent treats the alleged illegality of the investment and bad faith as issues of admissibility and not of jurisdiction), 328-330. ↩

⁸ Statement of Defense, ¶¶ 18, 40. ↩

⁹ Counter-Memorial, ¶¶ 36; 452-465; Rejoinder, ¶¶ 309-327. ↩

¹⁰ Statement of Defense, ¶ 18; Counter-Memorial, ¶ 35, Rejoinder, ¶¶ 303-308. ↩

¹¹ Statement of Defense, ¶ 44. ↩

¹² Notice of Arbitration, fn. 3. ↩

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94160 Saint Mandé
France

9. On 26 July 2018, the Respondent appointed Judge Peter Tomka as arbitrator in these proceedings. His contact details are:

Judge Peter Tomka
International Court of Justice
Peace Palace
Carnegieplein 2
2517 KJ The Hague
The Netherlands

10. On 9 August 2018, the co-arbitrators informed the Parties that they had agreed to appoint Judge Bruno Simma to serve as the presiding arbitrator in accordance with Article 7 of the 1976 UNCITRAL Rules. His contact details are:

Judge Bruno Simma
Iran-United States Claims Tribunal
Parkweg 13
2585 JH The Hague
The Netherlands

11. On 31 August 2018, the Tribunal notified the Permanent Court of Arbitration (the “PCA”) of the Parties’ agreement that the PCA act as registry and administer the arbitral proceedings. On the same day, the PCA confirmed that it was prepared to administer the proceedings.

B. INITIAL PROCEDURAL STEPS, STATEMENT OF DEFENSE, AND FIRST DECISION ON INTERIM MEASURES

12. On 21 September 2018, the Tribunal, inter alia, circulated draft Terms of Appointment and a draft Procedural Order No. 1 for the Parties’ comments. The Parties submitted subsequently their comments on the drafts on 3 October 2018.

13. By letter dated 3 October 2018, the Claimant informed the Tribunal, inter alia, (i) that its Notice of Arbitration should serve as its Statement of Claim; and (ii) of its intention to request an interim measures order for the bilateral preservation of evidence and information.

14. On 11 October 2018, the Claimant filed its Submission on Place of Arbitration, in which it requested the Tribunal to set Washington, D.C. as the place of arbitration.

15. On 12 October 2018, the Tribunal invited the Respondent to submit comments on the Claimant’s Submission on Place of Arbitration by 26 October 2018.

16. On 15 October 2018, a first procedural meeting was held by telephone conference, in which counsel and representatives for both Parties, all members of the Tribunal, and the PCA participated, to discuss the content of the draft Terms of Appointment and the draft Procedural Order No. 1. At this meeting, the Tribunal also granted the Claimant leave to submit a motion for interim measures.

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17. On 16 October 2018, on the basis of the Parties’ written and oral comments, the Tribunal adopted and circulated its Terms of Appointment, which inter alia established the 1976 UNCITRAL Rules as the applicable procedural rules for the arbitration and English as the language of the arbitration.

18. On 22 October 2018, the Tribunal issued Procedural Order No. 1, which inter alia established the rules of procedure and a procedural calendar for these proceedings, appointed Dr. Gebhard Bücheler as assistant to the Tribunal, and affirmed that the place of arbitration would be decided in due course.

19. On 25 October 2018, the Claimant submitted its Motion for Interim Measures pursuant to Article 26 of the 1976 UNCITRAL Rules, together with exhibits C-001 to C-010 and legal authorities CLA-001 to CLA-012. In its Motion, the Claimant sought (i) the preservation of documents, (ii) the production of documents; (iii) the maintenance or restoration of the status quo; and (iv) a cessation to criminal prosecution and extradition proceedings against Mr. Aleksander Rotko.

20. On 26 October 2018, the Respondent, together with exhibits R-001 to R-007 and legal authorities RLA-001 to RLA-021, filed its Submission on Place of Arbitration, requesting that the Tribunal designate The Hague, Geneva or, alternatively, Singapore as the place of arbitration.

21. On 12 November 2018, at the Tribunal’s invitation, the Respondent submitted its Response to the Claimant’s Motion for Interim Measures, requesting that the Tribunal reject the Claimant’s Motion for Interim Measures of 25 October 2018 in its entirety. The Respondent’s Response was accompanied by legal authorities RLA-022 to RLA-035.

22. On 3 December 2018, the Claimant submitted its Reply on Motion for Interim Measures, which was accompanied by (i) the First Witness Statement of Aleksander Rotko dated 28 November 2018 (“First Rotko Statement”); (ii) the Expert Legal Opinion of Paul Keres dated 2 December 2018; and (iii) legal authorities CLA-013 to CLA-016.

23. On 7 December 2018, the Respondent submitted its Statement of Defense, together with exhibits R-008 to R-016 and legal authorities RLA-036 to RLA-039.

24. On 20 December 2018, the Respondent submitted its Rejoinder on the Claimant’s Motion for Interim Measures.

25. On 22 January 2019, the Tribunal issued Procedural Order No. 2, establishing Geneva, Switzerland as the place of arbitration.

26. On 4 March 2019, the Tribunal issued Procedural Order No. 3, in which it (i) affirmed its power to order interim measures at any stage of the proceedings; (ii) reminded the Parties of their general duty arising from the principle of good faith not to take any action that may aggravate the dispute or affect the integrity of the arbitration proceeding; and (iii) declined the Claimant’s requests for interim measures.

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C. AMENDMENTS TO THE PROCEDURAL TIMETABLE, FURTHER WRITTEN SUBMISSIONS, AND SECOND DECISION ON INTERIM MEASURES

27. On 6 March 2019, the Claimant submitted a Motion to Modify Procedural Order No. 1, requesting the Tribunal to modify the procedural calendar in consideration of unforeseen medical and personnel issues affecting its counsel. At the Tribunal’s invitation, the Respondent and the Claimant made further submissions on this motion on 15 and 22 March 2019, respectively.

28. On 1 April 2019, having considered the Parties’ submissions on the Claimant’s motion, the Tribunal issued Procedural Order No. 4, amending the procedural calendar. Among other things in the revised procedural calendar, the deadline for the Claimant’s memorial submission was postponed by 18 weeks along with corresponding adjustment to all subsequent procedural steps, and the hearing was rescheduled from November 2020 to January 2021.

29. On 30 August 2019, in accordance with Procedural Order No. 4, the Claimant submitted its Memorial, accompanied by (i) the Second Witness Statement of Mr. Aleksander Rotko dated 29 August 2019 (“Second Rotko Statement”); (ii) the Witness Statement of Ms. Olga Kotova dated 29 August 2019; (iii) the Second Expert Legal Opinion of Mr. Paul Keres dated 23 August 2019; (iv) the Expert Report of Mr. Richard Taylor dated 29 August 2019; (v) exhibits C-011 to C-277; and (vi) legal authorities CLA-017 to CLA-205.

30. By e-mail dated 6 December 2019, the Claimant informed the Tribunal that the Respondent had undertaken steps to have Mr. Rotko extradited to Estonia, and that, as a result, Mr. Rotko had been arrested and was in federal detention in the United States pending a detention hearing scheduled for 11 December 2019. The Claimant submitted that the Respondent’s actions in pursuing Mr. Rotko’s extradition were in direct violation of Procedural Order No. 3 and reserved the right to make a formal submission to the Tribunal after Mr. Rotko’s detention hearing.

31. By e-mail dated 13 December 2019, at the Tribunal’s invitation, the Respondent replied to the Claimant’s 6 December 2018 e-mail along with exhibit R-017, denying that it had undertaken any measures to aggravate the dispute.

32. On 18 December 2019, the Claimant submitted its Interim Relief Request, together with exhibits C-278 to C-283 and legal exhibits CLA-206 to CLA-208, seeking (i) the production of documents; (ii) the suspension or revocation of extradition requests; (iii) the cessation and prohibition of judicial proceedings; (iv) the maintenance of the status quo; (v) the lifting of all bond release conditions; (vi) a costs order; and (vii) moral damages. In the same submission, the Claimant informed the Tribunal that Mr. Rotko’s detention hearing had been postponed to 7 January 2020, and that he remained in federal detention.

33. On 6 January 2020, at the Tribunal’s invitation, the Respondent submitted its Response to the Claimant’s Request for Interim Relief, asking the Tribunal to reject the Claimant’s requests in their entirety. The Respondent’s Response was accompanied by legal authorities RLA-040 and RLA-041.

34. By e-mail dated 7 January 2020, the Tribunal invited the Claimant to provide by 14 January 2020 its reply comments to the Respondent’s Response to the Claimant’s Request for Interim Relief, including an update on Mr. Rotko’s detention hearing scheduled for 7 January 2020.

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35. By e-mail dated 10 January 2020, the Claimant informed the Tribunal that Mr. Rotko’s detention hearing had taken place on 7 January 2020 before Judge James Klindt at the U.S. District Court for the Middle District of Florida, Jacksonville Division, but that no decision had yet been issued. In light of this, and of Claimant’s counsel’s other pre-existing commitments, the Claimant sought leave from the Tribunal to file its reply comments seven days after the issuance of Judge Klindt’s decision.

36. By e-mail dated 14 January 2020, the Tribunal granted the Claimant’s extension request and ordered the Claimant to inform the Tribunal and the Respondent of the issuance of the detention decision on the day on which it is issued.

37. By e-mail dated 23 January 2020, the Claimant circulated a copy of Judge Klindt’s decision dated 22 January 2020. In view of Mr. Rotko’s bond hearing scheduled for 29 January 2020, the Claimant proposed to file its reply comments to the Respondent’s Response to the Claimant’s Request for Interim Relief on 30 January 2020, one day after the bond hearing and the originally contemplated deadline, in order to enable it to at the same time update the Tribunal on the outcome of the bond hearing. The Tribunal granted the Claimant’s extension request on the same day.

38. On 30 January 2020, the Claimant submitted its Reply to Estonia’s Response to the Interim Relief Motion, and a report on the most recent judicial activity in Mr. Rotko’s extradition proceedings, along with exhibits C-285 to C-294.

39. On 21 February 2020, with the Tribunal’s leave, the Respondent submitted its Response to the Claimant’s Submission on Interim Measures of 30 January 2020, together with exhibit R-018.

40. On 10 March 2020, the Respondent submitted its Counter-Memorial, accompanied by (i) the Expert Opinion of Professor Lauri Mälksoo dated 9 March 2020 (“Mälksoo Report”) with exhibits LM-1 to LM-4; (ii) the Expert Report of Dr. Richard Hern dated 10 March 2020 with exhibits RH-1 to RH-48; (iii) the Expert Opinion of Dr. Sergey Stanislavovich Petrachkov dated 10 March 2020 with exhibits SP-1 to SP-36; (iv) exhibits R-019 to R-193; and (v) legal authorities RLA-042 to RLA-158. On 19 June 2020, the Respondent submitted an amended version of Dr. Petrachkov’s expert report, which corrected certain discrepancies in the exhibit numbers referenced therein, as well as translations of the exhibits to his report.

41. On 23 March 2020, the Tribunal issued Procedural Order No. 5, (i) declining the Claimant’s requests for interim measures dated 18 December 2019; and (ii) reserving its decision on damages and all cost-related decisions for a later stage of the proceedings.

D. DOCUMENT PRODUCTION AND DISCLOSURE OF THIRD-PARTY FUNDING

42. By e-mail dated 17 March 2020, the Claimant requested that the Tribunal modify the time limits for document production on account of the COVID-19 pandemic. The next day, the Respondent informed the Tribunal that it did not object to the Claimant’s request for an extension, provided that the extension would not affect the schedule other than in respect of document production.

43. On 18 March 2020, the Tribunal issued a revised procedural calendar, making amendments only to the time limits for document production.

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44. Between 7 April and 12 May 2020, the Parties exchanged their respective requests, objections, and replies on document production, and on 12 May 2020, the Parties filed their respective applications for an order on production of documents, in accordance with the revised procedural calendar.

45. On 8 June 2020, the Tribunal issued Procedural Order No. 6, setting out its decisions on the Parties’ outstanding document production requests.

46. By e-mail dated 16 June 2020, pursuant to the Tribunal’s direction set out in Procedural Order No. 6 in relation to the Respondent’s Request 18, the Claimant disclosed that its third-party funder is Therium Litigation Finance A IC (the “Funder”).

47. On 23 June 2020, with the Tribunal’s leave, the Claimant submitted the Substantiation of its Objection to Production of Details Regarding Third-Party Funding, accompanied by legal authorities CLA-209 to CLA-232.

48. On 7 July 2020, the Respondent submitted its Response to the Claimant’s Submission of 23 June 2020 on Production of Information on Third-Party Funding, accompanied by legal authority RLA-159, and requested the Tribunal to grant a modification to its Request 18.

49. On 14 July 2020, at the Tribunal’s invitation, the Claimant submitted its Reply on Estonia’s Production Request for Privileged Third-Party Funding Agreement, together with CLA-233 to CLA-235.

50. On 30 July 2020, the Tribunal, by majority, issued Procedural Order No. 7, granting the Respondent’s modified Request 18 and ordering the Claimant to “disclose [...] the terms in the funding agreement regulating whether the Funder (or any associated insurer) is liable for adverse costs and, if so, to what extent.” The Tribunal majority further directed that “where no such terms [...] exist, the Claimant is to inform the Tribunal and the Respondent of that fact.”¹³

51. By e-mail dated 5 August 2020, in accordance with Procedural Order No. 7, the Claimant disclosed Section 8 of the Litigation Funding Agreement with the Funder, as well as a separate agreement it entered into with the Funder.

E. FURTHER AMENDMENTS TO THE PROCEDURAL TIMETABLE, FURTHER WRITTEN SUBMISSIONS, AND DECISION ON SECURITY FOR COSTS

52. On 14 August 2020, the Claimant requested that, on account of difficulties caused by the COVID-19 pandemic, the Tribunal extend by three months the deadline for the Claimant to submit its Reply, along with a corresponding adjustment to the subsequent procedural steps in the calendar, and postpone the hearing scheduled for January 2021.

53. On 21 August 2020, at the Tribunal’s invitation, the Respondent submitted its response, asking the Tribunal to deny the Claimant’s request, along with exhibits R-194 to R-196.

¹³ Procedural Order No. 7, ¶ 33. ↩

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54. On 28 August 2020, at the Tribunal’s invitation, the Claimant submitted its comments to the Respondent’s response of 21 August 2020, together with exhibit C-295.

55. On 1 September 2020, the Tribunal modified the deadlines for the submission of the Claimant’s Reply from 10 September 2020 to 10 December 2020, and the Respondent’s Rejoinder from 3 December 2020 to 3 June 2021. The Tribunal further vacated all the remaining dates in the procedural calendar.

56. On 3 September 2020, the Tribunal indicated its availability for new hearing dates from 31 August to 4 September 2021. The Parties respectively confirmed to the Tribunal of their availabilities to the proposed hearing dates on 11 September 2020.

57. On 15 September 2020, the Tribunal confirmed the new hearing dates from 31 August 2021 to 4 September 2021.

58. On 30 November 2020, the Claimant requested that the Tribunal grant an eleven-day extension to file its Reply on account of a family emergency of the Claimant’s lead counsel and the ongoing effects of the COVID-19 pandemic.

59. By e-mail dated 3 December 2020, the Respondent requested that the Tribunal extend the deadline to file its Rejoinder to 21 June 2021.

60. By e-mail dated 4 December 2020, the Claimant did not oppose the Respondent’s corresponding request for an extension of the deadline to file the Rejoinder.

61. On 5 December 2020, the Tribunal granted the Parties’ respective requests and extended the deadlines to file the Claimant’s Reply to 21 December 2020 and the Respondent’s Rejoinder to 21 June 2021.

62. By e-mails dated 15 and 17 December 2020, the Claimant requested that the Tribunal grant a further extension to file its Reply to 14 January 2021 in light of the continued family emergency of the Claimant’s lead counsel.

63. By e-mail dated 17 December 2020, at the Tribunal’s invitation, the Respondent objected to the Claimant’s extension request, and asked the Tribunal to also move the Respondent’s subsequent filing dates accordingly, in the event the Tribunal grants the Claimant’s request.

64. On 18 December 2020, the Tribunal granted the Claimant’s request, extending the deadlines to file the Claimant’s Reply to 14 January 2021 and the Respondent’s Rejoinder to 15 July 2021.

65. On 14 January 2021, the Claimant submitted its Reply Memorial (the “Reply”), together with (i) the Third Witness Statement of Mr. Aleksander Rotko dated 11 January 2021 (“Third Rotko Statement”); (ii) the Third Expert Legal Opinion of Paul Keres dated 12 January 2021 (“Third Keres Report”); (iii) the Expert Witness Report of Larry Andrade and Richard Taylor of Deloitte dated 23 December 2020; (iv) the Medical Report of Dr. Charles Haddad of Mr. Aleksander Rotko; (v) the Medical Report of Dr. Charles Haddad of Ms. Olga Kotova; (vi) exhibits C-296 to C-578; and (vii) legal authorities CLA-239 to CLA-369.

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66. By e-mail dated 27 January 2021, the Respondent sought leave to submit an application for security for costs, in accordance with section 4.8 of Procedural Order No. 1. By e-mail of the same date, the Claimant requested that the Tribunal (i) reject the Respondent’s request, but (ii) should the Respondent nevertheless be allowed to file the application, grant the Claimant an opportunity to respond.

67. On 30 January 2021, the Tribunal granted the Respondent leave to file a security for costs application by 15 February 2021 and invited the Claimant to respond to the Respondent’s application by 1 March 2021.

68. On 1 February 2021, the Respondent submitted its Request for Security for Costs, together with exhibits R-197 to R-204 and legal authorities RLA-160 to RLA-166.

69. On 15 February 2021, the Respondent, noting that the deadline to file its security for costs application had not passed, supplemented its application.

70. On 1 March 2021, the Claimant submitted its Response on Security for Costs, together with the Fourth Witness Statement of Mr. Aleksander Rotko, exhibits C-579 to C-587, and legal authorities CLA-370 to CLA-393.

71. On 15 March 2021, the Respondent submitted its Reply on Security for Costs, together with exhibits R-205 to R-211 and legal authorities RLA-167 to RLA-170.

72. On 29 March 2021, the Claimant submitted its Rejoinder on Security for Costs, together with exhibits C-588 to C-590 and legal authorities CLA-394 to CLA-397.

73. On 20 April 2021, the Tribunal, informing the Parties of the Tribunal’s scheduling conflict, invited the Parties to confer the possibility of moving the hearing by one day, such that it would take place from 30 August to 3 September 2021, instead of from 31 August to 4 September 2021.

74. On 26 April 2021, upon the Claimant’s and the Respondent’s e-mails of 23 and 26 April 2021, respectively, the Tribunal confirmed that the hearing shall take place from 30 August to 3 September 2021.

75. On 4 May 2021, the Tribunal issued Procedural Order No. 8, dismissing the Respondent’s request for security for costs.

76. On 3 July 2021, in accordance with the Parties’ agreement, the Tribunal confirmed that the hearing shall take place via video conference.

77. On 15 July 2021, the Respondent submitted its Rejoinder Memorial (the “Rejoinder”), together with (i) the Expert Report of Dr. Richard Hern dated 15 July 2021; (ii) the Witness Statement of Mr. Raul E. Molina dated 8 July 2021; (iii) exhibits R-212 to R-257; and (iv) legal authorities RLA-171 to RLA-224.

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F. PRE-HEARING PROCEDURAL MATTERS; SCHEDULING OF THE HEARING; AND ADDITIONAL WRITTEN SUBMISSIONS

78. On 11 June 2021, the Tribunal, noting the travel restrictions that may apply in case of an in-person hearing in light of the COVID-19 pandemic, invited the Parties to confer and indicate by 28 June 2021 whether they would prefer the hearing to take place in person or via videoconference.

79. On 28 June 2021, the Parties respectively stated their preference for the hearing to take place via videoconference.

80. On 3 July 2021, the Tribunal confirmed that the hearing will take place via videoconference. In addition, the Tribunal circulated draft Procedural Order No. 9, setting forth provisions concerning the logistical and administrative arrangements of the hearing for the Parties’ comments. The Parties submitted their comments on 19 July 2021.

81. On 21 July 2021, the Tribunal held a pre-hearing conference with the Parties via videoconference to discuss the organization of the hearing and various related issues. The Tribunal directed the Parties to confer and revert by 28 July 2021 with an agreed hearing schedule, as well as any further amendments to draft Procedural Order No. 9.

82. At the pre-hearing conference, the Claimant sought the production of the engagement letter between the Respondent and Mr. Raul Molina in relation to his expert witness statement. The Respondent, in response, stipulated 17 June 2021 as the date of Mr. Molina’s engagement but declined to produce the engagement letter. The Tribunal thereafter directed that, if the Claimant so wished, it should submit a formal request for the production of documents after the pre-hearing conference.

83. On 21 July 2021, the Claimant submitted a request for the Respondent’s production of (i) the letter of engagement between the Respondent (or the Respondent’s agents) and Mr. Molina and any related modifications to that letter; and (ii) the communications provided by the Respondent to Mr. Molina in connection to his expert engagement on June 21, 2021, including the communications conveying evidence to be considered by the Expert.

84. On 22 July 2021, the Tribunal invited the Respondent to submit its response to the Claimant’s requests by 23 July 2021, and the Claimant, in turn, to submit its reply to the Respondent’s response by 26 July 2021.

85. On 23 July 2021, the Respondent submitted its response, along with legal authorities RLA-225 and RLA-226, and an updated index of legal authorities.

86. On 26 July 2021, the Claimant submitted its reply, along with legal authorities CLA-398 to CLA-402, and an updated index of legal authorities.

87. Also on 26 July 2021, the Respondent, on behalf of both Parties, requested that the Tribunal determine the outstanding disagreements between the Parties concerning the hearing schedule.

88. On 28 July 2021, the Tribunal set forth its directions on the issues set out in the Respondent’s communication of 26 July 2021 and directed the Parties, on the basis of that guidance, to confer

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and revert by 2 August with an agreed hearing schedule, as well as any further amendments to draft Procedural Order No. 9.

89. On 30 July 2021, the Claimant sought leave from the Tribunal to file certain pre-hearing motions, including a motion concerning “the Respondent’s untimely expert witness on Panamanian law.”

90. On 2 August 2021, the Tribunal partially granted the Claimant’s document requests of 21 July 2021, directed the Respondent to produce the information and documents within two business days of the date of the letter, and granted the Claimant leave to file its pre-hearing motions within two business days of its receipt of the information and documents from the Respondent.

91. On 4 August 2021, in accordance with the Tribunal’s 2 August 2021 directions, the Respondent submitted two documents that were responsive to the requests as granted.

92. On 5 August 2021, the Claimant submitted a pre-hearing motion, requesting that the Tribunal strike from the record of the case (i) the Respondent’s allegedly untimely jurisdictional defenses; (ii) the expert evidence and opinions from Mr. Molina; (iii) the Respondent’s untimely reliance on non-applicable reservations in Annex III of the Treaty; and (iv) unsupported technical opinions and conclusions in the Respondent’s submissions. The Claimant further requested that the Tribunal dismiss the Respondent’s requests for adverse inferences arising out of the Claimant’s document production as set out in the Respondent’s Rejoinder. The Claimant’s pre-hearing motion was accompanied by exhibits C-592 to C-593 and legal authorities CLA-403 to CLA-409.

93. Also on 5 August 2021, the Parties respectively requested the Tribunal’s position on the outstanding points of disagreement between the Parties in relation to the hearing, so that they could continue their discussions and so that draft Procedural Order No. 9 and the hearing schedule could be finalized.

94. On 7 August 2021, the Tribunal set forth its directions on the issues set out in the Parties’ communications of 5 August 2021 and directed the Parties, on the basis of that guidance, to confer and revert by 11 August with an agreed hearing schedule, as well as any further amendments to draft Procedural Order No. 9. In addition, the Tribunal invited the Respondent to submit any response it may have to the Claimant’s 5 August 2021 pre-hearing motion by 13 August 2021.

95. On 11 August 2021, the Parties respectively submitted their remaining outstanding points of disagreement in relation to the hearing, as well as their respective proposed edits to draft Procedural Order No. 9 and comments on the draft hearing schedule. The Claimant further set forth its understanding that, pursuant to section 10 of Procedural Order No. 1, the Parties could release awards (including the orders and directions) issued by the Tribunal in this arbitration.

96. On 13 August 2021, the Respondent submitted its response to the Claimant’s 5 August 2021 pre-hearing motion, along with exhibits R-258 to R-259 and legal authorities RLA-228 to RLA-229. The Respondent requested that the Tribunal reject the Claimant’s pre-hearing motion in its entirety.

97. On 15 August 2021, the Claimant submitted its reply to the Respondent’s response of 13 August 2021, requesting that the Tribunal (i) strike the paragraphs from the Respondent’s pleadings as set forth in the Claimant’s 5 August 2021 motion, as amended by Annex B attached to its reply;

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(ii) strike the Respondent’s arguments relating to extinctive prescription and Annex to the US-Estonia BIT from its pleadings; (iii) strike expert evidence and opinions from Mr. Molina; (iii) deny the adverse inferences sought by the Respondent in the Rejoinder; and (iv) “prohibit the Respondent from raising the facts and conclusion in the struck paragraphs at the arbitration hearing.”

98. On 16 August 2021, the Tribunal invited the Respondent to submit any comments it may have on the Claimant’s submission of 11 August 2021 regarding the transparency regime governing this arbitration. The Tribunal further stated that it would render a decision with respect to the remaining outstanding issues in relation to the hearing after it has decided on the Claimant’s 5 August 2021 pre-hearing motion.

99. On 18 August 2021, the Respondent filed its comments on the Claimant’s submissions of 11 August 2021 regarding the transparency regime.

100. On 24 August 2021, the Claimant requested the postponement of the hearing that was scheduled to take place between 30 August and 4 September 2021 in light of an emergency involving a family member of one of its lead counsel. The Respondent submitted its comments on the Claimant’s request on the same date.

101. On 25 August 2021, the Tribunal granted the Claimant’s request to postpone the hearing and proposed alternative hearing dates.

102. On 27 August 2021, the Parties submitted their respective comments on the dates proposed by the Tribunal on 25 August 2021.

103. By e-mail of 30 August 2021, the Tribunal proposed to the Parties additional dates for the hearing. By separate letter of the same date, the Tribunal set out its decision regarding the Claimant’s 5 August 2021 pre-hearing motion, (i) rejecting the Claimant’s request to strike paragraphs regarding Estonian law from the Respondent’s pleadings, but granting the Claimant the opportunity to respond to the points on Estonian law in the Rejoinder that were not already made in the Counter-Memorial before the oral hearing, including through the submission of a supplementary expert report by Mr. Keres, by 1 October 2021; (ii) rejecting the Claimant’s request to strike the Respondent’s arguments relating to extinctive prescription and Annex to the US-Estonia BIT, but granting the Claimant the opportunity to submit a response to the Respondent’s submissions related to the Annex to the US-Estonia BIT by 1 October 2021; (iii) rejecting the Claimant’s request to strike the Molina Report, but granting the Claimant the opportunity to respond to the Molina Report before the oral hearing, including through the submission of a responsive expert report, by 1 October 2021; (iv) inviting the Claimant to clarify “whether (copies of) the shares of Corona Resources that seem to be stored in the USA [...] could be made available to the Tribunal and the Respondent,” and, if that was the case, submit such copies by 1 October 2021; (v) rejecting the Claimant’s request to deny the adverse inferences sought by the Respondent, subject to any later decision to the contrary by the Tribunal; and (vi) rejecting the Claimant’s request to prohibit the Respondent from raising arguments set out in certain paragraphs of its pleadings. The Tribunal further confirmed its understanding that the word “award” in section 10.2 of Procedural Order No. 1 relates to the “final award” of this arbitration and would not include procedural orders or directions issued by the Tribunal.

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104. On 1 September 2021, the Parties confirmed their availability for a hearing on the dates proposed by the Tribunal on 30 August 2021.

105. On 4 September 2021, the Tribunal confirmed that the hearing would take place on 19-22 and 24-25 January 2022. The Tribunal also invited the Parties to confer and revert by 15 November 2021 on the outcome of their discussions regarding the hearing schedule.

106. On 14 September 2021, the Tribunal issued Procedural Order No. 9, providing the rules of procedure for the hearing to be held via videoconference.

107. On 1 October 2021, in accordance with the Tribunal’s directions of 30 August 2021, the Claimant filed its submission on issues relating to Estonian law, Corona Resources and Article 3 of the Annex to the US-Estonia BIT (the “1 October 2021 Submission”), together with (i) Fourth Expert Legal Opinion of Paul Keres dated 30 September 2021 (“Fourth Keres Report”); (ii) Fifth Witness Statement of Alex Rotko dated 30 September 2021 (“Fifth Rotko Statement”); (iii) exhibits C-594 to C-598; and (iv) legal authority CLA-410. In its Submission, in response to the Tribunal’s direction that the Claimant produce a copy of the shares of Corona Resources, the Claimant explained that it had already filed a copy of the bearer share certificate of Corona Resources as exhibit C-589 on 29 March 2021.

108. On 11 October 2021, the Tribunal informed the Parties of its unavailability from 19 to 21 January 2022 and thus proposed to hold the hearing on 24-28 January 2022, with 29 January 2022 held as a reserve day. The Tribunal invited the Parties to formally confirm their availability for the new proposed hearing dates.

109. On 15 October 2021, the Respondent (i) confirmed its availability for the new hearing dates and (ii) requested leave to submit its brief observations on the Claimant’s 1 October 2021 Submission for 15 days as of the Tribunal’s decision on its request on the ground that the Claimant’s Submission contained new allegations and evidence.

110. Also on 15 October 2021, the Claimant confirmed its availability for the new hearing dates. However, noting that its quantum expert would not be available to testify on his expert report after 25 January 2022 for a three-week period, the Claimant requested that the quantum experts be examined on 25 January 2022. As to the Respondent’s request for leave, the Claimant rejected the Respondent’s claim that its 1 October 2021 Submission contained new allegations and, therefore, did not consider a further submission by the Respondent was warranted. Notwithstanding, should the Tribunal decide to grant the Respondent a further submission, the Claimant requested that the Tribunal strictly limit the Respondent’s submission to addressing two new exhibits and, in turn, grant the Claimant the opportunity to file a sur-reply.

111. On 19 October 2021, the Tribunal confirmed that the hearing would take place from 24 to 28 January 2022, with 29 January 2022 held in reserve, and that quantum experts would be examined after the Parties’ opening statements on 25 January 2022, as requested by the Claimant.

112. In the same letter, the Tribunal granted the Respondent leave to submit, by 3 November 2021, brief observations on the Claimant’s 1 October 2021 Submission, which was to be strictly responsive to the new allegations and arguments made therein. In turn, the Claimant was granted leave to submit, by 1 December 2021, its brief observations on the Respondent’s 3 November

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2021 submission, which must be strictly responsive to new allegations and arguments made therein.

113. On 3 November 2021, the Respondent submitted its response to the Claimant’s 1 October 2021 Submission (the “3 November 2021 Submission”). In its Submission, the Respondent took issue with the Claimant’s observations in the 1 October 2021 Submission, noting that most of them were responsive to the Counter-Memorial, not the Rejoinder, and as a result should be disregarded by the Tribunal.

114. Also on the same date, the Respondent informed the Tribunal of the change in its counsel team due to Ms. Mailis Meier-Lutterodt’s departure from Ellex Raidla.

115. On 1 December 2021, the Claimant submitted its response to the Respondent’s 3 November 2021 Submission (the “1 December 2021 Submission”), along with exhibits C-599 to C-603.

116. By e-mail dated 23 December 2021, the Claimant informed the Tribunal that, in light of the Respondent’s explanations provided in its 1 December 2021 Submission regarding its failure to provide Mr. Molina the share certificates of Corona Resources, it no longer saw any need to cross-examine Mr. Molina in the hearing and thus would release Mr. Molina as a witness.

117. On 10 January 2022, having regard to the Parties’ correspondence of 11 August 2021 and the Claimant’s correspondence of 15 October 2021 and 23 December 2021, the Tribunal circulated an indicative hearing schedule and invited the Parties’ comments.

118. On 14 January 2022, the Parties respectively submitted their comments on the indicative hearing schedule.

119. On 19 January 2022, the Claimant requested to introduce into the record a document regarding the Claimant’s revised calculation of the “Beta factors” as exhibit C-604.

120. On the same date, the Tribunal invited the Respondent to comment on the Claimant’s request of 19 January 2022 and issued a revised schedule for the hearing.

121. On 20 January 2022, the Respondent objected to the Claimant’s request of 19 January 2022 to introduce a new document into the record.

122. On the same date, the Claimant informed the Tribunal that, based on exhibit C-604, it would be prepared to submit a revised Beta calculation, to be identified as exhibit C-605. The Claimant enclosed the document in its e-mail correspondence the next day.

123. On 22 January 2022, the Tribunal rejected the Claimant’s requests to admit exhibits C-604 and C-605 to the record, determining that the current circumstances did not warrant an exception to consider new evidence in accordance with section 6.4 of Procedural Order No. 1. The Tribunal further noted that its decision was without prejudice to the Claimant’s right to seek leave to submit these documents to the record after the hearing.

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G. HEARING

124. From 24 to 28 January 2022, a hearing was held by videoconference (“Hearing”). The following persons attended the Hearing:

Tribunal
Judge Bruno Simma
Professor Hélène Ruiz Fabri
Judge Peter Tomka

Tribunal Assistant
Dr. Gebhard Bücheler

Witnesses and Experts

Permanent Court of Arbitration
Dr. Túlio Di Giacomo Toledo
Ms. Jinyoung Seok
Ms. Diana Pyrikova

Court Reporter
Mr. Trevor McGowan

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Interpreters
Mr. Evgeny Elshov
Mr. Yuri Somov

125. At the close of the hearing, the Tribunal informed the Parties that it would issue a list of questions to be addressed in the Parties’ respective post-hearing submissions.

H. POST-HEARING PROCEEDINGS

126. On 12 February 2022, the Tribunal issued its Questions to the Parties (the “Tribunal Questions”) inviting the Parties to provide their answers by way of simultaneous submissions by 25 March 2022.

127. On 25 March 2022, the Claimant submitted its Response to Tribunal’s Post-Hearing Questions (the “Claimant’s Answers to the Tribunal’s Questions” or “Claimant’s Post-Hearing Brief” or “Claimant’s PHB”), together with exhibits C-604 to C-616. On the same date, the Respondent submitted its Answers to the Tribunal’s Questions (the “Respondent’s Answers to the Tribunal’s Questions” or “Respondent’s Post-Hearing Brief” or “Respondent’s PHB”), enclosing seven annexes.

128. On 7 April 2022, in light of the Claimant’s production of a copy of Corona Sources’ share purchase agreement with BPV as exhibit C-612 and the Respondent’s objection to the production of such agreement indicated in the Respondent’s Answers to Tribunal Questions, the Tribunal invited the Respondent to provide comments on exhibit C-612 by 21 April 2022.

129. On 21 April 2022, the Respondent submitted its comments on exhibit C-612, together with two annexes, maintaining its objection to the admissibility of the document and disputing its authenticity.

130. On 26 April 2022, the Tribunal invited the Claimant to submit its response to the Respondent’s challenge to the authenticity of exhibit C-612.

131. On 6 May 2022, at the Tribunal’s invitation, the Claimant submitted its response to the Respondent’s objections to exhibit C-612, requesting that the Tribunal (i) dismiss the Respondent’s objection, (ii) admit exhibit C-612, and (iii) give it full weight.

132. On 18 May 2022, the Tribunal informed the Parties of its decision to admit exhibit C-612 into record. The Tribunal indicated that its ruling was without prejudice to any determination that it might make on the relevance or evidentiary weight, if any, of exhibit C-612 in this arbitration.

133. By letter dated 27 March 2024, the Tribunal invited the Parties to seek to agree on a timetable for the exchange of costs submissions and submit a proposal to the Tribunal by 10 April 2024. The Tribunal invited the Parties to agree on whether reply submissions would be needed and the degree of specificity required to substantiate and document the costs incurred.

134. By e-mail on 10 April 2024, the Parties requested an extension until 17 April 2024 of the time to report on their progress. By e-mail on 11 April 2024, the Parties’ request was granted.

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135. By e-mail on 17 April 2024, the Respondent informed the Tribunal of agreement between the Parties on the following matters. Concerning the format of submissions, the Parties agreed that “any fees and expenditures related to pre-arbitral costs, ancillary court proceedings, and any contingency/success fee arrangements with counsel and/or third-party funders, if applicable, will be filed separately under this heading,” subject to the proviso that “the Respondent does not accept that [such] costs [could] be claimed in these proceedings”. The Parties agreed to file supporting invoices for costs over a threshold of USD 8,000. The Parties proposed deadlines of 30 April 2024 for the first round of costs submissions and 14 May 2024 for responsive rounds.

136. In its e-mail of 17 April 2024, the Respondent conveyed the Parties’ request that the Tribunal decide on matters not agreed, namely (i) the page limit for the detailed argumentation on costs, (ii) information regarding fees paid versus fees accrued, and (iii) the currency for legal costs. The Respondent’s request was for a page limit of two pages; for costs submissions to set out the amount of legal fees paid versus the legal fees that are deemed to have accrued but or not yet paid; and for legal costs to be claimed in the currency in which they were incurred. The Claimant’s request was for no page limit or requirement to differentiate between fees paid and fees accrued, and for all amounts to be expressed in US dollars. By e-mail on 18 April 2024, the Claimant elaborated its arguments in support of its requests.

137. On 29 April 2024, the Tribunal (i) set page limits for any detailed argumentation on costs of twelve (12) pages for the first-round submissions and six (6) pages for the second-round submissions; (ii) directed that the Parties differentiate in their cost submissions between the legal fees that have been paid and the fees accrued but not yet paid, and (iii) directed that the Parties adopt the practice of claiming costs in the currency in which they were incurred. The Tribunal invited the Parties to file their first-round submissions by 17 May 2024, and to file their second-round submissions by 31 May 2024.

138. On 17 May 2024, the Parties simultaneously filed their first-round submissions. The Claimant submitted its Statement of Costs together with exhibits B-Costs-1, C-Costs-1 through 3 and D-Costs-1 and legal authorities CLA-411 through CLA-422. The Respondent submitted its Cost Submission with Annexes 1 through 6.

139. On 31 May 2024, the Parties simultaneously filed their second-round submissions. The Claimant submitted its Response on Costs. The Respondent submitted its Response to Claimant’s Cost Submission with legal authorities RLA-230 through RLA-234.

140. By letter dated 31 January 2025, the Tribunal noted that the Parties had agreed to make the award public and proposed a procedure for the designation of any information contained in the award as confidential or protected information. The Tribunal further proposed to remain constituted following the issuance of the award to decide any disagreement between the Parties in relation to the designation of any information contained in the award as confidential or protected information and redactions to be made to the award prior to its publication on the PCA’s website. Finally, the Tribunal proposed to apply the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration as guidance when considering matters regarding the designation of confidential or protected information.

141. By e-mail of 7 February 2025, the Claimant, inter alia, consented to “the Tribunal applying the operative redaction categories in Article 7(2) of the [UNCITRAL Rules on Transparency in

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Treaty-based Investor-State Arbitration] as guiding foundational principles, supplemented by additional factors necessary to protect [Personal Privacy Information].” Accordingly, it requested that the Tribunal “consider redactions of [Personal Privacy Information] alongside the criteria in Article 7(2) to safeguard the panoply of legitimate privacy and confidentiality interests.”

142. By e-mail of 10 February 2025, the Respondent confirmed its agreement to the Claimant’s proposal outlined in the paragraph 141 above.

III. FACTUAL BACKGROUND

143. This section sets out the factual background giving rise to this arbitration and, where appropriate, the different accounts that the Parties provide for contested facts. It provides context to the Tribunal’s decision and is not intended to set out exhaustively the Parties’ submissions on the facts or the supporting evidence. The Tribunal will refer to additional facts when needed in the context of its analysis.

