ARBITRATION INSTUTUTE of the STOCKHOLM CHAMBER OF COMMERCE Box 16050, 103 21 Stockholm, Sweden Phone: +46 8 555 100 00, E-mail: [email protected] www.sccinstitute.com ________ PARTIAL AWARD Made on 28 June 2017 The Seat of Arbitration is Stockholm, Sweden Arbitration No.: V 2014/163 PL Holdings S.à.r.l./. Republic of Poland __________ TABLE OF CONTENTS I. THE PARTIES 5 II. THE TRIBUNAL 6 III. GLOSSARY 7 IV. SUMMARY OF THE CLAIM AND DEFENSE 8 V. PROCEDURAL HISTORY OF THE CASE 13 VI. THE REGULATORY LANDSCAPE 28 A. The KNF and its Regulatory Context 29 B. The Polish Banking Sector 31 VII. HISTORY OF THE INVESTMENT AND THE DISPUTE 32 1 A. Establishment of FM Bank and PBP Bank 32 B. Lead-up to a PBP Remedial Plan 36 C. The PBP Bank Remedial Plan 44 D. The Merger with Meritum Bank 52 E. The FM Bank/PBP Bank Merger 55 F. Changes in Management Board Composition 57 G. The KNF’s Proceedings against Claimant and FM Bank PBP 64 H. KNF Measures against Claimant 73 (i) The First KNF Decision 73 (ii) The Second KNF Decision 77 (iii) The Third KNF Decision 83 I. Claimant’s Resort to Judicial Remedies 85 J. Claimant’s Sale of its FM Bank PBP Shares 87 VIII. THE CLAIM 95 A. Jurisdiction 95 B. Applicable Law 97 C. The Merits 100 D. Relief Requested 107 IX. THE DEFENSE 108 A. Alleged Lack of Jurisdiction 108 B. The Merits 110 C. Challenge to Claimant’s Damages Calculation 117 X. THE ISSUES TO BE DETERMINED 118 A. Does this Tribunal have Jurisdiction to Decide the Present Case? 118 B. Did Respondent Violate its Obligations to Claimant under the Treaty? 118 C. To What Relief, if any, is Claimant Entitled? 118 D. How Shall the Costs and Fees be Allocated? 118 2 XI. DETERMINATIONS ON JURISDICTION 119 A. Is Claimant an Investor within the Meaning of the Treaty? 119 (a) Respondent’s Position 119 (b) Claimant’s Position 119 (c) Findings of the Tribunal 119 B. Does Poland’s Accession to the EU deprive this Tribunal of Jurisdiction? 120 (a) Respondent’s Position 120 (b) Claimant’s Position 122 (c) Findings of the Tribunal 122 XII. DETERMINATIONS ON THE MERITS 127 A. Did Respondent Expropriate Claimant’s Investment? 127 (a) Claimant’s Position 127 (b) Respondent’s Position 128 (c) Findings of the Tribunal 128 B. Did Respondent Satisfy its Obligations of Compensation under the Treaty? 129 (a) Claimant’s Position 129 (b) Respondent’s Position 130 (c) Findings of the Tribunal 130 C. Did the Measures of the KNF Comport with the Principle of Proportionality? 130 (a) Claimant’s Position 130 (b) Respondent’s Position 135 (c) Findings of the Tribunal 140 Suitability 141 Necessity 148 Excessiveness 151 Conclusion on Proportionality 153 D. Did the KNF Seriously Violate Claimant’s Procedural Rights? 154 (a) Claimant’s Position 154 (b) Respondent’s Position 157 3 (c) Findings of the Tribunal 158 E. Did Claimant Sell its Shares Voluntarily? 161 (a) Claimant’s Position 161 (b) Respondent’s Position 162 (c) Findings of the Tribunal 164 F. Is Claimant Barred from Relief due to Failure to Exhaust Available Remedies? 168 (a) Claimant’s Position 169 (b) Respondent’s Position 171 (c) Findings of the Tribunal 172 XIII. TO WHAT RELIEF, IF ANY, IS CLAIMANT ENTITLED? 174 A. Is Claimant Entitled to Recover Damages and, if so, in what Amount? 174 (a) Claimant’s Position 174 Paul Rathbone’s First Expert Report 175 Paul Rathbone’s Second Expert Report 183 (b) Respondent’s Position 191 Andrew Caldwell’s First Expert Report 191 Andrew Caldwell’s Second Expert Report 201 (c) The Experts’ Post-Hearing Submissions 208 (d) Findings of the Tribunal 229 Valuation Methodology 231 Business Plan as Point of Departure 233 Updating of Business Plan with 2018 Projections 234 Adjustment to Actual Performance to 8 April 2014 235 Adjustment for Lower Interest Rates 236 Inclusion of Project Berlin 239 Inclusion of White Label Project 240 Inclusion of Warsaw Receivables as Bank Asset 241 Adjustment for Impairment of Loans 243 Bank Tax 245 4 Maintainable Profit Adjustment 247 The P/E Multiple 252 Warsaw Receivables as Claimant Asset 254 IPO Discount 257 IPO Costs 258 Discount Rate 259 Dilution Factor 260 The Minority Shareholder’s Interest 261 B. Is Claimant Entitled to Recover Interest and, if so, in what Amount? 262 (a) Claimant’s Position 262 (b) Respondent’s Position 263 (c) Findings of the Tribunal 264 XIV. COSTS AND FEES 264 XV. RELIEF GRANTED 264 ________________________ I. THE PARTIES 1. Claimant PL Holdings S.a.r.l. (“PL Holdings” or “Claimant”) is a company incorporated under the laws of the Grand Duchy of Luxembourg (“Luxembourg”).1 It is a 100% subsidiary of Abris CEE Mid-Market Fund L.P. (“Abris CEE”), which is in turn a subsidiary of Abris Capital Partners Fund I (“Abris Fund I”), among the largest private equity funds in Central and Eastern Europe. Abris Fund I was is managed by Abris 1 PL Holdings was incorporated on 15 January 2010 and duly registered on 3 February 2010. Extract from the Trade and Companies Register of Luxembourg, 20 Nov. 2014 (Exh. C-244). 