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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

IN THE MATTER OF AN ARBITRATION PROCEEDING UNDER ARTICLE 8(2)(a) OF THE
AGREEMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND
THE GOVERNMENT OF THE CZECH AND SLOVAK FEDERAL REPUBLIC FOR THE PROMOTION
AND PROTECTION OF INVESTMENTS AND THE UNCITRAL ARBITRATION RULES (1976)

A11Y LTD.

v.

CZECH REPUBLIC

(ICSID Case No. UNCT/15/1)

AWARD

Tribunal
The Hon. L. Yves Fortier, QC, Presiding Arbitrator
Prof. Stanimir A. Alexandrov, Arbitrator
Ms. Anna Joubin-Bret, Arbitrator

Secretary to the Tribunal
Ms. Jara Mínguez Almeida

Assistant to the Tribunal
Ms. Annie Lespérance

Place of Arbitration: Paris, France
Date of dispatch to the Parties: 29 June 2018

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REPRESENTATION OF THE PARTIES

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FREQUENTLY USED ABBREVIATIONS AND ACRONYMS

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I. INTRODUCTION

1. Having issued a Decision on Jurisdiction on 9 February 2017, the Tribunal now turns to the Parties' submissions in respect of the Respondent's remaining jurisdictional objection, liability and quantum.

2. The Tribunal recalls that these proceedings were launched pursuant to the 1976 UNCITRAL Rules and are administered by ICSID further to the Parties' agreement of 12 January 2015.

3. The present Award should be read together with the Tribunal's Decision on Jurisdiction.¹ Therefore, the Tribunal sees no need to traverse again the procedural history of these proceedings, which it reviewed at length in its Decision on Jurisdiction. Initially, the Tribunal will recall its findings on jurisdiction, and then set out the procedural history of the proceedings after the issuance of its Decision on Jurisdiction.

4. In order to set the stage for the present Award, the Tribunal will then review the background of the Claimant's investment in the Czech Republic and the Respondent's alleged measures which, the Claimant says, breached Article 5, the expropriation provision of the Treaty. The Parties' requests for relief are set out in Section II.

5. In its analysis, the Tribunal has considered not only the submissions of the Parties summarized in the present Award, but also the numerous detailed arguments presented by the Parties in their written and oral pleadings. To the extent that these arguments are not referred to expressly, they should be deemed to be subsumed into the Tribunal's analysis.

A. DECISION ON JURISDICTION

6. On 9 February 2017, the Tribunal issued its Decision on Jurisdiction.

7. The operative part of the Decision provides as follows:

187. For the foregoing reasons, the Tribunal decides:

¹ Reproduced as Annex 1 to the present Award. ↩

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(1) To uphold the Respondent's jurisdictional objection based on the scope of application of Article 8(1) of the Treaty. Accordingly,

(a) the Tribunal has no jurisdiction over the Claimant's claims pursuant to Articles 2(2) and 3 of the Treaty;

(b) the Tribunal has jurisdiction over the Claimant's claims made under Articles 2(3) and 5 of the Treaty;

(2) To deny the Claimant's request for relief for a “declaration that the Czech Republic has breached Article 2(3) of the Treaty by failing to observe the provisions of the Treaty set out in sub-clauses (a) to (d) above” for the reasons set out in paragraph 91 above;

(3) To reject the Respondent's jurisdictional objection that the Claimant is not a foreign investor;

(4) To reject the Respondent's jurisdictional objection that the Claimant failed to adhere to the cooling-off period;

(5) To reject the Respondent's jurisdictional objection that the Treaty is superseded by EU law;

(6) To defer its decision on costs related to this phase of the arbitration until the Tribunal's Final Award.

188. After consultation with both Parties a procedural order will be issued regarding the further procedure.

B. HISTORY OF THE PROCEEDINGS FOLLOWING THE ISSUANCE OF THE DECISION ON JURISDICTION

8. On 9 February 2017, the Tribunal invited the Parties to seek to agree the remainder of the procedural calendar. By the Claimant's letters of 14 February 2017 and 20 February 2017 sent on behalf of the Parties, the Parties proposed a procedural calendar. On 21 February 2017, the Tribunal issued Procedural Order No. 7 establishing the procedural calendar for the remainder of the proceedings.

9. In accordance with the procedural calendar set out in Procedural Order No. 7, the Claimant and the Respondent submitted document production requests for the Tribunal's decision on 3 April 2017. On 11 April 2017, the Tribunal issued Procedural Order No. 8 setting out its decision on the Parties' document production requests.

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10. On 25 May 2017, the Tribunal issued directions regarding the Claimant's request that "the Tribunal draw an adverse inference that the Respondent is withholding documents which are damaging to its position in these proceedings."² It did so after receiving the Respondent's letters of 15 May 2017 and 24 May 2017 and the Claimant's letter of 18 May 2017. The Tribunal decided that the Claimant's request was premature but that the Claimant could renew its request specifying which adverse inference it seeks against the Respondent in due course and with the benefit of the hearing on the merits.

11. On 3 July 2017, the Claimant filed its Reply on the Merits and Jurisdictional Objection on Investment. The Reply on the Merits and Jurisdictional Objection on Investment was accompanied by:

• Second Witness Statement of Jan Buchal dated 2 July 2017;
• Second Witness Statement of Hynek Hanke dated 2 July 2017;
• Expert Report of Morten Tollefsen dated 30 June 2017;
• Second Expert Report on the Assessment of Damage of CRS Economics dated 2 July 2017 with Exhibits CRS-0001 through CRS-0035;
• Factual Exhibits C-0076 through C-0140; and
• Legal Exhibits CL-0142 through CL-0161.

12. On 15 September 2017, the Respondent filed its Rejoinder on Merits and on Jurisdiction. The Rejoinder on Merits and on Jurisdiction was accompanied by:

• Exhibits R-0042 through R-0080, including:
• Second Expert Report of Abdul Sirshar Qureshi (PWC) dated 15 September 2017 (R-0042) with Exhibits SQ-0058 through SQ-0094;
• Joint Expert Report of Gerhard Weber and Zdeněk Míkovec dated 15 September 2017 (R-0043) with Annexes 1 through 17;

² Claimant's letter dated 18 May 2017, p. 2. ↩

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• Second Witness Statement of Milena Průžková dated 13 September 2017 (R-0051);
• Witness Statement of Kateřina Jirková dated 14 September 2017 (R-0052);
• Second Witness Statement of [...] dated 15 September 2017 (R-0069);
• Witness Statement of [...] dated 13 September 2017 (R-0073);
• Witness Statement of Jiří Rameš dated 13 September 2017 (R-0074);
• Witness Statement of [...] dated 13 September 2017 (R-0075);
• Witness Statement of Ivona Sikorová dated 13 September 2017 (R-0076);
• Witness Statement of Romana Mičulková dated 13 September 2017 (R-0077);
• Witness Statement of [...] dated 13 September 2017 (R-0078); and
• Legal Exhibits RL-0125 through RL-0152.

13. On 13 October 2017, the Claimant filed its Rejoinder on the Jurisdictional Objection on Investment accompanied by:

• Exhibits C-0141 through C-0149;
• Second Expert Report of Mr. Morten Tollefsen dated 13 October 2017; and
• Legal Exhibits CL-0162 through CL-0171.

14. By letter dated 24 October 2017, the Claimant requested Ms. Joubin-Bret to disclose information regarding her interactions with the Ministry of Finance of the Czech Republic in connection with Ms. Joubin-Bret's participation as a speaker at the Prague Conference on International Investment Treaties organized by said Ministry. The Respondent commented on this letter on the same day. Ms. Joubin-Bret responded to the Claimant's request on 25 October 2017. On 27 October 2017, the Claimant requested further information, which Ms. Joubin-Bret provided on 28 October 2017. On 30 October

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2017, the Claimant requested that its requests for disclosure and Ms. Joubin-Bret's responses be noted for the record.

15. On 1 November 2017, on behalf of the Tribunal, the President held a pre-hearing organizational meeting with the Parties by telephone conference. On 2 November 2017, the Tribunal issued Procedural Order No. 9 regarding the organization of the hearing.

16. On 3 November 2017, pursuant to paragraph 32 of Procedural Order No. 9, the Parties filed skeleton arguments.

17. On 7 November 2017, pursuant to paragraph 12 of Procedural Order No. 9, the Parties submitted an agreed daily schedule for the hearing.

18. On 8 November 2017, the Claimant requested leave from the Tribunal to file new documents. In accordance with paragraph 15.3 of Procedural Order No. 1, the Respondent filed observations on 9 November 2017 and agreed to the Claimant's request. In the same letter, the Respondent requested leave to submit a new document. That same day, in view of the Respondent's agreement, the Tribunal admitted the Claimant's documents into the record and invited the Claimant's comments on the Respondent's request for leave. The Claimant responded by return without objecting to the Respondent's request, and the Tribunal subsequently accepted the Respondent's new document into the record. The Tribunal invited both Parties to file the recently admitted evidence as soon as possible.

19. On 9 November 2017, the Claimant filed Exhibits CRS-0036 through CRS-0040. On 10 November 2017, the Respondent filed Exhibit R-0081.

20. A hearing on the merits and the remaining jurisdictional objection was held in Paris from 13 to 17 November 2017 (the “Hearing”). The following persons were present at the Hearing:

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21. During the Hearing, the Respondent filed Exhibits R-0082 and R-0082a.

22. On 28 November 2017, by letter dated 27 November 2017, Ms. Anna Joubin-Bret informed the Parties and the members of the Tribunal of her decision to step down from

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the arbitral tribunal in this proceeding on account of her appointment as Director of the International Trade Law Division of the Office of Legal Affairs of the United Nations and ex officio Secretary of the United Nations Commission of International Trade Law. Over the following weeks, the Parties, Ms. Joubin-Bret and the members of the Tribunal exchanged correspondence regarding the possibility of Ms. Joubin-Bret staying on as arbitrator in the case until the issuance of the award. On 20 December 2017, Ms. Joubin-Bret informed the Parties that “the Secretary General of the United Nations ha[d] authorized [her] to continue [her] employment as Arbitrator in the case in reference until the rendering of a final award.”

23. On 21 December 2017, the Respondent reappointed Ms. Anna Joubin-Bret as arbitrator pursuant to Articles 13(1) and 7 of the UNCITRAL Arbitration Rules. Ms. Joubin-Bret accepted her appointment the same day.

24. On 27 December 2017, the Tribunal issued Procedural Order No. 10 concerning the Post-Hearing Submissions.

25. On 2 January 2018, the Parties informed the Tribunal of their agreed deadlines for the filing of the post-hearing submissions, which the Tribunal endorsed the same day.

26. On 23 January 2018, both Parties filed their Post-Hearing Submissions. The Claimant filed Legal Exhibits CL-0172 through CL-0178, and the Respondent filed Legal Exhibits RL-0153 through RL-0158.

27. On 31 January 2018, both Parties filed their Reply Post-Hearing Submissions.

28. On the same day, the Parties filed their Statements of Costs. The Claimant filed Legal Exhibits CL-0179 through CL-0185, together with this submission.

C. DRAMATIS PERSONAE

29. The following witnesses and experts testified at the hearing on behalf of each Party in the following order:

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II. THE PARTIES' REQUESTS FOR RELIEF

A. THE CLAIMANT'S REQUEST FOR RELIEF

30. The Claimant seeks the following relief from the Tribunal:

(1) a declaration that the Tribunal has jurisdiction to hear and determine the Claimant's expropriation claim;³

(2) a declaration that the Czech Republic has breached Article 5(1) of the BIT by imposing measures having effect equivalent to expropriation on (sic) the Claimant;

(3) an order that the Czech Republic pay the Claimant compensation for the damage and lost profits it has suffered as a result of the breaches of UK-Czech Republic BIT, in the amount of CZK 564,719,000;

(4) interest of 6-Month LIBOR plus 2%, compounded semi-annually on the compensation awarded to the Claimant;

(5) an order that the Czech Republic pay the cost of these arbitration proceedings, including the costs of the Tribunal and the legal and other costs incurred by the Claimant on a full indemnity basis; and

(6) such further or other relief as the Tribunal may deem appropriate.⁴

³ Claimant's Rejoinder, para. 34. ↩
⁴ Claimant's Reply, para. 237. ↩

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B. THE RESPONDENT'S REQUEST FOR RELIEF

31. The Respondent requests the Tribunal to:

(1) declare that it lacks jurisdiction to hear Claimant's claims and hence to dismiss its claims;

(2) in eventu dismiss all Claimant's claims on the merits;

(3) in either case to order Claimant to reimburse Respondent for all costs, fees and expenses incurred in relation to these proceedings.⁵

III. FACTUAL BACKGROUND

A. A11Y'S TAKEOVER OF BRAILCOM'S BUSINESS

32. The Claimant, A11Y, is a private limited company incorporated in the United Kingdom of Great Britain and Northern Ireland on 2 August 2012.⁶

33. A11Y's Czech branch office was registered in the Czech Commercial Register on 17 October 2012.⁷

34. Following the registration of its Czech branch office, A11Y began to take over the assistive technology solutions activities of BRAILCOM, o.p.s. (“BRAILCOM”).

35. BRAILCOM developed its know-how and goodwill for more than 20 years through various activities both in the Czech Republic and in connection with various international projects. Before 2010, BRAILCOM was known in the Czech Republic mainly for its projects "Internet for a Buck” (providing access to the Internet both for the blind and seeing people in 1997), “Speech Dispatcher” (speech infrastructure on Linux), “Biblio” (providing an electronic catalogue for the largest Czech library and printing facility for the blind), the project "Trafika” (the only country-wide news service for visually-impaired in the Czech Republic) and the international project “Eurochance” (a system of

⁵ Respondent's Rejoinder, para. 437. ↩
⁶ See Certificate of Incorporation of A11Y, dated 2 August 2012, Exhibit C-0001. ↩
⁷ See Extract of the Czech Commercial Registry, dated 17 October 2012, Exhibit C-0002. ↩

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freely available electronic language textbooks for education of visually-impaired).⁸ BRAILCOM has also been known for developing a range of special tools for visually disabled people.⁹

36. In 2012, BRAILCOM began offering to individual customers unique and complex aids/solutions in the field of assistive technologies for blind and visually impaired persons (most importantly, equipment based on computers enabling them to read, write, communicate, study and work).¹⁰

37. BRAILCOM was the first company in the Czech Republic to offer aids built on Apple's technologies. It became the first and exclusive supplier in the Czech Republic and Slovak Republic of the unique foldable and mobile magnifier VisioBook and high-quality Braille displays from BAUM Retec AG (“Baum”).¹¹

38. BRAILCOM was the first company in the Czech market that started to offer such complex services (“Solutions”).¹²

39. BRAILCOM was also the sole company in the Czech Republic to offer its customers assistance while applying on their behalf for a state allowance.¹³

40. From late 2012, A11Y took over BRAILCOM's assistive technology solutions business, which included taking on new contracts with customers. A11Y hired former employees of BRAILCOM.

41. In connection with this take-over of BRAILCOM's assistive technology solutions business by A11Y, the Claimant writes as follows:¹⁴

(1) From late 2012, the Claimant started to carry out sales of assistive technology aids in the Czech Republic and began issuing pro-forma invoices and invoices to customers for assistive technology solutions. The Claimant's Czech branch financial accounts thus show income from sales

⁸ See First Witness Statement of Jan Buchal (“First Buchal”), paras. 35, 55 and 56. ↩
⁹ Claimant's Amended Memorial, para. 14. ↩
¹⁰ See First Buchal paras. 61, 62, 64, and First Witness Statement of Hynek Hanke (“First Hanke”), para. 16. ↩
¹¹ See First Buchal, para. 60. ↩
¹² See First Hanke, para. 17. ↩
¹³ See First Buchal para. 83. ↩
¹⁴ Claimant's Post-Hearing Brief, paras. 3(1) -3(3) and para. 4 (footnotes omitted). ↩

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flowing to the Claimant from 2012. By March 2013, the Claimant entered into all new orders for assistive technology solutions and Brailcom no longer entered into new orders to produce assistive technology aids. After March 2013, Brailcom only fulfilled assistive technology aids orders made before that time. The Claimant's contracts with its customers in the Czech Republic are assets and investments.

(2) The Claimant entered into important contracts with suppliers.

(3) The Claimant assumed the contractual employment relationship with employees for the production of assistive technology solutions.

(4) Brailcom continued its activities to support the blind after A11Y's takeover of Brailcom's assistive technology solutions business. In the context of assistive technology solutions supplied by A11Y, Brailcom would typically represent A11Y's customers in their interactions with the Labour Office under a power of attorney, as had been recommended by the Labour Office. In some cases, an applicant who applied for an allowance under the Act would only be granted an allowance of 90% of the price approved by the Labour Office. The applicant would have to pay the remaining 10% of the approved price themselves unless they and their family went through a social investigation to determine whether they could afford this. However, in such cases, Brailcom would typically offer to pay that 10% to the Claimant's customers as a charitable contribution.

