DS13605 en

IN THE MATTER OF ARBITRATION BEFORE THE INTERNATIONAL CENTRE
FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID Case No. ARB/18/8)
BETWEEN
RAND INVESTMENTS LTD., WILLIAM ARCHIBALD RAND, KATHLEEN

ELIZABETH RAND, ALLISON RUTH RAND AND ROBERT HARRY LEANDER
RAND
(CANADA)
AND
SEMBI INVESTMENT LIMITED

(CYPRUS)
("Claimants")
- and -
THE REPUBLIC OF SERBIA

("Respondent")
___________________________________________________________________________________________
Respondent’s Rejoinder
___________________________________________________________________________________________
24 January 2020
BEFORE:
Prof. Gabrielle Kaufmann-Kohler, President of the Tribunal

Mr. Baiju S. Vasani, Arbitrator
Prof. Marcelo G. Kohen, Arbitrator
_________________
Secretary of the Tribunal

Ms. Marisa Planells-Valero
TABLE OF CONTENTS
I. FACTS .................................................................................................................................... 14
A. BD AGRO WAS OWNED BY MR OBRADOVIC ........................................................... 14

1. Mr. Rand could appear as the buyer ............................................................................. 15
2. If Claimants’ assertions are true, Mr. Rand deceived the Agency during the
Privatization ................................................................................................................. 17
3. Mr. Obradovic was registered as the owner of BD Agro shares .................................. 19
4. Before the Privatization Mr. Rand’s involvement in purchase of the shares was
communicated only to future CEO of BD Agro .......................................................... 20
5. After the Privatization Mr. Rand’s alleged beneficial ownership was not
communicated to the Agency nor to any Serbian official ............................................ 24
6. Mr. Obradovic acted and was treated as the owner of BD Agro ................................. 32
7. Mr. Rand’s motive was sinister abuse of rules concerning the payment of the purchase
price .............................................................................................................................. 39
8. Conclusion .................................................................................................................... 41
B. TERMINATION OF THE PRIVATIZATION AGREEMENT ......................................... 41
1. Mr. Obradovic’s history of negligent contract performance ........................................ 42
2. There was obvious breach of Article 5.3.4. .................................................................. 45
3. Contracting parties’ conduct regarding the breach of Article 5.3.4. ............................ 58
4. Ministry of Economy position...................................................................................... 78
5. Legal ground for termination ....................................................................................... 79
C. OMBUDSMAN’S INVOLVEMENT HAD NO UNDUE INFLUENCE OVER THE
AGENCY ............................................................................................................................. 94
1. Ombudsman’s investigation was lawful ...................................................................... 94
2. Recommendation had not been taken into account when deciding on whether or not to
terminate the Privatization Agreement ....................................................................... 100
3. Ombudsman’s interventions in other cases ................................................................ 102
D. PLEDGE OVER THE SHARES IN BD AGRO WAS LAWFULLY KEPT AND
ACTIVATED ..................................................................................................................... 103
1. Purpose of the Pledge ................................................................................................. 104
2. Agency’s reasons for retaining the Pledge were justified .......................................... 106
2
3. Legal ground for retaining the Pledge ........................................................................ 112
4. In any event, the Pledge caused no harm to Claimants .............................................. 114
E. REQUEST FOR ASSIGNMENT OF THE PRIVATIZATION AGREEMENT TO
COROPI ............................................................................................................................. 115
1. Negligent preparation of the request for the assignment ............................................ 116
2. Submission of an incomplete request for assignment ................................................ 117
3. Supervision Proceedings enabled consideration of the request for assignment ......... 118
4. Failure to update and complete the request for assignment ....................................... 118
5. Conditions for assignment were not fulfilled at any moment .................................... 121
F. DEVASTATING MANAGEMENT AND ABUSE OF BD AGRO ................................. 122
1. BD Agro financed its own Privatization .................................................................... 123
2. Mismanagement of BD Agro ..................................................................................... 124
3. Misrepresentation of the performance of the Privatization Agreement ..................... 141
4. Criminal proceedings ................................................................................................. 152
G. BD AGRO’S BANKRUPTCY ........................................................................................ 161
1. Bankruptcy proceedings in Serbia.............................................................................. 161
2. BD Agro would have gone bankrupt regardless of termination of the Privatization
Agreement .................................................................................................................. 165
3. Sale of BD Agro in bankruptcy proceedings was done in accordance with law........ 182
H. REPEATED PATTERN OF DESTRUCTION ................................................................ 191
II. JURISDICTIONAL OBJECTIONS ................................................................................ 194
A. NO JURISDICTION RATIONE MATERIAE UNDER THE CANADA - SERBIA BIT194

1. The Canadian Claimants did not acquire ownership of Mr. Obradović’s shares in BD
Agro ............................................................................................................................ 194
2. The issue of the alleged disclosure of Claimants’ purported beneficial ownership ... 234
3. The Canadian Claimants did not control BD Agro’s shares owned by Mr. Obradović
………………………………………………………………………………………….240
4. The Canadian Claimants’ “indirect interest” in the Sembi Agreement is not an
investment protected under the Canada – Serbia BIT ................................................ 248
5. Mr. Rand’s payments for the benefit of BD Agro do not qualify as an investment
under the Canada – Serbia BIT .................................................................................. 252
B. NO JURISDICTION RATIONE MATERIAE UNDER THE CYPRUS – SERBIA BIT 255
1. Sembi has never owned Mr. Obradović’s shares in BD Agro ................................... 256
3
2. Sembi has never acquired claims under the Sembi Agreement ................................. 258
3. Sembi did not invest in the territory of Serbia ........................................................... 259
C. THE TRIBUNAL DOES NOT HAVE JURISDICTION RATIONE VOLUNTATIS
UNDER THE TREATIES .................................................................................................. 262
1. Respondent did not consent to arbitrate disputes about investments made in breach of
its laws ........................................................................................................................ 262
2. Respondent did not consent to arbitrate dispute with regard damage allegedly suffered
by MDH Serbia .......................................................................................................... 287
D. NO JURISDICTION RATIONE TEMPORIS UNDER THE CANADA – SERBIA BIT 300
1. The Tribunal does not have jurisdiction because the three-year limitation period set
forth in Article 22 of the BIT elapsed before the submission of the Claim to
Arbitration. ................................................................................................................. 300
2. The principle of non-retroactivity prevents the Tribunal from exercising jurisdiction
over claims based on acts or facts, and constituting dispute preceding the Canada-
Serbia BIT’s entry into force ...................................................................................... 315
3. The Respondent is entitled to argue both facts and law underlying its preliminary
objections ................................................................................................................... 327
E. NO JURISDICTION RATIONE PERSONAE UNDER THE CYPRUS – SERBIA BIT 330
1. Incorporation and seat under the BIT ......................................................................... 331
2. “Seat” as criterion according to the Cypriot law ........................................................ 341
3. Sembi does not have a seat in Cyprus ........................................................................ 345
F. NO JURISDICTION RATIONE MATERIAE UNDER THE ICSID CONVENTION ... 348
1. Claimants did not make an investment under the ICSID Convention ....................... 348
2. Claimants have no standing under the ICSID Convention ........................................ 357
G. CLAIMANTS’ CLAIMS AMOUNT TO ABUSE OF PROCESS................................... 358
III. ATTRIBUTION ............................................................................................................... 362
A. GENERAL ....................................................................................................................... 362

B. THE AGENCY AND RESPONDENT ............................................................................ 366
1. Financing .................................................................................................................... 366
2. Relationship with the Ministry of Economy and the Government ............................. 367
C. NO ATTRIBUTION OF AGENCY'S CONDUCT UNDER INTERNATIONAL LAW 370
1. Article 4 of ILC Articles ............................................................................................ 370
4
IV. THERE WERE NO VIOLATIONS OF SERBIA'S OBLIGATIONS UNDER THE

TREATIES ............................................................................................................................ 388
A. THE CONDUCT COMPLAINED OF WAS NOT PERFORMED IN A SOVEREIGN

CAPACITY ........................................................................................................................ 388
1. Claimants fail to show that there is "no firm requirement" in international law that a
violation must be committed in the exercise of sovereign powers ............................ 388
2. The alleged breaches do not stem from Respondent's exercise of sovereign powers 391
B. GENERAL EXCEPTIONS .............................................................................................. 397
C. RESPONDENT DID NOT EXPROPRIATE CLAIMANTS’ INVESTMENT ............... 401
1. Claimants did not acquire property rights recognized by Serbian law ...................... 402
2. The Agency did not act in exercise of sovereign authority ........................................ 404
3. Termination of the Privatization Agreement was justified under the applicable law 415
4. There was no expropriation of Mr. Rand’s indirect shareholding ............................. 420
5. Destruction of Claimants’ purported investment was not caused by Serbia .............. 422
6. Legality of the alleged expropriation ......................................................................... 424
D. THERE WAS NO IMPAIRMENT OF THE INVESTMENT BY ARBITRARY,
UNREASONABLE AND DISCRIMINATORY MEASURES......................................... 429
1. Sembi is not entitled to rely on non-impairment clauses contained in investment
treaties concluded between Serbia and third states .................................................... 429
2. The legal standard for arbitrary conduct .................................................................... 431
3. The conduct of the Agency was not arbitrary nor unreasonable ................................ 436
E. THERE WAS NO VIOLATION OF THE FET STANDARD ......................................... 448
1. The only source of obligations under Article 6(2) of the Canada-Serbia BIT is the
customary international law minimum standard of treatment .................................... 448
2. The content and threshold of the customary international law minimum standard of
treatment ..................................................................................................................... 451
3. A violation of another provision of the agreement does not automatically constitute a
violation of the minimum standard of treatment ........................................................ 453
4. There was no violation of the FET standard .............................................................. 455
F. NO VIOLATION OF THE UMBRELLA CLAUSE ........................................................ 474
5
V. QUANTUM ........................................................................................................................ 479
A. INTRODUCTION ........................................................................................................... 479

B. THE REASONS FOR BD AGRO'S OVERVALUATION, IN PARTICULAR THE LAND
THAT DOES NOT BELONG TO IT ................................................................................. 480
C. ON CAUSALITY ............................................................................................................. 484
D. LAND VALUATIONS INVOKED BY CLAIMANTS SHOULD NOT BE RELIED
UPON ................................................................................................................................. 486
1. Dr. Hern's land "valuation" ........................................................................................ 487
2. Mr. Grzesik's land "valuation" ................................................................................... 490
3. Mr. Mrgud's land valuation ........................................................................................ 492
4. Confineks land valuations .......................................................................................... 493
E. MS. ILIC'S VALUATION OF BD AGRO'S LAND ........................................................ 495
F. WHETHER BD AGRO'S BUSINESS SHOULD BE VALUED AS A GOING CONCERN
............................................................................................................................................ 499
G. MR. COWAN'S SECOND REPORT ............................................................................... 502
H. CALCULATION OF INTEREST.................................................................................... 505
I. THE VALUE OF CLAIMANTS' INTEREST IN BD AGRO'S EQUITY......................... 509
1. Introduction ................................................................................................................ 509
2. Applicable Serbian tax ............................................................................................... 509
3. The claimed tax gross-up for the Canadian Claimants beneficiaries of the Ahola
Family Trust ............................................................................................................... 511
4. Mr. Rand's claim for damages for its receivables towards BD Agro. ........................ 517
VI. PRAYER FOR RELEIF .................................................................................................. 518
6
DEFINITIONS
2013 Attorney’s Opinion Legal opinion prepared by the Attorney Violeta Mitrovic on 11 June 2013
(Exhibit CE-34)
2001 Law on Privatizaton Law on Privatization (“Official Gazette of the Republic of Serbia” No.
38/2001, 18/2003, 45/2005, 123/2007, 123/2007 - other law, 30/2010 -
other Law, 93/2012, 119/2012, 51/2014 and 52/2014 – decision of the
CC) (Exhibit CE-220)
2014 Law on Privatization Law on Privatization ("Official Gazette of the Republic of Serbia", no.
83/2014 and 46/2015) (Exhibit CE-223)
221 Million Agreement Short Term Loan Agreement no. K-571/10-00 concluded by BD Agro
and Agrobanka on 22 December 2010 (Exhibit RE-6)
221 Million Loan Funds loaned to BD Agro by Agrobanka under Short Term Loan
Agreement no. K-571/10-00 of 22 December 2010 (Exhibit RE-6)
221 Million Pledge Pledge registered on BD Agro’s real estate as security for funds acquired
by BD Agro from Agrobanka under the Short Term Loan Agreement no.
K-571/10-00 of 22 December 2010
Agency Privatization Agency of the Republic of Serbia
Adventis Adventis Real Estate Management doo
Amended plan Amended pre-pack reorganization plan of BD Agro, dated 6 March 2015
(Exhibit CE-101).
April 2015 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 27 April 2015 (Exhibit CE-348)
Article 5.3.4. Article 5.3.4. of the Privatization Agreement (Exhibit RE-12)
Audit Reports Audit reports prepared by Auditor doo in April 2011, July 2011,
November 2011, February 2012, December 2012, and two audit reports
prepared by Prva Revizija doo in January 2015 (Exhibits RE-13, RE-14,
RE-17, RE-18, RE-19, RE-105, CE-327)
August 2012 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 3 August 2012 (Exhibit CE-78)
Buyer Mr. Djura Obradovic, buyer of the socially-owned capital from the
Privatization Agreement
Center for Control Center for Control of Performance of Privatization Agreements within
the Privatization Agency
Commission for Control Commission for Control of Performance of Obligations of Buyers, that is
Strategic Investors from Agreements Concluded in the Process of
Privatization, within the Privatization Agency
Coropi Coropi Holdings Limited
Crveni Signal Crveni Signal ad Beograd, a Serbian joint-stock company owned by Mr.
Obradovic
7
December 2011 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 27 December 2011 (Exhibit CE-32)
February 2011 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 25 February 2011 (Exhibit CE-31)
Grant Thornton Report or Expert Report of Sandy Cowan dated 19 April 2019
Expert Report of Sandy Cowan
Second Expert Report of Sandy Expert Report of Sandy Cowan dated 24 January 2020
Cowan
Imlek AD Industrija mleka i mlecnih proizvoda Imlek Padinska Skela,

Industrijsko naselje bb
Inex Inex ad Nova Varos, a Serbian joint-stock company owned by Mr.

