CME v. Czech Republic and Lauder v. Czech Republic were parallel cases decided by two different arbitral tribunals in 2001. The difference in the two cases' outcomes is a prime example of conflicting decisions in international arbitration and is the subject of many treatises, with some authors going as far as calling it "the ultimate fiasco in investment arbitration".

In 1993, US national Ronald Steven Lauder invested in Czech private television broadcaster TV Nova through his German company (which was later succeeded by the Dutch company Central European Media (CME)). Some 20 suits started in front of the Czech courts and international tribunals, including UNCITRAL arbitrations CME v. Czech Republic and Lauder v. Czech Republic, after his business partner, Czech citizen Vladimír Železný, effectively deprived CME of its investment by breaking off the deal between Lauder's and Železný's companies. CME and Lauder respectively sought damages for the alleged interference of the Czech Media Council, a government entity granting broadcasting licences, into the business arrangements between Lauder's and Železný's companies, which supposedly eventually contributed to losses experienced by Lauder. Effectively dealing with the same facts, the tribunals handed down two contradictory arbitral awards: one dismissed the claim by Lauder, while the other awarded CME damages of $270 million and 10% interest. Finally, Czech Republic paid $355 million.

Background Following the Velvet Revolution in 1989, the once again democratic Czechoslovakia ratified a number of bilateral investment treaties in order to attract foreign investments. In 1991, Czechoslovakia concluded one bilateral investment treaty with the United States ("USA-CZ treaty") and another with the Netherlands ("NL-CZ treaty"). During the same year a new Media law was passed, under which the Media Council was created in order to grant broadcasting licences. The Czech Republic became a successor to these treaties following the dissolution of Czechoslovakia.

In 1992 a small group of Czech citizens founded a company called Central European Television 21 (CET 21) in order to acquire a licence for television broadcasting. CET 21 was cooperating with Central European Development Corporation (CEDC) effectively owned through another company by Ronald Lauder. Together they formed a new joint company named Česká nezávislá televizní společnost (ČNTS) with the participation of CET21, a Czech bank and, as a majority shareholder, a company representing the foreign investor. The key person Vladimír Železný became head of both CET21 and ČNTS. The newly established TV station TV Nova immediately became popular and very profitable. However, in 1999 Železný was fired from ČNTS. Subsequently, CET21 terminated its contract with ČNTS, after the latter failed to submit the Daily Log regarding the broadcasting for the next day.

The Media Council attempted to influence the relationship between the CET21 and ČNTS: firstly when the council granted a licence in 1992 and 1993, then after a new Media Law became effective around 1996, and finally in 1999 when the breach between the two companies happened.

On 19 August 1999, Ronald Lauder, majority owner of CME, which was in turn the majority owner of ČNTS, started UNCITRAL arbitration against the Czech Republic under the USA-CZ treaty ("London arbitration"). Meanwhile, on 22 February 2000, CME initiated parallel UNCITRAL arbitration proceedings against the Czech Republic under the NL-CZ treaty ("Stockholm arbitration").

Relief sought Arbitrators Lauder v. Czech Republic Robert Briner (chairman) Lloyd Cutler Bohuslav Klein CME v. Czech Republic Wolfgang Kühn (chairman) Stephen Myron Schwebel Jaroslav Hándl (dissented)

Claimant Lauder and CME sought similar relief in the London and Stockholm arbitrations respectively: Declaring, that the Czech Republic has violated the following provision of the respective investment treaty: The obligation of fair and equitable treatment of investments - Article II(2)(a) of USA-CZ treaty / Article 3 (1) NL-CZ treaty The obligation of full security and protection - Article II(2)(a) of USA-CZ treaty / Article 3 (2) NL-CZ treaty The obligation to treat investments at least in conformity with the rules/principles of international law - Article II(2)(a) of USA-CZ treaty / Article 3 (5) NL-CZ treaty The obligation not to impair investments by arbitrary and discriminatory measures - Article II(2)(b) of USA-CZ treaty the operation, management, maintenance, use, enjoyment or disposal of investments by unreasonable or discriminatory measures - Article 3 (1) NL-CZ treaty The obligation not to expropriate investments directly or indirectly though measures tantamount to expropriation - Article III of USA-CZ treaty deprive Claimant of its investments by direct or indirect measures - Article 5 NL-CZ treaty Declaring that the Czech Republic is obliged to pay damages as a consequence of the treaty violations in an amount to be determined in a second phase of the arbitration Declaring that the Czech Republic will pay the Claimant's cost