42. The Respondent submits that the “exact circumstances of this alleged take-over remain nebulous and unclear”.¹⁵

43. The Respondent writes the following in respect of the Claimant's take-over of BRAILCOM:¹⁶

What Claimant essentially is alleging was not an arm's-length transaction in which Brailcom's business was taken over, but merely that Claimant as a matter of fact continued the business that Brailcom had been operating in the Czech Republic. Claimant therefore also paid no purchase price for the business of Brailcom. It just took over its business as a matter of fact. Given that both Brailcom and Claimant are companies owned and run by Mr. Buchal, he obviously saw no need for a clearly structured transaction. This, however, has severe jurisdictional implications.

44. The jurisdictional implications of the take-over by A11Y of BRAILCOM's assistive technology solutions business are discussed and analysed by the Tribunal later in Section V.

¹⁵ Respondent's Rejoinder, para. 11. ↩
¹⁶ Respondent's Rejoinder, para. 13. ↩

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B. A11Y'S BUSINESS

45. The Parties disagree on the nature of the Claimant's business.

46. The Claimant asserts that it is “an assistive technology developer and solutions provider”.¹⁷ The Claimant develops “holistic solutions built around the specific needs of the individual user"; draws “on its deep expertise and know-how in technical development and accessibility to produce effective solutions that worked and were genuinely useful to the blind or visually impaired customer”; and provides “invaluable configuration, set-up, and training to make sure individuals could use their assistive technology properly as well as fine-tuning to make sure the aids were well adapted for the various needs of the user”.¹⁸

47. As Mr. Buchal stated in his Second Witness Statement “Please notice the word 'solution' here, which was key for A11Y's services for the visually impaired. This is what distinguished A11Y from other companies in the same business.”¹⁹

48. On this basis, the Claimant alleges that it conducts a different business compared to its direct competitors in the Czech market for providing aids to the blind and visually impaired.²⁰

49. The Respondent, on the other hand, argues that the Claimant is “a retailer for ‘out-of-the-box' devices from third party manufacturers".²¹ In this connection, the Respondent writes as follows:²²

43. Essentially, Claimant buys two categories of electronic products as a wholesaler and then resells them as aids for the blind. First, Claimant retails so-called “ICT with closed functionality”, like for example Apple iPhones or MacBook computers. These are standard consumer products that have built in accessibility features, e.g. a screenreader functionality or a magnified presentation of captures images. Second, Claimant retails so-called Assistive Technology (“AT”), which are additional devices that

¹⁷ Claimant's Reply, para. 34. ↩
¹⁸ Claimant's Reply, para. 39. ↩
¹⁹ Second Witness Statement of Jan Buchal (“Second Buchal”), para. 3. ↩
²⁰ Claimant's Reply, para. 316. ↩
²¹ Respondent's Rejoinder, para. 83. ↩
²² Respondent's Skeleton, paras. 43-44. ↩

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can be added to an ICT to enhance their accessible functionality. An example of an AT would be a Braille display.

44. Claimant re-sells these products either as separate components or in certain "aid-packages. [...]

50. As will be seen later, the Parties have submitted technical expert reports and expert testimony in respect of the nature of the Claimant's business.

C. CZECH REGULATORY FRAMEWORK AND TRANSPARENCY INTERNATIONAL'S LETTER

51. In January 2012, the Act on Providing Allowances to Persons with Health Impairment²³ (“Act on Allowances” or the “Act”) came into effect in the Czech Republic.

52. The Act on Allowances provides for the granting of subsidies to persons with health impairments, including the blind. These allowances are limited in absolute amounts (to CZK 800,000 per applicant for five years)²⁴ and in the amount for a single aid (to CZK 350,000 per aid).²⁵ The person with a health impairment is required to pay 10% of the aid for which an allowance is sought.²⁶

53. Importantly, Section 9(10) of the Act specifies that an allowance will be granted for an aid:

• in its basic version;
• which satisfies the individual needs of the applicant; and
• which is the cheapest (“least economically demanding”) option for doing so.

54. When the Act was introduced in 2012, the Labour Office, the body responsible for administering the Act, was confronted with a large number of applications. As the Labour Office had not been provided with any guidance from the Labour Ministry as to the

²³ Act on Allowances, Legal Exhibit CL-0002. ↩
²⁴ The actual limit is CZK 800.000. A further CZK 50.000 is available only if the applicant also applies for an allowance for a stair lift for wheelchairs. ↩
²⁵ Act on Allowances, section 10 (3) and (6), dated 13 October 2011, Legal Exhibit CL-0002. ↩
²⁶ Act on Allowances, section 10 (3), dated 13 October 2011, Legal Exhibit CL-0002. ↩

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application of the Act, most requests for subsidies were granted without any in-depth scrutiny.²⁷

55. On 21 May 2013, the Labour Office received a letter from Transparency International (“TI”). The letter reads in relevant part as follows:²⁸

Madam Director-General,

Transparency International – Česká republika (“TI”) is a non-governmental organisation with a mission to chart corruption in the Czech Republic and to actively assist in stifling corruption through its activities. TI focuses on championing paradigms shifts in legislation, public administration and the private sector.

In the past few months, the TI Legal Advice Centre has seen a re-influx of clients with severe visual disabilities resulting in the long-term impairment of their health, who are complaining about the conduct of BRAILCOM, o.p.s. in relation to special-aid allowances under Act No 329/2011 on the provision of benefits to disabled persons, as amended (the "Act").

According to Section 9(1) of the Act, a person with a severe visual disability resulting in the long term impairment of their health is entitled to a special-aid allowance. Section 10(2) of the Act provides that the amount of a special-aid allowance is set in such a manner that the beneficiary contributes 10% of the estimated or already paid price of a special aid, up to a maximum of CZK 1,000. Those persons eligible for the special-aid allowance under the Act have been contacted, on a more intensive scale since 1 January 2012, i.e. since the Act took effect, by BRAILCOM, o.p.s., with an offer that, if those persons enter into an agreement on a power of attorney with it, this company will organise the procedure for applying for a special-aid allowance with the competent Labour Office (a regional branch) on the basis of a power of attorney, without the applicant having to take care of anything at all. Part of the arrangement between the applicant and BRAILCOM, o.p.s. is the provision of a gift by the company, as the gifting party, to the applicant, as the gifted party, at the value of the applicant's statutory contribution, i.e. at a value of 10% of the estimated or already paid price of a special aid. From the point of view of a person with a severe visual disability resulting in the long-term impairment of their health, this is an advantageous offer because they receive a special aid free of charge and there is no need for them to get in contact with the competent Labour Office themselves. On the other hand, this entirely eliminates any incentive on the part of the applicant to seek out rival offers for their selected aid, as supplied by other suppliers at much lower prices.

²⁷ Respondent's Skeleton, para. 25. ↩
²⁸ Letter from TI of 21 May 2013, Exhibit R-0009. ↩

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According to the information shared by clients, in the application for a special-aid allowance BRAILCOM, o.p.s. marks up the value of the special aid considerably. One of the clients who contacted TI witnessed a decision to grant a special-aid allowance, according to which the Labour Office (regional branch) granted an applicant an allowance worth more than CZK 30,000, even though the price of the corresponding special aid (a voice-activated Apple iPhone) had a market price of approximately CZK 17,000 at the time. Statements from other clients indicate that the value of special aids in benefit proceedings in which they are represented, on the basis of a power of attorney, by BRAILCOM, o.p.s., is marked up by between 50% and 100%. According to the information provided to TI by these persons, the main focus is on computer equipment – reading devices for the blind with a normal market value ranging from CZK 100,000 to CZK 150,000. BRAILCOM, o.p.s. purportedly supplies these aids for between CZK 200,000 and CZK 300,000.

According to Section 9(10) of the Act, an allowance is granted for a special aid delivered in a basic design which fully meets the requirements of the beneficiary, bearing in mind their disability, and meets the condition of best value for money. In the benefit proceedings in which BRAILCOM, o.p.s. has been active on the basis of a power of attorney, and the subject of which has been a substantially overpriced special aid in the basic design, if Labour Offices (regional branches) have issued decisions granting these allowances at the requested amount, they have failed and fallen short of their statutory obligation. Labour Offices (regional branches) as the authorities competent, by law, to take decisions on the granting of special-aid allowances, are required to grant such an allowance only in an amount which is consistent with the special aid's price customary at the place and time. The information disclosed by clients makes it quite plain that Labour Offices (regional branches) throughout the Czech Republic have failed to comply with this obligation, either out of negligence or by design. Apart from the fact that the state has made a loss, the victims are the individual applicants who have entered into an agreement on a power of attorney with BRAILCOM, o.p.s. and who have been represented by that company in benefit proceedings because, as a result of the repeated granting of allowances at a disproportionate amount, the amount of CZK 800,000, or CZK 850,000 according to Section 10(6) of the Act, could be exhausted early, i.e. the amount which may be granted to persons with severe visual disabilities on aggregate over a five-year period, in the form of an allowance to purchase special aids, could be used up well before such a period ends.

Clients with severe visual disabilities who have contacted TI in this matter are concerned by the practices pursued by BRAILCOM, o.p.s. and believe that the way it is acting could imperil the credibility of the entire system of public solidarity, entailing the payment of assistive aids which would otherwise be unaffordable for them and which are essential for their ability to be part of the workforce and for their general integration into the life of society. They are worried that the abuse of state allowances could result in the political relativisation of the need for such an established system of public solidarity and in moves to recover

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amounts by which the special aids purchased for them have been overpriced. Accordingly, TI's clients wish to remain anonymous.

According to Act No 73/2011 on the Labour Office of the Czech Republic, as amended, the Labour Office of the Czech Republic is a national administrative authority whose duties, among other things, include benefits for the disabled. Section 25(2)(d) and (e) of Act No 320/2001 on financial control in public administration, as amended, provides that the head of a body of public administration must take all necessary action to protect public funds and to ensure the economic, effective and efficient use of public funds in accordance with the principles of sound management set out in the Financial Control Act.

In the light of the foregoing, TI requests that, starting with 1 January 2012, you review individual benefit proceedings held by the competent Labour Offices (regional branches) in accordance with Act No 329/2011 on the provision of benefits to disabled persons, as amended, in which applicants have been represented, on the basis of a power of attorney, by BRAILCOM, o.p.s., and the subject of which has been the granting of a special-aid allowance to a person with a severe visual disability to determine whether the granting and payment of the allowance has been at a disproportionate level for a markedly overpriced special aid and whether this constitutes widespread abuse of state allowances for persons with severe visual disabilities.

TI also requests information from you on how this case has been investigated and whether you have taken, in response to any errors identified, action to protect public funds.

Yours sincerely,

Signature

Transparency International - Česká republika, o. p. s.

David Ondráčka

Director

D. JULY 2013 STATEMENT

56. Following TI's letter and an internal investigation, the Labour Office approached the Ministry of Labour and requested general guidance on the application of the Act to overcome the difficulties encountered with the implementation of the Act, to ensure a uniform application of the Act and to avoid an abuse of the Act.

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57. As a result, on 12 July 2013, the Ministry issued a statement that further defined the criteria set out by the Act to ensure that the requirements of the Act could effectively be assessed in each application and to allow the Labour Offices to take a uniform approach towards all applications submitted under the Act (“July Statement").²⁹

58. The July Statement, inter alia, made clear that when the aids applied for consist of several individual functionally independent components, the applicant is under the obligation to submit a list of the particular components and their respective prices. This was necessary, says the Respondent, because if such a list of components is not submitted, it is not possible for the Labour Office to assess whether the criteria of the Act are met.³⁰

59. The July Statement also made clear that additional services, like training, or accessory products, like protective covers or laptop bags, could not be considered to be part of the basic version of an aid and were therefore not covered under the Act. The Respondent explains that the reason why the Ministry did not consider it necessary to pay private commercial companies for training was that there were various public benefit associations that provide training for blind persons for free or at very low cost throughout the Czech Republic.³¹

60. The Respondent submits that the July Statement's purpose was not, contrary to the Claimant's allegation, to “stop the Claimant's business” or “to stop Claimant” but to stop the Claimant's detrimental practice of submitting applications which did not allow an assessment in accordance with the Act on Allowances, submits the Respondent.³²

61. The Claimant, on the other hand, submits that the July Statement “targeted specifically at the Claimant's business” and “was the first step on the way to destroying the Claimant's business".³³

²⁹ Statement of the Ministry of Labour and Social Affairs ("MPSV"), dated 12 July 2013, Exhibit C-0010. The Claimant refers to the Statement in its pleadings as the “July Instruction". ↩
³⁰ Respondent's Skeleton, para. 30. ↩
³¹ Respondent's Skeleton, para. 31; see Second Witness Statement of Milena Průžková, Exhibit R-0051, para. 11. ↩
³² Respondent's Skeleton, para. 29. ↩
³³ Claimant's Reply, para. 94. ↩

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62. In this respect, the Claimant writes as follows:³⁴

95. The key requirement in the July Instruction was the onus on the Labour Office regional branches to request suppliers of aids to provide a list of individual components and prices. The July Instruction also stated that in order to compare prices for the purposes of identification of the "least economically demanding” condition under section 9(10) aid the Labour Office was:

“to compare the prices of the same or similar aids from different producers or suppliers, means for example in the case of hardware to have information about the name of the producer or trade name (such as Apple iPhone 4). In case of software it is necessary to know the producer and trade name (such as Microsoft Office 2010, Home & Business)”.

96. The July Instruction contains multiple references to the necessity for an aid to be functional and serve a particular user's needs and purpose in line with the objective of the Act on Allowances. However, it also contained a draconian edict:

“...in case of not delivering the list of particular components, the application for the allowance for special aid will be rejected. If the list or the invoice includes training, protective covers, or other additions, which are not necessary, we do not include them in the price of the aid."

97. This is arbitrary and contradictory in a number of respects. First, it goes against the functionality objective which the July Instruction recognised as valid. As explained above, an aid without proper configuration and training is of no use to a blind or visually impaired person. If a blind or visually impaired person receives a machine in a box, he or she is very unlikely to be able to do anything with it. As Mr. Tollefsen pointed out:

“An assistive technology solution configured for the specific needs of a visually impaired person with training is completely distinct from a product ordered from a list and simply out of the box, which is likely to be largely inappropriate and unfit for purpose”.

Effective solutions require set-up, installation, ongoing configuration, adjustments and guidance from those who understand how the aid is designed in light of that particular person's needs.

98. Second, it is striking that the July Instruction expressly referred to these two examples – “training and protective covers” - for exclusion from the price of an aid. Both were integral parts and distinguishing features of a solution developed by the Claimant, especially when compared with its competitors. Configuration, training, and support were a necessary feature of the Claimant's assistive technology solutions. As mentioned above, the Claimant's business was not to resell hardware

³⁴ Claimant's Reply, paras. 95-100 (footnotes omitted). ↩

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components. It developed an integrated holistic solution often comprised of several aids that would function and work well together to serve particular needs of a visually impaired person.

99. Furthermore, the exclusion of protective covers is notable. Protective covers serve the purpose of increasing the durability of an aid. An aid may not last very long without a protective cover - especially in the hands of a person without sight. This is significant particularly in the light of the very clear five-year financial limits as set out in the Act on Allowances (as above).

100. It is also notable that the July Instruction contains an express reference to an Apple iPhone. Apple iPhones were an underlying product that Brailcom and later the Claimant incorporated into electronic communication aids. The iPhone was “a device that was supplied by A11Y but usually not by other competitors at the time.”

63. The Claimant also submits that the July Statement was issued “without transparency and the Claimant was not informed about it at this time. It was not until later that the Claimant discovered that the July Instruction had even been issued.”³⁵

64. According to the Claimant, the following four measures of the Respondent destroyed its investment in the Czech Republic and lead to its insolvency.