Obradovic
JLL Jones Lang LaSalle d.o.o.
June 2011 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 24 June 2011 (Exhibit CE-96)
June 2012 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 22 June 2012 (Exhibit RE-15)
MDH doo Marine drive holding doo, a Serbian limited liability company owned by
Mr. Rand
Ministry’s 2012 Letter Letter sent by the Ministry of Economy on 30 May 2012 to the
Privatization Agency (Exhibit CE-33)
Ministry’s Report Report of the Ministry of Economy on concluded Supervision

Proceedings over the Privatization Agency of 7 April 2015 (Exhibit CE-
98)
Notice on Termination Privatization Agency’s Notice of 1 October 2015 informing Mr.

Obradovic of termination of the Privatization Agreement (Exhibit CE-
50)
Nova Agrobanka Nova Agrobanka ad Beograd (in bankruptcy)
November 2012 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 9 November 2012 (Exhibit CE-79)
October 2011 Notice Privatization Agency’s Notice on additionally granted time for the
Buyer’s compliance of 7 October 2011 (Exhibit CE-97)
Original plan Original pre-pack reorganization plan of BD Agro, dated 25 November

2014 (Exhibit CE-321)
Pledge Pledge that was constituted in favor of the Privatization Agency over the
shares of BD Agro, as per the Share Pledge Agreement concluded on 4
October 2005, between Mr. Djura Obradovic and Privatization Agency,
as Appendix 1 of the Privatization Agreement concluded between the
same parties and on the same day (Exhibit CE-17)
Privatization Privatization of BD Agro in 2005
8
Privatization Agreement Agreement on Sale of Socially Owned Capital through the Method of
Public Auction, concluded between Privatization Agency and Mr. Djura
Obradovic on 4 October 2005 (Exhibit CE-17)
Purchase Price Price of the socially-owned capital that was the subject of the
Privatization Agreement in the amount of RSD 470,000,000.00 (EUR
5,548,996.46)
Recommendation Opinion of the Ombudsman dated 19 June 2015 (Exhibit CE-42)
Regulation on Sale Regulation on the Sale of Capital and Property at a Public Auction
("Official Gazette of the Republic of Serbia", No. 52/2005) (Exhibit RE-
218)
Refinancing Loan Agreement on Long-Term Loan no. D-07/12-NA-00, concluded between

Nova Agrobanka ad Beograd and BD Agro on 22 June 2012 (Exhibit CE-
441)
Request for Assignment Request for issuing of prior approval for assignment of the Privatization
Agreement to Coropi, submitted by Mr. Obradovic on 1 August 2013
(Exhibit CE-273)
Second plan Pre-pack reorganization plan of BD Agro, dated 11 January 2016

(Exhibit CE-369)
SIEPA Serbian Investment Promotion Agency of the Republic of Serbia
Supervision Proceedings Ministry of Economy’s control of the Privatization Agency’s work in

relation to BD Agro, commenced on 23 December 2013 and completed
on 7 April 2015
Third plan Pre-pack reorganization plan of BD Agro, dated 16 May 2016
Treaties Agreement between Canada and the Republic of Serbia for the Promotion
and Protection of Investments of 27 April 2015 and Agreement between
Serbia and Montenegro and the Republic of Cyprus on Reciprocal
Promotion and Protection of Investments of 23 December 2005
9
INTRODUCTION
i. The heart of the matter in the case at hand is a contractual dispute between the
Privatization Agency of Serbia (the Agency) and Mr. Djuro Obradovic, a dual
Serbian and Canadian national, and a well-known buyer of privatized companies
in Serbia.
ii. The agreement on sale of 70% of socially-owned capital in BD Agro (the

Privatization Agreement), a company engaged primarily in milk-production and
located in Dobanovci (Serbia), was concluded on 4 October 2005.1 The buyer
took upon himself to pay the purchase price of EUR 5,548,996.46 payable in six
annual installments.
iii. The dispute arose due to Mr. Obradovic’s persistent refusal to honor his
obligations under Article 5.3.4. of the Privatization Agreement – a provision that
stipulated that Mr. Obradovic would not encumber assets of BD Agro with
pledge, except for securing claims against the company and created during its
regular business activities or for obtaining funds that would be used for the
benefit of BD Agro.2
iv. In December 2010 Mr. Obradovic directed BD Agro to obtain a loan from a
Serbian bank, Agrobanka, in the amount of RSD 221 million. The loan was
secured with the pledge over real estate of BD Agro. However, about a half of
the money acquired through the loan was used for the benefit of the two other
Mr. Obradovic’s companies (Crveni Signal and Inex). When the Agency
discovered the transaction, it promptly requested that the funds be returned to
BD Agro and warned Mr. Obradovic that it would otherwise terminate the
Privatization Agreement.3
v. The Agency showed remarkable patience in its dealings with Mr. Obradovic.
The Privatization Agreement was terminated only after the Agency waited for
almost five years on Mr. Obradovic to remedy the breach of the contract – the
breach whose existence Mr. Obradovic himself acknowledged more than once.
1
Privatization Agreement, CE-17.
2
Privatization Agreement, Article 5.3.4., CE-17.
3
Notice of the Privatization Agency on Additional Time Period of 24 February 2011, CE-31.
10
Out of 30 notifications issued by the Agency to Mr. Obradovic for several
different breaches of the Privatization Agreement, no less than 8 concerned the
breach that eventually led to the Agreement’s termination in October 2015. Each
and every time the Agency gave Mr. Obradovic an extension of time for
fulfillment of his obligation, it also warned him that it considered the breach of
Article 5.3.4. as a valid reason for the termination. Mr. Obradovic never
objected.
vi. The money supposedly used by Inex and Crveni Signal was never returned and
pledges on BD Agro’s land were never removed even though Mr. Obradovic
had almost five years to remedy this “insignificant” breach, as Claimants see it.
During the course of this arbitration the real reason for Mr. Obradovic’s
unwillingness to act in accordance with the contract was discovered. While
Claimants (erroneously) argued that BD Agro was allowed to extend loans to
Mr. Obradovic’s other companies bought in privatization, the truth of the matter
is that money borrowed by BD Agro was never even used by Crveni Signal and
Inex. The sum of approximately RSD 100 million (i.e. EUR 900,000) ended up
on Mr. Obradovic’s personal bank account while these two companies ended up
ruined as a result Mr. Obradovic’s management.4
vii. This is by no means the only example of Mr. Obradovic’s treatment of BD

Agro’s assets as his personal to detriment of the company and its other
shareholders. Mr. Obradovic used ‘repayment’ of shareholder loans that have
never actually hit BD Agro’s accounts as the main way to drain money from the
company and misrepresent his performance under the Privatization Agreement.
And, Mr. Obradovic’s gain was by no means insignificant. It measured in
millions of euros. In single transaction, for example, Mr. Obradovic managed to
obtain a significant part of BD Agro’s land, as a repayment of the alleged EUR
400,000 shareholder loan, only to re-sell the land four months later for more than
EUR 1,400,000.5
viii. Respondent will provide the Tribunal with comprehensive analysis of financial
transactions between Mr. Obradovic and BD Agro. The analysis demonstrates
4
See Section I.F.2.3.4.
5
See Section I.F.2.2.
11
that the entire operation with regards BD Agro was undoubtedly irrefutably
tainted with corruption and fraud. This is why Mr. Obradovic’s business venture
was an object of interest of various Public Prosecutor’s Offices and Serbian
courts long before the arbitration was commenced. Respondent will demonstrate
that the “investment” at stake cannot be afforded protection under the rules of
international law.
ix. Another peculiar aspect of the dispute at hand is a remarkable transformation of

Mr. Rand, from potential Canadian investor in BD Agro in 2013, to the owner,
driving force and principal manager of BD Agro business in 2018, when the
arbitration commenced. In September 2015, just before the Privatization
Agreement was terminated, Mr. Obradovic wrote to the Agency claiming that
he was entitled to protection as a Canadian investor and threatening to
commence arbitration under the Canada – Serbia BIT.6 In February 2018 the
arbitration was indeed initiated - not by Mr. Obradovic, but by Mr. Rand and his
companies. As a result, Respondent is forced into a dispute about the contract it
did not conclude, with Claimants who did not buy and have never owned BD
Agro.
x. Claimants invest considerable effort in order to explain how they acquired

ownership of BD Agro under the laws of British Columbia and Cyprus.
However, the main problem with Claimants’ beneficial ownership construct
remains the fact that they are unable to prove the existence of ownership of
shares in BD Agro, a Serbian joint stock company, under the only national law
relevant for the inquiry – Serbian law.
xi. Claimants are also well aware that the termination of a contract cannot of itself
create responsibility for the State under international law. This is why they
continuously attempt to implicate Respondent into contractual dispute between
Mr. Obradovic and the Agency.
xii. This is also the reason why Claimants desperately search for any proof that the
Agency acted in bad faith, in abuse of some superior governmental prerogatives.
As it will be demonstrated in the Rejoinder, Claimants are firmly determined not
6
Letter from Mr. Obradovic to the Privatization Agency dated 8 September 2015, CE-48.
12
to let the facts stand in their way. Much of their case is fundamentally based on
misinterpretation of factual matrix of the dispute, sometimes bordering with
outright manipulation – such is the case, for instance, with the claim that the
loan that led to the encumbrance of BD Agro’s assets (and to the termination of
the Privatization Agreement) was repaid.7 This is a false statement shamelessly
repeated over and over again by Claimants and their associate Mr. Obradovic.
xiii. The Agency terminated the Privatization Agreement using its prerogative as a
contractual party under the law governing the contract – the 2001 Law on
Privatization. It did so without ill intent, after repeatedly urging Mr. Obradovic
to remedy his contractual breach. All Claimants’ attempts to uncover conspiracy
supposedly behind this act fall patently short and for a good reason – there was
no such conspiracy. If anything, the Agency demonstrated good faith in trying
to maintain the Privatization Agreement in life, despite the fact that it had every
opportunity (and good reasons) to terminate the Privatization Agreement much
earlier.
xiv. Another instance of misrepresentation of facts relates to the BD Agro’s financial

state at the time of purported breach, i.e. in October 2015. While Claimants
would have the Tribunal believe that the company was thriving under Mr.
Obradovic’s (Mr. Rand’s) management at the time the Privatization Agreement
was terminated, this could not be further from the truth. The reality was that BD
Agro was all but formally bankrupt already at the beginning of 2013 and that the
bankruptcy was inevitable at the time the contractual relationship between the
Agency and Mr. Obradovic came to its end. Naturally, Claimants do not accept
this fact and instead argue that they should be paid more than EUR 80 million
for the company paid some EUR 5,5 million and thoroughly destroyed under
their management.
7
See Section I.B.3.2.3.
13
I. FACTS
A. BD AGRO WAS OWNED BY MR OBRADOVIC
1. The privatization process in Serbia is mainly regulated by the Law on Privatization.

The first law under this name was enacted in 2001 and was in force until 2014 (“2001
Law on Privatization”),8 while a new law was enacted in 2014 and remains in force
until today (“2014 Law on Privatization”).9 In addition to that, the privatization
process is regulated by a number of bylaws.10
2. Pursuant to the 2001 Law on Privatization (under which BD Agro was privatized) one
of four main principles of privatization is transparency.11 If Claimants’ story is taken
for granted and Mr. Rand was indeed the beneficial owner of BD Agro’s shares, then
in case of BD Agro’s privatization (“Privatization”) Mr. Rand and Mr. Obradovic
blatantly violated this very principle, as well as a number of other laws and bylaws.
3. According to Claimants, the story begins with Mr. Rand’s approach to the Serbian
authorities in 2005 when he expressed his alleged interest in the purchase of BD
Agro.12 Interestingly, this approach was made towards Mr. Ljubisa Jovanovic, the
then Assistant Minister, who, shortly after the privatization of BD Agro, became the
CEO of BD Agro. For some reason, however, Mr. Rand allegedly decided not to
participate at the auction process but to “hide” behind Mr. Obradovic. who then
became the nominal owner of BD Agro, while Mr. Rand retained actual ownership
over the company.13 This arrangement was however not communicated to the Serbian
authorities, and certainly not to the Privatization Agency (“Agency”).
8
2001 Law on Privatization, CE-220.
9
Law on Privatization, Official Gazette of the Republic of Serbia no, 83/2014 and 46/2015, CE-223.
10
See e.g. Articles 20đ, 33, 40, 43 and 76 of the 2001 Law on Privatization, CE-220 (prescribing that bylaws
regulate e.g. restructuring procedure, procedure and manner of the sale of capital and property through
tenders and public auctions etc.): Articles 35, 57, 83 of the 2014 Law on Privatization, CE-223 (prescribing
that bylaws regulate e.g. conditions, procedure and manner of the sale of capital and property, procedure of
control of fulfilment of contractual obligations etc.).
11
Other three principles were creation of conditions for economic development and social stability; flexibility;
and establishing of sale price in accordance with market conditions. Article 2 of the 2001 Law on
Privatization, CE-220.
12
E-mail from W. Rand to P. Bubalo dated 4 June 2005; E-mail from Lj. Jovanovic to W. Rand dated 6 June
2005, CE-14.
13
Memorial, para. 67.
14
4. When it comes to the motive for this "hide and seek" arrangement, Claimants remain
silent. However, an insight into privatization rules reveals that the probable motive
was circumventing the rules concerning payment of the purchase price in
privatization. These rules allowed only a Serbian natural person (meaning Mr.
Obradovic and not Mr. Rand or any of his companies) to pay the purchase price in
installments.14 Consequently, it was Mr. Obradovic and not Mr. Rand who concluded
the Privatization Agreement with the Agency. Mr. Obradovic was also the one who
was registered as the owner of BD Agro’s shares. Claimants state that this is irrelevant,
but it is not.
5. In this section Respondent will show that (1) Mr. Rand could appear as the buyer of
BD Agro’s shares; (2) Mr. Rand deceived the Agency during the Privatization; (3)
Mr. Obradovic was registered as the owner of shares; (4) before the Privatization, Mr.
Rand’s involvement in purchase of the shares was communicated only to future CEO
of BD Agro; (5) after the Privatization, Mr. Rand’s alleged beneficial ownership was
not communicated to the Agency nor to any Serbian official; (6) Mr. Obradovic acted
and was treated as the owner of BD Agro; and (7) Mr. Rand’s motive was a sinister
abuse of rules concerning the payment of the purchase price.
1. Mr. Rand could appear as the buyer
6. Privatization is conducted through either sale of capital or transfer of capital free of

charge.15 BD Agro (as well as other companies owned by Mr. Obradovic) was
privatized using the first model.
7. Sale of capital of the subject of privatization could be performed through a public

tender or a public auction. In case of a public auction (applied in BD Agro’s case), the
sale was regulated by the Regulation on the Sale of Capital and Property at a Public
Auction (“Regulation on Sale”).16
14
Article 31 of the Regulation on the Sale of Capital and Property at a Public Auction (45/2001), RE-217;
Article 39 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-218.
15
Article 9 of the 2001 Law on Privatization, CE-220.
16
Article 40 of the 2001 Law on Privatization, CE-220; Regulation on the Sale of Capital and Property at a
Public Auction (45/2001), RE-217; Regulation on the Sale of Capital and Property at a Public Auction
(52/2005), RE-218. The Regulation on Sale was first enacted in 2001, while a new version was enacted in
2005. The latter version governed the auction of BD Agro.
15
8. In a public auction, the buyer of capital or property could be a domestic or a foreign
legal entity or an individual.17 A buyer was able to authorize another person to act on
its behalf at the public auction. In that case, the representative would have to submit
to the Agency a certified power of attorney before the auction.18
9. Domestic or foreign legal entities or individuals could also jointly buy a socially
owned enterprise, in which case they had a duty to authorize one member to represent
them before the Agency.19 Such authorization, as well as the agreement regulating the
joint venture, had to be court-certified and submitted to the Agency.20 It was so
important that the Agency was aware of the relations between the persons involved in
privatization, that it was considered that a joint venture agreement could not be even
amended or terminated without consent of the Agency.21 The members of the joint
venture were jointly and severally liable for the performance of the privatization
agreement.22
10. Therefore, an individual could appear at an auction in three different capacities:
1) as a buyer acting in his own name and on his own behalf;

