Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Poland, ICSID Case No. ADHOC/15/1
In an award dated April 4, 2020, a tribunal administered under ICSID Additional Facility Rules rejected most of the objections to its jurisdiction over claims brought against Poland by three Austrian companies: Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG (together, “investors”). The seat of the arbitration was agreed by the parties to be Paris, France.
Background and claims
Raiffeisen Centrobank and Strabag were the joint parent companies of Syrena Immobilien Holding, which in turn wholly owned a shell company incorporated in Cyprus. This Cypriot shell corporation owned 99.6% of Syrena Hotels, a Polish Company. Syrena Hotels owned and operated two hotels in Warsaw. These hotels were sold to Strabag by Warsaw’s local government under a share purchase agreement as a part of the privatization process after the fall of the communist regime in Poland.
The investors alleged that a number of Polish government actions threatened their perpetual rights in the land and the ownership of the hotels. According to the investors, these actions violated Article 2(1) (FET), Article 2(2)(full protection), Article 3 (Treatment of Investments), Article 4 (Expropriation), Article 5 (Transfers), Article 7(1) (Other Obligations), Article 7(2)(Umbrella Clause), and Article 8 (Settlement of Investment Disputes) of Austria–Poland Encouragement and Protection of Investments Agreement (“Treaty”).
Poland challenged the tribunal’s jurisdiction over the investors’ claims on four grounds. These ground were: (i) the investors had not demonstrated that their claims prima facie fell under the Treaty provisions because these claims were fundamentally contractual in nature and were not in any event sufficiently characterized as breaching any of the Treaty provisions, (ii) the investors’ use of the Treaty was an abuse of process, (iii) the investors did not have the standing as “investors” under the Treaty, and (iv) the Achmea judgment rendered Article 8 of the Treaty invalid.
The investors had prima facie demonstrated that their claims fell under the relevant provisions of the treaty
The tribunal relied on the test formulated by Judge Rosalyn Higgins of the ICJ in her opinion in Case Concerning Oil Platforms (Islamic Republic of Iran v. United States of America) for deciding preliminary jurisdictional objections. It held that the investors were only required to demonstrate whether the facts pleaded by them, if taken to be true, could possibly result in a breach of the treaty provisions.
According to the tribunal, the possibility of the investors’ claims giving rise to contractual claims did not alter the nature of the claims asserted in the arbitration. It found the claims to have been framed as concerning Poland’s substantive treaty obligations and not contractual claims.
The tribunal concluded that the claims relating to breach of Article 2(1), Article 2(2), Article 3, and Article 4 satisfied the prima facie standard. However, the claims relating to breach of Article 5, Article 7(1) and Article 8 were held to be insufficiently pleaded and not meeting the prima facie threshold.
The investors’ claim of the breach of the umbrella clause in Article 7(2) was based on violations of the share purchase agreement provisions. Poland objected to this claim on two grounds: firstly, Raiffeisen Centrobank and Syrena Immobilien could not advance claims relating to this agreement because they were not signatories to it, and secondly, the violations of the agreement could not be attributed to Poland because the international law of state responsibility only applied to violations of international law and not violations of a domestic law contract. The tribunal did not decide these objections and joined them to the merits of the dispute.
Poland could not establish that the investors’ use of treaty was an abuse of process
Poland alleged that the investors had committed an abuse of process by pursuing their contractual claims in international arbitration after pursuing some of the claims before Polish and Austrian courts. It also alleged that the investors were using international arbitration to pressure it to deprive third parties of their rights arising out of the legal regime that existed at the time when the investors made their investments.
The tribunal rejected Poland’s objections. It held that the threshold for finding abuse of process was high and mere bad faith did not imply abuse of process. It observed that the investors’ claims were based on breaches of the treaty provisions and such claims could not have been raised in any other forum other than under Article 8 of the treaty.
The investors’ corporate restructuring did not make them ineligible to claim benefits under the treaty
Poland alleged that the investors could not claim protection under the Treaty because they had transferred their investments in Syrena Hotels to the Cypriot company. According to the respondent, this potentially made the Cyprus–Poland BIT applicable to the dispute and the treaty no longer applied to the investors’ claims. It also argued that the possible application of the two treaties could lead to abuse of process, and it was therefore necessary for the tribunal to determine which treaty most adequately applied to the investors’ investment.
The tribunal found Poland’s objection to be premature. According to the tribunal, the question of abuse could only arise and be addressed if and when the investors sought the protection under the Cyprus–Poland BIT. It took into account the investors’ declaration that the Cypriot company would not initiate proceedings under the Cyprus–Poland BIT and held that there was not any conflict between the treaties that required resolution.
The tribunal also held that there was no requirement in the treaty to prove continuous direct ownership of the investment beyond the date of alleged breach by the host state. As such, the formation of a shell company as an intermediary company after the disputes had arisen did not prevent the investors from claiming protection under the Treaty for the breaches predating that restructuring.
Applicability of the Achmea judgment
As per Poland, the Achmea judgment held that the investor–state dispute settlement provisions in intra-EU BITs were incompatible with EU law. Poland argued that this rendered Article 8, the dispute settlement provision in the Treaty invalid.
The tribunal examined the law of the seat, that is, French law, and held that the question of existence and validity of an arbitration agreement was governed by international law principles that meet the fundamental requirements of justice in international trade. It held on this basis that EU law could not form part of the law applicable to the questions of the tribunal’s jurisdiction. Having rejected the applicability of EU law, the tribunal did not consider it necessary to examine the impact of the Achmea judgment on its jurisdiction.
The tribunal also applied Article 31 of the Vienna Convention on the Law of Treaties (VCLT) to hold that extrinsic factors such as the EU law or the Achmea judgment could not prevail over the ordinary meaning of the Treaty text. It concluded that the ordinary meaning of Article 8 was clear and unambiguous in constituting Poland’s consent to arbitrate the disputes under the Treaty.
Poland also argued on the basis of Achmea judgment, Article 59(1) and Article 30(3) of the VCLT that the Treaty should be deemed to be terminated based on Poland’s subsequent accession to the TEU and TFEU or, alternatively, applied only to the extent that its provisions were compatible with TEU and TFEU.
The tribunal rejected Poland’s objection on the basis that the precondition of the “same subject matter” under Article 59(1) and Article 30(3) of the VCLT was not satisfied. The tribunal held that the Treaty and TFEU did not pertain to the same subject matter as the TFEU did not deal with the subject of investor–state dispute settlement or even arbitration. According to the tribunal, the Achmea judgment did not affect this conclusion because the Achmea judgment was limited to the principles of EU law and did not change this public international law relationship between TFEU and intra-EU BITs for the purposes of Article 59 and Article 30 of the VCLT.
Notes: The tribunal was composed of V.V. Veeder (president appointed by the party-appointed arbitrators, English national), Karl-Heinz Böckstiegel (claimants’ appointee, German national) and Albert Jan van den Berg (respondent’s appointee, Belgian national). The decision is available at https://www.italaw.com/sites/default/files/case-documents/italaw11770.pdf.
Sarthak Malhotra is an Indian attorney based in New Delhi, India.