A. THE CLAIMANT AND ITS AFFILIATES

144. ELA is a commodities trading company, which was incorporated in the State of Minnesota in 1993 by Mr. Mark Garbuz.¹⁴ Later, Mr. Aleksander Rotko became ELA’s sole shareholder.¹⁵

145. The Claimant states that from 1993 until 2006, ELA engaged in trading commodities, including wood, fertilizers, chemicals, petroleum products, and cargo shipping in the Baltic region, mostly in Estonia.¹⁶ In conducting its business, ELA made use of various ports in Estonia to handle the transit needs before it decided to operate and utilize the Seaplane Harbor from 1997.¹⁷

146. Before the establishment of ELA, Mr. Rotko allegedly operated commodity trade and shipping businesses through Ella Kaubanduse AS (“Ella Kaubanduse”), an Estonian company incorporated in 1991.¹⁸

147. BPV is an Estonian corporation, which was established in 1993 by ELA, Ella Kaubanduse and STC International to construct and operate a bulk terminal in Tallinn, Estonia.¹⁹ According to the Respondent, the annual reports of BPV indicate that it had no business in the Seaplane Harbor or elsewhere until 1999.²⁰

¹⁴ ELA USA Certificate of Incorporation and Articles of Incorporation, 6 April 1993 (C-044). ↩

¹⁵ First Rotko Statement, ¶ 2 (CWS-1); Second Rotko Statement, ¶¶ 8, 11-12 (CWS-2). ↩

¹⁶ Notice of Arbitration, ¶¶ 23-24; Memorial, ¶ 37. ↩

¹⁷ Notice of Arbitration, ¶¶ 24-25; Memorial, ¶ 38; Second Rotko Statement, ¶ 10 (CWS-2). ↩

¹⁸ Second Rotko Statement, ¶ 7 (CWS-2); Third Rotko Statement, ¶ 7 (CWS-4). ↩

¹⁹ Second Rotko Statement, ¶ 13 (CWS-2); BPV Foundation Agreement, 22 December 1993 (C-076); Hearing Transcript, Day 1, p. 131:10-14. ↩

²⁰ Counter-Memorial, ¶ 292. ↩

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148. On 1 March 1996, STC International entered into an agreement with ELA to transfer its shareholding in BPV.²¹ By 25 June 1997, ELA owned 91% of BPV’s shares.²² On 20 October 1999, ELA allegedly obtained the remaining shares of BPV, wholly owning and controlling BPV.²³

149. On 23 September and 8 December 1999, BPV respectively acquired Verest and Agrin, two Estonian companies with which BPV, according to the Claimant, had concluded lease agreements on 1 October 1997 in relation to a number of buildings at the Seaplane Harbor.²⁴

150. On 22 March 2001, BPV sold its stake in Agrin to Ella Kaubanduse for EEK 250,000.²⁵ Ella Kaubanduse remained the sole shareholder of Agrin until Agrin’s deletion from the Estonian commercial register on 31 July 2013.²⁶

151. In 2000, ELA established ELA Tolli as its subsidiary, which was “intended to be used to handle customs services for the Lennusadam Port.”²⁷ ELA Tolli was deleted from the Estonian commercial register on 21 March 2016.²⁸

152. Verest was deleted from the Estonian commercial register on 13 September 2010.²⁹

B. THE SEAPLANE HARBOR

153. The Seaplane Harbor, or Lennusadam in Estonian, is a generally ice-free port located in the vicinity of Tallinn, Estonia, bearing the address Küti 17 and 17a.³⁰ Considered an important engineering landmark in the region, in 1999, the Seaplane Harbor became a part of the Tallinn Heritage Conservation Area and its buffer zone.³¹ It also became a part of the buffer zone when

²¹ Agreement between STC and ELA USA, 1 March 1996 (C-599). ↩

²² BPV Corporate Minutes, 25 June 1997 (C-600). See also Hearing Transcript, Day 1, p. 131:22-25. ↩

²³ Agreement between Ella Kaubanduse and ELA USA, 20 October 1999 (C-601). ↩

²⁴ Reply, ¶¶ 893-894; Second Rotko Statement, ¶ 32 (CWS-2); Share Purchase Agreement between BPV and Verest, 23 September 1999 (C-055); Share Sale Contract between BPV and Alcedo for the sale of Agrin, 8 December 1999 (C-057); Lease Agreement between BPV and Verest, 1 October 1997 (C-046); Lease Agreement BPV and Agrin, 1 October 1997 (C-047). ↩

²⁵ Share purchase agreement between BPV and Ella Kaubanduse for the sale of Agrin, 22 March 2001 (R-150). ↩

²⁶ Commercial Register extract of Agrin, 7 December 2018 (R-015). ↩

²⁷ Second Rotko Statement, ¶ 35 (CWS-2). ↩

²⁸ Commercial Register extract of ELA Tolli, 7 December 2018 (R-014). ↩

²⁹ Commercial Register extract of Verest, 7 December 2018 (R-013). ↩

³⁰ Memorial, ¶ 17; Counter-Memorial, ¶¶ 67, 374. While the formal address of the Seaplane Harbor land plot was Küti 17, the Respondent states that Küti 17a was also used to designate a part of the land plot, though no such address existed legally. See Counter-Memorial, fn. 8. ↩

³¹ Counter-Memorial, ¶¶ 377-378. See Heritage Conservation Act, 9 March 1994 (RLA-082); Area map of cultural monuments Nos. 3115 and 2628 and their buffer zones, 20 February 2020 (R-107). ↩

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the Old Town of Tallinn was inscribed on the UNESCO World Cultural Heritage List in 1997.³² Accordingly, the Seaplane Harbor became a protected object of cultural heritage under various regulations and statutes.³³

154. The name—Seaplane Harbor—is derived from the building located on the seafront called the Seaplane Hangar, which together with the Seaplane Harbor was built in 1916 under the orders of the Tsar Nicholas II of Russia as part of a larger naval fortress project.³⁴ Following Estonia’s declaration of independence on 24 February 1918, the Seaplane Harbor became a property of Estonia as a military port. It was taken over by the Red Army of the Union of Soviet Socialist Republics (the “Soviet Union” or the “USSR”) on 21-22 June 1940.³⁵ After the occupation of Estonia by the German military between 1941 and 1944, which also made use of the Seaplane Harbor, the Soviet armed forces re-established their control over Estonia in the fall of 1944 and regained possession of the Seaplane Harbor.³⁶

155. The below map shows the Seaplane Harbor area in 1946 separated into five distinct areas.³⁷ While the entire area was seized by the Soviet military, the areas relevant to this arbitration are areas [1], which houses the lumber facilities, and [3], where the Seaplane Hangar and the berths in dispute are located.³⁸ Areas [3] and [4] were designated as Military Camp No. 22 by the Soviet military.³⁹

³² Counter-Memorial, ¶ 378. See UNESCO Cultural Heritage List Documentation for file No. 822 – Historical Center of Tallinn, 25 February 2020 (R-108). ↩

³³ See, e.g., Heritage Conservation Act, 9 March 1994 (RLA-082); Government of Estonia, Regulation No. 278, “Establishing the border and the buffer zone border for the Old Town of Tallinn”, RT I, 1999, 72, 692, 28 September 1999 (RLA-083); Government of Estonia, Regulation No. 155, “Statute of the Heritage Conservation Area of the Old Town of Tallinn, RT I 2003, 44, 303, 20 May 2003 (RLA-084); R. Alatalu, Tallinn Old Town Conservation Area 50, Estonian Cultural Heritage, Preservation and Conservation, Vol. 2, 2013-2017, pp. 6-7 (R-109). ↩

³⁴ Memorial, ¶ 17; Statement of Defense, ¶ 4. ↩

³⁵ Memorial, ¶ 59; ‘Timeline of the Seaplane Harbor/Seaplane Hangar’ in Tallinn’s Seaplane Hangar: From Plane Shed to Museum, 2015, p. 30 (C-011); Counter-Memorial, ¶ 7. ↩

³⁶ Memorial, ¶ 59; ‘Timeline of the Seaplane Harbor/Seaplane Hangar’ in Tallinn’s Seaplane Hangar: From Plane Shed to Museum, 2015, pp. 30-31 (C-011). ↩

³⁷ Map of the Noblessner Shipyard and the Seaplane Harbor area in 1946 (R-019). ↩

³⁸ Counter-Memorial, ¶¶ 67-75. ↩

³⁹ Counter-Memorial, ¶ 76. ↩

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[Map Image]

156. The following map provides a simplified layout of the disputed area (areas colored only in green and blue) at the time of the Claimant’s alleged investment:⁴⁰

[Map Image]

157. The area colored in blue (equivalent to area [3]) contains the Seaplane Hangar with berths Nos. 38 and 38A in front of it,⁴¹ whereas the area colored in green (equivalent to area [1]) contains a lumber works site, including a sawmill building, lumber cutting shop, drying shop, boiler house, warehouses, clubhouse, canteen, medical station, and administrative buildings, which were serviced by a railway.⁴²

⁴⁰ Counter-Memorial, ¶ 5, Figure 1. The part of the Harbor coloured in red, where the mole and Berth Nos. 36, 36A and 37 are located, is outside the scope of the dispute. See Counter-Memorial, ¶ 5(i). ↩

⁴¹ Counter-Memorial, ¶ 5(ii). See also Counter-Memorial, ¶¶ 82-87. ↩

⁴² Counter-Memorial, ¶ 5(iii). See also Counter-Memorial, ¶¶ 88-91. For a complete description of the buildings, the Claimant refers to the Ehitusekspert Evaluation Report dated 24 January 2000 (C-016 / R-021) which, according to the Claimant, contains a comprehensive assessment of the assets located on ↩

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158. During the Soviet administration, the Seaplane Harbor was repurposed to serve the military needs of the USSR, such as hosting navy construction units, a mine and torpedo base, warehouses, and a wooden building materials factory.⁴³ In particular, the area with the lumber works site was designated as Military Camp No. 158 and was used by Military Factory No. 84 to serve the military woodworking needs of the Soviet military.⁴⁴ The Seaplane Hangar and berth No. 38 in front of it, i.e., Military Camp No. 22, were used mostly for storage purposes.⁴⁵

159. The withdrawal of the armed forces of the USSR (then the Russian Federation) in Estonia began in July 1994 and was completed by 31 August 1994.⁴⁶

160. In 2001, after a period of public consultations, a comprehensive plan for the entire city of Tallinn (the “Tallinn City Master Plan”) was adopted, which designated the Seaplane Harbor along with several other former military sites as a recreational and passenger port.⁴⁷ As commercial shipping was already moving away from the city center, the Tallinn City Master Plan envisaged to eliminate the railway link to the Seaplane Harbor and other similarly located sites within ten years as part of the plan to integrate the coastal area in the city open space and due to the decrease in cargo transport volume.⁴⁸

161. Subsequently, on 9 December 2004, the Tallinn City Council adopted a smaller-scale comprehensive plan for the coastline area between Paljassaare and Russalka (the “PRCA General Plan”), which covered approximately 20 km of coastal land in the City of Tallinn.⁴⁹ The PRCA General Plan established that the Seaplane Harbor would become a yacht and passenger port and that the eastern section of the railway, which served the Seaplane Harbor and the Old City Harbor, would be eliminated by 2005 due to the need to change the Old City Harbor into a passenger port.⁵⁰ It also allowed the port facility to be used as cargo port under the condition that there was no railway connection.⁵¹

Küti 17, Küti 17a, and Küti 15a and is a “reliable, contemporaneous source of information”. See Claimant’s Answers to Tribunal Questions, ¶¶ 115-124. The Respondent notes that the “exact composition and purpose of the buildings at the Seaplane Harbor has never been quite clear,” given that the entire site was under military administration. See Respondent’s Answers to Tribunal Question, ¶ 19.

⁴³ Robert Treufeldt, “From Oblivion to Rediscovery: The Seaplane Harbor 1940-1990”, Tallinn’s Seaplane Hangar: From Plane Shed to Museum, 2015, p. 64 (C-011). ↩

⁴⁴ Memorial, ¶ 62; Counter-Memorial, ¶ 75. ↩

⁴⁵ Counter-Memorial, ¶ 76; Rejoinder, ¶ 69. ↩

⁴⁶ Counter-Memorial, ¶ 13; Agreement between Estonia and the Russian Federation regarding the withdrawal of military forces from Estonia, 26 July 1994 (C-204). This document had set the date of withdrawal of armed forces from Estonia to 31 August 1994. ↩

⁴⁷ Tallinn Master Plan, accepted on 11 February 1999, adopted on 11 January 2001 (R-124). See Counter-Memorial, ¶¶ 393-402. See also Planning and Building Act, RT I 1995, 59, 1006, 22 July 1995 (RLA-223). ↩

⁴⁸ Counter-Memorial, ¶¶ 397-398; Rejoinder, ¶ 218. ↩

⁴⁹ Tallinn City Council, Regulation No. 54, 9 December 2004 (C-479). ↩

⁵⁰ Explanatory Note to the PRCA General Plan (R-118). ↩

⁵¹ Explanatory Note to the PRCA General Plan (R-118). ↩

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162. In 2012, the Seaplane Harbor, including the berths, was repurposed and reopened as a museum.⁵²

C. LEGAL INSTRUMENTS ADOPTED IN THE TRANSITION PERIOD

1. The March 1990 Resolution and Prior Developments

163. From the mid-1980s, several movements on the “new national awakening” of Estonia emerged, where, by 1988, there was constant public discussion and protests in regard to ending the Soviet occupation and restoring Estonia’s independence.⁵³ The demands for independence led to the decision of the Supreme Council of the Estonian Soviet Socialist Republic (the “Supreme Council of the ESSR” or the “Supreme Council”) on 12 November 1989 to rule that the vote to join the USSR in July 1940 after Estonia’s full military occupation had been illegal.⁵⁴ In February 1990, the Congress of Estonia—an “unofficial parliament”—was elected by more than 500.000 citizens of the pre-WW II Republic of Estonia and their descendants.⁵⁵ On 11 March 1990, the Congress of Estonia declared that “[o]n 17 June 1940, the USSR started the aggression against the Republic of Estonia”, which is “a country occupied and annexed by the USSR until today”.⁵⁶

164. A week after this declaration, on 18 March 1990, elections to the Supreme Council of the ESSR took place. The elections were open to all residents of the ESSR, including the Russian-speaking population that had arrived after 1940.⁵⁷ On 29 March 1990, the Supreme Council adopted a resolution in which it declared the restoration of the Republic of Estonia pursuant to the principle of restitutio ad integrum, meaning that Estonia had been under Soviet occupation since 1940 but never ceased to be a de jure independent State (the “March 1990 Resolution”).⁵⁸ Furthermore, the March 1990 Resolution “recognize[d] the illegitimacy of the state power of the USSR in Estonia from the date of its establishment” and “proclaime[d] a transitional period”.⁵⁹

⁵² Counter-Memorial, ¶ 31. See also Hearing Transcript, Day 1, p. 92:20-25. ↩

⁵³ Counter-Memorial, ¶¶ 237-238; David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), p. 48 (C-014). ↩

⁵⁴ David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), p. 53 (C-014). ↩

⁵⁵ David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), pp. 43-50 (C-014); Mälksoo Report, ¶ 41 (RER-3). ↩

⁵⁶ Mälksoo Report, Exhibit 4, Declaration of the Congress of Estonia regarding restoration of the legitimate state authority on the territory of Estonia, 11 March 1990 (RER-3). ↩

⁵⁷ David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), pp. ix, 48, 54 (C-014). ↩

⁵⁸ Resolution of the Supreme Council of the ESSR on the National Status of Estonia, 29 March 1990 (RLA-049). While the copy of the March 1990 Resolution submitted by the Respondent is dated 29 March 1990, other sources state that the resolution was passed on 30 March 1990 (see, e.g. David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), pp. ix, 54-55 (C-014)). ↩

⁵⁹ Resolution of the Supreme Council of the ESSR on the National Status of Estonia, 29 March 1990 (RLA-049). ↩

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2. From the 17 July 1990 Resolution to the 27 November 1991 Regulation

165. On 17 July 1990, a resolution was adopted by the Presidium of the Supreme Council concerning the initial measures for organizing the privatization process (the “17 July 1990 Resolution”), which inter alia suspended transactions involving public property.⁶⁰ The 17 July 1990 Resolution reads in relevant part as follows:

In order to execute the ownership right of Estonian Republic regarding the property that is in the ownership of Estonian Republic in accordance with Property law of Estonian Republic the Presidium of the Supreme Council of the Republic of Estonia decides:

1. To suspend temporarily, until the adoption of Estonian legislative acts regulating the privatization of the property, all transactions with the statutory fund property of state-owned enterprises and other organisations, which cause a change in the ownership of such property, except in the cases provided in section 3.2. of this resolution and also the transfer of property from state farms to collective farms following the established procedure.⁶¹

166. On 19 December 1990, the resolution on the Restoration of Continuity of Right of Ownership (the “19 December 1990 Resolution”) was adopted by the Supreme Council based on, inter alia, the March 1990 Resolution. The 19 December 1990 Resolution, inter alia, set out that the Government of the Estonian Republic shall prepare a list of previous owners and their successors whose property was nationalized by the Soviet Union since 1940 so that the property could be returned, or compensation be paid, in conformity with the Estonian legal order.⁶²

167. On 20 August 1991, the Supreme Council of Estonia affirmed (and officially declared) Estonia’s full independence from the USSR based on the continuity of the 1918 Republic as a subject of international law.⁶³

168. In a decision of 29 August 1991, the Supreme Council of Estonia stated that assets managed and administered by the USSR within the territory of Estonia (except those owned or used by the USSR Ministry of Defense) “are the assets of the Republic of Estonia”.⁶⁴ According to the Respondent, the assets owned or used by the USSR Ministry of Defense were omitted from the scope of that decision because the Soviet armed forces remained in Estonia until 31 August

⁶⁰ Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195). ↩

⁶¹ Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195). ↩

⁶² 19 December 1990 Resolution (CLA-196). ↩

⁶³ David J. Smith, Estonia: Independence and European Integration (Routledge, 2002), p. xx (C-014); Counter-Memorial, ¶¶ 9, 186. ↩

⁶⁴ Respondent’s Answers to Tribunal Questions, ¶ 2, Annex 5, Decision of 29 August 1991 of the Supreme Council of the Republic of Estonia on the assets and management of enterprises, agencies, and organizations in the Republic of Estonia subordinated to or administered by state bodies of the Union of Soviet Socialist Republics. ↩

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1994.⁶⁵ Consequently, the property owned or used by the USSR Ministry of Defense was subject to separate negotiations and agreements in order to be handed over to Estonia.⁶⁶

169. On 27 November 1991, the Estonian Government adopted Regulation No. 244 regarding the Suspension of Transactions with Buildings, Structures and Other Property Assets that are Occupied by the USSR Military and Located on the Territory of the Republic of Estonia (the “27 November 1991 Regulation” or “Regulation No. 244”), requiring that all past transactions regarding real property with the USSR Ministry of Defense be registered with the relevant country or city administration within one month.⁶⁷ Regulation No. 244 provides, in relevant part:

1. To stop transactions made by USSR Defense Ministry without agreement from ER State Government with buildings, structures and other property assets located on ER territory until the corresponding decision is made by ER Supreme Council.

2. [To] [e]stablish that all transactions made before enactment of the current Ruling by USSR Defense Ministry or by its dependent legal entities with landholdings, buildings and other property assets located on ER territory have to be registered with the correspondent county or city administration within one month from enactment of the current Ruling.⁶⁸

3. The 23 January 1992 Resolution

170. On 23 January 1992, the Supreme Council passed a resolution by which buildings, structures, and other assets possessed by the former USSR armed forces were declared the property of Estonia (the “23 January 1992 Resolution” or “1992 Supreme Council Resolution”) and any transactions with these assets were prohibited⁶⁹:

1. To declare buildings, structures, military weapons, military hardware, supplies and other assets possessed by former USSR military forces units located on ER territory to become the property of the Estonian Republic.

2. The ER State Government has to determine composition of the assets possessed by former USSR military forces units located on ER territory and has to solve administrative and technical problems of taking over assets by collaborating with appropriate agencies of the legal successor of USSR, also has to arrange the administration, usage and control over these assets.

3. Prohibit all transactions with land, buildings, structures, military weapons, military hardware, supplies and other assets located on ER territory and belonging to the former USSR military units without permission from the ER State Government.⁷⁰

⁶⁵ Respondent’s Answers to Tribunal Questions, ¶ 27. ↩

⁶⁶ Respondent’s Answers to Tribunal Questions, ¶¶ 28-29. See also Transcript of the session of the Supreme Council, 21 January 1992, p. 10 (C-199). ↩

⁶⁷ Counter-Memorial, ¶ 191; Regulation No. 244 (CLA-197). ↩

⁶⁸ Regulation No. 244 (CLA-197). ↩

⁶⁹ See, e.g., Reply, ¶ 1244. ↩

⁷⁰ 23 January 1992 Resolution (C-197). ↩

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4. The 24 July 1992 Regulation

171. A resolution of 24 July 1992 required that past real estate transactions with the Soviet armed forces must be “re-registered” with the Ministry of Defense of Estonia and forbid any further transactions with such assets acquired from the Soviet armed forces (“Regulation No. 215” or “24 July 1992 Regulation”):

1. Transactions concluded between former units of USSR armed forces and any enterprise, establishment, organization or private person regarding the land, buildings and structures on the territory of the Republic of Estonia that are in accordance with the law, must be re-registered in the Ministry of Defense of the Republic of Estonia by August 15, 1992.

The Ministry of Defense has to take into account the standpoint of the government committee formed for the supervision of the legality of these transactions when re-registering the transactions.

2. To forbid any further transactions of the enterprises, establishments, organizations and private people of the Republic of Estonia with the land, buildings and structures on the Republic of Estonia acquired from the units of the former USSR armed forces.⁷¹

172. With respect to the phrase “that are in accordance with the law” expressed in section 1 of 24 July 1992 Regulation,⁷² the Claimant submits that it applies to transactions that were submitted for re-registration and were found to be legal and concluded in good faith by the government committee referenced in the same section.⁷³ The Claimant takes the view that Resolution No. 215 only established an obligation for re-registration in the Ministry of Defense and did not extend an existing registration deadline.⁷⁴

173. For the Respondent, the particular meaning of the phrase is not known as it has not been disclosed in the travaux préparatoires.⁷⁵ But it notes that Regulation No. 244 had already imposed the duty to register previously concluded transactions and to request permission from the Government Office for any future transactions. According to Regulation No. 244, upon failure to comply with these duties, those transactions which had not been registered or which had taken place without permission from the relevant administration might be deemed not to be in accordance with the law.⁷⁶

174. The Respondent submits that the focus of section 1 of Resolution No. 215 is on the second paragraph, which “refers to the fact that the legality of any transaction was to be reviewed on a case-by-case basis by the Ministry of Defense.”⁷⁷ The Respondent asserts that all transactions concluded with the Soviet military, including those made in good faith, were subject to the re-

⁷¹ 24 July 1992 Regulation (C-198). ↩

⁷² See Tribunal Questions, Question 10. ↩

⁷³ Claimant’s Answers to Tribunal Questions, ¶¶ 136-138, 141. ↩

⁷⁴ Claimant’s Answers to Tribunal Questions, ¶ 142. ↩

⁷⁵ Respondent’s Answers to Tribunal Questions, ¶ 30. ↩

⁷⁶ Respondent’s Answers to Tribunal Questions, ¶ 34. ↩

⁷⁷ Respondent’s Answers to Tribunal Questions, ¶¶ 30-31. ↩

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registration requirement, which could then be validated by the Ministry of Defense upon a case-by-case review.⁷⁸

175. After restoring its independence, Estonia also amended or annulled certain parts of the Civil Code of the ESSR.⁷⁹ The provisions of the Civil Code regarding the validity of transactions were never retroactively annulled by Estonia, but were left in force by Estonia until 1 September 1994 when the all-new General Part of the Civil Code Act entered into force.⁸⁰

D. THE ALLEGED CHAIN OF TITLE OF THE BUILDINGS IN THE SEAPLANE HARBOR

176. The Parties disagree as to the transfer of title to the buildings in the Seaplane Harbor after the Soviet occupation and before the Claimant allegedly acquired rights thereto.

177. According to the Claimant, the Soviet military sold the buildings and structures at the Seaplane Harbor to private entities before the Soviet occupation ended in Estonia, as the Seaplane Harbor was no longer viewed to be a vital asset.⁸¹ The Respondent disagrees, arguing that the Claimant’s alleged predecessors never acquired any rights to the assets they were using.⁸² Instead, the Respondent contends that the assets at issue were officially transferred by the Soviet military to Estonia, rejecting the claim that the titles were passed down to the private entities.⁸³

1. The Claimant’s Position: Transactions from the Soviet Military to Private Entities

a) Sale Transactions to B&E

178. On 29 December 1989, the construction committee of the ESSR adopted Decree No. 477 to establish the small state enterprise SEK, whose founding members were: (i) Military Factory No. 84; (ii) another small state enterprise called Sevek; (iii) a company called Elektron; and (iv) the Construction Directorate of the Soviet Baltic Fleet (“BFC”).⁸⁴ Decree No. 477 established SEK as a separate legal entity with its own balance sheet, recorded its address at Küti 17, Tallinn, and assigned Mr. Vladimir Truhan as the director.⁸⁵

179. While SEK was directed to carry out a number of economic activities related to timber production, it was to “prioritis[e] the fulfilment of public procurements for [Military Factory No. 84] under

⁷⁸ Respondent’s Answers to Tribunal Questions, ¶¶ 32-33. ↩

⁷⁹ Counter-Memorial, ¶ 198. ↩

⁸⁰ Counter-Memorial, ¶ 198; Overview of the Annulments of the Civil Code (RLA-050). ↩

⁸¹ Memorial, ¶ 64. ↩

⁸² Counter-Memorial, ¶ 92. ↩

⁸³ Counter-Memorial, ¶ 14. ↩

⁸⁴ Memorial, ¶ 67; ESSR Construction Committee, Decree No. 477 of the Soviet Civil Construction Authority on Establishing SEK, 29 December 1989 (R-032 (English translation) / C-018 (original language)). ↩

⁸⁵ ESSR Construction Committee, Decree No. 477 of the Soviet Civil Construction Authority on Establishing SEK, 29 December 1989, § 1 (R-032 (English translation) / C-018 (original language)). See also Articles of Association of SEK, 29 December 1989, §§ 1.4, 1.5.2 (R-033). ↩

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its operative management”.⁸⁶ The assets and funds of SEK were to be composed by the contributions of the founders, whereas the resources for SEK’s activities were to be provided by Military Factory No. 84 with the volumes mandated by the state procurement plan.⁸⁷

180. On 22 May 1990, Military Factory No. 84 and BFC entered into an agreement with OÜ B&E (“B&E”), a joint enterprise between a German company called Bauman Import-Eksport and Elektron, to sell all of SEK’s assets at the Seaplane Harbor for RUB 7.3 million (“Contract No. 16”).⁸⁸

181. On 5 June 1990, the parties to Contract No. 16 signed a protocol of transfer and acceptance, which included a list of 30 buildings and inventory at the lumber works site sold to B&E.⁸⁹ According to the Claimant, these transfers were recognized by the Tallinn Circuit Court in 2002.⁹⁰

182. On 1 November 1990, Mr. Vladimir Truhan issued Directive No. 17/90 (“SEK Directive No. 17/90”), ordering, inter alia, (i) B&E to be deemed as the co-founder of SEK, instead of Elektron; and (ii) B&E to assume all the rights and obligations of SEK and become the “legal successor of SEK.”⁹¹ On the same day, Mr. Truhan issued another Directive No. 17/90 in which he ordered to take 22 buildings and structures “to the balance sheet of small enterprise SEK” and transfer these buildings to B&E in accordance with the co-founders’ “approval” (or “consent”).⁹²

183. The Claimant argues that the Soviet military relinquished its interest in the buildings at the Seaplane Harbor, in part, when Military Factory No. 84 agreed to transfer the assets to B&E under Contract No. 16.⁹³ The transfer of assets, the Claimant continues, was finalized on 1 November 1990 when SEK Directive No. 17/90 was issued.⁹⁴ According to the Claimant, SEK’s board approved the sale, and B&E’s subsequent ownership of SEK’s Port facilities was registered in the Tallinn Registry of Buildings.⁹⁵

⁸⁶ Articles of Association of SEK, 29 December 1989, §§ 1.7.1, 3.1 (R-033). ↩

⁸⁷ Articles of Association of SEK, 29 December 1989, §§ 2.1, 4.1 (R-033). ↩

⁸⁸ Memorial, ¶ 68; Claimant’s Answers to Tribunal Questions, ¶ 88; Contract No. 16 (C-023 / R-036). The appendix, which lists the transferred assets, has not been submitted by the Claimant. ↩

⁸⁹ Counter-Memorial, ¶ 108; Act of Transfer pursuant to Contract No. 16 of 22 May 1990, 5 June 1990 (C-141); Protocol of Transfer with Appendices for Lumber Works Buildings between Military Factory No. 84 and B&E, 5 June 1990 (R-030). ↩

⁹⁰ Claimant’s Answers to Tribunal Questions, ¶ 89, referring to May 2002 Appeal Judgment, p. 7 (C-191). ↩

⁹¹ SEK Directive No. 17/90 (C-019). ↩

⁹² While the Claimant translated the word to “pursuant to the approval,” the Respondent’s translation provides a different wording, “based on the consent.” Compare SEK Directive No. 17/90 (C-024) with Respondent’s Translation of Claimant’s Exhibit C-024 (R-035). ↩

⁹³ Memorial, ¶¶ 68, 253, referring to Contract No. 16 (C-023 / R-036). ↩

⁹⁴ Memorial, ¶ 68, referring to SEK Directive No. 17/90 (C-019). ↩

⁹⁵ Memorial, ¶¶ 253-254, referring to Tallinn Building Registry Certificate No. 8395 issued to B&E, 27 October 1995 (C-033). ↩

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184. According to the Claimant, B&E owned and operated the assets until it sold them to Agrin on 26 September 1997.⁹⁶

185. To the contrary, the Respondent posits that Contract No. 16 “cannot exist in the same physical universe [with SEK Directive No. 17/90]” because they support two “mutually exclusive [...] theories” concerning the purported transfer of assets to B&E, as shown below: (i) B&E obtained title from SEK pursuant to SEK Directive No. 17/90 after SEK took over all assets of Military Factory No. 84, or (ii) from Military Factory No. 84 and BFC via Contract No. 16:⁹⁷

[Image of a flowchart]

186. Addressing the first theory involving the alleged transfer from SEK, the Respondent contends that no document exists to indicate that SEK ever obtained title to any property on the lumber works site or replaced Military Factory No. 84 to be able to transfer them to others.⁹⁸ In this respect, the Respondent points out that a resolution of the Housing Commission for Tallinn dated 19 June 1990 shows Military Factory No. 84’s ownership of the buildings at Küti 17 as of that date.⁹⁹

187. In addition, the Respondent takes issue with SEK Directive No. 17/90, arguing that (i) “SEK could not simply ‘order’ assets to be transferred from an unnamed prior owner ‘to its balance sheet’, let alone transfer them onward to B&E”; (ii) the document only vaguely makes reference to “consent” by the co-founders of SEK and of B&E, without providing any details;¹⁰⁰ (iii) it purports to transfer the Seaplane Hangar and Berth Nos. 38 and 38A, which were never owned by Military Factory No. 84; and (iv) the remaining listed assets are inconsistent with other contemporaneous documents covering the area, which list 30 different buildings, rather than 22.¹⁰¹

⁹⁶ Memorial, ¶ 72; Contract of Purchase and Sales and Pledge Contract between Agrin and B&E, 26 September 1997 (C-020). ↩

⁹⁷ Counter-Memorial, ¶¶ 97-98, 110. See Counter-Memorial, Figure 9. See also Hearing Transcript, Day 5, p. 107:17-24. ↩

⁹⁸ Counter-Memorial, ¶¶ 101-102; Articles of Association of SEK, 29 December 1989 (R-033). ↩

⁹⁹ Counter-Memorial, ¶ 115, referring to Resolution of the Housing Commission, 19 June 1990 (R-040). ↩

¹⁰⁰ While the Claimant translated the word to “pursuant to the approval,” the Respondent’s translation provides a different wording, “based on the consent.” Compare SEK Directive No. 17/90 (C-024) with Respondent’s Translation of Claimant’s Exhibit C-024 (R-035). ↩

¹⁰¹ Counter-Memorial, ¶ 103, referring to Respondent’s Translation of Claimant’s Exhibit C-024 (R-035); Protocol of Transfer with Appendices for Lumber Works Buildings between Military Factory No. 84 and B&E, 5 June 1990 (R-030). ↩

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188. Contesting the second theory involving Contract No. 16, the Respondent points out that (i) the purchase price of the assets was to be paid only to BFC even though both BFC and Military Factory No. 84 were named sellers; (ii) the assets that were purportedly transferred to B&E were limited to lumber work buildings, excluding the Seaplane Hangar and the berths; and (iii) some of the assets listed in the 5 June 1990 protocol in fact no longer existed at the time of the purported transfer.¹⁰² As such, “[i]f the buildings on the lumber working site were already sold to B&E on 22 May 1990, they could not have been transferred to SEK on 1 November 1990, and, on the same day, again to B&E.”¹⁰³ Such inconsistency, in the Respondent's view, “further undermines the already non-existent credibility of the Directive.”¹⁰⁴

189. The Respondent notes that, in any event, there is another version of Contract No. 16 with key differences, such as naming Military Factory No. 84 as the only seller and containing a different map and a different list of assets in the appendix, which includes the Seaplane Hangar and berths Nos. 38 and 38A.¹⁰⁵ This second version of Contract No. 16, according to the Respondent, was submitted by B&E in the Estonian court proceedings, “apparently forgetting that it had previously submitted a different version (the one that the Claimant now relies on) to the Building Register.”¹⁰⁶ In fact, B&E, the Respondent continues, admitted during the Estonian proceedings that "it [had] not acquired assets on the basis of [Contract No. 16]" and that Contract No. 16 was indeed a forgery.¹⁰⁷ The Respondent adds that the bank account listed in the first version of Contract No. 16 also points to forgery as it was not opened until 26 June 1990, a month after the alleged date of the contract.¹⁰⁸

b) Sale Transactions to GT, Nautex, and Verest

190. On 26 July 1991, a resolution was adopted within the Soviet military that BFC (military unit 72068) would conduct certain hydrotechnical works for a private company, GT Projekt (“GT”), which was "the customer for port and hydrotechnical facilities construction in the Baltic Sea region.”¹⁰⁹ According to the Respondent, the works were supposed to be listed in an appendix, which is not in its possession.¹¹⁰

¹⁰² Counter-Memorial, ¶¶ 107-109, referring to Contract No. 16 (C-023 / R-036). ↩

¹⁰³ Counter-Memorial, ¶ 110. ↩

¹⁰⁴ Counter-Memorial, ¶ 105. ↩

¹⁰⁵ Counter-Memorial, ¶ 113, referring to Second version of Contract No. 16 (R-038). ↩

¹⁰⁶ Counter-Memorial, ¶ 113. ↩

¹⁰⁷ Counter-Memorial, ¶¶ 116-117, citing March 2006 Appeal Judgment (C-081). See also Hearing Transcript, Day 1, p. 97:2-9. ↩

¹⁰⁸ Counter-Memorial, ¶ 114, referring to Contract No. 16 (C-023 / R-036); Communications regarding existence of B&E’s bank account, September 1995 (R-039). See also Hearing Transcript, Day 1, p. 96:16-97:1-25. ↩

¹⁰⁹ Resolution by the Head of the Main Military Construction Directorate of the Ministry of Defense of the USSR and the Deputy Commander of the Baltic Fleet for Construction, Engineering Support and Housing, 26 July 1991 (R-041). ↩

¹¹⁰ Counter-Memorial, ¶ 119(i). ↩

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191. A subsequent resolution was adopted on 29 July 1991, “permit[ting] the paid transfer of land/territory/facilities held on the [military unit 10717] balance sheet to the company GT Projekt based on the residual value,” pursuant to the 26 July 1991 resolution.¹¹¹ The Respondent states that the resolution mentions an appendix, which has not been preserved or has never existed.¹¹²

192. Also on 29 July 1991, the commander of another military unit 13016, referring to the aforementioned resolution of the same date, instructed the commander of military unit 10717 to transfer assets listed in the inventory attached to the resolution.¹¹³ According to the Respondent, the inventory list mentioned in the resolution remains missing.¹¹⁴

193. On 31 July 1991, two protocols of transfer were signed by the USSR military unit 10717 to transfer assets to another military unit 1176 UNR.¹¹⁵ The first protocol, stating that it was prepared “on the basis of the order no. 177 as of June 22, 1976 issued by the Naval Forces Commander regarding the reservation of the Hydrotechnical facilities and the resolution of the Baltic Fleet Commander-in-Chief,” transferred the berths listed as “36A, 36-37, 36, 38A, 38, 39,” as well as “outfitting quay” and “Paljassaare peninsula mine quay.”¹¹⁶ It was signed by captain II rank S. N. Romašetškin on behalf of unit 10717 and Directorate of the Chief of the Service D. L. Sukortsev, on behalf of 1176 UNR.¹¹⁷

194. The second protocol stated that it was prepared “on the basis of the order no. 75 of 22 February 1977 issued by the USSR Ministry of Defense and the decision of the Baltic Fleet Commander-in-Chief as of 2 July 1991,” transferring inter alia “airship hangar at the Seaplane harbour (m/s no. 22, building no. 2).”¹¹⁸ It was signed by captain II rank S. N. Romašetškin on behalf of unit 10717 and Lieutenant Colonel V. P. Sitnikov, on behalf of 1176 UNR.¹¹⁹

195. On 17 August 1991, V. P. Sitnikov, on behalf of 1176 UNR, signed a protocol of transfer with GT “on the basis of the order no. 177 as of 22 June 1976 issued by the Naval Forces Commander regarding the reservation of the Hydrotechnical facilities and the permit of the Baltic Fleet Commander-in-Chief,” transferring the assets listed in the first protocol of 31 July 1991, i.e., berths Nos. 36A, 36-37, 36, 38A, 38, 39 and the outfitting quay.¹²⁰ Five sale agreements dated

¹¹¹ Resolution by the Deputy to the Commander of the Soviet Naval Forces for Construction, Engineering Support and Housing, 29 July 1991 (R-042). ↩

¹¹² Counter-Memorial, ¶ 119(ii). ↩

¹¹³ Resolution of Military Unit 13016, 29 July 1991 (R-043). ↩

¹¹⁴ Counter-Memorial, ¶ 120. ↩

¹¹⁵ First Protocol of Transfer by Military Unit 10717, 31 July 1991 (C-200 / R-044); Second Protocol of Transfer by Military Unit 10717, 31 July 1991 (R-045). ↩

¹¹⁶ First Protocol of Transfer by Military Unit 10717, 31 July 1991 (C-200 / R-044). ↩

¹¹⁷ First Protocol of Transfer by Military Unit 10717, 31 July 1991 (C-200 / R-044). ↩

¹¹⁸ Second Protocol of Transfer by Military Unit 10717, 31 July 1991 (R-045). ↩

¹¹⁹ Second Protocol of Transfer by Military Unit 10717, 31 July 1991 (R-045). For the Respondent, the fact that the two protocols of 31 July 1991 were signed by two different people is a sign that the documents were forged at a later date. See Counter-Memorial, ¶ 124. ↩

¹²⁰ Counter-Memorial, ¶ 122; Protocol of Transfer between Military Unit 1176 and GT, 17 August 1991 (R-046). See also First Protocol of Transfer by Military Unit 10717, 31 July 1991 (C-200 / R-044). ↩

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17 August 1991 were concluded between 1176 UNR and GT with respect to the sale of berth Nos. 38, 38A, 39, “Airship Hangar (m/s no. 22, building no. 2)” and the outfitting quay, all of which were located at “Küti St., 17, Seaplane Harbor.”¹²¹

196. On the same day when GT acquired assets from 1176 UNR, GT further transferred ownership of the assets to AS Nautex (“Nautex”) via three sale agreements.¹²² The sale agreements between GT and 1176 UNR included the Seaplane Hangar, berths Nos. 38A, 38, 39, the outfitting quay, as well as berths Nos. 36A and 36-37, which were not included in the agreements between 1176 UNR and GT.¹²³ Therefore, the Claimant notes that, as provided in contemporaneous government records, the Port “was in the use of the armed forces of [the former] USSR” until 17 August 1991.¹²⁴

197. On 17 August 1991, the day GT acquired assets from 1176 UNR, GT applied to the Tallinn Technical Survey Bureau to register a building at Tööstuse 55, berths Nos. 38, 38A, 39 and a slipway under its name.¹²⁵ On 1 September 1991, an identical application was filed by Nautex.¹²⁶

198. On 1 November 1991, the Garrison Commander of the USSR in Tallinn issued Order No. 72, instructing the military unit 10717 to transfer certain assets to 1176 UNR pursuant to inter alia the resolutions adopted on 26 July and 29 July 1991.¹²⁷ The assets that were on the balance sheet of the military unit 10717 to be transferred to 1176 UNR included: (i) the Seaplane Harbor (berths Nos. 36A, 36, 36-37, 38A, 38, 39), (ii) the outfitting quay, (iii) the airship hangar (m/s No. 22), (iv) bureau of the 1176 UNR (Tööstuse 55, m/s No. 5), (v) building No. 11 at Paljassaare (m/s No. 1); (vi) Pier at Paljassaare (m/s No. 1), and (vii) the industrial base at Paljassaare (m/s No. 190).¹²⁸

199. On 7 May 1992, Nautex concluded sales agreements with Verest with respect to (i) the airship hangar for RUB 29,500 and (ii) berths Nos. 38A, 38 and 39 located at Küti 17 for RUB 1.14 million.¹²⁹

¹²¹ Counter-Memorial, ¶ 123, Contract between Military Unit No. 1176 and GT, 17 August 1991 (C-025); Sale and Purchase Agreement between Military Unit 1176 and GT, 17 August 1991 (R-047). ↩

¹²² Sale Agreement between GT and Nautex, 17 August 1991 (R-048). ↩

¹²³ Counter-Memorial, ¶ 126; Claimant’s Answers to Tribunal Questions, ¶ 90; Sale Agreement between GT and Nautex, 17 August 1991 (R-048). Contra Sale and Purchase Agreement between Military Unit 1176 and GT, 17 August 1991 (R-047). ↩

¹²⁴ Claimant’s Answers to Tribunal Questions, ¶ 91, citing Tallinn Building Registry Certificate No. 20215 issued to Verest, 17 November 1997 (C-053). ↩

¹²⁵ GT’s Application to the Tallinn Technical Survey Bureau, 17 August 1991 (R-049). ↩

¹²⁶ Nautex’s Application to the Tallinn Technical Survey Bureau, 1 September 1991 (R-050). ↩

¹²⁷ Order No. 72 of the Soviet Garrison, 1 November 1991 (R-051). See paragraphs 190-191 above. ↩

¹²⁸ Order No. 72 of the Soviet Garrison, 1 November 1991 (R-051). ↩

¹²⁹ Counter-Memorial, ¶ 130; Claimant’s Answers to Tribunal Questions, ¶ 92; Sale Agreement between Nautex and Verest, Protocols of Transfer, 7 May 1992 (R-052). The Respondent points out that the agreement refers to berth No. 38 as “outfitting quay” though the term “outfitting quay” was mentioned in other documents as a separate berth. Moreover, berth No. 39, according to the Respondent, was not a part ↩

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200. The alleged chain of transfers of the Seaplane Hangar and the berths advanced by the Claimant have been diagrammed by the Respondent as below (where GT is abbreviated as CT):¹³⁰

201. In its letter to the City of Tallinn dated 27 May 1996, the Privatization Agency stated that the property at the Seaplane Harbor was private property and was therefore not subject to municipalization.¹³¹

202. On 22 October 1997, B&E wrote to the Office of the Chancellor of Justice to ask about the legal effect of the 23 January 1992 Resolution upon the transfer of rights regarding the Seaplane Harbor and its adjacent lands.¹³² The Office of the Chancellor of Justice responded the next day, stating that the 23 January 1992 Resolution did not have retroactive effect and thus could not void the transfer of rights at the Seaplane Harbor, which was made in 1990.¹³³

2. The Respondent's Position: Transfer of Assets by the USSR to Estonia

203. The Respondent denies that the sales transactions between the Soviet Military and private parties alleged by the Claimant ever took place. It posits that Contract No. 16 and SEK Directive No. 17/90, both adduced by the Claimant in support of its claims, cannot coexist.¹³⁴ It also disputes the two mutually exclusive theories arising from either Contract No. 16 or SEK Directive No. 17/90 being the means through which title was passed on to B&E. First, it argues that SEK Directive No. 17/90 could not transfer title to B&E because SEK’s ownership of the assets was not substantiated, because it could not order a transfer from an unnamed company to its own balance sheet, and because the information contained therein is inconsistent with the assets of Military Factory 84.¹³⁵ Secondly, it argues that there are inconsistencies surrounding Contract No. 16, including the second version of the same contract which was filed by the Claimant in the

of the Seaplane Harbor, but a part of the neighboring Noblessner Shipyard. See Counter-Memorial, ¶ 130, fn. 53.