2) as the representative of the buyer, acting only on behalf of that other individual
or legal entity; and
3) as a member of a joint venture authorized to represent the joint venture acting as
the buyer.
11. Mr. Obradovic appeared at the auction of BD Agro as the buyer acting in his own
name and on his own behalf.23 There was no mention of Mr. Rand, although he could
have appeared as the buyer, alone, together with or represented by Mr. Obradovic.
17
Article 12(1) of the 2001 Law on Privatization, CE-220; Article 18 on the Regulation on the Sale of Capital
and Property at a Public Auction (52/2005), RE-218.
18
Articles 21 and 24 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-
218.
19
Article 12(2) of the 2001 Law on Privatization, CE-220; Article 19(1) on the Regulation on the Sale of
Capital and Property at a Public Auction (52/2005), RE-218.
20
Article 19 on the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-218.
Judgment of the Higher Commercial Court, Pz. 3159/05 dated 6 May 2005, RE-294.
21
Decision of the Supreme Court of Serbia, Prev. 32/07 dated 5 July 2007, RE-283.
22
Decision of the Supreme Court of Serbia, Prev. 32/07 dated 5 July 2007, RE-283.
23
Application for the participation at the auction for BD Agro, 19 September 2005, RE-211; Approval of the
application for the participation at the auction, 26 September 2005, RE-212; Minutes of the public auction
nos. 4 and 5, 29 September 2005, RE-213.
16
2. If Claimants’ assertions are true, Mr. Rand deceived the Agency during the
Privatization
12. If Claimants’ assertions with regards the arrangement between Mr. Rand and Mr.
Obradovic are taken on their face as true, Claimants obtained their investment through
misrepresentation and deceitful conduct.
13. Privatization process in Serbia was conducted by the Agency. The Agency was the
one who (inter alia) determined whether a particular legal or natural person fulfilled
the criteria to appear as the buyer and also the entity that concluded the privatization
agreements in case it found that the necessary criteria were fulfilled.24 This required
that the Agency was aware of who the true buyer of the capital was. Otherwise,
Agency’s inquiry into a “nominal” bidder’s ability to appear as the buyer would be
meaningless as, although formally the buyer, his role would be in fact the role of the
(true) buyer’s representative.
14. This is what happened in this case if one accepts the scenario offered by Claimants –
the Agency was unaware that actually Mr. Rand was the buyer of BD Agro, so instead
of inspecting whether he fulfilled the criteria to appear as the buyer, it was inspecting
whether Mr. Rand’s representative, Mr. Obradovic, fulfilled those criteria.
15. The Agency had no reason the suspect that Mr. Obradovic was the true buyer. Unlike
Mr. Rand, Mr. Obradovic was a well-known as businessman who privatized many
companies in Serbia. Until 2007, Mr. Obradovic already bought as many as seven
socially-owned companies in Serbia25 (including BD Agro), which made him a well-
known figure in the privatization process at the time.
16. As he regularly did in other privatizations, Mr. Obradovic personally participated at