Respondent The Czech Republic sought this relief in the arbitrations: London arbitration: Dismissal of claim on grounds of jurisdiction, namely i) no "investment dispute" and/or ii) prematurity or other defect of Lauder's notice Dismissal on grounds of lack of admissibility, namely abuse of process Dismissal on grounds of non-violation of the USA-CZ treaty Dismissal on grounds that the alleged injury was not the direct and foreseeable result of violation of the Treaty Declaring that Lauder is to pay Respondent's costs Stockholm arbitration: Dismissal as an abuse of process Dismissal on grounds of non-violation of the NL-CZ treaty Dismissal on grounds that the alleged injury was not the direct and foreseeable result of violation of the Treaty Declaring that CME is to pay Respondent's costs

Findings

Procedural issues The tribunals had to deal with a number of procedural issues. Firstly, the same dispute was submitted to the Czech courts, to the other arbitration in Stockholm/London respectively, and also to ICC as a proceeding between Železný and CME. The London arbitration observed, that neither Lauder nor the Czech Republic are parties to any of the numerous proceedings, and that none of these courts would decide on the basis of the USA-CZ treaty and that the concurrent Stockholm arbitration will base its decision on the NL-CZ treaty. On the other hand, the Stockholm arbitration stressed that "a party may seek its legal protection under any scheme provided by the laws of the host country ... (and that both bilateral investment treaties) are part of the laws of the Czech Republic and neither of the treaties supersedes the other." The London panel noted, that collecting damages by the Claimant in either of the processes may reduce the damage claimed in the present proceeding, and it further pointed out, that the Czech Republic refused de facto consolidation of the two proceedings by insisting on different arbitral tribunals in the cases, rather than having the same tribunal decide both, as proposed by Lauder and CME.

Merits The London tribunal held that the Czech Republic "did not take any measure of, or tantamount to, expropriation of the Claimant's property rights within any of the time periods, since there was no direct or indirect interference by the Czech Republic in the use of Mr. Lauder's property or with the enjoyment of its benefits."

1993 events Nevertheless the London tribunal found violation of the US-CZ treaty (prohibition against arbitrary and discriminatory measures) as regards acts of the Media Council in the year 1993, when the Media Council insisted on CEDC (affiliated with CME) not becoming a direct shareholder of CET21: the Media Council was concerned with the prospect of direct participation by a foreign investor in the holder of nation-wide broadcasting licence (CET21). A new entity ČNTS was therefore created with CEDC contributing 75% of CNTS' capital while obtaining 66% ownership, a Czech bank contributing 25% of capital while obtaining 22% ownership and CET21 contributing "the right to use, benefit from, and maintain the License (...) on an unconditional, irrevocable and exclusive basis" while obtaining 12% ownership.

One of the Media Council's aims was to prevent direct participation of foreign capital in license holders. The arrangement in 1993 was therefore as follows: CET21 was the licence holder, CEDC provided the majority of capital, and their joint company ČNTS did the actual broadcasting. The Stockholm award evaluated the 1993 development as follows: "The Media Council violated the (NL-CZ) Treaty when dismantling the legal basis of the foreign investor's investments by forcing the foreign investor’s joint venture company ČNTS to give up substantial accrued legal rights." The Respondent's objection, that the Media Council would not exercise its power, or if it did, the investor would be able to seek a remedy against the Council's decision in front of the Czech courts, was evaluated as follows: "A threat does not become legal upon the victim's surrender to the threat and the surrender cannot be deemed as waiver of its legal rights."

1996–1997 events In 1995 the Media law was amended. The most relevant modification was that the Media Council could no longer include conditions for the broadcasting operator in its decision to grant a license. Also, the new law had a much narrower definition of the term "broadcaster" as the person to whom a license was granted. Following the change of the law, the CET21 asked for the removal of condition No. 17, which was safeguarding the split structure of licence-holder and operator. Subsequently, the Media Council requested expert opinion regarding the ČNTS' authority to operate television broadcasting. Dr. Jan Bárta of the State and Law Institute of the Academy of Sciences of the Czech Republic rendered a legal opinion within one week after the request, which concluded that CET21 does not operate broadcasting and never did, whereas ČNTS was broadcasting without authority. The Stockholm award labeled circumstances of the rendering of Barta's opinion as "dubious" and concluded that "Barta's opinion was requested by the Media Council simply as a tool to cover up the reversal of the Council's legal position towards CET21 and the foreign investor CEDC/CME".

The companies set forward to modify the arrangement in order to address the concerns expressed by the expert opinion. In doing so, they consulted the Media Council, which in turn requested further expert opinion. After meetings with the Media Council, the companies entered a new agreement in May 1996 setting forth their legal relationship: in substance, CET21 was the holder of the License and the operator of television broadcasting, the License was non-transferable, and was not the subject of a contribution from CET21 to ČNTS. ČNTS' role was to arrange the television broadcasting.