¹³⁰ Counter-Memorial, Figure 9. ↩

¹³¹ Letter from Estonian Privatization Agency to Tallinn City Government, 27 May 1996 (C-309). ↩

¹³² Letter from CEO of B&E to the Chancellor of Justice, 22 October 1997 (C-310). ↩

¹³³ Letter from the Advisor of Chancellor of Justice to B&E, 23 October 1997 (C-331). See also Hearing Transcript, Day 1, pp. 19:24 – 20:7. ↩

¹³⁴ See ¶ 185 above. ↩

¹³⁵ See ¶¶ 186-187 above. Counter-Memorial, ¶¶ 99-105; SEK Directive No. 17/90 (C-019 / R-034). See also SEK Directive No. 17/90 (C-024 / R-035). ↩

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domestic proceedings, which point to its forgery.¹³⁶ The Respondent finally contends that all documents concerning B&E’s transactions were forged.¹³⁷

204. The Respondent further disputes the transactions involving GT, Nautex and Verest. It argues that many documents on which the Claimant rests its allegations are missing or never existed, while others exist in multiple versions which are inconsistent and contradictory. The involvement of the same people throughout the transactions chain, especially of Mr. Sukortsev, commander of military unit 1176 and later Verest’s majority shareholder, would suggest a profit motive behind the attempted sale of public property. According to the Respondent, these elements together point again to forgery.¹³⁸ The Respondent finally notes that, in any case, the alleged transactions would have been “illegal and impossible in the Soviet legal system.”¹³⁹

205. Therefore, according to the Respondent, the title of the disputed buildings never passed to the Claimant’s alleged predecessors.¹⁴⁰ Rather, the Soviet military handed over the real estate to Estonia.¹⁴¹ On 26 July 1994, a treaty on the withdrawal of Russian troops from Estonian territory and on the conditions of their temporary stay in Estonia was signed between Estonia and Russia.¹⁴² With respect to the various assets located on the Seaplane Harbor, the handover of berths Nos. 36, 36A and 37 were completed by 29 July 1994, whereas the handover of Military Camp No. 22, which included the Seaplane Hangar, was completed by 30 July 1994.¹⁴³ The Russian troops completed its withdrawal from Estonia on 31 August 1994.¹⁴⁴

206. On 19 September 1994, Mr. S. Mayorov, on behalf of BFC, sent a letter to the Estonian Ministry of Defense, offering to hand over Military Camp No. 158, i.e., the lumber works site.¹⁴⁵ The undated handover protocol concerning Military Camp No. 158 attached to the letter was signed by the representatives from Estonia’s Ministry of Defense and by the chief of 328 military station

¹³⁶ See ¶¶ 188-189 above. Counter-Memorial, ¶¶ 106-111; Contract No. 16 (C-023 / R-036); Second version of Contract No. 16 between Military Factory No. 84 and B&E, 22 May 1990 (R-038). ↩

¹³⁷ Counter-Memorial, ¶¶ 112-117; Rejoinder, ¶¶ 72, 74. ↩

¹³⁸ Counter-Memorial, ¶¶ 118-132, 205-206; Rejoinder, ¶¶ 72-76. ↩

¹³⁹ Rejoinder, ¶ 76. ↩

¹⁴⁰ Counter-Memorial, ¶¶ 92-94. ↩

¹⁴¹ Counter-Memorial, ¶¶ 133-139. ↩

¹⁴² Extract of the Ministry of Foreign Affairs website, 25 Years since the Withdrawal of Russian Troops from Estonia, 31 August 2019 (R-054). ↩

¹⁴³ Counter-Memorial, ¶¶ 134-135, referring to Handover Protocol of Military Camp 22, 15/20 February 1994 (R-055); Handover Protocol of berths Nos. 36, 36A, 37, 15 March 1994 (R-028). See also Hearing Transcript, Day 5, p. 115:6-12. ↩

¹⁴⁴ Extract of the Ministry of Foreign Affairs website, 25 Years since the Withdrawal of Russian Troops from Estonia, 31 August 2019 (R-054). The remaining assets at the Seaplane Harbor were taken over by Estonia by a unilateral instrument on 14 December 1994. See Instrument of Unilateral Takeover of the Assets at the Seaplane Harbor by the Ministry of Defense of Estonia, 14 December 1994 (R-192). ↩

¹⁴⁵ BFC Letter regarding Handover Protocols Handing Over Military Camp No. 158, 19 September 1994 (R-057). The Supreme Council of Estonia passed the Act on 13 April 1992 to establish the Ministry of Defense of Estonia. According to the Respondent, the Ministry of Defense is the successor to the Ministry of Defense (at times, the War Ministry) of Estonia that was first established in 1918. See Respondent’s Answers to Tribunal Questions, ¶¶ 11-12. See also Claimant’s Answers to Tribunal Questions, ¶ 60. ↩

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and the members of the commission from the Russian side.¹⁴⁶ However, on 19 January 1995, Mr. Mayorov sent another letter to the Estonian Ministry of Defense, requesting to consider the letter of 19 September 1994 void because it “contain[ed] a mistake due to a fault by its author.”¹⁴⁷ In the letter, Mr. Mayorov clarified that (i) BFC did not own Military Camp No. 158 and (ii) the lumber working section of Military Factory No. 84, which was located at the same address, had been sold to B&E pursuant to Contract No. 16.¹⁴⁸

207. On 25 October 1993, the Government of Estonia promulgated a list of assets that were to remain in the state’s ownership as of 6 September 1993 (the “State Assets List”).¹⁴⁹ None of the structures at the Seaplane Harbor were included in the list.¹⁵⁰ The structures at the Seaplane Harbor were added to the State Assets List pursuant to Regulation No. 258 of 22 October 1996 and entered into the newly founded State Assets Register in November 1996.¹⁵¹

208. In light of the foregoing, the Respondent argues that the buildings on the Seaplane Harbor “ha[d] always belonged to the Respondent” and that the Claimant has failed to discharge its burden to prove otherwise.¹⁵²

Ε. THE CLAIMANT'S INTERESTS IN THE SEAPLANE HARBOR

1. Lease Agreements with Verest and Agrin

209. The Claimant states that in 1996, after being informed that the owners of the Lennusadam Port were looking to sell the port, Mr. Rotko was introduced to Mr. Dimitri Sukortsev, the owner of Verest, and Mr. Enn Laansoo, the owner of Agrin, respectively, by Mr. Aleksandr Meleško, a port dispatcher at the Old City Harbor (Vanasadam Port).¹⁵³ Given that BPV was using other ports in Estonia for its trading activities, Mr. Rotko considered that acquiring its own port would allow BPV, and correspondingly ELA, “to expand and vertically integrate [their] commercial operations with guaranteed port facility access.”¹⁵⁴

210. According to the Claimant, BPV— after conducting due diligence—entered into separate lease agreements with Verest and Agrin on 1 October 1997 to lease the buildings at the Seaplane Harbor

¹⁴⁶ BFC Letter regarding Handover Protocols Handing Over Military Camp No. 158, 19 September 1994 (R-057). ↩

¹⁴⁷ Counter-Memorial, ¶ 137; BFC Letter regarding Handover Protocol, 19 January 1995 (R-058). ↩

¹⁴⁸ BFC Letter regarding Handover Protocol, 19 January 1995 (R-058). ↩

¹⁴⁹ Counter-Memorial, ¶ 335; Government of Estonia, Regulation No. 328, 25 October 1993 (RLA-079). ↩

¹⁵⁰ Memorial, ¶ 76(d). ↩

¹⁵¹ Counter-Memorial, ¶ 336; State Assets Act (Riigivaraseadus), RT I 1995, 22, 327, 15 February 1995 (RLA-080); Ministry of Finance, Certificate of Registration of the State Assets in the State Assets Register, 15 May 1997, pp. 2-3 (C-038); Government of Estonia Regulation No. 258, 22 October 1996 (C-037). ↩

¹⁵² Rejoinder, ¶ 71; Respondent’s Answers to Tribunal Questions, ¶¶ 15-16. See also Hearing Transcript, Day 1, p. 99:1-7. ↩

¹⁵³ Memorial, ¶¶ 81-82; Second Rotko Statement, ¶¶ 18, 21-22 (CWS-2). ↩

¹⁵⁴ Second Rotko Statement, ¶ 18 (CWS-2). See also Memorial, ¶ 81; Second Rotko Statement, ¶¶ 19-20 (CWS-2). ↩

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owned by the two companies.¹⁵⁵ The lease with Verest covered the use of berths Nos. 38, 38A and the Seaplane Hangar, all of which were located in Küti 17, Tallinn.¹⁵⁶ The lease with Agrin included the following buildings at the Seaplane Harbor on the Küti 17a premises: gate building, administrative building, machine building, carpentry factory, dryer, sorting factory, sawmill unit, residue warehouse, firewood warehouse, heating fuel warehouse, carpentry factory, fire alarm station, boiler plant, car garage, assembly factory, produce warehouse, and shelter (warehouse).¹⁵⁷

211. The remaining terms of both lease agreements were identical. They stipulated inter alia that (i) BPV was “the owner of the buildings”; (ii) BPV would pay EEK 60,000 per year; (iii) BPV would “invest into the buildings and land for the processing of wood and development of the port up to [USD] 5,000,000 until 1 January 2001”; and (iv) the leases would continue for 20 years, expiring on 1 October 2017.¹⁵⁸ In addition, both lease agreements provided BPV “a grace period for the payment of rent until 1 January 2001,” so long as it made the requisite USD 5 million investment to the covered buildings and structures.¹⁵⁹

212. The Respondent disputes the authenticity of the lease agreements, stating that they did not surface until 2005 and were obviously backdated.¹⁶⁰ According to the Respondent, there is no evidence on file but for Mr. Rotko’s witness testimony that the Claimant became active at the Seaplane Harbor before 1999.¹⁶¹

213. On 14 November 1997, six weeks after BPV had allegedly concluded the lease agreements with Verest and Agrin, Estonia brought a lawsuit in Tallinn City Court, claiming that it was the rightful owner of the buildings and structures at Küti 17 and 17a.¹⁶² In the lawsuit, Estonia sought not only a declaration that it was the rightful owner of the buildings located on Küti 17 and 17a, but also an injunction barring their transfer and encumbrance.¹⁶³

214. According to the Claimant, this lawsuit was the first time that Mr. Rotko or any other officers of ELA and BPV knew that the ownership of the Seaplane Harbor might be in dispute.¹⁶⁴ However, the Claimant considered that it “had no reason to believe that those leases were affected in any

¹⁵⁵ Memorial, ¶¶ 83-84; Second Rotko Statement, ¶¶ 23-25 (CWS-2); Lease Agreement between BPV and Verest, 1 October 1997 (C-046); Lease Agreement between BPV and Agrin, 1 October 1997 (C-047). ↩

¹⁵⁶ Lease Agreement between BPV and Verest, 1 October 1997, § 1.1 (C-046). ↩

¹⁵⁷ Lease Agreement between BPV and Agrin, 1 October 1997, § 1.1 (C-047). ↩

¹⁵⁸ Lease Agreement between BPV and Verest, 1 October 1997, §§ 1.3, 3.1, 7.1, 8.1 (C-046); Lease Agreement between BPV and Agrin, 1 October 1997, §§ 1.3, 3.1, 7.1, 8.1 (C-047). ↩

¹⁵⁹ Lease Agreement between BPV and Verest, 1 October 1997, § 7.2 (C-046); Lease Agreement between BPV and Agrin, 1 October 1997, § 7.2 (C-047). ↩

¹⁶⁰ Rejoinder, ¶¶ 11, 140-147. ↩

¹⁶¹ Rejoinder, ¶ 10. ↩

¹⁶² Second Rotko Statement, ¶ 26 (CWS-2); August 2000 Judgment, Statement of Claim, 14 November 1997 (C-050). See below paragraph 284. ↩

¹⁶³ August 2000 Judgment, Statement of Claim, 14 November 1997, p. 6 (C-050). ↩

¹⁶⁴ Memorial, ¶ 105; Second Rotko Statement, ¶ 26 (CWS-2). ↩

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way by Estonia’s ownership claim,” given that BPV had signed the leases over a month before the claim had been brought.¹⁶⁵

215. The Claimant states that, in accordance with the contractual obligations under the lease agreements, ELA made a total investment of approximately USD 9.1 million, spending USD 7 million in Port improvements and another USD 2.19 million in the lumber facilities.¹⁶⁶

2. BPV's Acquisition of Verest and Agrin

216. The Claimant states that when it first took possession of the Port, it observed that the Lennusadam Port required “significant harbor dredging and capital improvements throughout the facilities” in order to reach the Port’s optimal efficiency and use.¹⁶⁷ Therefore, before making the necessary expenditures to refurbish the Port, Mr. Rotko “wanted to determine if [he] could obtain ownership of the Port from Verest and Agrin” since he was aware of the risk that Verest might lose its possession of the Port due to its financial instability.¹⁶⁸

217. According to the Claimant, after consulting with Estonian lawyers about the pending lawsuit against Verest and Agrin brought by the Estonian Government, Mr. Rotko and other corporate officers concluded that the lawsuit “was nothing more than a nuisance complaint” lacking merit.¹⁶⁹ They also relied on a letter written by the Minister of Economy, Mr. Jaak Leimann, the day before the lawsuit was filed, confirming that the process by which the USSR created SEK in 1989 was legitimate and that SEK could be reorganized and liquidated by its board of directors without approval by the Ministry.¹⁷⁰

218. Consequently, on 23 September 1999, BPV purchased Verest by paying EEK 10,000 (approximately USD 667) for all of Verest’s shares and agreeing to assume EEK 526,000 (approximately USD 35,063) in debts that Verest had incurred.¹⁷¹

219. In respect of Agrin, Mr. Rotko personally acquired the company through Ella Kaubanduse on 8 December 1999, so that Agrin would become an affiliate of Verest and together they would become part of the ELA Corporate Group.¹⁷² For the acquisition of Agrin’s shares, Ella Kaubanduse paid EEK 180,000.¹⁷³

¹⁶⁵ Memorial, ¶ 109. ↩

¹⁶⁶ Memorial, ¶ 110; Deloitte Valuation Report, 29 August 2019, pp. 55-56 (CER-5). ↩

¹⁶⁷ Second Rotko Statement, ¶ 27-31 (CWS-2). ↩

¹⁶⁸ Second Rotko Statement, ¶¶ 31-32 (CWS-2). ↩

¹⁶⁹ Second Rotko Statement, ¶ 33 (CWS-2). ↩

¹⁷⁰ Memorial, ¶ 113, referring to Letter from Jaak Leimann, Minister of Economy, to Tiina Mitt, Armit Law Office, 13 November 1997 (C-202). ↩

¹⁷¹ Memorial, ¶ 114; Share Purchase Agreement between BPV and Verest, 23 September 1999, Articles 2.1, 5.2 (C-055). ↩

¹⁷² Second Rotko Statement, ¶¶ 32, 34 (CWS-2). ↩

¹⁷³ Share Sale Contract between BPV and Alcedo for the sale of Agrin, 8 December 1999 (C-057). ↩

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3. Joint Venture Agreement

220. According to the Claimant, on 21 October 1999, Verest, BPV and Agrin entered into an agreement to jointly manage, use, and modernize the Port’s buildings located on Küti 17 and 17a “with the goals to build a wood processing complex and a modern port” (the “JVA”).¹⁷⁴ The Respondent submits that the JVA was very likely backdated. This is because the JVA states in its preamble that Agrin was represented by Mr. Jevgeni Skljarov, a member of its management board. Mr. Skljarov, however, was appointed as a member of Agrin’s management board only on 7 December 1999 through a decision of Agrin’s sole shareholder OÜ Alcedo KV (“Alcedo”), represented by Mr. Enn Laansoo.¹⁷⁵

221. In the JVA, Verest and Agrin agreed to pay the annual rent for the land (recipient and amount not specified) and authorized BPV to act as a possessor of the Port.¹⁷⁶ In return, BPV agreed to perform and finance all the works necessary to achieve the stated goals, including repairing buildings that were owned and in the possession of Verest and Agrin and obtaining the necessary permits to perform such repair works.¹⁷⁷ The JVA was set to expire on 1 October 2047.¹⁷⁸

222. On 15 December 2000, ELA Tolli became a fourth partner in the joint venture,¹⁷⁹ where all four partners “worked together to further the overall corporate interests of ELA.”¹⁸⁰ While ELA directly controlled the process, Mr. Rotko testified that revenue, profits, and costs were allocated between the four partners pursuant to the JVA.¹⁸¹ The JVA contains no provision on profit-sharing.

F. THE CLAIMANT'S ACTIVITIES AT THE SEAPLANE HARBOR

1. Reconstruction of Berth No. 38

223. After acquiring Verest and Agrin in 1999, BPV engaged in repairs,¹⁸² dredging, building maintenance, and refurbishment of the Seaplane Harbor, which ELA allegedly funded.¹⁸³

¹⁷⁴ JVA (C-056). ↩

¹⁷⁵ Counter-Memorial, ¶ 303, referring to Shareholder’s Decision of Agrin, 7 December 1999 (R-080). ↩

¹⁷⁶ JVA, §§ 2, 5 (C-056). ↩

¹⁷⁷ JVA, § 3 (C-056). ↩

¹⁷⁸ JVA, § 7 (C-056). ↩

¹⁷⁹ Notice of Arbitration, ¶ 34. ↩

¹⁸⁰ Second Rotko Statement, ¶ 38 (CWS-2). ↩

¹⁸¹ Second Rotko Statement, ¶ 38 (CWS-2). ↩

¹⁸² Reply, ¶¶ 498-500. See Payment to the company Tamult AS, 18 May 2001 (C-227); Payment to the company Civen OÜ, 19 July 2000 (C-511); Payment to the company Aldermani Metall OÜ, 5 April 2000 (C-510); Payment to the company Plastic Toru OÜ, 18 May 2021 (C-224); Payment to the company Treede Rev-2 AS, 23 March 2001 (C-228). ↩

¹⁸³ Reply, ¶¶ 491, 493. ↩

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224. On 17 December 1999, the Estonian Marine Inspectorate issued building permit No. 48 to BPV for the “reconstruction of the berth No. 38 of port Lennusadam according to the project devised by GT PROJECT and dredging operations.”¹⁸⁴ BPV obtained additional permits from the Estonian Marine Inspectorate for dredging.¹⁸⁵

225. On 14 February 2000, BPV applied to the Maritime Administration to obtain authorization with respect to the reconstruction works of berth No. 38.¹⁸⁶ On 29 February 2000, the Maritime Associate wrote that the submitted documents were insufficient and asked for the following documents: “detailed plan of Seaplane Harbor, port basin allocation, land allocated for berth expansion and explanation letter of reconstruction technical description”.¹⁸⁷

226. On 21 July 2000, the Tallinn City Court issued a court ruling, prohibiting Verest, B&E and Agrin from changing the composition of the Seaplane Harbor, constructing new buildings and structures, and performing any kind of construction works.¹⁸⁸ Verest and Agrin appealed to the Tallinn Circuit Court, asserting that the repairs that were done were made in compliance with the Planning Act, which stated that the owner had the responsibility to eliminate a hazard if the building had become unsafe.¹⁸⁹ However, the Tallinn Circuit Court found on 28 July 2000 that the repairs did not fit within the urgent category of the Planning Act and issued no permit in this regard.¹⁹⁰

227. On 1 August 2000, BPV sent a letter to the Minister of Environment, stating that, upon a review of court files, it became aware that Tallinn’s Deputy Mayor Priit Vilba and the Minister of Justice Märt Rask had requested to revoke building permit No. 48 of 17 December 1999 and that B&E’s Director, Mr. Viktor Perevalov, similarly requested to prohibit Agrin, Verest and BPV from accessing the port basin.¹⁹¹ BPV requested that the Ministry of Environment maintain the validity of permit No. 48 for the reconstruction of berth No. 38 on the ground that the reconstruction “started in a timely manner and there was no false information submitted to obtain the permit.”¹⁹² BPV also considered that Mr. Perevalov had no legal ground to prevent Agrin, Verest and BPV from reconstructing berth No. 38 because, pursuant to the 26 September 1997 agreement between

¹⁸⁴ Estonian Marine Inspectorate Permit No. 48 to BPV, 17 December 1999 (C-093). ↩

¹⁸⁵ Estonian Marine Inspectorate Permit No. 41 to BPV, 1 November 1999 (C-089); Estonian Marine Inspectorate Permit No. 47 to BPV, 24 November 1999 (C-091); Estonian Marine Inspectorate Permit No. 25 to BPV, 17 December 1999 (C-092). ↩

¹⁸⁶ Rejoinder, ¶ 273. The application has not survived to date, but according to the Respondent, its date is evident from Maritime Administration Letter to BPV re Berth No. 38 Reconstruction Coordination, 29 February 2000 (C-512). ↩

¹⁸⁷ Maritime Administration Letter to BPV re Berth No. 38 Reconstruction Coordination, 29 February 2000 (C-512). ↩

¹⁸⁸ Reply, ¶ 502; August 2000 Judgment, Decision, 21 July 2000 (C-064). ↩

¹⁸⁹ Reply, ¶ 504; Verest and Agrin Appeal to 21 July 2000 Tallinn City Court Decision, 28 July 2000 (C-428). ↩

¹⁹⁰ Reply, ¶ 504. ↩

¹⁹¹ BPV Letter to Minister of Environment re Berth No. 38 Reconstruction, 1 August 2000 (C-468). ↩

¹⁹² BPV Letter to Minister of Environment re Berth No. 38 Reconstruction, 1 August 2000, p. 2 (C-468). ↩

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B&E and Agrin, Agrin possessed the right of ownership to the buildings and structure located at Küti 17, as well as the right of use for the land underneath them.¹⁹³

228. In response, the Minister of Environment Kranich clarified the scope of permit No. 48, explaining that it only covered the extent and conditions for the special use of water pursuant to the Water Act and that if the special use of water is accompanied by construction, a building permit issued by the local government pursuant to Planning and Construction Act must be obtained in addition to the permit for the special use of water.¹⁹⁴ Taking into account the complaints submitted against BPV’s activities, the Minister further ordered an independent auditor inspection to verify whether BPV’s conditions for the special use of water had been met and submit a report by 1 September 2000.¹⁹⁵

229. Considering that the Tallinn Circuit Court decision of 28 July 2000 did not apply to BPV, BPV sent a letter to the Deputy Mayor of Tallinn on 5 September 2000, (i) referring to the cooperation agreement between the City of Tallinn and BPV to work together to “transfer[] seaplane hangars to the City of Tallinn”; (ii) noting the urgency of the roof repairs and its willingness to invest in the restoration of the Seaplane Hangar; and (iii) requesting a construction permit to restore the roof of the Seaplane Hangar.¹⁹⁶

230. On 23 April 2001, the Tallinn Sustainable Development Planning Office issued a report, finding that the construction of berths Nos. 38 and 38A was complete, that there was no active construction on the berths, and that the Seaplane Hangar was “in a technically poor condition.”¹⁹⁷

231. In carrying out the dredging and repairs at the Seaplane Harbor, ELA and BPV also purchased new equipment, including, inter alia, cranes, lifts, railway locomotive, spare parts, and auxiliary equipment.¹⁹⁸

2. Port Operations

232. BPV provided a variety of services at the Seaplane Harbor, such as performing ship repairs, bunkering operations, storage services and office rentals.¹⁹⁹

233. The Claimant’s business plan with respect to the operations of the Seaplane Harbor (the “Port Plan”) was prepared for use by third-party investors and was shared with municipal authorities of the City of Tallinn with a goal “to ensure the Lennusadam Port’s efficient utilization through

¹⁹³ BPV Letter to Minister of Environment re Berth No. 38 Reconstruction, 1 August 2000, p. 3 (C-468). ↩

¹⁹⁴ Letter No. 20-2/2340 of the Ministry of Environment to BPV, 3 August 2000 (R-136). ↩

¹⁹⁵ Letter No. 20-2/2340 of the Ministry of Environment to BPV, 3 August 2000 (R-136). ↩

¹⁹⁶ Reply, ¶¶ 506-507; BPV Letter to Deputy Mayor of Tallinn re Seaplane Hangar, 5 September 2000 (C-427). ↩

¹⁹⁷ Instrument re Inspection of Berths 38 and 38A, 23 April 2001 (C-472). ↩

¹⁹⁸ Reply, ¶ 526; Third Rotko Statement, ¶ 133 (CWS-4). See Payment to the company EM-Serv, 2 March 2000 (C-216); Payment to the company Eesti Vesiehituse AS, 15 June 2000 (C-514); Payment to the company C.C.M.L, 9 June 2000 (C-214). ↩

¹⁹⁹ Memorial, ¶¶ 100-103. ↩

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as much specialization and vertical integration as possible.”²⁰⁰ According to the Claimant, it was developed in consultation with the City of Tallinn based on ELA’s discussions with the Deputy Mayor of Tallinn at a meeting in August 2000.²⁰¹

234. The overall Port Plan was to obtain cargo on ELA’s rail trucks, rail tanks and other transportation containers, as it had already been doing from 1994-1999.²⁰² The Plan consisted of four steps, mainly divided into construction of the Port (including the berths and the Seaplane Hangar) and investment in new equipment, such as cranes, railways and forklifts.²⁰³

235. To enhance efficiency at the Port, the Claimant initiated negotiations with the producer of natural gas generators for the Port to secure competitive electricity costs and purchased additional equipment for better cargo handling.²⁰⁴

236. Observing that the railway siding, which Agrin allegedly acquired from B&E, could be viable and work for the Port, BPV and the Estonian Railways entered into a contract, where BPV would finish the construction of the rail switch and the connecting road.²⁰⁵ Once repairs on two railway branches were complete, BPV considered that the existing infrastructure was insufficient to handle the cargo volume under the Port Plan.²⁰⁶ Accordingly, it sought to construct a third railway branch on the Old City Port and liaised with the Estonian Railways to begin the reconstruction.²⁰⁷ After the reconstruction of the railway branch was completed, the Estonian Railways confirmed that it would permit the temporary use of BPV’s railway branch on Küti 17.²⁰⁸

237. In its letter dated 12 January 2004, the Tallinn Sustainable Development and Planning Office informed BPV that railway tracks from Kopli Cargo Station to the Old City Port were “unviable and set to be eliminated” and that the railway tracks from the Tallinn Old City Port would also be eliminated by 2005 based on the Tallinn City Master Plan and the PRCA General Plan.²⁰⁹

²⁰⁰ Third Rotko Statement, ¶¶ 125, 130 (CWS-4), referring to Port Plan (C-142). ↩

²⁰¹ Third Rotko Statement, ¶¶ 142-145 (CWS-4). ↩

²⁰² Third Rotko Statement, ¶¶ 130-131 (CWS-4). ↩

²⁰³ Port Plan, p. 4 (C-142). ↩

²⁰⁴ Third Rotko Statement, ¶¶ 132, 137 (CWS-4). ↩

²⁰⁵ Reply, ¶¶ 700-702; Third Rotko Statement, ¶¶ 284-285 (CWS-4); Contract between BPV and Estonian Railways, 18 May 2000 (C-337); Agreement between BPV and Estonian Railways, 12 December 2000 (C-342). ↩

²⁰⁶ Reply, ¶¶ 704-708. ↩

²⁰⁷ Reply, ¶¶ 708-712; BPV Letter to Estonian Railways re Railway Branch, 11 May 2000 (C-402); BPV Letter to Estonian Railways re Renewing Conditions, 13 July 2000 (C-447). ↩

²⁰⁸ Estonian Railways Letter to BPV re Wagons, 9 November 2000 (C-450). On 27 January 2004, the Estonian Railway Inspectorate issued railway registration certificate No. 82 to BPV, confirming the three railways’ tracks located at Küti 17 in the national registry, though about three weeks later, BPV was asked to return the certificate for a replacement because it was non-compliant to decree No. 60 dated 2 September 2003. See Reply, ¶¶ 719-720; Estonian Railway Inspectorate Permit No. 82 to BPV, 27 January 2004 (C-106); Letter from the Director of the Railway Inspectorate to BPV, 17 February 2004 (C-453). ↩

²⁰⁹ Letter from Tallinn’s Planning Office to BPV re Railway Branch between Kopli Cargo Station and Old City Port, 12 January 2004 (C-451). ↩

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238. In December 2004, the Tallinn Sustainable Development and Planning Office informed Agrin and BPV respectively of the adoption of the PRCA General Plan by the Tallinn City Council via Regulation No. 54.²¹⁰ BPV, Verest and Agrin, as the purported owners of the Seaplane Harbor, filed complaints to the Tallinn Administrative Court to request for the annulment of Regulation No. 54.²¹¹ The Tallinn Administrative Court rejected the application, determining that the companies did not have the right to request the annulment of Regulation No. 54, which was based on the protection of the interest of the State.²¹²

3. “Joint Venture” with the City of Tallinn

239. On 17 August 2000, Mr. Rotko met with the Mayor of Tallinn to discuss the Port Plan and the development of the Seaplane Harbor.²¹³ According to the minutes of the meeting, the Mayor promised to make efforts to municipalize Küti 15 and Küti 17, i.e., to have the State transfer the ownership of land and buildings to the City, and to make a proposal to the Tallinn City Council to grant BPV the right of superficies (a registered right to use the land) for 30 years after the City obtained the land and the buildings to municipal ownership.²¹⁴ In return, BPV agreed to help with a faster transfer of ownership of the Seaplane Harbor to the City and to provide port services and activities in accordance with the right of superficies.²¹⁵

240. According to the Claimant, the meeting of 17 August 2000 amounted to a 30-year-long “joint venture” to collaboratively develop the Seaplane Harbor based on the Port Plan.²¹⁶ The terms of the agreement, the Claimant asserts, made clear that the City of Tallinn would take care of the land use regulation conformity and local building permits, as well as expand the capacity of the Seaplane Harbor in exchange for the transfer of the Seaplane Harbor possessed by BPV.²¹⁷ Moreover, the Claimant alleges that President Meri’s meeting with Mayor Mõis in May 2001 changed the City of Tallinn’s position on the Lennusadam Port. Thereafter, President Meri

²¹⁰ Tallinn City Council, Regulation No. 54, 9 December 2004 (C-479); Letter from Tallinn City Council Chairman to Agrin, 10 December 2004 (C-480); Letter from Tallinn’s Planning Office to BPV, 14 December 2004 (C-481). ↩

²¹¹ Reply, ¶¶ 765-772; Verest complaint against Harju County governor Orm Valtson, 18 July 2004 (C-501); Agrin complaint against Harju County governor Orm Valtson, 18 July 2004 (C-502); BPV complaint against Harju County governor Orm Valtson, 18 July 2004 (C-503); BPV complaint against Regulation No. 54 re. adoption of PRCA General Plan, 15 January 2005 (C-504). ↩

²¹² Tallinn Administrative Court Decision in the complaints of Verest, BPV, Agrin against Harju County governor, 8 February 2005 (C-507). See also Administrative Court Decision in the complaints of Verest, Agrin, BPV against Harju County governor, 9 March 2005 (C-508). ↩

²¹³ Third Rotko Statement, ¶¶ 146-147 (CWS-4). ↩

²¹⁴ Meeting Protocol with BPV and Mayor of Tallinn, 17 August 2000 (C-067). ↩

²¹⁵ Meeting Protocol with BPV and Mayor of Tallinn, 17 August 2000 (C-067). ↩

²¹⁶ Reply, ¶¶ 691-692, 697, 779; Third Rotko Statement, ¶¶ 142-154 (CWS-4). See also Hearing Transcript, Day 5, p. 5:9-24. ↩

²¹⁷ Reply, ¶¶ 779, 783. See also Hearing Transcript, Day 5, p. 6:18-20. ↩

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ordered the end of the “joint venture” between the Claimant and the City of Tallinn, and the Tallinn City Council adopted the PRCA General Plan.²¹⁸

241. The Respondent disagrees, arguing that any future plans for the Seaplane Harbor were expressly made conditional upon the government agreeing to give up its rights to Küti 15 and 17 and that none of the conditions expressed during the meeting were binding.²¹⁹ Pointing out that the Port Plan was not attached to the minutes, the Respondent further disputes that the “joint venture” was based on the Port Plan.²²⁰ Consequently, for the Respondent, the 17 August 2000 meeting could not have been construed by the Claimant “as a license to build whatever it wants at the Seaplane Harbor without building permits, or as a retroactive approval of prior illegal construction.”²²¹

242. In addition, the Respondent clarifies that the President’s visit to the Harbor on 5 June 2000 predated the “joint venture” as recorded in a letter dated 27 June 2000.²²² Specifically, the Respondent notes that the PRCA General Plan was based on the Tallinn City Master Plan, which was on display for public consultation since 1999.²²³

4. Cultural Heritage Restrictions

243. As part of the buffer zone of the Tallinn Cultural Heritage Area, the entire area of the Seaplane Harbor was subject to the Heritage Conservation Act, which prohibited construction works in the buffer zone or on immovable cultural monuments.²²⁴

244. On 11 July 1996, the National Heritage Board warned Verest that under the Heritage Conservation Act, construction works in the buffer zone and the Seaplane Hangar were prohibited unless a prior permission was obtained from the National Heritage Board.²²⁵ Noting that the buildings and the Seaplane Hangar were state properties in Verest’s possession and use, the National Heritage Board requested that Verest “comply with the obligations established for the owner (possessor) in accordance with section 16 of the Heritage Conservation Act” and also “require[d] commercial lessees to comply with these obligations.”²²⁶

²¹⁸ Reply, ¶¶ 721-726, 787; “President Meri Was Not Satisfied with the Explanations of Mõis”, Baltic News Service, 22 May 2001 (C-071). ↩

²¹⁹ Rejoinder, ¶¶ 249, 252. See also Hearing Transcript, Day 1, p. 124:11-21. ↩

²²⁰ Rejoinder, ¶ 250. ↩

²²¹ Rejoinder, ¶ 257. ↩

²²² Rejoinder, ¶ 248, referring to Letter of the President of Estonia, Lennart Meri, to the Minster of Environment, Heiki Kranich, 27 June 2000 (C-208) ↩

²²³ Rejoinder, ¶ 248. See Tallinn City Planning Office, Procedures for Preparing the Tallinn Comprehensive Plan 2010, 2000 (R-123). ↩

²²⁴ Counter-Memorial, ¶¶ 380-381; Heritage Conservation Act, 9 March 1994, sections 5, 23 (RLA-082). See also Map of the Building Conditions of the PRCA General Plan (R-111); Entry under Registration No. 2628 in the Register of Cultural Monuments – Settlement Site, 2020 (R-110). ↩

²²⁵ Letter No. 620 from National Heritage Board to State Executive Office and to Verest, 11 July 1996 (R-112). ↩

²²⁶ Letter No. 620 from National Heritage Board to State Executive Office and to Verest, 11 July 1996 (R-112). ↩

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245. Verest obtained permits from the Tallinn Heritage Conservation Department on 28 July 2000 and 25 October 2000, which approved repairs and conservation works, and restoration of monuments and buildings located on the heritage conservation area at the Seaplane Harbor.²²⁷ The permits were valid until 31 November 2000 and 19 January 2001 respectively.²²⁸

5. The Lumber Plan

246. The Claimant’s business plan based on Agrin’s woodworking facility at the Seaplane Harbor and BPV’s export market work (the “Lumber Plan”) was developed on 24 October 2000.²²⁹ The Lumber Plan was based on the pricing of log supply from Russia involving the following steps: (i) Faktotum (a Russian company with which BPV commenced a joint venture in 1999²³⁰) bought logs for rough sawing and initial drying at competitive pricing; (ii) it used rail bulk lumber carriers to transport to Agrin’s lumber facilities; (iii) in crossing the Estonian border, ELA Tolli handled the customs processing; (iv) timber, when it arrived at Agrin’s facility, was sent to be kiln-dried and was stored; (v) once BPV had an export customer, Agrin processed unedged timber into lumber under customer specification; and (vi) BPV and ELA conducted export sales.²³¹

247. The companies were “vertically integrated, allowing for economies of scale and efficient procurement, sales, and marketing.”²³² In the process, “Agrin earned a small fee for its work with the profit going either to BPV or ELA.”²³³

248. In total, the wood business handled 3,500 cubic meters of wood per year, generating USD 325,000 in annual revenue.²³⁴

249. When BPV was denied the customs authorizations and the port passport, it was unable to ship any lumber out of the Seaplane Harbor.²³⁵ In addition, the raw materials (wood from Faktotum) became more expensive when they were delivered to the lumber facilities at the Seaplane Harbor due to the lack of customs facilitation.²³⁶

²²⁷ Reply, ¶¶ 258-259, 515-516; National Heritage Board Permit No. 85 to Verest, 28 July 2000 (C-095); National Heritage Board Permit No. 130 to Verest, 25 October 2000 (C-096). ↩

²²⁸ National Heritage Board Permit No. 85 to Verest, 28 July 2000 (C-095); National Heritage Board Permit No. 130 to Verest, 25 October 2000 (C-096). ↩

²²⁹ Third Rotko Statement, ¶ 159 (CWS-4); Lumber Plan (C-143). ↩

²³⁰ Memorial, ¶ 94; Agreement between ELA USA and Faktotum Ltd, 1 November 1999 (C-083); Joint Activities Contract between ELA USA and Faktotum, 2 February 2000 (C-084). ↩

²³¹ Third Rotko Statement, ¶¶ 71-72, 163, 174-175 (CWS-4). ↩

²³² Third Rotko Statement, ¶ 174 (CWS-4). ↩

²³³ Third Rotko Statement, ¶ 73 (CWS-4). ↩

²³⁴ Memorial, ¶ 99. ↩

²³⁵ Reply, ¶ 830. ↩

²³⁶ Reply, ¶ 831; Third Rotko Statement, ¶ 335 (CWS-4). ↩

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G. EVENTS CONCERNING THE USE OF PORT FROM 1997 ΤΟ 2006

1. Relocation of the Icebreaker Suur Tõll

250. On 5 December 2003, the Claimant sent a letter to the Ministry of Environment noting that news articles reported that Estonia’s Maritime Museum was planning to relocate the historical icebreaker Suur Tõll (or the “Great Tõll”) from the center of Tallinn to berth 36A of the Port.²³⁷ The Claimant asserted that given that berth 36A was recognized by the Maritime Administration “as unsafe and prone to accidents [...] placing Great Tõll [was] categorically prohibited before the prior removal of any unsafe conditions.”²³⁸ The Claimant further noted that “the falling of the berth because of the pressure from the icebreaker, would violate the rights of the owners of other berths to use, possess and dispose of their berths as it would close the canal of the port and the vessels would not access in or out of the port.”²³⁹

251. On 26 January 2004, the Suur Tõll icebreaker was relocated to berth 36A of the Port.²⁴⁰ New reports recorded that after the conclusion of a three-year lease contract in its former city center location, the Maritime Museum needed to place the icebreaker in a new site for budgetary reasons.²⁴¹ The following picture shows the exact location in which the icebreaker was positioned:²⁴²

[Image containing an aerial photograph of a harbor with the following labels superimposed:]

• Suur Töll
• Berth No. 36A
• Berth No. 36
• Berth No. 37
• Berth No. 38

²³⁷ Letter from the Claimant to the Ministry of Environment, 5 December 2003 (C-126). ↩

²³⁸ Letter from the Claimant to the Ministry of Environment, 5 December 2003 (C-126). ↩

²³⁹ Letter from the Claimant to the Ministry of Environment, 5 December 2003 (C-126). ↩

²⁴⁰ ERR, “The Suur Tõll Is Transported to the Seaplane Harbor”, 25 January 2004 (R-161). ↩

²⁴¹ DELFI, “The Suur Tõll Will Be Moved To a More Favorable Area”, 6 January 2004 (R-160). ↩

²⁴² Aerial Photo of the Position of the Icebreaker Suur Tõll at the Seaplane Harbor, 3 June 2004 (R-158). ↩

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2. Claimant's Applications to Obtain Administrative Permits

a) Application to obtain a Port Passport

252. In 1993, Verest’s port passport was registered with the Estonian Maritime Administration.²⁴³ Verest was the possessor of the (i) berths Nos. 38, 38A, and 39; (ii) open warehouse; (iii) portal crane; and (iv) closed warehouse, which was jointly possessed with AS Esman and GT.²⁴⁴ Verest maintained the port passport that permitted customs clearance at the Lennusadam Port.²⁴⁵

253. In his witness statement, Mr. Aleksander Rotko, the Claimant’s sole shareholder and chief executive officer, indicates that in 1999, the Estonian Maritime Administration informed BPV that the company’s Port Passport was not recognized under the Port Act of 1997, as amended on 1 January 2001 (the “Port Act”).²⁴⁶

254. As part of the process to obtain a new Port Passport, on 19 September 2001, BPV requested the Ministry of Transportations and Communications (the “Ministry of Transport”) to assign the border points of the Port basin.²⁴⁷ The Claimant explains that such border points identified the area that was to be used for the operation of the Port and that its delimitation was necessary to obtain a Port Passport.²⁴⁸

255. On 16 October 2001, the Ministry of Transport rejected BPV’s request, stating that it did “not comply with [...] the Port Act because the coordination of the city council of the local government is missing.”²⁴⁹

256. On 17 December 2001, the Claimant requested the Tallinn Sustainable Development and Planning Office (“Tallinn’s Planning Office”) to assign the borders of the Port basin.²⁵⁰

257. On 10 January 2002, the Tallinn’s Planning Office, informed BPV that pursuant to the Port Act its request could not be granted without a border proposal from the Minister of Transport.²⁵¹

258. On 9 May 2002, the Ministry of Transport advised BPV that—according to a proper construction of the Port Act and the former practice of the Tallinn City Council—port basin borders are

²⁴³ Lennusadam Port Passport, 7 October 1993 (C-201). ↩

²⁴⁴ Lennusadam Port Passport, 7 October 1993 (C-201). ↩

²⁴⁵ Reply, ¶ 531; Claimant’s Answers to Tribunal Questions, ¶¶ 2-5. ↩

²⁴⁶ Second Rotko Statement, ¶ 71 (CWS-2). ↩

²⁴⁷ Letter from BPV to the Minister of Transport and Communications, 19 September 2001 (C-551). ↩

²⁴⁸ Reply, ¶¶ 577, 586, referring to Letter from the Minister of Transport and Communications to BPV, 19 November 2002 (C-465). ↩

²⁴⁹ Letter from the Minister of Transport and Communications to BPV, 16 October 2001 (C-461). ↩

²⁵⁰ Letter from Tallinn’s Planning Office to BPV, 10 January 2002 (C-462). ↩

²⁵¹ Letter from Tallinn’s Planning Office to BPV, 10 January 2002 (C-462). ↩

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assigned by the Estonian government in accordance with the Minister of Transport’s proposal, but only after “municipal council coordination”.²⁵²

259. Thereafter, BPV submitted to the Tallinn City Council an application to coordinate the Port basin borders, which the Council did in the form of a draft legislation.²⁵³ However, the Tallinn City Government decided not to discuss such draft because, according to the Port Act, private parties do not have the right to apply for an assignment of port basis borders, which is a public law task.²⁵⁴

260. On 4 November 2002, the Ministry of Transport reiterated that it could not propose the Port basin borders without having beforehand a municipal council coordination.²⁵⁵ The Ministry further reiterated that this was in line with the Port Act and previous practice of the Tallinn City Council.²⁵⁶

261. On 23 December 2003, BPV requested the Ministry of Economic Affairs and Communications (“Ministry of Economic Affairs”) to coordinate port basin border points for the Port on the basis of the Maritime Safety Act and the Port Act.²⁵⁷

262. On 28 January 2003, the Ministry of Economic Affairs rejected BPV’s request on the basis that “BPV [was] not the possessor of the port, therefore [it did] not have the authority to apply for Seaplane Harbor port basin.”²⁵⁸ In this respect, the Ministry noted that to its knowledge “the possessor of berths on Seaplane Harbor ‘L’ shaped pier and the 28-hectare property located on port territory is the state, and the possessor is Ministry of the Environment.”²⁵⁹

263. On 24 March 2004, Verest requested the Ministry of Economic Affairs to coordinate port basin border points for the Port.²⁶⁰ Verest asserted that BPV was the possessor of the Port pursuant to section 33(1) of the Law of Property Act.²⁶¹

²⁵² Letter from the Minister of Transport and Communications to BPV, 9 May 2002 (C-463). ↩

²⁵³ Letter from the Tallinn City Office to BPV, 11 October 2002 (C-464). ↩

²⁵⁴ Letter from the Tallinn City Office to BPV, 11 October 2002 (C-464). ↩

²⁵⁵ Letter from the Minister of Transport and Communications to BPV, 19 November 2002 (C-465). ↩

²⁵⁶ Letter from the Minister of Transport and Communications to BPV, 19 November 2002 (C-465). ↩

²⁵⁷ Letter from BPV to the Ministry of Economics and Communications re Port Basin Border Coordination, 23 December 2002 (C-426). ↩

²⁵⁸ Letter from the Ministry of Economic Affairs and Communications to BPV, 28 January 2003 (C-466). ↩

²⁵⁹ Letter from the Ministry of Economic Affairs and Communications to BPV, 28 January 2003 (C-466). ↩

²⁶⁰ Letter from Verest to the Ministry of Economic Affairs and Communications, 24 March 2004 (C-467). ↩

²⁶¹ Letter from Verest to the Ministry of Economic Affairs and Communications, 24 March 2004 (C-467). ↩

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264. After Verest asked on two additional occasions for a response to its communication of 24 March 2004,²⁶² the Ministry of Economic Affairs advised that it had sent an inquiry to the Ministry of Justice on the subject matter of that letter.²⁶³

265. On 15 July 2004, the Ministry of Economic Affairs informed BPV that until the conclusion of the ownership dispute before the Estonian courts regarding the ownership of the buildings and structures at the Port it was not able to assign the Port basin borders.²⁶⁴

266. Aside from BPV’s application for the assignment of the basin borders at the Port, Mr. Rotko explains that BPV could not obtain a new Port Passport as it was not able to provide the geographic boundary information from Riigi Kinnisvara (“Riigi”), which was one of the applicable requirements.²⁶⁵ The Claimant asserts that although BPV requested Riigi to provide its coordinating information from 2003 to 2005, the latter company did not provide any response.²⁶⁶

b) Application to obtain Authorization to operate as a Customs Zone

267. In April 2001, BPV submitted to the Tallinn Customs Inspectorate and the Seaplane Harbor Customs Control Zone an application to obtain authorization to operate the Port as a customs control zone.²⁶⁷

268. On 25 July 2001, a Tallinn customs inspector confirmed that the Port was “in compliance with custom’s requirements for Customs control zone opening.”²⁶⁸

269. On 13 June 2002, in response to a communication submitted by BPV, the Ministry of Finance stated that it was outside of its competence to grant an authorization to open a customs control zone.²⁶⁹ Such authority, the Ministry of Finance noted, was held by the respective Customs Board.²⁷⁰ In addition, the Ministry of Finance noted that the complications with the customs control zone at the Port were “due to ownership issue of port waters.”²⁷¹ The Ministry added that, in its view, this issue should not prevent BPV from obtaining a customs control zone permit and

²⁶² Email from Verest to the Ministry of Economic Affairs and Communications, 26 April 2004 (C-473); Letter from Verest to the Ministry of Economic Affairs and Communications, 7 May 2004 (C-475). ↩

²⁶³ Letter from the Ministry of Economic Affairs and Communications to Verest, 10 May 2004 (C-405). ↩

²⁶⁴ Letter from the Ministry of Economic Affairs and Communications to BPV, 15 July 2004 (C-477). ↩

²⁶⁵ Second Rotko Statement, ¶¶ 72-73 (CWS-2). ↩

²⁶⁶ Second Rotko Statement, ¶¶ 72-73 (CWS-2). ↩

²⁶⁷ BPV Application for the Customs Control Zone Coordination, 4 April 2001 (C-265); BPV Application for the Customs Control Zone of Seaplane Harbor, 27 April 2001 (C-266). ↩

²⁶⁸ Legal Instrument No. 31 re. Eliminating Shortcomings, 25 July 2001 (C-267). ↩

²⁶⁹ Letter from Ministry of Finance to BPV, 13 June 2002 (C-268). ↩

²⁷⁰ Letter from Ministry of Finance to BPV, 13 June 2002 (C-268). ↩

²⁷¹ Letter from Ministry of Finance to BPV, 13 June 2002 (C-268). ↩

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that the Customs Board should consider “issuing a temporary permit during which the ownership issue could be resolved.”²⁷²

270. On 12 August 2002, the Estonian Customs Board informed BPV and Verest that “[a]s the Seaplane Harbor territory is currently in state’s ownership it [was] necessary to receive the approval from the representative of the state – Ministry of Justice in order to designate customs control zone.”²⁷³

271. Following two communications submitted by BPV to the Ministry of Justice, on 14 August 2002 and 14 January 2004, the latter refused to coordinate a temporary customs control zone.²⁷⁴ The Ministry asserted that there was an ongoing civil procedure in which Estonia was claiming the ownership of the buildings at the Port and that to the best of its knowledge “there is unlawful use of state property at the Seaplane Harbor.”²⁷⁵

272. According to the Claimant, the loss of a customs zone resulted in operational losses of revenue for ELA Tolli, Verest, Agrin, and BPV.²⁷⁶ To mitigate the revenue impact, ELA sold its equipment and ELA Tolli turned to alternative income sources, such as managing crane rentals at the Port.²⁷⁷

H. PROCEEDINGS ARISING OUT OF THE PARTIES' DISPUTE

1. Civil Proceedings

a) The relevant Civil Law Legislation

273. This subsection sets out the most important codes and provisions in the context of the civil law proceedings arising from the Parties’ disputes.

i. Civil Code

274. The provisions on the validity of transactions of the Civil Code of the Estonian Soviet Socialist Republic of 12 June 1964 (“Civil Code”) remained in force until 1 September 1994. Section 51(1) and section 62 of the Civil Code reads as follows:

Section 51. Invalidity of a legal act which is not in accordance with the requirements of the law

²⁷² Letter from Ministry of Finance to BPV, 13 June 2002 (C-268). ↩

²⁷³ Letter from Estonian Customs Board to Verest and BPV, 12 August 2002 (C-269). ↩

²⁷⁴ Letter from Ministry of Justice to BPV, 23 September 2002 (C-270); Letter from the Ministry of Justice to BPV, 21 January 2004 (C-271). ↩

²⁷⁵ Letter from Ministry of Justice to BPV, 23 September 2002 (C-270); Letter from the Ministry of Justice to BPV, 21 January 2004 (C-271). ↩

²⁷⁶ Reply, ¶¶ 821-822; Claimant’s Answers to Tribunal Questions, ¶ 40. ↩

²⁷⁷ Reply, ¶¶ 826, 835. ↩

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(1) A legal act which is not in accordance with the requirements of the law is invalid.²⁷⁸

Section 62. The time from which a legal act is considered invalid
(1) A legal act which is declared invalid is considered invalid from the time at which it was concluded.
(2) However, if the content of the legal act indicates that it may be terminated only for the future, the effect of the legal act which has been declared invalid terminates for the future.²⁷⁹

275. Section 156 of the Civil Code set out the possibility to acquire assets in good faith from a person who is not the owner provided that the real owner did not lose the relevant asset against its will.