IV. THE RESPONDENT'S ALLEGED MEASURES AGAINST THE CLAIMANT

A. THE RESPONDENT ALLEGEDLY PRESSURED THE CLAIMANT'S VISUALLY IMPAIRED CUSTOMERS TO LEAVE THE CLAIMANT AND TURN TO THE CLAIMANT'S COMPETITORS

(1) The Claimant's Position

65. According to the Claimant, following the issuance of the July Statement, the Respondent's representatives repeatedly told many customers of the Claimant that they should seek their assistive technology aids from the Claimant's competitors (which the Respondent sometimes named, including Spektra and Galop).³⁶

66. The record is replete with evidence of this wrongdoing says the Claimant, including the following:

³⁵ Claimant's Reply, para. 92. See First Buchal, para. 125 (at Item No. 6). ↩
³⁶ Claimant's Skeleton, para. 8. ↩

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(i) [...] recounted in her witness statement the specifics of a “very unpleasant social investigation"³⁷ at her home in early 2014. [...]explained that: "The participants were the officers [...] and [...]. They tried to discourage me from aid purchase from A11Y company and they told me repeatedly that 'the office knows A11Y LTD. company very well and is not satisfied with it' and 'the aids from A11Y LTD. company are overpriced' and even ‘there was a reportage on TV about frauds of the company. ""³⁸ [...] further recalls that: “The officers recommended me during the social investigation to turn to Tyfloservis or Galop companies. The officers threatened me in that context that they will not pay out many components of the aid delivered by A11Y LTD.”³⁹ [...] confirmed the contents of her statement as a witness at the hearing.⁴⁰

[...]'s testimony stands essentially unrebutted submits the Claimant. The Respondent did not submit a witness statement from [...] and the Respondent informed the Tribunal and the Claimant at the hearing that [...] would no longer be available to testify. In her witness statement, [...] cannot recall the meeting well, saying that “my memories are a little bit foggy"⁴¹ and she “cannot remember that this visit was somehow unpleasant."⁴²

(ii) [...] explained in his witness statement that “[i]n September 2013, when I visited the office to bring the necessary information about my income, Mr. [sic.] Sikorová tried to convince me that aids from A11Y LTD. company are overpriced and that other suppliers offer cheap aids in exactly the same version. Mrs Sikorová also tried to convince me to cancel my order for aids at A11Y LTD. And she tried to convince me to turn to another company. ."⁴³ [...] confirmed this at the hearing.⁴⁴

³⁷ Witness Statement of [...], para. 8. ↩
³⁸ Witness Statement of [...], para. 8. ↩
³⁹ Witness Statement of [...], para. 9. ↩
⁴⁰ Transcript of Final Hearing, Testimony of [...], Day 2, p. 336 (lines 7-19). ↩
⁴¹ Witness Statement of [...], Exhibit R-0075, para. 10. ↩
⁴² Witness Statement of [...], Exhibit R-0075, para. 11. ↩
⁴³ Witness Statement of [...], paras. 8-9. ↩
⁴⁴ Transcript of Final Hearing, Day 2, Testimony of [...], Day 2, p. 349 (lines 16-18). ↩

[Page 23]

Ms. Sikorová in her own witness statement wrote that she “cannot recall having spoken about A11Y Ltd.” when she visited [...].⁴⁵ At the Hearing, as a witness she denied ever mentioning the Claimant in her meeting with [...].⁴⁶ The Claimant asserts that Ms. Sikorová’s depiction “strains credulity” in view of the fact that the meeting in question was to discuss an assistive technology aid for [...] which was to be supplied by the Claimant and which had just been approved by the Labour Office.⁴⁷

(iii) Even in those cases where the Respondent's representatives did not directly name the Claimant's competitors, the Claimant submits that the Labour Office representatives pressured the Claimant's customers to go to another company.⁴⁸ For instance, at the Hearing Mr. Haeri asked [...] “[...]when Mr. Rames told you that he was not going to tell you which company you should go to, how did you understand that? What did you understand him to be saying?”⁴⁹ [...] answered that: “I understood from him that I could go to any other company but A11Y, because in that instance they will not reimburse.”⁵⁰ [...], in response to a question from the President of the Tribunal about this conversation with Mr. Rameš, replied that she was told that “the aid was three times overpriced and that Mr. Rames himself is not going to give me advice on what sort of company I should choose. Therefore, I was convinced that I shouldn't be selecting A11Y.”⁵¹

(iv) [...] (who did not testify as he had passed away prior to the Hearing) recalled in his witness statement that he was informed by a Labour Office representative during a meeting that the Labour Office has a “bad experience” with the Claimant.⁵²

⁴⁵ Witness Statement of Ivona Sikorová, Exhibit R-0076, para. 9. ↩
⁴⁶ Transcript of Final Hearing, Testimony of Ivona Sikorová, Day 3, p. 612 (line 14) - p. 613 (line 9). ↩
⁴⁷ Claimant's Post-Hearing Brief, para. 43. ↩
⁴⁸ Claimant's Post-Hearing Brief, para. 44. ↩
⁴⁹ Transcript of Final Hearing, Testimony of [...], Day 2, p. 368 (lines 9-12). ↩
⁵⁰ Transcript of Final Hearing, Testimony of [...], Day 2, p. 368 (lines 13-15). ↩
⁵¹ Transcript of Final Hearing, Testimony of [...], Day 2, p. 377 (line 4) - p. 377 (line 8). The President of the Tribunal asked: "That was your deduction?'; to which [...]replied: "Yes, that was my deduction, my conclusion." (Transcript of Final Hearing, Testimony of [...], Day 2, p. 377 (line 9) - p. 377 (line 11)). ↩
⁵² Witness Statement of [...], para. 8. ↩

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(v) [...] does not recall having any meeting with [...] in 2014, but “cannot exclude that one of my colleagues [from the Labour Office] held this meeting with [...]."⁵³

[...], a client of the Claimant, wrote to the Claimant on 22 November 2013 saying that two Labour Office representatives, Ms. Kořínková and Ms. Nožičková, had carried out a social investigation at her home concerning her application for an assistive technology solution aid with the Claimant. They had asked her whether “I would be willing to go to another 'company' and try other aids (cheaper). "⁵⁴

(2) The Respondent's Position

67. The Respondent filed witness statements from all officers of the Labour Office who allegedly “attack[ed] the Claimant's business” says the Respondent. These officers all affirm that applicants were never asked to turn to a competitor of the Claimant and denied that applicants were told that the Claimant's aids were overpriced or that their allowance would not be granted if they ordered aids from the Claimant.⁵⁵

68. At most, what the representatives of the Labour Office did, says the Respondent, is to inform the applicants that if an application included unnecessary components or was made for an aid that had a premium price compared to other aids with the same function, the application would be granted, but not in the full amount. This was the wording of the Act and thus something the applicants should have been aware of in any event.⁵⁶ The Respondent argues that there was never a “systematic approach” of the Labour Office to pressure visually impaired persons to purchase products from the Claimant's competitors.⁵⁷

B. THE RESPONDENT ALLEGEDLY DENOUNCED THE CLAIMANT ON NATIONAL TELEVISION

⁵³ Witness Statement of [...], Exhibit R-0078, para. 9. ↩
⁵⁴ Message from [...] (client) to A11Y LTD., dated 22 November 2013, Exhibit C-0105. ↩
⁵⁵ Witness Statement of Jiří Rameš, Exhibit R-0074, para. 11; Witness Statement of [...], Exhibit R-0075, para. 12; Witness Statement of Ivona Sikorová, Exhibit R-0076, para. 9; Witness Statement of Romana Mičulková, Exhibit R-0077, para. 9; Witness Statement of [...], Exhibit R-0078. ↩
⁵⁶ Respondent's Skeleton, para. 72. Witness Statement of [...] Exhibit R-0075, para. 13; Witness Statement of [...], Exhibit R-0078, para. 11. ↩
⁵⁷ Respondent's Skeleton, para. 75. ↩

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(1) The Claimant's Position

69. According to the Claimant, the Respondent publicly denounced the Claimant on prime-time national television on 12 January 2014, further destroying its investment.

70. The television program of 12 January 2014 in the “Udalosti” news broadcast (the “TV Report") was aired at 7 p.m. in the evening (prime time viewing) on public broadcast television to over 1 million viewers.⁵⁸ It remains available for anyone to view on the Internet says the Claimant, thereby reaching a far larger audience.⁵⁹

71. The English translation of the program's transcript reads as follows:⁶⁰

Newsperson: The company BRAILCOM fell into suspicion of abusing the state allowance for the blind. A group of visually handicapped people have complained about it to Transparency International. The company, according to them, offers free processing of subsidies for compensation aids, such as special phones or computers. Then, however, it sells them for significantly higher price than is common and the state loses out.

Commentary: The aids talk to them and the braille display shows what others usually see on the screen. Adjusted computer or phone is a necessity for the blind. This is also respected by the state and therefore it is contributing to the purchase of such aids by 90% of their price. But the blind must pay the 10% themselves. This should encourage them to look for an advantageous offer. But the BRAILCOM company offers to arrange everything for them and to reimburse the 10% participation. Its aids, however, are significantly more expensive.

Blind woman (anonymized face and voice): Computer sets which we can get from other companies for some 100 to 150 thousand, the price from BRAILCOM is often up to twice as high.

Citing Jan Buchal, director, BRAILCOM: ... we are supplying aids that are different, with different utility value which is several times higher that (sic) the aids on the market.

Commantary (sic): Critics of BRAILCOM want to remain anonymous amid fears. But they are trying to draw attention to the problem.

⁵⁸ Claimant's Amended Memorial, para. 133 and fn. 163; Television Audience Viewing Figures for CT1 and CT24, dated January 2014, Exhibit C-0110, p. 2 (row 31) and p. 3 (row 24) (938,000 viewers aged over 15 on CT1 on 12 January 2014, and 214,000 viewers aged over 15 on CT24). ↩
⁵⁹ Claimant's Post-Hearing Brief, para. 26; see Události, 12 January 2014, available at: http://www.ceskatelevize.cz/ivysilani/1097181328-udalosti/214411000100112/obsah/301888-predrazene-pomucky (last accessed on 20 June 2016). ↩
⁶⁰ Transcript of News Report on Czech Television, Exhibit C-0032. ↩

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Jiří Kračmar, expert assistant of law advisory centre of Transparency International: Those people with severe visual impairment who contacted us concerning BRAILCOM were several.

Newsperson: The non-standard procedures of BRAILCOM company are already being addresses by the management of Labour Offices. It's because they are those who pay for the aids for the blind. Even their own investigation pointed to significant overpricing. But also to cases where the company reportedly charged for completely ordinary equipment.

[...], the spokesperson, General directorate of Labour Office: For example, the iPads, which have, say, voice dialling already included in their price, then even for such services [BRAILCOM] billed special surcharges.

Citing Jan Buchal, director, BRAILCOM: The Ministry of Labour unfortunately doesn't have the necessary expertise in the area of our business.

Newsperson: According to the collected data, officials already reimbursed tens of unusually expensive aids.

[...], the spokesperson, General directorate of Labour Office: At the moment, we do not know the exact amount the state lost as a result of this overpricing.

Newsperson: The BRAILCOM company is not threaten with any penalty, because apparently it did not violate the law. Neither the bureaucrats themselves made a mistake according to their bosses. They even pointed on some suspicious prices and their suspicion was confirmed by further investigation. For the future, according to the management of the Labour Offices, similar problems should be prevented by stricter rules for reimbursement of special aids.

72. According to the Claimant, the following allegations made by [...], the State spokesperson, and cited during the TV program were unsubstantiated:⁶¹

(1) That the Claimant was guilty of “overpricing”;

(2) That the Claimant was illicitly charging for things for which it should not have been charging (such as billing "special surcharges" for "voice dialling" for iPads, even though this is false and iPads don't even have voice dialling') thus acting in a dishonest or underhanded way;

(3) That the State lost money as a result of the Claimant's wrongful practices, the only issue being the quantification of those losses of the State;

⁶¹ Claimant's Post-Hearing Brief, para. 27. ↩

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(4) That the Claimant was culpable of "suspicious prices," which were "confirmed by further investigation"; and

(5) “For the future, according to the management of the Labour Offices, similar problems [with reference to the Claimant's alleged "problems' should be prevented by stricter rules for reimbursement of special aids," thus starkly warning viewers away from the Claimant.

73. The television broadcast, submits the Claimant, was made, inter alia, because of TI's letter of 21 May 2013 to the Labour Office and an undated “Compilation of Applications."⁶² In the opinion of the Respondent, the Compilation of Applications showed "that the allegations raised by Transparency International were correct”⁶³ in that “[v]irtually all solutions offered by Claimant were far more expensive than those offered by Claimant's competitors serving the same purposes”.⁶⁴

74. The Claimant emphasizes that the Respondent admitted that “Transparency International did not provide any evidence with its letter”⁶⁵ and submits that “the Respondent did not communicate with the Claimant in any way to let the Claimant know about the [...] TI [letter] or to provide the Claimant with an opportunity to respond to the allegations. That is not only non-transparent, but it is also an evident violation of basic fairness and due process.⁶⁶

75. At the Hearing, Ms. Průžková, who was identified by [...] as the person who instructed her in preparation for the TV Report,⁶⁷ admitted when she testified that: "The letter of Transparency International, in my opinion, doesn't prove anything."⁶⁸

76. When asked by the President of the Tribunal if the Labour Office should have contacted the Claimant's representatives in order to get their version of the Transparency International allegations before publicly endorsing them in the TV Report, [...] answered that: “It is not my task to act on behalf of other parties. My task is to act and present the

⁶² Compilation of Applications, Exhibit R-0010. ↩
⁶³ Respondent's Rejoinder, para. 182. ↩
⁶⁴ Respondent's Statement of Defence, para. 186. ↩
⁶⁵ Claimant's Skeleton, para. 14. Respondent's Rejoinder, para. 182. ↩
⁶⁶ Claimant's Skeleton, para. 12. ↩
⁶⁷ Transcript of Final Hearing, Testimony of [...], Day 3, p. 558 (lines 5-22); Witness Statement of [...], Exhibit R-0073, para. 9. ↩
⁶⁸ Transcript of Final Hearing, Testimony of Milena Průžková, Day 4, p. 695 (lines 4-6). ↩

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standpoints or the opinion of the Czech Labour Office, and that's what I did in a few sentences that I said.”⁶⁹ The Claimant writes that this is unacceptable.⁷⁰

77. The Claimant also submits that the “Compilation of Applications” does not corroborate the TI letter. Mr. Tollefsen, in his expert report, opines as follows:⁷¹

I understand that the Respondent alleges that this [Compilation of Applications] shows that almost all of A11Y's (or Brailcom's) solutions were 'far more expensive' than competitor's solutions. I do not see how this document could show that since it has no reference to equivalent solutions or their prices.

78. On this point, the Claimant notes that during the television broadcast, it was reported that the Labour Office's own investigation "pointed to significant overpricing".⁷²

79. According to the Claimant, this television broadcast was seen by over one million people. It had a devastating effect on the Claimant's business and its reputation in the closed-knit blind and visually impaired community. As [...], one of the Claimant's witnesses and a Director of a school for the visually impaired, wrote in his witness statement:⁷³

[A]fter this report was broadcasted [sic.], I witnessed that the reputation of public benefit organization BRAILCOM and the company A11Y LTD significantly suffered not only within the community of the blind but also within the professional public. For example, Mrs. doctor Pavlína Baslerová from the Association of Consulting Workers personally asked me what that should mean and whether this company is trustworthy or not.

From what the reporter proclaimed at the end of the report, I understood that the state plans to prevent reimbursement of such aids supplied by the company A11Y in the future.

(2) The Respondent's Position

80. The Respondent submits that the Claimant conflates in its submissions the contents of the TV Report and the statements actually made by different persons which could be attributed to the Respondent.

⁶⁹ Transcript of Final Hearing, Testimony of [...], Day 3, p. 588 (lines 18-22). ↩
⁷⁰ Claimant's Post-Hearing Brief, para. 29. ↩
⁷¹ First Expert Report of Morten Tollefsen, para. 89. ↩
⁷² Claimant's Skeleton, para. 19. See Transcript of News Report on Czech Television, Exhibit C-0032, p. 2. ↩
⁷³ Witness Statement of [...], paras. 16 and 15. ↩

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81. The Respondent explains that the Labour Office was asked to participate on a TV program which commented on TI's letter regarding the Claimant's business practices. The spokesperson of the Labour Office of the Czech Republic, [...], only made “a very brief statement” during the program.⁷⁴

82. According to the Respondent, [...] (i) explained that the Claimant in some cases had included certain features in the price list attached to the applications which were unnecessary, and (ii) confirmed that she was not aware of the amount that had been paid in contravention of the Act.⁷⁵

83. The Respondent thus denies that the Labour Office publicly “denounced" the Claimant. The Respondent writes:⁷⁶

All [...] did was to state what the Labour Office had been able to determine at that time. She neither spoke of any systematic wrongdoing nor did she publicly “denounce” Claimant.

84. The Respondent submits that, if any damage was caused to the Claimant due to the TV Report, the damage was caused by the contents of the letter of TI and dissatisfied customers of the Claimant that cannot be attributed to the Respondent.⁷⁷

85. The Respondent also submits that Mr. Buchal confirmed that, in the course of the preparation by the Labour Office of the TV report, he was contacted by the TV reporter and asked to participate in the program and to give his perspective on camera. Mr. Buchal refused and chose only to provide a written statement.⁷⁸ In other words, the reporter made an effort to present not only the viewpoint of the Labour Office but also the viewpoint of A11Y. The conduct of the TV station in any case is not attributable to the Respondent, argues the Respondent.⁷⁹

C. THE RESPONDENT ALLEGEDLY TURNED OVER THE CLAIMANT'S CONFIDENTIAL AND PRICING INFORMATION TO ITS COMPETITORS

⁷⁴ Respondent's Skeleton, para. 77. ↩
⁷⁵ Respondent's Skeleton, para. 77. ↩
⁷⁶ Respondent's Skeleton, para. 79. ↩
⁷⁷ Respondent's Post-Hearing Brief, para. 82. ↩
⁷⁸ First Buchal, para. 117. ↩
⁷⁹ Respondent's Post-Hearing Brief, para. 79. ↩

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(1) The Claimant's Position

86. The Claimant notes that, in its implementation of the July Statement, the Labour Office required the Claimant to provide some of its confidential information including the breakdown of components of its assistive technology solutions and their prices.⁸⁰

87. The Claimant, initially, answered that the July Statement was inconsistent with previous assurances given by the Labour Office that broken-down components and prices were not required. Specifically, Mr. Buchal wrote to the Ministry of Labour in May 2013 to say that:⁸¹

The fact that presenting a detailed itemised calculation has no support in the law has been confirmed even by the General Directorate of the Labour Office, specifically by Mgr. Markéta Hrubišková, who assured us that in this sense an instruction has been issued to methodologists at Labour Offices to not require breakdown of components and their prices.

