GPF GP S.à.r.l. v THE REPUBLIC OF POLAND [2018] EWHC 409 (Comm)

“Despite the different nuances in the definition of those principles formulated by those and other tribunals, the Tribunal notes that there is a common understanding as to the elements identified above. To the extent that they are relevant to the facts at issue in this case, the Tribunal is of the view that FET comprises, inter alia, protection of legitimate expectations, protection against arbitrary and discriminatory treatment, transparency and consistency. The Tribunal believes that the state’s conduct need not be outrageous or amount to bad faith to breach the fair and equitable treatment standard. The Tribunal shares the observation made by the tribunal in Mondev, whereby “[t]o the modern eye, what is unfair or inequitable need not equate to the outrageous or the egregious. In particular, a state may treat foreign investments unfairly and inequitably without necessarily acting in bad faith.”

“When the fair and equitable treatment standard is applied to the executive function, international law concerns itself with the State’s administrative decision-making… In thiscontext, the international standard performs a function that is also familiar to national systems for the judicial review of administrative action, but with the important distinction that the applicable standard against which the administrative conduct is measured is one of international law not national law. … In view of the fact that the standard has to respond to a wide variety of different State measures, a general formulation cannot be expected to cover all situations. Nevertheless, the dictum of the Tribunal in [Waste Management Inc v Mexico (Award) ICSID Case No. ARB(AF)/00/03, 11 ICSID Rep 361] has achieved wide acceptation by subsequent tribunals as a useful statement of the standard in its contemporary application, irrespective of the position that they have taken on the connection between the treaty standard and general or customary international law. This formulation expresses the standard as breached by conduct that is: …arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in administrative process. In applying this standard, it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied upon by the claimant. This general statement of the standard contains three elements: (1) Legitimate expectations. In the first place, the treatment may be ‘in breach of representations made by the host State which were reasonably relied on by the claimant. The protection of legitimate expectations, which had already been introduced in the context of legislative measures, has a particular purchase in the context of the conduct of the administration. (2) Due Process. The second set of situations that have arisen under this head is concerned with whether the administrative decision was reached through a fair process. The standard may be breached by ‘a complete lack of transparency and candour in an administrative process’ or otherwise by a ‘manifest failure of natural justice’. (3) Substantive unfairness. The third category of breach is where the impugned measures are substantively ‘arbitrary, grossly unfair, unjust or idiosyncratic…discriminatory [or] exposes the claimant to sectional or racial prejudice’”

“Formulations such as ‘tantamount,’ ‘equivalent’ or ‘deprivation’ reflect the customary international law position that the analysis focuses on the effect of the government measures, not its form. Further, there is no evidence in state practice that states intended to expand the meaning of expropriation beyond that ascribed to it under customary international law. Rather, in light of the uncertainty about the scope of expropriation in customary international law, effects-based definitions have been used out of an abundance of caution to ensure that all possible firms of indirect expropriation are caught.”

“Article 31 General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 2. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 3. A special meaning shall be given to a term if it is established that the parties so intended.”

“interpretation must be based above all upon the text of the treaty”

‘… the ‘intentions’ of the parties may never have crystallised or been formulated beyond a certain point. Every lawyer knows that the parties to a contract contemplate only performance; they enter into the transaction with optimism, and do not ordinarily advert to the problems raised by, for example, frustration. The courts pretend that the parties intended what they, the court, believe they would have intended had they reflected on the matter. It is clear, then that ‘intention’ is very often a fiction, and even when there was a conscious intention the words designed to be expressive of it may not be particularly helpful for this purpose. The same is true of treaty interpretation with the added difficulty that the parties may never really have wanted to come to an agreement and may have deliberately left the area of operation of the treaty opaque.’

‘… a dispute as to treaty interpretation arises only when two or more parties place differing constructions upon the text; by doing so they are in reality professing differing intentions in regard to that text and, of necessity, professing to have had differing intentions from the very start. If this is the case, there can be no common intentions of the parties aside or apart from the text they have agreed upon. The text is the expression of the intention of the parties; and it is to that expression of intent that one must first look.’