Section 156. Reclaiming the thing from an acquirer in good faith
(1) If a thing has been acquired for remuneration from a person who was not entitled to dispose of it, which the acquirer was not aware of and should not have been aware of (a person acting in good faith), the owner has the right to reclaim the thing only if the owner, or the person to whom the owner had transferred possession of the thing, had lost the thing or if the thing had been stolen or dispossessed from them against their will in any other manner.²⁸⁰

ii. Ownership Act

276. The Ownership Act of 13 June 1990 entered into force on 1 July 1990. Section 7 provides in the material part that:

Section 7. Exercise of the Right of Ownership
(1) A property owner possesses, uses and disposes of property belonging to him independently, and he is entitled to perform any actions with this property that are not contrary to law.
(2) A property owner may alienate his property as well as transfer it to the possession, use and disposal of other persons without alienation.
(3) Other persons exercise rights belonging to the property owner within limits foreseen by law or established by the property owner.²⁸¹

²⁷⁸ Civil Code, section 51(1) (RLA-051). In the Counter-Memorial, ¶ 199, and in the Rejoinder, ¶ 104, the Respondent provided a slightly different translation of section 51(1): “Any transaction concluded in violation of law is invalid.” ↩

²⁷⁹ Civil Code, section 62(1)-(2) (RLA-051). In the Counter-Memorial, ¶ 199, the Respondent provided a slightly different translation of section 62(1): “A transaction that has been declared invalid is deemed invalid as of its inception.” ↩

²⁸⁰ Civil Code, section 156 (RLA-051). ↩

²⁸¹ Ownership Act, 1 December 1993, section 7(2)-(3) (RLA-065). In the Counter-Memorial, ¶ 270, the Respondent translated section 7(3) slightly differently: “Third persons exercise the rights of the owner only to the extent provided for by law or as foreseen by the owner.” ↩

[Page 51]

iii. Commercial Lease Act

277. The Commercial Lease Act of 26 September 1990, also referred to as Rental Act, entered into force on 1 October 1990. Its section 5(1) provides that:

Section 5. Parties to a commercial lease contract
(1) The lessor is the owner or title-compliant possessor of the property to be let. The title-compliant possessor may be the lessor where it is provided for in an Act of the Republic of Estonia, in a contract or in the foundation document of the title-compliant possessor.²⁸²

iv. Law of Property Act

278. The Law of Property Act of 9 June 1993 entered into force on 1 December 1993. Its purpose is described in section 1 as follows:

Section 1. Purpose of Act
The Law of Property Act provides for real rights, their content, creation and extinguishment and is the basis for other laws regulating real rights.

279. Section 5 defines the rights referred to under section 1:

Section 5. Real rights
(1) Real rights are ownership (right of ownership) and restricted real rights: servitudes, real encumbrances, right of superficies, right of pre-emption and right of security.
(2) The law may provide for other real rights in addition to those specified in subsection (1) of this section.

280. Section 34 differentiates between legal and illegal possession:

Section 34. Legal and illegal possession
(1) Possession is legal or illegal depending on whether or not it is founded on a legal basis.
(2) Possession shall be deemed legal until the contrary is proved.²⁸³

281. Section 35 distinguishes good faith from bad faith possession as follows:

Section 35. Possession in good faith and bad faith
(1) Possession is in good faith if a possessor does not or need not know that the possession by the possessor lacks a legal basis or that another person has a greater right to possess the thing.
(2) Possession is in bad faith if a possessor knows or must know that the possession by the possessor lacks a legal basis or that another person has a greater right to possess the thing.
(3) Possession shall be deemed in good faith until the contrary is proved.²⁸⁴

²⁸² The Rental Act, 1 October 1990, section 5(1) (CLA-186). The Respondent provided a slightly different translation of section 5(1) in the Counter-Memorial, ¶ 266: “A lessor is the owner or title-bearing possessor of the asset being leased. The title-bearing possessor may be a lessor if it is stipulated in the legislation of the Republic of Estonia, contract or in the founding document of the title-bearing possessor.” ↩

²⁸³ The Law of Property Act, RT I 2003, 13, 64, section 34 (2) as at 1 July 2003 (CLA-188). ↩

²⁸⁴ The Law of Property Act, RT I 2003, 13, 64, section 35 (3) as at 1 July 2003 (CLA-188). ↩

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282. Section 80 provides that:

Section 80. Reclamation of thing from illegal possession
(1) An owner has a right of claim against anyone who possesses a thing of the owner without legal basis.
(2) The claim of the owner shall be for recognition of the right of ownership and reclamation of the thing from illegal possession into the owner’s possession.²⁸⁵

283. Section 95 regulates acquisition in good faith as follows:

Section 95. Acquisition in good faith
(1) A person who has acquired a thing by delivery in good faith is the owner of the thing as of the time of receipt of the thing into the person’s possession even if the transferor was not entitled to transfer ownership.
(2) An acquirer is in bad faith if the acquirer knew or should have known that the transferor was not entitled to transfer ownership.
(3) Acquisition pursuant to subsection (1) of this section is not effected if a thing was stolen, lost or dispossessed in any other manner from the owner against the will of the owner. This subsection does not apply to money or bearer securities or to a thing acquired by public auction.²⁸⁶

b) Civil Proceedings concerning the Ownership of Buildings and Structures at the Port

i. 1997-2000 Proceedings before the Tallinn City Court

284. On 14 November 1997, Estonia filed a lawsuit against Verest and B&E in the Tallinn City Court, seeking the recognition of its alleged ownership rights over the buildings and structures at the Port²⁸⁷ and an order to recover such properties from the alleged unlawful possession by the defendants.²⁸⁸ Agrin was included amongst the defendants on 3 December 1997.²⁸⁹

285. On the same date, the Tallinn City Court granted the Respondent’s interim request to enjoin Verest and Agrin from transferring or otherwise encumbering the buildings and properties at the Port.²⁹⁰ On 21 July 2000, the Tallinn City Court granted a further interim request by the

²⁸⁵ The Law of Property Act, RT I 1993, 39, 590, section 80, as at 1 July 2003 (CLA-188). ↩

²⁸⁶ The Law of Property Act, 9 June 1993, section 95(3) as at 17 February 1999 (RLA-052). The Claimant provided a slightly different translation of section 95(3) (CLA-188): “Acquisition pursuant to subsections (1) – (2) of this section is not effected if a thing was stolen, lost or dispossessed in any other manner from the owner against the will of the owner. If the owner was an indirect possessor, the same applies in case the thing is stolen, lost or dispossessed in any other manner from the direct possessor against the will of the direct possessor. This subsection does not apply to money or bearer securities or to a thing acquired by public auction.” ↩

²⁸⁷ In particular, in the address Küti 17 and 17A, Tallinn City, Estonia. See August 2000 Judgment, Statement of Claim, 14 November 1997, p. 1 (C-050). ↩

²⁸⁸ August 2000 Judgment (C-068), Statement of Claim, 14 November 1997 (C-050). ↩

²⁸⁹ August 2000 Judgment, p. 3 (C-068). ↩

²⁹⁰ August 2000 Judgment, Decision, 3 December 1997 (C-051). ↩

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Respondent to prohibit any change in the composition of the buildings or structures and the construction of any new buildings or structures.²⁹¹

286. By judgment of 25 August 2000, the Tallinn City Court upheld Estonia’s claims against Verest, B&E and Agrin (the “August 2000 Judgment”).²⁹² The City Court found that land registry files confirmed that up to July 1940 the buildings and structures at the Port were owned by Estonia.²⁹³ The City Court considered that although in July 1940, the disputed properties were taken by force into the use of the USSR Army Forces, Estonia did not transfer the ownership of such assets.²⁹⁴ The City Court observed that notwithstanding that a number of new buildings had been erected after 1940, there were no records proving that the said buildings had been registered as property of the USSR.²⁹⁵ Further, the City Court held that a number of legal acts adopted by Estonia, including the 1992 Supreme Council Resolution, confirmed that it continued owning the buildings and structures at issue throughout the occupation period.²⁹⁶ The City Court noted that its decision was consistent with Article 55 of the 1907 Hague Regulations (the “Hague Regulations”), which provides that “the occupying state cannot acquire the property of the occupied country.”²⁹⁷

ii. Disciplinary Proceedings against Judge Jüri Mesipuu

287. On 21 November 2000, the Ministry of Justice initiated disciplinary proceedings before the Disciplinary Committee of the Estonian Supreme Court (the “Disciplinary Committee”) against Judge Jüri Mesipuu, the judge of the Tallinn City Court that rendered the August 2000 Judgment.²⁹⁸ The Ministry of Justice alleged that there had been an undue delay in the resolution of the referred local proceedings, including by failing to rule on the following day of the receipt of Estonia’s motion for additional interim measures as prescribed in Estonia’s Code of Civil Procedure.²⁹⁹

288. By decision of 1 February 2001, the Disciplinary Committee decided to terminate the proceedings initiated by the Ministry of Justice against Judge Jüri Mesipuu.³⁰⁰ The Disciplinary Committee determined that the conduct of Judge Mesipuu did not constitute a disciplinary offense.³⁰¹ It considered inter alia that “there [was] a basis to say that the length of the proceeding was not caused by the wrongful activities of the judge but rather the activities of the parties.”³⁰² In

²⁹¹ Letter from Bailiff A. Pink to B&E, Verest and Agrin, 1 April 2004 (C-121). ↩

²⁹² August 2000 Judgment, p. 3 (C-068). ↩

²⁹³ August 2000 Judgment, pp. 4-5 (C-068). ↩

²⁹⁴ August 2000 Judgment, p. 5 (C-068). ↩

²⁹⁵ August 2000 Judgment, p. 5 (C-068). ↩

²⁹⁶ August 2000 Judgment, pp. 5-6 (C-068). ↩

²⁹⁷ August 2000 Judgment, p. 7 (C-068). ↩

²⁹⁸ Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001, p. 1 (C-122). ↩

²⁹⁹ Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001 (C-122). ↩

³⁰⁰ Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001, p. 4 (C-122). ↩

³⁰¹ Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001, p. 3 (C-122). ↩

³⁰² Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001, p. 4 (C-122). ↩

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addition, the Disciplinary Committee stated that the Ministry of Justice had “derailed from the principles of objectivity and equality of the parties,” it noted in this respect that:

The disciplinary matter ha[d] been started in a civil case in which the Ministry of Justice is a party to and by the time the disciplinary proceeding was started, a court decision in that matter had not entered into force. This situation reasonably g[a]ve a basis to think that the Ministry of Justice ha[d] tried to influence the judge with non-procedural instruments; the applying of which is made possible by the Status of the Judges Act, however, the other party of the proceeding [did] not have these possibilities.³⁰³

iii. 2000-2002 Appeal Proceedings before the Tallinn Circuit Court

289. On 13 September 2000, Verest, Agrin, and B&E appealed the August 2000 Judgment. By judgment of 2 May 2002, the Tallinn Circuit Court (“May 2002 Appeal Judgment”) annulled the August 2000 Judgment on the basis of certain procedural law violations and referred the matter back to the Tallinn City Court for a new hearing.³⁰⁴

iv. Statements by Government Officials Concerning the Proceedings against Verest, Agrin, and B&E

290. On 26 April 2001, the Office of the President of Estonia issued an official written statement containing certain remarks regarding a visit he conducted on 5 June 2000 to the Port as well as with respect to the proceedings against Verest, Agrin, and B&E.³⁰⁵ The referred statement provided that:

1. With the wish to establish a unified vision about the architectural development of Tallinn, the president of the Republic of Estonia visited on 5.June of the previous year with the employees of the planning office, the mayor and the county governor the coastal area of Tallinn, in order to examine the opening of the capital city to the sea. The seaplane hangar on Küti Street was visited, where building activities not coordinated with the city government took place.
2. The President informed the ministers of defense, environment and auditor general about the illegal building activity on the structures belonging to the State. The President requested the illegal activity to be stopped and asked for an evaluation for what has happened.
3. The Minister of the Environment Heiki Kranich stated in his 21 July 2000 response to the President, that the inspectors of the Environmental Inspectorate checked the Seaplane Harbor and found violations of the law and presented the materials to the administrative court of Tallinn for the determination of an administrative punishment.
4. The Auditor General stated in its 08. August 2000 reply to the President that material and moral damages have incurred to the State because of what has happened in the Seaplane Harbor because it has shown a long-term incapability to ensure legal order. Because of the court action, it is not possible for the state to perform actual control and no legal means to ensure the preservation of the assets.

³⁰³ Decision of the Disciplinary Committee, Disciplinary matter No. 3-8-11-1, 1 February 2001, p. 4 (C-122). ↩

³⁰⁴ May 2002 Appeal Judgment, pp. 8-9 (C-191). ↩

³⁰⁵ Office of the President of Estonia, Official Notices, 26 April 2001 (C-073). ↩

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5. On 25. August 2000 Tallinn City Court decided that the area of the Seaplane Harbor belongs to the state. The further proceedings regarding this area are continuing. The administrator of the assets is the Ministry of Justice.
6. In yesterday’s meeting with the Prime Minister, the Prime Minister assured as an explanation to the information request of the President regarding the statements in the Daily Newspaper, that the areas of the Seaplane Harbor will stay in the ownership of the state and they are not municipalized.
7. The President assured once again today, that all legal questions are in the jurisdiction of the courts of Estonia, except the right and obligation of the Republic of Estonia to perform sovereign power in the Republic of Estonia. This beach with the seaplane harbor belonged to the Ministry of Defense of Estonia before the occupation and was taken forcefully for the use of the USSR Army on 22 and 23. June 1940. No new legal ties have arisen from this violence. The President awaits the performing of sovereign and executive power from the Government of RoE in this matter.
8. To assure the above, the President sent letters to the Auditor General and the Minister of Justice today.³⁰⁶

291. On 5 April 2004, the Minister of Justice provided comments regarding the proceedings against Verest, Agrin and B&E in a televised interview.³⁰⁷ Among other matters, the Minister of Justice stated that the judge of the Tallinn City Court who was responsible for the procedural errors that led to the first judgment being quashed by the Circuit Court would be “held responsible.”³⁰⁸

v. 2005 Tallinn City Court Proceedings

292. On 14 March 2005, BPV and ELA Tolli were included as defendants in the proceedings.³⁰⁹

293. By judgment of 4 July 2005, the Tallinn City Court (“July 2005 Judgment”) (i) recognized the right of ownership of Estonia to the land of the Port and the buildings therein; (ii) determined that Agrin, Verest, B&E, and ELA Tolli were unlawfully holding the possession of the mentioned land plot and buildings, and in the case of non-voluntary transfer ordered to evict the co-possessors from the buildings (enumerated on pages 1-2 of that judgment); and (iii) determined that BPV was “a possessor in good faith and there [was] no basis to reclaim the assets from it.”³¹⁰

294. First, the Tallinn City Court held that it was undisputed that Estonia held the ownership of the land.³¹¹ Relying on judgment No. III-4/A-10/94 of Estonia’s Supreme Court of 21 December 1994 (“December 1994 Supreme Court Judgment”), the Tallinn City Court further found that Estonia owned the buildings and structures at the Port.³¹² Regarding international law, the City Court noted that the Supreme Court found in its December 1994 judgment that—pursuant to Article 55 of the Hague Regulations—Estonia continued to be the owner of the “real estate” in its

³⁰⁶ Office of the President of Estonia, Official Notices, 26 April 2001 (C-073). ↩

³⁰⁷ Transcript of Justice Minister Vaher on Actuaalne Kaamera TV Program, 5 April 2004 (C-209). ↩

³⁰⁸ Transcript of Justice Minister Vaher on Actuaalne Kaamera TV Program, 5 April 2004 (C-209). ↩

³⁰⁹ July 2005 Judgment, p. 17 (C-078). ↩

³¹⁰ July 2005 Judgment, pp. 1-2, 28 (C-078). ↩

³¹¹ July 2005 Judgment, p. 24 (C-078). ↩

³¹² July 2005 Judgment, pp. 23-24 (C-078). ↩

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territory during the occupation by the USSR.³¹³ Thus, the City Court held that although the USSR Armed Forces were in possession of the Port during the occupation, they did not have the right to dispose of it.³¹⁴ As for Estonian law, the Court referred to the following instruments:

(a) The 1992 Supreme Council Resolution, by which “the buildings and other structures in the administration of the former USSR armed forces structural units were proclaimed to be the ownership of the Republic of Estonia and all transactions with these assets were forbidden without the permission of the government; the army assets are the state assets;”³¹⁵

(b) The 17 July 1990 Resolution of Estonia’s Supreme Council, according to which all transactions involving State assets, including those that were in the administration of the USSR armed forces, were suspended until legislation regulating the privatization of ownership was adopted;³¹⁶

(c) Regulation No. 244, dated 27 November 1991, which “suspended the transactions by the USSR Ministry of Defense with buildings, structures and other real estate on the territory of Estonia without the permission of the Republic of Estonia and required that the transactions done before the adoption of this regulation had to be registered in a month in local country and city governments;”³¹⁷

(d) Regulation No. 215, dated 24 July 1992, according to which “all the transactions previously concluded with the structural units of the USSR armed forces that complied with the legislation of Republic of Estonia had to be re-registered in the Ministry of Defense by 15 August 1992;”³¹⁸ and

(e) Judgment of Estonia’s Supreme Court of 1998, that determined that the transactions that were not registered pursuant to regulation No. 215 were invalid because their compliance with the legislation of the Republic of Estonia has not been checked.³¹⁹

295. Secondly, the City Court held that the transactions by which the USSR Armed Forces transferred the property of the buildings and structures at the Port and all the subsequent transactions disposing of the same assets were void and invalid.³²⁰ The Court considered that the respective “acquirer[s] knew and should have known, that these assets were assets that had been in the administration of the USSR army and that the Republic of Estonia had confirmed that it is in the ownership of the Republic of Estonia and that all transactions were suspended with these assets.”³²¹ The Court added that, in any event, the acquisition through good faith is impossible

³¹³ July 2005 Judgment, p. 23 (C-078). The Supreme Court had clarified in its decision of 21 December 1994 that the “real estate” possessed and used by the Soviet military encompassed “land, buildings and structures” (December 1994 Supreme Court Judgment, p. 3 (CLA-191)). ↩

³¹⁴ July 2005 Judgment, pp. 23-24 (C-078). ↩

³¹⁵ July 2005 Judgment, p. 23 (C-078). ↩

³¹⁶ July 2005 Judgment, p. 24 (C-078). ↩

³¹⁷ July 2005 Judgment, p. 24 (C-078). ↩

³¹⁸ July 2005 Judgment, p. 24 (C-078). ↩

³¹⁹ July 2005 Judgment, p. 24 (C-078). ↩

³²⁰ July 2005 Judgment, p. 25-26, ¶ 4 (regarding Verest) and ¶¶ 9, 11 (regarding B&E) (C-078). ↩

³²¹ July 2005 Judgment, p. 25 (C-078). ↩

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under Estonian law if the assets were taken from the owner against its will, as set out under section 156(1) of the Civil Code and section 95(3) of the Law of Property Act. Given that the buildings and structures at the port were brought to the use of the Soviet military through the annexation of Estonia and its incorporation into the Soviet Union, Estonia lost possession of the relevant assets against its will, which is why private parties could not acquire the relevant assets even if they were good faith.³²² The Court concluded that Verest, Agrin, and B&E did not acquire their alleged rights over the buildings and structures at the Port, and thus, their possession over such assets lacked of legal basis.³²³

296. Third, in respect of the claims against BPV the City Court found that:

[T]he bad faith of [BPV] was not persuasively proved. The assets in the use of this respondent cannot be viewed in the light of the 24. July 1992 regulation no.215 because according to its knowledge the assets belonging to legal persons governed by private law were given to its use. It is not reasonable to presume that in the years 1997 and 1999 when 7 years had already passed from the restoration of the Republic of Estonia, the lessee would have had to research the history of the assets that were the object of the contract [...] The plaintiff did not present other basis for voidance or bad faith. Therefore, [BPV] is a possessor in good faith and there is no basis to reclaim the assets from it and therefore, the claim against [BPV] has to be left unsatisfied.³²⁴

vi. 2005 Appeal Proceedings

297. On 22 July 2005, BPV appealed the July 2005 Judgment to the Tallinn Circuit Court.³²⁵ Verest, Agrin and ELA Tolli also filed a separate appeal to that decision on 25 July 2005.³²⁶ Estonia also appealed the July 2005 Judgment in respect of the finding concerning BPV.³²⁷

298. By judgment of 1 March 2006, the Tallinn Circuit Court (“March 2006 Appeal Judgment”) (i) annulled the portion of the July 2005 Judgment which concerned the dismissal of Estonia’s claim with respect to BPV; (ii) recognized Estonia’s ownership rights over all of the buildings and structures at the Port; (iii) determined that BPV was unlawfully possessing such assets; and (iv) upheld the rest of the July 2005 Judgment.³²⁸

299. In respect of BPV’s rights under the Lease Agreements, the Tallinn Circuit Court concluded that such agreements did not provide a sufficient legal basis for BPV to retain the possession of any buildings or structures at the Port.³²⁹ In reaching this conclusion, the Circuit Court considered that

³²² July 2005 Judgment, p. 27, para. 15 (C-078). ↩

³²³ July 2005 Judgment, p. 27 (C-078). ↩

³²⁴ July 2005 Judgment, p. 28 (C-078). ↩

³²⁵ Petition for Appeal of BPV, 22 July 2005 (C-021). ↩

³²⁶ Petition for Appeal of Agrin, Verest and ELA Tolli, 25 July 2005 (C-043). ↩

³²⁷ March 2006 Appeal Judgment, p. 27 (C-081). ↩

³²⁸ March 2006 Appeal Judgment (C-081). ↩

³²⁹ March 2006 Appeal Judgment, p. 39 (C-081). ↩

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it was irrelevant whether BPV was a possessor in good faith or not.³³⁰ Specifically, the Circuit Court held that:

Even a valid agreement under the law of obligation[s], signed with some other person who is not related to the plaintiff as the owner of the property, would alone not be enough to retain the possession because it entails no obligations to the plaintiff. According to the judgment of the City Court, AS BPV as the defendant retains the possession of the above stated construction works without any legal grounds whatsoever. Pursuant to section 34 of the Law of Property Act, possession is lawful if it is based on legal grounds. Possession is not just a fact, but instead is a certain legally regulated relation of the person to the property, a legal relation. On the other hand, possession cannot be considered a right because it is not a property right or a right under the law of obligations or a burdening of the property; also, it cannot be entered into the Land Registry. The owner has the right of claim against anyone possessing the owner’s property without legal grounds. The opinion of the plaintiff that possession in good faith or in bad faith can have any meaning only in issues related to recovery of the possession to the owner – for example, whether and in what scope the owner could have any damage compensation or other compensation claims against the possessor in addition to the recovery of the possession or whether the unlawful possessor could have any damage compensation or other compensation claims against the co-defendants who signed contracts with the possessor without legal grounds, is justified.
[...]
On the basis of the above stated circumstances, the action of the Republic of Estonia shall be satisfied also against AS BPV as a defendant and the construction works at the addresses of Küti 17 and 17A shall be recovered from the possession by AS BPV.
As the action against AS BPV shall be satisfied due to the justifications stated above and there is no requirement whatsoever to identify whether AS BPV is a possessor in good faith or not, the statements in clauses 2.2, 2.4 of the plaintiff’s appeal are also of no importance and the Circuit Court shall not assess these statements.³³¹

300. With respect to the remaining aspects of the July 2005 Judgment, the Circuit Court considered that it “fully agree[d] with the justifications stated in the challenged judgment and thus [did] not consider it necessary to repeat these justifications.”³³² In its view, the City Court “correctly applied the provisions of the substantial law and ha[d] justifiably satisfied the action of the Republic of Estonia.”³³³

vii. Cassation Appeal

301. On 27 March 2006, BPV filed a cassation appeal in respect of the March 2006 Appeal Judgment before the Supreme Court of Estonia.³³⁴ Agrin, Verest and Ela Tolli also filed a separate cassation appeal on 30 March 2006.³³⁵

³³⁰ March 2006 Appeal Judgment, p. 39 (C-081). ↩

³³¹ March 2006 Appeal Judgment, p. 39 (C-081). ↩

³³² March 2006 Appeal Judgment, p. 41 (C-081). ↩

³³³ March 2006 Appeal Judgment, p. 41 (C-081). ↩

³³⁴ Supreme Court of Estonia, Estonia v. Verest and others, Case No. 3-7-1-2-229, 7 June 2006 (C-082). ↩

³³⁵ Supreme Court of Estonia, Estonia v. Verest and others, Case No. 3-7-1-2-229, 7 June 2006 (C-082). ↩

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302. By judgment of 7 June 2006, the Supreme Court decided not to hear the appeal to the March 2006 Judgment.³³⁶

viii. Enforcement

303. On 19 June 2006, Bailiff Arvi Pink notified BPV, Agrin and Verest that enforcement proceedings of the March 2006 Appeal Judgment had been commenced and requested them to inform him about the voluntary compliance with the enforcement of such decision.³³⁷ The Bailiff further noted that in the absence of voluntary compliance, eviction would take place on 1 August 2006.³³⁸

304. On 1 August 2006, Estonia enforced the eviction order pursuant to the March 2006 Appeal Judgment and took possession of the buildings and structures at the Port.³³⁹

c) Proceedings before the Harju County Court

305. On 22 December 2006, Estonia filed a lawsuit against Verest, Agrin, BPV, and ELA Tolli in the Harju County Court seeking EEK 16,640,000 (USD 1,402,956) in compensation for the alleged unlawful use of the Port from 14 November 1997 to 1 August 2006.³⁴⁰ Estonia later increased the amount claimed to EEK 107,420,000 (USD 9,250,000).³⁴¹

306. On 2 January 2007, the Harju County Court granted Estonia’s request for security for claim to seize the movable property in the ownership of Verest, Agrin and ELA Tolli in the sum of ΕΕΚ 16,640,000, or alternatively seize the bank accounts of all the defendants for the same amount.³⁴² On 26 January 2007, Verest, Agrin, BPV and ELA Tolli appealed the said order by the Harju County Court before the Tallinn Circuit Court.³⁴³

³³⁶ Supreme Court of Estonia, Estonia v. Verest and others, Case No. 3-7-1-2-229, 7 June 2006 (C-082). The Supreme Court of Estonia has discretion to decide whether to hear a cassation appeal. The specific criteria which the cassation appeal must meet for the Supreme Court to decide to hear the case is set forth in section 679(3) of the Estonian Code of Civil Procedure (C-608). See Claimant’s Answers to Tribunal Questions, ¶¶ 50, 53; Respondent’s Answers to Tribunal Questions, ¶¶ 8-10. ↩

³³⁷ BPV Immovable Property Eviction Execution, 19 June 2006 (C-129); Agrin Immovable Property Eviction Execution, 19 June 2006 (C-130); Verest Immovable Property Eviction Execution, 19 June 2006 (C-131). ↩

³³⁸ BPV Immovable Property Eviction Execution, 19 June 2006 (C-129); Agrin Immovable Property Eviction Execution, 19 June 2006 (C-130); Verest Immovable Property Eviction Execution, 19 June 2006 (C-131). ↩

³³⁹ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Judgment, 4 December 2008, p. 2 (C-206). ↩

³⁴⁰ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Statement of Claim, 22 December 2008, p. 12 (C-135). ↩

³⁴¹ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Judgment, 4 December 2008, ¶ 5 (C-206). ↩

³⁴² Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Court Ruling, 2 January 2007 (C-205). ↩

³⁴³ Tallinn Circuit Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, 26 January 2007 (C-137). ↩

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307. On 4 December 2008, the Harju County Court issued a judgment in favor of Estonia.³⁴⁴ Relying on the August 2005 Judgment, the Court stated that Estonia was the owner of the land and buildings at the Port, and thus, Verest, Agrin, BPV, and ELA Tolli “possessed the object under dispute from 14. November 1997 – 01. August 2006 without a legal basis.”³⁴⁵ On that basis, the Court concluded that Verest, Agrin, BPV, and ELA Tolli had to compensate Estonia for the advantages of use despite the using or non-using of the Port in the amount of EEK 107,420,000 (USD 9,250,000).³⁴⁶

2. Criminal Proceedings

308. On 22 September 2006, the Northern District Prosecutor’s Office of Estonia commenced criminal proceedings alleging, inter alia, the removal and destruction on 1 August 2006 of certain State property and structures located at the Port. Mr. Aleksander Rotko and Ms. Olga Kotova, a board member of the Claimant and then the wife of Mr. Rotko, were identified as suspects in the mentioned criminal investigation.³⁴⁷ After leaving Estonia in 2006, Mr. Rotko returned to the United States,³⁴⁸ and Ms. Kotova spent some time in Russia with relatives (before she lived in Canada for four years and moved to the United States in 2011).³⁴⁹

309. On 25 August 2007, the Harju County Court in Estonia ordered that the suspects Mr. Rotko and Ms. Kotova be taken into custody as a preventive measure.³⁵⁰ On 29 August 2007, European arrest warrants were issued with regard to both suspects.³⁵¹

³⁴⁴ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Judgment, 4 December 2008, p. 1 (C-206). ↩

³⁴⁵ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Judgment, 4 December 2008, ¶ 33 (C-206). ↩

³⁴⁶ Harju County Court, Estonia v. Verest, Agrin, BPV and ELA Tolli, Judgment, 4 December 2008, p. 1 (C-206). ↩

³⁴⁷ Letter from Prosecutor Andrei Voronin, “Request to extend the term for holding in custody” re Olga Kotova, 18 November 2016, p. 2 (C-004). ↩

³⁴⁸ First Rotko Statement, ¶ 6. ↩

³⁴⁹ Witness Statement of Ms. Olga Kotova dated 29 August 2019, ¶ 39 (CWS-3). ↩

³⁵⁰ Expert Evidence of Paul Keres, 9 December 2019, Exhibit 1, Harju County Court Ruling, 25 August 2007, pp. 16-25 (C-280). ↩

³⁵¹ Notice of Arbitration, ¶ 65; Second Rotko Statement, ¶ 96 (CWS-2); Letter from Prosecutor Andrei Voronin, “Request to extend the term for holding in custody” re: Olga Kotova, 18 November 2016, p. 1 (C-004). ↩

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310. In early 2013, Estonia filed a request to the competent U.S. judicial authority for the extradition of Mr. Rotko to Estonia,³⁵² based on the Extradition Treaty between the United States of America and Estonia.³⁵³

311. On 8 August 2016, Ms. Kotova was detained in Finland on the basis of the above-mentioned European arrest warrant and on 23 September 2016, she was extradited to Estonia.³⁵⁴ On 8 December 2016, the Prosecutor’s Office of Estonia issued an order on termination of criminal proceedings against Ms. Kotova. The same order imposed on Ms. Kotova an obligation to pay EUR 32,000 and annulled the Harju County Court’s order of 25 August 2007 to take Ms. Kotova into custody.³⁵⁵

312. On 18 October 2019, the competent U.S. judicial authority made an inquiry regarding Mr. Rotko’s extradition proceedings, requesting inter alia, clarifications as to (i) whether Estonia had dropped the criminal charges against Mr. Rotko in 2016; and (ii) whether and how Mr. Rotko’s claims that the criminal proceedings against Ms. Kotova had been terminated affected Mr. Rotko’s prosecution.³⁵⁶

313. On 23 October 2019, Mr. Andrei Voronin of the Northern District Prosecutor’s Office of Estonia responded to the inquiry of 18 October 2019, inter alia confirming that “under sections 201 and 203 of the Penal Code [...] it is possible to bring criminal charges against Aleksandr Rotko,” and that “[t]he case against Aleksandr Rotko is still relevant and under investigation by the Prosecutor’s Office.”³⁵⁷ Prosecutor Voronin requested “on behalf of the Republic of Estonia to extradite Aleksandr Rotko to the Republic of Estonia in order to continue with the criminal proceedings, bring charges against him, and prosecute him in court.”³⁵⁸

314. On 3 December 2019, Mr. Rotko was arrested and detained in federal custody in the United States.³⁵⁹

³⁵² See Expert Evidence of Paul Keres, 9 December 2019, Exhibit 4, Request for Extradition of Aleksandr Rotko from the Northern District Prosecutor’s Office, 30 January 2013, pp. 62-72 (C-280); Respondent’s Response to the Claimant’s Request for Interim Relief, ¶ 7; Request for Extradition of a Citizen of the Republic of Estonia Aleksandr Rotko, 13 March 2013 (C-290). ↩

³⁵³ Extradition Treaty between the United States of America and Estonia, signed on 8 February 2006 (RLA-040). ↩

³⁵⁴ See Prosecutor’s Office, “Unreasoned Order on the Termination of Proceedings”, 8 December 2016, ¶ 3 (C-005); Prosecutor’s Office, “Order on Releasing a Person in Custody”, 8 December 2016, p. 1 (C-009). ↩

³⁵⁵ Prosecutor’s Office, “Unreasoned Order on the Termination of Proceedings”, 8 December 2016 (C-005). ↩

³⁵⁶ Letter from Prosecutor Andrei Voronin to the Competent Judicial Authority of the United States of America, 23 October 2019, p. 1 (C-279). ↩

³⁵⁷ Letter from Prosecutor Andrei Voronin to the Competent Judicial Authority of the United States of America, 23 October 2019, p. 4 (C-279). ↩

³⁵⁸ Letter from Prosecutor Andrei Voronin to the Competent Judicial Authority of the United States of America, 23 October 2019, p. 4 (C-279). ↩

³⁵⁹ U.S. Government Memorandum of Law Regarding Detention Pending Extradition Proceedings, 6 December 2019 (C-292). ↩

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315. On 7 January 2020, a preliminary detention hearing for Mr. Rotko took place before Judge James Klindt at the Jacksonville Court.³⁶⁰

316. On 22 January 2020, Judge Klindt issued his Detention Decision finding that pending the ultimate extradition determination, Mr. Rotko could be released upon his posting of a USD 1.5 million bond.³⁶¹

317. On 29 January 2020, a bond hearing for Mr. Rotko took place before Judge Klindt at the Jacksonville Court, during which Judge Klindt issued an order for the immediate release of Mr. Rotko from federal custody subject to certain conditions, including the posting of a USD 1 million bond.³⁶² Mr. Rotko was released from federal custody that same day.³⁶³

318. On 25 August 2020, Mr. Rotko submitted to the Jacksonville Court a copy of the order terminating the Estonian criminal proceedings against him.³⁶⁴ He explained that the termination order had been provided upon payment of an agreed sum to the Republic of Estonia.³⁶⁵ Mr. Rotko further indicated that he (i) had forwarded the referred termination order to the U.S. Attorney’s Office; and (ii) his counsel had been advised by the U.S. Attorney’s Office that, on 14 August 2020, Estonia’s Ministry of Justice asked Estonia’s Ministry of Foreign Affairs to withdraw the extradition request.³⁶⁶

³⁶⁰ Reply, ¶ 383. ↩

³⁶¹ Order Denying Government’s Oral Motion for Detention, In the Matter of the Extradition of Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, 22 January 2020, p. 9 (C-289). ↩

³⁶² United States District Court, Middle District of Florida, Jacksonville Division, In the Matter of the Extradition of Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, Order Setting Conditions of Release, 29 January 2020 (C-293). ↩

³⁶³ United States District Court, Middle District of Florida, Jacksonville Division, In the Matter of the Extradition of Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, Order Setting Conditions of Release, 29 January 2020 (C-293). ↩

³⁶⁴ United States District Court, Middle District of Florida, Jacksonville Division, In the Matter of the Extradition of Mr. Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, Aleksandr Rotko’s Notice of Filing Regarding Subsequent Developments in the Estonian Criminal Matter Underlying this Extradition Case, 25 August 2020, ¶ 3, Exhibit A (C-330). ↩

³⁶⁵ United States District Court, Middle District of Florida, Jacksonville Division, In the Matter of the Extradition of Mr. Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, Aleksandr Rotko’s Notice of Filing Regarding Subsequent Developments in the Estonian Criminal Matter Underlying this Extradition Case, 25 August 2020, ¶¶ 1-3, Exhibit A (C-330). ↩

³⁶⁶ United States District Court, Middle District of Florida, Jacksonville Division, In the Matter of the Extradition of Mr. Aleksandr Rotko, Case No. 3:19-mc-27-J-39JRK, Aleksandr Rotko’s Notice of Filing Regarding Subsequent Developments in the Estonian Criminal Matter Underlying this Extradition Case, 25 August 2020, ¶¶ 4, 5, Exhibit A (C-330). ↩

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3. Interim Relief Application before the European Court of Human Rights

319. On 4 December 2006, Verest, Agrin, BPV, and ELA Tolli requested the European Court of Human Rights under Rule 39 of the Rules of Court to enjoin the Estonian authorities from pursuing any legal action against them.³⁶⁷

320. On 4 March 2008, the European Court of Human Rights decided that the above-mentioned application was inadmissible under Article 28 of the European Human Rights Convention, because it did not comply with the requirements of Articles 34 and 35 of that convention.³⁶⁸ In reaching that conclusion the Court considered, in particular, that “[i]n the light of all the material in its possession, and in so far as the matters complained of were within its competence, the Court found that they did not disclose any appearance of a violation of the rights and freedoms set out in the Convention or its Protocols.”³⁶⁹

IV. THE PARTIES' REQUESTS FOR RELIEF

321. In its Notice of Arbitration, the Claimant requests the following relief:

• a) A finding and declaration that Estonia has breached its obligations under the Treaty;
• b) Directing Estonia to pay compensatory damages to the Claimant of not less than USD 100 million without any deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded;
• c) Directing Estonia to pay moral damages to the Claimant of not less than $50 million without any deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded;
• d) Directing Estonia to pay pre and post-judgment interest on the sums award without deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded;
• e) Directing Estonia to pay Claimants fees and costs associated with this proceeding, including but not limited to professional fees and disbursements;
• f) Directing Estonia to pay all amounts awarded to ELA USA, Inc in the United States, without any deductions, withholdings or setoff for taxes or expenses and to pay ELA USA, Inc., taxes on all sums awarded; and
• g) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances.³⁷⁰

322. In its Memorial, the Claimant requests the following relief:

• a) A finding and declaration that Estonia has acted in a manner inconsistent with its Treaty obligations under Articles II and III;
• b) Directing Estonia to pay compensatory damages with respect to Expropriation to the Claimant of not less than US $175,748,846 without any deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded; or

³⁶⁷ Application for the European Human Rights Court, 4 December 2006 (C-052). ↩

³⁶⁸ European Court of Human Rights Decision, Application No.48966/06, 4 March 2008 (C-212). ↩

³⁶⁹ European Court of Human Rights Decision, Application No.48966/06, 4 March 2008 (C-212). ↩

³⁷⁰ Notice of Arbitration, ¶ 107. ↩

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alternatively to pay damages with respect to the breach of Treaty Article II in the amount of US $192,638,870 without any deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded.

• c) Directing Estonia to pay post-judgment interest on the award of the sum without deduction, withholding or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded.
• d) Directing Estonia to pay Claimants fees and costs associated with this proceeding, including but not limited to professional fees and disbursements.
• e) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances.³⁷¹

323. In its Reply, the Claimant requests the following relief:

1693) A finding and declaration that Estonia has acted in a manner inconsistent with its Treaty obligations under Articles II and III.
1694) Directing Estonia to pay compensatory damages of not less than US $206 million comprising $156 million for financial damages and $50 million for moral damages (including pre-judgement interest to September 4, 2021) without any deduction, withholding, or set off for taxes or expenses and to pay Claimant’s taxes on all sums awarded.
1695) Directing Estonia to pay post-judgment interest on the sums awarded without deduction, withholding, or setoff for taxes or expenses and to pay Claimant’s taxes on all sums awarded.
1696) Directing Estonia to pay all Claimant’s fees and costs associated with this proceeding, including but not limited to professional fees and disbursements.
1697) Directing Estonia to pay all amounts awarded to ELA U.S.A. Inc in the United States, without any deductions, withholdings or setoff for taxes or expenses and to pay ELA U.S.A. Inc., taxes on all sums awarded; and
1698) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances.³⁷²

324. In its Statement of Defense, the Respondent requests the following relief:

1. Dismiss the claims of the Claimant in their entirety; and
2. Order the Claimant to carry all costs of these proceedings, such costs to be specified at a later date, with applicable interest.³⁷³

325. In its Counter-Memorial, the Respondent requests the following relief:

• (i) a declaration dismissing the Claimant’s claims;
• (ii) an order that the Claimant pay the costs of these arbitral proceedings, including the cost of the Tribunal and the legal and other costs incurred by the Respondent, on a fully indemnity basis; and

³⁷¹ Memorial, ¶ 604. ↩

³⁷² Reply, ¶¶ 1693-1698. ↩

³⁷³ Statement of Defense, ¶ 53. ↩

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• (iii) interest on any costs awarded to the Respondent, in an amount to the determined by the Tribunal.³⁷⁴

326. The Tribunal notes that it has carefully considered all arguments advanced by the Parties in their written submissions and at the Oral Hearing as to the Tribunal’s jurisdiction, admissibility, and the merits. If some of these arguments are not addressed below, this shall not be taken as an indication that the Tribunal has not considered them relevant. Rather, such arguments were unable to influence the decision of the Tribunal on the Parties’ requests or individual issues based on the Tribunal’s reasoning.

V. JURISDICTION AND ADMISSIBILITY

327. The Tribunal can address the merits of this dispute only if and to the extent that it has jurisdiction and the Claimant’s claims are admissible.

328. The basis of the Tribunal’s jurisdiction is Article VI of the Treaty, which reads in material parts as follows.

1. For the purposes of this Article, an investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to:
(a) an investment agreement between that Party and such national or company;
(b) an investment authorization granted by that Party’s foreign investment authority to such national or company; or
(c) an alleged breach of any right conferred or created by this Treaty with respect to an investment.
2. In the event of an investment dispute, the parties to the dispute should initially seek a resolution through consultation and negotiation. If the dispute cannot be settled amicably, the national or company concerned may choose to submit the dispute for resolution:
[...]
(c) in accordance with the terms of paragraph 3.
3. (a) Provided that the national or company concerned has not submitted the dispute for resolution under paragraph 2 (a) or (b) and that six months have elapsed from the date on which the dispute arose, the national or company concerned may choose to consent in writing to the submission of the dispute for settlement by binding arbitration:
...
(iii) in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); [...]
4. Each Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written consent of the national or company under paragraph 3 [...].³⁷⁵

329. The Claimant has initiated these arbitration proceedings by submitting a Notice of Arbitration pursuant to the 1976 UNCITRAL Rules, as provided for in Article VI(3)(a) of the Treaty, and in

³⁷⁴ Counter-Memorial, ¶ 737. ↩

³⁷⁵ Treaty, Article VI (RLA-001). ↩

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compliance with the six-month waiting period set out in this provision. Respondent has consented to the submission of any investment dispute to arbitration, according to Article VI(4) of the Treaty. Therefore, the scope of the Respondent’s consent—and consequently of the Tribunal’s jurisdiction—hinges on whether and to what extent this dispute constitutes an investment dispute within the meaning of Article VI(1) of the Treaty. Given that the two categories of investment disputes listed in paragraphs (a) and (b) of this provision are irrelevant here, the Tribunal must determine whether and to what extent this dispute is brought by “a national or company” of the U.S. “arising out of or relating to [...] an alleged breach of any right conferred or created by this Treaty with respect to an investment”, as set out in Article VI(1)(c).

330. The term “investment” is key in this regard. It is defined in Article I(1)(a) of the Treaty, which provides that:

Investment means every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes:
(i) tangible and intangible property, including rights, such as mortgages, liens and pledges;
(ii) a company or shares of stock or other interests in a company or interests in the assets thereof;
(iii) a claim to money or a claim to performance having economic value, and associated with an investment;
(iv) intellectual property which includes, inter alia, rights relating to:
literary and artistic work, including sound recordings, inventions in all fields of human endeavor, industrial designs, semiconductor mask works, trade secrets, know-how, and confidential business information, and trademarks, service marks, and trade names; and
(v) any right conferred by law or contract, and any licenses and permits pursuant to law.³⁷⁶

331. The term “company” is defined in Article I(1)(b) of the Treaty as

any kind of corporation, company, association, partnership, or other organization, legally constituted under applicable laws and regulations of a Party whether or not organized for pecuniary gain, or privately or governmentally owned or controlled.³⁷⁷

332. With these observations in mind, the Tribunal now turns to the Respondent’s objections regarding jurisdiction and inadmissibility, namely that:

• (a) the Tribunal lacks jurisdiction ratione personae because the true identity of the Claimant is unclear,³⁷⁸ and the only link between the Claimant and the alleged investment is Mr. Rotko, an Estonian national;³⁷⁹

³⁷⁶ Treaty, Article I(1)(a) (RLA-001). ↩

³⁷⁷ Treaty, Article I(1)(b) (RLA-001). ↩

³⁷⁸ Statement of Defense, ¶¶ 20-23. ↩

³⁷⁹ Statement of Defense, ¶¶ 24-27. ↩

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• (b) the Tribunal lacks jurisdiction ratione materiae because the Claimant failed to prove ownership or control of investments in Estonia within the meaning of the US-Estonia BIT,³⁸⁰ and the alleged investments were obtained illegally and in bad faith;³⁸¹
• (c) the Tribunal lacks jurisdiction ratione temporis over the Claimant’s claims because they pertain to measures taken by the Respondent before the entry into force of the US-Estonia BIT on 16 February 1997;³⁸²
• (d) the claims are time-barred under the principles of acquiescence and extinctive prescription;³⁸³ and
• (e) the Tribunal lacks jurisdiction over the Claimant’s claim for moral damages.³⁸⁴

333. The Tribunal will address each of these points in turn.

A. THE TRIBUNAL'S JURISDICTION RATIONE PERSONAE

334. In its Statement of Defense, the Respondent argued that the Tribunal lacks jurisdiction ratione personae for two reasons. First, according to the Respondent, the true identity of the Claimant is unclear because publicly available data suggest that there are two entities named ELA USA: one incorporated in Florida in 2013, the other registered in Minnesota in 1993.³⁸⁵ Secondly, according to the Respondent, the Claimant does not qualify as an investor within the meaning of the Treaty because it failed to establish that the Claimant—and not Mr. Rotko—owned or controlled an investment in Estonia.³⁸⁶

335. The Tribunal has no doubt as to the identity of the Claimant in this case. In his second witness statement, submitted with the Claimant’s Memorial, Mr. Rotko stated that he set up ELA, the Claimant, in Minnesota in 1993. When Mr. Rotko moved to Florida in 2013, he domesticated the company there, where it continues to operate. Documentary evidence confirms Mr. Rotko’s testimony. The Claimant submitted a certificate of incorporation issued by the State of Minnesota in 1993,³⁸⁷ a certificate of domestication in Florida signed in 2013,³⁸⁸ and an excerpt from the

³⁸⁰ Statement of Defense, ¶¶ 29-30; Counter-Memorial, ¶¶ 33-36, 426-444; Rejoinder, ¶¶ 3-21, 287-302. ↩

³⁸¹ Statement of Defense, ¶¶ 31-37; Counter-Memorial, ¶ 37; 466-476; Rejoinder, ¶ 24 (where, unlike in the Statement of Defense and the Counter-Memorial, the Respondent treats the alleged illegality of the investment and bad faith as issues of admissibility and not of jurisdiction), 328-330. ↩

³⁸² Statement of Defense, ¶¶ 18, 40. ↩

³⁸³ Counter-Memorial, ¶¶ 36, 452-465; Rejoinder, ¶¶ 309-327. ↩

³⁸⁴ Statement of Defense, ¶ 18; Counter-Memorial, ¶ 35; Rejoinder, ¶¶ 303-308. ↩

³⁸⁵ Statement of Defense, ¶¶ 20-23. ↩

³⁸⁶ Statement of Defense, ¶¶ 24-27. ↩

³⁸⁷ ELA USA Certificate of Incorporation and Articles of Incorporation, 6 April 1993 (C-044); Florida corporation domestication – ELA USA – 2013, 6 November 2013 (C-210); State of Florida Corporations website - confirmation of status of ELA U.S.A. Inc, 19 December 2020 (C-553). ↩

³⁸⁸ ELA USA Certificate of Incorporation and Articles of Incorporation, 6 April 1993 (C-044). ↩

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webpage of the Florida Department of State dated 19 December 2020 confirming the active status of ELA.³⁸⁹

336. Following the submission of the Claimant’s Memorial, the Respondent neither explicitly upheld nor withdrew its objections against the Tribunal’s jurisdiction ratione personae. But it did not repeat its doubts regarding the identity of the Claimant. In light of the evidence filed by the Claimant after the Respondent’s Statement of Defense, the Tribunal considers that it has jurisdiction ratione personae over the Claimant, a U.S. company within the meaning of Article I(1)(b) and Article VI(1) of the Treaty. The question of whether ELA owned or controlled an investment is an issue of the Tribunal’s jurisdiction ratione materiae, to which the Tribunal turns next.