88. Nevertheless, the Claimant says that it complied with the requests of the Labour Office and submitted detailed and highly confidential information relating to its solutions.⁸² In doing so, the Claimant said very clearly that its confidential information must not be shared with its competitors. It stated in unequivocal terms in the documentation it provided to the Respondent:

• “designated solely for the purposes of the administrative proceedings and may be disclosed to third parties only subject to the consent of A11Y LTD. – branch CZ”,⁸³ and
• “Price calculation is intended only for the use of the administrative proceedings. It is not allowed to pass the price calculation or its parts to third parties".⁸⁴

⁸⁰ Claimant's Skeleton, para. 27. ↩
⁸¹ Letter from Jan Buchal to Kateřina Jirková, undated, Exhibit C-0085. ↩
⁸² Claimant's Skeleton, para. 28. ↩
⁸³ Features and Functionality Specifications – Digital Magnifier 2013 [...], dated 30 August 2013, Exhibit C-0094, p. 1. ↩
⁸⁴ Preliminary Price Calculation and Specification for A11Y's special aid for [...], dated 2014, Exhibit C-0006, p. 1; Preliminary Price Calculation and Specification for A11Y's special aid for [...], dated 2013, Exhibit C-0007, p. 1. ↩

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89. Notwithstanding these clear instructions, the Labour Office shared the Claimant's confidential information and its prices with the Claimant's competitors⁸⁵ such as Tyflocentrum/ Ergones, Spektra and ACE Design.⁸⁶

90. The Claimant submits that this was improper and highly prejudicial to the Claimant as it resulted in a skewed playing field and an unfair competitive environment.⁸⁷ By contrast, the Claimant says that it was never asked by the Labour Office to provide a competing offer or price with reference to any of its competitors.

91. According to the Claimant, the Respondent does not deny that the July Statement was in fact applied inconsistently. The Claimant says:

(i) At the hearing, the Respondent did not even attempt to refute the assertion of the Claimant that: “Never once did the Respondent ask the Claimant for an alternative application...Never once did the Respondent share the confidential and pricing information of Spektra and Galop and the other competitors with the Claimant. Not once.⁸⁸

(ii) [T]he Respondent has not been able to point out a single piece of evidence in the record showing that it asked the Claimant for a comparative price regarding an assistive technology aid offered by another provider.⁸⁹

⁸⁵ See Claimant's Reply, paras. 149-166; First Expert Report of Morten Tollefsen, paras. 92-102. See also, e.g. Email of Ms. Smidova to Ms. Vonesova of the TyfloCentrum, dated 12 September 2013, Exhibit R-0013; Emails between Labour Office (Jana Šinová) and Tylfocentrum Olomouc/Ergones, last dated 11 December 2013, Exhibit C-0108; Price Calculation for Electronic Communication Aid, Digital Magnifier and Camera Magnifier for [...], dated 1 October 2013, Exhibit C-0102; Offer by ACE Design, dated 19 May 2014, Exhibit C-0017; Letters between Labour Office (Renata Matyášova) and Ergones (Pavel Kolčava), dated 8 October 2014, Exhibit C-0134. ↩
⁸⁶ First Expert Report of Morten Tollefsen, paras. 95, and 92-102. ↩
⁸⁷ See: Preliminary Price Calculation for [...], dated 2014, Exhibit C-0125; Offer by ACE Design, dated 19 May 2014, Exhibit C-0017; Offer by Spektra, v.d n., dated 19 May 2014, Exhibit C-0018; Request for alternative offers by the Labour Office, dated 19 May 2014, Exhibit C-0019; Application of 27 May 2013 and Invoice of 20 May 2013 re [...], submitted on 29 May 2013, Exhibit R-0007; Functional description of Digital Magnifier for [...], dated 2013, Exhibit C-0086; Letter of the Labour Office to Adaptech re [...], dated 26 June 2013, Exhibit R-0011; Letter of the Labour Office to Spektra s.r.o., dated 26 June 2013, Exhibit R-0012. Emails between Labour Office (Jana Šinová) and Tylfocentrum Olomouc/Ergones, last dated 11 December 2013, Exhibit C-0108; Price Calculation for Electronic Communication Aid, Digital Magnifier and Camera Magnifier for [...], dated 1 October 2013, Exhibit C-0102. See also Claimant's Reply, paras. 143-166. ↩
⁸⁸ Claimant's Post-Hearing Brief, para. 20; Transcript of Final Mearing, Claimant's Opening Submissions, Day 1, p. 24 (lines 3-5 and lines 12-15). ↩
⁸⁹ Claimant's Post-Hearing Brief, para. 21. ↩

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92. Accordingly, the Claimant concludes that there cannot therefore be any serious dispute that the July Statement was not applied consistently vis-à-vis the Claimant as compared with other assistive aid providers.

93. The Claimant also alleges that the Labour Office continued to share with the Claimant's competitors the Claimant's confidential and pricing information despite the Decision of the Deputy for Social Matters No. 14/2013 of 4 December 2013 (“December Decision”) which prohibited the Respondent from doing so.⁹⁰

94. The December Decision will be set out in full:⁹¹

Article I
Initial provisions

General Directorate of Labour Office of Czech Republic was notified by Ministry of Labour and Social Affairs, in relation to complaints of subjects supplying aids for handicapped persons, that offices of Labour Office of Czech Republic did not proceed in some administrative proceedings on admission of allowance for special aid in compliance with corresponding regulations. On basis of the mentioned, General Directorate of Labour Office of Czech Republic decided on adoption of measures of adjusting methods of administrative proceedings on admission of allowance for special aid.

Article II

Policy to evaluation of the condition of being least economically demanding for the purposes of allowance for special aid

1. Competent places of work of non-insurance social allowances as administrative bodies are obliged to handle documents that create files in such a way so that the rights and interests imposed by law of third-party persons are not violated and no detriment is caused.

2. During the proceedings on allowance admission for special aid, when a regional branch of Labour Office of Czech Republic examines whether the aid, for which the allowance is requested, is in basic version that fully satisfies the person and satisfies the condition of being least economically demanding, it may not pass the details of parameters of the requested aid (price, particular components, project documentation), that the applicant provided, to any other subjects. Those subjects may be in competitive positions against the supplier of the requested aid and thus information

⁹⁰ Claimant's Skeleton, para. 31. Decision of [...], dated 4 December 2013, (“December Decision"), Exhibit C-0040, Article II (2). ↩
⁹¹ December Decision, Exhibit C-0040 (Tribunal's emphasis). ↩

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passed by a regional branch of Labour Office of Czech Republic could intervene in their mutual positions as entrepreneurs on the business market.

3. To fulfil Section 9(10) of the Act 329/2011 Coll. on providing allowances to handicapped persons, as amended, regional branches of Labour Office of Czech Republic must compare prices of similar special aids from different manufacturers or suppliers. A regional branch of Labour Office of Czech Republic for that reason asks for price offerings of aids, similar from the point of view of their functionality, from other subjects. But it is not possible so that those subjects would qualify against particular competitive offer they would get detailed information about just from the regional branch of Labour Office of Czech Republic.

4. It is always needed to apply the policy stated in the previous points of this article in practice according to the following example providing that in practice it is always necessary to start from individual conditions of the particular case:

a) a regional branch of Labour Office of Czech Republic asks a supplier of aids for visually impaired persons for making an offer for special aid, for instance digital notetaker for the visually impaired with speech output, with the following properties:

- software: screen reader, software for optical character recognition (OCR), office suite, speech synthesis Zuzana,

- hardware: notebook (including operating system, with built-in speakers of good sound quality, weight below 2 kg), portable scanner.

b) the regional branch of Labour Office of Czech Republic consults the given parameters with the applicant (e.g. during social investigation) to find out what properties of the special aid are fundamental for him in relation to the possibility and ability to utilize that particular aid, that is for his personal activities in the sense of Section 9(5) b) and c) of the Act No. 329/2011 Coll., as amended.

5. Further it is inadmissible in practice so that an employee of a regional branch of Labour Office of Czech Republic (its contact office) would call in writing to the applicant for special aid so that he would contact a particular company of competition (specialized on the same kind of special aids) and add invoices of tenders from the selected company till the deadline given in the call (or determination of particular term of visit), that is under the threat of rejecting the allowance. An applicant is only obliged, in cases defined by the law (administrative proceedings in a matter of application for allowance for special aid staircase platform, staircase chair, and ceiling lifting system), already at the time of application to add at least two offers of the barrier removal. In other cases, a regional branch of Labour Office of Czech Republic finds out the

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prices of similar aids from various manufacturers for the purpose of determining the amount of allowance by its own exploration.

Article III
Final provision

This decision is obligatory for all employees of departments of non-insurance social allowances.

95. The Claimant submits that the breach of the December Decision was confirmed at the Hearing by representatives of the Labour Office. Both [...]⁹² and Ms. Průžková⁹³ agreed that, on the application of the July Statement by the Labour Office, there were instances of cases which were contrary to the December Decision.⁹⁴

(2) The Respondent's Position

96. The Respondent submits that the “Claimant failed to evidence any disclosure of its know-how"⁹⁵ because “no special know-how is needed to combine different products into a standard aid for the blind and, hence, the disclosure of the specific components used by an aid supplier in general cannot reveal any special know-how".⁹⁶

⁹² See Transcript of Final Hearing, Day 2, p. 467 (line 25) - p. 468 (line 18):

MR. HAERI: So you agree that this document [C-0134] includes pricing information and particular components of A11Y Ltd? [...]: Yes, from what I see. MR. HAERI: If you turn over the page, you'll see the e-mail from Ms. Renata Matyásová of the Czech Labour Office to Ergones on 8 October 2014 attaching this what she calls more precise specification of the special aid which is stated in the attachment. Do you see that? [...]: Yes, I can see that. MR. HAERI: This October 2014 date was after the December 2013 decision, wasn't it? [...]: Yes. MR. HAERI: So have you now seen a document that would evidence a breach of the December decision? [...]: From what I see this is a document that is not in accordance with my [December 2013] decision...

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97. In any event, the Respondent says that the July Statement was applied consistently: just as applications regarding products of the Claimant were compared with its competitors' offers, so were the applications of all other companies too.⁹⁷

98. In this connection, the Respondent writes as follows:⁹⁸

61. The Respondent has filed thirteen decisions taken after the issuance of the July Statement as Exhibits R-0053 to R-0066 which in their reasoning show that alternative offers were obtained and that the allowance granted was always for the least economically demanding option which was determined based on the alternative offers obtained.

62. In Exhibit R-0053, as an example, the applicant required an allowance for a camera magnifier and submitted two offers, one by Spektra and one by SmartOne. The Labour Office in its reasoning held that

Due to objectivity the labour office gathered other price offer for special aid – camera magnifying glass – made by company Galop Praha in order to compare prices and basic equipment. This company offers comparable camera magnifying glass for 24 900,- CZK which fulfils the same purpose as the ones above mentioned.

Pursuant to the provision of Section 9 para. 10 of the quoted Act the labour office during assessment of amount of contribution was taking into consideration the price offer made by Galop Praha which offers cameras with same characters but it is less economically demanding and fulfils the same purpose.

The amount of the contribution is set by the lowest economic cost, which is 24900,- CZK. That is basic equipped aid which you are able to use and meet your needs.⁹⁹

63. Also the other decisions make clear that the Labour Offices obtained alternative offers regardless of the company making the initial offer which was attached to the application. [...]

99. In view of the evidence, the Respondent concludes that the Claimant was not treated any differently than its competitors.

D. THE RESPONDENT ALLEGEDLY RIGGED THE INDEPENDENT ASSESSMENTS OF THE CLAIMANT'S ASSISTIVE TECHNOLOGY SOLUTIONS

⁹⁷ Respondent's Post-Hearing Brief, paras. 60. ⁹⁸ Respondent's Post-Hearing Brief, paras. 61-63. ⁹⁹ Decision in the case of [...], dated 27 October 2014, Exhibit R-0053, p. 1. ↩

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(1) The Claimant's Position

100. The Claimant submits that the Labour Office gamed its “independent evaluations" of the Claimant's assistive technology solutions applications following the issuance of the July Statement. It gives the following as an example:¹⁰⁰

[I]n the case of the Claimant's client [...], the Labour Office insisted that the "independent evaluator" of the Claimant's assistive technology solution should be Tyflocentrum. This was despite the fact that Tyflocentrum was a competitor of the Claimant. Furthermore, Tyflocentrum had previously supplied [...] with an aid that did not work and was not fit for purpose. Undeterred by these facts, which were pointed out to the Labour Office, the Labour Office insisted on Tyflocentrum as an appropriate evaluator of the Claimant's assistive technology solution for [...].

101. Accordingly, submits the Claimant, the Labour Office failed to “consider the needs of the applicant or the effectiveness of the competing quotes".¹⁰¹

(2) The Respondent's Position

102. The Respondent denies that it rigged the independent assessments of the Claimant's assistive technology solutions.

103. In the case of [...], the Respondent writes as follows:¹⁰²

312. In summary, [...], represented by Brailcom, submitted an application for an electronic magnifying glass at a price of CZK 181.648,-. The application, as was Claimant's business practice at the time, did not contain a list of components but a lump sum for an unspecified product referred to as a “digital magnifier". The labour office contacted [...] school to determine whether he needed such a product for his education and then requested two competitors of Claimant to submit offers for solutions which would meet [...] needs. These companies submitted offers of CZK 88,800.- for a Windows-based solution and CZK 58,660.- for an Apple based solution.

313. [...]had in the meantime been asked to send a list of components. The Labour Office then submitted all three lists of components (without identifying which companies had submitted the offers and without indicating the prices offered) to Tyflocentrum for it to give its opinion on

¹⁰⁰ Claimant's Skeleton, para. 30 (footnotes omitted). ¹⁰¹ Claimant's Reply, heading of Section II.D.4(b). ¹⁰² Respondent's Rejoinder, paras. 312-314 (Tribunal's emphasis). ↩

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whether they meet the needs of [...], who was not only visually impaired but suffered also from a severe impairment of motor functions. The Labour Office also asked with regard to the iMac computer offered by Claimant at CZK 100,000.- why this computer was so expensive. This document did not identify that the price had been offered by Claimant. The Tyflocentrum, however, could not explain this pricing.

314. The Labour Office then came to the conclusion that the offer by Adaptech was the economically least demanding offer and granted an allowance accordingly.

104. In light of the foregoing, the Respondent submits that the Labour Office's approach was suitable.

V. JURISDICTION

105. In accordance with the Tribunal's Decision on Bifurcation of 5 October 2015,¹⁰³ the Respondent's jurisdictional objection as to whether the Claimant made an investment in the Czech Republic was joined to the merits. The Respondent's jurisdictional objection and the Claimant's comments thereon are summarized below.

A. WHETHER THE CLAIMANT MADE AN INVESTMENT IN THE CZECH REPUBLIC

106. The Claimant describes the investment it made in the Czech Republic as follows:¹⁰⁴

18. First, the Claimant had a multitude of claims to money and/or performance under contract having a financial value in the Czech Republic:

(1) The Claimant's contracts with its customers in the Czech Republic are assets and investments of the Claimant. More generally, the fact that the Claimant had such contracts with its customers is characteristic of the Claimant's broader assistive technology business operations and investment in the Czech Republic.

(2) [...] Further evidence of the Claimant having assets of this kind exists in the important distribution contracts it signed with BAUM Retec and iStyle.

19. Second, as one would expect with an operating and ongoing business, the Claimant held property rights as well as movable property for the purpose of its business in the Czech Republic. As the evidence reflects, the Claimant's property included a lease of business premises, an automobile,

¹⁰³ See PO 2. ¹⁰⁴ Claimant's Reply, paras. 18-22 (footnotes omitted). ↩

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and business assets that the Claimant acquired in the Czech Republic (such as printers, iPads, computers and telephones).

20. Third, the Claimant had developed extensive know-how and technical processes:

(1) The Claimant's staff comprise an impressive gathering of assistive technology experts who have in their work and experience developed extensive know-how and technical processes for the Claimant to assist the blind and the visually impaired with technology solutions to meet their needs. [...]

(2) The Claimant had particular know-how in producing integrated and holistic assistive technology solutions that were designed and developed specially for individual customers in view of their particular disability and needs. This set the Claimant apart from standard suppliers and retailers of assistive technology products. [...]

(3) In his expert report, Mr. Tollefsen, who has extensive practical experience in the field of assistive technologies, has said that the Claimant's documents “clearly show know-how." [...]

21. Fourth, the Claimant had significant goodwill and a stellar reputation, which in turn promoted a strong "word of mouth" recommendations of the Claimant's business.¹⁰⁵ This is attested to repeatedly by the Claimant's customers, who enthuse over the value of its support in clearly appreciative terms.

[...]

22. Finally, in addition to the Claimant's know-how and other contributions in the Czech Republic, the Claimant made considerable financial contributions in the Czech Republic through the payment of liabilities incurred in the course of its business, including for the supply of components for its solutions, employee salaries, and otherwise. For example, by 31 December 2012, the Claimant's Czech Branch had spent CZK 105,000 on the cost of goods in the Czech Republic. This had increased to CZK 7,950,000 by 31 December 2013.

