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Both Squire Patton Boggs and Kochanski & Partners Claim Success in Slovak-Polish Arbitration

Both Squire Patton Boggs and Kochanski & Partners Claim Success in Slovak-Polish Arbitration

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Both Poland's Kochanski & Partners (on behalf of Poland's Muszynianka Spolka z Ograniczona Odpowiedzialnoscia) and the Bratislava office of Squire Patton Boggs (on behalf of the Slovak Republic) are claiming victory in a dispute involving the Agreement on the Protection and Promotion of Investments between the Slovak Republic and the Republic of Poland.

According to the Slovakian Ministry of Finance, “the subject of the dispute was the issue of the use of mineral water from springs located in the Slovak village of Legnava, which was to be transported by pipeline to Poland and bottled in the Polish village of Muszyna. [Muszynianka Spolka z Ograniczona Odpowiedzialnoscia] claimed compensation from the Slovak Republic for almost EUR 170 million on the ground that the amendment to the Constitution of the Slovak Republic regulating the export of bulk water (Article 4 (2) of the Constitution of the Slovak Republic [which was enacted in 2014]) was contrary to international law.”

The tribunal, seated the arbitration in Switzerland and held a full merits hearing at the Peace Palace in The Hague in January 2019, applying UNCITRAL Arbitration Rules.

According to the Squire Patton Boggs report, "in its decision, the tribunal found that the Constitutional Amendment bears a reasonable relationship with the legitimate public policy objectives of water preservation, public health and regulation of the use of natural resources. It further held that the Constitutional Amendment was not discriminatory, was not targeted at Muszynianka and was proportional. Consequently, the tribunal found that any breach was inconsequential because it did not cause any loss to GFT Slovakia or Muszynianka, as further permits would have been required that could not have been obtained before the issuance of the Constitutional Amendment and would have been prohibited by the Constitutional Amendment after its enactment." According to the firm, "the tribunal, therefore, held there was no causation and rejected Muszynianka’s claim for damages in its entirety."

Kochanski & Partners reported the results quite differently. According to the Polish firm, "the Arbitral Tribunal ... decided that Slovakia had violated international law to the detriment of the Polish company." According to the firm, "the Arbitral Tribunal held that it had jurisdiction over the dispute and dismissed all jurisdictional objections of Slovakia and the European Commission. For the first time ever, the Investment Tribunal found the intra-EU agreement on the termination of BITs as being without prejudice to the pending proceedings, with Muszynianka retaining the right to having its investment protected. This is of key importance for investors of Member States that have initiated proceedings under intra-EU BITs. Furthermore, the Tribunal dismissed all objections of Slovakia to the admissibility of Muszynianka’s claims, including the objection of alleged illegality of the investment project. The Tribunal thus confirmed the cross-border activity planned by Muszynianka as being legally permissible prior to the entry into force of the amendments to the Slovak Constitution." In addition, the firm reported, "the Tribunal ... [stated] that the administrative proceedings concerning Muszynianka 'were conducted in willful disregard of Slovak administrative law and the transparency expected from State authorities.' In the Tribunal’s view, the Slovak authorities’ action against Muszynianka 'was in breach of the fair and equitable treatment standard.' The Tribunal also found that such conduct was in breach of the non-impairment standard."

Although Kochanski & Partners conceded that "the Tribunal held ... that the Constitutional Amendment banning the cross-border transport of water via pipelines did not violate the BIT," and "thus ... did not award damages for the BIT violations," it maintained that "considering the essential part of the award and [our] client’s reaction, we believe this to be a success and are now considering the legal remedies that may enable our client to obtain satisfaction of his recognized claims.”

Squire Patton Boggs’ team included Bratislava Managing Partner Tatiana Prokopova, Prague-based Partners Rostislav Pekar and Maria Polakova, US--based Partners Stephen Anway, Mark Stadnyk, Raul Manon, and David Alexander, and Perth-and-London-based Partner Alexis Martinez, as well as Bratislava-based Senior Associate Eva Cibulkova, and Associates Aleksandra Dziki and Jakub Kamenicky.

Kochanski & Partners' team was led by Partner Marek Jezewski, the firm's Head of Dispute Resolution.

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