Mr. Kristian Almås and Mr. Geir Almås v. The Republic of Poland, PCA Case No. 2015-13
In a case administered by the Permanent Court of Arbitration (PCA), a tribunal decided that the acts of Poland’s agricultural property agency were not attributable to Poland, dismissing the case initiated by Norwegian claimants, Kristian Almås and Geir Almås, on its merits.
Factual background and claims
The claimants were the sole shareholders in Pol Farm Sp. z oo (Pol Farm). In 1997 Pol Farm and Poland’s agricultural property agency (ANR, in its Polish acronym) entered into a lease of approximately 4200 hectares of land in Świdwin Commune, Poland (Lease Agreement).
After conducting a series of inspections and finding several irregularities in Pol Farm, ANR terminated the Lease Agreement in July 2009. In October 2009, a District Court in Poland opened Pol Farm’s bankruptcy proceedings and liquidated the company. In addition, in October 2015, a criminal court in Poland found the claimants guilty of misappropriation and several other charges. The judgment is currently under appeal.
In November 2013, the claimants initiated arbitration against Poland, claiming that ANR’s actions breached the Norway–Poland bilateral investment treaty (BIT) by expropriating their investment without adequate compensation, failing to accord them equitable and reasonable treatment and protection, and subjecting them to unreasonable and discriminatory measures. They also argued that Poland’s termination of the Lease Agreement breached the BIT’s umbrella clause. They requested compensation in the amount of €23 million, in addition to interest and costs. The claimants did not include the criminal convictions against them and the bankruptcy order against Pol Farm in the claim.
Scope of claimants’ case determined by issue of attribution of ANR’s actions to Poland
The claimants’ main claim was that ANR’s termination of the Lease Agreement amounted to indirect expropriation. The tribunal thus focused first on whether ANR’s conduct could be attributed to Poland, pointing out that the lack of attribution would undermine all claims. As suggested by both parties, the tribunal turned to the International Law Commission’s 2001 Draft Articles on Responsibility of States in Internationally Wrongful Acts (the ILC Articles) to analyze the issue.
ILC Article 4: Is ANR a state organ?
ILC Article 4 expresses that the conduct of a state organ—including any person or entity with that status under the domestic law of the state—is considered an act of that state. The tribunal noted that, under Polish domestic law, ANR has separate legal personality and exercises operational autonomy. Accordingly, it concluded that ANR could not be considered a de jure state organ under the laws of Poland.
The tribunal also noted that the commentary to ILC Article 4 considers that an entity can also be a de facto state organ. In this regard, the claimants argued that ANR exercises executive functions of the state because it has the power to manage, sell and lease state agricultural property. The tribunal disagreed with the claimants’ view, considering that an agricultural lease is a commercial transaction, even if entered into with a state entity and even if it involves state-owned land.
Furthermore, to analyze ANR’s autonomy, the tribunal looked at two other cases, Hamester v. Ghana and Jan de Nul v. Egypt. Based on the shared features of the entities in these cases and ANR, the tribunal concluded that ANR could not be considered a de facto state organ since it enjoys managerial and financial autonomy.
ILC Article 5: Was the termination of the lease performed in the exercise of governmental functions?
Under ILC Article 5, the conduct of an entity that is not a state organ can still be attributed to a state when that entity can exercise governmental authority and actually exercises that authority when performing the relevant conduct.
When analyzing this article, the tribunal relied on Jan de Nul’s two-prong test, which states that acts must be carried out by an entity empowered to exercise governmental authority, and the act itself must involve the exercise of that government authority.
The tribunal noted that even though ANR entered into the Lease Agreement by exercising its statutory power to manage the state’s agricultural property, it was not exercising a governmental authority when it terminated it. Therefore, it concluded that such action could not be attributed to Poland.
To counteract the above, the claimants argued that the termination was not authorized by the Lease Agreement, and that it was the result of an underlying policy motivation, which converted the act into an exercise of state authority under ILC Article 5.
The tribunal disagreed with the claimants, stating that it did not need to reach a “definitive conclusion as to the lawfulness of ANR’s termination of the Lease Agreement under Polish law” (para. 251). It pointed out that it only needed to decide, as it already had, that the termination was an exercise of a contractual power.
Concerning whether the termination was motivated by an underlying policy, the tribunal analyzed the Vigotop v. Hungary award, on which the claimants relied. The Vigotop tribunal determined that Hungary expropriated Vigotop’s investment by exercising a termination provision in a contract signed by its subsidiary with Hungary.
The tribunal first noted that the Vigotop case concerned the termination of a contract with the state itself and not with a separate entity with contractual capacity. It then analyzed whether the conditions articulated by the Vigotop tribunal were satisfied, and concluded that they were not.
ILC Article 8: Was the termination of the lease performed on the instructions of the Polish government?
The tribunal also looked at ILC Article 8, under which the conduct of an entity can be considered an act of a state if the entity is, in fact, acting on the instructions or under the direction or control of that state in carrying out the conduct.
Relying on the commentary to ILC Article 8 and the awards in Jan de Nul v. Egypt and White Industries v. India, the tribunal indicated that to determine whether the act of an entity could be attributed to a state, the state should have control over both the entity and the specific act in question.
Finding no evidence that ANR acted on the instructions or under the direction or control of the Polish government, the tribunal concluded that there was no basis for attribution under ILC Article 8.
Notes: The tribunal was composed of James R. Crawford (Presiding arbitrator, appointed by his co-arbitrators, Australian national), Ola Mestad (claimant’s appointee, Norwegian national) and August Reinisch (respondent’s appointee, Austrian national). The award dated June 27, 2016 is available at http://www.pcacases.com/web/sendAttach/1872.
Claudia María Arietti López is a New York University School of Law International Finance and Development Fellow with IISD’s Investment for Sustainable Development Program.