107. The Parties agree that in order to determine whether or not an investment has been made, the Tribunal should assess the Claimant's business in the Czech Republic as a whole (as opposed to the individual elements of that business), and decide whether the combined effect of all features of that business render it an investment.¹⁰⁶

¹⁰⁵ Jan Buchal explains in his Second Witness Statement, with reference to multiple examples, that “AllY's marketing was word of mouth from happy, satisfied customers." Second Buchal, para. 11. ¹⁰⁶ Claimant's Rejoinder, para. 27. Respondent's Rejoinder, para. 15. ↩

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(1) The Parties' Positions

a. The Respondent's Position

108. The Respondent submits that the Treaty lists certain assets as a descriptive indication of what form an investment may take.

109. Article 1(a) of the Treaty provides as follows:¹⁰⁷

(a) The term 'investment' means every kind of asset belonging to an investor of one Contracting Party in the territory of the other Contracting Party under the law in force of the latter Contracting Party in any sector of economic activity and in particular, though not exclusively, includes:

(i) moveable and immoveable property and any other related property rights including mortgages, liens or pledges;

(ii) shares in and stock and debentures of a company and any other form of participation in a company;

(iii) claims to money or to any performance under contract having a financial value;

(iv) intellectual property rights, goodwill, know-how and technical processes;

(v) business concessions conferred by law or, where appropriate under the law of the Contracting Party concerned, under contract, including concessions to search for, cultivate, extract or exploit natural resources.

110. The Respondent argues that, for an investment to exist, three criteria, (i) contribution, (ii) risk and (iii) duration must be met.¹⁰⁸ The word “investment”, according to many decisions, has an inherent meaning and the objective definition of this term in a BIT comprises the elements of a contribution or allocation of resources, duration, and risk.¹⁰⁹

¹⁰⁷ Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments with Protocol, Legal Exhibit CL-0001. ¹⁰⁸ Respondent's Rejoinder, paras. 19 and ff. ¹⁰⁹ Romak S.A. (Switzerland) v. Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award, 26 November 2009, paras. 180 and 207, Legal Exhibit RL-0128; KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, paras. 165 et seq. and 173, Legal Exhibit RL-0134. ↩

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111. The finding of a contribution by the Claimant is the first step in the determination of whether an investment has been made, argues the Respondent.¹¹⁰ Without a contribution, there is automatically no risk involved and no duration, as several tribunals have affirmed.¹¹¹

112. The existence of a contribution made by the investor is a precondition for the qualification of an investment, and for this reason, it is also a precondition for the Tribunal's jurisdiction ratione materiae says the Respondent.¹¹²

113. For example, the tribunal in KT Asia v. Kazakhstan held that:¹¹³

The assets listed in Article (...) of the BIT are the result of the act of investing. They presuppose an investment in the sense of a commitment of resources. Without such a commitment of resources, the asset belonging to the claimant cannot constitute an investment [...].

114. The tribunal in that case concluded that the claimant had not made any contribution with respect to its alleged investment, and, as a consequence, the “Claimant has not demonstrated the existence of an investment".¹¹⁴ On these grounds, the tribunal concluded that it did not have jurisdiction.

115. In this respect, the Respondent quotes Professor Zachary Douglas:¹¹⁵

Given that the stated objective of investment treaties is to stimulate flows of private capital into the economies of the contracting states, the

¹¹⁰ Respondent's Rejoinder, para. 24. ¹¹¹ KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, para. 219, Legal Exhibit RL-0134; see also Capital Financial Holdings Luxembourg S.A. v. Republic of Cameroon, ICSID Case No. ARB/15/18, Award, 22 June 2017, para. 425, Legal Exhibit RL-0135. ¹¹² See e.g., Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, paras. 110-111, Legal Exhibit RL-0131; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, para. 220, Legal Exhibit RL-0132; Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 5.43, Legal Exhibit RL-0136; Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, 31 October 2012, para. 295, Legal Exhibit RL-0133; KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, paras. 170-173, Legal Exhibit RL-0134; Nova Scotia Power Incorporated v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/1, Excerpts of Award, 30 April 2014, para. 84, Legal Exhibit RL-0137. ¹¹³ KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, Legal Exhibit RL-0134, para. 166. ¹¹⁴ Id., para. 206. ¹¹⁵ Zachary Douglas, The International Law of Investment Claims (4th ed. Cambridge University Press 2012), Legal Exhibit RL-0138, para. 336. ↩

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claimant must have contributed to this objective in order to attain the rights created by the investment treaty.

This contribution must be clearly ascertained by the tribunal if its existence is challenged by the host state; for otherwise the procedural privilege conferred by the investment treaty might be utilised by a claimant who has not fulfilled its side of the bargain.

116. Accordingly, submits the Respondent, the existence of an investment depends on the making of a contribution for the acquisition of the investment at issue. Where there is no such contribution, tribunals have declined jurisdiction ratione materiae as it does not correspond with the objective of investment treaties.

117. In the present case, says the Respondent, the Claimant had no significant funds to make an investment. It spent GBP 28 to incorporate its letterbox company in the United Kingdom. Before taking over BRAILCOM, it had no business in the United Kingdom. In fact, it had no premises or employees in the United Kingdom until mid-2016. Mr. Jan Buchal, who owns and/or controls both BRAILCOM and the Claimant, shifted assets and business from one entity to the other, in pursuance of his own benefits. It is clear from the Claimant's own submission that it never committed any resources to acquire BRAILCOM's business. The Claimant, submits the Respondent, received BRAILCOM's business completely for free.¹¹⁶

118. Accordingly, concludes the Respondent, the Claimant made no contribution and therefore, cannot establish that it made an investment in the Czech Republic. As the Claimant did not make any personal contribution, it could not have assumed any personal risk with its alleged investment.¹¹⁷ Therefore that the Tribunal lacks jurisdiction ratione materiae over the Claimant's investment.

¹¹⁶ Respondent's Skeleton, para. 12. ¹¹⁷ See KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013, Legal Exhibit RL-0134, para. 219; Capital Financial Holdings Luxembourg S.A. v. Republic of Cameroon, ICSID Case No. ARB/15/18, Award, 22 June 2017, Legal Exhibit RL-0135, para. 425. ↩

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119. Should the Tribunal find that the Claimant did make a contribution, the Respondent submits that, in addition to the fact that an investment must involve a contribution, it must also involve a transfer of value from one country to another.¹¹⁸

120. In Alapli Elektrik v. Turkey, the tribunal held that:¹¹⁹

ECT Article 26(1) provides for resolution of disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former. [...]

In each instance, the investor is assumed to be an entity which has engaged in the activity of investing, in the form of having made a contribution. An alleged investor must have made some contribution to the host state permitting characterization of that contribution as an investment "of” the investor.

Consequently, [...] (the Second Project Company) cannot be considered an investment “of” Claimant. Although not a very long word, the term “of” constitutes the operative language for determining investor status in both relevant treaties. Pursuant to the interpretative principles of the Vienna Convention on the Law of Treaties, which instruct that treaty terms are to be read in their ordinary meaning in context, reference to the investment "of” an investor must connote active contribution of some sort.

Put differently, the treaty language implicates not just the abstract existence of some piece of property, whether stock or otherwise, but also the activity of investing. The Tribunal must find an action transferring some- thing of value (money, know-how, contacts, or expertise) from one treaty- country to another.

121. In the present case, both Articles 5 and 8 of the Treaty refer to investments of the investor.¹²⁰

122. The Respondent avers that the Claimant, however, never transferred anything of value from the United Kingdom to the Czech Republic. All assets of BRAILCOM that the Claimant alleges were transferred to it were and remained in the Czech Republic. Respondent argues that the Claimant specifically confirmed that, before 2016, it never had any business in the United Kingdom. BRAILCOM's business was merely transferred

¹¹⁸ Respondent's Skeleton, para. 15. ¹¹⁹ Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Excerpts of Award, 12 July 2012, Legal Exhibit RL-0139, paras. 357-360. ¹²⁰ Respondent's Rejoinder, para. 60 (Respondent's emphasis). ↩

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from one Czech entity to the Czech branch of a UK entity. Nothing of value ever left the Czech Republic. Even less did anything of value enter the Czech Republic from the United Kingdom.¹²¹

123. As the Claimant never made an investment in the Czech Republic, the Tribunal therefore lacks jurisdiction ratione materiae over the Claimant's claim, concludes the Respondent.

b. The Claimant's Position

124. The Claimant submits that it has made a qualified investment under the Treaty.

125. The Claimant asserts that the Tribunal should only apply the broad definition of investment found in Article 1(a) of the Treaty which does not define or limit “every kind of assets".

126. In view of the specific definition of “investment” in Article 1(a) of the Treaty, the Salini test which pertained to the term “investment” in Article 25(1) of the ICSID Convention finds no application in the present case, argues the Claimant. This is an UNICTRAL Tribunal governed by the 1976 UNCITRAL Arbitration Rules.

127. In this respect, the Claimant relies on the following decisions:¹²²

1. In White Industries v. India, the tribunal held:¹²³

   The present case, however, is not subject to the ICSID Convention. Consequently, the so-called Salini Test, and Douglas's interpretation of it, are simply not applicable here. Moreover, it is widely accepted that the 'double-check' (namely, of proving that there is an ‘investment' for the purposes of the relevant BIT and that there is an investment' in accordance with the ICSID Convention), imposes a higher standard than simply resolving whether there is an ‘investment' for the purposes of a particular BIT.

2. In Guaracachi v Bolivia, the tribunal held:¹²⁴

¹²¹ Respondent's Rejoinder, para. 61. ¹²² Claimant's Rejoinder, paras. 8-11. ¹²³ White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award, 30 November 2011, Legal Exhibit CL-0165, para. 7.4.9. ↩

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The Tribunal also considers that it is not appropriate to import 'objective' definitions of investment created by doctrine and case law in order to interpret Article 25 of the ICSID Convention when in the context of a non-ICSID arbitration such as the present case. On the contrary, the definition of protected investment, at least in non-ICSID arbitrations, is to be obtained only from the (very broad) definition contained in the BIT concluded by Bolivia and the United Kingdom.

3. In Flemingo v. Poland, the tribunal held:¹²⁵

   Article 9 of the Treaty, and not Article 25 of the ICSID Convention, is the jurisdictional basis of the present arbitration. Consequently, jurisdictional restrictions deriving from the notion of 'investment'in Article 25 of the ICSID Convention, as emphasised by various ICSID tribunals such as the Salini panel, do not apply to the present arbitration. Moreover, the present Tribunal is convened under the UNCITRAL Arbitration Rules, which merely refer to any ‘dispute' without any further qualification.

4. In Anglia Auto v. Czech Republic, the tribunal held:¹²⁶

   As a preliminary matter, the Tribunal does not deem it necessary to inquire into the question whether the requirements of a contribution, certain duration and an element of risk are met in this instance, given that this arbitration was brought under the SCC Arbitration Rules, not the ICSID Arbitration Rules under which the so-called Salini test has been developed in arbitral case law in relation to Article 25 of the 1965 ICSID Convention.

128. In addition, the Claimant submits that its investment, as described at paragraph 106 above, clearly falls within the Treaty's definition of an investment since the Claimant has (i) moveable property and property rights related to immoveable property in the Czech Republic, (ii) claims to money and/or performance contracts having financial value, and (iii) know-how, technical processes and goodwill.¹²⁷

¹²⁴ Guaracachi America, Inc. and Rurelec PLC v. Plurinational State of Bolivia, PCA Case No.2011-17, Award, 31 January 2014, Legal Exhibit CL- 0167, para. 364 (internal citations omitted). ¹²⁵ Flemingo Duty Free Shop Private Limited v. Republic of Poland, UNCITRAL, Award, 12 August 2016, Legal Exhibit CL-0169, para. 298. ¹²⁶ Anglia Auto Accessories Ltd. v. Czech Republic, SCC Case No. V2014/181, Final Award, 10 March 2017, Legal Exhibit CL-0171, para. 150. ¹²⁷ Claimant's Skeleton, para. 54. ↩

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129. Even the Respondent's technical experts acknowledged at the Hearing that the Claimant possessed know-how.¹²⁸

130. Finally, in respect of the Respondent's argument that the Claimant's investment is not “international", the Claimant submits essentially that case law is clear that the origin of an investor's capital, whether international or not, is irrelevant as to whether an investment exists.¹²⁹

131. For these reasons, the Claimant submits that the Tribunal has ratione materiae jurisdiction over the Claimant's investment.

(2) The Tribunal's Analysis

132. The Tribunal recalls that in its Decision on Jurisdiction, it upheld the Respondent's objection regarding the scope of the dispute resolution clause and found that the Claimant was a foreign investor under the Treaty.

133. The Tribunal then wrote at paragraph 132 of that Decision:

Whether the Claimant, at the time of its incorporation, had made an investment in the Czech Republic is a separate argument. The Tribunal recalls that, in its Procedural Order No. 2, it decided to join this

¹²⁸ Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 827 (lines 11-18). When asked again to confirm his answer, Gerhard Weber replied, "There is know-how, of course, [...]." See Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 828 (line 13). See also Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 836 (line 12) - p. 838 (line 15). ¹²⁹ Claimant's Rejoinder, para. 20(3), citing Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Award, 29 April 1999, Legal Exhibit CL-0163, para. 109; Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL Arbitration Rules, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, Legal Exhibit CL-0036, para. 432; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, Legal Exhibit CL-0080, para. 77; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, Legal Exhibit CL- 0168, para. 288; Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, Legal Exhibit CL-0166, para. 383; Venezuela Holdings B.V. and others (formerly Mobil Corporation and others) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, Legal Exhibit RL-0101, para. 198; Joseph C. Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 21 January 2010, Legal Exhibit CL-0152, para. 56; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, Legal Exhibit CL-0164, para. 210; Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, Legal Exhibit RL-0127, para. 106; CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001, Legal Exhibit CL-0019, para. 418. ↩

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jurisdictional objection to the merits as it is clearly intertwined with the merits. The Tribunal will thus decide this objection in the merits phase of this case.

134. The Tribunal must now determine whether the Claimant made an investment in the Czech Republic which is protected by the Treaty.

135. The Tribunal deems it useful to cite again Article 1(a) of the Treaty which defines “investment” in this case:¹³⁰

[T]he term 'investment' means every kind of asset belonging to an investor of one Contracting Party in the territory of the other Contracting Party under the law in force of the latter Contracting Party in any sector of economic activity and in particular, though not exclusively, includes:

(i) moveable and immoveable property and any other related property rights including mortgages, liens or pledges;

(ii) shares in and stock and debentures of a company and any other form of participation in a company;

(iii) claims to money or to any performance under contract having a financial value;

(iv) intellectual property rights, goodwill, know-how and technical processes;

(v) business concessions conferred by law or, where appropriate under the law of the Contracting Party concerned, under contract, including concessions to search for, cultivate, extract or exploit natural resources.

136. The Tribunal notes that there are no definitions or limitations in the Treaty of the terms "every kind of asset belonging".

137. On its face, the Treaty does not require, for instance, that the assets be transferred for consideration, that there be a flow of funds from the United Kingdom into the Czech Republic or that there be an underlying transaction. The Treaty only refers to “every kind of asset belonging” to the investor without any further qualification.

¹³⁰ Tribunal's emphasis. ↩

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138. The Contracting Parties to the Treaty could have qualified the definition of investment but they chose not to do so. It is not the task of this Tribunal to add words to the broad definition agreed by the Contracting Parties.

139. The Tribunal recalls that this case is proceeding pursuant to the UNCITRAL Arbitration Rules. These Rules have no equivalent to Article 25 of the ICSID Convention.

140. Accordingly, the Tribunal finds that the Treaty is clear: the investment is the asset and such asset must belong to the investor for the Tribunal to have jurisdiction.¹³¹

141. The Tribunal is comforted in its conclusion by the reasoning and the findings mutatis mutandis of the tribunals in Tokios Tokelés and in Yukos.

142. The tribunal in Tokios Tokelés wrote as follows:¹³²

77. The Respondent requests the Tribunal to infer, without textual foundation, that the Ukraine-Lithuania BIT requires the Claimant to demonstrate further that the capital used to make an investment in Ukraine originated from non-Ukrainian sources. In our view, however, neither the text of the definition of “investment,” nor the context in which the term is defined, nor the object and purpose of the Treaty allow such an origin-of-capital requirement to be implied. The requirement is plainly absent from the text. In addition, the context in which the term “investment” is defined, namely, “every kind of asset invested by an investor,” does not support the restriction advocated by the Respondent. Finally, the origin-of-capital requirement is inconsistent with the object and purpose of the Treaty, which, as discussed above, is to provide broad protection to investors and their investments in the territory of either party. Accordingly, the Tribunal finds no basis on which to impose the

¹³¹ Arbitrator Joubin-Bret takes a different view from the other members of the Tribunal with respect to a central aspect in the analysis relating to the existence of an investment in light of the Treaty. Arbitrator Joubin-Bret considers that in the present case, there is no evidence of a transaction, a transfer, a contribution, a consideration or a counter-performance of any kind originating from the United Kingdom into the Czech Republic to establish or acquire property over the assets listed in the definition of investment under article 1. In Arbitrator Joubin-Bret's view, while, for purposes of definition, an investment can take different forms, it cannot dispense from being invested or otherwise acquired and to involve some form of transfer from one contracting State into the other contracting State of the BIT at any given stage. Arbitrator Joubin-Bret considers that it would defeat the object and purpose of investment promotion and protection treaties to cover situations where no foreign investment has taken place. However, Arbitrator Joubin-Bret is also mindful of the specific wording of the Treaty at hand that does not make reference to such transaction into the territory of the host State. Arbitrator Joubin-Bret is further reminded of the provisions of the Vienna Convention where the plain meaning of the text will take precedence over the object and purpose of the text and where Arbitrator Joubin-Bret's reading would result in adding a condition that the underlying treaty does not provide, which would in turn result in an incorrect interpretation. ¹³² Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, Legal Exhibit CL-0080, para. 77. Tribunal's emphasis. ↩

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restriction proposed by the Respondent on the scope of covered investments.

