By Suzy H. Nikièma
22 October 2008
The Czech Republic’s effort to overturn a partial award on liability rendered in favour of a Croatian businessman has been rejected by a Paris court of appeal, while a separate challenge to a US$ 1.5 million ruling on damages is still pending.
The awards in question arise out of a dispute between a Croatian investor, Pren Nreka, and the Czech Republic. In 1996, ZipMex, a Czech company owned by Pren Nreka, concluded a contract with the Educational Center of Prague of the Ministry of Education, Youth and Sport. Under the contract, ZipMex was to renovate and develop certain non-residential premises, before renting them for commercial use. However, in 2002, the Ministry decided to recover the premises and succeeded in having the contract severed under orders by a court in Prague.
Pren Nreka retaliated by suing the Czech Republic for breach of the Czech Republic-Croatia bilateral investment treaty (BIT). In a February 2007 partial award, which has not been published, a tribunal found that the Czech Republic had violated both the fair and equitable treatment and expropriation provisions of the BIT, and in a subsequent ruling rendered this year, it found the Czech Republic liable for US$ 1. 5 million in damages to the claimant.
On 15 March 2008, the Czech Republic launched a challenge to the partial award, with a decision rendered by the court on 25 September. On 5 August 2008, the Czech Republic initiated a second challenge, in this case against the ruling on damages. A decision on this matter remains pending.
In its bid to overturn the partial award on liability, the Czech Republic argued that: no arbitration agreement existed because there was no investment as defined by the BIT; that the tribunal exceeded it powers; and that the award violated French public policy. All three arguments were rejected by the Paris court.
In dismissing the first argument, the court held that the contract was an “investment” as envisioned by the BIT, which refers broadly to “any kind of asset invested in connection with economic activities”. The court also rejected the notion that there must be a “contribution to the economic development of the host country”. While certain tribunals have held that this is an implicit condition for an economic activity to be deemed an investment, the Paris court decided that this would be reading too much into the BIT, given that it does not refer explicitly to such a condition.
On the question of whether the tribunal had violated French public policy, the Czech Republic took issue with the tribunal’s assertion that introducing a lawsuit can, in itself, constitute unjust or inequitable treatment, regardless of whether the action is carried under national laws. In response, the court ruled that the tribunal was not challenging the Czech Republic’s right to initiate a lawsuit per se; rather, the court said this right is not absolute, and can be limited by other obligations, such as the duty to provide fair and equitable treatment.
This in not the only instance of the Czech Republic challenging arbitral awards; as ITN reported in January*, the Czech Republic is attempting to overturn a decision on jurisdiction in a separate arbitration involving a German businessman in the transport sector, named Rupert Binder. This challenge has been lodged with a court in Prague, the seat of the arbitration.
Nreka v Czech Republic, Action for Annulment, Record No 07/04675; IIC 347 (2008), available at www.investmentclaims.com
*Czech Republic quietly pursues challenge to jurisdictional ruling in Prague court,
By Damon Vis-Dunbar, Investment Treaty News, January 17, 2008