the auction for BD Agro. Mr. Rand was never mentioned in this process at all. All
applications, approvals, statements and other documents submitted or issued in
relation to the auction referred exclusively to Mr. Obradovic. In particular, it was Mr.
24
Articles 8, 13, 23 and 24 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005),
RE-218.
25
From Claimants’ Reply, we now learned that Mr. Rand was allegedly the true buyer of at least five of these
other privatized companies as well (Crveni Signal, Inex Nova Varos, Obnova, Beotrans and PIK Pester).
See Second Witness Statement of Mr. William Rand, para. 6; Second Witness Statement of Mr. Đura
Obradovic, para. 6. Another company not mentioned by Mr. Rand was Uvac Gazela. See Privatization
Agreement (Uvac Gazela), 18 March 2003, RE-222.
17
Obradovic who: (i) purchased the auction documentation, (ii) registered as participant
in the auction, and (iii) paid the deposit.26
17. The auction documentation contained the application for participation in the auction.27
In the application the buyer had to provide a number of information, including
information on his citizenship and a statement confirming that the buyer was not: (i)
a domestic legal entity doing business by using the majority of socially owned capital;
(ii) an individual, a legal entity and the founder of a legal entity with due and
outstanding obligations towards the subject of privatization; (iii) an individual, a legal
entity and the founder of a legal entity with whom an agreement on sale of capital or
property, had been terminated due to non–performance of contractual duties;28 (iv) a
member of the auction commission or a person closely affiliated with a member of the
auction commission;29 and (v) a member of the family of the person who had lost the
capacity of the buyer.30 The Agency was obliged to check whether these statements
were correct and whether restrictions concerning who can appear as the buyer existed
in the case at hand.31
18. In other words, the relevant regulation mandates that the buyer's identity had to be
transparently communicated to the Agency as it was the one who had to check whether
the buyer fulfilled the necessary conditions (and as it was the one who signed the
privatization agreement). Otherwise, the above-mentioned regulation was without
purpose as the Agency would actually check whether the representative of the buyer
fulfilled the condition to be the buyer, while the buyer would avoid this scrutiny.
19. If one follows Claimants' narrative, all the above points to the fact that in BD Agro’s
case the relevant regulations were circumvented and the Agency was obviously
deceived as the entire documentation and information that was presented to it at the
time pointed only to Mr. Obradovic as the buyer, although he is now alleged to have
26
Application for the participation at the auction for BD Agro, 19 September 2005, RE-211; Approval of the
application for the participation at the auction, 26 September 2005, RE-212; Minutes of the public auction
nos. 4 and 5, 29 September 2005, RE-213. Article 18(2) of the Regulation on the Sale of Capital and Property
at a Public Auction (52/2005), RE-218.
27
Article 18(2) of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-218.
28
29
Article 20 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-218.
30
Article 21 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005), RE-218
31
Articles 8, 13, 23 and 24 of the Regulation on the Sale of Capital and Property at a Public Auction (52/2005),
RE-218.
18
been only the representative of the buyer.32 This would have two serious
consequences. First, the Agency was unable to check whether Mr. Rand fulfilled the
conditions to appear as the buyer. Second, the Agency was left with Mr. Obradovic’s
empty pockets33 and with no right to claim any performance from Mr. Rand as he was
not the one who signed the Privatization Agreement.
3. Mr. Obradovic was registered as the owner of BD Agro shares
20. Ownership over Serbian companies was and still is mainly regulated by the Law on
Companies. At the time of the acquisition of BD Agro, the 2004 Law on Companies
was in force,34 and it remained in force until 2011, when a new law was enacted35
(which remains in force until today).
21. According to Law on Companies, the share capital of joint stock companies (as BD
Agro was) is expressed in stocks. The registered owner of the stocks is considered to
be their owner towards the company and all third parties. 36 After the Privatization
Agreement was concluded, Mr. Obradovic was registered as the owner of the shares.37
22. According to the Law on Companies, each ordinary share (as shares owned by Mr.
Obradovic were) gives to its holder the following rights:
(i) the right to access to legal and other documents and information pertaining to
and in possession of the company;
(ii) the right to participate in the shareholders’ assembly;
(iii) the right to vote at the shareholders’ assembly based on the principle that one
share gives the right to one vote;
32
Memorial, para. 8 (“Mr. Rand decided to participate in the auction through Mr. Obradović […]”); Reply,
para. 34 (“Mr. Obradović would attend the auction of the Privatized Shares and submit the bid in the auction
on Mr. Rand’s behalf”) Second Witness Statement of Mr. Wiliam Rand, 4 October 2019, para. 14 (“Having
secured the financing, I agreed with Mr. Obradovic that he would attend the auction and submit a bid on
my behalf”).
33
Second Witness Statement of Mr. Đura Obradovic, 3 October 2019, para. 7.
34
2004 Law on Companies, RE-320.
35
2011 Law on Companies, RE-321.
36
Article 207 of the 2004 Law on Companies, RE-96.
37
Letter from BD Agro to the Privatization Agency, 27 December 2005, RE-470; Excerpt from the Central
Securities Registry on BD Agro’s shareholders, 16 October 2015, RE-471.
19
(iv) the right to receive dividends after any dividends payable pursuant to
preferential rights of preferred shares have been paid in full;
(v) the right to receive a distribution on liquidation of the company after the claims
of creditors and holders of any preferred shares have been satisfied;
(vi) preemptive rights to acquire newly-issued shares and other securities of the
company; and
(vii) the right to receive distributions on shares in accordance with law.38
23. According to the Law on Companies, out of the listed shareholder rights, only the
right to receive dividends and the right to receive a distribution after liquidation of the
company (points (iv) and (v) above), could be contractually transferred by a
shareholder to a third party.39 Yet, Claimants contend that by MDH and Sembi
agreements Mr. Obradovic in fact immediately transferred all of his shareholder rights
to Mr. Rand. 40 Consequently, Mr. Rand was thus allegedly able to completely control
BD Agro and perform all shareholder rights, while Mr. Obradovic was entirely
stripped of any ownership.41 The cited regulation however demonstrates that if one
wished to e.g. exercise legal control over certain shares, he would have to become
their registered owner, which Mr. Rand never was. In other words, by conclusion of
the MDH and Sembi agreements the Serbian legislation was once again circumvented.
4. Before the Privatization Mr. Rand’s involvement in purchase of the shares was
communicated only to future CEO of BD Agro
24. While keeping the Agency in the dark about its interest to privatize BD Agro, Mr.
Rand communicated this during Privatization, to the then Assistant Minister of
Economy in charge of privatization of BD Agro – Mr. Ljubisa Jovanovic. It was him
who in June 2005 received Mr. Rand’s email which intended to inform Minister
38
Article 208(1) of the 2004 Law on Companies, RE-320.
39
40
Reply, paras. 34, 40 (“The effect of these rights was that MDH would acquire beneficial ownership of the
Privatized Shares and any shares in BD Agro subsequently acquired by Mr. Obradović as soon as those
shares were acquired by Mr. Obradović”), 110-111; Second Witness Statement of Mr. Wiliam Rand, 4
October 2019, paras. 14, 54-55.
41
Second Witness Statement of Mr. Wiliam Rand, 4 October 2019, paras. 14 (“If successful, Mr. Obradovic
was to nominally acquire the Privatized Shares while I would become the beneficial owner. Mr. Obradovic
was never supposed to have any beneficial interest in BD Agro. His role was simply to assist in dealing with
the Serbian officials and, should I manage to purchase BD Agro, assist me with its oversight.”), 54-55.
20
Bubalo of Mr. Rand’s interest to buy BD Agro (no evidence suggest that Minister
Bubalo ever received this email).42 Eventually, the news of Mr. Obradovic’s success
in the auction for privatization of BD Agro were notified to Mr. Rand by Mr.
Jovanovic.43 While personally informing Mr. Rand of this success, Mr. Jovanovic
added “I suggest to use your forthcoming visit to discus all relevant issues regarding
my position as well as other farm programs details”.44 This implies that a “position”
was already being discussed with Mr. Jovanovic. Indeed, immediately after the
auction, Mr. Jovanovic became the CEO of BD Agro45 – thus attaining the “position”
from his email.
25. In other words, during the Privatization, the Assistant Minister overseeing that very
privatization,46 discussed his engagement as CEO of BD Agro with Messrs.
Obradovic and Rand. Needless to say, due to the promise of a “position”, Mr.
Jovanovic clearly had a personal interest in Mr. Obradovic (i.e. Mr. Rand) succeeding
in the auction. This also provides an explanation as to why Mr. Jovanovic apparently
sent significant business information on BD Agro and the value of its land individually
to Messrs. Obradovic and Rand during the privatization process, placing other
participants of the auction in an unfair position in that way.47 Respondent became
aware of all this correspondence only during the present arbitration. There is no
evidence indicating that the Agency or any Serbian official were aware of any of the
above communications and of a deal between these three gentlemen.
26. In particular, there is also no evidence that Minister Bubalo was aware of that deal.
The ”evidence” of his alleged awareness of the arrangement between Mr. Obradovic
and Mr. Rand are two emails sent in 2004 and 2005:
42
Mr. Jovanovic responded to Mr. Rand, without copying Mr. Bubalo: „Just to let you know that Minister
Bubalo has another email address to which you should be contacting : c.vuckovic@mpriv.sr.gov.yu“. See
E-mail from Mr. William Rand to Mr. Predrag Bubalo; Email from Mr. Ljubisa Jovanovic to Mr. William
Rand, CE-14. Claimants submitted no proof that the email was ever subsequently sent to the correct email
address of Mr. Bubalo or that Mr. Rand has ever received a feedback from Mr. Bubalo in this regard.
43
E-mail from Lj. Jovanovic to W. Rand dated 29 September 2005, CE-16.
44
E-mail from Lj. Jovanovic to W. Rand dated 29 September 2005, CE-16.
45
First Witness Statement of W. Rand, 5 February 2018, paras. 24-25.
46
Second Witness Statement of Mr. William Rand, 3 October 2019, para. 9 (“Mr. Jovanovic was the main
person at the Ministry of Economy responsible for BD Agro's privatization”).
47
E-mail from Lj. Jovanovic to W. Rand dated 16 May 2005, CE-13 (stating, inter alia, that „This position
has caused the current price of the land , that nowdays reached EURO 50.000/hectare . To that price , very
big Italian company recently bought one piece !“).
21
i. Mr. Rand's email to Minister Bubalo from November 2004 48 related
exclusively to the interest for the potential acquisition of another unrelated
company named Centroprom. This email, dating back one year before the
auction for BD Agro, contained absolutely no mention of BD Agro or Mr.
Obradovic. Thus, Claimants’ reliance on the said document is utterly
inapposite;
ii. as already noted, the email from June 200549 referring to Mr. Rand’s interest
in participating at the auction for BD Agro, although intended to be sent to
Minister Bubalo, never reached him as it was sent to the wrong email
address.50 In addition, the email contained no mention of Mr. Obradovic let
alone that Mr. Rand planned to hide behind him during Privatization. In fact,
Mr. Rand wrote “I would be interested in participating in the auction sale of
the company […]“, which means that even if received by Minister Bubalo,
email would not revealed to him that Mr. Obradovic would privatize BD Agro
on behalf of Mr. Rand, but that Mr. Rand was interested to appear as the buyer
himself.51
27. In addition, Mr. Rand submitted one handwritten and undated page, for which he
claims to be an excerpt from his diary.52 Needless to say, this unreliable piece of paper
without context and date, whose authenticity cannot be verified (especially not
without its original remaining parts – which Claimants should provide), does not have
any greater weight than Mr. Rand’s untrustworthy testimony. In any event, the content
of the submitted page again tells nothing about the beneficial ownership arrangement.
It is only written that Mr. Rand (and someone else - unidentified) had to have a very
early meeting with Mr. Bubalo (not mentioning a date) because the Minister had other
appointments that day, “so it was [Mr. Rand’s] only chance to meet him”.53 Mr. Rand
48
Letter from W. Rand to P. Bubalo dated 1 November 2004, CE-581.
49
E-mail from Mr. William Rand to Mr. Predrag Bubalo dated 4 June 2005; E-mail from Mr. Ljubiša
Jovanović to Mr. William Rand dated 6 June 2005, CE-14.
50
Mr. Jovanovic responded to Mr. Rand, without copying Mr. Bubalo: „Just to let you know that Minister
Bubalo has another email address to which you should be contacting : c.vuckovic@mpriv.sr.gov.yu“. See
E-mail from Mr. William Rand to Mr. Predrag Bubalo; Email from Mr. Ljubisa Jovanovic to Mr. William
Rand, CE-14. Claimants submitted no proof that the email was ever subsequently sent to the correct email
address of Mr. Bubalo or that Mr. Rand has ever received a feedback from Mr. Bubalo in this regard.
51
Mr. Obradovic was not even copied in the email to Mr. Bubalo.
52
Excerpt from Mr. Rand’s diary, CE-582.
53
Excerpt from Mr. Rand’s diary, CE-582.
22
then wrote that Mr. Bubalo prevented a postponement of the auction for BD Agro,
which is the only evidence about the event,54 but it again does not mention exactly
who asked the Minister to do that (meaning that it could have been done by Mr.
Obradovic).55
28. Mr. Bubalo has not been performing any official function at any level of Serbian
Government since 2008. Respondent has gone through considerable efforts to obtain
Mr. Bubalo’s testimony in the present arbitration but to no avail. Respondent also
emphasizes that it is striking that Claimants did not provide testimony of Mr. Bubalo
in order to support their allegations, especially having in mind that Mr. Bubalo was
reachable to Claimants as he was reported to be a close acquaintance of Mr.
Obradovic.56 Respondent respectfully submits that it is nothing short of cynical to
argue, as Claimants now do, that “Serbia chose to make Mr. Bubalo literally invisible
to the Tribunal.”57
29. In addition, Mr. Rand states that in May 2005 he also had a series of meetings with
state officials other than Mr. Bubalo (i.e. Mr. Dinkic and Mr. Golubovic), but does
not specify the date of the meetings, who exactly attended them and what was
discussed.58 It is also striking that those alleged meetings were not preceded or
followed by any written correspondence and that the only evidence that Claimants can
offer is the witness statement of Mr. Rand himself. However, since he is interested in
the outcome of this proceedings his statement is unreliable.59
54
Notably, in the Privatization files there is no document showing the postponement of the auction for BD
Agro was ever requested.
55
The alleged diary page only states that “We [again not specifying who exactly] had told the minister
(Bubula) and the Agency that we were buying the debt” - which debt was the reason for the proposed
postponement. However, it does not say upon whose initiative did Mr. Bubalo allegedly phoned the Agency
and said that the auction should not be postponed. See Excerpt from Mr. Rand’s diary, CE-582.
56
Letter from Center for education and representation of shareholders and employees to the Government of
Republic of Serbia, 29 April 2010, p. 5, RE-116 („Mr. PREDRAG BUBALO is a very frequent "Guest" in
BD AGRO, in Dobanovci, he comes almost every month, and he obviously already knows the buyer Djuro
Obradovic, from when they stayed together in Canada“); Letter from Center for education and
representation of shareholders and employees to the Privatization Agency, 11 February 2010, p. 2, RE-118
(„it is confirmed that the former Minister Bubalo still has "unauthorized" influence on the Agency, who is
also frequent "guest" in BD AGRO“); Letter from Center for education and representation of shareholders
and employees to the Agency, 8 July 2009, p. 4, RE-228 („Ex Minister Predrag Bubalo often comes to BD
AGRO (almost always after Agency's inspections))“).
57
Claimants’ Reply, para. 620.
58
Second Witness Statement of Mr. William Rand, 3 October 2019, para. 8; Reply, paras. 501-502.
59
See Case Concerning Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v. United
States of America), Merits, Judgment of 27 June 1986, I.C.J. Reports 1986, p. 14, paras. 69, 70 at 43, RLA-
9.
23
30. Therefore, the only person who apparently communicated with Mr. Rand prior to the
Privatization was Mr. Jovanovic, an Assistant Minister negotiating simultaneously his
CEO position at BD Agro, who resigned from his function immediately after the
public auction. However, even Mr. Jovanovic, in his statement given to the public
prosecutor before the initiation of the present arbitration (which proceedings are
further elaborated in Section F. 4.1.2 below), explicitly stated that Mr. Obradovic “was
the owner [of BD Agro] who was permanent and who dealt with key issues, some
other acquisitions and relationships with banks, all that should be done by a majority
owner”.60 Needless to say, Mr. Jovanovic made no mention of Mr. Rand at any point
during the making of the statement.
5. After the Privatization Mr. Rand’s alleged beneficial ownership was not
communicated to the Agency nor to any Serbian official
31. What is most important is that Claimants failed to provide a single document showing
that Mr. Obradovic, as the signatory of the Privatization Agreement, and as the one
who was registered as the owner of BD Agro shares (and thus the only legal owner of
the shares), ever notified the Agency or any state official that Mr. Rand was the actual
owner, and not him. Without such explicit statement it would be preposterous to
expect that any authority or state official would and could deem and treat Mr. Rand
as the owner of BD Agro.
5.1. Communication with state officials
32. In their Reply, Claimants’ go to great lengths in order to try to prove that Mr. Rand’s
alleged beneficial ownership of BD Agro was being openly communicated to the
Serbian authorities. In this regard, they mostly focus their attention to the period from
2013-2015, even though the relevant moment when their arrangement should have
been disclosed was before September 2005 i.e. before the public auction and the
conclusion of the Privatization Agreement. Nevertheless, for the sake of
completeness, Respondent further explains why the allegations and exhibits submitted
in this respect are utterly irrelevant, misrepresented or simply untrue.61
60
Indictment no. KTI 65/16, 5 April 2017, p. 12, RE-399.
61
As a general remark, Claimants’ reliance on the witness testimonies of Mr. Rand and other persons
interested in the outcome of the dispute are completely unreliable, as Respondent already explained. See
also Counter-Memorial, paras. 252-255.
24
33. First, Mr. Rand claims that he remained in contact with Mr. Bubalo even after the
auction for BD Agro. As proof of this statement Claimants submitted an email that
Mr. Rand received from an employee of BD Agro.62 The said email however proves
that Mr. Rand was not in contact with Mr. Bubalo at least until 16 July 2008, as it was
only then when he got Mr. Bubalo’s phone number.63 However, just over a week
before that day, Mr. Bubalo ceased to be a minister, i.e. state official,64 which means
that content of their potential conversations was fully irrelevant at that point.
34. Second, Claimants’ attempt to show that the alleged arrangement between Mr. Rand
and Mr. Obradovic was formally notified to Serbia in 2010, through a casual, informal
conversation with an Assistant Minister of Foreign Affairs, Mr. Damjan Krnjevic
Miskovic, is farfetched, to say the least.65 Upon a closer inspection of the
correspondence that followed the meeting,66 it becomes clear that Mr. Rand did not
state at any moment that Mr. Obradovic is only a nominal owner of BD Agro on behalf
of Mr. Rand, or anything similar to that effect. To the contrary, Mr. Rand only
presented himself as a part of BD Agro,67 which was true at the time, as he was a
member of the board of directors of the company.68
35. Third, Claimants state that in December 2013, Mr. Milan Kostic of the Serbian
Progressive Party was expressly informed of Mr. Rand’s beneficial ownership of BD
Agro and that he passed that information on to Minister Radulovic, who involved
Messrs. Milenkovic and Dzafic from Serbian Investment Promotion Agency
(“SIEPA”).69 Mr. Milan Kostic was a politician, completely unrelated to the
Privatization, and most importantly, he was not a Serbian official.70 Therefore, Mr.
Kostic’s communication with Mr. Rand and his representatives is of no relevance.
When it comes to Minister Radulovic, on 18 December 2013, he received an email
62
Second Witness Statement of Mr. William Rand, 3 October 2019, para. 77.
63
Email from A. Janičić to W. Rand dated 16 July 2008, CE-704.
64
Predrag Bubalo, Wikipedia, RE-296.
65
Reply, para. 139.
66
Email from L. Jovanovic to D. Miskovic, 21 May 2010, CE-706.
67
The letter was sent in Mr. Rand’s personal capacity (not as a representative of Rand Investments), and his
connection to BD Agro is only seen from the usage of the terms such as: „our dairy operation in Dobanovci“,
„our business“, „our raw milk“ etc. See Email from L. Jovanovic to D. Miskovic, 21 May 2010, CE-706.
68
Confirmation of the Serbian Business Register Agency on the Members of Management Board and Boardof
Directors of BD Agro, CE-72.
69
Reply, para. 504.
70
Reply, para. 240 (“chair of the economic council of the Serbian Progressive Party”); Email communication
between M. Kostić, S. Radulović and V. Milenković, 18 December 2013 CE-769 ("On behalf of the Council
for Economy SNS (Serbian Progressive Party) NBgd”).
25
from Mr. Kostic where it was stated that Mr. Rand was a majority owner of BD Agro,
and not that he was the beneficial owner while Mr. Obradovic was the nominal
owner.71 That information had no bearing on the present case. Neither is the Minister’s
job to double-check who are the buyers of one of the thousands of socially owned
entities being privatized in Serbia since 2001, i.e. whether in case of BD Agro it was
Mr. Rand or Mr. Obradovic, nor did Minister Radulovic deal with said email at all,
but simply forwarded it to his assistant and referred it to SIEPA.72
36. On 19 December 2013, Messrs. Markicevic and Broshko apparently met with Mr.
Dzafic, deputy director of SIEPA. From the email that Mr. Dzafic, sent after the
meeting to the director of SIEPA, Mr. Vladimir Petrovic, it transpires that the
beneficial ownership arrangement was notified only at that meeting but not to the state
officials and not by Mr. Obradovic, as they were not present at the meeting.73 It is also
important to note that SIEPA was not (and has never been) an organ of Serbia, but one
of many public agencies dedicated to promotion of business conditions, promotion
and attraction of foreign investments.74 Thus, Claimants’ attempt to equate an
employee of SIEPA (Mr. Dzafic) with Serbian Government is clearly inapposite. In
addition, and more importantly, the email reveals that Mr. Rand was aware of the fact
that his arrangement with Mr. Obradovic was simply impossible under Serbian law:
“Company BD AGRO Dobanovci was privatized in 2005 […]