143. The tribunal in Yukos wrote as follows:¹³³

430. As an initial matter, the Tribunal finds that the ECT, by its terms, applies to an “Investment” owned nominally by a qualifying “Investor.” Respondent's submission that simple legal ownership of shares does not qualify as an Investment under Article 1(6)(b) of the ECT finds no support in the text of the Treaty. The breadth of the definition of Investment in the ECT is emphasized by many eminent legal scholars. As defined in Article 1(6) of the ECT, an “Investment” includes “every kind of asset” owned or controlled, directly or indirectly, and extends not only to shares of a company but to its debt (Article 1(6)(b) of the ECT), to monetary claims and contractual performance as well as “any right conferred by law” (Article 1(6)(f) of the ECT, [...]). The Tribunal recalls again that, according to Article 31 of the VCLT, a treaty is to be interpreted in good faith in accordance with the ordinary meaning of its terms. The Tribunal reads Article 1(6)(b) of the ECT as containing the widest possible definition of an interest in a company, including shares (as in the case at hand), with no indication whatsoever that the drafters of the Treaty intended to limit ownership to “beneficial” ownership.

144. In the present case, the Claimant asserts that the assets that belong to it in the Czech Republic consist mainly of know-how and goodwill. The Tribunal agrees.

145. In respect of know-how, even the Respondent's technical experts agreed at the Hearing that A11Y possessed know-how.¹³⁴ Such know-how includes the expertise of AllY's employees, such as Mr. Hanke, and its owner, Mr. Buchal, in providing cutting-edge assistive technologies and holistic solutions for the visually impaired. As Mr. Tollefsen, the Claimant's expert testified, the Claimant's training handbooks are “among the best learning materials” he has seen and would have required “a lot of work and technical knowledge to prepare."¹³⁵

¹³³ Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL Arbitration Rules, PCA Case No. AA227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, Legal Exhibit CL-0036, para. 430 (Tribunal's emphasis). ¹³⁴ Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 827 (lines 11-18). When asked again to confirm his answer, Gerhard Weber replied, “There is know-how, of course, [...]." See Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 828 (line 13). See also Transcript of Final Hearing, Testimony of Gerhard Weber and Zdeněk Míkovec, Day 4, p. 836 (line 12) - p. 838 (line 15). ¹³⁵ Expert Report of Morten Tollefsen, para. 59(a). ↩

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146. In respect of the Claimant's goodwill, the Tribunal need merely note that the record is replete with evidence concerning the loyalty of the Claimant's customers and Mr. Buchal's stellar reputation in this field. The evidence of goodwill is overwhelming.

147. The Tribunal heard the evidence of many AllY's customers who expressed their unreserved satisfaction of the services A11Y provided to them. Those customers were [...], [...], [...], [...], and [...]. Those witnesses impressed the Tribunal which found them all honest and totally credible. These witnesses, except for [...] who testified by video-conference, travelled from the Czech Republic to Paris, accompanied by personal aides in order to provide evidence and assist the Tribunal. They did indeed impress and assist the Tribunal in its task to determine that the Claimant had made an investment in the Czech Republic.

148. With respect to Mr. Buchal's reputation, [...], the Director of a primary school for the visually impaired wrote as follows in his witness statement:

[...] Mr. Jan Buchal, the companies BRAILCOM and A1lY and their team had an excellent professional name and an excellent reputation. Their clients first of all valued a high technical maturity of compensation aids and service of the workers of the company, which allowed the clients to make a perfect use of their aids.¹³⁶

149. [...] confirmed this statement when he testified at the Hearing. The Tribunal found [...] to be a credible witness.

150. The Tribunal concludes that these assets, namely the know-how and the goodwill, transferred from BRAILCOM to A11Y, belong to AllY, and thus represent an investment by the Claimant in the Czech Republic under the Treaty.

151. Indeed, as noted earlier, the evidence reveals that over a period of several months A11Y took over the business from BRAILCOM, which included taking on new contracts with customers to provide them with assistive technology solutions, and hiring former employees of BRAILCOM.

¹³⁶ Witness Statement of [...], para. 13. ↩

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152. In this connection, the Claimant writes in its Post-Hearing Brief:¹³⁷

From late 2012, the Claimant started to carry out sales of assistive technology aids in the Czech Republic and began issuing pro-forma invoices and invoices to customers for assistive technology solutions. The Claimant's Czech branch financial accounts thus show income from sales flowing to the Claimant from 2012. By March 2013, the Claimant entered into all new orders for assistive technology solutions and Brailcom no longer entered into new orders to produce assistive technology aids. After March 2013, Brailcom only fulfilled assistive technology aids orders made before that time.

[...]

The Claimant assumed the contractual employment relationship with employees for the production of assistive technology solutions.

153. Accordingly, the Tribunal finds that the Claimant's investment, namely its know-how and its goodwill, is a protected investment under the Treaty.

154. The Tribunal will now proceed to address the merits of this case. It will commence with the issue of liability of the Respondent.

VI. MERITS

155. As a result of the Tribunal's Decision on Jurisdiction, the Claimant's claim for indirect and creeping expropriation by the Respondent under Article 5 of the Treaty is the only claim which the Tribunal must adjudicate. The Parties' positions in respect of this claim are summarized below.

A. WHETHER THE RESPONDENT BREACHED ARTICLE 5 OF THE TREATY

156. Article 5 (1) of the Treaty provides, in relevant part, as follows:

Investments of investors of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as “expropriation”) in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation. [...]

¹³⁷ Claimant's Post-Hearing Brief, para. 3 (footnotes omitted). ↩

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157. The Parties appear to agree on two important points regarding the Claimant's claim:

- while they cite different authorities and use different formulations of wording, the Parties seem to agree that an indirect expropriation arises when an investment's value has been substantially deprived of value or destroyed, even if title to it remains with the investor; and

- there is no value left in the Claimant's investment in the Czech Republic and the Claimant is insolvent today.

158. The Parties agree that the test for indirect expropriation is reflected in the case of Metalclad v. Mexico in which the Tribunal held that an expropriation exists if the measure in issue has the “effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property.”¹³⁸ Nor is there any disagreement between the Parties that an indirect expropriation can take the form of a "creeping" expropriation.¹³⁹

159. However, the Parties disagree as to whether the Respondent expropriated the Claimant's investment.

(1) The Parties' Positions

a. The Claimant's Position

160. The Claimant submits that the Respondent breached Article 5 of the Treaty.

¹³⁸ Metalclad Corp v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, Legal Exhibits CL-0017/RL-0142, para. 103. ¹³⁹ See inter alia: Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, Legal Exhibit RL-0002, para. 20.22; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, Legal Exhibit CL-0114, para. 329; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, Legal Exhibit CL-0176, para. 667; Teinver S.A., Transportes de Cercanias S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Award, 21 July 2017, Legal Exhibit CL-0178, para. 948. ↩

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161. Firstly, the Claimant submits that the Respondent subjected the Claimant's investment to measures having the effect of expropriation. The Tribunal recalls that these four measures were summarized in Section IV above. They are:¹⁴⁰

- the Labour Office of the Respondent - deliberately and with the intention of persuading the Claimant's customers to abandon the Claimant's business – destroyed the Claimant's reputation and goodwill;

- the Labour Office of the Respondent participated in a prime-time television program and told the entire community of blind and visually impaired persons in the Czech Republic that the Claimant was "overpricing";

- the Labour Office of the Respondent consistently disclosed the Claimant's know-how and customer information to its competitors, eroding the Claimant's competitive edge; and

- the Labour Office of the Respondent rigged the “independent” assessments of the Claimant's assistive technology solutions by seeking biased assessments from competitors, failing to consider the needs of applicants and comparing the Claimant's assistive technology solutions against very different “out of the box” aids prepared by its competitors.

162. In its Post-Hearing Brief, the Claimant interestingly seemed to shift the focus of its initial position and argued that the predominant cause of the failure of the Claimant's business was the TV Report which aired on 12 January 2014.¹⁴¹ According to the Claimant, it was that program which caused the collapse in the number of AllY's customers and orders.¹⁴²

163. The position of the Claimant and its evolution is apparent from the following passage of the Claimant's Post-Hearing Brief:¹⁴³

¹⁴⁰ Claimant's Reply, para. 259. ¹⁴¹ Claimant's Post-Hearing Brief, para. 68. ¹⁴² CRS-4; Claimant Demonstrative 3. ¹⁴³ Claimant's Post-Hearing Brief, para. 88. ↩

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Although the Respondent's discriminatory application of the July Statement to the Claimant unquestionably had an adverse impact on the Claimant, it did not in itself result in the collapse of the Claimant's customers and orders (which caused the demise of the Claimant). The Respondent tried to inject uncertainty into the clear-cut position by asking at the hearing: “Why is the fact that 1 sold fewer aids in 2014 a result of the TV interview? Why isn't it a result of the fact that the applicants received less money?” However, in response to a question from Arbitrator Alexandrov, the Respondent's counsel answered his own question: "the applicant is given an amount of money and it can do with the money what it wants.” Simply put, that is why the July Statement (notwithstanding that the Respondent applied it in a discriminatory fashion against the Claimant), did not in itself result in the collapse of the Claimant's customers and orders. The Claimant's customers could choose to stay with the Claimant and do with the money provided what they wanted, which was typically to continue with the Claimant. This did not change with the July Statement. What happened regarding the Respondents discriminatory approach to the Claimant under the July Statement was explained by Mr. Buchal: “we always tried to reduce the aids to our own costs in such a way that we could at least supply it to the client and we were hoping that soon we will start doing better and can provide support for the clients and satisfy their needs later. So we reduced stuff, or we just cancelled some necessary components. That was also a possibility."

164. Mr. Buchal in his Second Witness Statement wrote:¹⁴⁴

The Respondent told many of AllY's customers directly that they should use other companies and that their applications would never be granted if they used AllY. These allegations spread quickly within the blind community, and were very damaging because AllY relied on word of mouth. We could not continue like this.

165. And then, when referring to the television broadcast of 12 January 2014, Mr. Buchal says that:¹⁴⁵

This was a terrible blow to Ally, whose name was associated with Brailcom. AllY's reputation, which was excellent through its work, was completely destroyed. I and my colleagues received many messages from clients who were extremely worried about their solutions applications and contacted AllY enquiring about them. It shocked me that the Labour Office could make such allegations on national television without giving AllY a chance to respond. The scale of the negative impact this would have on Ally's business was devastating.

¹⁴⁴ Second Buchal, para. 34. ¹⁴⁵ Second Buchal, para. 32. For other evidence in respect of the effect of the TV Report see Claimant's Post-Hearing Brief, paras. 72-79. ↩

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166. And then, in its Post-Hearing Brief, the Claimant writes as follows in respect of the effect of the TV Report on Al1Y's business:¹⁴⁶

The collapse in the Claimant's number of customers and orders resulting from the TV Report is clearly shown in CRS-4 and Claimant Demonstrative-3. The number of new customers plummeted by more than two-thirds from 62 new customers in 2013 to only 20 new customers in 2014 after the TV Report. Similarly, new orders went from a peak of 166 new orders in 2013 to only 58 new orders in 2014 after the TV Report. There is nothing other than the TV Report that could possibly explain this collapse in the Claimant's customers and orders in 2014 and thereafter, nor could the Respondent credibly point to (still less prove) anything that could otherwise explain this.

167. The Claimant further submits that its financial and employment data confirms that the Claimant's assistive technology solutions business was destroyed as a result of the TV Report.¹⁴⁷

168. In respect of AllY's financial situation, the chart below¹⁴⁸ produced by the Claimant evidences, says the Claimant, the increase of its liabilities and the decrease of its cash-flow following the TV Report.

¹⁴⁶ Claimant's Post-Hearing Brief, para. 63. ¹⁴⁷ Claimant's Reply, para. 265 (as modified by Claimant's Post-Hearing Brief). ¹⁴⁸ Second Expert Report of CRS Economics, para. 30, Chart 1. ↩

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169. And then, in the autumn of 2014, the Claimant was forced to enter into compromise arrangements with its two major creditors, BAUM and iStyle, and has since been unable to pay those debts.¹⁴⁹

170. In respect of the Claimant's employment data, the Claimant writes:¹⁵⁰

In September 2014, Mr. Buchal announced to the Claimant's employees that the company was insolvent and that almost all employment contracts had to be terminated.

[...]

On 17 October 2014, Mr. Buchal had his employment terminated at the Czech Branch.

171. In light of the foregoing says the Claimant, there can be little doubt that AllY's assistive technology solutions business was irreparably destroyed as a result of the TV Report.

172. Secondly, the Claimant submits that the Respondent's actions were discriminatory.

¹⁴⁹ Claimant's Reply, para. 265. See Second Buchal, para. 37; Second Witness Statement of Hynek Hanke ("Second Hanke"), para. 55. See also, e.g. Email from BAUM (Michaela Gubernator) to AllY LTD. (Marketa Buchalová and Boris Dušek), dated 31 May 2016, Exhibit C-0137 (attaching an "overview of open invoices" and reflecting that EUR 41,560.88 was outstanding). ¹⁵⁰ Claimant's Reply, para. 265. See Second Buchal, para. 36; and Termination of Jan Buchal's employment, dated 17 October 2014, Exhibit C-0135. ↩

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173. The standard for discriminatory conduct in international investment law is well-known avers the Claimant.¹⁵¹ While a claim for discrimination may be based on the nationality of the investor, this is not the only basis on which it can be proven that a measure is discriminatory. Rather, the core element of the test is that entities that are comparable are treated in a different manner in a way that is not justified.¹⁵² As the Saluka v. Czech Republic tribunal held:

State conduct is discriminatory, if (i) similar cases are (ii) treated differently (iii) and without reasonable justification.¹⁵³

174. The Claimant submits that the Respondent's measures were targeted specifically and deliberately at the Claimant, and thus were discriminatory:¹⁵⁴

1. First, the motivation and design of the July Statement were clearly targeted at the Claimant, as the Labour Office acted only after it received the TI letter of 21 May 2013.¹⁵⁵
2. Second, the Labour Office repeatedly asked the Claimant's competitors to offer competing prices for the Claimant's applications on the basis of the July Statement, but never asked the Claimant to provide a competing offeror price with reference to any of its competitors.¹⁵⁶
3. Third, the inconsistent application of the July Statement by the Labour Office was contrary even to the Respondent's own legal requirements.¹⁵⁷ In fact, the Respondent contemporaneously admitted that "misconducts" had occurred,¹⁵⁸ and that in their attacks on the Claimant and its reputation “the employees of the Labour Office breached the Code of Ethics of the Labour Office of the Czech

¹⁵¹ Claimant's Reply, para. 269. ¹⁵² Claimant's Post-Hearing Brief, para. 51. ¹⁵³ Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL Arbitration, Partial Award, 17 March 2006, Legal Exhibit CL-0024, para. 313. ¹⁵⁴ Claimant's Reply, para. 272. ¹⁵⁵ Claimant's Post-Hearing Brief, para. 54(1). ¹⁵⁶ Claimant's Post-Hearing Brief, para. 54(2). ¹⁵⁷ Claimant's Post-Hearing Brief, para. 54(3). ¹⁵⁸ Claimant's Reply, paras. 191-200. ↩

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Republic and such conduct was totally unacceptable, beyond good administration.”¹⁵⁹

175. Thirdly, the Claimant submits that the Respondent's measures were not carried out for a public purpose.

176. In this respect, the Claimant writes as follows:¹⁶⁰

42. The entirety of the Respondent's defence is thus focused on trying to blame the Claimant for its own demise, and cast the Respondent's conduct as innocent regulation. The Respondent does not try to reconcile this position with the reality that the Claimant's business was a success before the July Instruction and TV broadcast, but then foundered rapidly thereafter. Rather, it invites this Tribunal to conclude that it was mere coincidence that the Claimant's business failed immediately after its singling-out of the Claimant for adverse treatment compared to its competitors and its ominous denunciation of the Claimant on national television.

43. That position strains belief, particularly when there is direct witness testimony on record saying that the impact of the Respondent's conduct severely damaged the Claimant's reputation in the market.

177. Finally, the Claimant submits that the Respondent's actions were not accompanied by prompt, adequate, and effective compensation. This point is “uncontentious" says the Claimant.¹⁶¹

178. In conclusion, for the above-mentioned reasons, the Claimant submits that the Respondent breached Article 5 of the Treaty by unlawfully and indirectly expropriating its investment in the Czech Republic.

b. The Respondent's Position

179. The Respondent denies that it has breached Article 5 of the Treaty.

180. Firstly, the Respondent submits that, for an indirect expropriation to exist, the Claimant must establish that AllY's insolvency is the result of the Respondent's measures.

