Introduction<\/strong><\/p>\n Numerous scholars and practitioners have debated the fragmentation of international investment law. In particular, one question has been highlighted recently \u2013 whether the present investor-state dispute settlement mechanism is imbalanced and poses a threat to the host State’s regulatory power, or whether the current mechanism is able to strike a balance between investment protection and defending State’s right to regulate.<\/p>\n The State counsel play a role as necessary as associates in a law firm in the arena of investment arbitration. Jus Mundi is proud to present the special edition of the Arbitration Team of the Month featuring a government legal team. This month, we are delighted to present the Ministry of Finance of the Czech Republic along with an interview with Jaroslav Kudrna<\/a>, who recently got promoted to the Head of International Arbitration and Investment Protection Unit of the State.<\/p>\n Recent victory cases analysis: <\/strong>AMF Aircraftleasing v. The Czech Republic<\/em><\/strong><\/a><\/p>\n The Ministry of Finance of the Czech Republic has secured a major victory by the end of last year. In a decision<\/a> rendered on December 8, 2020, the Swiss Federal Tribunal has declined the investors’ application to set aside the AMF Aircraftleasing v. the Czech Republic<\/em> award<\/a> rendered in 2020 by a Tribunal chaired by Pierre D. Tercier<\/a>, which had dismissed the case on the merits.<\/p>\n The Czech Republic has seen off a pair of investment treaty claims initiated by businessman and former senator V\u00e1clav Fischer and his company over investments in the travel sector. In both cases, the Czech Republic relied on ministry lawyers along with Dechert in AMF Aircraftleasing v. the Czech Republic<\/em><\/a> and Zeiler Partners in Fischer v. the Czech Republic (I)<\/em><\/a>.<\/p>\n Facts<\/strong><\/p>\n Tribunal constitution<\/strong><\/p>\n Tribunal’s decision<\/strong><\/p>\n Legal rationale<\/strong><\/p>\n Interview with Jaroslav Kudrna<\/strong><\/p>\n 1. Congratulations on the\u00a0AMF v. Czech Republic<\/em>\u00a0case, which marked the State’s 13th<\/sup> arbitration victory in a row! Can you share your understanding of the State’s right to regulate as a defense for expropriation claims?<\/strong><\/p>\n This was a great success for the Republic and for my colleagues who worked on this case. Concerning your question, a legitimate exercise of the state’s police powers does not result in an obligation to compensate an investor. This well-recognized principle was raised by the Czech Republic in the AMF<\/em> case in defense to the investor’s expropriation claim. The Czech Republic argued that carrying out bankruptcy proceedings is an exercise of the state’s police powers and does not amount to expropriation unless pursued unlawfully or with expropriatory purpose. The tribunal accepted the Czech Republic’s position and held that bankruptcy proceedings are in general within the state’s lawful regulatory powers. Therefore, to successfully claim expropriation, an investor has to establish a wrongful exercise of the state regulatory powers (here bankruptcy powers) such as a presence of expropriatory intent, unlawfulness or irregularity. None of these elements were present in the AMF<\/em> case.<\/p>\n 2. What do you think of the trend for interpretation of the FPS standard in covering more than mere physical security?<\/strong><\/p>\n In recent years, the traditional interpretation of the FPS standard has been challenged and the decision in the AMF<\/em>case supports this trend. We have been following this development with great interest especially in regard to the underlying reasoning. Perhaps more attention could be given to the historical roots of the FPS standard and the scope, which has been attributed to it for over a century since it was first introduced in international treaties. In any case, in response to this trend, we have included a clarification in our model BIT that the FPS standard only relates to physical security. The EU and its Member States are adopting a similar approach in their free trade agreements such as CETA.<\/p>\n 3. Congratulations on your recent promotion to Head of International Arbitration and Investment Protection Unit. What is your vision for this unit? <\/strong><\/p>\n The primary goal remains winning cases for the Republic in a cost efficient manner. The key to that is to maintain and further develop a fine team of dedicated arbitration lawyers, which allows us to do more work in-house. A renegotiation of older BITs is also crucial in the mid to long term. The same applies to dispute prevention where we can take inspiration from other states that have a comprehensive system of investment dispute prevention. We also want to continue contributing to the arbitration community by hosting our annual Investment Treaty Arbitration Conference in Prague, which celebrated its 10th<\/sup> anniversary last year, and which we see as a place where state representatives can exchange views with other arbitration practitioners (lawyers, professors and arbitrators).