Pawlowski AG and Project Sever s.r.o. v. Czech Republic

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

Forum and rules

ICSID Convention; ICSID Arbitration Rules 2006; place of proceeding Paris

Treaty

Czech and Slovak Federal Republic–Switzerland BIT, signed 5 October 1990

Tribunal

Juan Fernández-Armesto (President), John Beechey, Vaughan Lowe

Annulment Committee

Jacomijn J. van Haersolte-van Hof (President), Yoshimi Ohara, David A. Pawlak

Sector

Real estate development; zoning

Outcome

Award of 1 November 2021, unanimous: jurisdiction upheld; one breach of Article 4 of the BIT declared (payment demands by the Mayor of Benice); no compensation; all other claims dismissed. Application for partial annulment rejected on 7 March 2025.

Amount

Claimed: CZK 5,266,622,342 (including interest to 31 July 2020). Awarded: nothing; declaration of breach only. Arbitration costs (USD 617,413.86) shared equally, each side bore its own legal costs. Annulment: the applicants bear the Committee and ICSID costs (USD 375,994.52); each side bears its own legal costs.

The dispute

Pawlowski AG, owned by the Swiss investor Sebastian Pawlowski, bought the shelf company Projekt Sever in 2007. Between June 2007 and December 2008, Projekt Sever bought about 270,000 m² of agricultural land in the Prague district of Benice from private owners, the City of Prague and the Ministry of Defense, to build a residential complex. At the time, a zoning change (Z 1294/07) was still being processed. The Prague City Assembly approved the change on 26 March 2010. The District of Benice and two neighbours then challenged it, and the Prague Municipal Court annulled it on 26 April 2013. On 14 April 2015 the Assembly voted 51:0 not to procure the change again. The claimants alleged unreasonable and discriminatory measures and a breach of fair and equitable treatment (Article 4), breach of the duty to grant necessary permits (Article 3(2)) and indirect expropriation (Article 6). They also relied on payment demands made by Benice's Mayor Topičová. The Czech Republic raised jurisdictional objections and argued that the claimants had speculated on unzoned land and had no acquired rights.

Key holdings

1. The Tribunal dismissed all of the Czech Republic's jurisdictional objections and held that the dispute falls within ICSID jurisdiction. Award, ¶ X(1)
2. One breach only. The requests by Mayor Topičová, on behalf of Benice District, for significant payments from Projekt Sever were unreasonable measures under Article 4(1) and fell short of fair and equitable treatment under Article 4(2). The payments were sought in return for withdrawing Benice's lawsuit over the land purchase and for changing the District's position on the density increase. Award, pp. 151, 153
3. The Assembly's unanimous decision not to procure the annulled zoning change again was reasoned and not unreasonable. Deputy Mayor Stropnický did not make false statements or manipulate the Assembly. Benice's opposition to a new procurement was no breach. The discrimination claim failed for lack of a comparable investor: Central Group's project differed in size, location, grounds of annulment and the developer's response. Award, pp. 114–125
4. No legitimate expectations. No specific and unambiguous assurance was given. The purchase contracts described the land as arable, forest or unfertile land. The Uhříněves mayor had no power to approve zoning. A previous rezoning of the same area had already been rejected. Approval of the zoning change created no acquired right while it remained open to judicial challenge. Award, pp. 138–141
5. A zoning plan change is a rule of general application, not a "permit" or "authorization", so Article 3(2) does not apply. In any case, that provision is only an obligation of conduct under domestic law. There was no indirect expropriation: the claimants acquired rights only over agricultural, forest and recreational land, still own it, and may still seek rezoning. Award, pp. 144–151
6. Compensation was refused for lack of causation. The claimants refused to pay, and the payment demands caused no proven harm. The damages claimed flowed from the annulment and the refusal to procure the change again, which were not wrongful. As satisfaction, the Tribunal declared that Article 4 was breached. Under the default rule in Article 9(2)(d) of the BIT, each side shares the costs of the proceeding equally and bears its own legal costs. Award, pp. 155–160
7. The ad hoc Committee unanimously rejected all eight grounds for partial annulment under Article 52(1)(d) and (e). These included the Tribunal's failure to discuss Ms. Štěpánková's Facebook post and affidavit and its failure to assess the measures cumulatively. They also included its incorrect reference to a two-year limitation period, which the Committee found to be an immaterial building block of the reasoning. The applicants bear the costs of the annulment proceeding (USD 375,994.52); each side bears its own legal costs. Decision on Annulment, ¶¶ 300–303, 372

Procedural history

1. 7 April 2017Request for arbitration received by ICSID. It was registered on 3 May 2017.
2. 6 November 2017Tribunal constituted.
3. 13 February 2018Procedural Order No. 1 on procedural rules; place of proceeding Paris.
4. 26–30 January 2020Hearing on jurisdiction, merits and quantum in Paris.
5. 16 June 2020Procedural Order No. 5 admits Ms. Štěpánková's Facebook post as new evidence and allows the Respondent to file her affidavit.
6. 1 November 2021Award: breach of Article 4 declared, no compensation, all other claims dismissed.
7. 26 February 2022Application for partial annulment filed. It was registered on 9 March 2022; the ad hoc Committee was constituted on 23 May 2022.
8. 17 January 2024Annulment proceeding suspended because the applicants did not pay the advance on costs. It resumed on 12 April 2024.
9. 10 September 2024Hearing on partial annulment in Prague.
10. 7 March 2025Decision on Annulment: application rejected.

Tribunal, counsel and experts

Decided by

• Juan Fernández-Armesto President — appointed by the parties jointly
• John Beechey Co-arbitrator — appointed by the claimant
• Vaughan Lowe Co-arbitrator — appointed by the respondent
• Jacomijn J. van Haersolte-van Hof Committee president — appointed by the institution
• Yoshimi Ohara Committee member — appointed by the institution
• David Pawlak Committee member — appointed by the institution

For the claimant

Homburger AG · Havlíček Law Offices / Havlíček Haman, advokátní kancelář s.r.o. · MACH LEGAL, advokátní kancelář s.r.o. · JUDr. Filip Černý, Ph.D., advokát

For the respondent

Dechert LLP · Wordstone Dispute Resolution AARPI · Ministry of Finance of the Czech Republic

Experts

Veronika Tomoszková (claimant) · Kai F. Schumacher (claimant) · Clark Fraser (claimant) · Stanislav Kadečka (respondent) · Fernando Cuñado Garcia-Bernalt (respondent) · Jiří Urban (respondent) · Martin Staněk (respondent)

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Keywords

• Czech Republic–Switzerland BIT
• real estate development
• zoning plan change
• Benice
• Prague
• unreasonable measures
• fair and equitable treatment
• legitimate expectations
• discrimination
• national treatment
• indirect expropriation
• necessary permits
• payment demands
• attribution
• satisfaction
• causation
• annulment
• failure to state reasons
• right to be heard

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