¹⁵⁹ Meeting Notes of Meeting on 19 February 2014 prepared by Labour Office (Mgr. Lada Kunešová), dated 19 February 2014, Exhibit C-0115, p. 2. ¹⁶⁰ Claimant's Skeleton, paras. 42-43 (footnotes omitted). ¹⁶¹ Claimant's Reply, para. 283. ↩

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181. The Respondent submits that the Claimant has failed to establish that the Respondent's alleged measures caused any deterioration to the Claimant's investment. The Respondent writes as follows in this respect:

- Concerning the Respondent's alleged destruction of the Claimant's goodwill:

[T]here was no practice of employees of the Labour Office making false statements about Claimant's business or pressuring or directing them to Claimant's competitors. To the contrary, all the employees in fact did was to inform the applicants about the process and application of the Act.¹⁶²

However, even under the hypothetical assumption that the individual state representatives in these three cases “pressured” Claimant's customers, Respondent could not be held liable under the BIT.¹⁶³

The Claimant did not even come close to showing that a wide-spread practice of such pressuring might have existed that went beyond these individual cases. It can be excluded that at that time Respondent would have ignored any such misbehaviour of its officials or that it would have even encouraged it. Quite to the contrary, Respondent's officials from the General Directorate of the Labour Office and from its regional branches clearly confirmed during the hearing that if such conduct would have occurred in the way described by Claimant's witnesses, it would have been absolutely inadmissible and not tolerable.¹⁶⁴

Moreover, [...] the Labour Office in its December Decision explicitly stated that employees were not to suggest to customers to approach competitors of the Claimant. As of December 2013, therefore, the Labour Office ensured that such isolated instances would not occur in the future.¹⁶⁵

[In any event] Claimant at the time did not point the Labour Office to any specific case in which an alleged “pressuring” occurred. Therefore, Respondent was not in a position to verify Claimant's allegations and to take action against any such wrongdoing in case it really had happened.¹⁶⁶

What is even more relevant in this respect is that even if Claimant's accusations should have any merit, they had no effect whatsoever on the collapse of Claimant's business. Hence, even if the Tribunal should find

¹⁶² Respondent's Rejoinder, para. 382. ¹⁶³ Respondent's Post-Hearing Brief, para. 87. ¹⁶⁴ Respondent's Post-Hearing Brief, para. 88. ¹⁶⁵ Respondent's Rejoinder, para. 383. ¹⁶⁶ Respondent's Post-Hearing Brief, para. 88. ↩

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that there was misconduct attributable to the Respondent, this misconduct would not be of any relevance for Claimant's expropriation claim.¹⁶⁷

Claimant failed to provide any evidence that the alleged misbehaviour of the Labour Office employees resulted in customers turning away from Claimant. [In fact, each of [...], [...] and [...] remained with A11Y.]¹⁶⁸

Consequently, even if any pressuring of customers would have happened and if the Tribunal further is of the opinion that such conduct would be attributable to the Respondent, it would not be causal for Claimant's alleged expropriation.¹⁶⁹

In respect of the TV report:¹⁷⁰

116. [F]or Claimant's case of expropriation to work it must not only show that the TV interview had some impact on its business. It must show, first, that the statements made by [...] were untrue and, second, that due to the statements made by [...] in that interview, and her statements alone, its entire investment was economically destroyed.

117. Claimant had not been able to show any impact of the TV interview on the demise of its business at all. In particular, Claimant has been unable to show that the alleged impact was not due to the fact that Transparency International had publicly raised very serious allegations of Claimant's wrongdoing based on information received from disgruntled customers of Claimant in the TV interview, but only due to the fact that [...] had spoken two sentences in that interview.

[...]

122. The available evidence shows, however, that Claimant itself has stated that sharp demise of its business started in July 2013. Obviously, therefore, the reason for the demise of Claimant's business occurred in July 2013 and not in January 2014. By January 2014, says the Claimant, the downward trend of its business was already “sharp” and significant. Claimant's experts even computed a slight and short reverse trend in the first half of 2014. The TV interview, therefore, cannot have caused the destruction of Claimant's investment. This, however, is what Claimant would have to show.

- In respect of the alleged admission of misconduct:¹⁷¹

Suffice it to say that where Respondent detected an imperfect implementation of the Act it immediately took measures to meet the Claimant's concern. Respondent never admitted anything more than that.

¹⁶⁷ Respondent's Post-Hearing Brief, para. 89. ¹⁶⁸ Respondent's Post-Hearing Brief, para. 90. ¹⁶⁹ Respondent's Post-Hearing Brief, para. 96. ¹⁷⁰ Respondent's Post-Hearing Brief, paras. 116-117 and 122 (footnotes omitted). ¹⁷¹ Respondent's Rejoinder, para. 386. ↩

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182. Rather, says the Respondent, it was AllY's flawed business model which destroyed the Claimant's investment.

183. In this connection, the Respondent writes:¹⁷²

374. Claimant alleges that its business “irreparably ceased as a result of the Respondent's interventions and misconduct from July 2013 onwards”. [...] [a]s of July 2013, the Labour Offices took a different and more effective approach towards the implementation of the Act. As of July 2013, put in a nutshell, the Labour Office ensured that allowances would only be granted in an amount to satisfy the needs of the applicant at the lowest cost. This, however, simply was not Claimant's business model.

375. First, Claimant's entire business was based on the use of Apple products. As Respondent's expert explained already in his first report, Apple's entire business strategy is to “focus on high end [and] give priority to profits over market share”. Apple products are therefore more expensive than products based on other platforms. These findings are not disputed by Claimant. Claimant simply alleges that its products are superior and therefore the fact that they are more expensive is justified. In any event, so Claimant argues, the aids it offered fell within the maximum financial limits set out by the Act, which provides that applicants are entitled to allowances in an overall maximum of CZK 800.000,- for every five years and CZK 350.000,- per aid.

376. This argumentation already shows Claimant's blatant disrespect of the provisions of the Act. [...] the Act simply did not provide for the granting of allowances of high-end products. It further shows Claimant's mind-set when it argues that its aids were below the absolute maximum available to an applicant. This argument underlines that Claimant's business model simply was based on selling not the economically least demanding solution, but a more expensive one. This, however, is what is demanded by the Act. As Claimant itself concedes, blind and visually impaired persons rarely have sufficient income to pay for aids themselves. Hence, Claimant's business model was based on selling products to blind or visually impaired persons who could not afford them, while these products were also too expensive for the prospective buyers to get an allowance for them. Hence, the customers for this reason simply could not buy Claimant's products.

377. Second, Claimant's business model was based on a profit margin which was way above that of its competitors. While Claimant's model was based on a gross profit margin of 47%, the average of its competitors was 35%. The EBITDA margin of Claimant was projected to be between 15 and 27% while that of its competitors was at 4% in average. Hence, Claimant's model was based on far higher profits to be generated from its

¹⁷² Respondent's Rejoinder, paras. 374-380. ↩

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business than that of its competitors. This is reflected in Claimant's pricing policy and the fact that it charged higher margins for its products.

378. In this context, it must also be emphasized that Claimant's practice included the alleged “gift” of the 10% mandatory participation of the applicant. As Claimant expected a higher profit margin from the products it was selling while also having to cover the 10% mandatory participation, the prices of its aids had to include this participation. If Claimant offered an aid at e.g., CZK 100.000,-, this amount included not only a profit margin of 47%, but also the 10% that the applicant was supposed to pay itself. Hence, the price offered by Claimant would be comparatively higher than that of a competitor.

379. Third, in depending on the individual needs, in some cases, Windows-based solutions are the better option. They are in most cases the economically less demanding option. It is therefore not surprising that companies offering these aids would benefit from the custom of the blind and visually impaired who cannot afford to pay significantly more for an aid than the amount of the allowance. As some competitors of Claimant offer both Windows and Apple-based solutions and so are more attractive to customers searching for a larger range of options than those offered by Claimant.

380. The reason why Claimant actually went out of business in the Czech Republic therefore was not one or all of the issues Claimant complains about in the present case. Claimant's business model, which was based on selling high-end products with a significantly higher profit margin than all of its competitors, simply was not competitive in the Czech market. Claimant's products were simply too expensive for the reasons set out here above to be sold on the Czech market. Claimant's model only worked until July 2013 when the Labour Offices actually started examining Claimant's offers for the compliance with the Act. After this, it was evident to the Labour Offices that Claimant's aids were not the economically least demanding and no blind or visually impaired person was willing or capable to pay the surcharge for Claimant's products.

184. Secondly, the Respondent submits that the July Statement was a legitimate regulation based on the law existing at the time the Claimant entered the Czech market.¹⁷³ It did not change the legal situation which existed as of January 2012 as it merely interpreted the Act in greater detail. This, however, does not amount to expropriation as the Act was adopted in a bona fide manner and is not discriminatory avers the Respondent.¹⁷⁴ The

¹⁷³ Respondent's Rejoinder, para. 370. ¹⁷⁴ See Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006, Legal Exhibit RL-0070, para. 255 (“It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare."). ↩

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Claimant was never entitled to assume that the Act would never be implemented in a more detailed way by such an administrative regulation avers the Respondent.¹⁷⁵

185. In addition, the Claimant has alleged numerous imperfections in the application of the Act. However, submits the Respondent, the correct legal standard to be applied is not whether the Act was applied incorrectly by the Respondent but whether there was a "blatant disregard" by the Respondent of the Act.¹⁷⁶ The Claimant has failed to show this, says the Respondent.¹⁷⁷

186. Finally, the Respondent submits that the Claimant has failed to show that it was discriminated against in the application of the Act.

187. In this connection, the Respondent submits as follows:¹⁷⁸

106. In the present case, however, there was no different treatment of Claimant at all and hence there is no basis for a claim based on discriminatory treatment. Ms. Jirková explained that she drafted the July Statement to unify the application process under the Act on Allowances. At that time she was not even aware of the fact that Claimant was a subject of interest of Transparency International. Hence, the July Statement clearly was not a direct reaction on Claimants behaviour and not directed at Claimant, but a means to solve problems encountered by officers of the Labour Office in handling applications for allowances. The July Statement was drafted to ensure the full implementation of the Act on Allowances with regard to all companies in all sectors of aids. Also during the hearing Ms. Jirková explained:

“The instruction was drafted based on the request by the Labour Office to give them an interpretation on the law. The law was very new, different from previous legislation, and it was to be expected as new applications arrived, that there will be questions by the General Directorate about how to apply the law in practice. This is just a common procedure."

¹⁷⁵ See Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain, SCC Case No. 062/2012, Award, 21 January 2016 (translation from the Spanish original), Legal Exhibit RL-0144, para. 510 (“However, as stated in previous sections of this award, in the absence of a specific commitment toward stability, an investor cannot have a legitimate expectation that a regulatory framework such as that at issue in this arbitration is to not be modified at any time to adapt to the needs of the market and to the public interest."). ¹⁷⁶ See Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, Legal Exhibit RL-0061, para. 43 (“As the First Decision stated, “not every violation of domestic law necessarily translates into an arbitrary or discriminatory measure under international law and a violation of the FET Standard". For this to happen, it is necessary that the State incurs in "a blatant disregard of applicable tender rules, distorting fair competition among tender participants". And this is what has occurred: the First Decision found that on four occasions (three tenders plus an administrative practice) Ukraine indeed acted in "blatant disregard of applicable tender rules".). ¹⁷⁷ Respondent's Rejoinder, para. 371. ¹⁷⁸ Respondent's Post-Hearing Brief, paras. 106-107 (footnotes omitted). ↩

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107. As explained above, the July Statement was applied equally to all companies in Czech market for assistive technology and not only to Claimant. Hence, it can be excluded that there was any discriminatory intent of the Ministry when drafting the July Statement and there was not different treatment of Claimant with regard to the scrutiny of the applications it filed.

188. Even if the Respondent had treated the Claimant differently than its competitors, which is not the case, this would not have amounted to discriminatory treatment, says the Respondent.¹⁷⁹ Under general international law,¹⁸⁰

[m]ere differences of treatment do not necessarily constitute discrimination [...] [D]iscrimination may in general be said to arise where those who are in all material respects the same are treated differently, or where those who are in material respects different are treated in the same way.

189. Accordingly, the Respondent submits that even if the Claimant had received different treatment at the hands of the Labour Office regarding the implementation of the Act, this was because AllY's business model put it in a different position vis-à-vis AllY's competitors. Hence, a different treatment of A11Y would not have been discriminatory according to the Respondent.¹⁸¹

190. In conclusion, for the foregoing reasons, the Respondent submits that it has not breached Article 5 of the Treaty.

(2) The Tribunal's Analysis

191. The Claimant submits that the Respondent breached Article 5 of the Treaty by indirectly expropriating its investment in the Czech Republic.

192. As the Tribunal traversed earlier, the Claimant contends that:¹⁸²

¹⁷⁹ Respondent's Rejoinder, para. 395. ¹⁸⁰ R. Jennings, A. Watts (eds.), Oppenheim's International Law (9th ed. Longman, 1992), Vol. I, Legal Exhibit RL-0149, p. 378. ¹⁸¹ Respondent's Rejoinder, para. 398. ¹⁸² Claimant's Reply, para. 259. ↩

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- the Labour Office of the Respondent - deliberately and with the intention of persuading the Claimant's customers to abandon the Claimant's business – destroyed the Claimant's reputation and goodwill;

- the Labour Office of the Respondent participated in a prime-time television program and told the entire community of blind and visually impaired persons in the Czech Republic that the Claimant was "overpricing";

- the Labour Office of the Respondent consistently disclosed the Claimant's know-how and customer information to its competitors, eroding the Claimant's competitive edge; and

- the Labour Office of the Respondent rigged the "independent" assessments of the Claimant's assistive technology solutions by seeking biased assessments from competitors, failing to consider the needs of applicants and comparing the Claimant's assistive technology solutions against very different "out of the box" aids prepared by its competitors.

193. The Claimant contends that, as a result of those measures, its investment was completely destroyed.

194. The Respondent denies that it has indirectly expropriated the Claimant's investment. Its main defence rests on the argument that the Claimant's insolvency is not due to the State's alleged measures but rather to the Claimant's own business model.

195. The Tribunal notes that there is no disagreement between the Parties that the Claimant is insolvent. The value of the Claimant's investment in the Czech Republic has been completely destroyed.¹⁸³

196. The Claimant bears the burden of proving whether the State's alleged measures had the “effect of depriving the owner, in whole or in significant part, of the use or reasonably-

¹⁸³ Claimant's Post-Hearing Brief, para. 34. ↩

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to-be-expected economic benefit of property."¹⁸⁴ Both Parties agree that there must be a sufficient causal link between any breach of the Treaty by the Respondent and the loss the Claimant sustained.

197. After reviewing carefully the totality of the evidence and the Parties' comprehensive submissions, the Tribunal has concluded that the Claimant's case must fail for the following reasons.

198. The Tribunal recalls that, in January 2012, the Act on Allowances came into effect in the Czech Republic. It provides for the granting of subsidies by the State to persons with health impairments, including the blind and visually impaired. Under the Act, the allowances are limited in absolute amounts (to CZK 800,000 per applicant for five years) and in the amount for an individual aid (to CZK 350,000 per aid).¹⁸⁵ The Act requires the applicant to pay 10% of the aid for which the allowance may be granted.¹⁸⁶ In other words, under the Act, the Czech Republic will pay 90% of the purchase price of the aid.

199. Section 9(10) of the Act is very crucial. It provides that an allowance will only be granted for an aid if:¹⁸⁷

The allowance is provided for a special aid in basic version, which fully satisfies the person with regard to his or her health handicap and meets the condition of the aid being the least economically demanding. [...]

200. The Tribunal notes that a list of these aids is set out in Decree No. 388/2011 issued by the Czech Ministry of Labour and Social Affairs. In respect of the aids for the visually impaired, Annex 1 to the Decree provides that allowances will only be granted with respect to the following aids:¹⁸⁸

Annex 1: List of kinds and types of special aids meant for persons with health impairment which the allowance for special aid is extended for

[... I. ...]

¹⁸⁴ Metalclad Corp v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, Legal Exhibits CL-0017/RL-0142, para. 103. ¹⁸⁵ Act on Allowances, Sections 10 (3) and (6), Legal Exhibit CL-0002. ¹⁸⁶ Act on Allowances, Sections 10 (3), Legal Exhibit CL-0002. ¹⁸⁷ Tribunal's emphasis. ¹⁸⁸ Decree No. 388/2011, dated 29 November 2011, Legal Exhibit CL-0003. ↩

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II. Special aids meant for severely visually-impaired persons

1. For persons with health impairment that is mentioned in the part I point 2 of the attachment to the law:
   1. calculator with speech output
   2. digital reading device for the blind with speech output
   3. digital notetaker for visually impaired with speech output or braille display
   4. special software equipment for visually impaired
2. For persons with health impairment that is mentioned in the part I point 2 letter a) and b) of the attachment to the law:
   1. guide dog
   2. typewriter for the blind
   3. DYMO pliers
   4. electronic orientation aid for the blind and deafblind
   5. electronic communication aid for the blind and deafblind
   6. indicator of colors for the blind
   7. measuring devices for household with speech or tactile output
   8. braille display for the blind
   9. printer of relief letters for the blind
   10. speech for the blind and deafblind
3. For persons with health impairment that is mentioned in the part I point 2 letters a) through c) of the attachment to the law:

   voice recorder

4. For persons with health impairment that is mentioned in the part I point 2 letters b) through d) of the attachment to the law:
   1. camera enlarging magnifier
   2. digital enlarging magnifier

[... III. ...]