<\/p>\n 4. What are the advantages for the State for having its own arbitration team? Is this going to be a trend for more States? How does your team operate once there is an arbitration? <\/strong><\/p>\n Concerning state representation in arbitrations, a one size fits all approach does not work. The Czech Republic has developed a model adjusted to our circumstances. We have a dedicated team of lawyers who have a good understanding of the field and necessary linguistic capabilities. We are able to work directly with an experienced foreign counsel and in most cases we can completely ensure the role of local counsel. This being said, we cannot replace foreign counsel entirely without incurring significant risks. We maximize the benefits of an in-house counsel model while mitigating some of the risks. In general, we need external counsel because of capacity issues. Furthermore, we want to have on our side someone with a lot of experience to prepare the case and conduct oral advocacy. We believe that teaming up with experienced external counsel allows us to achieve the best results. At the same time, taking on the role of local counsel makes us very involved in each case. We can thus engage with the lead counsel when the case strategy and brief outlines are being prepared. We also set internal deadlines to have sufficient time to comment on the briefs. Our model also allows us to both save significant costs and better monitor the remaining costs because we know what is being done on the case at any given moment.<\/p>\n 5. Can you share what makes working in a government arbitration team appealing? Why should others consider it as a career option? <\/strong><\/p>\n This might to some extent differ from state to state. The Czech Republic has been for better or worse a frequent subject of investment arbitrations for some time (in fact, it is the fifth most frequent respondent state in the world). When I joined the arbitration team, there were multiple new cases starting, including a multibillion dollar one. So I knew there was very interesting and challenging work ahead, which definitely motivated me. Given the experience I brought I also had the opportunity to manage the case teams early on. You also have the opportunity to work with different counsel, which allows you to see different ways of doing things. Moreover, you also experience the client perspective. As public officials, we still work hard, but there is definitely a better work-life balance compared to working in private practice. Last but not least, I am proud to use the experience and skills gained abroad to defend my country in investment disputes.<\/p>\n 6. What is your understanding of leadership? Can you define some of the values that have helped your career?<\/strong><\/p>\n I see leadership as steering the boat towards a common goal while bringing out the best of each person in the team. I believe that success comes from people working together, and the members of the team should feel valued and be recognized for their contributions. It is also essential to build trust within the team, as there is no great team without trust. Concerning the values that I’ve held during my own career, I would name perseverance, hard work and continuous self-improvement. To give just one example, as an LLM student, I used to hear from all directions that it was “impossible to land a job in the US”. Despite this, I persevered and focused on what was under my control: I worked extremely hard to achieve excellent academic results, published an article and dedicated myself to the job search. I also had the fortune of meeting someone extraordinary like Paul Friedland, who gave me an opportunity to launch my career. I have lived my American dream and I am grateful for it.<\/p>\n 7. Do you have any other talents apart from being an amazing legal counsel to the State? <\/strong><\/p>\n Dancing has a special place in my heart given that it was at a dance class in Paris where I met my wonderful wife more than ten years ago. Though as a disclaimer, I am not claiming that I have any special talent for it. Concerning other hobbies, I love spending time outdoors, which is something you can easily do from Prague. I enjoy skiing and in the summer hiking, cycling and swimming. In addition to arbitration practice, I am also interested in international arbitration from the academic perspective so I devote some of my free time to publications and speaking at conferences, as I enjoy this aspect as well.<\/p>\n Track-record highlights<\/strong><\/p>\n According to the Ministry of Finance website, the Czech Republic has been involved in 40 investment arbitrations. Among these cases, the Czech Republic has obtained favorable results in 27 cases (including the Czech Republic prevailing and discontinued cases. See table of cases below).<\/p>\n In addition to the above-mentioned victories over Mr. Fischer and his company, the Czech Republic has prevailed in six of seven cases regarding the measures enacted in the solar power sector:<\/p>\n The Czech Republic also has a strong record of wins over cases brought under the Czech Republic – United Kingdom BIT<\/a>:<\/p>\n The Czech Republic is currently involved in seven arbitrations:<\/strong><\/p>\n\n
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