Fynerdale Holdings BV v. The Czech Republic
PCA · Investment (ICSID and treaty) · Czech Republic · 29 Apr 2021
Why it matters
This award is significant for its detailed analysis of the Achmea judgment's impact on intra-EU BITs, ultimately upholding the arbitration agreement's validity under international law. It also clarifies the burden of proof regarding the legality of investments, holding that the investor must establish the lawful origin of funds, and that failure to do so results in lack of jurisdiction. The case illustrates the tension between EU law and investment treaty arbitration.
Summary
Fynerdale Holdings B.V., a Dutch company, brought an investment treaty claim against the Czech Republic under the Netherlands-Czech Republic BIT. Fynerdale alleged that it had made loans totaling over CZK 3 billion to finance poppy seed purchases in the Czech Republic, but that the business opportunity was a fraud perpetrated by three individuals. The Czech courts convicted those individuals. Fynerdale claimed that the Czech Republic's unreasonable delay in prosecuting the fraud and other acts breached the BIT. The Czech Republic objected to jurisdiction on two main grounds: first, that the BIT's arbitration clause was incompatible with EU law following the CJEU's Achmea judgment and thus invalid; second, that Fynerdale's investment was illegal because the funds used for the loans derived from a fraudulent scheme involving the privatization of a Czech coal company (MUS fraud). The Tribunal, composed of Prof. Rüdiger Wolfrum (president), Dr. Wolfgang Kühn, and Prof. Laurence Boisson de Chazournes, unanimously rejected the EU law objection, holding that the BIT remained valid and that the arbitration agreement was not superseded by EU treaties. However, by majority (with Prof. Boisson de Chazournes dissenting), the Tribunal found that it lacked jurisdiction ratione materiae because Fynerdale failed to prove the legality of its investment. The Tribunal applied the burden of proof rule that the party alleging a fact must prove it, and found that Fynerdale did not provide sufficient evidence that the funds for loans 6-9 came from legitimate sources. The Tribunal noted red flags and incomplete documentation, and concluded that the investment was not protected under the BIT's requirement that investments be made in accordance with host state law. Consequently, the Tribunal dismissed the claim for lack of jurisdiction, reserving costs for a later decision.
The detail
Parties: Fynerdale Holdings BV v. The Czech Republic
Case number: PCA Case No. 2018-18
Outcome: The Tribunal rejected the Respondent's objection based on EU law incompatibility, but by majority found it lacked jurisdiction because the legality of the investment was not established.
Applicable law: Netherlands-Czech Republic BIT (1991); UNCITRAL Arbitration Rules 1976; Vienna Convention on the Law of Treaties; EU Treaties (TFEU, TEU)
Issues in play: The case involved a conflict between the intra-EU BIT arbitration clause and EU law, particularly the Achmea judgment, and the requirement that investments be made in accordance with host state law.
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