[...Annex 2, 3, 4, 5]

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201. The evidence reveals that BRAILCOM entered the market for assistive technology solutions for the visually-impaired in October 2011. A11Y was incorporated in the UK on 2 August 2012 and its Czech branch office was registered on 17 October 2012, a few months after the enactment of the Act on Allowances.¹⁸⁹ By March 2013, A11Y had taken over BRAILCOM's profitable business.

202. Obviously, the timing of AllY's incorporation is not coincidental. As Mr. Buchal explained in his first witness statement:¹⁹⁰

69. The reality was however completely different than I imagined. I thought that the revenue from sales of aids will be only a smaller part of our total income. But already in the middle of 2012 [a few months after the enactment of the Act on Allowances] it was clear that the income from sales of aids will be many times higher and that the originally intended secondary activity will become the main activity.

70. That was also one of the reasons why I began to consider a change. It was clear that BRAILCOM,o.p.s., that is a non-profit organization by law, cannot be conducting such an extensive economic activity, and it was also clear that BRAILCOM,o.p.s. cannot expand with this activity outside the Czech Republic.

71. I therefore decided to found a private, commercial company. [...]

203. The Act on Allowances clearly opened a new market in the Czech Republic, a market for assistive technology aids which incentivized Mr. Buchal to create A11Y which would take over BRAILCOM's profitable business.

204. When the Act was adopted in 2012, the Labour Office, the body responsible for administering the Act, received many applications. Since the Labour Office had not been provided with any guidance from the Labour Ministry with respect to how the Act, particularly Section 9(10), should be applied, most requests for subsidies were granted without any in-depth scrutiny.¹⁹¹

¹⁸⁹ Certificate of Incorporation of A11Y, dated 2 August 2012, Exhibit C-0001. ¹⁹⁰ First Buchal, paras. 69-71. ¹⁹¹ Respondent's Skeleton, para. 25. ↩

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205. AllY's business thrived. According to the Claimant, clients and orders were increasing every month. Within the first 15 months of operations, A11Y submitted 161 applications to the Labour Office on behalf of 81 clients.¹⁹²

206. On 21 May 2013, the Labour Office received the TI letter which has been cited in full earlier.

207. The TI letter singled out BRAILCOM. It includes the following paragraph:¹⁹³

According to the information shared by clients, in the application for a special-aid allowance BRAILCOM, o.p.s. marks up the value of the special aid considerably. One of the clients who contacted TI witnessed a decision to grant a special-aid allowance, according to which the Labour Office (regional branch) granted an applicant an allowance worth more than CZK 30,000, even though the price of the corresponding special aid (a voice-activated Apple iPhone) had a market price of approximately CZK 17,000 at the time. Statements from other clients indicate that the value of special aids in benefit proceedings in which they are represented, on the basis of a power of attorney, by BRAILCOM, o.p.s., is marked up by between 50% and 100%. [...]

208. On 12 July 2013, the Ministry of Labour of the Czech Republic, in reaction to the TI letter, and after having been asked by the Labour Office for an opinion on how to proceed going forward¹⁹⁴ issued a statement that defined the criteria set out by the Act in order to ensure that the requirements of the Act could effectively be assessed in each application and to allow the Labour Offices to take a uniform approach vis-à-vis all applications submitted under the Act (the “July Statement").¹⁹⁵ The Tribunal recalls in particular that one of the conditions for the provision of an allowance by the State is that the aid must be "the least economically demanding".

209. The July Statement also decreed that when the aids applied for consist of several individual functionally independent components, the applicant must submit a list of the components and their prices. The July Statement also clarified that, henceforth, additional services, such as training, or accessory products, such as protective covers or laptop bags,

¹⁹² First Expert Report of CRS Economics, paras. 4.4 and 4.5. ¹⁹³ Letter from TI of 21 May 2013, Exhibit R-0009. ¹⁹⁴ First Witness Statement of Milena Průžková, Exhibit R-0028, para. 14; First Witness Statement of [...], Exhibit R-0027, para. 10. ¹⁹⁵ Statement of MPSV, dated 12 July 2013, Exhibit C-0010. The Claimant refers to the Statement in its pleadings as the "July Instruction". ↩

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could not be included as part of “the basic version” of an aid and were therefore no longer covered under the Act.

210. Although the July Statement was issued following receipt of the TI letter, in the view of the Tribunal, it did not target in any away or discriminate against A11Y.

211. The Tribunal finds that the July Statement was a bona fide regulatory measure. It applies to all people with a health impairment, not only those who are visually impaired. The language of the July Statement is neutral and, on its face, does not target A11Y and applies uniformly to all companies providing aids across different groups of people with health impairments.

212. Following receipt of the TI letter, and as Ms. Jirková writes in her witness statement,¹⁹⁶ it became clear to the State that it needed to provide guidance to the Labour Office on the application of the Act. Article 9(10) of the Act, principally, needed to be interpreted and this is precisely what the Ministry did.

213. After the July Statement was issued, as noted above, A11Y could no longer charge for training and accessory products. Furthermore, it had to provide to the Labour Office a list of all the components of the special aid with their prices in order that the Labour Office could determine whether the aid offered was “basic” and “the least economically demanding".

214. However, it is obvious to the Tribunal that A11Y was not in the business of providing the most "basic" solutions to its clients. As Mr. Hanke, a technician, analyst and trainer at A11Y, explains in his first witness statement in respect of AllY's business:¹⁹⁷

17. We have decided to work on these key aspects:

a. quality - To seek and design solutions that are of a higher technical quality.

b. individuality – Not to just sell generic solutions, but design the solutions on individual situation and needs of each visually handicapped individual.

¹⁹⁶ Witness Statement of Kateřina Jirková, Exhibit R-0052, para. 8. ¹⁹⁷ First Hanke, para. 17 (Tribunal's emphasis). ↩

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c. complexity – To provide each visually handicapped person not with a single-use device, but with a thoughtful solution of his situation and needs.

d. support - By means of close cooperation with manufacturers and developers of all the components of the solutions to continuously work on maintenance and improvement of the quality of the solutions, as well as to give support to the customer when he/she encounters problems.

In retrospective I believe that in all these elements, we were quite different than the other companies selling special aids that existed in the Czech Republic before 2012.

215. This is confirmed by Mr. Buchal in his second witness statement wherein he says that AllY provided "highly specialised technical services which were not available elsewhere in the market”.¹⁹⁸

216. The Tribunal has no doubt that A11Y had its clients' best interest at heart and wanted to provide them “with a thoughtful solution of [their] situation and needs." During the Hearing, as noted earlier, the Tribunal heard the testimony of several clients of A11Y who were unanimous in their praise of the excellent services A11Y provided to them.

217. However, the State, which funded the aids, had decided to pay for the least economically demanding aid which answered the needs of the visually-impaired citizens of the Czech Republic. The Tribunal has already concluded that the July Statement was a bona fide regulatory measure. Therefore, if the July Statement created an environment, in which the Claimant's business of providing high-end products to their clients at a premium became commercially unviable, that would not result in an expropriation.

218. The Tribunal notes that the Claimant's own experts on quantum affirm in their report that the gross profit margin of A11Y between 2012 and 2013, i.e. prior to the release of the July Statement, ranged between 35% and 47%, with the highest margin of 47% being reached in the first half of 2013.¹⁹⁹

219. The Claimant's experts then proceed to opine that, as a result of the July Statement, “the State [...] declined to cover AllY’s full margin [and] AllY was consequently forced to

¹⁹⁸ Second Buchal, para. 12. ¹⁹⁹ First Expert Report of CRS Economics, para. 6.21, Table 9. ↩

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reduce its margins by up to 6 percentage points (i.e. from 47% down to approximately 40-41%)”²⁰⁰ before concluding that the reduced profit margins were “economically unsustainable from a long-term perspective”.²⁰¹ They then opine that “[b]ased on [their] calculations and AllY's cost projections, 47% gross profit margin represents the minimum gross profitability that makes the business sustainable in the long run while generating returns that a reasonable business investor would expect to receive from investment in a highly specialized IT company such as A11Y”.²⁰²

220. Even Mr. Buchal, in response to a question from the Tribunal at the Hearing as to whether Al1Y's economic model was sustainable in the long term following the issuance of the July Statement, responded: “It was not, definitely not."²⁰³

221. It follows from this statement and the opinion of the Claimant's experts that AllY’s business had become “economically unsustainable from a long-term perspective” in the regulatory environment created by the July Statement.

222. The Tribunal notes that the Claimant has advanced other claims of expropriatory conduct by the Respondent, in particular that the Respondent: (i) deliberately and with the intention of persuading the Claimant's customers to abandon the Claimant's business, destroyed the Claimant's reputation and goodwill; (ii) participated in a prime-time television program and told the entire community of blind and visually impaired persons in the Czech Republic that the Claimant was “overpricing"; (iii) consistently disclosed the Claimant's know-how and customer information to its competitors, eroding the Claimant's competitive edge; and (iv) rigged the "independent” assessments of the Claimant's assistive technology solutions.

223. There is sufficient evidence on the record that, in their implementation of the July Statement, some Labour Office employees acted improperly, notably by pressuring customers to abandon AllY and purchase aids from its competitors and by sharing AllY's business proprietary information with A11Y's competitors. This was recognized

²⁰⁰ First Expert Report of CRS Economics, para. 6.22. ²⁰¹ First Expert Report of CRS Economics, para. 6.22. Tribunal's emphasis. ²⁰² First Expert Report of CRS Economics, para. 6.23. Tribunal's emphasis. ²⁰³ Transcript of Final Hearing, Testimony of Jan Buchal, Day 2, p. 313 (lines 9-13). ↩

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by the Labour Office itself in its December Decision.²⁰⁴ This behaviour of the Labour Office probably caused damage to the Claimant. A11Y lost customers and orders.²⁰⁵ The Tribunal also accepts that the TV Report harmed the Claimant and caused it to lose more customers and orders.

224. Accordingly, the Tribunal has endeavoured to separate the effect of AllY's loss of customers and orders as a result of those improper actions of the Labour Office employees from the effect of AllY's significant price reductions and the non-coverage of extras such as training as a result of the implementation of the July Statement. The Tribunal has been unable to do so. Unhelpfully, the Claimant's own experts, after stating that “there have been several components of the Breach and thus several causes of the damage" concluded that “[h]owever, it is practically impossible to distinguish to what extent individual components of the Breach contributed to the damage."²⁰⁶

225. In the circumstances, the Tribunal finds that the evidence before it is manifestly inadequate to reach a conclusion that the Respondent's conduct referred to in items (i) to (iv) of paragraph 222 above and the resulting loss of customers and orders would have caused the demise of AllY's business independently of the effect of the July 2013 Statement. On the other hand, there is ample and convincing evidence that, after the July Statement was enacted and implemented, AllY's business model was doomed to fail, as it did.

226. Accordingly, the Tribunal finds that the Claimant has not met its burden of proof that the Respondent, by it actions, unlawfully indirectly expropriated the Claimant's investment in the Czech Republic.

227. While the Tribunal has reached its conclusion strictly on the basis of the evidence of the Parties, it would like to acknowledge that Mr. Buchal is a very courageous entrepreneur. He was well intentioned. Being himself blind since a very young age, he founded

²⁰⁴ December Decision, Exhibit C-0040. The December Decision provides that: "[...] offices of Labour Office of Czech Republic did not proceed in some administrative proceedings on admission of allowance for special aid in compliance with corresponding regulations." ²⁰⁵ See Claimant's Demonstrative Exhibit 3. ²⁰⁶ First Expert Report of CRS Economics, para. 4.1. ↩

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BRAILCOM and later A11Y to assist his visually impaired compatriots. Many of them came before the Tribunal to testify as to the help and assistance they had received from Mr. Buchal. The Tribunal also wishes to acknowledge their own courageous and brave attitude. For Mr. Buchal and his visually impaired customers, this must be a very sad ending.

VII. COSTS

228. The Tribunal recalls that, in its Decision on Jurisdiction, it decided that the costs relating to the bifurcated jurisdictional phase of these proceedings would be considered and allocated at the conclusion of the merits phase of this arbitration.

229. Accordingly, the Tribunal will now consider the Parties’ Statements on Costs relating to both the jurisdictional and the merits phase of the proceedings.²⁰⁷

230. The Claimant details the costs it incurred in these proceedings as follows:²⁰⁸

²⁰⁷ Parties’ Statements of Costs filed simultaneously on 21 October 2016 with respect to the Jurisdictional phase and 31 January 2018 with respect to the Merits phase. ↩
²⁰⁸ Claimant’s Statement of Costs, paras. 8-10. ↩

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231. The Respondent details the costs it incurred in these proceedings as follows:²⁰⁹

232. The Tribunal notes that the Claimant and the Respondent, to the extent that they each prevail, have requested that the opposing party be ordered to pay the full costs of the arbitration.

233. The Tribunal observes that the Treaty does not contain provisions on the allocation of the costs of arbitration in the case of a dispute between an investor and a Contracting Party.

234. However, Article 40 of the 1976 UNCITRAL Rules does provide the Tribunal with guidelines with respect to the allocation of costs in an arbitration.

Article 40

1. Except as provided in paragraph 2, the costs of arbitration shall in principle be borne by the unsuccessful party. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.

²⁰⁹ Respondent’s Statement of Costs, para. 5, as updated by Respondent’ Reply Statement on Costs, para. 19. ↩

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2. With respect to the costs of legal representation and assistance referred to in article 38, paragraph (e), the arbitral tribunal, taking into account the circumstances of the case, shall be free to determine which party shall bear such costs or may apportion such costs between the parties if it determines that apportionment is reasonable.

[...]

235. While the “loser pays" principle is the guiding principle under Article 40 of the 1976 UNCITRAL Rules, it is well established that an UNCITRAL Tribunal has total and unfettered discretion in the allocation of the costs of the arbitration and the parties’ legal costs.

236. The Parties deposited with ICSID a total of USD 950,000.00 to cover the costs of the present proceedings; USD 475,500.00 by the Claimant and USD 475,000.00 by the Respondent.

237. The fees of Prof. Stanimir Alexandrov, the arbitrator appointed by the Claimant, amount to USD 118,200.00. His expenses amount to USD 20,259.90.

238. The fees of Ms. Anna Joubin-Bret, the arbitrator appointed by the Respondent, amount to USD 96,000.00. Her expenses amount to USD 5,829.66.

239. The fees of The Hon. L. Yves Fortier, QC, the Presiding Arbitrator, amount to USD 138,000.00. The Presiding Arbitrator’s expenses amount to USD 17,615.12.

240. Pursuant to Procedural Order No. 1 and the agreement of the Parties of 16 January 2015, ICSID was designated to act as the Administering Authority in this arbitration. ICSID’s fees for its services amount to USD 128,000.00.

241. The fees of Ms. Annie Lespérance, the Assistant to the Tribunal, amount to USD 104,000.00. Her expenses amount to USD 7,604.84.

242. Other Tribunal costs, including travel and all other expenses relating to the arbitration proceedings, amount to USD 112,354.52.

243. Accordingly, the combined Tribunal costs in this arbitration amount to USD 747,864.04.

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244. The Parties’ respective tranches of these tribunal costs, amounting to USD 475,000.00 for each side, shall be deducted from the deposit. Any unexpended balance will be returned to the Parties in proportion to their respective contributions.

245. The Parties’ legal and other costs total GBP 1,599,151.19 for the Claimant and CZK 14,303,745.61 and EUR 9,685.00 for the Respondent.

246. Pursuant to Article 40 of the 1976 UNCITRAL Rules, as noted above, the costs are to be awarded to the successful party and against the unsuccessful party, unless the circumstances of the case justify a different approach. The Rules are clear on their face that costs follow the event as a matter of principle but that the tribunal has discretion to decide otherwise.

247. In the present proceedings, while the Claimant did, all things considered, prevail on jurisdiction, it is clear that the Respondent has prevailed on the merits. The Tribunal can see no reason why the Claimant, the unsuccessful party, should not bear the costs of the arbitration.

248. However, the Tribunal, in its discretion and having regard to the totality of the circumstances of this case, finds and orders that the Claimant will bear the combined Tribunal costs and that each Party will bear its respective legal costs.

VIII. DECISION

249. Having carefully considered the Parties’ arguments in their written and oral pleadings, and having deliberated, for the reasons stated above, the Arbitral Tribunal unanimously Decides, Declares and Awards, as follows:

1. The Tribunal has jurisdiction over the Claimant’s indirect expropriation claims;
2. The Claimant’s case on the merits fails in its entirety as it has not discharged its burden of proving that the measures complained of are tantamount to an indirect expropriation under Article 5 of the Treaty;
3. The Respondent has not indirectly expropriated the Claimant’s investment;

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4. The Claimant is ordered to pay to the Respondent the amount of USD 373,932.02 representing the Respondent’s share of the costs and expenses of the arbitration as detailed in paragraphs 236 to 244 above; and
5. All other claims and requests for relief by both Parties are dismissed.

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Place of arbitration: Paris, France

Date: 29 June 2018