Pawlowski AG vs. Czech republic

Case summary

At a glance

Parties: Pawlowski AG (Switzerland) and Projekt Sever s.r.o. (Czech Republic) v. Czech Republic
Case no.: ICSID Case No. ARB/17/11 (and Annulment Proceeding)
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules 2006; place of proceeding Paris
Treaty: Czech and Slovak Federal Republic–Switzerland BIT, signed 5 October 1990, in force 7 August 1991
Tribunal: Prof. Juan Fernández-Armesto (President), Mr. John Beechey, Prof. Vaughan Lowe
Committee: Dr. Jacomijn J. van Haersolte-van Hof (President), Ms. Yoshimi Ohara, Mr. David A. Pawlak
Sector: Real estate development; zoning
Outcome: Award of 1 November 2021: jurisdiction upheld; the Czech Republic breached Article 4 of the BIT through the Benice mayor's payment demands; a declaration was granted, no compensation was awarded and all other claims were dismissed. The claimants' application for partial annulment was rejected on 7 March 2025.
Amount: Claimed: CZK 5,266,622,342, including pre-award interest as of 31 July 2020. Awarded: nothing. Arbitration costs of USD 617,413.86 were shared equally, and each party bore its own legal fees. In the annulment, the applicants bore the costs of the proceeding (USD 375,994.52), and each party bore its own legal costs.

The dispute

Pawlowski AG, a Swiss company, owns Projekt Sever s.r.o. Between June 2007 and December 2008, Projekt Sever bought about 270,000 m2 of agricultural land in the Prague district of Benice to build a residential complex. It bought from private owners, from the City of Prague and from the Ministry of Defense, while zoning change Z 1294/07 was still pending. The Prague City Assembly approved the change on 26 March 2010, and the permitted density was raised in 2011. In June 2012, Benice and two neighbours sought judicial annulment of the change. The Prague Municipal Court annulled it on 26 April 2013, the Supreme Administrative Court confirmed the annulment on 26 February 2014, and on 14 April 2015 the City Assembly voted 51:0 not to re-procure it. The claimants alleged unreasonable and discriminatory measures and breach of fair and equitable treatment (Article 4), failure to grant necessary permits (Article 3(2)) and indirect expropriation (Article 6). The Czech Republic raised jurisdictional objections and argued that its authorities acted lawfully, made no specific representations and took no acquired rights, and that the damages claimed were speculative.

Key holdings

The Tribunal unanimously dismissed all of the Czech Republic's jurisdictional objections. Award, dispositif ¶ 1
The only breach found was the payment demands made to Projekt Sever on behalf of the Benice District by Mayor Topičová. These were demands for money in return for withdrawing the Benice Lawsuit and for the District's change of position on the density increase. They were unreasonable measures under Article 4(1) and fell short of fair and equitable treatment under Article 4(2). Award, pp. 151, 153
The filing of the Annulment Request, the court annulment, the City Assembly's reasoned and unanimous decision not to re-procure, and Benice's opposition to re-procurement were not breaches. No discrimination was shown, because the claimants identified no comparator in a similar situation that received better treatment; Central Group's project in particular was not comparable. Award, pp. 112–125
There was no legitimate expectation. The purchase contracts described the land as agricultural and contained no assurance that it would be rezoned. The officials' support was general and oral, and came from authorities without competence over the zoning change. Approval of the change remained open to judicial challenge. Award, pp. 138–141
Article 3(2) does not cover zoning plan changes, which are rules of general application and not permits; in any event Czech law was followed. There was no indirect expropriation: the claimants acquired only rights over agricultural, forest and recreational land, and they still own it. Award, pp. 144–151
Compensation was refused because the claimants showed no damage and no causal link between the wrongful payment demands and the losses claimed. As satisfaction, the Tribunal declared that Article 4 had been breached. Under the default rule in Article 9(2)(d) of the BIT, the costs of the proceeding were shared equally and each party bore its own legal fees. Award, pp. 155–160
The Committee unanimously rejected all eight annulment grounds raised under Articles 52(1)(d) and (e). The Tribunal was not required to address every piece of evidence, including the Štěpánková evidence. By rejecting each claim individually, it implicitly rejected the argument that the measures should be assessed cumulatively. Its incorrect reference to a two-year limitation period was immaterial, because the decisive point was that the zoning change could be, and was, challenged in court. Decision on Annulment ¶¶ 161–163, 198, 300–303, 372