5 Capital Partners (“Abris”). Claimant is registered in the Commercial and Companies Register of Luxembourg under number B 151047. 2. Claimant is represented in these proceedings principally by Stephen Fietta, Fietta, 1 Fitzroy Square, London, W1T 5HE, United Kingdom, and by Matthew Weiniger, QC, Linklaters, One Silk Street, London, EC2Y 8HQ, United Kingdom. 3. Respondent is the Republic of Poland (“Poland”). Although its representation has changed over the course of these proceedings. It has been represented principally by Joanna Jackowska-Majeranowska, Deputy Director of the International and European Law Department, Office of General Counsel to the Republic of Poland, Hoża 76/78, 00- 682 Warsaw, Poland, and by Stewart Shackleton, SR Shackleton LLP, 150 Woodwarde Rd, Dulwich Village, London, SE22 8UR, United Kingdom. 4. The measures of which Claimant complains in this proceeding were adopted by the Komisja Nadzoru Finanswego (“the KNF”), a Polish government entity created by the Financial Market Supervision Act of 2006 to supervise the activity of all banks and credit institutions in Poland. II. THE TRIBUNAL 5. The Arbitral Tribunal is composed as follows: • Professor George A. Bermann, Columbia University School of Law, 435 West 116th St., New York, New York, 10027, USA • Professor Julian D. M. Lew, 20 Essex Street, London WC2R 3A, United Kingdom • Michael E. Schneider, Lalive Avocats, 35, Rue de la Mairie, 1211 Geneva 6, Switzerland 6 III. GLOSSARY 6. For ease of understanding of the Award, the Tribunal provides here a glossary of certain terms used with some frequency in the Award: Glossary of Defined Terms and Abbreviations Abris Abris Capital Partners Abris CEE Abris CEE Mid-Market Fund L.P. Abris Fund I Abris Capital Partners Fund I Alior Bank Alior Bank S.A. AnaCap AnaCap Financial Partners III LP APC Polish Administrative Procedures Code AQR Asset Quality Review Banking Act Polish Banking Act of 29 August 1997 BESI Banco Espirito de Investimento S.A. Spólka Akcyjna BGK Bank Gospodarstwa Krajowego BIT Bilateral Investment Treaty BOŚ Bank Ochrony Środowiska S.A. DSS Dolnośąlaskie Surowce Skalne Spóślka Akeyjina DSS Bonds Bonds issued by DSS and purchased by PBP Bank on 12 April 2011 EU European Union Euro Bank Euro Bank S.A. FDD Financial Due Diligence Financial Trading Act Act on Trading ion Financial Instruments FM Bank FM Bank Spólka Akcyjna FM Bank PBP FM Bank PBP Spólka Akcyjna IDM Dom Maklerski IDM Spólka Akcyjna IFC International Finance Corporation 7 Innova Innova Capital Sp. z. o.o. IPO Initial public offering June Plan 2013 Remedial Plan of June 2013 KNF Komisja Nadzoru Finanswego Lone Star Funds Lone Star Fund IX (US) LP, Lone Star Fund IX (Bermuda) LP, Lone Star Fund IX Parallel (Bermuda) LP Meritum Bank Meritum Bank ICB Spólka Akcyjna OTP OTP Bank PBP Bank Polski Bank Przedsiębiorczości Spólka Akcyjna PL Holdings PL Holdings S.a.r.l. PLN Polish Zlotys Poland Republic of Poland Porto Group Porto Group Holdings Limited Project Berlin Plan to market FM Bank PBP mobile banking business SCC Stockholm Chambers of Commerce SPA Sale and Purchase Agreement dated 12 March 2010 between WestLB Bank AG, PL Holdings and Abris CEE TFEU Treaty on the Functioning of the European Union Treaty Reciprocal Protection of Investments between Poland and the Government of the Kingdom of Belgium and the Government of the Grand-Duchy of Luxemburg 19 May 1987 VCLT Vienna Convention on the Law of Treaties VDD Report Vendor Due Diligence Report Warsaw Receivables Amount owed to FM Bank PMP by the City of Warsaw as compensation for a forced sale of property WestLB Bank Polska WestLB Bank Polska Spólka Akcyjna IV. SUMMARY OF THE CLAIM AND DEFENSE 8 7. It is Claimant’s contention in this proceeding that Poland has expropriated Claimant’s qualifying investment in Poland and done so without compensation,2 in violation of the Bilateral Investment Treaty (“BIT”) between Poland and the Government of the Kingdom of Belgium and the Government of the Grand Duchy of Luxembourg (“the Treaty”),3 whose stated purpose is “the [e]ncouragement and the [r]eciprocal [p]rotection of [i]nvestments.” 8. The relevant chronology, as presented by Claimant in these proceedings is as follows. 9. On 1 December 2010, Claimant became the owner of 55% of the shares in a Polish bank known at the time as WestLB Bank Polska Spólka Akcyjna (“WestLB Bank Polska”) and subsequently renamed as Polski Bank Przedsiębiorzcości Spólka Akcyjna (“PBP Bank”).