“The Commission…took the view that, in so far as the maxim ut res magis valeat quam pereat reflects a true general rule of interpretation, it is embodies in article 27, paragraph 1, which requires that a treaty shall be interpreted in good faith in accordance with the ordinary meaning given to its terms in the context of the treaty and in the light of its object and purpose. When a treaty is open to two interpretations one of which does and the other does not enable the treaty to have appropriate effects, good faith and the objects and purposes of the treaty demand that the former interpretation should be adopted. Properly limited and applied, the maxim does not call for an “extensive” or “liberal” interpretation in the sense of an interpretation going beyond what is expressed or necessarily to be implied in the terms of the treaty.”

“…It is a cardinal rule of the interpretation of treaties that each and every operative clause of a treaty is to be interpreted as meaningful rather than meaningless. It is equally well established in the jurisprudence of international law, particularly that of the Permanent Court of International Justice and the International Court of Justice, that treaties, and hence their clauses, are to be interpreted so as to render them effective rather than ineffective.”

“28 We accept Mr Greenwood's submission that the object and purpose of a BIT (including this BIT) is to provide effective protection for investors of one state (here OEPC) in the territory of another state (here Ecuador) and that an important feature of that protection is the availability of recourse to international arbitration as a safeguard for the investor. In these circumstances it is permissible to resolve uncertainties in its interpretation in favour of the investor: see eg the views of the arbitrators in paragraph 116 of their award in SGS v Philippines (2004) 8 ICSID Reports 515”

“Those who advocate a wide interpretation of the MFN clause have almost always examined the issue from the perspective of the investor. But what has to be applied is not some abstract principle of investment protection in favour of a putative investor who is not a party to the BIT and who at the time of its conclusion is not even known, but the intention of the States who are the contracting parties. The importance to investors of independent international arbitration cannot be denied, but in the view of this Tribunal its task is to interpret the BIT and for that purpose to apply ordinary canons of interpretation, not to displace, by reference to general policy considerations concerning investor protection, the dispute resolution mechanism specifically negotiated by the parties. There are BITs entered into by a State which provide for reference to arbitration of all disputes, and others entered into by the same State that limit consent to arbitration to specified categories of dispute, such as expropriation…”

“Article 32 Supplementary means of interpretation Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.” (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.”

“26. An arbitral tribunal's decision as to the existence of its own jurisdiction cannot therefore bind a party who has not submitted the question of arbitrability to the tribunal. This leaves for consideration the nature of the exercise which a court should undertake where there has been no such submission and the court is asked to enforce an award. Domestically, there is no doubt that, whether or not a party's challenge to the jurisdiction has been raised, argued and decided before the arbitrator, a party who has not submitted to the arbitrator's jurisdiction is entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court, on an application made in time for that purpose under s.67 of the Arbitration Act 1996 , just as he would be entitled under s.72 if he had taken no part before the arbitrator: see e.g. Azov Shipping Co. v Baltic Shipping Co. [1999] 1 Lloyd's Rep 68. The English and French legal positions thus coincide: see the Pyramids case (para 20 above). … 96. The consistent practice of the courts in England has been that they will examine or re-examine for themselves the jurisdiction of arbitrators. This can arise in a variety of contexts, including a challenge to the tribunal's jurisdiction under section 67 of the 1996 Act, or in an application to stay judicial proceedings on the ground that the parties have agreed to arbitrate. Thus in Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd's Rep 68 Rix J decided that where there was a substantial issue of fact as to whether a party had entered into an arbitration agreement, then even if there had already been a full hearing before the arbitrator the court, on a challenge under section 67 , should not be in a worse position than the arbitrator for the purpose of determining the challenge. This decision has been consistently applied at first instance (see, eg, Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm), [2004] 1 Lloyd's Rep 603) and is plainly right. … 160. In my judgment therefore, the starting point cannot be a review of the decision of the arbitrators that there was an arbitration agreement between the parties. Indeed no question of a review arises at any stage. The starting point in this case must be an independent investigation by the court of the question whether the person challenging the enforcement of the award can prove that he was not a party to the arbitration agreement under which the award was made. The findings of fact made by the arbitrators and their view of the law can in no sense bind the court, though of course the court may find it useful to see how the arbitrators dealt with the question. Whether the arbitrators had jurisdiction is a matter that in enforcement proceedings the court must consider for itself.”

“It is now well-established that a challenge to the jurisdiction of an arbitration panel under section 67 proceeds by way of a re-hearing of the matters before the arbitrators. The test for the court is: was the tribunal correct in its decision on jurisdiction? The test is not: was the tribunal entitled to reach the decision that it did.”

