ACP Axos Capital GMBH v. Republic of Kosovo, ICSID Case No. ARB/15/22
In an award dated May 3, 2018, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed claims brought by German company ACP Axos Capital GMBH (Axos) against Kosovo following the cancellation by Kosovo of the tender and sale of 75 per cent of the shares of the Post and Telecom of Kosovo (PTK). The tribunal found that it lacked jurisdiction over the arbitration on the grounds that no valid contract existed between Axos and Kosovo under Kosovar law.
Factual background and claims
Following its independence in 2008, Kosovo decided in 2011 to privatize the state-owned postal communication authority, PTK, and established a Government Privatization Committee (GPC) to conduct the tender and sale of 75 per cent of the shares of PTK. Kosovo subsequently made a public invitation for the tender process. In response to the invitation, a consortium comprising Columbia Capital V LLC (Columbia) and Axos submitted a bid and became one of five pre-qualified applicants.
In September 2012 the pre-qualified applicants received Instructions for Tender Participants (ITP) and draft transaction documents, including the share purchase agreement (SPA), which needed to be signed in order for the tender and sale to be finalized. In December 2012, Columbia announced its withdrawal from the consortium, resulting in Axos becoming the lead member and Najafi Companies, LLC (Najafi) entering as a new member.
On April 3, 2013, the Axos/Najafi consortium submitted a bid for the purchase of PTK shares. On April 18, 2013, the transaction advisors informed Axos in a letter that the consortium would be selected as the first-ranked bidder. The following week Najafi withdrew from the consortium.
During the summer of 2013, Axos sought to negotiate the terms of the transaction documents and expressed concerns about PTK’s financial performance. Kosovo refused to amend any part of the transaction documents, but assured Axos that it was committed to the success of the privatization process. The GPC subsequently requested that the Assembly of Kosovo review a report that detailed the process of privatization as it related to PTK. After months of review by the Assembly and an extension of the signing date, the Assembly failed to secure a quorum on the privatization report.
With December 30, 2013 as the deadline for signing the SPA, the GPC found that it had no legal basis to further postpone the signing date. As a result, the GPC decided to cancel the privatization process of PTK and, consequently, the transaction with Axos.
On January 30, 2014, Axos notified Kosovo of its intention to arbitrate, claiming that Kosovo had expropriated Axos’s investment and failed to accord fair and equitable treatment (FET) to Axos, prejudiced Axos’s investment by taking arbitrary measures and failed to observe its obligations to Axos, in violation of the Germany–Yugoslavia bilateral investment treaty (BIT).
Kosovo objects to the tribunal’s jurisdiction: No protected investment
Kosovo argued that the tribunal lacked jurisdiction, because Axos had neither established a protected investment within the meaning of BIT Article 1(1) nor made an investment under the meaning of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention).
Axos argued in turn that a valid contract for the sale of shares of PTK had been entered into based on the exchanges between Kosovo and Axos, which occurred in April 2013. The existence of such contract, Axos argued, constituted an investment under the BIT, thus establishing jurisdiction over the arbitration.
No offer or acceptance under Kosovo Law
To determine whether a valid contract for the sale of shares existed between Axos and Kosovo, the tribunal first addressed Axos’s argument that the April 3, 2013 bid submission constituted an offer within the meaning of the Kosovo Law on Obligations. Observing that the bid was made under the ITP and that the ITP made clear that the bid was not an offer to acquire shares of PTK, the tribunal concluded that the bid submission was merely an offer to be selected as a “Selected Bidder,” not an offer to enter into a contract for the sale of shares.
The tribunal then analyzed Axos’s argument that the April 18, 2013 letter sent to the consortium by Kosovo, informing Axos of its selection as first-ranked bidder, constituted an acceptance that would create a contract between the two parties. The tribunal found that the letter was nothing more than an indication that the consortium had been chosen as the Selected Bidder. It concluded that the signing of the SPA existed as a step subsequent to the selection of the Selected Bidder, and the letter sent by Kosovo did not constitute an acceptance to enter into an agreement for the sale of shares.
Claimant cannot avail itself of rights it does not own
The tribunal further found that, since the bid submission was made by the consortium, any rights held by a Selected Bidder belonged to the Axos/Najafi consortium. Thus, since Najafi had left the consortium, Axos lacked the ability to unilaterally exercise any such rights as a Selected Bidder as there was no indication that Axos was the legal successor of the rights.
Kosovo’s unfettered right to cancel PTK privatization
In its analysis, the tribunal concluded that, in keeping with the terms of the ITP, Kosovo had the unfettered right to cancel the privatization process of PTK at any time prior to the signing date with no indemnification due to bidders. The tribunal found that, since no contract was in place, Kosovo could rightfully cancel the tender up until the very last moment of the signing of the transaction documents.
Unsatisfied requirements of Kosovar public law
Kosovo made the case that, even if there was an agreement between the consortium and Kosovo, such agreement was not valid since it had not been executed in accordance with Kosovo’s Law on Public–Private- Partnership (PPP). Indeed, the law required that the authorized representative of the private partner and the highest representative of the state (that is, the minister chairing the GPC) sign the agreement. The tribunal found that, lacking the minister’s signature, there was no valid contract.
Claimant’s conduct confirms that no binding contract had been concluded
Finally, in determining whether Axos and Kosovo entered into a binding contract, the tribunal analyzed the conduct of the parties following the bid selection. The tribunal found that, if Axos had believed that a binding contract had existed, it would have immediately signed or offered to sign the transaction documents. Instead, Axos sought to negotiate the terms of the transaction documents and only offered to sign such documents several months later. Thus, the tribunal concluded that Axos’s conduct did not suggest that a binding contract had been concluded.
No jurisdiction over Axos’s claims; Kosovo obtains award of full costs
Based on its finding that no valid contract existed between Axos and Kosovo for the sale of shares of PTK, the tribunal concluded that no investment existed under the meaning of BIT Article 1(1) and, thus, that it did not have jurisdiction over the dispute. In light of Kosovo’s successful defense, the tribunal held that Axos would bear all arbitration costs and Kosovo’s reasonable legal fees and expenses, ordering Axos to pay Kosovo USD 1,713,349.40 and EUR 132,446.20.
Notes: The tribunal was composed of Philippe Pinsolle (President appointed by Secretary-General of ICSID, Swiss and French national), Michael Feit (claimant’s appointee, Swiss and Israeli national) and J. Christopher Thomas (respondent’s appointee, Canadian national). The award is available at https://www.italaw.com/sites/default/files/case-documents/italaw9648.pdf
Kirrin Hough is a U.S. attorney based in Washington, D.C., United States.