Purchaser of the company was individual – Mr. Djura Obradovic,
who has purchased the company on behalf and for the account of
the investment fund RAND Investment Ltd. Since our law does not
recognize ownership in this form, Mr. Djura Obradovic was
registered as the owner of the company.”75
37. Fourth, Claimants also rely on an email sent in April 2014 by Mr. Markicevic to Mr.
Ristovic, an “expert advisor to the Deposit Insurance Agency in charge of Nova
Agrobanka”76 in which it was stated that a “[r]epresentative of the owner from
71
Email communication between M. Kostić, S. Radulović and V. Milenković, 18 December 2013, CE-769
72
Email communication between M. Kostić, S. Radulović and V. Milenković, 18 December 2013, CE-769.
73
Email communication between G. Džafić and I. Markićević, 19 December 2013, CE-311.
74
Article 3 of the Decision on the establishment of the Agency for Foreign Investments and Promotion of
Export (“Official Gazette of the Republic of Serbia, no. 107/2009 and 15/2010”), RE-424.
75
76
Reply, para. 505.
26
Canada is arriving in Belgrade”.77 As evident, Mr. Ristovic was not a state official,
but an "expert advisor“ to the Deposit Insurance Agency. Further, the email did not
mention Mr. Rand by name but just a Canadian citizen - Mr. Obradovic is one, as
well.78
38. Fifth, Claimants also state that in 2015, Mr. Kojic, the Chief of Staff of the then Prime
Minister, was informed of Mr. Rand’s beneficial ownership.79 This is however
misrepresentation of the witness statement given by Mr. Rand as he did not allege that
Mr. Kojic was informed of his beneficial ownership of Mr. Obradovic’s shares but
that it was explained to Mr. Kojic “that I [Mr. Rand] had been active as an investor
in Serbia for many years and that my activities were related to various companies,
most notably BD Agro”.80 And indeed Mr. Rand was related to BD Agro as he was an
indirect shareholder through MDH.
39. Sixth, the officials from the Agency and the Ministry of Economy always treated
Messrs. Rand and Broshko as representatives of the company seeking to assume the
role of Mr. Obradovic in the Privatization Agreement.81 In fact, Claimants themselves
introduced Mr. Rand as a Canadian investor who was ready to provide financial
support to BD Agro subject to the transfer of ownership from Mr. Obradovic to
Coropi.82
40. Seventh, the allegation that on 15 December 2014, Mr. Obradovic was asked to leave
the meeting at the Ministry of Economy regarding BD Agro, as he was not invited,83
is of no relevance because it proves nothing. As Mr. Stevanovic, state secretary at the
Ministry of Economy, confirms in his witness statement, Mr. Obradovic was asked to
leave because the meeting was not organized upon his request, but rather at the request
of Coropi’s representatives, and because it was clear that the representatives of
Coropi, who requested the meeting, were not agreeing to Mr. Obradovic’s presence.84
It is absurd to claim that due to this event, the Ministry of Economy was somehow not
77
Email from I. Markićević to M. Ristović (Deposit Insurance Agency), 22 April 2014, CE-289.
78
See Section I. A. 5.3 below.
79
Reply, para. 505.
80
Second Witness Statement of Mr. William Rand dated 3 October 2019, para. 100.
81
Counter-Memorial, paras. 257-259.
82
83
Broshko First WS, para. 28; Broshko Second WS, para. 39; Markicevic Second WS, para. 93; Broshko
Third WS, para. 11; Markicevic Third WS, para. 55.
84
Witness Statement of Mr. Dragan Stevanovic, 23 January 2020, para. 8.
27
perceiving Mr. Obradovic as the owner of BD Agro.85 In fact, Mr. Stevanovic leaves
no doubt that he and his staff never treated, nor could have treated, Mr. Rand as BD
Agro’s majority owner.86
41. What is important to note is that the above mentioned meetings and correspondence
took place long after the signing of the Privatization Agreement. Therefore, even if
Claimants had revealed the “true” ownership structure, this could not remedy the
misrepresentations made during the purchase of BD Agro. In addition, the persons to
whom the information about beneficial ownership was allegedly communicated were
not the proper addressees - the proper addressee was only the Agency who was Mr.
Obradovic’s contracting party.
5.2. Communications with the Agency
42. As from 2005, the Agency had numerous meetings with Mr. Obradovic, and
subsequently also with Mr. Markicevic and Mr. Broshko. They exchanged numerous
of letters with the Agency. Yet, none of the letters mention Mr. Rand as the beneficial
owner. Claimants do not even try to argue that the Agency was informed of Mr.
Rand’s alleged beneficial ownership before 2013.87 Instead, they contend that the
Agency’s representatives,88 who were dealing with BD Agro in the period 2013 –
2015, were specifically informed of Mr. Rand’s beneficial ownership at the meetings
that took place at the time.89 As Respondent already explained, this is incorrect. The
meetings that were held in the period of 2013-201590 with the Agency and the Ministry
of Economy, concerned potential transfer of the Privatization Agreement to Coropi
and there was no mention of Mr. Rand’s beneficial ownership.91
85
Reply, para. 501; Broshko First WS, para. 28; Broshko Second WS, para. 39; Markicevic Second WS, para.
93; Broshko Third WS, para. 11; Markicevic Third WS, para. 55..
86
Witness Statement of Mr. Dragan Stevanovic, 23 January 2020, paras. 7-8.
87
In paras. 501-505 of the Reply Claimants list all “state officials” to whom alleged beneficial ownership was
notified and the personnel of the Agency is mentioned only in the period 2013-2015.
88
Ms. Marijana Radovanović, Ms. Julijana Vučković, Ms. Tanja Mitrović, Ms. Mira Kostić, Ms. Katarina
Misailović.
89
Reply, para. 503.
90
Reply, paras. 501-505.
91
28
43. Contrary to Claimants allegations,92 beneficial ownership was not notified even at the
meeting held on 30 January 2014 when the Agency was told that Mr. Rand provided
financing to Mr. Obradovic.:
“Director of the Entity, Igor Markicevic, introduced Erinn

Broshko, director of Rand Investments Ltd Vancouver, Canada,
company owned by William Rand, for whom he stated that
privatization of BD Agro Dobanovci was carried out by his funds.
Erinn Broshko stated that he represented the company which
provided funds invested in the Entity, and that such practice is
common in Canada. He stated that Willian Rand was not satisfied
with the work and management by the man to whom business of
purchasing the company was entrusted, and that he was interested
to finish the assignment as soon as possible.”93
44. Even this “financing arrangement” was evidently not previously known by the
Agency, as the Agency explicitly noted in its subsequent letter to Mr. Markicevic,
saying:
“At the meeting, you introduced Erinn Broshko, director of “Rand

Investments” ltd. Vancouver, Canada, company owned by William
Rand, and you stated that his means were used to finance the
entire process of privatization of “BD Agro” Dobanovci.”94
45. What can be concluded is that, contrary to what Claimants95 and Mr. Broshko state,96
the Agency was not informed that Mr. Rand was the beneficial owner of BD Agro but
that he was a supposed financier of Privatization, which could have been any bank as
well. In addition to that, and even more importantly, Mr. Obradovic, the buyer of BD
Agro, was not present at the said meeting and never confirmed that someone else, and
not himself, financed the Privatization let alone that Mr. Rand was the beneficial
owner instead of him.
92
Reply, para. 503.
93
Minutes from meeting held at the Privatization Agency on 30 January 2014, 30 January 2014, RE-28.
94
Letter from the Agency to BD Agro, 21 August 2014, CE-317.
95
Reply, para. 503.
96
Third Witness Statement of Mr. Erinn Broshko, 3 October 2019, para. 26.
29
46. To the contrary, at the meeting with the Agency held on 4 February 2014,97 Mr.
Obradovic was clear that while he had a partner during the privatizations in which he
participated, he was the only owner of BD Agro shares and wanted to exchange these
shares for the shares in another company, PIK Pester:
“The buyer, Djura Obradovic, stated that during the purchase of

several entities of privatization, including “BD Agro” Dobanovci,
he has had a partner with whom he came into conflict of opinion
on the management of agricultural goods, a year and a half ago.
For the above reasons, the decision was made to divide business
and ‘for the partner to get all the companies in Belgrade, therefore
“BD Agro” was part of that division. The idea is that the partner
replaces the shares held in the PIK Pester, Sjenica, with the shares
of Djura Obradovic in “BD Agro”, Dobanovci..”98
47. Had it been true that Mr. Rand alone financed the Privatization and that he was the
beneficial owner of BD Agro, then there would be no mention in 2014 that he would
"get all the companies in Belgrade [i.e.] “BD Agro”, and that in exchange he must
compensate Mr. Obradovic by the shares in another company. In other words, at the
meeting held on 4 February 2014 Mr. Obradovic confirmed to the Agency that he
considered himself to be the only owner of BD Agro’s privatized shares and it clearly
transpires that he was not a proxy to Mr. Rand.
48. Yet, Claimants persist in their tenacious assertion that, from June 2013, the Agency
and the Ministry of Finance considered Messrs. Rand, Broshko and Markićević as the
only competent representatives for addressing the matters concerning BD Agro. They
base this assertion on Mr. Broshko’s and Mr. Markicevic’s statement that after 11
97
Mr. Obradovic now claims that he does not recall this meeting nor any of the people present there. See
Second Witness Statement of Mr. Djura Obradovic, 4 October 2019, para. 90. However, Mr. Obradovic
obviously has astonishingly bad memory, as the Agency’s officials present there (in particular Ms. Jevtic
and Ms. Misailovic) were consistently present at all other meetings regarding BD Agro. See Minutes from
meeting held at the Ministry of Economy on 17 December 2014, RE-22; Minutes from meeting held at the
Privatization Agency on 27 April 2015, RE-23; Minutes from meeting held at the Privatization Agency on
30 January 2014, RE-28; Minutes from meeting held at the Privatization Agency on 4 February 2014, RE-
36; Minutes from meeting held at the Ministry of Economy on 3 November 2014, RE-37; Minutes from
meeting held at the Ministry of Economy on 15 December 2014, RE-38; Minutes from meeting held at the
Ministry of Economy on 16 January 2015, RE-39; Minutes from meeting held at the Privatization Agency
on 20 April 2015, RE-41; Invitation to Mr. Obradovic to attend the meeting of 30 October 2012, RE-80.
98
Minutes from meeting held at the Privatization Agency on 4 February 2014, 4 February 2014, RE-36.
30
June 2013, Mr. Obradovic was not present at any of the meetings (attended by them)
with the Agency and the Ministry of Economy.99 These statements are obviously
erroneous and misleading. First, as explained, it was Mr. Obradovic (not Mr. Rand or
Messrs. Broshko and Markicevic) who was present at the meeting with the Agency
on 4 February 2014, when the fulfillment of the Privatization Agreement was
discussed and when he confirmed that he was the only owner of the shares.100 Second,
Mr. Rand, who claims to be the actual owner, never attended any meetings with the
Agency or the Ministry, neither before, nor after June 2013. Third, Mr. Obradovic’s
presence was not necessary at each meeting because Mr. Markicevic, in the capacity
of the CEO of BD Agro (and not in the capacity of Mr. Rand’s representative), was
present. Finally, the presence of Mr. Broshko, representative of Coropi, was not
surprising as the potential transfer of the Privatization Agreement to Coropi was
discussed at the meetings in question.
5.3. Canadian flag, Canadian Embassy, Mr. Rand’s business partners
49. Mr. Obradovic is indisputably a Canadian citizen as well as Serbian one.101 Therefore,
it is unclear why Claimants consider that Serbian officials (Mr. Bubalo, Mr. Kostunica
and Mr. Ilic)102 should have known that the Canadian flag displayed at the entrance of
BD Agro “represented Mr. Rand”,103 and not Mr. Obradovic. Mr. Obradovic openly
presented himself as a “Canadian businessman” at all times,104 and it was therefore
not surprising to see a Canadian flag as one of the flags displayed at BD Agro’s
premises.
50. Likewise, Claimants’ emphasis on the communication that Mr. Rand had with the
Canadian Embassy in Serbia equally misses the point. Most importantly, the
communication was performed without the involvement of Serbian authorities.105 In
99
Reply, paras. 248-249. Markicevic Third WS, para. 57; Broshko Third WS, para. 12.
100
Minutes from meeting held at the Privatization Agency on 4 February 2014, 4 February 2014, RE-36.
101
Witness Statement of Mr. Đura Obradovic dated 20 September 2017, para. 1.
102
Reply, paras. 1-4, 94-95.
103
Reply, para. 86.
104
“Đura Obradovic from Vancouver, owner of “Pester-Sjenica” invested 15 mil EUR, announces another 32
mil EUR for the most modern dairies, export to the EU”, eKapija, 13 March 2006, RE-214; “Small
shareholders accuse the owner of BD “Agro” Đura Obradovic for robbery and abuses”, Kurir, 24 May 2009,
RE-109; “Wolves are eating me”, Novosti, 29 June 2010, RE-215.
105
Reply, paras. 138-142, 506; See Visit of the Honourable Peter Milliken, M.P., Speaker of the House of
Commons, and a Parliamentary Delegation, United Kingdom and Serbia, Parliament of Canada, 25
September 2019 (accessed), CE-438; Email from K. Lutz to R. Rand, 16 July 2010, CE-439; Emails from
31
addition, Mr. Obradovic is a Canadian national, and the interest of the Canadian
diplomatic staff in BD Agro is therefore expected regardless of any involvement of
Mr. Rand. In any event, Canada is not the host State, and even if it believed that Mr.
Rand was the actual owner of BD Agro, this changes absolutely nothing with respect
to what was presented to Serbia at the time.
51. Finally, what was communicated to business partners and consultants of BD Agro or
Mr. Rand106 is completely immaterial to the case at hand as they are not
representatives of the host State. Respondent therefore considers it unnecessary to
comment on these assertions.
6. Mr. Obradovic acted and was treated as the owner of BD Agro
52. As noted above, Mr. Obradovic was registered as the owner of BD Agro shares, and
the Agency (or any state official) was never notified that Mr. Rand has any rights over
the shares. On top of that, as the evidence show, from the beginning of the
Privatization, only Mr. Obradovic acted as the buyer, in his own name and on his own
behalf. And only he was treated as the buyer as well.
6.1. Mr. Obradovic’s behavior
53. Mr. Rand testified that “Mr. Obradovic had no beneficial interest in BD Agro and his
role was simply to assist in dealing with the Serbian officials.” Mr. Obradovic added
that he in fact “had no money” of his own that he could invest.107 And yet, although
he was solely a penniless assistant, both Mr. Rand and Mr. Obradovic had no issue
with Mr. Obradovic becoming the registered owner of shares and the party to the
Privatization Agreement, being the holder of all rights and obligations relating to the
sale of BD Agro.
54. As the record shows, it was only Mr. Obradovic who was visible all the time, in
particular he was the one who:
J. Morrision and D. Ceramilac, 20 July 2010, CE-440; Email communication between W. Rand and J.
Morrison, 9 June 2010, CE-705.
106
Reply, paras. 132-137, 506.
107
Second Witness Statement of Mr. Đura Obradovic, 3 October 2019, para. 7.
32
(i) personally submitted an application for the participation at the auction for the
shares in BD Agro;108
(ii) provided a legally binding statement to the Agency that he personally fulfilled
all conditions for being a bidder in the auction for BD Agro;109
(iii) personally paid a participation deposit;110
(iv) personally was granted approval by the Agency to participate in the auction;111
(v) personally participated and submitted bids at the auction;112
(vi) personally entered into the Privatization Agreement with the Agency;113
(vii) personally gave all representations and warranties;114
(viii) personally was inscribed in Central Register of Securities as the owner of BD
Agro shares;115
(ix) personally requested extensions116 from and communicated with the Agency
regarding fulfillment of the obligations from the Privatization Agreement.117
55. For instance, in April 2012, Mr. Obradovic sent a letter to the Ministry of Economy
in which he was explicit that he was an important investor in the privatized companies
and that he was the owner of BD Agro and other companies he bought:
“Despite several verbal interventions, as well as a written one of