B. THE TRIBUNAL'S JURISDICTION RATIONE MATERIAE

337. Regarding its jurisdiction ratione materiae, the Tribunal will first address the Respondent’s jurisdictional objection that the Claimant never held a relevant investment in Estonia. If the Tribunal finds that the Claimant held one or more such investments, it must in a second step address the Respondent’s allegation that they were made illegally and in bad faith.

1. Whether the Claimant Owned or Controlled an Investment

338. The Tribunal has jurisdiction only if and to the extent that this is a dispute arising from or relating to an alleged breach of a right conferred or created by the Treaty with respect to an investment, as set out in paragraphs 329 and 330 above. According to Article I(1)(a) of the Treaty, protected investments by the Claimant can be “every kind of investment[s] in the territory of [Estonia] owned or controlled directly or indirectly” by the Claimant, such as “tangible and intangible property”, “shares of stock or other interests in a company”, or “a right conferred by law or contract”.

339. The Claimant characterizes several assets, rights, and interests it allegedly owned or controlled in Estonia as investments protected by the Treaty, namely the shares in four Estonian entities (BPV, Verest, Agrin, and ELA Tolli); the Seaplane Harbor (or at least certain buildings and structures located at the Seaplane Harbor); the lease agreements BPV concluded with Verest and Agrin and the rights arising from the lease; the joint venture agreement, and loans. The Respondent disputes that the Claimant owned or controlled any of these assets, which the Tribunal will address in turn.

a) Shares in BPV, Verest, ELA Tolli, and Agrin

i. The Respondent's Position

340. The Respondent alleges that the Claimant has failed to substantiate that it owned or controlled BPV, Verest, ELA Tolli, and Agrin at the time of the alleged breaches, i.e., between 1999 and 2006, and more specifically on 7 June 2006 when the Supreme Court declined to hear the appeal

³⁸⁹ Florida corporation domestication – ELA USA – 2013, 6 November 2013 (C-210). ↩

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from the Circuit Court’s decision of 1 March 2006 according to which Estonia was the rightful owner of the building at the Port.³⁹⁰

341. In the Counter-Memorial, the Respondent argued that the sole shareholder of BPV, Verest, and ELA Tolli at the time of the alleged breaches of the Treaty was Corona Resources, and that there was no evidence that the Claimant ever owned or controlled Corona Resources.³⁹¹ Regarding Mr. Rotko’s witness testimony submitted with the Reply that Corona Resources was always wholly owned and controlled by the Claimant, the Respondent states that the Claimant’s evidence is insufficient under Panamanian law to establish ownership in a Panamanian company.³⁹² According to Mr. Molina, the Respondent’s expert witness, the Claimant would have had to provide original share certificates or a share registry issued by the corporation to establish ownership.³⁹³

342. The Respondent points out that, in any event, the discussion regarding the Claimant’s ownership of Corona Resources has become redundant because the Respondent has learned, when preparing its Rejoinder, that Corona Resources never existed.³⁹⁴ The Respondent submits that, as confirmed by its expert witness, Mr. Raul Eduardo Molina, and conceded by the Claimant, no company by the name of Corona Resources exists or has existed in Panama.³⁹⁵ According to the Respondent, the Claimant “knew or must have known all along that Corona Resources does not exist” as it merely relied on Mr. Rotko’s words as the sole source of evidence.³⁹⁶ Similarly, the Respondent contends that the Claimant has failed to provide any documentary evidence in support of its “proclamations of innocence and ignorance with respect to the use of the non-existent Corona Resources.”³⁹⁷

343. According to the Respondent, in the absence of Corona Resources, the Claimant has failed to show that it had any equity interest in any of its purported subsidiaries and Agrin during the alleged breaches because:³⁹⁸

³⁹⁰ Counter-Memorial, ¶¶ 433-434. See also Counter-Memorial, ¶¶ 429-432. ↩

³⁹¹ Counter-Memorial, ¶¶ 433-438. ↩

³⁹² Rejoinder, ¶ 292, referring to Expert Witness Statement of Mr. Raul Molina (“Molina Report”), 8 July 2021 (RER-4). ↩

³⁹³ Rejoinder, ¶ 292, referring to Molina Report (RER-4). ↩

³⁹⁴ Rejoinder, ¶¶ 287-290. ↩

³⁹⁵ Rejoinder, ¶¶ 289-290, referring to Molina Report, ¶ 13 (RER-4). See also Hearing Transcript, Day 1, p. 130:8-11. ↩

³⁹⁶ 3 November 2021 Submission, ¶ 30. See also Hearing Transcript, Day 1, p. 132:6-10. ↩

³⁹⁷ 3 November 2021 Submission, ¶¶ 32-33. ↩

³⁹⁸ 3 November 2021 Submission, ¶ 40. The Respondent submits that even Mr. Keres admitted that the evidence he relied on does not show who the last owner was for any of the Estonian companies prior to Corona Resources. In any event, the Respondent argues that the Tribunal has no basis to entertain the Claimant’s alternative theory on its ownership of the alleged investment in the absence of Corona Resources. See 3 November 2021 Submission, ¶ 35; Hearing Transcript, Day 5, p. 156:20-23. ↩

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(a) There is no record showing from whom Corona Resources acquired shares in BPV and to whom these shares should revert absent such acquisitions.³⁹⁹ While the Claimant alleges that it wholly owned and controlled BPV from 1995, it is also unclear when and from whom the Claimant acquired BPV shares. ⁴⁰⁰ As for the Share Purchase Agreement dated 20 November 2000, which purportedly evidences ELA’s sale of BPV shares to Corona Resources,⁴⁰¹ the Respondent maintains its objections to the admissibility of the document, which was “filed long after the relevant issue arose and after all imaginable cut-off dates have come and gone in this arbitration.” ⁴⁰² Further, the Respondent challenges the authenticity of the document, contending that it is not consistent with the testimony of Mr. Rotko and the contemporaneous documentary record.⁴⁰³ Consequently, it considers that the Claimant has not submitted any credible evidence with respect to the transaction in which Corona Resources acquired shares in BPV;⁴⁰⁴

(b) Given that Verest was owned by BPV from 23 September 1999 until it was purportedly transferred to Corona Resources in 2004, Verest was therefore only ever owned either by BPV (whose connection to the Claimant is not proven, as set out in subparagraph (a)) or by non-existent Corona Resources;⁴⁰⁵ and

(c) As ELA Tolli was established by Mr. Toomas Rinne on 1 December 2000 before it was sold to Corona Resources, ELA Tolli would continue to be owned by Mr. Rinne, who is unrelated to these proceedings. ⁴⁰⁶

344. The Respondent further submits that the Claimant’s lack of equity interest in Agrin at the relevant time is fatal to the majority of its claim. According to the Respondent, while BPV became the owner of Agrin after its purchase on 8 December 1999, it then sold its stake to Ella Kaubanduse, another Estonian company belonging to Mr. Rotko, on 22 March 2001.⁴⁰⁷ Ella Kaubanduse, the Respondent continues, remained the sole shareholder of Agrin until Agrin was deleted from the

³⁹⁹ 3 November 2021 Submission, ¶ 36. See also Hearing Transcript, Day 1, p. 130:21-22. ↩

⁴⁰⁰ 3 November 2021 Submission, ¶ 36. The Respondent notes that, only seven weeks before the hearing, the Claimant produced documents to evidence that STC International agreed to transfer all of its shares in BPV (i.e., 51% of total BPV shares) to the Claimant and that the Claimant became the owner of 91% of BPV shares by 1997. The Respondent considers these documents belated and inadmissible, given that they were filed without leave from the Tribunal. In any event, the Respondent argues that these documents do not lead to who was the owner of BPV immediately before Corona Resources. See Hearing Transcript, Day 1, pp. 131:14 – 132:19, referring to Agreement between STC and ELA USA, 1 March 1996 (C-599); BPV Corporate Minutes, 25 June 1997 (C-600). See also Hearing Transcript, Day 1, p. 135:5-13. ↩

⁴⁰¹ Claimant’s Answers to the Tribunal’s Questions, Agreement of Purchase and Sale of Shares of BPV from ELA USA to Corona Resources, 20 November 2000 (C-612). ↩

⁴⁰² 21 April 2022 Submission, p. 1. ↩

⁴⁰³ 21 April 2022 Submission, pp. 1-3, referring to Hearing Transcript, Day 2, pp. 20:6-22, 22:2 – 23:9; Commercial Register extract of BPV (R-012). See also Annex 2 to the 21 April 2022 Submission. ↩

⁴⁰⁴ 21 April 2022 Submission, p. 3. ↩

⁴⁰⁵ 3 November 2021 Submission, ¶ 37. ↩

⁴⁰⁶ 3 November 2021 Submission, ¶ 39. ↩

⁴⁰⁷ Statement of Defense, ¶ 26; Counter-Memorial, ¶ 442, referring to Sale Contract between BPV and Alcedo for the sale of Agrin, 8 December 1999 (C-057); Share purchase agreement between BPV and Ella Kaubanduse for the sale of Agrin, 22 March 2001 (R-150). ↩

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Commercial Register on 31 July 2013.⁴⁰⁸ As Ella Kaubanduse was wholly owned by Mr. Rotko at the time of the alleged breaches, the Respondent argues that no corporate linkage exists between Agrin and the Claimant, other than the fact that they were both owned by Mr. Rotko, who is neither a claimant in this arbitration nor a “national of the other Party.”⁴⁰⁹

ii. The Claimant's Position

345. In the Claimant's view, the Respondent's jurisdictional objection with respect to the Claimant's standing should be dismissed because BPV, Verest, ELA Tolli, and Agrin were directly or indirectly owned and controlled by ELA, a U.S. company. ⁴¹⁰ While the Claimant concedes that the ownership structure of the Claimant's investments underwent some modifications between 1997 and 2007, the transfer of ownership, according to the Claimant, does not affect the Claimant's standing to bring its claim in this arbitration.⁴¹¹

346. In respect of BPV, the Claimant asserted until the submission of the Respondent's Rejoinder that BPV was initially owned and controlled by ELA before ELA's subsidiary, Corona Resources, acquired all of its shares.⁴¹² The Claimant explained that Corona Resources was owned and controlled by ELA, acting as its bare trustee without any active business operations, employees, or offices. ⁴¹³ Therefore, according to the Claimant, when Corona Resources acquired BPV from ELA, there was "no change to any operations” as ELA "always controlled and owned" Corona Resources. ⁴¹⁴

347. In the same vein, the Claimant asserted that it controlled and indirectly owned Verest after BPV purchased the entire shares of the company on 23 September 1999.⁴¹⁵ The Claimant further notes that ELA owned and controlled ELA Tolli through Corona Resources from its creation in 2000 until its seizure by Estonia in 2007.⁴¹⁶ On this basis, the Claimant emphasizes that it “always” owned and controlled BPV, Verest, and ELA Tolli from 1999 until 2007, i.e., when the Respondent seized BPV, Verest, ELA Tolli, and Agrin. ⁴¹⁷

⁴⁰⁸ Counter-Memorial, ¶ 442, referring to Commercial Register extract of Agrin, 7 December 2018 (R-015). ↩

⁴⁰⁹ Statement of Defense, ¶ 27; referring to Treaty, Article I(1)(a) (RLA-001); Counter-Memorial, ¶¶ 443-444. ↩

⁴¹⁰ Reply, ¶¶ 886, 919-920. ↩

⁴¹¹ Reply, ¶¶ 892, 931. ↩

⁴¹² Reply, ¶¶ 893(1)-(2). ↩

⁴¹³ Reply, ¶¶ 893(2), 923, referring to Second Rotko Statement, ¶ 39 (CWS-2); Third Rotko Statement, ¶¶ 20, 24 (CWS-4). See Letter from Corona Resources, 2 September 1999 (C-556). ↩

⁴¹⁴ Reply, ¶¶ 893(2), 924. ↩

⁴¹⁵ Reply, ¶¶ 924, 931; Third Rotko Statement, ¶¶ 20, 24 (CWS-4). See Share Purchase Agreement between BPV and Verest, 23 September 1999 (C-055). ↩

⁴¹⁶ Reply, ¶¶ 897(6), 897(c). See Shareholder list as of 07.06.2006 of ELA Tolli (R-149). ↩

⁴¹⁷ Reply, ¶¶ 888-890, 897. ↩

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348. The Claimant now concedes that Corona Resources never existed and, consequently, did not have the legal capacity to enter into transactions with ELA.⁴¹⁸ But according to the Claimant, Corona Resources' invalidity has no impact on the Claimant's claim in this arbitration.⁴¹⁹ This is because, relying on Mr. Keres' analysis, the Claimant contends that the share transactions concluded by Corona Resources with respect to BPV, Verest, and Ella Tolli are void ab initio under Article 26(1) of the Estonian General Part of the Civil Code Act.⁴²⁰ Accordingly, the Claimant posits that, as a matter of Estonian law, the transactions entered with Corona Resources by ELA and BPV would be void ex tunc without having to go to a court for determination.⁴²¹ As such, the corporate structure of ELA would revert to its “original form” in 1999, i.e., before the transactions with Corona Resources took place, where ELA was the corporate parent wholly owning BPV, which, in turn, owned Verest and ELA Tolli. ⁴²²

349. Mr. Keres also opines that the changes arising from the effect of the nullity of Corona Resources would have no impact on the nationality of the investments as “they were initially Estonian and maintained their Estonian nationality throughout the entire time.”⁴²³ Similarly, Mr. Keres notes that there was no change in the ultimate control, which continued to be ELA throughout this time. ⁴²⁴

350. With respect to Agrin, the Claimant submits that ELA directly controlled the operations of the joint venture partnership between Agrin, BPV, and Verest established on 21 October 1999 as "the agreement allowed for ELA to allocate the revenue, profits, and costs between the companies" and that Agrin and Verest transferred their right to the port assets to BPV.⁴²⁵ Then, on 8 December 1999, the Claimant explains that BPV acquired and owned Agrin until it was sold to Ella Kaubanduse, an affiliated company of the Claimant owned entirely by Mr. Rotko, on 22 March

⁴¹⁸ 1 December 2021 Submission, ¶ 18; Hearing Transcript, Day 1, p. 57:2-7. The Claimant explains that Mr. Rotko had always relied upon local Panamanian lawyers for the registration and annual maintenance of Corona Resources and, therefore, was not aware that Corona Resources may not have been a valid company under the laws of Panama until this arbitration was commenced. Therefore, the Claimant submits that ELA and Mr. Rotko are “victims of fraud, rather than the perpetrators" as they reasonably relied on the authenticity and completeness of the documents provided by the Panamanian lawyers. See 1 October 2021 Submission, ¶¶ 53-55, 58-62; 1 December 2021 Submission, ¶¶ 14-15, 18. See also Fifth Rotko Statement, ¶¶ 5-6, 11-12 (CWS-6). ↩

⁴¹⁹ 1 December 2021 Submission, ¶ 38. ↩

⁴²⁰ 1 October 2021 Submission, ¶ 71, referring to Fourth Keres Report, ¶¶ 65-66 (CER-8); Claimant's Answers to Tribunal Questions, ¶¶ 66-67, referring to Hearing Transcript, Day 4, 75:1-9. ↩

⁴²¹ 1 October 2021, Submission, ¶ 71; Fourth Keres Report, ¶ 66 (CER-8). According to the Claimant, there are three share transactions in Estonia, which are affected by the invalidity of Corona Resources: (i) ELA's transfer of BPV to Corona Resources dated 9 March 2001 (R-146); (ii) BPV's transfer of ELA Tolli to Corona Resources dated 1 June 2002 (R-012); and (iii) BPV's transfer of Verest to Corona Resources in 2004 (R-013). See 1 December 2021 Submission, ¶¶ 34-35. ↩

⁴²² 1 October 2021 Submission, ¶¶ 72-73; 1 December 2021, Submission, ¶ 37; Fourth Keres Report, ¶¶ 67-69 (CER-8). See also Hearing Transcript, Day 1, p. 58:3-10. ↩

⁴²³ Fourth Keres Report, ¶ 70 (CER-8). ↩

⁴²⁴ Fourth Keres Report, ¶ 70 (CER-8). See also 1 December 2021 Submission, ¶ 33. ↩

⁴²⁵ Reply, ¶¶ 921, 927, referring to JVA (C-056); Expert Report of Richard Taylor dated 29 August 2019, pp. 10-11 (CER-3). See also Second Rotko Statement, ¶ 38 (CWS-2). ↩

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2001.⁴²⁶ Even after the transfer of shares, the Claimant contends that BPV made direct investments in Agrin until 2006 to finance their lumber operations at the Lennusadam Portlands.⁴²⁷ According to the Claimant, Agrin thus remained part of the ELA’s joint venture and was subject to the long-term profit-sharing agreement in respect of the possession over the Lennusadam Port. ⁴²⁸

351. Accordingly, the Claimant insists that the transfer of Agrin to Ella Kaubanduse makes no difference to the damages claimed in this arbitration, given that (i) the losses arising from Agrin before its transfer in 2001 are property damages to ELA, and (ii) the damages arising after the transfer constitute the loss of revenue and income of BPV through the loss of its joint venture with Agrin due to the Respondent’s seizure in 2007, as well as the loss of BPV’s capital investments made in the Portlands.⁴²⁹ Therefore, the issue regarding the change in the ownership of Agrin, in the Claimant’s view, is not a matter of jurisdiction, but rather one relevant for quantum.⁴³⁰

iii. The Tribunal's Analysis

352. Before turning to the individual Estonian entities that Claimant alleges to have held, a few general remarks on Corona Resources seem helpful.

353. There was much discussion about Corona Resources in the Parties' written submissions since the Respondent had pointed out in its Statement of Defense that, according to the commercial register, Corona Resources—and not the Claimant—owned BPV, Verest, and ELA Tolli. ⁴³¹ In the view of the Tribunal, large parts of this discussion have become irrelevant for the following reasons.

354. After attempting to gather information on Corona Resources in Panama, Respondent submitted in its Rejoinder that Corona Resources has never existed. Having subsequently investigated the matter itself, the Claimant concluded that it and Mr. Rotko had become victims of fraud by a Panamanian lawyer, who was paid by the Claimant but apparently did not take the necessary steps for the incorporation of Corona Resources. ⁴³² At the latest since the oral hearing, the Parties agree that Corona Resources was never a valid company.⁴³³ The Parties also agree that, as a matter of Estonian law, all transactions with Corona Resources are considered to be void ab initio, and all

⁴²⁶ Reply, ¶¶ 893(5), 894, 928. See Sale Contract between BPV and OÜ Alcedo KV for the sale of Agrin, 8 December 1999, (C-057); Share purchase agreement between BPV and Ella Kaubanduse for the sale of Agrin, 22 March 2001 (R-150). See also Expert Report of Richard Taylor dated 29 August 2019, p. 10 (CER-3). ↩

⁴²⁷ Reply, ¶¶ 895-896, 932; Third Rotko Statement, ¶ 71 (CWS-4). See Payment to the company Tamult AS, 18 May 2001 (C-227). ↩

⁴²⁸ 1 October 2021 Submission, ¶¶ 73-74. ↩

⁴²⁹ Reply, ¶¶ 906, 930. See also Reply, ¶ 899. ↩

⁴³⁰ Reply, ¶¶ 907, 930. ↩

⁴³¹ Statement of Defense, ¶ 26. ↩

⁴³² Claimant’s 1 October 2022 Submission, ¶¶ 60-61. ↩

⁴³³ Rejoinder, ¶¶ 21, 46; Hearing Transcript, Day 1, p. 130:6–12; Hearing Transcript, Day 5, p. 156:25–157:1; Claimant’s PHB, ¶ 67. ↩

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shares transferred to Corona Resources revert to their original owners. ⁴³⁴ The Parties disagree, however, on who these original owners were. With these observations in mind, the Tribunal will now address, one by one, the Estonian entities in which the Claimant asserts to have held direct or indirect shareholdings.

(I.) BPV

355. To determine whether the Claimant held an investment protected by the Treaty in the form of shares in BPV, the Tribunal will address the relevant, partly contested, transactions in chronological order. According to BPV’s founding agreement, the Claimant held a 40% stake in BPV when it was established in 1993.⁴³⁵ Mr. Rotko states in his second witness statement that, beyond its original 40% shareholding, the Claimant solely owned and controlled BPV since 1995.⁴³⁶ A settlement agreement dated 1 March 1996 submitted by the Claimant several weeks before the oral hearing contradicts this statement. In that agreement, STC International, who originally held a 51% stake in BPV, promised to transfer all its shares in BPV to the Claimant. ⁴³⁷ If the Claimant had already solely owned BPV in 1995, it would have been nonsensical to commit STC International to transfer all its shares in BPV to the Claimant in 1996.

356. The documentary evidence indicates, however, that STC International’s shares in BPV were transferred to the Claimant at some point. According to the minutes of a BPV shareholder meeting held on 25 June 1997, the Claimant directly owned 91% of the shares in BPV on that date.⁴³⁸ This figure corresponds to the Claimant’s original 40% stake plus STC International’s original 51% stake. As regards the remaining 9% of the shares in BPV, the Claimant submitted an agreement dated 20 October 1999, which states that the Claimant acquired those shares from Ella Kaubanduse. ⁴³⁹ Further documentary evidence seems to confirm that the Claimant owned 100% of the shares in BPV, at least during parts of the relevant period. A share purchase agreement dated 20 November 2000 states that ELA transfers “100% of the share capital" in BPV to Corona Resources.⁴⁴⁰ In line with this purported share transfer, two subsequent documents list Corona Resources as BPV’s sole shareholder, namely minutes regarding a shareholder decision dated 9 March 2001 and the Commercial Register extract of BPV.⁴⁴¹ The Commercial Register records Corona Resources as the only shareholder of BPV for the period from 1 January 2000 until BPV’s deletion on 1 July 2011 (and notes that the register provides information only on shareholders who hold more than 10% of the votes).

⁴³⁴ Hearing Transcript, Day 1, p. 130:18–21; Hearing Transcript, Day 5, p. 157:2-3. ↩

⁴³⁵ BPV Foundation Agreement, 22 December 1993 (C-076). ↩

⁴³⁶ Second Rotko Statement, ¶ 14 (CWS-2). ↩

⁴³⁷ Agreement between STC and ELA USA, 1 March 1996, section 5 (C-599). ↩

⁴³⁸ BPV Corporate Minutes, 25 June 1997 (C-600); BPV Foundation Agreement, 22 December 1993 (C-076). ↩

⁴³⁹ Agreement between Ella Kaubanduse and ELA USA, 20 October 1999 (C-601). ↩

⁴⁴⁰ Agreement of Purchase and Sale of Shares of BPV from ELA USA to Corona Resources, 20 November 2000, section 1.2. (C-612). ↩

⁴⁴¹ Minutes of the Decision of Sole Shareholder of BPV, 9 March 2001 (R-146); Commercial Register extract of BPV, 7 December 2018 (R-012). ↩

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357. In summary and considering that all transactions with Corona Resources are to be considered void, the documentary record suggests that the Claimant owned 40% of the shares in BPV from its establishment in 1993, increased the shareholding to 91% by 25 June 1997, acquired the remaining shares through an agreement dated 20 October 1999, and remained BPV’s sole shareholder until that company’s dissolution in 2011.

358. But the Tribunal needs to address two other issues raised by the Respondent before it can conclude that the Claimant owned an investment within the meaning of the Treaty in the form of shares in BPV. First, Respondent alleges that it is unclear who owned BPV immediately before the purported transfer of all shares to Corona Resources, and that it is therefore uncertain to which entity those shares revert because of the non-existence of Corona Resources. In this regard, the Claimant has submitted, after the oral hearing and upon request by the Tribunal, the document through which Corona Resources purportedly acquired the shares in BPV from the Claimant, namely the agreement dated 20 November 2000 (C-612), referred to in paragraph 356 above. Even if the Tribunal were to disregard C-612, it could not find any indication on file regarding a transfer of the shares in BPV to any company other than the Claimant (apart from the failed transfer to Corona Resources). In short, the proposition that the non-existence of Corona Resources renders an entity other than the Claimant the owner of the shares in BPV is speculative and contradicted by C-612.

359. Secondly, the Respondent states that the Tribunal must ignore certain documents regarding the Claimant’s shareholding in BPV because they were filed too late, constitute forgeries, or both.⁴⁴²

360. The Tribunal would have expected several documents in this arbitration to be filed earlier. This is true, for example, for C-599, C-600, and C-601 (referred to in paragraphs 355-356 above), which Mr. Rotko found in November 2021 when he “investigated a set of twenty-year-old documents held in a storage locker”.⁴⁴³ C-612, the agreement through which Corona Resources sought to acquire the shares in BPV from the Claimant, was filed only upon request by the Tribunal, and, according to the Claimant, after a “hard review" by Mr. Rotko, who located the document in November 2021, which “had been misfiled in 2006 with his personal immigration records”.⁴⁴⁴ But given that the Respondent has had the opportunity to comment on the relevant documents, and that they help in determining what entities held the shares in BPV over time, the Tribunal would find it inappropriate to ignore these documents. On 18 May 2022, the Tribunal informed the Parties of its decision to admit C-612 into the record. The Tribunal will not treat the other documents regarding BPV—filed in late 2021, that is, prior to the oral hearing and the submission of C-612—differently.

361. Having decided that it will not ignore any documents submitted by the Parties because they could or should have been filed earlier, the Tribunal must now address the Respondent’s allegations of forgery. In particular, the Respondent disputes the authenticity of Corona Resources' bearer share certificate of 1 May 1996 (C-589), the agreement through which Corona Resources sought to

⁴⁴² Hearing Transcript, Day 1, p. 132:2-4; 3 November 2021 Submission, ¶¶ 5, 36; 21 April 2022 Submission, p. 3. ↩

⁴⁴³ 1 December 2021 Submission, ¶ 26. ↩

⁴⁴⁴ 6 May 2022 Submission, ¶ 3. ↩

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acquire the shares in BPV from the Claimant dated 20 November 2000 (C-612), and the minutes regarding the shareholder’s decision to increase BPV’s share capital dated 9 March 2001 (R-146).⁴⁴⁵ In the Respondent’s view, the non-existence of Corona Resources “inevitably renders its share certificate [...] a forgery. ⁴⁴⁶ The Tribunal considers it unnecessary to take a view on whether or not this statement is correct. The share certificate dated 1 May 1996 says nothing more than that the unnamed bearer of the document owns 100% of the shares in Corona Resources. The document is irrelevant regarding the question what entity owns the shares in BPV.

362. Nor does the shareholder structure of BPV hinge on the authenticity of C-612. It is common ground between the Parties that this agreement has no legal effect because Corona Resources never existed, and the Respondent alleges forgery as an additional reason for this lack of legal effect. As set out in paragraph 358 above, C-612 supports the proposition that in light of the non-existence of Corona Resources, the shares revert back to the Claimant and not to some other, unspecified entity, a theoretical possibility identified by the Respondent. Regarding the documents related to BPV, the Respondent raises its most specific allegations of forgery with respect to C-612. And while the Claimant’s case does not depend on C-612 being part of the record, its case would certainly be undermined if the Tribunal were convinced that this document, which contains Mr. Rotko’s signature, constitutes a forgery prepared at some point between 1 December 2021 and 25 March 2022, as suggested by the Respondent. ⁴⁴⁷ But based on the preponderance of evidence—and under any higher standard of proof that may be applicable regarding accusations of forgery—the Tribunal is not convinced that C-612 is an inauthentic document, for the following reasons.

363. The Respondent emphasizes that the date provided on C-612—that is, 20 November 2000—is inconsistent with Mr. Rotko’s testimony, which reads as follows.

Q. Do you have the agreement by which Corona Resources purchased the shares in BPV?

A. I do not remember. I think we submitted that agreement. It was on the Business Register -- yes, it is there on the Estonian Business Register, so you can take it from there. All the documents are there, they are all filed in the Business Register. I do remember that.

Q. Is it not true, Mr Rotko, that in your second witness statement you said that you were not aware that the Estonian Business Register even existed before this arbitration started?

A. It's not that I was not aware; I didn't use the Business Register. It was all done by my assistant; I did not do that. I do understand it exists now and that something can be taken from there.

Q. Was it you who signed the agreement for the sale of shares in BPV to Corona?

A. I do not remember. I need to look [at] it in the documents.

Q. Do you remember when that could have happened?

A. As far as I can recall, that was in 2001. If my memory serves, around March 2001, if I'm not mistaken.

⁴⁴⁵ 3 November 2021 Submission, ¶¶ 5, 36; 21 April 2022 Submission, p. 3. ↩

⁴⁴⁶ 3 November 2021 Submission, ¶ 5. ↩

⁴⁴⁷ See 21 April 2022 Submission, p. 3: “The Claimant then filed additional documents on 1 December 2021 [...] Had a similar agreement existed between ELA USA Inc as the seller and Corona Resources S.A. as the buyer, the Claimant would no doubt have submitted it." ↩

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Q. How come you remember it so precisely?

A. You know, my memory is a strange phenomenon right now: all of a sudden I can remember something or forget something, and it's out of my control. You know, it's like a flashback. I see a document and I remember: yes, that's it, this is pretty serious. So if I remember something, I do remember it; if not, I ask to look in the documents.

7 Q. So you had a flashback right now concerning the signing of the agreement in March 2001?

A. Yes, I remembered it.

Q. Okay. ⁴⁴⁸

364. In the Tribunal’s view, Mr. Rotko’s recollection of the date of the purported transaction between the Claimant and Corona Resources as well as other facts regarding the agreement between the Claimant and Corona Resources was at best vague. This was the Tribunal’s impression at the oral hearing, and it is confirmed by the verbatim transcript reproduced above. Mr. Rotko could not even remember whether it was him who signed the agreement or someone else ("I do not remember. I need to look [at] it in the documents”).⁴⁴⁹ Nor did Mr. Rotko make a definitive statement regarding the precise date on which the agreement was allegedly concluded (“As far as I can recall, that was in 2001. If my memory serves, around March 2001, if I'm not mistaken”).⁴⁵⁰ In addition, Mr. Rotko stated that the agreement is part of the Estonian Business Register ("yes, it is there on the Estonian Business Register, so you can take it from there. All the documents are there, they are all filed in the Business Register. I do remember that”). ⁴⁵¹ But it seems undisputed between the Parties that the Estonian Business Register does not contain copies of documents, as confirmed by the Claimant after the hearing.⁴⁵² In sum, the Tribunal is unconvinced that the inconsistencies between Mr. Rotko’s recollections and the date provided on C-612 justify the conclusion that the document is forged.

365. Nor is the Tribunal convinced by the other points Respondent raises in support of the alleged inauthenticity of C-612. The Respondent notes that C-612 was signed on behalf of Corona Resources by Mr. Frank Tuuksam, who according to a newspaper article was involved in “a high-tech scheme to steal millions" in the 1990s, and not by Mr. Rotko, allegedly the sole representative of Corona Resources.⁴⁵³ The Tribunal accepts the Claimant’s explanation that Mr. Tuuksam was provided with a temporary power of attorney for that transaction only.⁴⁵⁴ This seems plausible, given that Mr. Rotko signed the agreement on behalf of the Claimant and could

⁴⁴⁸ Hearing Transcript, Day 2, pp. 23:2-24:10. ↩

⁴⁴⁹ Hearing Transcript, Day 2, p. 23:19-20; Hearing Transcript, Day 2, p. 23:22-23. ↩

⁴⁵⁰ Hearing Transcript, Day 2, p. 23:22-23. In the Tribunal’s view, Mr. Rotko’s recollection did not become more precise when asked by Respondent’s counsel whether he "had a flashback right now concerning the signing of the agreement in March 2001" (Hearing Transcript, Day 2, p. 24:7-8). Mr. Rotko replied to this question "Yes, I remembered it". The past tense suggests that Mr. Rotko referred to his earlier statement and did not intend to add precision to his previous testimony. ↩

⁴⁵¹ Hearing Transcript, Day 2, p. 23:4-8. ↩

⁴⁵² 6 May 2022 Submission, ¶ 9. ↩

⁴⁵³ 21 April 2022 Submission, pp. 2-3. ↩

⁴⁵⁴ 6 May 2022 Submission, ¶ 10. ↩

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hardly sign on behalf of both entities. The Tribunal also wishes to note that contacts or dealings with individuals suspected of or convicted for criminal behavior do not mean that Claimant or Mr. Rotko engaged in criminal activities. This is true with respect to both Mr. Tuuksam and Mr. Arrocha Graell, the lawyer hired by the Claimant for the registration of Corona Resources.

366. The Respondent further argues that the date of the purported share transfer from the Claimant to Corona Resources provided in C-612 (that is, 20 November 2000) is inconsistent with the Estonian Commercial Register, which states that Corona Resources was BPV’s shareholder from 1 January 2000. But the Commercial Register itself contains a caveat that it provides data on shareholders for information purposes only.⁴⁵⁵ Furthermore, the Register does not provide a comprehensive history of a company’s shareholder structure. For example, the Commercial Register identifies 10 February 1998 as the date of the first entry regarding BPV but mentions no other shareholder than Corona Resources, who became a shareholder—according to the same excerpt—only on 1 January 2000.⁴⁵⁶

367. Another point raised by the Respondent regarding the alleged inauthenticity of C-612 is that this document provides a different street address of the Claimant in Minneapolis (405 Second Avenue) than other documents (8800 Highway), namely the Claimant’s certificate of incorporation (C-44) and a BPV shareholder list (C-601, p. 2).⁴⁵⁷ This difference does, in the Tribunal’s view, not support the proposition that C-612 was forged. Other documents on file contain the same address of the Claimant in Minneapolis (405 Second Avenue) as C-612, for example BPV’s foundation agreement dated 22 December 1993, and payment orders from the Claimant dated 23 September 1999 and 7 June 2000, all submitted with the Claimant’s Memorial on 30 August 2019.⁴⁵⁸ The explanation for the different addresses seems to be that the 8800 Highway address is not only the address of the registered office of the Claimant provided in its articles of incorporation but also that of the Claimant’s incorporator, Mr. Mark Garbuz.⁴⁵⁹ While the use of the two Minneapolis addresses might not have been fully consistent during the period from 1993 to 2000, this is, in the Tribunal’s view, no reason to assume that C-612 is a forgery.

368. Nor is the Tribunal persuaded by the Respondent’s argument that the lack of a bank or wire transfer from Corona Resources to the Claimant as payment for the shares in BPV speak for the inauthenticity of C-612. The Tribunal has no doubt that, in 2000, Claimant and Corona Resources were fully owned and controlled by Mr. Rotko, even if Corona Resources later turned out to be an invalid company. Hence, the Tribunal accepts the Claimant’s explanation that payment for the shares in BPV occurred through internal bookkeeping transactions. ⁴⁶⁰

⁴⁵⁵ Commercial Register extract of AS BPV (R-012), p. 2. ↩

⁴⁵⁶ Commercial Register extract of AS BPV (R-012), pp. 1-2. ↩

⁴⁵⁷ 21 April 2022 Submission, p. 3. ↩

⁴⁵⁸ BPV Foundation Agreement, 22 December 1993 (C-076); Payment order from ELA USA, to Viktor Kaasik (C-238); Payment order from ELA USA, to Primultini (C-235). ↩

⁴⁵⁹ ELA USA Certificate of Incorporation and Articles of Incorporation, 6 April 1993, sections II and IV (C-044). ↩

⁴⁶⁰ See 6 May 2022 Submission, ¶¶ 11-13. ↩

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369. The Respondent mentions in passing that another document is a forgery: R-146, the 9 March 2001 minutes of Corona Resources (represented by its sole shareholder, Mr. Rotko) to increase the share capital of BPV. No argument is provided as to why that document would be a forgery other than that all documents related to Corona Resources must be a forgery.⁴⁶¹ The Tribunal is not convinced by this proposition, as set out in the paragraphs above regarding C-612.

370. In sum, the Tribunal finds that Claimant owned an investment within the meaning of Article I(1)(a)(iii) of the Treaty in the form of the shares in BPV, as specified in paragraph 357 above, which means that Claimant had held a 40% stake in BPV since 1993 that was increased to 91% by 25 June 1997 and to 100% through an agreement dated 20 October 1999. The Claimant remained BPV’s sole shareholder until the company’s dissolution in 2011.

(II.) Verest

371. The Respondent disputes the Claimant’s (indirect) ownership of the shares in Verest on grounds that were already addressed in the previous subsection, namely the alleged lack of connection between the Claimant and BPV and the non-existence of Corona Resources. ⁴⁶² Based on the findings above, the Tribunal considers that the Claimant indirectly owned all shares in Verest through BPV from 23 September 1999 to 13 September 2010, for the following reasons.

372. It seems undisputed that BPV acquired 100% of the shares in Verest from two individuals on 23 September 1999.⁴⁶³ At that point, Claimant held a 91% stake in BPV, and it acquired the remaining 9% stake through an agreement dated 20 October 1999.⁴⁶⁴ In 2004, BPV sought to transfer its shares in Verest to Corona Resources, but the Parties agree that all transactions involving Corona Resources are void. This means that BPV remained Verest’s sole shareholder until Verest’s dissolution on 13 September 2010. The documentary record confirms this account. The commercial register excerpt of Verest states that Corona Resources acquired all shares in Verest from BPV on 18 June 2004 and held them until 13 September 2010. ⁴⁶⁵

373. The Claimant’s indirect ownership of 100% of the shares in Verest (through BPV) from 23 September 1999 to 13 September 2010 constitutes an investment within the meaning of Article I(1)(a)(iii) of the Treaty.

(III.) Agrin

374. Based on the findings above, the Claimant’s indirect shareholding in Agrin as well as its duration are straightforward. BPV acquired all shares in Agrin on 8 December 1999 and resold them to

⁴⁶¹ 3 November 2022 Submission, ¶ 36. ↩

⁴⁶² See, e.g. 3 November 2022 Submission, ¶ 37. ↩

⁴⁶³ Memorial, ¶ 37 and 3 November 2022 Submission, ¶ 37, both referring to Share Purchase Agreement between BPV and Verest, 23 September 1999 (C-055). ↩

⁴⁶⁴ See ¶ 357 above. ↩

⁴⁶⁵ Commercial Register extract of Verest, 7 December 2018 (R-013). ↩

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Ella Kaubanduse on 22 March 2001.⁴⁶⁶ Since the Claimant fully owned BPV on 8 December 1999, but never owned Ella Kaubanduse, the Claimant (indirectly) held 100% of the shares in Agrin from 8 December 1999 to 22 March 2001. The Claimant held no shares in Agrin beyond 22 March 2001.

(IV.) ELA Tolli

375. The Parties offer two conflicting theories on who owned ELA Tolli given that Corona Resources was non-existent. The Claimant states that, on 1 June 2002, BPV purported to transfer its interest in ELA Tolli to Corona Resources, and because this transaction was invalid, the Claimant continued to own all shares in ELA Tolli through BPV.⁴⁶⁷ According to the Respondent, ELA Tolli never had a different owner other than its founder Mr. Toomas Rinne, who sought to sell ELA Tolli to Corona Resources on 14 November 2000.⁴⁶⁸

376. The Claimant cites Exhibit R-012 in support of its proposition that full ownership of ELA Tolli returns to BPV. ⁴⁶⁹ But R-012 is the commercial register extract of BPV. ELA Tolli is not even mentioned in this extract. The commercial register extract of ELA Tolli (R-014), however, mentions in the section entitled “shareholders” only Corona Resources.⁴⁷⁰ The only other (legal or natural) person listed in the extract as ever having held shares in ELA Tolli is Toomas Rinne. The relevant section states that Mr. Rinne was the “founder of the company" and specifies that he held the same number of shares that was later supposedly transferred to Corona Resources.⁴⁷¹ Therefore, the information provided in the commercial register extracts on file supports the Respondent’s account.

377. The Fourth Expert Report of Mr. Keres contains verbatim the same sentence on the alleged transfer of ownership in ELA Tolli from BPV to Corona Resources as the Claimant’s 1 October 2022 submission, including the (inexplicable) reference to R-012.⁴⁷² During cross-examination, Mr. Keres confirmed that this sentence constitutes merely a factual assumption based on which he rendered his legal opinion. Hence, Mr. Keres’ expert report does not support the proposition that BPV (or the Claimant) ever owned shares in ELA Tolli.

378. Mr. Rotko briefly stated in his second witness statement that “in 2000, the Corporate Group was expanded for the last time when we established another company, ELA Tolli (“Tolli”), as a subsidiary of ELA.”⁴⁷³ But BPV is not mentioned in this context. Nor does Mr. Rotko offer any detail or explanation regarding the alleged parent-subsidiary relationship between the Claimant

⁴⁶⁶ Share Sale Contract between BPV and Alcedo for the sale of Agrin, 8 December 1999 (C-057); Share purchase agreement between BPV and Ella Kaubanduse for the sale of Agrin, 22 March 2001 (R-150). ↩

⁴⁶⁷ 1 October 2021 Submission, ¶ 70; 1 December 2021 Submission, ¶¶ 34-35. ↩

⁴⁶⁸ Counter-Memorial, ¶ 665; 3 November 2021 Submission, ¶ 39. ↩

⁴⁶⁹ 1 October 2021 Submission, ¶ 70; 1 December 2021 Submission, ¶¶ 34-35. ↩

⁴⁷⁰ Commercial Register extract of ELA Tolli, 7 December 2018, p. 2 (R-014). ↩

⁴⁷¹ Commercial Register extract of ELA Tolli, 7 December 2018, p. 3 (R-014). ↩

⁴⁷² Fourth Expert Legal Opinion of Paul Keres dated 30 September 2021, ¶ 63 (CER-8). ↩

⁴⁷³ Second Rotko Statement, ¶ 35 (CWS-2). ↩

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and ELA Tolli. Ms. Kotova was more specific. She testified that ELA Tolli was controlled by the Claimant because ELA Tolli was a “subsidiary" of Corona Resources, which was in turn "simply a holding company, which at all times was controlled by ELA”.⁴⁷⁴ This statement was made prior to the discovery that Corona Resources was not an existing company, but it seems to imply that Corona Resources was indispensable for the parent-subsidiary relationship between the Claimant and ELA Tolli, given that no mention is made of any shareholding in ELA Tolli by BPV.

379. Finally, the Tribunal notes that neither the Claimant nor any of its witnesses commented on Mr. Rinne’s role as founder and former shareholder of ELA Tolli (as per the commercial register), discussed by the Respondent in the Counter-Memorial and the 3 November 2021 Submission.

380. Hence, the Tribunal holds that the Claimant did not establish that it has ever held shares in ELA Tolli, either directly or indirectly. It seems that ELA Tolli never had an owner other than Toomas Rinne.

***

381. Considering the above, the Tribunal finds that the Claimant owned shares qualifying as investments within the meaning of Article I(1)(a)(iii) of the Treaty in BPV (from 1993 until 2011), Verest (from 1999 until 2011), and Agrin (from 1999 until 2001), as specified in paragraphs 357,373, and 374 above. Regarding the extent of the Claimant’s potential investments beyond the ownership of said shares, the Tribunal wishes to emphasize two points.

