THE MATTER OF AN ARBITRATION UNDER THE UNCITRAL ARBITRATION RULES 1976

SALUKA INVESTMENTS BV (THE NETHERLANDS) Claimant v THE Respondent

______

PARTIAL AWARD ______

Arbitral Tribunal

Sir Arthur Watts KCMG QC (Chairman) Maître L. Yves Fortier CC QC Professor Dr Peter Behrens

Representing Claimant Representing Respondent

Mr. Jan Paulsson Mr. George von Mehren Mr. Peter J. Turner Squire, Sanders & Dempsey L.L.P. Freshfields Bruckhaus Deringer 4900 Key Tower 69 boulevard Haussmann 127 Public Square 75008 Paris Cleveland, Ohio 44114-1304 France USA and and

Professor James Crawford Dr. Luboš Tichy Lauterpacht Research Centre Squire, Sanders & Dempsey, v.o.s. for International Law Advokátní kancelář 5 Cranmer Road Václavské námestí 57/813 Cambridge CB3 9BL 110 00 Prague 1 United Kingdom Czech Republic

Registry

Permanent Court of Arbitration

TABLE OF CONTENTS

I. INTRODUCTION ...... 5 A. Commencement of the Arbitration ...... 5 B. Constitution of the Tribunal...... 5 C. Procedural Timetable...... 6 D. The Written Pleadings...... 6 E. The Respondent’s Counterclaim...... 7 F. Subsequent Procedural Timetable...... 9 G. Oral Hearings...... 9 II. THE FACTS...... 10 A. The Banking System in Czechoslovakia during the Period of Communist Rule ...... 10 B. The Agreement on Encouragement and Reciprocal Protection of Investments Between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic 1991 ...... 10 C. The Separation of the Czech Republic and Slovakia...... 10 D. The Reorganisation and Privatisation of the Banking System in the Czech Republic ...... 11 E. The Czech Banking Sector’s “Bad Debt” Problem ...... 12 F. Nomura’s Acquisition of Control over IPB on 8 March 1998...... 13 G. Acquisition and Sale of Urquell Brewery...... 17 H. The Transfer of Nomura Europe’s IPB Shares to Saluka...... 18 I. The Government’s Assistance to the Banking Sector (1998-2000)...... 19 J. Developments in Respect of IPB (August 1999-end May 2000) ...... 21 K. Developments in Respect of IPB (end May 2000-7 June 2000)...... 26 L. The Second Bank Run on IPB and its Aftermath ...... 27 M. The Forced Administration of IPB and its Aftermath...... 29 III. THE PARTIES’ ARGUMENTS AND SUBMISSIONS ...... 33 IV. THE TRIBUNAL’S JURISDICTION...... 35 A. The Parties’ Arguments ...... 35 B. Relevant Terms of the Treaty ...... 40 C. The Respondent’s Challenges to the Tribunal’s Jurisdiction ...... 41 D. The Purchase of IPB Shares as an Investment and Compliance with Legal Requirements ...... 42 E. Saluka’s Qualification as an “Investor” Entitled to Initiate the Arbitration Procedures under the Treaty ...... 46 1. The Corporate Relationship between Saluka and Nomura...... 46 2. The Alleged Lack of Good Faith and Abuse of Rights ...... 47 3. Saluka’s Lack of Factual Links with The Netherlands...... 49 F. The Tribunal’s Conclusions as to Jurisdiction...... 50 V. SALUKA’S CLAIMS UNDER ARTICLE 5 OF THE TREATY ...... 50 A. The Treaty...... 50 B. The Parties’ Principal Submissions ...... 51 C. The Law ...... 52 D. Analysis and Findings...... 54 E. Conclusion ...... 59 VI. SALUKA’S CLAIMS UNDER ARTICLE 3 OF THE TREATY ...... 60 A. The Content of the Czech Republic’s Obligations under Article 3 of the Treaty...... 60 B. Fair and Equitable Treatment...... 61 1. Meaning of the Standard...... 61

2 a) The Parties’ Arguments ...... 61 b) The Tribunal’s Interpretation...... 63 i) The Ordinary Meaning...... 63 ii) The Context...... 64 iii) The Object and Purpose of the Treaty ...... 64 iv) Conclusion ...... 66 2. Application of the Standard ...... 67 a) The Czech Republic’s Discriminatory Response to the Bad Debt Problem...... 67 i) Comparable Position of the Big Four Banks regarding the Bad Debt Problem...... 68 ii) Differential Treatment of IPB Regarding State Assistance ...... 69 iii) Lack of a Reasonable Justific