February 14, 2012, there have been no actions on this request, nor
have I been provided with the response as the Buyer of the capital
who brought over 20 million euros in Serbia for several
privatizations. Based on all above stated, I think that my
obligations towards the Agency have been fully settled, and that
108
Application for the participation at the auction for BD Agro, 19 September 2005, RE-211;
109
Application for the participation at the auction for BD Agro, 19 September 2005, RE-211;
110
Banking excerpts confirming payment of installments of purchase price by Mr. Obradovic, 15 October
2015, RE-33.
111
Approval of the application for the participation at the auction, 26 September 2005, RE-212;
112
Minutes of the public auction nos. 4 and 5, 29 September 2005, RE-213.
113
114
Article 5 of the Privatization Agreement, CE-17.
115
Letter from BD Agro to the Privatization Agency, 27 December 2005, RE-470; Excerpt from the Central
Securities Registry on BD Agro’s shareholders, 16 October 2015, RE-471.
116
See e.g. Letter from Mr. Obradovic to the Agency, 13 October 2008, RE-231; Letter from Mr. Obradovic
to the Agency, 17 November 2008, RE-232; Letter from Mr. Obradovic to the Privatization Agency, 28
November 2008, RE-434.
117
See e.g. Letter from Mr. Obradovic and BD Agro to the Agency of 23 July 2012, RE-21; Letter from Mr.
Obradovic to the Agency of 29 December 2011, RE-27; Letter from Mr. Obradovic to the Agency of 30
April 2015, RE-42; Letter from Mr. Obradovic to the Agency attaching the statement from BD Agro’s
director of 9 November 2011, RE-60.
33
the conditions have been met for removal of pledge on shares, and
after the investment of more than 50.000 euros, in three auditor’s
reports the Agency has gained access to legality of business
activities of both BD AGRO and other companies owned by me.118
56. Mr. Rand on the other hand remained invisible, which, if he was really what he claims
today he was, goes contrary to one of the basic principles of the Law on Privatization
– transparency.119
6.2. Agency’s behavior
57. On its part, the Agency had no doubts who was the owner of BD Agro and with whom
it should be communicating. This was always Mr. Obradovic. Each and every letter,
request, warning notice and extension of deadline concerning the fulfillment of the
obligations from the Privatization Agreement was sent exclusively to Mr. Obradovic
(or BD Agro’s CEO, Mr. Markicevic) – never to Mr. Rand.120 All meetings regarding
fulfillment of obligations from the Privatization Agreement were organized with Mr.
Obradovic as the owner (or BD Agro’s CEO, Mr. Markicevic) – never Mr. Rand.121
When reporting on suspicious activities in BD Agro to the police, only one owner was
mentioned – Mr. Obradovic, never Mr. Rand.122
118
Letter from Mr. Obradović to the Ministry of Economy, 2 April 2012, CE-077.
119
Article 2(2) of the Law on Privatization, CE-220.
120
Notice of the Privatization Agency on Additional Time Period, 24 February 2011, CE-31; Notice of the
Privatization Agency on Additional Time Period 22 December 2011, CE-32; Notice on Termination of the
Privatization Agreement 28 September 2015, CE-50; Notice of the Privatization Agency on Additional
Time Period 31 July 2012, CE-78; Notice of the Privatization Agency on Additional Time Period 8
November 2012, CE-79; Notice of the Privatization Agency on Additional Time Period 22 June 2011, CE-
96; Notice of the Privatization Agency on Additional Time Period 6 October 2011, CE-97; Notice on
additionally granted term for compliance with Article 5.3.4. of the Privatization Agreement of 24 February
2009, RE-99; Notice on additionally granted term for compliance with Article 5.3.4. of the Privatization
Agreement of 31 March 2009, RE-100; Notice on additionally granted term for compliance with Article
5.3.4. of the Privatization Agreement of 13 April 2009, RE-101; Notice on additionally granted term for
compliance with Article 5.3.4. of the Privatization Agreement of 1 June 2009, RE-102; Notice on
additionally granted term for compliance with Article 5.3.4. of the Privatization Agreement of 30 July 2009,
RE-103.
121
See e.g. Invitation to Mr. Obradovic to attend the meeting of 30 October 2012, RE-80; Minutes from
meeting held at the Agency on 4 February 2014, RE-36.
122
Letter from the Agency to the Criminalistic Police Authority, Sector for Combating Commercial Crime, 4
March 2009; RE-276 Letter from the Agency to the Criminalistic Police Authority, Sector for Combating
Commercial Crime, 19 June 2009, RE-277; Letter from the Agency to the Criminalistic Police Authority,
Sector for Combating Commercial Crime, 30 June 2011, RE-279; Letter from the Agency to the Higher
Public Prosecutor’s Office and the Criminalistic Police Authority, 29 April 2013, RE-280; Letter from the
Agency to the Higher Public Prosecutor’s Office and the Criminalistic Police Authority, 12 May 2014,RE-
281; Letter from the Agency to the Higher Public Prosecutor’s Office and the Criminalistic Police Authority,
34
58. The Agency’s conduct was fully consistent with respect to all other companies
claimed to be beneficial owned by Mr. Rand (i.e. Inex, Crveni Signal, PIK Pester,
Beotrans and Obnova). In each and every instance, the Agency was communicating
solely with Mr. Obradovic as the owner – never Mr. Rand.123
59. On the other hand, as Respondent already explained in more detail in its Counter-
Memorial, 124 Messrs. Rand and Broshko were only treated as the party attempting to
have the Privatization Agreement transferred (assigned) to itself - never as the already
existing owner of shares.
60. Officials involved in the matter had no doubts about this as well. As Ms. Vuckovic
testifies:
“During the entire period of the Agreement validity, Mr.

Obradovic presented himself as the only owner of privatized
capital in BD Agro and the Agency treated him as such. […] the
Agency never considered the possibility that the buyer of the
capital, that is, the owner of shares of BD Agro, was not Mr.
Obradovic. As far as I knew, something like that was simply never
told to the Agency, nor was it legally possible for the Agency to
treat any third person as contractual partner from the Agreement
on Privatization of BD Agro.”125
61. Likewise, her colleague from the Agency, Ms. Radovic Jankovic, also confirms that:
“I did not know that anyone else, apart from Djura Obradovic,
was the owner of privatized shares. As far as I remember, the first
time I heard about Mr. Rand was during the meetings held at the
Ministry of Economy in 2014 and 2015, which related to the
assignment of the Agreement to Coropi. At that time, Mr. Rand’s
representatives told us that Mr. Rand was interested in assigning
30 May 2014, RE-282; Letter from the Agency to the Higher Public Prosecutor’s Office, 30 September
2015, RE-284.
123
See e.g. Letter from the Agency to Mr. Obradovic, 18 March 2011, RE-473; Letter from the Privatization
Agency to Mr. Obradovic dated 30 August 2007, RE-407; Letter from the Privatization Agency to Mr.
Obradovic, 27 December 2010, RE-389; Report from 9th control of Inex, 5 March 2010, RE-403.
124
125
Witness Statement of Ms. Julijana Vuckovic, 22 January 2020, paras. 7-8.
35
the Agreement to his company Coropi. I do not remember that we
were notified that Mr. Obradovic was not the owner of the shares,
but that the owner was Mr. Rand instead. I believe that that I
would have remembered that information since it would be
contrary to the fact that the Agreement was concluded with Mr.
Obradovic, and not with Mr. Rand.”126
6.3. Employees and minority shareholders
62. Although Claimants are making a great effort trying to demonstrate that Mr. Rand’s
alleged beneficial ownership was widely known in BD Agro itself, the facts speak
otherwise. The labor unions and minority shareholders in BD Agro frequently
addressed the Agency with various claims and suspicions of foul play by the owner -
Mr. Obradovic - and the management of BD Agro. Had Mr. Rand’s purported
ownership been a commonplace in BD Agro, he would have certainly been mentioned
in these complaints. But he never was. The employees and shareholders always
perceived Mr. Obradovic as the owner.127
6.4. Serbian media
63. Claimants’ further contend that “Mr. Rand’s ownership of BD Agro was also known
to the Serbian media”, referring to a newspaper article reporting “that the farm was
being built using “Canadian capital”.128 Again, the mention of “Canadian capital”
does not mean much, because it was a natural consequence of the fact that Mr.
Obradovic was a declared Canadian national and businessman. In fact, the same
newspaper which mentioned the “Canadian capital” in BD Agro reported in its other
articles from the same period that “economist Đura Obradovic from Vancouver
126
Witness Statement of Ms. Branka Radovic Jankovic, 23 January 2020, para. 8.
127
Letter from Center for education and representation of shareholders and employees to the Privatization
Agency of 26 January 2009, RE-114; Letter from Center for education and representation of shareholders
and employees to the Privatization Agency of 16 March 2009, RE-115; Letter from Center for education
and representation of shareholders and employees to the Government of Republic of Serbia, 29 April 2010,
RE-116; Letter from Center for education and representation of shareholders and employees to the
Privatization Agency of 11 February 2010, RE-118; Letter from Center for education and representation of
shareholders and employees to the Government of Republic of Serbia of 20 December 2010, RE-125; Letter
from Center for education and representation of shareholders and employees to the Privatization Agency of
21 March 2012, RE-147.
128
Reply, para. 85.
36
bought […] the agricultural enterprise ‘Buducnost’ in Dobanovci“129 and that “the
majority owner of the company ‘BD Agro’ […] is the Canadian businessman Đura
Obradovic, who owns 75,9% of shares in this company“.130 Therefore, it is completely
evident that the “connection” with Canada was none other than of Mr. Obradovic.
64. In fact, Mr. Obradovic was widely known and perceived in the public and the media
as the majority owner of BD Agro throughout the relevant period. There are numerous
instances proving that Mr. Obradovic represented himself as BD Agro’s majority
owner (and of all other companies now claimed to be beneficially owned by Mr.
Rand).131 On the other hand, Mr. Rand points to only one interview which he gave to
a Serbian newspaper one year after the auction was held, and in which he in general
terms stated that he invested in Serbia “together with his partners, naturalized
Canadians – a Swiss, a Swede and Serb Djura Obradovic”.132 The main focus of the
article was obviously the investment in the area of Raska i.e. in Inex and PIK Pester,133
while BD Agro was mentioned only in passing. Furthermore, Mr. Rand did not state
at any point that Mr. Obradovic was only a nominal owner of BD Agro, that Mr.
Obradovic held the shares only for the benefit of Mr. Rand, or anything similar to that
effect.134 Likewise, there is not a single newspaper article in which Mr. Obradovic
himself claimed to be only a nominal or minority owner or that the true owner of BD
Agro was actually Mr. Rand. On the contrary, there is an abundance of interviews
129
“Đura Obradovic from Vancouver, owner of ‘Pester-Sjenica’ invested 15 mil EUR, announces another 32
mil EUR for the most modern dairies, export to the EU”, eKapija, 13 March 2006, RE-214.
130
“’BD Agro’ got to 1% of Agrobanka’s shares”, eKapija, 27 July 2010, RE-216.
131
Minority Shareholders accuse the owner of BD “Agro” Djura Obradovic for theft and misdeeds” (Mali
akcionari optuzuju vlasnika BD "Agro" Đuru Obradovica za pljacku i zloupotrebe), Kurir, 24 May 2009;
emphasis added, RE-109; “The Minister said that he does not feed tycoons” (Ministar je rekao da ne hrani
tajkune), Politika, 3 March 2010; RE-110; “Đura Obradovic from Vancouver, owner of “Pester-Sjenica”
invested 15 mil EUR, announces another 32 mil EUR for the most modern dairies, export to the EU” (Đura
Obradovic iz Vankuvera, vlasnik „Pester-Sjenica“ ulozio 15 mil EUR, najavljuje jos 32 mil EUR za
najmodernije mlekare, izvoz u EU), eKapija, 13 March 2006, RE-214; “Wolves are eating me”, Novosti,
29 June 2010, RE-215; “’BD Agro’ got to 1% of Agrobanka’s shares”, eKapija, 27 July 2010, RE-216.
132
R. Petrović, Dollar for the best food in Europe, Nova Politika, 27 October 2006, CE-655 (“Their initial
investments in Serbia were not very successful. Three years ago, they were experiencing all the traps of the
current market, but they did not give up. […] They purchased […] they expect”).
133
R. Petrović, Dollar for the best food in Europe, Nova Politika, 27 October 2006, CE-655 (“William Bill
Rand: When I saw the area of Raska… […] Rand Edgar Investment Corporation, one of the biggest global
investors in the production of healthy food in the area of Raska in Serbia […] I have many businesses in
other parts of Europe, in Geneva and Italy, I went to school in London, I am connected to Europe…But whe-
n I saw the nature in Raska... I knew that was a chance for us to discover to other people from Europe and
the world the unused treasures available in the area of Raska […] Regardless of current economic
parameters, investments in the area of Raska and Serbia present such type of investment, which does not
bring you high amounts of money, but make you completely satisfied”).
134
The reference of Mr. Rand being the “largest shareholder in the joint venture” also related to the
investments in Serbia as a whole, and not specifically to BD Agro.
37
speaking otherwise.135 Thus, even the public image of BD Agro’s ownership structure
corresponded to its legal (or in Claimants’ words, “nominal”) ownership structure.
6.5. Claimants’ behavior
65. Finally, it must be noted that Claimants intended to persist in their tenacious
misrepresentation of the true owner of the shares in BD Agro, even when it came to
initiating an investment treaty arbitration. As the Respondent already noted,136 it was
Mr. Obradovic who in September 2015 threatened to submit a claim against Serbia in
accordance with the Canada-Serbia BIT.137 However, Claimants now stipulate that
this fact is irrelevant as the letter was allegedly drafted by Messrs. Markicevic,
Broshko and Doklestic and was approved by Mr. Rand.138 Yet, at the same time, Mr.
Broshko reveals that:
“When we wrote this paragraph, we were under the impression