382. First, it is evident from the wording of Article 1(a) of the Treaty that an investment does not need to be owned and controlled by the Claimant to be protected by the Treaty. Rather, the two elements are disjunctive, that is, ownership or control are sufficient. But this does extend the scope of protection regarding the relevant share here. This is because there are no indications on file that the Claimant controlled BPV, Verest, or Agrin outside the periods in which the Claimant directly or indirectly owned the relevant shares in these companies, or that the Claimant ever controlled ELA Tolli. All entities, including the Claimant, may have belonged to the same corporate group controlled by the same individual, Mr. Rotko. But Mr. Rotko was not a U.S. national when the alleged breaches of the Treaty occurred, nor when the arbitration was commenced in 2018. To the extent that Mr. Rotko owned or controlled Estonian entities directly, or through non-US members of the corporate group, those Estonian entities and the shares therein do not constitute protected investments under the Treaty.

383. Secondly, the Claimant’s share ownership outlined above satisfies the jurisdictional requirement that the Claimant must have owned or controlled an investment within the meaning of the Treaty. But the Tribunal considers it appropriate to analyze what rights and interests invoked by the Claimant in addition to those shares constitute relevant investments. The issues that the Tribunal must address in this context partly overlap with the merits, but the Tribunal considers it unhelpful to wait for the analysis of those issues until a later point in this award. In other circumstances, there may be good reasons to not determine the exact extent of a claimant’s investment(s) at the jurisdictional stage, or to apply only a prima facie test to certain issues. This can be the case in bifurcated proceedings in which a tribunal deciding on its jurisdiction may not have been fully

⁴⁷⁴ Witness Statement of Ms. Olga Kotova dated 29 August 2019, ¶ 10 (CWS-3). ↩

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briefed on issues relevant to both jurisdiction and the merits. No such considerations apply in the present case in which the taking of evidence regarding jurisdiction and the merits has been completed and the Parties have fully argued their respective cases at the Oral Hearing and in their written submissions. Here, determining what rights and interests invoked by the Claimant qualify as investments under the Treaty facilitates and streamlines the Tribunal’s analysis. To provide one example, the Respondent argues (rightly, as will be seen below) that only investments made in compliance with the domestic law of the host State and in good faith are protected by the Treaty. This point can be adequately addressed only if it is clear what rights and interests invoked by the Claimant constitute investments within the meaning of the Treaty.

384. With these observations in mind, that Tribunal will now address the other proprietary and contractual rights for which the Claimant seeks protection, starting with the alleged ownership of buildings and structures.

b) Ownership of the Seaplane Harbor

385. The Claimant states that it (indirectly, through its subsidiaries) owned the "buildings and structures at the Port", ⁴⁷⁵ and that the "uncompensated taking of the Lennusadam Port and Portlands in 2006" entails the Respondent’s liability under the Treaty. ⁴⁷⁶ According to the Respondent, the Claimant’s subsidiaries never acquired title to the buildings and the structures at the port.⁴⁷⁷

i. The Respondent's Position

386. According to the Respondent, none of the transactions relied upon by the Claimant validly transferred title and ownership rights to the Claimant because (i) the USSR never obtained title to any of Estonia’s assets during the Soviet occupation; (ii) any transaction of Estonia’s immovable property by the Soviet military to third parties were illegal under international law; (iii) such illegal transactions were consequently void under Estonian law; (iv) any subsequent transactions by non-owners of the property did not create ownership rights under Estonian law.

387. First, the Respondent contends that the USSR did not obtain title to any of Estonia’s assets, including the property at the Seaplane Harbor, as a result of occupation because the USSR was “merely an administrator, not the sovereign, of the occupied land.”⁴⁷⁸ Due to the unlawful nature

⁴⁷⁵ Memorial, ¶¶ 49, 73-74; Reply, ¶ 793. ↩

⁴⁷⁶ Reply, ¶¶ 890-891. ↩

⁴⁷⁷ Counter-Memorial, ¶¶ 64-144. ↩

⁴⁷⁸ Counter-Memorial, ¶ 152. See also Counter-Memorial, ¶¶ 151-153, referring to Eyal Benvenisti, The International Law of Occupation (2^nd ed., OUP, 2004), p. 6 (RLA-042); U.S. Department of the Army Field Manual 27-10, The Law of Land Warfare (1956), ¶ 358 (CLA-158); Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, I.C.J. Reports 1971, ¶ 118 (CLA-160). ↩

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of the Soviet occupation achieved by way of the use of force, the Respondent posits that the USSR could not have enjoyed the rights for certain assets as an occupier under the Hague Regulations.⁴⁷⁹

388. Moreover, the Respondent rejects the Claimant’s proposition that the Transfer Instruments signed in 1940 resulted in a transfer of title of the Seaplane Harbor to the Soviet military. ⁴⁸⁰ According to the Respondent, the recitals of the Transfer Instruments state only that the assets listed therein were "taken compulsorily for use for the purposes of the military” without referring to the transfer of ownership of the assets. ⁴⁸¹ As such, the Respondent asserts that the USSR never legally acquired any title to the Seaplane Harbor and could not conclude transactions with private companies after Estonia gained independence. ⁴⁸²

389. Secondly, the Respondent argues that even if the Soviet occupation were deemed legal, and as a result, the USSR could enjoy in full the rights of the occupier stemming from the Hague Regulations, the Soviet military could not validly sell the buildings at the Seaplane Harbor under Article 53 of the Hague Regulations. ⁴⁸³ This is because the current dispute concerns only objects or structures attached to the land, which do not constitute “movable property" or "means of transport" as stipulated in Article 53 of the Hague Regulations.⁴⁸⁴ Referring to the dictionary meaning of “movable property,” the Respondent asserts that real estate and other permanent structures that are fixed to the ground cannot be considered “movable objects.”⁴⁸⁵ The Respondent likewise contends that an immovable structure, like a port, cannot be considered "means of transport" because the ordinary meaning of the term includes only “vehicles [...] used for transportation that are not physically attached to the ground, such as cars, ships, airplanes and trains."⁴⁸⁶

390. Further, the Respondent points to Article 55 of the Hague Regulations, which specifically refers to the rights of an occupier as to the "buildings” and the “real estate” in the occupied territory which, in the Respondent’s view, are “clearly differentiated from 'movable property' of Article 53.⁴⁸⁷ The understanding that Article 53 of the Hague Regulations applies to “movable property" while Article 55 applies to immovable property is further confirmed, according to the Respondent, by the study on customary international humanitarian law conducted by the

⁴⁷⁹ Counter-Memorial, ¶¶ 154-156, referring to Mälksoo Report, ¶¶ 13-21 (RER-3). ↩

⁴⁸⁰ Counter-Memorial, ¶ 157, referring to Instrument of Transfer dated 22 June 1940 (C-192); Instrument of Transfer dated 18 July 1940 (C-193); Inventory/Assessment List dated 8 July 1940 (C-194). ↩

⁴⁸¹ Counter-Memorial, ¶¶ 157-158 (emphasis added by the Respondent). ↩

⁴⁸² Statement of Defense, ¶ 34; Counter-Memorial, ¶¶ 150, 159. ↩

⁴⁸³ Counter-Memorial, ¶ 160. ↩

⁴⁸⁴ Counter-Memorial, ¶ 161, 173, citing Hague Regulations, Article 53 (CLA-062). ↩

⁴⁸⁵ Counter-Memorial, ¶¶ 162-163, citing “Movable property", Cambridge English Dictionary (2020), accessed in March 2020 (RLA-044). ↩

⁴⁸⁶ Counter-Memorial, ¶ 164, referring to “Means of transport", Collins English Dictionary (2020), accessed in March 2020 (RLA-045). ↩

⁴⁸⁷ Counter-Memorial, ¶ 166, citing Hague Regulations, Article 55 (CLA-062). ↩

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International Committee of the Red Cross (the “ICRC”), several military manuals which the ICRC has taken into account as proof of customary law, and by scholars of the field. ⁴⁸⁸

391. The Respondent also rejects the Claimant’s proposition that buildings should be considered movables under Article 53 of the Hague Regulations because they were, for a limited time, considered legally equivalent to movable property under domestic law. ⁴⁸⁹ For the Respondent, the terms in Article 53 of the Hague Regulations have independent meanings, which should be interpreted pursuant to the Vienna Convention on the Law of the Treaties (the “VCLT”), rather than by domestic law.⁴⁹⁰ In any event, the Respondent clarifies that section 13(a) of the Law of Property Act Implementation Act (the “LPAIA") was a "peculiarity during the transitional period," as acknowledged by the Claimant’s expert and was never meant to reflect the actual legal definition of "buildings” in Estonia.⁴⁹¹

392. Furthermore, the Respondent argues that the Seaplane Harbor could not be sold under Article 55 of the Hague Regulations because the provision limits the rights of an occupier to those of an "administrator and usufructuary of the public buildings.”⁴⁹² According to the Respondent, it is clear from the legal authorities that the right to act as an administrator and usufructuary includes only the right to use the immovable property and to receive, sell or dispose of the proceeds, i.e., "the title to fruits of an immovable.”⁴⁹³ Conversely, the Respondent asserts that none of the authorities indicate that the occupying power has the right to sell the buildings or that the specific nature of the building or the length of occupation justifies the extension of the rights therein.⁴⁹⁴ In particular, the Respondent refutes the claim that an ultra vires sale, even if in direct contravention of the Hague Regulations, is protected under international law.⁴⁹⁵

393. According to the Respondent, the Estonian courts similarly reasoned that Estonia did not legally cease to exist during the Soviet occupation and that the transactions of the military property

⁴⁸⁸ Counter-Memorial, ¶¶ 170-172, referring to Customary International Humanitarian Law Database of the International Committee of the Red Cross, Rule 51 (RLA-046); UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), p. 304 (CLA-153); U.S. Department of Defense, Law of War Manual, June 2015, p. 793 (CLA-154); U.S. Department of the Army Field Manual 27-10, The Law of Land Warfare (1956), ¶¶ 403-404 (CLA-158). ↩

⁴⁸⁹ Counter-Memorial, ¶ 167. ↩

⁴⁹⁰ Counter-Memorial, ¶ 167, referring to LPAIA (CLA-189). ↩

⁴⁹¹ Counter-Memorial, ¶ 168, citing Second Legal Opinion of Paul Keres dated 23 August 2019 (“Second Keres Report"), ¶ 40 (CER-2). ↩

⁴⁹² Counter-Memorial, ¶¶ 174-175, citing Hague Regulations, Article 55 (CLA-062). ↩

⁴⁹³ Counter-Memorial, ¶¶ 176-180, 182, referring to Customary International Humanitarian Law Database of the International Committee of the Red Cross, Rule 51(b) (RLA-046); Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), pp. 214-215, 219 (RLA-047); Dieter Fleck (ed), The Handbook of International Humanitarian Law, (OUP, 2013), pp. 292-293 (RLA-048); U.S. Department of Defense, Law of War Manual, June 2015, p. 792 (CLA-154); UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), p. 303 (CLA-153). ↩

⁴⁹⁴ Counter-Memorial, ¶¶ 179, 181. ↩

⁴⁹⁵ Rejoinder, ¶ 92. ↩

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belonging to Estonia concluded by the Soviet military were, therefore, illegal pursuant to Article 55 of the Hague Regulations.⁴⁹⁶

394. In respect of Soviet law, the Respondent maintains that the transactions concluded by the Soviet military with GT, Nautex and B&E were also "illegal and impossible," given that (i) Soviet law did not recognize the concept of private property until 31 May 1991; (ii) all military assets were considered State property, which could not be alienated; and (iii) any transfer of the military assets required express approval from the Ministry of Defense of the USSR, which the Soviet military lacked in concluding the transactions at issue.⁴⁹⁷ The Respondent further argues that even if the transactions had not contravened Soviet law, “it was impossible to assume at the time that it was safe and legitimate to buy real estate from the Soviet military" since by March 1990, it was clear that the occupation regime was about to end.⁴⁹⁸

395. In response to the Claimant’s claim that it was the ESSR, and not the Soviet military, that entered into the alleged sales transactions, the Respondent contends that the ESSR never had authority over military assets in its territory and that the ESSR, in any event, was not a precursor to the independent Estonian State, but was a “collective designation of the Soviet government apparatus on Estonia’s territory.”⁴⁹⁹

396. Thirdly, the Respondent posits that the transactions concluded by the Soviet military with GT and B&E were illegal pursuant to the domestic legislation of Estonia adopted during the transitional period. ⁵⁰⁰ In this respect, the Respondent rejects the Claimant’s argument that Estonian domestic law is irrelevant because the arbitration is governed by international law. ⁵⁰¹ In the Respondent’s view, the determination of ownership rights is a question of domestic law, in particular, when dealing with the validity of real estate transactions with private companies.⁵⁰²

397. The Respondent emphasizes that while it was not necessary for Estonia to declare transactions that were already illegal under international law additionally illegal by virtue of domestic law, Estonia (i) adopted domestic legislation that underscored the illegality of transacting with the departing occupation forces and (ii) established a registration system that provided an opportunity to legalize some transactions concluded with the Soviet military on a case-by-case basis. ⁵⁰³ The

⁴⁹⁶ Counter-Memorial, ¶ 215, referring to July 2005 Judgment, ¶¶ 2, 4, 10 (C-078); December 1994 Supreme Court Judgment, pp. 2-3 (CLA-191). ↩

⁴⁹⁷ Counter-Memorial, ¶¶ 140-144, 242; Rejoinder, ¶ 93; Expert Opinion of Dr. Sergey Petrachkov dated 10 March 2020, amended on 18 June 2020 (“Petrachkov Report"), ¶¶ 27-33, 55-79, 123, 126, 156 (RER-2). See also Hearing Transcript, Day 1, pp. 99:22 – 100:6. ↩

⁴⁹⁸ Rejoinder, ¶ 94. See also Counter-Memorial, ¶¶ 236-243. ↩

⁴⁹⁹ Rejoinder, ¶ 89; Petrachkov Report, ¶¶ 27-35, 59-75, 156 (RER-2). ↩

⁵⁰⁰ Counter-Memorial, ¶¶ 184, 471. See Section III.C above. ↩

⁵⁰¹ Rejoinder, ¶ 105. ↩

⁵⁰² Counter-Memorial, ¶ 197; Rejoinder, ¶ 106. ↩

⁵⁰³ Counter-Memorial, ¶¶ 184-185; Rejoinder, ¶¶ 96-97, referring to Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195); 19 December 1990 Resolution (CLA-196); Regulation No. 244 (CLA-197); 24 July 1992 Regulation (C-198). See also Hearing Transcript, Day 1, pp. 101:23 – 102:5. ↩

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Respondent points out that none of the transactions to which the Claimant traces its rights at the Seaplane Harbor were submitted for registration in accordance with the relevant legislation (that is, Resolutions Nos. 244 and 215).⁵⁰⁴

398. Addressing the Claimant’s assertion that the 23 January 1992 Resolution was retroactively applied, the Respondent states that neither the Estonian courts nor the Respondent in this arbitration relied on the said Resolution to decide or reason that the transactions concluded by B&E and GT were illegal under Estonia’s domestic law.⁵⁰⁵ Rather, the relevant transactions were illegal on the basis of international law and remained illegal because they were not submitted for re-registration. ⁵⁰⁶ Furthermore, the Respondent states that the Tallinn City Court, in its July 2005 Judgment, mentioned the January 1992 Resolution not in its analysis of the legality of the relevant transactions but as part of the general historical background set out earlier in the judgment. ⁵⁰⁷ The Respondent adds that the ESSR resolutions of 17 July 1990 and 19 December 1990, which suspended transactions with State property and declared the disposals of property by the Soviet military unlawful, were adopted before GT and Nautex concluded their sales transactions (on 17 August 1991).⁵⁰⁸ As such, the Respondent is of the view that the transactions between GT and Nautex would not have been possible already in light of the two resolutions. ⁵⁰⁹

399. Accordingly, the Respondent posits that the transactions with the Soviet military concluded in violation of Estonian law were void pursuant to sections 51(1) and 62(1) of the 1965 Civil Code of Estonia since "[a]ny transaction concluded in violation of law is invalid" and is "deemed

⁵⁰⁴ Counter-Memorial, ¶¶ 195-196, 471(ii); Rejoinder, ¶¶ 96, 97(iii), 101. The Respondent submits that it "took a simplified approach in these proceedings that essentially there had been two instances for the Claimant's predecessors to submit their alleged transactions for registration.” See Respondent's Answers to Tribunal Questions, ¶ 35. In any event, the Respondent takes the view that the registrations could not have occurred, given that the contracts were most likely forged at a much later date to create a legal basis for the Claimant's presence during the Estonian court proceedings. See Statement of Defense, ¶ 37; Second Keres Report, ¶ 46 (CER-2); Counter-Memorial, ¶ 196. ↩

⁵⁰⁵ Counter-Memorial, ¶ 217, referring to July 2005 Judgment, ¶¶ 4-5, 10 (C-078); Rejoinder, ¶¶ 98-100, referring to May 2002 Appeal Judgment (C-191); Tallinn City Court, Case No. 2/23-7262/02, Judgment, 4 July 2005 (C-078); March 2006 Appeal Judgment, pp. 38-42 (C-081). See also 3 November 2021 Submission, ¶¶ 22-23. ↩

⁵⁰⁶ Rejoinder, ¶¶ 100-101. ↩

⁵⁰⁷ Rejoinder, ¶ 99(ii). According to the Respondent, the Tallinn Circuit Court agreed with the Tallinn City Court on questions of transitional law without repeating its analysis (Rejoinder, ¶ 99(iii)). ↩

⁵⁰⁸ Counter-Memorial, ¶¶ 221-223, referring to Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195); Rejoinder, ¶ 97(ii), referring to Contract No. 16 (C-023 / R-036); Sale agreements between GT and Nautex, 17 August 1991 (R-048). ↩

⁵⁰⁹ Rejoinder, ¶ 98. ↩

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invalid as of its inception.”⁵¹⁰ In the Respondent’s view, there is no basis for Estonia to uphold the transactions, which were concluded in bad faith as an attempt to benefit in uncertain times. ⁵¹¹

400. Fourthly, given that the initial transactions allegedly concluded by the Soviet military with GT and B&E were illegal and void as analyzed above, the Respondent avers that none of the subsequent transactions involving Nautex, Verest and Agrin could have legal effect and transfer title of the buildings at the Seaplane Harbor. ⁵¹² This is because, according to the Respondent, under section 156(1) of the 1965 Civil Code,⁵¹³ it was impossible to acquire property in good faith if the owner had lost possession against its will.⁵¹⁴ Thus, with respect to the Seaplane Harbor, the owner of the Seaplane Harbor—the State of Estonia—had the right to reclaim its ownership that was "dispossessed from them against their will” under the threat of military force. ⁵¹⁵ In the same vein, the Respondent advances that the 26 September 1997 contract between B&E and Agrin could not create property rights to buildings at the Seaplane Harbor under section 95(3) of the Law of Property Act because they were “stolen, lost or dispossessed in any other manner from the owner against the will of the owner.”⁵¹⁶

401. The Respondent further emphasizes that none of the subsequent transactions involving Nautex, Verest and Agrin were concluded in good faith because:

(a) the sellers and the buyers in the chain of transactions were managed and controlled by the same persons, namely Mr. Marko Purru, who signed the contract with the Soviet military on behalf of GT and the contract with Verest on behalf of Nautex, as well as Mr. Dimitri Sukortsev, who signed the contract with GT on behalf of the Soviet military and later became a member of the management board and a shareholder of Verest;⁵¹⁷

(b) the 26 September 1997 contract with Agrin directly referred to Certificate No. 8395 issued by the Tallinn Building Register, which indicated that the buildings had been previously used by Military Factory No. 84;⁵¹⁸ and

⁵¹⁰ Counter-Memorial, ¶¶ 199, 228, citing Civil Code, sections 51(1), 62(1) (RLA-051); Rejoinder, ¶ 104. The Respondent notes that these provisions of the Civil Code concerning the validity of transactions were left in force by Estonia until 1 September 1994 when the all-new Civil Code Act entered into force. See Counter-Memorial, ¶ 198. ↩

⁵¹¹ Counter-Memorial, ¶¶ 231-232, 234-240. ↩

⁵¹² Counter-Memorial, ¶¶ 200-201; Rejoinder, ¶ 107. ↩

⁵¹³ The Respondent states that the 1965 Civil Code was the applicable law when the sale agreements were concluded as the Property Law Act of Estonia had not yet entered into force. See Counter-Memorial, ¶ 202. ↩

⁵¹⁴ Rejoinder, ¶ 107. ↩

⁵¹⁵ Counter-Memorial, ¶¶ 202-203, citing Civil Code, section 156(1) (RLA-051). See also Counter-Memorial, ¶¶ 331-337. ↩

⁵¹⁶ Counter-Memorial, ¶¶ 207-208, citing Law of Property Act, 9 June 1993, section 95 (RLA-052). ↩

⁵¹⁷ Counter-Memorial, ¶ 205, referring to Contract between Military Unit No. 1176 and GT, 17 August 1991 (C-025); Sale Agreement between Nautex and Verest, 7 May 1992 (C-027). ↩

⁵¹⁸ Counter-Memorial, ¶ 210, referring to Certificate No. 8395 of Tallinn Building Register issued to B&E, 16 September 1997 (C-036). ↩

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(c) Mr. Enn Laanso, who represented Agrin, had been an advisor to the Ministry of Justice of Estonia in relation to the Seaplane Harbor and thus should have known that the Estonian State was claiming ownership in regard to the Seaplane Harbor. ⁵¹⁹

402. In light of the foregoing, the Respondent maintains that the Claimant has failed to prove the chain of titles with respect to the Seaplane Harbor nor has it demonstrated that the Claimant and its predecessors had ownership rights of the buildings and structures therein under both international and domestic law. ⁵²⁰

ii. The Claimant's Position

403. Emphasizing that this arbitration is governed by international law, the Claimant rejects the claim that the validity of its transactions involving the property rights of the Seaplane Harbor taken by third parties in good faith during and after occupation should be determined by Estonian domestic law, especially in the context of a long-term occupation.⁵²¹ Therefore, the Claimant argues that (i) the sale of the military property at the Seaplane Harbor during the occupation period were permitted under the Hague Regulations; ⁵²² and (ii) in any event, international law necessitates that transactions taken by the Claimant in good faith must be given legal effect post-occupation, even if the transactions were deemed illegal under the law of occupation. ⁵²³

404. The Claimant raises doubts regarding the applicability of the Hague Regulations because, in its view, the issue of whether Estonia was under military occupation is a “contentious" one. ⁵²⁴ To the extent that the ESSR had its own government and foreign policy, “the provisioning of the allied Soviet military personnel in Estonia would not constitute an occupation.”⁵²⁵ The Claimant asserts that if there was a military occupation in Estonia, the military installation at the Seaplane Harbor was transferred to the Soviet armed forces in 1940 by the Transfer Instruments and that the Soviet armed forces held an interest in the Seaplane Harbor before selling it to private

⁵¹⁹ Counter-Memorial, ¶ 209. ↩

⁵²⁰ Counter-Memorial, ¶ 148; Rejoinder, ¶¶ 66, 71. ↩

⁵²¹ Reply, ¶¶ 24-26, 1028-1029. ↩

⁵²² Memorial, ¶¶ 297-298. ↩

⁵²³ Memorial, ¶ 304; Reply, ¶ 30. ↩

⁵²⁴ Reply, ¶ 1030. The Claimant notes that the issue of whether the law of occupation applies to Estonia is contentious since, to the extent that the ESSR was a State, the provisioning of the allied Soviet military personnel in the State of ESSR would not constitute an occupation. With respect to transitional property questions, the Claimant relies on Professor Crawford's reference to the UK High Court decision in Jaakson and Roos that “in 1940 Estonia was annexed by the USSR [...] and Estonia had become part of the USSR de facto" and that “the Republic of Estonia as constituted prior to June 1940, has ceased de facto to have any existence.” The Claimant states that the Hague Regulations are, in any event, part of the domestic law of Estonia because they are customary international law. See Memorial, ¶ 278; Reply, ¶¶ 1030-1036, referring to James Crawford, Creation of States in International Law (OUP, 2015), pp. 393-394, 689-690 (CLA-162); Re an Application by Ernst Jaakson & Aarand Roos, 85 ILR 53 (English High Court, 1990), pp. 54, 57 (CLA-307). See also Second Keres Report, ¶ 37 (CER-2); Kristen E. Boone, ‘Obligations of the New Occupier: The Contours of a Jus Post Bellum' (2008) Vo. 31(2), Loyola of Los Angeles International and Comparative Law Review, p. 109 (CLA-281). ↩

⁵²⁵ Reply, ¶ 1030. ↩

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companies. ⁵²⁶ The Claimant further advances that the end of the occupation would have occurred in 1995, one year after the date when the Soviet military withdrew its forces from the territory on 1 June 1994, pursuant to Article 6(3) of the Fourth Geneva Convention.⁵²⁷ The Claimant argues that the Soviet military was entitled to use, deplete, or dispose of the Seaplane Harbor and its facilities during the occupation pursuant to the Hague Regulations. ⁵²⁸

405. Considering a port as an integral part of a “means of transport,” the Claimant maintains that the Soviet military was entitled to use, deplete, or dispose of the Seaplane Harbor and its facilities for military purposes during occupation pursuant to Article 53 of the Hague Regulations. ⁵²⁹ In particular, the Claimant considers that the transactions of the Seaplane Harbor by Soviet military to private parties during occupation were lawful when (i) the majority of the facilities was transferred to SEK pursuant to Decree No. 477 on 29 December 1989 and then to B&E following SEK’s liquidation and (ii) the remaining assets that were not transferred to SEK were sold to GT, Nautex, and then to Verest in 1992.⁵³⁰

406. In respect of Article 55 of the Hague Regulations, the Claimant notes that the provision imposes no limitations on the purposes of the disposal of the proceeds of exploitation of the public property. ⁵³¹ In the context of a prolonged occupation, the Claimant posits that international law recognizes the occupier’s authority to exploit public property and to "encroach on the 'principal'" to enhance and maintain infrastructure for the purpose of satisfying the needs of the people of the occupied territory. ⁵³² Therefore, for the Claimant, the decision by the ESSR to privatize the Seaplane Harbor, which was in need of capital improvement, during the military occupation was justified as the action resulted in the betterment of the residents in the occupied territory. ⁵³³

407. The Claimant rejects the Respondent’s analysis that the legality of the transactions concluded by the Soviet military and by the Claimant’s predecessors must be determined by domestic law. ⁵³⁴ To the extent that the transactions concluded during the occupation are “a historical fact,”⁵³⁵ the Claimant stresses that international law principles require the Respondent to respect and protect

⁵²⁶ Memorial, ¶¶ 253, 275, 316, referring to Instrument of Transfer dated 22 June 1940 (C-192); Instrument of Transfer dated 18 July 1940 (C-193). ↩

⁵²⁷ Reply, ¶¶ 1047-1050, referring to Mälksoo Report, ¶ 21 (RER-3); Dana Wolf, Transitional Post-Occupation Obligations under the Law of Belligerent Occupation (2018), pp. 18, 54 (CLA-285). ↩

⁵²⁸ Memorial, ¶¶ 284, 286, 296-297, citing Hague Regulations, Article 53 (CLA-062). ↩

⁵²⁹ Memorial, ¶¶ 284, 286, 296-297, citing Hague Regulations, Article 53 (CLA-062). ↩

⁵³⁰ Memorial, ¶¶ 253, 259, 316, referring to Decree 477 establishing SE SEK, 29 December 1989 (C-018). See Second Keres Report, ¶ 61 (CER-2). See also Section III.D.1.b) above. ↩

⁵³¹ Reply, ¶ 1054, ↩

⁵³² Memorial, ¶¶ 289-293, 295, 298-301, referring to Eyal Benvenisti, The International Law of Occupation (OUP, 2015), pp. 81-82 (CLA-204); Opinion of Advocate General in Western Sahara Case C-266/16, ¶ 268 (CLA-147); Reply, ¶¶ 1055-1057. See also Kristen E. Boon, Obligations of the New Occupier: The Contours of a Jus Post Bellum, Loyola of Los Angeles International and Comparative Law Review, Vol. 31, No. 2 (2008), p.110 (CLA-281). ↩

⁵³³ Memorial, ¶ 321. ↩

⁵³⁴ Reply, ¶ 26. ↩

⁵³⁵ Reply, ¶ 23. ↩

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the rights acquired from transactions entered into in good faith during the occupation period.⁵³⁶ According to the Claimant, such obligation to give effect to the facts and the legal situations arising from the acts created during occupation emerges from the principles of legal certainty and ex factis jus oritur (“law arises from the facts") regardless of their validity under domestic or international law.⁵³⁷ It is this legal certainty, the Claimant underlines, that safeguards the rights and interests of the occupied, who relied in good faith on the legal system and developed expectations based on the norms the system had produced. ⁵³⁸

408. Conversely, the Claimant considers that the application of the ex injuria jus non oritur (“unjust acts cannot create law") principle in the context of the Soviet occupation of Estonia would "produce illogical if not 'undesirable consequences" and be “equated to 'denying reality' by ‘Utopians.”⁵³⁹ In this respect, the Claimant agrees with Judge Dillard that “it would be too harsh to punish the occupied for the wrongs done by the occupiers.”⁵⁴⁰

409. In support of its contention, the Claimant refers to cases in which contracts, ⁵⁴¹ wills, ⁵⁴² judgments, ⁵⁴³ and a co-operative society from an occupation era, ⁵⁴⁴ all of which did not meet the formal requirements of the post-occupation legal acts, were nonetheless upheld by the domestic courts on similar grounds to the ex factis principle. ⁵⁴⁵ Relying on Professor Mälksoo’s commentary on the Soviet annexation, the Claimant underscores that the same principle was "especially relevant to the transfer of both property and sovereign authority to the Baltic states,

⁵³⁶ Reply, ¶ 1059. ↩

⁵³⁷ Memorial, ¶ 326; Reply, ¶¶ 1059, 1062-1063, 1105. See also Janusz Symonides, 'Acquisitive Prescription in International Law' (1970) Vol. 3, Polish Yearbook on International Law, p. 119 (CLA-278). ↩

⁵³⁸ Reply, ¶¶ 1073, 1075-1079, 1105, 1109. See also Reply, ¶¶ 1106-1108, 1110; Christopher R. Rossi, 'Ex Injuria Jus Non Oritur, Ex Factis Jus Oritur, and the Elusive Search for Equilibrium After Ukraine' (2015) Vo. 24(1), Tulane Journal of International and Comparative Law, pp. 151-153 (CLA-276); Lauri Mälksoo, Illegal Annexation and State Continuity: The Case of the Incorporation of the Baltic States by the USSR (Martinus Nijhoff Publishers, 2003), pp. 324-327 (CLA-291). See also Hearing Transcript, Day 1, pp. 45:15 – 46:10. ↩

⁵³⁹ Reply, ¶¶ 1066, 1077, citing Lauri Mälksoo, Illegal Annexation and State Continuity: The Case of the Incorporation of the Baltic States by the USSR (Martinus Nijhoff Publishers, 2003), pp. 196-197 (CLA-291); Christopher R. Rossi, 'Ex Injuria Jus Non Oritur, Ex Factis Jus Oritur, and the Elusive Search for Equilibrium After Ukraine' (2015) Vo. 24(1), Tulane Journal of International and Comparative Law, p. 153 (CLA-276). ↩

⁵⁴⁰ Memorial, ¶ 307, referring to Separate Opinion of Judge Hardy Dillard, Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), I.C.J. Advisory Opinion, p. 167 (CLA-161). ↩

⁵⁴¹ Reply, ¶¶ 1082-1086, referring to B v. T, 24 ILR 962 (Poland Supreme Court), pp. 963, 965 (CLA-297). See also Reply, fn. 1121. ↩

⁵⁴² Reply, ¶ 1087, referring to In re P. (Komotini Case), 15 ILR 566 (Greece, Court of First Instance of Phodope, 1948), pp. 556-557 (CLA-303). ↩

⁵⁴³ Reply, ¶¶ 1088-1090, referring to Endricci v. Eisenmayer, 15 ILR 365 (Italy, Court of Appeal of Trent, 1949) (CLA-304); Hungarian Soviet Government (Confiscation of Property) Case, 1 ILR 56 (Austria, Supreme Court of Civil Matters, 1922), pp. 56-57 (CLA-300). ↩

⁵⁴⁴ Reply, ¶¶ 1091-1093, referring to Expropriation of Sudeten-German Co-operative Society Case, 24 ILR 35 (German Federal Republic, Federal Supreme Court, 1957), pp. 35-36 (CLA-302). ↩

⁵⁴⁵ See also Reply, ¶¶ 1103-1104. ↩

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struggling to establish effective governments and economics after 50 years of effective control by the USSR." ⁵⁴⁶ According to the Claimant, a similar approach was indeed extended to the regulation of property rights by the Turkish-Cypriot administration, by the Venice Commission, as well as by the European Court of Human Rights, which recognized the rights of the inhabitants under the de facto authorities, including “the right to peaceful enjoyment of one’s possession" and the necessity for the post-occupation regimes to find regulations balancing the interests of the old and the potential new owners.⁵⁴⁷

410. Accordingly, the Claimant contends that the Respondent is required to provide legal certainty and ex factis respect for the property rights at the Seaplane Harbor, which the private parties (the Claimant’s predecessors) acquired in good faith under the legal measures in force during the occupation. ⁵⁴⁸ On this basis, the Claimant argues that the Respondent cannot nullify the transactions of these “innocent parties" taken in conformity with the underlying laws and regulations of the occupier.⁵⁴⁹

411. In any event, the Claimant submits that neither the 17 July 1990 Resolution nor the 23 January 1992 Resolution were applicable to Contract No. 16 to render B&E’s acquisition of the assets invalid under Estonian law, as Contract No. 16 pre-dated the two Supreme Council resolutions. ⁵⁵⁰ In support of its contention, the Claimant relies on two letters issued by the Government Office, which confirmed that the Seaplane Harbor was not public property, that B&E acquired the buildings and structures at the Seaplane Harbor "on the basis of a valid contract for purchase and sale," that the two Supreme Council resolutions did not have retroactive effect, and that the information in the Tallinn Building Register regarding B&E’s possessory rights at the Seaplane Harbor was correct.⁵⁵¹ B&E’s transfer of property to Agrin, according to the Claimant, was also outside the scope of the 23 January 1992 Resolution because the assets were controlled by B&E, a private party, from 22 May 1990.⁵⁵²

412. In response to the Respondent’s argument that the 23 January 1992 Resolution was not relevant to the Estonian court decisions, the Claimant relies on Mr. Keres’ review of the court file that "the only way in which the courts could have come to their conclusions about the status of the

⁵⁴⁶ Reply, ¶¶ 1110-1111, referring to Lauri Mälksoo, Illegal Annexation and State Continuity: The Case of the Incorporation of the Baltic States by the USSR (Martinus Nijhoff Publishers, 2003), p. 194 (CLA-291). ↩

⁵⁴⁷ Memorial, ¶¶ 312-313, referring to European Court of Human Rights, Grand Chamber Decision as to the Admissibility of Application No. 46113/99, 1 March 2020, ¶¶ 84-85 (CLA-165); Venice Commission, Opinion No. 516/2009, CDL-AD (2009)015, 17 March 2009, ¶¶ 24-25 (CLA-166); Reply, ¶¶ 1098-1097, referring to Hesperides Hotels Ltd v. Aegean Turkish Holidays Ltd [1978] Q.B. 206 (CLA-163). ↩

⁵⁴⁸ Memorial, ¶ 323; Reply, ¶¶ 1120, 1123. See also Reply, ¶ 1121, referring to Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, I.C.J. Reports 1971, ¶ 125 (CLA-160). ↩

⁵⁴⁹ Memorial, ¶ 308; Reply, ¶ 1119. ↩

⁵⁵⁰ Reply, ¶ 354, referring to Contract No. 16 (C-023 / R-036). ↩

⁵⁵¹ Reply, ¶¶ 345-353, citing Letter from Government Office to Tallinn Building Register Municipal Enterprise, 2 June 1995 (C-306); Letter from the State Chancellery to the Ministry of Justice, 8 November 1995 (C-307). See also Hearing Transcript, Day 1, p. 39:7-15. ↩

⁵⁵² Reply, ¶ 356, referring to 23 January 1992 Resolution (C-197); Third Keres Report, ¶¶ 214-215 (CER-4). ↩

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Lennusadam Port is if the courts gave retroactive effect to the 23 January 1992 Resolution.”⁵⁵³ In this respect, the Claimant highlights that the 23 January 1992 Resolution was indeed cited by the Estonian courts and relied upon by Estonia in the court proceedings. ⁵⁵⁴

413. In light of the above, given that (i) Estonia recognized private rights at the port after the end of the USSR and the withdrawal of the Soviet military forces,⁵⁵⁵ and (ii) Agrin and Verest purchased property interests arising from earlier transactions taken in accordance with the laws in force during the occupation; and (iii) Estonia’s repeatedly recognized the private possessory rights at the Seaplane Harbor after 1994,⁵⁵⁶ the Claimant argues that it is neither practical nor fair to erase all practical consequences of a long-term occupation. ⁵⁵⁷

iii. The Tribunal's Analysis

414. The Tribunal has no doubt that land, buildings, or structures owned by the Claimant’s subsidiaries would constitute investments within the meaning of Article I(1)(a)(i) of the Treaty, that is "property" indirectly “owned" by the Claimant. The Parties rely on several legal regimes regarding the transfer and ownership of property—namely international law, Soviet law, and Estonian law. According to the Claimant, issues of ownership in this arbitration are governed by international law, and not domestic law.⁵⁵⁸ The Respondent states that the initial transactions between the Soviet military and private parties were illegal under international law,⁵⁵⁹ and that the subsequent transfers of ownership to the Claimant’s subsidiaries were invalid under Estonian law. ⁵⁶⁰ Against this background, the Tribunal considers it necessary to first comment on the law that is applicable regarding issues of property and ownership in this arbitration.

(1.) The Applicable Law

415. The Treaty lists “tangible and intangible property" within the non-exhaustive enumeration of assets in Article I(1)(a) that may qualify as protected “investment in the territory" of the host State but it does not define the term “property". It is to state the obvious that the Treaty must be interpreted in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose, as set out and reflected in Article 31 VCLT.

416. The Treaty does not contain a general provision regarding the applicable law, nor does it specify what rules govern the issue of whether a foreign investor owns "property". In other contexts, however, the Treaty provides guidance on the applicable law. Disputes between the State parties

⁵⁵³ 1 October 2021 Submission, ¶ 30, citing Fourth Keres Report, ¶¶ 47-49 (CER-8). See also Hearing Transcript, Day 5, p. 51:20-25. ↩

⁵⁵⁴ 1 December 2021 Submission, ¶¶ 79-81. ↩

⁵⁵⁵ Reply, ¶ 90. ↩

⁵⁵⁶ Reply, ¶¶ 33, 286-352, 1227-1262; Third Keres Report, ¶¶ 128-143 (CER-4). See also Letter from the State Chancellery to the Ministry of Justice, 8 November 1995 (C-307). ↩

⁵⁵⁷ Memorial, ¶¶ 19, 21, 263, 265; Reply, ¶¶ 1094-1124. ↩

⁵⁵⁸ Reply, ¶ 26. ↩

⁵⁵⁹ Counter-Memorial, ¶ 145. ↩

⁵⁶⁰ Counter-Memorial, ¶¶ 197-199. ↩

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concerning the interpretation or application of the Treaty can be referred “to an arbitral tribunal for binding decision in accordance with the applicable rules of international law”. ⁵⁶¹ The investor-State dispute resolution clause in Article VI lacks a similar clarification. The reason might be that disputes relating to an alleged breach of the Treaty constitute only one of the three categories of disputes listed in that provision.⁵⁶² Disputes arising from investment agreements (mentioned under Article VI(1)(a)), for example, are typically governed by domestic law, often by that of the host State—and not by international law.

417. Article I of the Treaty specifies the law which governs certain issues, but those issues do not include the acquisition and ownership of property. A “national" of a party to the Treaty, for example, is a “natural person who is a national of a Party under its applicable law”.⁵⁶³ The absence of a corresponding clarification regarding the ownership of property does, in the view of the Tribunal, not necessarily mean that domestic law is irrelevant in this context. The Annex to the Treaty appears to confirm this point. In sections 1 and 2 of the Annex, the United States reserves its right to make exceptions to national treatment and most-favored-nation treatment regarding, inter alia, the “ownership of real property". In section 3 of the Annex, Estonia reserves its right to make exceptions to national treatment regarding the "initial acquisition from the Republic of Estonia and its municipalities of state and municipal property in the course of denationalization and privatization." It seems difficult to determine what constitutes (state and municipal) property and the acquisition of that property without considering the host State’s domestic law, especially in the context of section 3 of the Annex.

418. Existing arbitral jurisprudence seems split on what law governs issues of property and its ownership in investment disputes. In Emmis v. Hungary, the tribunal held that issues regarding the existence of rights possibly protected by a treaty must be determined by reference to the domestic law under which those rights had arisen. It expressed this principle as follows:

In order to determine whether an investor/claimant holds property or assets capable of constituting an investment it is necessary in the first place to refer to host State law. Public international law does not create property rights. Rather, it accords certain protections to property rights created according to municipal law.⁵⁶⁴

419. In a similar vein, in the Total v. Argentina case, the tribunal found that the “precise content and extent" of the investor’s economic rights must be determined under the host State’s legal system. ⁵⁶⁵ Legal scholarship seems to point in the same direction. Professor Schreuer, for example, concluded from his analysis of the relevant jurisprudence that "[s]ome questions with a

⁵⁶¹ Treaty, Article VII(1) (RLA-001). ↩

⁵⁶² Treaty, Article VI(1) (RLA-001). ↩

⁵⁶³ Treaty, Article I(1)(c) (RLA-001). ↩

⁵⁶⁴ Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, ¶ 162 (RLA-059). ↩

⁵⁶⁵ Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010, ¶ 39. ↩

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bearing on jurisdiction, such as [...] the existence of property rights, are governed by domestic law". ⁵⁶⁶

420. The Tribunal is aware that determining whether an investor owns property by way of the host State’s law may—at least in theory—lead to different scopes of protection under the same treaty, depending on the State in which the investment is made. Based on this consideration, the tribunal in Saipem v. Bangladesh dismissed the view that Bangladeshi law is relevant in determining the meaning of the term “any kind of property”.⁵⁶⁷ Professor Schreuer was one of the arbitrators in Saipem, but he did not address this part of the tribunal’s decision in his scholarly contribution referred to in the previous paragraph, which seems to support the applicability of domestic law.

421. The relationship between domestic law and international law in deciding on a tribunal’s jurisdiction is, as illustrated above, intricate, and no consistent jurisprudence has developed so far. In the present case, the transitional period that the Parties agree Estonia underwent in the 1990s adds a layer of complexity. The rules that may be applicable either stem from this transitional period or are part of the body of international law applicable to such periods. The Tribunal will start its analysis with the relevant rules of international law. Those rules shed light on the role of domestic law in the present case, as will be seen below.

(II.) International Law

422. The Claimant bases its proposition that its subsidiaries had become the owners of the relevant assets by operation of international law on three—arguably alternative but overlapping—grounds, namely that: (i) the USSR had acquired ownership of the Seaplane Harbor in 1940 through the so-called Transfer Instruments; (ii) the sales by the Soviet military to private parties were valid under the international law of occupation; and (iii) the Claimant’s subsidiaries acquired the assets because of the ex factis rule. The Tribunal will address each of these grounds in turn.

(A.) Change in Ownership in 1940?

423. In its Memorial, the Claimant argues that the Seaplane Harbor was transferred to the military of the USSR through the "Transfer Instruments" in 1940, and that “international law suggests" that the Soviet Union had become the owner of the port. ⁵⁶⁸ The Claimant does not define the term "Transfer Instruments", but the Claimant’s expert, Mr. Keres, uses this term as a collective reference to three documents signed between 20 June and 18 July 1940.⁵⁶⁹ Mr. Keres notes that all of these documents cite as the legal basis for the transactions an Estonian law enacted in 1939, namely the Act of Compulsory Encumbrances for the Needs of State Defense ("Compulsory Encumbrances Act”).⁵⁷⁰ But this law does not, in the view of Mr. Keres, constitute the proper

⁵⁶⁶ Christoph Schreuer, Jurisdiction and Applicable Law in Investment Treaty Arbitration, Vol. 1:1, McGill Journal of Dispute Resolution (2014), p. 24 (RLA-054). ↩

⁵⁶⁷ Saipem S.p.A. v. The People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, ¶ 124 (CLA-215). ↩

⁵⁶⁸ Memorial, ¶¶ 187, 275. ↩

⁵⁶⁹ Second Keres Report, ¶ 24 (CER-2), referring to Instrument of Transfer dated 22 June 1940 (C-192); Instrument of Transfer dated 18 July 1940 (C-193); Inventory/Assessment List dated 8 July 1940 (C-194). ↩

⁵⁷⁰ Second Keres Report, ¶ 24 (CER-2). ↩

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legal basis for the transactions, given that under that law Estonia and not the USSR would have been the "beneficiary".⁵⁷¹ According to Mr. Keres, the Transfer Instruments were based on the Mutual Assistance Treaty concluded between Estonia and the USSR on 28 September 1939 ("1939 Estonia-USSR Treaty” or “1939 Treaty"). ⁵⁷² Mr. Keres adds that in the absence of relevant Estonian law, it is international law that governs any potential transfer of ownership based on that treaty.⁵⁷³

424. The Tribunal notes that the 1939 Treaty provided that the relations and mutual obligations of Estonia and the USSR continue to be based on the Peace Treaty of 2 February 1920 and the Treaty of Non-Aggression and Peaceful Settlement of Disputes of 4 May 1932. ⁵⁷⁴ Furthermore, Mr. Keres rightly points out that the 1939 Treaty set out a legal framework for the establishment of Soviet military bases in Estonia. ⁵⁷⁵ But nothing in the treaty—comprising only six articles, accompanied by a five-point confidential protocol—suggests that the Soviet Union would become the owner of any land and buildings constituting or forming part of these bases. To the contrary, Article 3 of the 1939 Treaty grants the USSR merely the right “to lease” the relevant bases. ⁵⁷⁶ In line with this provision, Article 5 of the 1939 Treaty confirms that areas allotted for the bases shall remain "territory of the Republic of Estonia". Therefore, the 1939 Estonia-USSR Treaty does not support the proposition that the USSR became the owner of the Seaplane Harbor in 1940.

