Rand Investments Ltd. and others v. Republic of Serbia
ICSID · Investment (ICSID and treaty) · Serbia · 29 Jun 2023
Why it matters
This award is significant for its analysis of beneficial ownership in investment treaty arbitration, particularly where the investor structures its investment through a local nominee to circumvent privatization restrictions. The majority held that a beneficial interest created by a private contract governed by foreign law can constitute a protected investment, even if the formal transfer of shares violated local securities laws. The dissenting opinion strongly criticized this approach as undermining host state regulatory sovereignty and transparency in privatization processes.
Summary
The case concerns a Canadian investor, William Rand, who sought to acquire a Serbian agricultural company, BD Agro, through a privatization process. Because Serbian law restricted foreign ownership in privatization, Rand used a Serbian national, Djura Obradović, as a nominee to purchase 70% of BD Agro's shares. Rand provided the funds and claimed beneficial ownership through a series of agreements, including a 'Sembi Agreement' governed by Cypriot law. After years of disputes over compliance with the privatization agreement, the Serbian Privatization Agency terminated the agreement and seized the shares. Rand and his entities initiated ICSID arbitration under the Canada-Serbia BIT. The Tribunal (majority) found that Rand had a protected investment in the form of beneficial ownership of the shares and that Serbia's actions, particularly the seizure of shares without compensation, violated the fair and equitable treatment standard. The Tribunal rejected Serbia's objections that the investment was illegal due to circumvention of privatization laws and that the claim was time-barred. It awarded EUR 20 million in damages. Professor Kohen dissented, arguing that Rand failed to prove beneficial ownership, that the structure was a concealment incompatible with transparency requirements, and that the termination of the privatization agreement was lawful.
The detail
Parties: Rand Investments Ltd. and others v. Republic of Serbia
Case number: ICSID Case No. ARB/18/8
Outcome: The Tribunal found that Serbia breached the fair and equitable treatment standard under the Canada-Serbia BIT by seizing and expropriating the Claimants' beneficial ownership interest in BD Agro shares. Serbia was ordered to pay damages of EUR 20,000,000 plus interest.
Quantum: EUR 20,000,000
Applicable law: Canada-Serbia BIT, ICSID Convention, Serbian Privatization Law, Serbian Securities Law
Issues in play: The case involved a collision between the investor's claimed beneficial ownership rights under the BIT and Serbia's privatization and securities laws requiring transparency and prohibiting off-market share transfers. The Tribunal had to determine whether the investor's indirect interest through a Cypriot contract was protected under the BIT despite non-compliance with Serbian formalities.
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