Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland

At a glance

Parties

Vincent J. Ryan (United States), Schooner Capital LLC and Atlantic Investment Partners LLC (Delaware, United States) v. the Republic of Poland

Case no.

ICSID Case No. ARB(AF)/11/3

Forum and rules

ICSID Additional Facility Arbitration Rules; award rendered in Paris

Treaty

United States–Poland Treaty Concerning Business and Economic Relations (signed 21 March 1990, in force 6 August 1994)

Tribunal

Makhdoom Ali Khan (President), Francisco Orrego Vicuña, Claus von Wobeser

Court

Paris Court of Appeal (set-aside, 2019, and again on remand after cassation, 2022); US District Court for the District of Massachusetts (enforcement petition)

Underlying award(s)

Award of 17 November 2015 (dispatched 24 November 2015, according to Poland's petition)

Sector

Vegetable fats processing; taxation

Outcome

The Tribunal declined jurisdiction over most claims under the tax carve-out and dismissed the expropriation and transfer claims. The Paris Court of Appeal rejected the set-aside application in 2019 and, on remand after cassation, again on 31 May 2022.

Amount

Tax reassessment against Kama: PLN 55,371,330. The award ordered costs to Poland of USD 2,725,657.10, less USD 85,209.92 to the claimants, a net USD 2,640,447.18. Paris court costs (Article 700) against the claimants: EUR 200,000 in 2019 (judgment later quashed) and EUR 150,000 in 2022.

The dispute

Mr Ryan and two Delaware companies invested, through White Eagle Industries, in three Polish companies in 1994. One of them was a 55% stake in Kama, a state enterprise that produced vegetable fats. Kama paid management fees to a Polish affiliate, White Eagle Industries Poland, and deducted them for tax purposes. From 1996 the Opole tax authorities found that the management services had not been shown to be real and imposed a reassessment of PLN 55,371,330. Kama was declared bankrupt on 5 June 2003. The investors claimed that Poland had expropriated their investment in Kama, denied them fair and equitable treatment and full protection and security, and subjected them to arbitrary and discriminatory measures. They relied among other things on the retroactive application of 1996 transfer-pricing guidelines, a bonus scheme for tax inspectors, and the more favourable treatment of another investee company, WFM. Poland relied on the exclusion of "matters of taxation" in Article VI(2) of the treaty.

Key holdings

1. The Tribunal held by majority that the dispute concerned matters of taxation under Article VI(2) of the treaty, not the observance of an investment agreement under Article VI(2)(c). It therefore had jurisdiction only over the expropriation (Article VII) and transfer (Article V) claims. It dismissed both claims unanimously and rejected the damages claim. Mr Orrego Vicuña issued a dissenting opinion. 2019 Judgment, p. 3; 2022 Judgment ¶¶ 13, 43, 62
2. The 2022 court rejected Poland's admissibility objection. Where jurisdiction was debated before the arbitrators, a party may raise new jurisdictional arguments and evidence before the annulment judge. The court therefore admitted the abuse-of-power and MFN arguments that had not been put to the Tribunal. 2022 Judgment ¶¶ 32–37
3. Article VI(2) does not distinguish substantive tax provisions from tax procedures or from tax-related investment disputes. Its ordinary meaning is clear, so the US State Department notes need not be consulted. The Cairn Energy v. India award does not carry over, because the UK–India BIT has no express tax carve-out. 2022 Judgment ¶¶ 63–71
4. Article VI(1) only says that each Party should strive to accord fairness and equity in its tax policies. It creates no obligation that an investor can enforce before a tribunal outside the scope defined by Article VI(2). Holding otherwise would deprive the exclusion of effect. 2022 Judgment ¶¶ 80–85
5. An alleged abuse of power by the tax authorities is a merits question and cannot extend jurisdiction to excluded tax matters. The court noted that the abuse was not established and that the Tribunal had implicitly rejected it when it dismissed the expropriation claim. The MFN clause works only within the scope of the basic treaty. It cannot import tax protections from Poland's BITs with Chile, India or Croatia against an express exclusion. 2022 Judgment ¶¶ 92, 108–112
6. In 2019 the Paris Court of Appeal also rejected the other set-aside grounds. The award gave reasons on the retroactivity point (Award ¶¶ 478–479). Due process was not breached, because arbitrators need not warn a party that its evidence is insufficient. International public policy was not violated: the reassessment rested on Kama's failure to prove that the services were real, not on retroactive application of a penal rule. 2019 Judgment, pp. 8–11
7. The 2022 court refused Poland's request for a civil fine for abusive proceedings and ordered the claimants to pay Poland EUR 150,000 under Article 700, plus costs. 2022 Judgment ¶¶ 115–118

Procedural history

1. 31 March 2011The investors filed a request for arbitration under the ICSID Additional Facility Rules.
2. 28 April – 6 May 2014Hearing on jurisdiction and the merits in Paris.
3. 17 November 2015Award rendered in Paris: jurisdiction limited by majority, the remaining claims dismissed, and costs awarded to Poland. Poland's petition gives 24 November 2015 as the dispatch date.
4. 2 December 2016The investors applied to the Paris Court of Appeal to set aside the award.
5. 14 November 2018Poland petitioned the US District Court for the District of Massachusetts to confirm and enforce the costs award of USD 2,640,447.18, with 12% annual interest.
6. 2 April 2019The Paris Court of Appeal rejected the set-aside application, held two jurisdictional arguments inadmissible, and awarded EUR 200,000 to Poland.
7. 2 December 2020The Cour de cassation quashed the 2 April 2019 judgment in full.
8. 31 May 2022On remand, the Paris Court of Appeal admitted the new arguments but again rejected the set-aside application and awarded EUR 150,000 to Poland.

Tribunal, counsel and experts

Decided by

• Makhdoom Ali Khan President
• Francisco Orrego Vicuña Co-arbitrator — appointed by the claimant (dissented)
• Claus von Wobeser Co-arbitrator — appointed by the respondent
• Dominique Guihal Judge, Paris Court of Appeal — appointed by a court
• Anne Beauvois Judge, Paris Court of Appeal — appointed by a court
• Jean Lecaroz Judge, Paris Court of Appeal — appointed by a court
• François Ancel Judge, Paris Court of Appeal — appointed by a court
• Fabienne Schaller Judge, Paris Court of Appeal — appointed by a court
• Laure Aldebert Judge, Paris Court of Appeal — appointed by a court

For the claimant

SCP Grappotte Benetreau · SELAS Teynier Pic · Raphaël Kaminsky

For the respondent

SELARL Pellerin - De Maria - Guerre · Dechert LLP

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Keywords

• taxation carve-out
• matters of taxation
• US–Poland BIT
• ICSID Additional Facility
• set-aside
• Paris Court of Appeal
• Cour de cassation
• most-favoured-nation clause
• abuse of power
• fair and equitable treatment
• indirect expropriation
• Kama
• management fees
• transfer pricing
• retroactivity
• international public policy
• Article 1466 CPC waiver
• enforcement New York Convention

Summary generated with AI from the published documents — refer to the award for the authoritative text.