Pawlowski AG and Project Sever s.r.o. v. Czech Republic
ICSID · Investment (ICSID and treaty) · Czech Republic · 1 Nov 2021
Why it matters
This award is significant for its detailed analysis of the FET standard in the context of zoning plan changes and the protection of legitimate expectations. The Tribunal found that the Czech Republic's failure to process a zoning change in a timely and consistent manner violated FET, even though the ultimate annulment of the zoning plan by Czech courts was not itself a breach. The case clarifies the limits of state liability for judicial decisions and the requirement for transparency and consistency in administrative processes.
Summary
The dispute arose from Claimants' investment in a residential development project in the Benice district of Prague. Claimants acquired land and sought a zoning plan change to allow construction. The Prague City Assembly approved the change in 2010, but it was later annulled by the Prague Municipal Court in 2013 following a challenge by the local district and neighbors. Claimants alleged that the Czech Republic violated the BIT by taking unreasonable and discriminatory measures, failing to provide fair and equitable treatment, and expropriating their investment. The Tribunal upheld jurisdiction under the BIT and ICSID Convention. On the merits, it found that the Czech Republic breached Article 4 of the BIT by failing to treat the investment fairly and equitably and by taking unreasonable measures. Specifically, the Tribunal held that the Czech authorities' inconsistent and delayed handling of the zoning process, including the failure to re-procure the zoning change after annulment, violated Claimants' legitimate expectations. However, the Tribunal dismissed claims of discrimination, expropriation, and breach of the umbrella clause. It awarded no monetary compensation due to lack of causation and substantiation of damages, but granted a declaratory satisfaction. The Tribunal ordered each party to bear its own costs and share the arbitration costs equally.
The detail
Parties: Pawlowski AG and Project Sever s.r.o. v. Czech Republic
Case number: ICSID Case No. ARB/17/11
Outcome: The Tribunal declared that the Czech Republic violated Article 4 of the BIT by failing to treat Claimants' investments fairly and equitably and by impairing them through unreasonable measures, but dismissed all other claims and awarded no compensation, only a declaratory satisfaction.
Applicable law: Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments (BIT) signed 5 October 1990, entered into force 7 August 1991; ICSID Convention; Czech law
Issues in play: The case involved the fair and equitable treatment (FET) standard and the prohibition of unreasonable and discriminatory measures under Article 4 of the BIT, colliding with the Czech Republic's regulatory autonomy in urban planning and zoning decisions.
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