425. Nor does the text of the Transfer Instruments suggest that the USSR acquired ownership of the Seaplane Harbor in 1940. The documents specify that the "[b]uildings and land plots [were] taken compulsorily for use". ⁵⁷⁷ The term “for use” indicates that no transfer of ownership was intended. The reference to the Compulsory Encumbrances Act in the Transfer Instruments confirms this point. Encumbrances are rights in connection with certain assets (typically lands or buildings) that survive the transfer of ownership in, or possession of, the relevant asset. But an encumbrance does not turn its holder into the owner of the underlying asset.

426. In addition, the Tribunal notes that the Claimant did not revert to the Transfer Instruments following the submission of the Respondent’s Counter-Memorial. Furthermore, the Respondent’s expert, Mr. Keres, stated with respect to the relevant land at the Hearing that:

I have never made an assertion, and I wouldn't make an assertion, that the land under the buildings ever belonged to anyone other than the Estonian State. ⁵⁷⁸

⁵⁷¹ Second Keres Report, ¶ 30 (CER-2). ↩

⁵⁷² Second Keres Report, ¶ 31 (CER-2). ↩

⁵⁷³ Second Keres Report, ¶ 32 (CER-2). ↩

⁵⁷⁴ 1939 Estonia-USSR Treaty, Preamble, ¶ 3 (C-196). ↩

⁵⁷⁵ Second Keres Report, ¶ 31 (CER-2). ↩

⁵⁷⁶ 1939 Estonia-USSR Treaty, Article 3 (C-196). ↩

⁵⁷⁷ Instrument of Transfer dated 22 June 1940, p. 1, table heading (C-192); Instrument of Transfer dated 18 July 1940, p. 1, table heading (C-193). ↩

⁵⁷⁸ Hearing Transcript, Day 4, p. 95: 7-10. ↩

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427. Considering the above, the Tribunal finds that the documents on file suggest that Estonia was the owner of the Seaplane Harbor in 1940 and did not lose ownership through the Transfer Instruments.

(B.) The Law of Occupation

428. At the beginning of its analysis of the law of occupation, the Tribunal wishes to clarify two points. First, there is no universal consensus within the international community on whether Estonia was occupied by the Soviet Union in the 20^th century. The Respondent says it was occupied. The Claimant’s view has developed during the proceedings. It first argued that the Soviet military obtained the Seaplane Harbor in 1940 when it occupied Estonia, and that the occupant was entitled to sell the relevant assets to private parties under the Hague Regulations.⁵⁷⁹ In its Reply, the Claimant raises doubts whether Estonia was occupied and whether the Hague Regulations are applicable.

The issue of whether occupation law even applies to the situation in Estonia is contentious. While many commentators consider Estonia to have been under military occupation, this is not a clear issue. The ESSR had its own government and foreign policy. To the extent that the ESSR was a State, then the provisioning of allied Soviet military personnel in Estonia would not constitute an occupation. ⁵⁸⁰

429. But the Claimant does not go further and endorse the proposition that Estonia was not occupied by the Soviet Union. Rather, the Claimant states that Estonia had to respect property rights acquired by private parties such as its subsidiaries because of the ex factis rule.⁵⁸¹ The Tribunal will address this rule below. In addition, the Tribunal notes that the alternatives to the view that Estonia was occupied by the Soviet Union seem to be that either Estonia remained an independent State or that it joined the Soviet Union voluntarily. In those scenarios, it would seem logical that the relevant transactions are governed by Estonian law or Soviet law. These legal regimes are also part of the Tribunal’s analysis. As will be seen below, the result of this analysis does not require a finding by the Tribunal on whether—as a matter of international law—Estonia was occupied by the Soviet Union.

430. Secondly, the provisions of the Hague Regulations relied on by the Parties—Article 53 and Article 55—are primary norms of international law under the law of State responsibility. Hence, they constitute international obligations that, if breached, entail the international responsibility of the State to whom the action or omission is attributable under international law. The content of the international responsibility of that State is set out in secondary norms of international law.⁵⁸² But the legal consequences of an internationally wrongful act of a potential occupant—here, of the Soviet Union—are not relevant in the present case. Rather, the Tribunal must determine the

⁵⁷⁹ Memorial, ¶¶ 271-301. ↩

⁵⁸⁰ Reply, ¶ 1030. ↩

⁵⁸¹ Reply, ¶ 30. ↩

⁵⁸² See, e.g., James Crawford, The International Law Commission's Articles on State Responsibility: Introduction, Text and Commentaries, (CUP, 2002), pp. 14-16 (CLA-137), which is a paperback version, with an introduction by James Crawford, on the International Law Commission Draft Articles of State Responsibility for Internationally Wrongful Acts (“ILC Articles”) with commentaries, Vol. II, Part Two, 2001 (CLA-126). ↩

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consequences of the reversal of measures adopted by the occupant through the organs of the formerly occupied State. More specifically, the issue is whether the Claimant’s subsidiaries became the owners of the Seaplane Harbor, although the Estonian courts declared the relevant transactions void.

431. Identifying the norms that govern such measures of the returning government is more complex than determining the norms that determine the lawfulness of the measures of the occupant. ⁵⁸³ Professor Eyal Benvenisti refers to the latter set of rules as primary norms and to the former as secondary norms of the law of occupation. ⁵⁸⁴ While the use of the term primary norms is consistent with the meaning of that term under the law of State responsibility, the Tribunal considers the term secondary norms misleading here. This is because Professor Benvenisti uses it differently from its established meaning in the law of State responsibility, where secondary norms govern the legal consequences for the State that breached the relevant primary norm. But under the terminology suggested by Professor Benvenisti, secondary norms apply to measures of the returning organs of the formerly occupied State that contradict the measures of the occupant. While the Tribunal will therefore not adopt his terminology, it considers the methodology used by Professor Benvenisti very helpful, and it will form part of the Tribunal’s analysis that follows now.

(1.) The Relevant Rules and Principles

432. Two different periods of State practice and judicial decisions are relevant in determining and understanding the rules and principles of the law of occupation regarding the reversal of the occupant’s measures. As explained by Professor Benvenisti, in the period until 1945, there was no generally recognized duty of returning governments to respect lawful occupation measures. ⁵⁸⁵ Returning governments tended to validate transactions made during the occupation. However, they did so not because of a sense of legal obligation, but for policy reasons, such as ensuring market stability—and without regard for the lawfulness of the occupation measure.⁵⁸⁶ In general, private actors in occupied territories had to expect that returning governments and their courts might not respect lawful occupation measures and that they might uphold unlawful acts. ⁵⁸⁷

433. In the period after 1945, two new developments set in, each of them with different effects. First, the question of whether an occupation measure complied with international law became more important for legislation and regulatory actions by States. This is reflected in the Fourth Geneva

⁵⁸³ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 337 (CLA-282). ↩

⁵⁸⁴ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 330, 337, 342-343 (CLA-282). ↩

⁵⁸⁵ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 330 (CLA-282). The legal framework in this regard was, in Benvenisti’s view, based on Article 43 of the Hague Regulations and relevant domestic laws. Hague Regulations, Article 43 (CLA-062) reads as follows: “The authority of the legitimate power having in fact passed into the hands of the occupant, the latter shall take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country." ↩

⁵⁸⁶ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 332-333 (CLA-282). ↩

⁵⁸⁷ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 333 (CLA-282). ↩

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Convention of 1949 (“Fourth Geneva Convention” or “GC IV”). ⁵⁸⁸ Its Article 146 obliges States parties to enact legislation that penalizes “grave breaches” of the convention and “to take measures necessary for the suppression of all acts" that violate the convention but do not constitute grave breaches. Secondly, both international human rights law and domestic constitutional law increased the protection of individuals, including regarding their reliance in good faith on measures of the occupant that may have been in breach of the law of occupation.⁵⁸⁹ Given that the alleged sales by the Soviet military to private parties occurred in the early 1990s (or in 1989, as partly stated by the Claimant), it is the law that developed after World War II that is relevant here.

434. From his analysis of pertinent State practice and judicial decisions, Benvenisti deduces several factors that matter and must be balanced when determining the lawfulness of a measure of the returning government that conflicts with an act of the occupant. First, the graver the harm to the interests protected by the relevant primary norm, the more likely it is that reversing the measure is lawful, especially if that measure constituted a jus cogens violation.⁵⁹⁰ Secondly, the good faith of an individual who benefited from the consequences of a breach of a primary norm is a necessary condition for upholding a claim of that individual. ⁵⁹¹ Thirdly, the weight to be accorded to the legitimate expectations of individuals who—in good faith—have relied on occupation measures increases over time, especially if the reversing measures occur generations later. ⁵⁹² Fourthly, the "forward-looking wish" of the returning government to provide for a "smooth and effective" transition after the occupation matters in the balancing process.⁵⁹³ Finally, the relevant States must be accorded a wide margin of appreciation concerning the consequences of an occupation and, therefore, in balancing conflicting claims. ⁵⁹⁴

(i) Gravity of the Breach

435. Regarding the first factor, the gravity of the breach, the Tribunal notes that the Mälksoo Report states that Estonia was forcibly annexed by the Soviet Union following an act of aggression in 1940.⁵⁹⁵ Moreover, according to the Mälksoo Report, acts of aggression were outlawed not only in 1945 with Article 2(4) of the UN Charter, but—to the extent relevant here—by the 1930s, because of the Briand-Kellogg Pact of 1928, the Litvinov Protocol of 1929, and the (regional) Convention for the Definition of Aggression of 1933.⁵⁹⁶ The Tribunal considers acts of aggression to constitute violations of jus cogens. But for the present case, the Tribunal needs to decide neither

⁵⁸⁸ See Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 333-334 (CLA-282), but who cites Article 147 GC IV (and not Article 146 GV IV) that defines “grave breaches”. ↩

⁵⁸⁹ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 333-334 (CLA-282). ↩

⁵⁹⁰ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 342-343 (CLA-282). ↩

⁵⁹¹ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 343 (CLA-282). ↩

⁵⁹² Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 344-345 (CLA-282). ↩

⁵⁹³ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 345-346 (CLA-282). ↩

⁵⁹⁴ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 346-347 (CLA-282). ↩

⁵⁹⁵ Mälksoo Report, ¶¶ 9, 18, 26 (RER-3). ↩

⁵⁹⁶ Mälksoo Report, ¶ 19 (RER-3). ↩

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whether the Soviet Union’s acts in 1940 constituted an aggression, nor whether that potential aggression violated a jus cogens norm, which might involve issues of inter-temporal law. Nor is it relevant for the Tribunal’s decision whether an aggressor enjoys the same rights under the law of occupation as an occupant “unguilty" of an act of aggression for the following reason.

436. By reference to Benvenisti, the Mälksoo Report states that the law of occupation did not create any rights for the Soviet Union under that law because the occupation was a result of an aggression and thus illegal. ⁵⁹⁷ The relevant passage of Benvenisti’s work, however, does not sustain the proposition that the Claimant’s subsidiaries could by definition not acquire title in the relevant assets if the Soviet Union was an illegal occupant. For Benvenisti writes that the returning government is in principle entitled to reverse attempts by an illegal occupant to alienate territory, but only subject to individual rights acquired in good faith.⁵⁹⁸ In this regard, Benvenisti explicitly refers to the chapter that contains the principles set out in para. 434 above. This means that if the potential acquisition of property by individuals in good faith is involved, the reversal of an illegal occupant’s measures is lawful under the requirements addressed here. Therefore, the Tribunal considers it unnecessary to decide whether the Soviet Union committed acts of aggression in 1940 and whether it illegally occupied Estonia.

437. Furthermore, the Tribunal wishes to clarify that deciding the present case does not require a finding whether jus cogens norms were violated. Jus cogens norms are, for example, those on the prohibition of aggression, slavery, torture, and genocide. The deprivation of public or private property does not fall under this category, as rightly noted by the Claimant.⁵⁹⁹ The Tribunal will address the issue of whether the alleged sales by the Soviet military to private parties were compatible with the Hague Regulations (under the assumption that Estonia was occupied by the Soviet Union) below. At this point of the analysis, it suffices to note that the gravity of such a potential breach of a primary norm of the law of occupation by the Soviet Union does not speak decisively for or against the lawfulness of Estonia’s measures.

(ii) Good Faith

438. The reversal of a measure that is incompatible with the law of occupation may be unlawful itself if it violates the good faith expectations of the inhabitants of the occupied territory. For, as Benvenisti writes, persons who reside in an occupied territory are entitled to rely in their transactions on the legal system in force in that territory.⁶⁰⁰ The rationale underlying this principle is that those persons have no choice but to live and work within the domestic legal system that governs everyday matters and commerce. This means that transactions that ought to be upheld regardless of the occupier’s compliance with the law of occupation must have been valid under

⁵⁹⁷ See Mälksoo Report, ¶ 21 (RER-3). ↩

⁵⁹⁸ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 154-155 (CLA-282). ↩

⁵⁹⁹ Reply, ¶ 1119. ↩

⁶⁰⁰ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 344 (CLA-282). ↩

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the prevailing local law. ⁶⁰¹ Here, this local law can only be Soviet law or Estonian law. Both legal regimes will be addressed by the Tribunal as part of its analysis.

(iii) Time Factor

439. Individual rights acquired in good faith carry especially much weight in the balancing process if a long period of time has passed between the relevant acts of the occupant and the measures of the returning government that seek to reverse those acts or their consequences. In Benvenisti’s view, this is certainly the case if the reversing measures occur “generations later" than the relevant acts of the occupant. ⁶⁰² In this context, Benvenisti refers to case law by the ECtHR in which succeeding generations were affected after “several decades”. ⁶⁰³

440. In the present case, the Parties agree that the occupation ended in 1994, and that Estonia initiated litigation to reclaim the Seaplane Harbor in 1997 based on legislation enacted from 1990 onwards ⁶⁰⁴. The entities that became the Claimant’s subsidiaries in 1999 acquired the relevant assets in 1997 and 1992,⁶⁰⁵ after the alleged sales by the Soviet military to other private parties in 1990 and 1991.⁶⁰⁶

441. Against this background, the Tribunal is not convinced that the time factor would add much, if any, weight to possible good faith expectations, which are necessary to consider Estonia’s reversal of occupation measures unlawful and will be addressed in the domestic law section below.

(iv) Smooth Transition

442. Benvenisti states that an additional factor that plays a role in the balancing process is the returning government’s "forward looking wish to ensure a smooth and effective post-conflict transitional process.” ⁶⁰⁷ This seems to be a consideration that speaks, at first sight, in favor of the lawfulness of Estonia’s measures, given that Estonia had stated throughout the early 1990s that it became illegally occupied by the Soviet Union in 1940 and wished to reinstate the status quo ante. But the scenarios mentioned by Benvenisti are very different, namely the possible return of refugees to the places they inhabited prior to the occupation. In this regard, Benvenisti considers policies

⁶⁰¹ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 344 (CLA-282). ↩

⁶⁰² Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 345 (CLA-282). ↩

⁶⁰³ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 345 (CLA-282). ↩

⁶⁰⁴ Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195). ↩

⁶⁰⁵ Contract of Purchase and Sales and Pledge Contract between Agrin and B&E, 26 September 1997 (C-020); Sale Agreement between Nautex and Verest, Protocols of Transfer, 7 May 1992 (R-052). ↩

⁶⁰⁶ Contract No. 16 (C-023 / R-036); Resolution by the Deputy to the Commander of the Soviet Naval Forces for Construction, Engineering Support and Housing, 29 July 1991 (R-042); Resolution of Military Unit 13016, 29 July 1991 (R-043). ↩

⁶⁰⁷ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 345-346 (CLA-282). ↩

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that seek to prevent inter-ethnic violence by requiring returning refugees to live in different parts of the country prior to their expulsion not per se unlawful.⁶⁰⁸

443. Therefore, the Tribunal finds that under the circumstances of the present case, Estonia’s interest in a smooth transition does not add much to the margin of appreciation that it enjoys anyway, as set out next.

Margin of Appreciation

444. The final factor to be considered is the wide margin of appreciation that international law accords to States when it comes to the regulation of their post-occupation phase. This margin of appreciation applies to bilateral or multilateral instruments (in the form of peace agreements) and to domestic legislative or regulatory acts of the formerly occupied State. ⁶⁰⁹ Regarding the domestic level, Benvenisti notes that the ECtHR granted Germany a wide margin of appreciation in overhauling the economic system in the new federal states as part of the unification process.⁶¹⁰

445. The way in which Estonia exercised its margin of appreciation in the 1990s will be examined below in the context of the Estonian legal framework during the transition phase. But before turning to domestic law, the Tribunal will analyze the relevant primary norms of the law of occupation and set out the role of the ex factis rule for the Tribunal’s analysis.

(2.) The Primary Norms

446. As mentioned above, the Tribunal assumes in its analysis of the law of occupation that Estonia was indeed occupied by the Soviet Union, as argued by the Claimant in its Memorial but doubted —though not explicitly disputed—in its Reply, and as argued by the Respondent throughout. The alleged sales by the Soviet military to private parties occurred roughly 50 years after the entering into force of the Fourth Geneva Convention of 1949. The Tribunal must therefore analyze whether the Fourth Geneva Convention or the older Hague Regulations apply to those sales. According to the lex posterior principle, it would seem logical that the provisions of the Fourth Geneva Convention on private and public property govern the relevant issues here.

447. In this regard, Article 53 GC IV prohibits the destruction of private or public property by the occupying power, but it does not mention any other acts with respect to that property. The scope of Article 147 GC IV is broader. It lists the “extensive destruction and appropriation of property, not justified by military necessity and carried out unlawfully and wantonly" as “grave breaches" of the convention. But given that Article 53 GC IV merely prohibits the destruction of property, it might be argued that all appropriations of property that fall short of constituting a grave breach of the convention be lawful. But this is not the status of the modern law of occupation, and it was not argued by any of the Parties. Rather, the prohibitions under Articles 53 and 55 of the Hague

⁶⁰⁸ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 346 (CLA-282). ↩

⁶⁰⁹ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 346-347 (CLA-282). ↩

⁶¹⁰ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 347 (CLA-282). ↩

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Regulations continue to apply, and Articles 53 and 147 GC IV must be read in conjunction with those provisions,⁶¹¹ to which the Tribunal turns now.

(i) Article 53 Hague Regulations

448. The Claimant argues that the Soviet military was entitled to sell the buildings and the structures at the Seaplane Harbor to private parties under Article 53 of the Hague Regulations. This provision reads as follows.

Any army of occupation can only take possession of cash, funds, and realizable securities which are strictly the property of the State, depots of arms, means of transport, stores and supplies, and generally, all movable property belonging to the State which may be used for military operations.

All appliances, whether on land, at sea, or in the air, adapted for the transmission of news, or for the transport of persons or things, exclusive of cases governed by naval law, depots of arms, and, generally, all kinds of ammunition of war, may be seized, even if they belong to private individuals, but must be restored and compensation fixed when peace is made. ⁶¹²

449. Mr. Keres opines that at the time of the alleged transfer, buildings constituted “movables" under Estonian law, and it was therefore possible that the buildings and the land on which they stood belonged to different owners. More specifically, Mr. Keres states:

Pursuant to § 13 (1) of Law of Property Act Implementation Act (the (“LPAIA"), until the entry of land in the land register, a construction erected on a legal basis, including an unfinished construction, was not an essential part of the land and was deemed a movable unless otherwise provided by law. Under § 13 (3) LPAIA, an owner of a construction had the right to become the owner of the land under that construction as per the procedure set out in the Land Reform Act. ⁶¹³

450. As a movable “means of transport” within the meaning of Article 53 of the Hague Regulations, the Soviet military could, according to the Claimant, use, deplete, and dispose of the buildings and structures at the Seaplane Harbor facilities during the occupation. ⁶¹⁴

451. The Claimant does not seem to doubt that Article 53 of the Hague Regulations applies only to movable property and Article 55 to immovables. ⁶¹⁵ As Yoram Dinstein notes, the extent to which the occupant may use public property hinges precisely on the distinction between movables and immovables, and the subsequent application of either Article 53 or 55.⁶¹⁶ The Tribunal doubts

⁶¹¹ Anicée Van Engeland, 'Protection of Public Property', in Andrew Clapham, Paola Gaeta, and Marco Sassòli (eds), The 1949 Geneva Conventions: A commentary, (OUP, 2018), ¶¶ 2, 43 (CLA-151); Geneva Convention IV, Relative to the Protection of Civilian Persons in Time of War, 12 August 1949 (ICRC Commentary ed. 1958), Introduction, p. 9 (CLA-286). ↩

⁶¹² Hague Regulations, Article 53 (emphasis added) (CLA-062). ↩

⁶¹³ Second Keres Report, ¶ 41 (CER-2) referring to LPAIA (CLA-189). ↩

⁶¹⁴ Memorial, ¶¶ 284, 296-297. ↩

⁶¹⁵ Memorial, ¶¶ 284-286. ↩

⁶¹⁶ Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), p. 213, ¶ 502 (RLA-047). ↩

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that the treatment of buildings as movable property under Estonian law for a few years in the 1990s should inform the construction of the Hague Regulations, a multilateral treaty from 1907.

452. Rather, the Tribunal agrees with the Respondent that Article 53 of the Hague Regulations is not applicable here because the buildings and structures at the Seaplane Harbor constitute immovable property. The latter is governed by Article 55, and the Tribunal has no doubt that the relevant assets at the Seaplane Harbor fall under that provision. The UK Manual of the Law of Armed Conflict lists the following assets under the heading “military lands and buildings": "supply depots, arsenals, dockyards, and barracks, as well as airfields, ports, railways, canals, bridges, piers, and their associated installations.”⁶¹⁷ Similarly, Dinstein lists “airfields, naval dockyards, military barracks”⁶¹⁸ as examples of immovable property subject to Article 55. By contrast, movables under Article 53 are exemplified by means of transport such as “ships in port”⁶¹⁹ and as "bicycles, cars and railroad rolling stock to ships and aircraft [and] even ambulances.”⁶²⁰ The Tribunal has therefore no doubt that the buildings and structures at the Seaplane Harbor, as well as the Seaplane Harbor itself, constitute immovable property under the Hague Regulations.

453. Furthermore, even if the Tribunal were to consider the relevant assets to constitute movable property, this would not automatically mean that the Soviet military could validly transfer ownership of those assets to private parties. The scope of Article 53 of the Hague Regulations and the powers of the occupant under this provision are subject to scholarly debate. Some argue that the occupant may only use movable property for military purposes, while others contend that the occupant may also sell it to sustain the occupation and take care of the local population. ⁶²¹ But no one seems to argue that Article 53 of the Hague Regulations grants the occupant an unfettered right to sell property belonging to the occupied state for whatever purpose it deems fit. The Tribunal finds it reasonable to require that acts covered by Article 53 must be taken for military purposes, to cover the costs of the occupation, or for the well-being of the local population. ⁶²² The Tribunal is not persuaded that the transactions at issue here served one of those purposes. Finally, the Tribunal notes that the wording of both paragraphs of Article 53 seems to indicate

⁶¹⁷ UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), p. 303, ¶ 11.85 (CLA-153) (emphasis added). ↩

⁶¹⁸ Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), p. 213, ¶ 503 (RLA-047) (emphasis added). ↩

⁶¹⁹ UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), p. 301, ¶ 11.81.1 (CLA-153). ↩

⁶²⁰ Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), pp. 218-219, ¶ 515 (RLA-047) (emphasis added). ↩

⁶²¹ Anicée Van Engeland, 'Protection of Public Property', in Andrew Clapham, Paola Gaeta, and Marco Sassòli (eds), The 1949 Geneva Conventions: A commentary, (OUP, 2018), ¶¶ 33-34 (CLA-151); Dieter Fleck (ed), The Handbook of International Humanitarian Law, (OUP, 2013), p. 292, ¶ 557 (RLA-048); Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), p. 219, ¶ 517 (RLA-047); UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), pp. 301, 304, ¶¶ 11.81, 11.88 (CLA-153). ↩

⁶²² See Antonio Cassese, 'Powers and Duties of an Occupant in Relation to Land and Natural Resources', in Antonio Cassese, Paola Gaeta, and Salvatore Zappalà (eds), The Human Dimension of International Law: Selected Papers of Antonio Cassese, (OUP, 2008), p. 422 (CLA-155), who applies these requirements to the following acts of the occupant: “requisitioning private property”, “seizing public movables”, and “using state-owned immovables" (id.) (emphasis added). ↩

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that this provision does not entitle the occupant to transfer title in assets belonging to the occupied State to others. ⁶²³ Under Article 53(1), the occupant can “take possession” of certain assets, but this does not make it the owner of those assets. And Article 53(2) provides that the assets "must be restored and compensation fixed when peace is made.”⁶²⁴

(ii) Article 55 Hague Regulations

454. After having found that Article 53 of the Hague Regulations did not provide the Soviet military with the right to transfer title in the buildings and structures at the Seaplane Harbor to private parties, the Tribunal will now turn to Article 55 of the Hague Regulations, which states that:

The occupying State shall be regarded only as administrator and usufructuary of public buildings, real estate, forests, and agricultural estates belonging to the hostile State, and situated in the occupied country. It must safeguard the capital of these properties, and administer them in accordance with the rules of usufruct.

455. The Claimant posits that in the context of prolonged occupation, Article 55 of the Hague Regulations does not constrain the authority of the occupant in using public property for the purpose of satisfying the needs of the people under occupation. ⁶²⁵ This statement seems broadly correct, but it needs to be put into context. Occupants are not only entitled but obliged to administer the occupied territory. In exercising their rights and duties under international law, occupants can also regulate and interfere with economic activities in the occupied territory. Regarding the use of state-owned immovables (governed by Article 55 of the Hague Regulations), the Tribunal considers the relevant principles to be aptly summarized by Antonio Cassese, ⁶²⁶ relied on by the Claimant as well. Cassese states that the occupant may use public immovable property only for the following three purposes: (i) to meet its own military or security needs; (ii) to cover the costs involved in the occupation; and (iii) to protect the interests and well-being of the population living on the occupied territory. These are “very strict limitations" on the power of the occupant, in the view of Cassese, but they are borne out by State practice. Cassese clarifies that using state-owned immovables for any other purposes is strictly forbidden, for example, if the occupant acts for the benefit of its own population or its national economy.⁶²⁷

⁶²³ See also Anicée Van Engeland, 'Protection of Public Property', in Andrew Clapham, Paola Gaeta, and Marco Sassòli (eds), The 1949 Geneva Conventions: A commentary, (OUP, 2018), ¶¶ 33-34 (CLA-151); UK Ministry of Defense, The Manual of the Law of Armed Conflict, (OUP, 2004), p. 301, ¶ 11.81 (CLA-153) ↩

⁶²⁴ See also Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 87-88 (CLA-282). ↩

⁶²⁵ Memorial, ¶¶ 289-293, 295, 298-301, referring to Eyal Benvenisti, The International Law of Occupation (OUP, 2015), pp. 81-82 (CLA-204); Opinion of Advocate General in Western Sahara Case C-266/16, ¶ 268 (CLA-147); Reply, ¶¶ 1055-1057. See also Kristen E. Boon, Obligations of the New Occupier: The Contours of a Jus Post Bellum, Loyola of Los Angeles International and Comparative Law Review, Vol. 31, No. 2 (2008), p.110 (CLA-281). ↩

⁶²⁶ Antonio Cassese, 'Powers and Duties of an Occupant in Relation to Land and Natural Resources', in Antonio Cassese, Paola Gaeta, and Salvatore Zappalà (eds), The Human Dimension of International Law: Selected Papers of Antonio Cassese, (OUP, 2008), p. 419 et seq. (CLA-155). ↩

⁶²⁷ Antonio Cassese, 'Powers and Duties of an Occupant in Relation to Land and Natural Resources', in Antonio Cassese, Paola Gaeta, and Salvatore Zappalà (eds), The Human Dimension of International Law: Selected Papers of Antonio Cassese, (OUP, 2008), p. 422 (CLA-155). ↩

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456. The Tribunal notes that there is no evidence on file that the Soviet military sold the buildings and structures at the Seaplane Harbor for any of the legitimate reasons set out above. Rather, it seems that those sales occurred for the personal gain of individual officers, as will be outlined below in the domestic law section. But in the end, the purpose of the sales by the Soviet military does not play a decisive role in the Tribunal’s analysis. This is because even if the actions had occurred for a legitimate purpose, the occupant could sell only the fruits of the immovable property, and not appropriate or sell the immovable property itself. This understanding of Article 55 of the Hague Regulations seems to be widely accepted in legal scholarship. ⁶²⁸ Moreover, in the view of the Tribunal, it is the only construction of this provision that is compatible with its wording, according to which the occupant acts “only as administrator and usufructuary".

(iii) Interim Conclusion

457. In sum, the Tribunal finds that the sale of the buildings and structures at the Seaplane Harbor by the Soviet military to private parties was not in line with the law of occupation.

458. This alone, however, says little about the validity of those sales, or about the rights that the Claimant’s subsidiaries may have acquired because of subsequent transactions. As set out above, the primary norms of the law of occupation do not address these issues. Rather, the Tribunal must establish whether the relevant rights were acquired in good faith, that is, in accordance with the local law applicable at the time. If this is the case, then the good faith of the Claimant’s subsidiaries speaks against the lawfulness of Estonia’s (judicial) acts that reversed the effects of the underlying transactions. For the sake of completeness, the Tribunal notes that even if the Soviet military had had the right to sell the relevant assets under the law of occupation, this would not mean that the reversal of the effects of those sales was automatically unlawful. But if there had been no breach of a primary norm, any good faith reliance on the local law would—in the Tribunal’s view—be hard, if not impossible, to be outweighed in the balancing process.

459. The Tribunal’s analysis of the relevant local law will be redundant, however, if the Claimant’s understanding of the ex factis rule is correct, to which the Tribunal turns now.

(C.) The Ex Factis Rule

460. According to the Claimant, its subsidiaries became—or are to be treated as—the owners of the Seaplane Harbor because of the ex factis rule, irrespective of whether the relevant sales complied with the law of occupation or domestic law.⁶²⁹ Regarding the content of this rule, the source most frequently referred to by the Claimant is a monograph of Lauri Mälksoo,⁶³⁰ the Respondent’s

⁶²⁸ Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 88(CLA-282); Mälksoo Report, ¶¶ 35-36 (RER-3); Dieter Fleck (ed), The Handbook of International Humanitarian Law, (OUP, 2013), pp. 292-293, ¶ 558 (RLA-048); Yoram Dinstein, The International Law of Belligerent Occupation, (CUP, 2009), pp. 213-215, ¶¶ 504-507 (RLA-047); Anicée Van Engeland, 'Protection of Public Property', in Andrew Clapham, Paola Gaeta, and Marco Sassòli (eds), The 1949 Geneva Conventions: A commentary, (OUP, 2018), ¶ 19 (CLA-151). ↩

⁶²⁹ Reply, ¶¶ 23-24; 1123; Hearing Transcript, Day 1, p. 45:23 – p. 48:12, Day 5, p. 57:5-8; Claimant's Answers to Tribunal Question, ¶ 74. ↩

⁶³⁰ Reply, ¶¶ 87-88, 1066, 1074, 1081; Hearing Transcript, Day 1, p. 45:16 – p. 46:8, Day 5, p. 57:9-14. ↩

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expert (whom the Claimant chose not to cross-examine at the hearing). In particular, the Claimant relies on parts of a passage in which Mälksoo argues that, while the annexation in 1940 and the imposition of the Soviet economic system on Estonia violated international law, the same is not true for all acts taken under this system. The part quoted by the Claimant reads as follows.

For instance, by imposing the Soviet economic system on the Baltic States, the USSR clearly violated the 1907 Hague rules of occupation. However, it is reasonable to argue that the principle [of] ex factis ius oritur compels acceptance of certain aspects of the foreign-imposed Soviet economic system in the decades following the illegal annexation as facts of life. The whole Soviet occupation period cannot be regarded as a legal nullum. Thus, the foreign-imposed Soviet economic system in the whole Eastern Europe became a fact of life which was ultimately borne by the local population and as such was accepted by the international community. Since it was no longer legally questioned, neither internationally nor domestically, it would be artificial to maintain that this system continued to violate the 1907 Hague Regulations. ⁶³¹

461. Mälksoo thus warns against considering the acts resulting from the Soviet economic systems to be unlawful only because its introduction in Estonia violated the law of occupation. But Mälksoo does not argue that the law of occupation became irrelevant for acts on Estonian territory that occurred after the establishment of the Soviet system. Nor does he posit that all transactions made under the economic regime in place at the time were valid as a matter of international law regardless of their compliance with the relevant domestic rules.

462. Nothing different follows from the concept of the “normative Kraft des Faktischen.” This term was coined by Georg Jellinek, and as the Claimant rightly stresses, Mälksoo repeatedly refers to it in the context of the ex factis rule. Mälksoo uses it regarding the issue whether Estonia continued to exist as a State between 1940 and the 1990s or whether its statehood had ended following the events—or, in Mälksoo’s words, the Soviet aggression—of 1940. Some authors point out that the Soviet annexation, spanning half a century, lasted twice as long as Estonia’s independence until 1940. Given that Estonia could not exercise any powers of a State (Staatsgewalt) during that time, those authors consider the continued existence of Estonia from 1940 until its independence an unsustainable fiction. ⁶³² Mälksoo rejects this view, stating that:

⁶³¹ Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), p. 194; cited by the Claimant in Reply, ¶¶ 1081 and 1110. ↩

⁶³² Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), pp. 74-75 (fn. 113), p. 111 ("Georg Dahm argued that protests and formal non-recognition cannot prevent prescription from taking place; rather the source of the prescription is the normative Kraft des Faktischen itself.") ↩

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That the international legal system may appear to be uncapable of answering violations of one of its most fundamental norms—the prohibition of aggression—should be a bigger problem for lawyers who worry about the relevance of the rule of law in international relations, than the fear that international law would become 'irrealistic' when supporting legal fictions when fundamental legal norms have been violated. In any case, the so-called normative Kraft des Faktischen cannot have a legal significance (Kraft) of its own. ⁶³³

463. Mälksoo concludes his monograph with the observations that—based on the principle of ex injuria jus non oritur—the international community has come to accept that illegally annexed States do not become extinct as subjects of international law. But complete adherence to this principle would have required the total restoration of all legal relations, rights, and duties of Estonia from the pre-annexation phase.⁶³⁴ That this proved impossible is, according to Mälksoo, evidence of the ex factis principle, which in his view does not undermine the proposition that the Baltic States continued to exist throughout their occupation. ⁶³⁵ But nothing in Mälksoo’s monograph suggests that transactions must be upheld regardless of their compliance with the local law that was in place at the time the transactions occurred because of the ex factis principle.

464. Another author on which the Claimant relies in the context of its arguments regarding the ex factis rule and legal certainty is Benvenisti. In this regard, the Claimant refers to the passages of Benvenisti outlined above, namely that good faith reliance of individuals on local law may require that acts taken in breach of the law of occupation remain valid.⁶³⁶ The Tribunal agrees with this proposition. It is the basis of its analysis here. Particularly clear for present purposes is the following statement of Benvenisti, quoted by the Claimant:

[I]n principle it is suggested that individuals who reside in an occupied territory are entitled to rely in their private transactions on the legal system actually in force in the country (a system which they themselves were not responsible for creating), and develop expectations based on the regular norms that system has produced.⁶³⁷

465. The cases, instruments, and other authorities cited by the Claimant either confirm that acquirers must have relied in good faith on the local law in place at the time to consider the restitution of property to original owners unlawful, or they say nothing that warrants a different conclusion. The Claimant quotes, for example, from a passage by Benvenisti in which the latter addresses the German unification. The unification treaty recognized the right of restoration of property expropriated by the authorities of the German Democratic Republic (“GDR”) after 1949. But there were exceptions to this rule. A third person who had acquired the relevant property would

⁶³³ Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), pp. 201-202. ↩

⁶³⁴ Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), p. 324. ↩

⁶³⁵ Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), pp. 326-327. ↩

⁶³⁶ See, e.g. Reply, ¶¶ 1070, 1073, 1099, referring to Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), pp. 343-346 (CLA-282). ↩

⁶³⁷ Reply, ¶¶ 1114; 1099; Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 344 (CLA-282). ↩

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be allowed to keep it unless the acquisition did not comply with the law or regulatory practice of the GDR, and the acquirer knew or should have known this. ⁶³⁸

466. Cases referred to by the Claimant in which the relevant measures complied with local law include In re P. (Komotini Case), where a Greek Court upheld a will administered in accordance with the legal system imposed by the Bulgarian occupant.⁶³⁹ Another example in this regard is the case Hungarian Soviet Government (Confiscation of Property), decided by the Austrian Supreme Court in the early 1920s. The court upheld the sale of a bank confiscated by the government of the short-lived Hungarian Soviet Republic of 1919 to a Viennese merchant because the sale occurred in compliance with the decrees of that government. ⁶⁴⁰

467. The International Court of Justice (“ICJ") Advisory Opinion in Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), supports the findings set out above as well. As stated in Security Council Resolution 276, the continued application and enforcement of South African law in Namibia violated international law. But this did not mean, in the words of the ICJ, that “acts, such as, for instance, the registration of births, deaths and marriages, the effects of which can be ignored only to the detriment of the inhabitants of the Territory” were invalid.⁶⁴¹ In his separate opinion, Judge Hardy Dillard further elaborated on these words, emphasizing that “[a]s Lauterpacht has indicated the maxim ex injuria jus non oritur is not so severe as to deny that any source of right whatever can accrue to third persons acting in good faith.”⁶⁴²

468. In its Opinion on the Law on Occupied Territories of Georgia, the Venice Commission stressed both the freedom of States to not recognize the acts of foreign powers in their legal order, but also the need to protect individuals who acquired property based on those acts. Regarding the first point, the Commission stated that "each State is free to recognize or not to recognize acts of state issued by other States or by de facto authorities [...]. On the basis of international customary law there is no obligation to recognize such acts.” ⁶⁴³ With a view to the second point, the protection of individuals, the Commission added that "this freedom ends where basic human rights would be violated". ⁶⁴⁴ In this regard, the commission clarified that “[i]f a person acquired a property on the basis of an act [...] at a time when the law permitted such an acquisition, the annulment of the

⁶³⁸ See, e.g. Reply, ¶¶ 1070, 1073, 1099, referring to Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 344 (CLA-282). ↩

⁶³⁹ In re P. (Komotini Case), 15 ILR 566, ¶¶ 566 – 567 (CLA-303), quoted in Reply, ¶ 1087. ↩

⁶⁴⁰ Hungarian Soviet Government (Confiscation of Property) Case, 1 ILR 56 (Austria, Supreme Court of Civil Matters, 1922), ¶¶ 56 -7 (CLA-300), referred to in the Reply, ¶¶ 1089 – 1090. ↩

⁶⁴¹ ICJ Advisory Opinion of 21 June 1971, "Legal Consequences for States of the Continued Presence of South Africa in Namibia (South-West Africa) Notwithstanding Security Council Resolution 276 (1970)", ¶ 125 (CLA-160); quoted in Reply, ¶ 1121. ↩

⁶⁴² Separate Opinion of Judge Hardy Dillard, ICJ Advisory Opinion on Namibia ICJ, GL No 53, [1971], p. 167 (CLA-161). ↩

⁶⁴³ Venice Commission, Opinion No. 516/2009 (March 17, 2009), CDL-AD(2009)015, ¶ 43 (CLA-166). ↩

⁶⁴⁴ Venice Commission, Opinion No. 516/2009 (March 17, 2009), CDL-AD(2009)015, ¶ 43 (CLA-166). ↩

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acquisition act after a long period of time and without any compensation may represent a violation of the right to peaceful enjoyment of one’s possession”. ⁶⁴⁵

469. In sum, the authorities cited by the Claimant regarding the de factis rule support the finding of the Tribunal that the Claimant’s subsidiaries may have acquired ownership in the relevant assets only if they relied in good faith on the validity of those transactions under the applicable local law. The Tribunal turns to this question now.

(III.) Domestic Law

470. If the Soviet Union occupied Estonia until the early 1990s, the Tribunal should—under the methodology set out above—consider whether the relevant transactions were valid under the applicable domestic law, usually referred to as local law in the law of occupation. ⁶⁴⁶ In this subsection, the Tribunal will use the more generic term domestic law because Soviet law and Estonian law are relevant not only if the law of occupation applies but also under two alternative views. The first of these views considers the law of occupation to apply only if the period of foreign control is rather short, unlike in Estonia, where that period exceeded 50 years. ⁶⁴⁷ The second view posits that Estonia seceded from the Soviet Union in the early 1990s after it had joined the Soviet Union (voluntarily) in 1940.⁶⁴⁸ It seems obvious to the Tribunal that under those alternative views, the only legal regimes that could possibly govern the transactions at issue here are Soviet law and Estonian law.

(A.) Soviet Law

471. The Respondent argues that the sales of the Soviet military to private parties were unlawful under the law of occupation, which is why their compliance with Soviet law does not matter. ⁶⁴⁹ As set out above, the Tribunal is unconvinced that the sales by the Soviet military were void and without legal effects only because the Soviet Union may have breached the Hague Regulations. In addition, the Respondent posits that those sales were, in any event, illegal under Soviet law.⁶⁵⁰

⁶⁴⁵ Venice Commission, Opinion No. 516/2009 (March 17, 2009), CDL-AD(2009)015, ¶ 24 (CLA-166). ↩

⁶⁴⁶ See, e.g. supra ¶ 438. The use of the term local law as opposed to domestic law in the context of the law of occupation is related to the rights and obligations of the occupant. Occupants are obliged to ensure public order and safety, which is, for example, recognized in Article 43 of the Hague Regulations. This provision reads as follows: “The authority of the legitimate power having in fact passed into the hands of the occupant, the latter shall take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country". Occupants are entitled to enact rules in fulfillment of this obligation. They may also impose rules or entirely new legal system for other reasons, whether lawful or not. The term local law stresses that any rules enacted by the occupant are not necessarily identical to the domestic law in place at the occupying State or to the domestic law that applied in the occupied territory prior to the occupation. ↩

⁶⁴⁷ See, e.g., the reference provided in Lauri Mälksoo, Soviet Annexation and State Continuity: International Legal Status, Estonia, Latvia and Lithuania in 1940-1991 and after 1991, Investigating the Conflict Between Normativity and Force in International Law, (Tartu University Press, 2003), (CLA-291), pp. 74-75 (fn. 113). ↩

⁶⁴⁸ See supra ¶ 429. ↩

⁶⁴⁹ Counter-Memorial, ¶ 140. ↩

⁶⁵⁰ Rejoinder, ¶ 93; Counter-Memorial, ¶¶ 141-144. ↩

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The Claimant states that Soviet law is irrelevant because, under the law of occupation, Estonia must accept the sales by the Soviet military as a historical fact.⁶⁵¹ The Tribunal has dealt with this argument above. In the present case, the law of occupation mandates the Tribunal's consideration of the local law in place when the transactions occurred, and the de factis rule provides nothing different.

472. The Tribunal considers it possible that Soviet law is part of the relevant analysis. For as will be outlined in this subsection, all sales by the Soviet military relied on by the Claimant occurred before 6 September 1991, the day until which—according to the Petrachkov Report, to which the Claimant did not respond—the constitution of the Soviet Union (“USSR Constitution") applied in Estonia.⁶⁵² Also, on 6 September 1991, the State Council of the Soviet Union recognized the independence of Estonia, shortly after the Supreme Council of Estonia had announced Estonia's full independence from the USSR on 20 August 1991.⁶⁵³

473. The Hangar and the berths at the Seaplane Harbor were allegedly transferred from the Soviet military to GT, a private company before 20 August 1991. Because documents underlying or related to the alleged sales are partly contradictory and others are missing, the Respondent alleges that several documents on file are forged.⁶⁵⁴ The Tribunal will return to this point later if necessary. For its analysis here, it suffices to note that on 31 July 1991, two protocols of transfer regarding the Hangar and the relevant berths were signed between military unit 10717 and 1176 UNR.⁶⁵⁵ While the Respondent states that both entities were military units, the Petrachkov Report confirms this with respect to Military unit 10717, but clarifies that UNR 1176 was a state organization subordinated to the Ministry of Defense of the Soviet Union.⁶⁵⁶ On 17 August 1991, 1176 UNR allegedly sold the Hangar and the berths to GT, which transferred those assets on the same day to Nautex, another private company (which in turn, on 7 May 1992, sold them to Verest, acquired by the Claimant's subsidiary BPV in 1999).

