HPK Management D.O.O. and HPK Engineering B.V. v. Republic of Serbia and Železara Smederevo D.O.O, LCIA Arbitration No. 163397
LCIA · Investment (ICSID and treaty) · Serbia · 11 May 2018
Why it matters
This case is significant for its detailed analysis of contractual interpretation under Serbian law in a commercial arbitration context. It clarifies the conditions for termination of management agreements and the calculation of privatisation bonuses. The award also addresses joint and several liability of state entities and private companies, and the allocation of costs based on relative success.
Summary
The dispute arose from a Management Services Agreement (MSA) between HPK Management and HPK Engineering (Claimants) and the Republic of Serbia and Železara Smederevo (Respondents). The MSA was part of a privatisation process for the steel company Železara Smederevo. The Claimants provided management services and were entitled to a privatisation bonus if the company was sold. The Respondents terminated the MSA, alleging breaches by the Claimants, including failure to provide a deferred payment and credit as required by a related Raw Materials Agreement (RMA). The Claimants argued the termination was invalid and sought payment of the privatisation bonus and management fees. The Tribunal, applying Serbian law, found that the Second Respondent's termination was invalid because the alleged breaches were not material or were not proven. It held that the Claimants were entitled to the minimum guaranteed privatisation bonus of USD 10 million, but not a higher variable bonus. The Tribunal also awarded management fees for May and June 2016. However, it dismissed claims against the First Respondent (Republic of Serbia), finding no basis for joint liability. Costs were awarded proportionally: the Claimants were ordered to pay the First Respondent's legal costs, while the Second Respondent was ordered to pay 80% of the First Claimant's legal costs.
The detail
Parties: HPK Management D.O.O. and HPK Engineering B.V. v. Republic of Serbia and Železara Smederevo D.O.O, LCIA Arbitration No. 163397
Case number: italaw/cases/7029
Outcome: The Tribunal ordered the Second Respondent (Železara Smederevo) to pay the First Claimant (HPK Management) USD 10 million as a Privatisation Bonus, plus interest, and management fees for May and June 2016. The Claimants' claims against the First Respondent (Republic of Serbia) were dismissed. Costs were apportioned.
Quantum: USD 10,000,000
Applicable law: Management Services Agreement (MSA) dated 21 March 2015; Serbian Law of Obligations; LCIA Rules (2014)
Issues in play: The dispute involved interpretation of contractual clauses on termination, privatisation bonus, and management fees under Serbian law. Key issues included whether the Second Respondent validly terminated the MSA and whether the Claimants breached obligations regarding deferred payment and credit.
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