that Mr. Obradovic, as the nominal owner of BD Agro shares and
a double-national of Canada and Serbia would have the standing
to bring a claim under the Canada-Serbia BIT. Later we realized
that because of the definition of a “national” under the Canada-
Serbia BIT, this would not be possible.”139
66. This staggering admission evidently confirms that Mr. Obradovic was considered as
the investor. Only after Claimants realized that Mr. Obradovic does not have the
standing to sue under the Canada-Serbia BIT, an elaborate theory of the beneficial
ownership arrangement was conceived in an attempt to artificially create an
investment treaty claim where none exists.
135
Minority Shareholders accuse the owner of BD “Agro” Djura Obradovic for theft and misdeeds” (Mali
akcionari optuzuju vlasnika BD "Agro" Đuru Obradovica za pljacku i zloupotrebe), Kurir, 24 May 2009;
emphasis added, RE-109; “The Minister said th at he does not feed tycoons” (Ministar je rekao da ne hrani
tajkune), Politika, 3 March 2010; RE-110; “Đura Obradovic from Vancouver, owner of “Pester-Sjenica”
invested 15 mil EUR, announces another 32 mil EUR for the most modern dairies, export to the EU” (Đura
Obradovic iz Vankuvera, vlasnik „Pester-Sjenica“ ulozio 15 mil EUR, najavljuje jos 32 mil EUR za
najmodernije mlekare, izvoz u EU), eKapija, 13 March 2006, RE-214; “Wolves are eating me”, Novosti,
29 June 2010, RE-215; “’BD Agro’ got to 1% of Agrobanka’s shares”, eKapija, 27 July 2010, RE-216.
136
Counter-Memorial, para. 290.
137
Letter from Mr. Obradovic to the Agency dated 8 September 2015, p. 6, CE-48.
138
Reply, para. 615.
139
Third Witness Statement of Mr. Erinn Broshko dated 3 October 2019, para. 16.
38
7. Mr. Rand’s motive was sinister abuse of rules concerning the payment of the
purchase price
67. Despite the submission of three extensive written pleadings by Claimants and two
witness statements of Mr. Rand, and of Mr. Obradovic, the reason why would
Claimants opt for the peculiar “beneficial ownership structure” still remains
undisclosed. However, Claimants’ silence has a good reason - the arrangement can
only be explained by a bad faith motive to abuse Serbian legislation.
68. According to the Regulation on Sale, only if the declared buyer at the auction was a
domestic individual (i.e. a natural person who is a Serbian citizen) acting alone, he
could pay the sale price in up to six annual installments.140 A foreign natural person
and a domestic or foreign legal entity, always had to pay the price at once, as well as
a joint venture of domestic and/or foreign individuals and/or legal entities. 141 This
rule was in place from 2001 until 2008, and was abolished afterwards.142
69. Importance of this rule for the case at hand is more than evident because the payment
of the Purchase Price in installments would not be possible had Mr. Rand participated
in the auction. Only Mr. Obradovic, acting as the sole buyer who was a Serbian
national (apart from holding Canadian nationality as well), would qualify for the
payment in installments. Mr. Rand and/or any of his companies would have to pay the
Purchase Price at once, immediately after the auction. Bearing in mind that the
purchase price for BD Agro was over EUR 5.5 million, while the investment
obligation under the Privatization Agreement was over EUR 2 million, this benefit
was obviously substantial, if not crucial.
70. Indeed, the record shows that payment in installments was apparently an extremely
important issue for Mr. Obradovic (or Mr. Rand).
71. First, as Respondent further explains below,143 the payment in installments was
misused by extracting the funds of BD Agro to effectuate the payments in question.
140
141
142
Regulation on the Sale of Capital and Property at a Public Auction (45/2001), Article 31, RE-217;
Regulation on the Sale of Capital and Property at a Public Auction (52/2005), Article 39, RE-218.
143
See Section I. F. 3.1.
39
In this way, the purchase price was effectively paid by BD Agro itself, and not by Mr.
Obradovic. This would not be possible if the price had to be paid at once.
72. Second, even with the possibility to use BD Agro’s money for effecting payments of
the purchase price for the company, most of the installments were paid belatedly, after
repeated warnings i.e. extensions given by the Agency. Only the first (out of six)
installment for BD Agro was paid on time.144 In that regard, the Agency issued as
many as 10 warnings i.e. extensions of deadlines to Mr. Obradovic.145 Therefore, the
payment of the purchase price obviously presented an issue for Mr. Obradovic even
when divided in installments and with the possibility to use BD Agro's money - it
follows that the payment of the whole price at once would have been impossible.146
73. Third, Mr. Obradovic (or Mr. Rand) also misused the possibility of paying the
purchase price in installments when buying the shares in Crveni Signal, Inex, PIK
Pester, Beotrans and Uvac Gazela.147 At the time of each of these privatizations, the
possibility of payment in installments was granted solely to domestic individuals
(acting as sole buyers) under the Regulation on Sale.148
74. With all of the above in mind, it is clear that Mr. Rand’s main motive for acquiring
ownership in BD Agro through Mr. Obradovic, could only be to deceitfully acquire
144
The Agency issued warnings in relation to the second, the fourth, the fifth and the sixths installment of the
purchase price, while the third installment was paid belatedly, but without the issuance of a previous
warning. See Banking excerpts confirming payment of installments of purchase price by Mr. Obradovic, 15
October 2015, RE-33;; Letter from the Agency to Mr. Obradovic, 1 October 2007, RE-469.
145
Letter from the Agency to Mr. Obradovic, 2 November 2006, RE-200; Letter from the Agency to Mr.
Obradovic, 9 October 2008, RE-201; Letter from the Agency to Mr. Obradovic, 3 November 2008, RE-
202; Letter from the Agency to Mr. Obradovic, 9 December 2008, RE-203; Letter from the Agency to Mr.
Obradovic, 11 December 2009, RE-204; Letter from the Agency to Mr. Obradovic, 29 January 2010, RE-
205; Letter from the Agency to Mr. Obradovic, 15 October 2010, RE-206; Letter from the Agency to Mr.
Obradovic, 3 December 2010, RE-207; Letter from the Agency to Mr. Obradovic, 25 January 2011, RE-
208; Letter from the Agency to Mr. Obradovic, 3 March 2011, RE-209.
146
In fact, by making partial and belated payments, Mr. Obradovic effectively paid the purchase price in 11,
instead of 6 installments. See Banking excerpts confirming payment of installments of purchase price by
Mr. Obradovic dated 15 October 2015, RE-33.
147
Assignment agreement between V. Vukelic and D. Obradovic, 2 March 2007, Article 1, CE-565;
Privatization Agreement (Crveni Signal), 21 February 2003, Article 4, RE-219; Privatization Agreement
(Inex), 26 November 2004, Article 1.3, RE-220; Privatization Agreement (PIK Pester), 3 March 2006,
Article 1.3, RE-210; Privatization Agreement (Beotrans), 14 March 2007, Article 1.3, RE-221; Privatization
Agreement (Uvac Gazela), 18 March 2003, Article 4, RE-222. Although the Regulation on Sale changed in
2005, the provision in question remained the same throughout the time of the conclusion of all of these
privatization agreements (2001-2008). See Regulation on the Sale of Capital and Property at a Public
Auction (45/2001), Article 31, RE-217; Regulation on the Sale of Capital and Property at a Public Auction
(52/2005), Article 39, RE-218.
148
Regulation on the Sale of Capital and Property at a Public Auction (45/2001), Article 31, RE-217;
Regulation on the Sale of Capital and Property at a Public Auction (52/2005), Article 39, RE-218.
40
the possibility of paying the purchase price in six installments under an elaborate
scheme where the payments were mainly made by the company itself.
8. Conclusion
75. It is undeniable that Mr. Rand could have appeared as the buyer. But, in Claimants'
narrative, he chose not to. Instead, Mr. Obradovic signed all the papers in his own
name and on his behalf. By signing the Privatization Agreement, he personally
assumed all rights and obligations regarding BD Agro. After signing the Privatization
Agreement, Mr. Obradovic continued to act as the owner of BD Agro’s shares. He
never negated that he was the owner.
76. Simply speaking, if it looks like a duck, swims like a duck, and quacks like a duck,
then it probably is a duck. Likewise, if Mr. Obradovic participated at the auction as
the buyer, acted as the owner of the shares and never said that he is not the owner,
then he probably was the owner.
77. If, however, Mr. Rand’s story of the beneficial arrangement was true, and the duck
was not a duck, than there were two possible motives for such conduct: (i) gaining the
possibility to pay the purchase price in six installments; and (ii) evasion of all (civil
and criminal) liability. This would be a blatant violation of good faith and such
arrangement cannot have any investment treaty protection.
B. TERMINATION OF THE PRIVATIZATION AGREEMENT
78. The central issue raised by Claimants in the present proceedings revolves around a
purely contractual topic – the termination of the Privatization Agreement. Although
this seems as a common subject of dispute, the first impression is misleading – the
cause of the dispute is completely atypical. This is a case of a notoriously negligent
investor who was given literally a hundred of second chances to fulfill his obligations
from privatization agreements and who is now unsatisfied as one of his contracts was
terminated after he was unable to cure the same breach for almost five years. In other
words, Respondent is being sued because the Agency was giving too many chances
to Claimants i.e. their alleged alter ego Mr. Obradovic.
41
79. The Agency is also criticized because it terminated the Privatization Agreement due
to an allegedly minor breach of the contract i.e. breach of an obligation that is
insignificant. Yet, Claimants fail to explain why, during almost five years of additional
deadlines, Mr. Obradovic did not fulfil that obligation - if the obligation was
insignificant, than its fulfillment should not have be difficult for Mr. Obradovic.
80. In this section, Respondent explains: (1) Mr. Obradovic’s history of negligent
contractual performance; (2) the obvious breach of Article 5.3.4. of the Privatization
Agreement; (3) the contracting parties’ conduct regarding the breach of Article 5.3.4.;
(4) the Ministry of Economy’s position; and (5) the legal ground for termination of
the Privatization Agreement.
1. Mr. Obradovic’s history of negligent contract performance
81. When reading Claimants’ submissions, one could get an impression that Mr.
Obradovic was a diligent investor who fulfilled all his obligations in due course but
was nevertheless harmed by the State through an unlawful and unjustified termination
of the Privatization Agreement. Yet, the truth is quite the opposite.
82. Mr. Obradovic was an extremely problematic buyer who was given a number of
“second chances” and extensions for the fulfillment of his obligations related to
various privatized companies, including BD Agro. The Privatization Agreement was
terminated only after he was not able to cure its one breach for almost five years.
Those are the inescapable facts.
1.1. Breaches of other privatization agreements
83. Mr. Obradovic (i.e. Mr. Rand) prides himself in acquiring several companies other
than BD Agro in the privatization process (PIK Pester, Inex, Crveni Signal, Beotrans).
However, what Claimants do not mention is that in these privatizations Mr. Obradovic
also made a number of breaches of privatization agreements, including the breach of
article 5.3.4. (which corresponded to the same provision in the Privatization
Agreement).
84. As in the case of BD Agro, in these other privatizations Mr. Obradovic was also
granted numerous additional time extensions in order to fulfill his obligations and
remedy the breaches in question. Specifically, Mr. Obradovic was issued with:
42
i. 25 notices/extensions for PIK Pester;149
ii. 19 notices/extensions for Beotrans;150
iii. 13 notices/extensions for Inex;151
iv. 6 notices/extensions for Crveni Signal.152
85. In other words, more than 60 notices and extensions were given to Mr. Obradovic in
privatizations other than BD Agro (all claimed to be beneficially owned by Mr.
Rand153). In each case, Mr. Obradovic eventually managed to remedy the breach,
albeit with more or less delays. The only breach where he was ultimately unsuccessful
despite additional extensions of time, was the 221 Million Pledge in the case of BD
Agro.
86. This clearly demonstrates that Mr. Obradović was an experienced investor, in
particular when it comes to the privatization in Serbia, and that he was very well aware
of the true extent of his obligations towards the Agency under the Privatization
Agreement.
1.2. Breaches of the Privatization Agreement
87. In the case of BD Agro, the Agency issued 30 notices to Mr. Obradovic with extension
of time for fulfillment of the obligations.
88. Mr. Obradovic was in breach of his obligations almost immediately after the
conclusion of the Privatization Agreement. According to Article 3.3 of the
Privatization Agreement, Mr. Obradovic was under the obligation to submit to the
Agency an unconditional bank guarantee for the fulfillment of mandatory investment
obligations, within 30 days from the date of signing of the Privatization Agreement.154
149
Report from the 17th control of PIK Pester, 1 April 2011, p. 2, RE-379.
150
Report from the 9th control of Beotrans (with supplementations), 21 April 2011, RE-404.
151
Report from 9th control of Inex, 5 March 2010, RE-403.
152
Letter from the Privatization Agency to Mr. Obradovic dated 30 August 2007, RE-407; Letter from the
Privatization Agency to Mr. Obradovic dated 30 Маy 2008, RE-408.
153
154
Privatization Agreement with Annexes, 4 October 2005, CE-17, Article 3.3.
43
However, when he did not submit the guarantee within the said deadline, the Agency
sent Mr. Obradovic four warning notices, granting him extensions of the deadline.155
89. Finally, more than six months after the first notice was served, Mr. Obradovic
provided the guarantee.156
90. Mr. Obradovic struggled with the payment of the Purchase Price as well. In 2006, the
second installment was paid only after a warning notice was sent to him.157 Two years
later, in 2008, he paid the fourth installment after three notices, 158 while in 2009, he
paid the fifth installment after three notices.159 In 2010, the Privatization Agency
demonstrated more understanding than ever before, when it gave Mr. Obradovic as
many as four extensions of the deadline for payment of the sixth installment of the
Purchase Price.160
91. Mr. Obradovic however showed most persistence and lack of care by indebting BD
Agro and pledging its assets for the benefit of third parties, contrary to Article 5.3.4.
of the Privatization Agreement. In one of its controls, the Privatization Agency
discovered that, in 2008, BD Agro pledged some of its real estate in order to secure a
EUR 400,000 loan given by Erste Bank to another company - Vihor.161 In the same
period, it made another discovery of additional pledges established on BD Agro’s real
estate as the security for repayment of a loan taken by Inex.162 In February 2009, Mr.
Obradovic was warned and given an additional deadline to cure the said breaches.163
155
Letter from the Privatization Agency to Mr. Obradovic, 8 November 2005, RE-380. Letter from the
Privatization Agency to Mr. Obradovic, 2 March 2006, RE-381; Letter from the Privatization Agency to
Mr. Obradovic, 12 April 2006, RE-382; Letter from the Privatization Agency to Mr. Obradovic, 1 June
2006, RE-383.
156
Report of Ministry of Economy on the Control over the Privatization Agency, 7 April 2015, p. 7, CE-98.
157
Letter from the Privatization Agency to Mr. Obradovic, 2 November 2006, RE-200.
158
Letter from the Privatization Agency to Mr. Obradovic, 9 October 2008, RE-201; Letter from the
Privatization Agency to Mr. Obradovic, 3 November 2008, RE-202; Letter from the Privatization Agency
to Mr. Obradovic, 9 December 2008, RE-203.
159
Privatization Agency to Mr. Obradovic, 11 December 2009, RE-204; Letter from the Privatization Agency
to Mr. Obradovic, 29 January 2010, RE-205.
160
Privatization Agency to Mr. Obradovic, 3 December 2010, RE-207; Letter from the Privatization Agency
to Mr. Obradovic, 25 January 2011, RE-208; Letter from the Privatization Agency to Mr. Obradovic, 3
March 2011, RE-209; Banking excerpts confirming payment of installments of purchase price by Mr.
Obradovic, 15 October 2015, RE-33.
161
Letter from the Privatization Agency to Mr. Obradovic, 24 Feburary 2009, RE-385.
162
Notice on additionally granted term for compliance with Article 5.3.4. of the Privatization Agreement of
31 March 2009, RE-100.
163
Letter from the Privatization Agency to Mr. Obradovic, 24 Feburary 2009, RE-385.
44
As he failed to comply with the notice, more warnings and extensions came. Finally,
after seven additional notices i.e. extensions, Mr. Obradovic complied and erased the
pledges in question, as explained in more detail below.164 It should be noted that each
time that the Agency gave an extension because of these breaches of Article 5.3.4, it
explicitly warned that the Privatization Agreement would be terminated in case of
non-compliance.165
92. In summary, apart from the breach that lead to the termination of the Privatization
Agreement, Mr. Obradovic committed a number of other breaches that could be a
reason for the Agency to declare the said agreement terminated throughout its
duration. However, the Agency demonstrated extreme patience and understanding,
and gave Mr. Obradovic as many as twenty-one “second chances“.
93. Even after all this, the Agency did not lose patience with Mr. Obradovic. On the
contrary, as explained further below, the Agency gave another four years of extensions
to Mr. Obradovic (raising the total number of warning notices to 30), before it
terminated the Privatization Agreement, because even after all this time Mr.
Obradovic did not remedy the breach. Claimants now contend166 that the termination
was conducted too late i.e. that the Agency had to terminate the Agreement when it
discovered the breach. In other words, the Agency is accused of giving too many
chances to Mr. Obradovic. This is absurd.
94. Apparently, Claimants are on the position that it would be fairer that in case of 221
Million Loan the Agency acted differently than in the case of the previous breaches
when Mr. Obradovic was also given a number of additional deadlines to remedy the
breach (which he did each time, except with 221 Million Loan breach).
2. There was obvious breach of Article 5.3.4.
95. This dispute revolves around an uncontested factual state. It is undisputed that, on 22
December 2010, BD Agro, as debtor, entered into a Loan Agreement with Agrobanka
164
Section I. B. 3.3.3.
165
Letter from the Privatization Agency to Mr. Obradovic, 31 March 2009, RE-386; Letter from the
Privatization Agency to Mr. Obradovic, 13 April 2009, RE-387; Notice on additionally granted term for
compliance with Article 5.3.4. of the Privatization Agreement of 30 July 2009, RE-103; Letter from the
Privatization Agency to Mr. Obradovic, 24 Feburary 2009, RE-385.
166
Reply, paras. 393 et seq.
45
for the amount of RSD 221,000,000 (app EUR 2 million)167 (“221 Million Loan”). It
is also uncontested that around 50% of the 221 Million Loan was used for the benefit
of two of Mr. Obradovic’s affiliated companies, and that these amounts were never
returned to BD Agro. Finally, it is uncontested that this agreement served as a basis
to establish a pledge over BD Agro’s real estate on 14 January 2011, as security for
repayment of the amount of RSD 221,000,000 (and other obligations from the
agreement).168
96. However, what is contested in the present arbitration is whether this constituted a
contract breach. Claimants contend that Article 5.3.4. of the Privatization Agreement
was not breached by the 221 Million Loan, i.e. by the manner in which that loan was
used. As will be elaborated hereunder, this is incorrect.
2.1. Meaning and purpose of Article 5.3.4.
97. Article 5 of the Privatization Agreement deals with the representations, warranties and
obligations of the buyer. Among other things, in Article 5.3.4, Mr. Obradovic obliged
himself that, without the previous written approval by the Agency, BD Agro:
“[…] will not encumber with pledge the fixed assets of the subject
during the term of the Agreement, except for the purpose of
securing claims towards the subject stemming from regular
business activities of the subject, or except for the purpose of
acquiring of the funds to be used by the subject.”169
98. Therefore, the cited provision established that a pledge on the fixed assets was
prohibited, and that it was only allowed as an exception for two limited purposes: (i)
securing claims towards BD Agro stemming from regular business activities; or (ii)
167
At the time the 221 Million Agreement was concluded, on 22 December 2010, the RSD middle exchange
rate of the National Bank of Serbia for EUR was 106.44 (221,000,000 ÷ 106.44 = 2,076,287.11). National
Bank of Serbia RSD Exchange Rate on 22 December 2010, RE-44.
168
Pledge was constituted over cadastral parcels no. 4670, 4673-4684, 4686-4687, 5516-518, 5527-5528,
5544, 5546-5549, 5550/1, 5553, 5574-5584, 5587-5589, 5023/1, 5023/5, 5023/7, 5521 and 5522, all located
in cadastral municipality Dobanovci and owned by BD Agro. Decision of the First Basic Court in Belgrade
no. Dn-14124/10 of 14 January 2011, RE-9; Excerpt from the Land Register no. 4031, cadastral
municipality Dobanovci of 13 March 2019, RE-45.
169
Article 5.3.4. of the Privatization Agreement, RE-12.
46
acquiring funds to be used for the benefit of BD Agro. The stipulated rule was thus
quite straightforward and was explained in detail in Counter-Memorial.170
99. Nevertheless, Claimants (and their expert Mr. Milosevic) are persistent with
introducing an interpretation of Article 5.3.4. which is completely divorced from
reality. According to them, the “regular business activity” of BD Agro encompasses
loaning the funds;171 the funds are used by BD Agro even when they are spent for
benefit of third persons;172 and the purpose of Article 5.3.4. is only to secure
fulfillment of other contractual obligations,173 meaning that the Privatization
Agreement could not be terminated only for the breach of that provision. This is all
wrong.
2.1.1. BD Agro’s “regular business activity” was not loaning funds
100. BD Agro’s “regular business activity” was agriculture. In fact, the translation of BD
Agro’s full name at the time of the Privatization reads as “Agricultural-food industry”
Budućnost Dobanovci.174 The public call for the auction for BD Agro also stated that
its business activity was “Growing grain and crops and planting”.175 Furthermore, the
public call also described that the “most important products / services” of BD Agro
were: “1-wheat, (seed, mercantile) 2-sunflower, mercantile, 3-barley (seed and
mercantile), 4-sugar beet, 5-table eggs, 6-beef cattle, 7-lambs and pigs, 8-
unprocessed milk.”176 The management of BD Agro after the auction also described
the business activity of BD Agro as “milk production” or “primary agricultural
production”.177
101. Since BD Agro was an agricultural company, and not a bank or a credit institution,
paying out debts of third parties and giving out interest-free loans definitely does not
fall under its “regular business activity”. Yet, Claimants beg to differ.
170
171
Reply, para. 165.
172
Second Expert Report of Mr. Milos Milosevic, 3 October 2019, paras. 46; Reply, para. 170.
173
Second Expert Report of Mr. Milos Milosevic, 3 October 2019, paras. 66.
174
Public Call for BD Agro’s Auction, 26 August 2005, RE-397 (in Serbian: “Poljoprivredno-prehrambena
industrija”).
175
Public Call for BD Agro’s Auction, 26 August 2005, RE-397.
176
Public Call for BD Agro’s Auction, 26 August 2005, RE-397.
177
BD Agro’s Business Plan for the years 2006-2011, pp. 4-5, 8, 14, CE-20.
47
102. Claimants argue that the use of the 221 Million Loan did not present a breach of
Article 5.3.4. because the transactions between BD Agro, Crveni signal and Inex
“represented regular business activity which is common in groups of companies that
share the same ultimate owner.”178 According to this unreasonable position, any and
all companies in the world, regardless of what industry they are in and what is their
main work activity (be it wood processing, aluminum production, education,
healthcare, banking, tourism or literally anything else), share a common “regular
business activity” of giving out loans, assuming and/or paying out third parties’ debts
- as long as they share the same ultimate owner with the third parties in question.
Needless to say, such interpretation has no sense and completely ignores the ordinary
meaning of the term “regular business activity”.
2.1.2. Using of funds by BD Agro means using the funds for its benefit
103. According to Claimants, since Article 5.3.4. states that BD Agro can pledge its assets
“for the purpose of acquiring of the funds to be used” by BD Agro, Mr. Obradovic did
not commit a breach as the funds from the 221 Million Loan were “used by” BD Agro
“to repay the debt it had assumed from Crveni Signal […] and BD Agro used another
part of these funds to provide a loan to Inex”.179 Remarkable word play, to say the
least. Again, the interpretation offered by Claimants only leads to absurd results, as
Article 5.3.4. would be rendered meaningless. The Buyer would be allowed to easily
evade the said rule by simply taking an unlimited number of loans, pledging all of its
property, and forwarding all such funds to third parties, claiming that the funds are
being “used” by BD Agro. This obviously cannot be the correct interpretation of
Article 5.3.4.
104. In addition, Claimants’ interpretation also rests on an inaccurate translation of the

