CYIL 2011

CZECH EXPERIENCE WITH BILATERAL INVESTMENT TREATIES: SOMEWHAT BITTER … and the nature of the claims that were raised by investors recently. It particular, it seems that an increasing number of investors, encouraged by the success of their predecessors, are seeking to sue the state at international forums with more or less unfounded or speculative claims. The recent case of the Israeli company Phoenix Action Ltd., the only investment dispute against the Czech Republic that has ever been heard before ICSID, can serve as one rather extreme example. The central person of the Phoenix case was Mr. Beňo, a Czech national. Mr. Beňo indirectly (though shareholding stakes owned by his family members – his wife and his daughter) controlled two Czech companies (Benet Praha and Benet Group), involved in trading ferroalloys. In 2001, both companies were facing serious difficulties virtually paralyzing their activities – Benet Group was involved in a lengthy civil dispute against a former commercial partner over some key assets and Benet Praha was engaged in a dispute with the police and the public prosecutor regarding a freezing of its funds and seizure of the company’s accounting documents due to a suspicion of tax and customs evasions. Mr. Beňo himself, at that time the executive of the latter company, was arrested in connection with a criminal investigation, but he managed to escape the police and fled to Israel. There he incorporated a company called Phoenix Action Ltd. In 2002, Phoenix purchased 100% of the shares in both Benet Group and Benet Praha for a price corresponding to their nominal value (in fact, holding the shares in these two companies was the only business activity Phoenix ever had). Shortly afterwards, Phoenix submitted a request for arbitration to ICSID claiming that its investment (consisting of the companies Benet Group and Benet Praha) was not treated by the Czech Republic in accordance with the provisions of the BIT between the Czech Republic and Israel. 30 During the proceedings, the Czech Republic strongly opposed the jurisdiction of the tribunal to hear the dispute. The main argument of the respondent was that Phoenix was nothing more than an ex post creation of an Israeli entity by a Czech national to create diversity of nationality. 31 The respondent stressed that should the tribunals accept the jurisdiction in this and similar cases, any domestic dispute would always be reviewable by an ICSID tribunal if the ultimate owner of the domestic company simply incorporates a foreign entity which then buys the shares of the domestic company embroiled in the dispute. 32 “a new aggressive approach” of the Ministry towards investors. Such proclamations should be of course regarded as a way of political self-presentation. It is, however, regrettable that this kind of language is also being used in official statements. See, for instance, the press release to the final award in the Frontier case (excerpt translated by the author): …“I am glad that the vigorous approach to international arbitrations which I have been pursuing since my first day at the Ministry, is paying off for the Czech Republic”, said the minister of finance Miroslav Kalousek. “This approach saves billions of crowns of the taxpayers”, added the minister. Press release, 15 November 2010. Cited from the website of the Ministry of Finance (www.mfcr.cz). 30 Phoenix informed the Czech Republic of the existence of the investment dispute little more than two months after the acquisition of its investment. 31 Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5. Award (2009). para 34. 32 Ibid. , para 43.

247