Originally from Investment Arbitration Decisions

MR. FRANZ SEDELMAYER v. THE RUSSIAN FEDERATION

(1) FINAL ARBITRAL AWARD RENDERED IN 1998 IN AN AD HOC ARBITRATION IN STOCKHOLM, SWEDEN1
(2) JUDGMENT BY THE STOCKHOLM DISTRICT COURT RENDERED ON 18 DECEMBER 2002
(3) DECISION BY THE SVEA COURT OF APPEAL RENDERED ON 15 JUNE 2005

I. The Arbitration Subject Matters:
(1) Definition of “investor.”
(2) Scope of the definition of “investment.”
(3) The scope of expropriation provisions.
(4) Application of the principle of lis pendens.
(5) Propriety of State as respondent.
(6) Compliance with pre-arbitration procedures.
(7) Identification and valuation of investments subject to expropriation.

Findings:

(1) Where German investor carried out activities in Russia through a U.S. corporation, his indirect control of the local operating company qualified him as an “investor” under the applicable bilateral investment treaty, which was silent on the issue of indirect ownership.

(2) “Investment” should be given a broad definition. Each particular asset must be examined to determine whether it was invested in accordance with Russian law before it can be considered an “investment.” Most of the assets in question qualify as legal investments.

(3) The actions carried out by the Russian authorities in sealing and taking over the investor’s premises must be regarded as “measures of expropriation or other measures with similar effects” mentioned in the Treaty. The legality of these measures under Russian law is not relevant to this conclusion.

(4) The Tribunal is not prevented from rendering an award under the applicable treaty as a result of pending Russian court proceedings related to the parties’ dispute.

(5) The Russian Federation is the proper respondent in the arbitration.

(6) While there are reasons to question whether the provisions of the Treaty concerning pre-arbitration procedure have been properly fulfilled, the Tribunal need not take any final decision on this issue. Even if these provisions have not been properly complied with, the consequence would be too far-reaching if, solely on this ground, the Tribunal would be prevented from examining the case.

(7) Lack of evidence of the propriety and value of investments made in the framework of the investment activity leads the Tribunal to allow some value and disallow other items. Most of the vehicles imported in the context of the investment activity were not confiscated as part of the seizure of the investor’s premises, and therefore cannot be considered compensable under the Treaty. Despite certain evidentiary problems, the investor is entitled to compensation for both improvements made to the premises seized by the government and for the right to use the premises.