Franz Sedelmayer v. Russian Federation, SCC
SCC · Investment (ICSID and treaty) · Sweden · 7 Jul 1998
Why it matters
This is one of the first investment treaty awards against Russia, establishing that a German investor could bring claims under the 1989 Germany-USSR BIT. The tribunal addressed key issues of investor nationality, the definition of investment, and expropriation, setting precedents for subsequent cases against Russia.
Summary
Franz Sedelmayer, a German citizen, invested in a joint venture (KOC) with the Leningrad police (GUVD) in 1991, contributing equipment and funds. The joint venture used premises owned by GUVD. In 1994, a Russian presidential directive transferred the premises to the Procurement Department, and in 1995-1996 the premises were seized. Sedelmayer initiated arbitration under the 1989 Germany-USSR BIT, claiming expropriation. The Russian Federation objected to jurisdiction, arguing Sedelmayer was not an investor because his investments were made through a US company (SGC International) and not in compliance with Russian law. The tribunal rejected these objections, finding that Sedelmayer was an investor under the BIT (the treaty did not require control test) and that his contributions to KOC qualified as investments. It held that the seizure of the premises constituted expropriation without compensation, violating Article 4 of the BIT. The tribunal awarded compensation for the value of Sedelmayer's contributions and loss of use of the premises. The dissenting opinion argued that the tribunal lacked jurisdiction because the proper respondent was the Procurement Department, not the Russian Federation, and that Sedelmayer was not an investor under the BIT.
The detail
Parties: Franz Sedelmayer v. Russian Federation, SCC
Case number: italaw/cases/982
Outcome: Tribunal found jurisdiction and awarded compensation to Sedelmayer for expropriation of his investments.
Applicable law: Treaty between Federal Republic of Germany and USSR concerning the Promotion and Reciprocal Protection of Investments (1989); SCC Rules
Issues in play: Definition of 'investor' under the Treaty (whether control test applies) and whether investments were made in compliance with Russian law.
Read the full decision at italaw ↗
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