474. The lumber works at the Seaplane Harbor were, according to the Claimant, transferred by the Soviet military to a private party, B&E, even earlier than the Hangar and the berths. Many facts regarding the alleged transfer of the lumber works from the Soviet military to the B&E are contested. But if such a transaction occurred, then this happened on 22 May 1990 and/or 1 November 1990.⁶⁵⁷

⁶⁵¹ Reply, ¶ 23. ↩

⁶⁵² Petrachkov Report, ¶ 23 (RER-2). ↩

⁶⁵³ Supra ¶ 167; Petrachkov Report, ¶ 23 (RER-2). ↩

⁶⁵⁴ Counter-Memorial, ¶¶ 118-132. ↩

⁶⁵⁵ See, e.g., Counter-Memorial, ¶ 121. ↩

⁶⁵⁶ Counter-Memorial, ¶ 121; Petrachkov Report, ¶¶ 159-160, 168 (RER-2). ↩

⁶⁵⁷ In its Post-Hearing Brief, the Claimant stated that through Contract No. 16, Military Factory No. 84, one of the joint owners of SEK, agreed to sell all of SEK's port assets to B&E on 22 May 1990. This transfer was "finalized", according to the Claimant, through a so-called "directive" of SEK dated 1 November 1990 (Claimant's PHB, ¶ 88). In this directive, the director of SEK "order[ed]", firstly, to "take" the woodworking buildings and other buildings and structures listed in the directive “to the balance sheet of small enterprise SEK", and secondly, to "transfer" them to the "balance sheet" of B&E (SEK Directive ↩

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475. This means that the (alleged) sales by the Soviet military to private parties occurred not only while the USSR Constitution still applied in Estonia but also after March 1990. In that month, the Congress of Estonia declared that the Republic of Estonia must be restored based on the principle of State continuity and the Supreme Council of the ESSR proclaimed the “transitional period.”⁶⁵⁸ Hence, in the period in which the relevant sales occurred, the USSR Constitution was still in force in Estonia (according to Soviet law), and Estonia established a transitional legal regime. This may raise certain questions as to the relationship between Soviet law and Estonian law. The Tribunal will revert to this relationship after its analysis of the two legal regimes if they lead to diverging results regarding the questions at issue here.

476. The sale of the Hangar and the berths on 17 August 1991 from UNR 1176 to the private entity GT was, according to the Petrachkov Report, void under Soviet law.⁶⁵⁹ The Claimant considers this finding irrelevant without disputing or confirming it. While possibly not strictly necessary under these circumstances, the Tribunal deems it appropriate to analyze whether, in its view, the relevant conclusions of the Petrachkov Report are correct. In this regard, the Tribunal has difficulties in imagining that individual Soviet military units or their commanders could sell at will military equipment, entire military bases, or parts of the real estate thereon to private parties. Having carefully reviewed the Petrachkov Report as well as the legislation and regulations referred to therein, the Tribunal is convinced that this is the proper result under Soviet law.

477. Under Article 74 of the USSR Constitution, the law of the Soviet Union had priority over the law of its individual republics. It clarified that:

[T]he laws of the USSR have equal legal force in the territories of all Union republics. If the law of a Union republic contradicts the law of the USSR, the law of the USSR is to be applied.⁶⁶⁰

478. Private property did not exist under the USSR Constitution, nor under the Fundamentals of the Civil Legislation of the USSR and Soviet republics (“USSR Fundamentals of Civil Legislation”) which remained in force until 31 December 1991.⁶⁶¹ There was individual ownership, but that included only a limited list of relatively insignificant (household) objects that were not allowed to be used for entrepreneurial activity.⁶⁶² In addition to individual ownership, there was only socialist and collective ownership.⁶⁶³ The latter was partly considered a category

No. 17/90 (C-024); Respondent's Translation of Claimant's Exhibit C-024 (R-035). On 26 September 1997, B&E allegedly transferred the lumber works to Agrin, which was owned by the Claimant's subsidiary BPV from 8 December 1999 until 22 March 2001.

⁶⁵⁸ Mälksoo Report, ¶ 41, Annex 4 (RER-3); Resolution of the Supreme Council of the ESSR on the National Status of Estonia, 29 March 1990 (RLA-049); Lauri Mälksoo, Illegal Annexation and State Continuity: The Case of the Incorporation of the Baltic States by the USSR (Martinus Nijhoff Publishers, 2003), p. 48 (CLA-291). ↩

⁶⁵⁹ Petrachkov Report, ¶ 168 (RER-2). ↩

⁶⁶⁰ Petrachkov Report, ¶ 36 (RER-2) referring to Constitution (the fundamental law) of the Union of Soviet Socialist Republics, 7 October 1977 (as amended on 14 March 1990), Article 74 (SP-12). ↩

⁶⁶¹ Petrachkov Report, ¶¶ 12(G), 22-58, especially ¶¶ 49-50 (RER-2). ↩

⁶⁶² Petrachkov Report, ¶¶ 48-49 (RER-2) Fundamentals of civil legislation of the USSR and Soviet republics, 8 December 1961 (in force until 31 December 1991), Article 25 (SP-2). ↩

⁶⁶³ Petrachkov Report, ¶ 123(B) (RER-2). ↩

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of socialist ownership and partly a separate third form of ownership.⁶⁶⁴ Here, the distinction does not matter. The most important category of socialist ownership was state ownership, and the others included cooperative ownership as well as ownership of labor union organizations and other social organizations.⁶⁶⁵

479. State ownership and the assets that fell under it were described in Article 21 of the USSR Fundamentals of Civil Legislation as follows.

[S]tate ownership is the collective heritage of the Soviet people and the key form of socialist ownership.

The state is the sole owner of all state property.

Land, its subsoil, waters and woods stay in the exclusive ownership of the state and could be transferred only for use purposes. The state owns the capital assets of industrial, construction and agricultural production, assets of transport and communication, banks, property of state-organized commercial, public utility and other enterprises, main city housing fund, as well as other property necessary for achieving state purposes.⁶⁶⁶

480. The Petrachkov Report concludes from this provision—under reference to legal scholarship and other legal instruments—that all capital assets necessary for achieving state purposes fall under state ownership, and that only their use but not their ownership could be transferred to others.⁶⁶⁷ Capital assets—as opposed to other assets—were defined as “material values existing in an inalterable natural form for a long period of time that gradually lose their value in parts" such as "buildings, constructions, equipment, transport, machines, etc.”⁶⁶⁸ Furthermore, to qualify as a "capital asset,” the relevant asset must have been worth originally “100 rubles per unit" or more.⁶⁶⁹

481. On 1 July 1990, the law on ownership in the USSR (“USSR Ownership Law”) entered into force, which built on the USSR Fundamentals of Civil Legislation without contradicting its basic tenets.⁶⁷⁰ Regarding state ownership, the USSR Ownership Law followed the example of Article 13 of the USSR Constitution and distinguished between “all-Union ownership" on the one hand, and ownership of the constituent entities of the USSR, such as its individual republics on the other. Article 13 of the USSR Constitution reads as follows:

⁶⁶⁴ See Petrachkov Report, ¶¶ 40, 123(B) (RER-2). ↩

⁶⁶⁵ Petrachkov Report, ¶¶ 40, 58, 123(B) (RER-2). ↩

⁶⁶⁶ Petrachkov Report, ¶ 62 (RER-2) referring to Fundamentals of civil legislation of the USSR and Soviet republics, 8 December 1961 (in force until 31 December 1991), Article 21 (SP-2). ↩

⁶⁶⁷ Petrachkov Report, ¶¶ 63-69 (RER-2). ↩

⁶⁶⁸ Petrachkov Report, ¶¶ 66-67 (RER-2) referring to Type Classification of the main funds (capital assets) of the national economic of the USSR approved by the Central Statistical Directorate of the USSR, 30 April 1970 (SP-20). ↩

⁶⁶⁹ Petrachkov Report, ¶ 68 (RER-2) referring to Order of the Minister of Defense of the USSR No. 210, 15 August 1979, “With the announcement of the Regulation on financial statements and balances" (SP-21). ↩

⁶⁷⁰ Petrachkov Report, ¶¶ 50-58 (RER-2). ↩

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[S]tate ownership includes the all-Union ownership, the ownership of Union republics, the ownership of autonomy republics, the ownership of autonomy regions, the ownership of autonomy districts, territories, regions and other geographical administrative divisions.⁶⁷¹

482. Along the same lines, Article 19(1) of the USSR Ownership Law provided that:

[S]tate ownership comprises all-Union ownership, the ownership of Soviet republics, autonomous republics, regions, districts territorial and administrative division (community ownership). Disposal and operation of the state property are performed by the relevant Councils of People's Deputies and state bodies authorized by them on behalf of the nation (population of the territorial and administrative division).⁶⁷²

483. Assets of the Soviet military were in “all-Union ownership”. This is reflected in Article 21 of the USSR Ownership Law, which stated (inter alia) that:

[T]he following property is in the all-Union ownership: property of state governmental and administrative bodies of the USSR, [...] property of the Soviet Armed Forces, the border, inner and railway forces, defense facilities, the USSR budget funds, State Bank of the USSR and other banks of the USSR and the property of all-Union reserve, insurance and other funds.⁶⁷³

484. According to the Petrachkov Report, the USSR Ownership Law therefore confirms the proposition set out above in paragraph 480 that land and capital assets in “all-Union ownership," such as property of the Soviet military, must remain state-owned.⁶⁷⁴ For the property of the Soviet military, the Petrachkov Report considers this proposition especially compelling, given the paramount role of the military in the Soviet Union, reflected for example in Article 31 of the USSR Constitution:

[T]he defense of the socialist Motherland is the key function of the state and is a national matter for the entire Soviet people.⁶⁷⁵

485. The USSR Ministry of Defense was charged with operating the property of the Soviet military (and any possible transfers of that property to other state entities). As provided by a regulation dated 14 November 1991, the Ministry of Defense continued to perform this function during the transitional period of the USSR, which was dissolved in December 1991.⁶⁷⁶ Inventory regulations issued by the Minister of Defense confirmed in their first paragraph that land used by the USSR military, barracks, and all fighting and other equipment of the armed forces was state-owned.⁶⁷⁷

⁶⁷¹ Petrachkov Report, ¶¶ 60-61 (RER-2) referring to Constitution (the fundamental law) of the Union of Soviet Socialist Republics, 7 October 1977 (as amended on 14 March 1990), Article 13 (SP-12). ↩

⁶⁷² Petrachkov Report, ¶ 72 (RER-2) referring to Law No. 1305-1 “On ownership in the USSR", 6 March 1990 (as amended on 24 December 1990), Article 19(1) (SP-4). ↩

⁶⁷³ Petrachkov Report, ¶ 76 (RER-2) referring to Law No. 1305-1 “On ownership in the USSR", 6 March 1990 (as amended on 24 December 1990), Article 21 (SP-4). ↩

⁶⁷⁴ Petrachkov Report, ¶¶ 100-101 (RER-2). ↩

⁶⁷⁵ Petrachkov Report, ¶ 95 (RER-2) referring to Constitution (the fundamental law) of the Union of Soviet Socialist Republics, 7 October 1977 (as amended on 14 March 1990), Article 31 (SP-12). ↩

⁶⁷⁶ Petrachkov Report, ¶ 102 (RER-2) referring to Resolution of the State Council of the USSR No. GS-13, 14 November 1991 (SP-26). ↩

⁶⁷⁷ Petrachkov Report, ¶¶ 103-104 (RER-2). ↩

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486. In sum, the Petrachkov Report opines that land and capital assets of the Soviet military, such as buildings, could not be sold to anybody outside the Soviet government and administration as those assets were in “exclusive state (all-Union) ownership.”⁶⁷⁸

487. In addition, the Petrachkov Report also sets out under what conditions state property—which includes other assets than land and capital assets in exclusive all-Union ownership—could be transferred, and to what entities. Such transfers were strictly limited by the provisions of the Resolution of the USSR Council of Ministers No. 940 “On the procedure for the transfer of state enterprises, associations, organizations, institutions, buildings and structures" of 16 October 1979, as amended on 5 October 1989 (“Resolution 940”).⁶⁷⁹

488. Resolution 940 basically provided for two forms of transfers. The first form was transfers on gratuitous grounds that had no impact on the state ownership of the relevant assets because both transferor and transferee were ministries, government departments, state enterprises, or other state entities.⁶⁸⁰ This form of transfer was, according to the Petrachkov Report, called "from balance to balance transfer.”⁶⁸¹ The second form included transfers against compensation of buildings and structures by state entities to cooperative and other social organizations that required the approval of the relevant ministry.⁶⁸²

489. According to Article 14 of the USSR Fundamentals of Civil Legislation, transactions that did not comply with the law were void.⁶⁸³ This included the transfer of assets that were in exclusive state ownership to other than state entities and the lack of mandatory approvals.⁶⁸⁴

490. Against the legislative and regulatory background set out in paragraphs 477-489 above, the Tribunal shares the conclusion of the Petrachkov Report that the transfer of the buildings and structures from the Soviet military to GT on 17 August 1991 was void under Soviet law. For these assets were in exclusive state—more precisely, “all-Union”—ownership and could be transferred only to entities subordinated to the USSR Ministry of Defense, but not to other entities, and surely not to private parties.⁶⁸⁵ The Petrachkov Report includes several other reasons why GT could not acquire those assets.⁶⁸⁶ In this regard, the Tribunal wishes to mention only that neither the

⁶⁷⁸ Petrachkov Report, ¶¶ 100, 105(A) (RER-2). ↩

⁶⁷⁹ Petrachkov Report, ¶ 101 (RER-2). ↩

⁶⁸⁰ Petrachkov Report, ¶¶ 117-118 (RER-2) referring to Resolution of the USSR Council of Ministers No. 940 "On the procedure for the transfer of state enterprises, associations, organizations, institutions, buildings and structures", 16 October 1979 (as amended on 5 October 1989), Articles 3, 5 (SP-10). ↩

⁶⁸¹ Petrachkov Report, ¶ 118 (RER-2). ↩

⁶⁸² Petrachkov Report, ¶¶ 119-120 (RER-2); Resolution of the USSR Council of Ministers No. 940 "On the procedure for the transfer of state enterprises, associations, organizations, institutions, buildings and structures", 16 October 1979 (as amended on 5 October 1989), Articles 7, 8 (SP-10). ↩

⁶⁸³ Petrachkov Report, ¶ 133 (RER-2) referring to Fundamentals of civil legislation of the USSR and Soviet republics, 8 December 1961 (in force until 31 December 1991), Article 14 (SP-2). ↩

⁶⁸⁴ Petrachkov Report, ¶ 102 (RER-2). ↩

⁶⁸⁵ See Petrachkov Report, ¶ 168 (A)-(B) (RER-2). ↩

⁶⁸⁶ See Petrachkov Report, ¶ 168 (C)-(E) (RER-2). ↩

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transaction between Military unit 10717 and 1176 UNR nor the transaction between 1176 UNR and GT seems to have been approved by the USSR Ministry of Defense.⁶⁸⁷

491. As regards the transaction in 1990 through which B&E allegedly acquired the buildings and structures that were supposed to serve the lumber operations of the Claimant, the Petrachkov Report includes even more reasons why this transaction was invalid.⁶⁸⁸ As in the context of GT, the transaction was void because the military assets could not be sold to B&E as a private, non-State entity.⁶⁸⁹ The only additional ground that the Tribunal wishes to mention here is again the lack of any approval by the USSR Ministry of Defense.⁶⁹⁰

492. For the sake of completeness, the Tribunal notes that the possible involvement of SEK in the transfer of the property to B&E is no ground for considering this transaction valid. The Respondent has pointed to inconsistencies in the documentary record regarding the alleged transfer of the relevant assets to B&E in its written submissions. At the Hearing, the Respondent reiterated that the Claimant has never clarified whether B&E acquired the relevant assets from SEK or whether it relies on Contract No. 16 dated 22 May 1990, to which SEK was not a party.⁶⁹¹ The Claimant then specified that through Contract No. 16, the parties agreed to sell SEK's port assets to B&E. The transfer was “finalized", according to the Claimant, through a so-called "directive" of SEK dated 1 November 1990.⁶⁹² In this directive, the director of SEK “order[ed]", firstly, to "take" the woodworking buildings and other buildings and structures listed in the directive “to the balance sheet of small enterprise SEK", and secondly, to “transfer” them to the "balance sheet" of B&E.⁶⁹³ The Petrachkov Report explains that an internal act like a directive of SEK cannot have any effects on the relevant assets.⁶⁹⁴ This sounds plausible but is not decisive for the Tribunal's finding. Rather, the two reasons for the invalidity of the transfer of assets belonging to the Soviet military to B&E set out above—that is, the inalienability of land and capital assets in all-Union ownership and the lack of approval by the Ministry of Defense—remain applicable.⁶⁹⁵ The Petrachkov Report also sets out that a “small enterprise” had autonomy regarding its proceeds and profits. But this does not mean that it was the owner of any assets on its balance sheet.⁶⁹⁶

⁶⁸⁷ See Petrachkov Report, ¶ 168 (C) (RER-2). ↩

⁶⁸⁸ Petrachkov Report, ¶¶ 156 (A)-(G) (RER-2). ↩

⁶⁸⁹ See Petrachkov Report, ¶ 156 (A) (RER-2). ↩

⁶⁹⁰ See Petrachkov Report, ¶ 156 (E)-(G) (RER-2). ↩

⁶⁹¹ Hearing Transcript, Day 5, pp. 107:17-24. ↩

⁶⁹² Claimant's PHB, ¶ 88 referring to SEK Directive No. 17/90 (C-019). ↩

⁶⁹³ SEK Directive No. 17/90 (C-024); Respondent's Translation of Claimant's Exhibit C-024 (R-035). Initially, the Claimant seems to have argued that (the majority of) the relevant assets were transferred to SEK pursuant to Decree No. 477 on 29 December 1989 (Memorial, ¶ 253, referring to Decree 477 establishing SE SEK, 29 December 1989 (C-018). But this decree merely established SEK. It does not mention any assets, let alone the transfer of such assets. ↩

⁶⁹⁴ Petrachkov Report, ¶¶ 174-175, 179(E) (RER-2). ↩

⁶⁹⁵ See Petrachkov Report, ¶¶ 179(A) & (C) (RER-2). ↩

⁶⁹⁶ Petrachkov Report, ¶¶ 169-172, 179(B)-(D) (RER-2). ↩

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493. Having found—in accordance with the Petrachkov Report—that the relevant transactions were invalid under Soviet law, the Tribunal will now turn to Estonian law.

(B.) Estonian Law

494. As set out above, the Estonian courts have decided that the transactions by which the Soviet military allegedly transferred the relevant assets at the Seaplane Harbor to private parties were void and that the Claimant's subsidiaries never became the owners of those assets.⁶⁹⁷ This requires the Tribunal to determine whether and to what extent it may revisit issues under Estonian law on which Estonian courts have already decided. The Tribunal will address this issue first, before it outlines and—within the appropriate bounds—assesses the reasoning of the Estonian courts.

(1.) Level of Scrutiny

495. Addressing ownership issues under Estonian law raises the question of how an international tribunal should determine the content of a host State's law. The tribunal in Emmis v. Hungary faced a similar task, which it described as follows:

Where the Tribunal is presented with a question of municipal law essential to the issues raised by the Parties for its decision, the Tribunal, whilst retaining its independent powers of assessment and decision, must seek to determine the content of the applicable law in accordance with evidence presented to it as to the content of the law and the manner in which the law would be understood and applied by the municipal courts.⁶⁹⁸

496. The Tribunal agrees with the principle articulated in Emmis that the content of a host State's law must be determined based on how the relevant domestic courts would understand and apply that law. The present case is special insofar as the Estonian courts have ruled on the very issue of whether the Claimant's subsidiaries had acquired title to the buildings and structures at the Lennusadam Port. As set out above, they have answered this question in the negative.⁶⁹⁹ As a tribunal constituted under international law that is supposed to be independent of the Parties, the Tribunal does not consider itself to be bound by these decisions. The States parties to an investment treaty can of course agree that an international tribunal must follow the findings of the domestic courts of the State whose conduct is alleged to be wrongful. But absent such a provision, it seems unlikely that States parties intended an international tribunal to be bound by the decisions of the domestic courts of the respondent State. This is because arbitration clauses are typically included in a treaty if the States parties want disputes to be decided by a neutral third-party adjudicator unrelated to one of the disputing parties.

497. While the Tribunal, therefore, cannot simply adopt the decisions of the Estonian courts without making its own assessment, it is also convinced that it would be wrong to second guess and possibly overrule the Estonian courts as if the Tribunal were a court of appeal. In principle, domestic judges are better suited to interpret and apply their domestic law than international tribunals. Hence, the Tribunal has no doubt that Estonia and the U.S. intended a tribunal

⁶⁹⁷ See ¶¶ 284-302 above. ↩

⁶⁹⁸ Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, ¶ 175 (RLA-059). ↩

⁶⁹⁹ See ¶¶ 284-302 above. ↩

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constituted under the Treaty to grant some deference to the decisions of their domestic courts. The scope of this deference is not necessarily uniform in all contexts. The tribunal in Azinian v. Mexico, for example, found that decisions of domestic courts violate the FET standard if they constitute a "clear and malicious misapplication of the law.”⁷⁰⁰ It is debatable whether the same or a similar standard is appropriate here, where the Tribunal must determine an issue regarding its jurisdiction based on domestic law. But defining the precise degree of deference owed to the Estonian courts regarding the Tribunal's jurisdiction is dispensable if the Tribunal does not consider that Estonian law was applied wrongly. The Tribunal will revert to this point later.

(2.) The Reasoning of the Estonian courts

498. The Estonian court's decision that neither Agrin nor Verest had become the owners of the buildings and structures at the Port became final in 2006, when the Supreme Court decided not to hear the appeal against the March 2006 Appeal Judgment of the Tallinn Circuit Court. The latter judgment fully endorsed the Tallinn City Court's reasoning regarding ownership, which it did not consider necessary to repeat or amend.⁷⁰¹ The Circuit Court disagreed with the city Court's interpretation of statutory provisions on possession, but this issue is relevant regarding the validity of the lease agreements and title-bearing possession and will be analyzed by the Tribunal later.

499. The City Court clarified that none of the parties disputed that the piece of land on which the buildings and structures were located belonged to the Republic of Estonia, which, according to the court, is confirmed by documentary evidence from the years 1924 to 1941.⁷⁰² Regarding the ownership of the buildings and structures, the City Court first outlined—by reference to a decision of a Supreme Court decision of 1994, on which more later—the political and legal developments from 1918 until the mid-1990s as. The court stated that after its creation in 1918, the Republic of Estonia was occupied in 1940 and unlawfully integrated into the Soviet Union, which, as the occupant, never owned the real estate in the occupied territory. In the words of the court:

The Republic of Estonia has been created based on the national right of self-determination of the people of Estonia and proclaimed on 24 February 1918; the Republic of Estonia was occupied and annexed by the USSR in 1940 with the help of its armed forces based on the Molotov-Ribbentrop agreement and was incorporated unlawfully to the USSR.; it was illegal according to international law and in contradiction with the interests and goals of the state and the people of Estonia stated in the Constitution of the Republic of Estonia; arising from the superiority of international law the states are obliged to follow the provisions of international law including the provisions of international customary law; Article 55 of the IV Hague Convention states that the occupying country cannot acquire the real estate of the occupied country; it has to maintain the value of the immovable property and can only be the possessor or ususfructur[.]⁷⁰³

500. The City Court also summarized the Estonian legislative and regulatory steps in the process of regaining full independence, and it stressed that the form and content of the relevant acts were

⁷⁰⁰ Azinian, Davitian, & Baca v. United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999, ¶ 103 (CLA-087 and RLA-122). ↩

⁷⁰¹ March 2006 Appeal Judgment, p. 38 (C-081). ↩

⁷⁰² July 2005 Judgment, p. 23, ¶ 1 (C-078). ↩

⁷⁰³ July 2005 Judgment, p. 23, ¶ 2 (C-078). ↩

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influenced by the political realities (which included the presence of the Soviet military until 1994). In this regard, the court stated inter alia that:

[T]he restoration of the state of Estonia was a process and the scope, legal content and form of the political and legal decisions that were the basis of it has depended on the current opportunities of the forces restoring the state; on 30 March 1990 the ESSR Supreme Court [sic!] as the representative of the people at the time showed the will to restore the independence of the Republic of Estonia and proclaimed the USSR state power in Estonia illegal from the moments of its enacting and proclaimed the restoration of the Republic of Estonia; the 16 May 1990 decision of the Supreme Council stated that the legal system to be created is based on the will of the people of Estonia and the generally acknowledged principles of international law; the 17 July 1990 decision of the Supreme Council suspended the change of the form of ownership of the assets in the ownership of the state [...]⁷⁰⁴

501. As regards the specific transactions at issue, the City Court found that the transfers of the relevant assets to B&E (the alleged predecessor in title to Agrin) and GT (the alleged predecessor in title to Nautex and then Verest) were in breach of the 17 July 1990 Resolution.⁷⁰⁵ This resolution suspended all transactions involving State assets until legislation regulating the privatization of ownership was adopted. The alleged transfer of the Hangar and the berths from the USSR Armed Forces to GT took place more than a year after that, namely on 17 August 1991. The alleged transfer of the lumber works to B&E could, according to the City Court, not have taken place before 11 September 1990, the date when SEK was registered.⁷⁰⁶ The court also noted that it does not matter which (if any) of the two versions of Contract No. 16 dated 22 May 1990 presented to it was the authentic version. This is because SEK—the entity whose assets were supposed to be transferred to B&E under Contract No. 16—took the buildings and structures to its balance sheet only on 1 November 1990. This means that on 22 May 1990, they could not have constituted assets of SEK.⁷⁰⁷

502. In light of the above, the City Court concluded that GT and B&E did not become owners of the relevant assets because the transactions were in breach of the 17 July 1990 Resolution and thus void according to section 51(1) of the Civil Code.⁷⁰⁸ The City Court also mentioned and relied on other resolutions and legal instruments in its analysis. To avoid unnecessary repetitions, the Tribunal will address them in the next subsection.

503. Regarding the alleged successors in title to GT and B&E, including Verest and Agrin, the Tallinn City Court held that none of the subsequent transactions effected a change in ownership by operation of good-faith provisions under Estonian law. This is because the relevant entities knew or should have known that the assets belonged to Estonia. The City Court added that good-faith acquisition is, in any event, impossible under Estonian law if the owner lost the property against

⁷⁰⁴ July 2005 Judgment, p. 23, ¶ 2 (C-078). While the translation provided by the Claimant erroneously refers to the "ESSR Supreme Court" in the passage quoted above, it is undisputed that it was the Supreme Council who issued the March 1990 Resolution (see also paragraph 164 above). ↩

⁷⁰⁵ July 2005 Judgment, pp. 25-26, ¶¶ 4, 11 (C-078). ↩

⁷⁰⁶ July 2005 Judgment, pp. 25-26, ¶¶ 9, 11 (C-078). ↩

⁷⁰⁷ July 2005 Judgment, pp. 25-26, ¶¶ 9, 11 (C-078). ↩

⁷⁰⁸ July 2005 Judgment, pp. 25-26, ¶¶ 4, 11 (C-078). ↩

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their will, which was the case here because of the illegal Soviet annexation.⁷⁰⁹ Additional details of the reasoning of the Estonian courts will be addressed in the context of the Tribunal's assessment, which follows now.

(3.) The Tribunal's Assessment

504. In principle, the decision of the Tallinn City Court involves two different legal regimes, namely international law and Estonian law. Both Parties are of the view that by virtue of the Estonian Constitution, rules and principles of the law of occupation that constitute customary international law are part of Estonian law, including the Hague Regulations.⁷¹⁰ Furthermore, neither the Parties nor the Keres Reports take issue with the fact that the Estonian courts applied international law. But the Claimant argues that the Estonian courts reached the wrong result when applying international law because they misinterpreted Article 55 of the Hague Regulations and failed to address Article 53 of the Hague Regulations altogether. More specifically, the Claimant argues that buildings were treated as movables under Estonian law at the time when the Soviet military transferred the assets to private parties in 1990 and 1991. Hence, the Estonian courts should have relied on Article 53 of the Hague Regulations and considered the sales by the Soviet military valid. All subsequent sales from one private party to the other were, according to the Claimant, valid as well, regardless of their compliance with Estonian law since those were governed by the ex factis rule.

505. As mentioned earlier, it is not universally accepted that Estonia was occupied by the Soviet Union for more than 50 years in the last century following acts or threats of aggression in 1940. Especially Soviet scholars used to argue that Estonia joined the Soviet Union voluntarily, and this also seems to be the position of the Russian Federation today. Others consider that the law of occupation initially applied in 1940 and for some time thereafter, but doubt that it continued to remain applicable for several decades until the 1990s. The Tribunal stated above that it does not need to determine those issues for the purposes of its decision. For, if the law of occupation is not applicable in the present dispute, it can only be Soviet law, Estonian law, or both that govern the relevant transactions.

506. The Estonian courts applied the Hague Regulations as part of Estonian law. The view that Estonia was occupied by the Soviet Union is shared by significant parts of the international community and is arguably the predominant opinion in legal scholarship.⁷¹¹ Some authors doubt that the law of occupation can be applicable over several decades, but this is not the prevailing opinion in legal scholarship. Hence, by applying the Hague Regulations as part of Estonian law, the Estonian courts were certainly within the bounds of deference owed by the Tribunal to the courts of the States parties as regards compliance with their own legal system. Nor did the Estonian courts exceed any limits of this deference when they held that the law of occupation did not authorize

⁷⁰⁹ July 2005 Judgment, p. 27, ¶ 15. ↩

⁷¹⁰ Memorial, ¶ 278; Counter-Memorial, ¶ 184. ↩

⁷¹¹ Lauri Mälksoo, Illegal Annexation and State Continuity: The Case of the Incorporation of the Baltic States by the USSR (Martinus Nijhoff Publishers, 2003), p. 203 (CLA-291); Eyal Benvenisti, The International Law of Occupation, (OUP, 2012), p. 151 (CLA-282). ↩

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the Soviet military to sell occupied real estate to private parties. In fact, this is probably the better view, as set out by the Tribunal in its analysis above.

507. For its position that the Tallinn City Court misapplied Estonian laws and regulations, the Claimant relies on the expert testimony of Mr. Keres. The Second Keres Report assumes that the Soviet Union had become the owner of the Lennusadam Port as a matter of international law. At the Oral Hearing, Mr. Keres confirmed that he did not provide expert testimony on whether and how the Soviet military became the owner of the Lennusadam Port under international law.

However, what was the basis under which the Soviet military acquired the property and became the owner of the property, I submit that's where my capabilities as an expert end and yours begin, because I believe that to be a matter of international law rather than Estonian domestic law.⁷¹²

508. Based on the assumption that the Soviet military was the owner of the Lennusadam Port, the Second Keres Report analyzes whether any of the Estonian laws and regulations invalided the transactions between the Soviet military and the private parties. It answers this question in the negative.

If the determination in respect of ownership of the Lennusadam Port is that it did transfer to the ownership of the USSR, then the question that logically follows is whether any of the various laws and regulations adopted by the newly independent Republic of Estonia would be applicable to either expropriate the Lennusadam Port or to invalidate any prior transactions.

After careful review of the applicable laws and regulations, I am of the opinion that this is not the case here.⁷¹³

509. The Fourth Keres Report replies to the Respondent's proposition that there was no need to invalidate the transactions by the Soviet military regarding the Lennusadam Port under Estonian law because they were already invalid under international law. In this regard, the Fourth Keres Report considers the parliamentary debate that led to the 23 January 1992 Resolution to be important. That debate and the resulting text of the resolution indicate, according to Mr. Keres, that the Estonian legislator never considered all sales of real estate by the Soviet military to private parties invalid and only sought to forbid them in the future.⁷¹⁴ From this, Mr. Keres concludes that the City Court applied the 23 January 1992 retroactively when finding that the relevant transactions by the Soviet military with GT and B&E were invalid, given that they occurred before 1992.

510. As outlined in paragraphs 504-506, the Tribunal accepts the findings of the Estonian court that the Soviet military did not become the owner of the Lennusadam Port as a matter of international law. But the Tribunal still needs to assess whether, under the relevant Estonian laws and regulations, the sales by the Soviet military to GT and B&E, as well as the subsequent transactions, can be considered void, as held by the Estonian courts.

⁷¹² Hearing Transcript, Day 4, p. 125:16-21. ↩

⁷¹³ Second Keres Report, ¶¶ 46-47 (CER-2). ↩

⁷¹⁴ Fourth Keres Report, ¶¶ 57-70 (CER-8). ↩

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(i) Supreme Court Decisions of 1994 and 1995

511. In its reasoning, the City Court relied on a decision of the Supreme Court of Estonia dated 12 December 1994 (“1994 Supreme Court Decision)”.⁷¹⁵ The Tribunal considers the decision to be particularly relevant for the present dispute. For, in this decision, Estonia's highest court set out its understanding of the legal instruments of Estonia's transitory regime from 1990 until 1993 that are at issue here as well. This was in 1994, that is, roughly a decade before the Estonian court decisions on the Seaplane Harbor in which the Claimant posits the courts misapplied the law, and several years before the Claimant became active at the port.

512. In its 1994 decision, the Supreme Court held that Estonia was occupied by, and illegally incorporated into, the Soviet Union with the help of its armed forces in 1940 and that, as the occupant, the Soviet Union could not become the owner of the real estate in Estonia. The relevant reasoning of the Supreme Court and its comments on the individual legal instruments—which are also at issue in the present dispute—are worth quoting at some length:

[1.] [T]he Estonian state has been founded on the basis of the inextinguishable right of the people of Estonia to national self-determination and the Estonian state was proclaimed on 24 February 1918.

[2.] On the basis of the Molotov-Ribbentrop Pact, the Republic of Estonia was occupied and annexed by the USSR in 1940 with the help of its armed forces and illegally incorporated into the USSR. It was illegal under international law and in conflict with the interests and goals of the people of Estonia set out in the Constitution.

[3.] Based on the supremacy of international law, states are required to follow the rules of international law, including the rules of customary international law. It follows from Article 55 of the IV Hague Convention that the occupying state cannot become the owner of the real estate of the occupied state. It must safeguard the capital of these properties and act merely as their administrator and usufructuary.

[4.] The restoration of Estonia's statehood has been a process whereby the scope, legal substance and form of the underlying political and legal decisions has been based on the opportunities of the restoration forces of the time.

[5.] On 30 March 1990, the Supreme Council of the Estonian SSR as the representation of people at the time expressed its will to restore the independence of the Republic of Estonia and declared the state power of the USSR unlawful in Estonia as from its establishment and declared restoration of the Republic of Estonia (restitutio ad integrum). By a decision of 16 May 1990 of the Supreme Council of the Republic of Estonia 'About the Action Programme of the Supreme Council of the Republic of Estonia during the Transition Period until Restoration of the Independence of the Republic of Estonia and the Temporary Order of Government' it was stipulated that the established legal system of the Republic of Estonia is based on the will of the people of Estonia and the generally accepted rules of international law.

⁷¹⁵ July 2005 Judgment, pp. 23-24, ¶ 2 (C-078). ↩

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[6.] By a decision of the Presidium of the Supreme Council of the Republic of Estonia of 17 July 1990, changes to the form of ownership of the property belonging to the state were suspended. By a decision of 19 December 1990, the Supreme Council of the Republic of Estonia declared the change of ownership relationships by the USSR forceful and restored the principle of the continuity of ownership. Clause 1 of the decision of the Supreme Council of 29 August 1991 repealed all instruments adopted and passed by the state and governmental bodies of the Republic of Estonia or Estonian SSR after 16 June 1940 by which undertakings, authorities and organisations were transferred under the supervision, administration or management of the state authorities of the USSR. The assets of undertakings, authorities and organisations under the supervision, administration or management of the state authorities of the USSR, which were located in the territory of the Republic of Estonia, were also declared to be the property of the Republic of Estonia. By the decision of the Supreme Council of 23 January 1992 'On declaring the buildings and other assets administered by the armed forces of the former USSR, which are located in the territory of the Republic of Estonia, as the property of the Republic of Estonia,' the buildings and other structures in the possession of the structural units of the armed forces of the former USSR, which were located in the territory of the Republic of Estonia, were declared to be the property of the Republic of Estonia and all transactions with the property without the consent of the government were banned.

[7.] The property of the military is state property. The real estate (i.e. land, buildings and structures) possessed and used by the armed forces of the former USSR was and is the property of the Estonian state. The actual possession, use and disposal of the property became possible gradually as of the making of the decision to restore the Republic of Estonia on 30 March 1990. It follows from international law and the continuity of the Republic of Estonia that the armed forces of the USSR and its structural units were not the legal subject of the transactions made with the land, construction works or objects located in the territory of the Republic of Estonia.

[8.] The submission according to which the real property possessed and used by the armed forces of the USSR did not belong to the Republic of Estonia is erroneous also based on the fact that upon collapse of the USSR a portion of the assets of the former USSR belonged to the Estonian SSR.

[9.] A judicial assessment for the purpose of resolving civil law transactions made with the property of the military has also been given in an order made by the Civil Chamber of the Supreme Court of the Republic of Estonia on 29 January 1993 and in an order of the Presidium of the Supreme Court on 5 May 1993.

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[10.] It follows from the supremacy of the will of the people and the principle of the sovereignty of the state that the authority of the state established on a legal ground has the right to determine the procedure for the possession, use and disposal of the property, which the Riigikogu and the Government of the Republic have done in the present case. The legislature has the inherent right, taking into account the will of the people expressed in the Constitution, keeping in mind the overall interests of the state, and taking into account the actual situation and the principle of legality, to pass retroactively effective legislation that does not fall into the field of criminal law and that amends to annuls prior legislative instruments. However, in the present case there was no need to retroactively annul transactions by an Act and no ground for it, because the respective legal decisions had already been made. The provisions of § 1 of the Act of 18 May 1993 regarding the annulment of transactions blurred the legislation and are in conflict with the principles of the rule of law, according to which the legislature has the authority to formulate the grounds for the assessment of the validity of transactions, [while] only the judiciary has the authority to declare a transaction void. Therefore, § 1 of the Act of 18 May 1993 on the annulment of transactions is in conflict with the idea of the Constitution according to which the Republic of Estonia is based on the principles of the rule of law and § 146 of the Constitution under which only courts can administer justice. The other sections of the Act of 18 May 1993 do not have a separate regulatory meaning.⁷¹⁶

513. As correctly pointed out by the Claimant, with its decision, the Supreme Court repealed the following provision in the Act of 18 May 1993:

All transactions made regarding land, buildings and structures that have been or are possessed or used by the structural units of the armed forces of the former USSR, which located or locate in the territory of Estonia, after the 30 of March 1990 without the consent of the Government of the Republic of Estonia are void (including balance sheet transfers).⁷¹⁷

514. But the Supreme Court considered this provision unconstitutional not because it disagreed with the proposition set out therein, namely that transactions made after 30 March 1990 that sought to transfer land or buildings formerly in possession of the Soviet military were invalid. Rather, the Supreme Court stated that the laws that sustained this proposition had already been enacted prior to the Act of 18 May 1993. Hence, the Supreme Court found that the Act of 18 May 1993 unnecessarily blurred prior legislation.⁷¹⁸ It also stated that the legislator might enact laws that stipulate the grounds for the invalidity of transactions, but it is for the judiciary to “declare a transaction void", which is why the court considered the Act of 18 May 1993 to violate the rule of law.⁷¹⁹

515. For the present dispute, the salient point of the 1994 Supreme Court Decision is that it clarified the view of Estonia's highest court on the ownership of real estate controlled by the Soviet military during the occupation or parts thereof. The Supreme Court unequivocally stated that that property always was and is the property of the Estonian state, and that the Soviet military was not entitled to enter any sales contracts with others regarding that property.⁷²⁰ The court also stressed that after 30 March 1990, when the restoration of the Republic of Estonia was declared (restitutio ad

⁷¹⁶ December 1994 Supreme Court Judgment, pp. 2-3 (paragraph numbers and emphasis added) (CLA-191). ↩

⁷¹⁷ Act on the Annulment of Transactions, 18 May 1993 (C-614). ↩

⁷¹⁸ Supra ¶ 512(10). ↩

⁷¹⁹ Supra ¶ 512(10). ↩

⁷²⁰ Supra ¶ 512(7). ↩

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integrum), Estonia could possess and use that property only gradually over time.⁷²¹ This seems hardly surprising, given that the withdrawal of the Soviet military was a process that was completed only in 1994.

516. In a decision of 31 January 1995, the Estonian Supreme Court applied the principles just outlined in a case that involved the transfer of buildings and facilities from the Soviet military to a private party via several sales contracts dated 9 October 1991 (“1995 Supreme Court Decision"). Those sales contracts were considered valid by the Tallinn Circuit Court in a decision dated 19 October 1994, that is, a few weeks before the 1994 Supreme Court Decision. Without guidance from the Supreme Court, the Tallinn Circuit Court reasoned that the 17 July 1990 Resolution did not suspend transactions that involved property of the Soviet military.⁷²² This is also the position of the Claimant and the Keres Reports in the current dispute. But the Supreme Court overruled the Tallinn City Court's decision of 19 October 1994 in its 1995 Decision. It held that the 17 July 1990 Resolution also suspended all transactions with real estate controlled by the Soviet military. The most important part of the 1995 Supreme Court Decision, for the purposes of the present case, reads as follows:

The decision of 30 March 1990 of the Supreme Council of the Estonian Soviet Socialist Republic on the national status of Estonia confirmed that the occupation of the Republic of Estonia by the Soviet Union on 17 June 1940 had not interrupted the existence of the Republic of Estonia de jure and the territory of the Republic of Estonia was still occupied to that day. In the same decision, the unlawfulness of the state power of the Soviet Union in Estonia from the moment of its establishment was recognised, and a transitional period for the restoration of the Republic of Estonia was declared. The restoration of the Estonian statehood has been a process in which the wording and form of the underlying legal decisions have depended on the current capabilities of the forces restoring the statehood. This must be taken into account when interpreting the legislation governing the dispute. The Civil Chamber of the Circuit Court has incorrectly interpreted the decision of the Presidium of the Supreme Council of the Republic of Estonia of 17 July 1990 [...] This decision was adopted in the process of the restoration of the Republic of Estonia due to the need to ensure the preservation of state property as state property. Clause 1 of the decision temporarily suspended, pending the adoption of the legislative acts of the Republic of Estonia governing the privatisation of property, all transactions involving the fixed property of state-owned enterprises and other organisations that cause the ownership form of the property to change. Such suspension of transactions meant that the seller, the Baltic Fleet Construction Board, and the buyer, AS Fonon, registered in Estonia, were prohibited from concluding the contract of purchase and sale that changed the ownership form of the property owned by the state. This prohibition also applied to the property managed by the Armed Forces of the former Soviet Union in the territory of Estonia, which constituted state property. Clause 1 of regulation of 7 May 1991 [...] is also based on the aforementioned interpretation of the decision of the Presidium of the Supreme Council of the Republic of Estonia of 17 July 1990, drawing the attention of the heads of state-owned enterprises, institutions and organisations subject to the Soviet Union to the fact that all transactions involving the fixed property of state-owned enterprises that cause the ownership form of the property to change are suspended.

⁷²¹ Supra ¶ 512(7). ↩

⁷²² See Supreme Court of Estonia, Case No. III-1/1-6/95, Judgment, 31 January 1995, p. 2 (RLA-114). ↩

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The fact that the subsequent legal acts referred to in the decision of the Civil Chamber of the Circuit Court (subsection 2 (2) of the decision of 29 August 1991 of the Supreme Council of the Republic of Estonia [...], and clause 5 of the regulation of 12 September 1991 of the Government of the Republic of Estonia “ [...]) dealt with the issues related to the ownership of the property in the possession of or used by the Ministry of Defense of the Soviet Union or its structural units does not mean that the temporary suspension of transactions indicated in the decision of 17 July 1990 of the Presidium of the Supreme Council of the Republic of Estonia did not prohibit the Baltic Fleet Construction Authority from selling and AS Fonon from purchasing the disputed property on 9 October 1991.⁷²³

517. The Tribunal finds this reasoning important in assessing whether the courts misapplied Estonian law when deciding that the transactions by B&E and GT with the Soviet military were invalid, and that the subsequent transactions did not lead to a change in ownership of the Seaplane Harbor. With these observations in mind, the Tribunal will now address some of the legal instruments that the Claimant and the Keres Reports opine were misapplied by the Tallinn City Court in its July 2005 Judgment.

(ii) 17 July 1990 Resolution

518. As set out above in paragraphs 501 and 502, the Tallinn City Court considered the transfers of the relevant assets from the Soviet military to B&E and GT invalid because they were not in line with the 17 July 1990 Resolution. That resolution read as follows:

1. To suspend temporarily, until the adoption of Estonian legislative acts regulating the privatization of the property, all transactions with the statutory fund property of state-owned enterprises and other organisations, which cause a change in the ownership of such property, except in the cases provided in section 3.2. of this resolution and also the transfer of property from state farms to collective farms following the established procedure.
2. To acknowledge that based on the protocol decision from May 27^th this year the Government of Estonian Republic will develop the privatization concept (the general principles of the privatization process and their execution in specific areas) and will submit it by September 1^st this year to the Supreme Council of Estonian Republic for review.
3. To assign the Government of Estonian Republic:
   1. To compile an overview of the state-owned property at the territory of Estonian Republic and outside of it and the state's obligations regarding the return or compensation of the unlawfully transferred property to its prior owners or their legal successors.
   2. To prepare by August 10^th the draft of Estonian law regarding the procedure and conditions of privatization of consumer service, trade and catering enterprises with the balance sheet value until 500 000 roubles.
   3. [...]⁷²⁴

519. The reasons provided by the Claimant and the Keres Reports for the alleged inapplicability of the 17 July 1990 Resolution to the transfer of the relevant buildings and structures at the Seaplane

⁷²³ Supreme Court of Estonia, Case No. III-1/1-6/95, Judgment, 31 January 1995, pp. 3-4 (RLA-114). ↩

⁷²⁴ Resolution of the Presidium of the Supreme Council of the Republic of Estonia regarding the Initial Measures for Organising the Privatization Process, 17 July 1990 (CLA-195). ↩

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