“A creeping expropriation is a particular type of indirect expropriation, which requires an inquiry into the particular facts. The use of the term “creeping” to describe this type of expropriation indicates that the entirety of the measures should be reviewed in the aggregate to determine their effect on the investment rather than each individual measure on its own. … However, it is still necessary for the individual measures to culminate in a taking or deprivation of property rights. The Tribunal has found that the takeover of the day-to-day management of the Airlines was an indirect expropriation; it was a substantial and permanent deprivation of property rights. This event was expropriatory on its own even without reference to earlier impugned events. In the Tribunal’s view, a substantial and permanent deprivation of property rights did not occur until the evets of 2008. In order to conclude that a creeping expropriation took place, the Tribunal must conclude that he earlier impugned events formed part of a chain of events that led to the eventual substantial and permanent deprivation of property rights.”

“666. In what is a reflection of the standard for expropriation found in numerous investment treaties, Article VII(1) of the Treaty provides, in board terms, that “investments…shall not be nationalized, expropriated or subjected to measures having an effect equivalent to nationalization or expropriation.” 667. Arbitral case law has identified several types or forms of expropriations 945. It is generally understood that a “direct” expropriation occurs where the investor’s investment is taken through formal transfer of title or outright seizure, whereas an “indirect expropriation” occurs where a state’s action or series of actions result in the investor being deprived of the enjoyment or benefit of its investment, although title to the property or the rights remains with the original owner. Furthermore, the expression “creeping expropriation” is used to refer to a specific form of expropriation that results from a series of measures taken over time that cumulatively have an expropriatory effect, rather than from a single measure or group of measures that occur at one time.”

“Generally, it is understood that the term “…equivalent to expropriation…” or “tantamount to expropriation” included in the Agreement and in other international treaties related to the protection of foreign investors refers to the so-called “indirect expropriation” or “creeping expropriation”, as well as to the above-mentioned de facto expropriation. Although these forms of expropriation do not have a clear or unequivocal definition, it is generally understood that they materialize through actions or conduct, which do not explicitly express the purpose of depriving one of rights or assets, but actually have that effect.”

“By definition, creeping expropriation refers to a process, to steps that eventually have the effect of an expropriation. If the process stops before it reaches that point, then expropriation would not occur. This does not necessarily mean that no adverse effects would have occurred. Obviously, each step must have an adverse effect but by itself may not be significant or considered an illegal act. The last step in a creeping expropriation that tilts the balance is similar to the straw that breaks the camel’s back. The preceding straws may not have had a perceptible effect but are part of the process that led to the break.”

“Expropriation may occur in the absence of a single decisive act that implies a taking of property. It could result from a series of acts and/or omissions that, in sum, result in a deprivation of property rights. This is frequently characterized as a “creeping” or “constructive” expropriation. In the Biloune case the arbitration panel found that a series of governmental acts and omissions which “effectively prevented” an investor from pursuing his investment project constituted a “constructive expropriation”

“whether the claims of [the applicant] are sufficiently plausibly based upon the 1955 treaty to accept pro tem the facts as alleged by [the claimant] to be true and… to see if on the basis of [the claimant’s] claims of fact there could occur a violation of one or more [provisions of the treaty]” (and see paragraphs 209-213, 236, 239 and 251 in Achmea) (the Respondent’s emphasis). The Respondent also refers the ICSID case of Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No. ARB/04/015, Award 22 June 2006, in which the tribunal found that the claimant in that case had not set out, “any activity on the part of the Hungarian Government that remotely approaches the effect of expropriation.”

“By definition, creeping expropriation refers to a process, to steps that eventually have the effect of expropriation. If the process stops before it reaches that point, then expropriation would not occur. This does not necessarily mean that no adverse effects would have occurred. Obviously, each step must have an adverse effect but by itself may not be significant or considered an illegal act. The last step in a creeping expropriation that tilts the balance is similar to the straw that breaks the camel’s back. The preceding straws may not have had a perceptible effect but are part of the process that led to the break.”

“Had it not been for Decree 669/01, and if a revised contract proposal had been agreed, the measures taken previously by themselves might not have had the effect and permanence required to be considered expropriatory, but, as no agreement was reached and the measures were never revoked, they stand as part of a gradual process which, with the issuance of Decree 669/01, culminated in the expropriation of Siemens’ investment.”