words “čiji će korisnik biti subjekt“. In Prof. Radovic’s opinion, these words „could
only mean that the pledges could have secured BD Agro’s acquisition of funds for the
benefit of BD Agro”, and not to be used by BD Agro.180 Thus, the accurate translation
of Article 5.3.4. also confirms that any funds secured by a pledge over BD Agro’s
property had to be used for the benefit of BD Agro and nobody else.
178
Reply, para. 165.
179
180
Second Expert Report of Prof. Radovic, 24 January 2020, para. 24.
48
105. With respect to Inex, Claimants allege181 that BD Agro only “returned a favor” since
Inex acquired certain debts of BD Agro back in 2005 and decided not to pursue an
alleged interest of EUR 1.7 million. First of all, there is no evidence in support of this
argument – the existence of the interest is not proven let alone that it was not paid. In
addition, this “favor” was nowhere to be mentioned in the interest-free loan
agreement.182 Finally, and more importantly, Article 5.3.4. does not recognize any
exception when it comes to use of the funds for the benefit of third parties – this is
simply prohibited if they are acquired through pledging the fixed assets of BD Agro.183
Mr. Obradovic knew this full well, and even confirmed the same understanding with
the Agency when it previously made the same breach and agreed to remedy it. 184
106. Hence, bearing in mind the use of the 221 Million Loan, which was secured by the
221 Million Pledge, there was obviously a breach of Article 5.3.4. of the Privatization
Agreement because the loaned funds were not used by BD Agro. Mr. Obradovic was
well aware that in that way he breached the Privatization Agreement. As in the cases
of his previous breaches of Article 5.3.4. in BD Agro185 and PIK Pester,186 Mr.
Obradovic was aware that his actions were contrary to the Privatization Agreement,
so he again admitted his breach and promised to remedy it.187
107. Respondent’s interpretation is supported by case law of Serbian courts. Commercial

Court decided in 2011 in the Betonjerka case, that this kind of behavior constituted a
clear case of bad faith that breached Article 5.3.4.188 In the Betonjerka case the subject
of privatization was a company for production of concrete pillars, power substations
and accompanying elements for construction and maintenance of electric power
facilities.189 However, it borrowed the funds obtained through loans (which were
181
Reply, para. 157.
182
Agreement on Interest-Free Loan of 29 December 2010, RE-10.
183
In fact, the “favor” could only explain the motive behind Mr. Obradovic’s conduct with respect to the 221
Million Loan, which was, however, utterly irrelevant. Therefore, the “favor” was legally inexistent for the
purpose of interpreting the pertinent contractual provisions. Furthermore, as Mr. Rand explained, this
“favor” was apparently done in order to enable him to buy BD Agro i.e. to improve his chances of success
in the bidding process (See Second Witness Statement of Mr. William Rand, 3 October 2019, para. 22).
Therefore, Mr. Rand states that the debt was acquired in order to be sure that bankruptcy would not be
initiated before the auction, and because it improved Mr. Rand’s chances of success at the auction itself.
Hence, Inex was not “doing a favor” to BD Agro, but to Messrs. Obradovic and Rand.
184
See Section I. B. 3.3.3
185
See Section I. B. 3.3.3
186
See Section I. B. 3.3.2.
187
See Section I. B. 3.2.1 and I. B. 3.2.2.
188
Judgment of the Commercial Court in Belgrade, No. 4.P 1744/10, dated 3 June 2011, pp. 11-12, RE-370.
189
Judgment of the Commercial Court in Belgrade, No. 4.P 1744/10, dated 3 June 2011, p. 1, RE-370
49
secured by the pledges) to affiliated entities of the buyer. The court concluded that the
buyer acted in bad faith as the pledges were not established to secure claims stemming
from the regular business activity of the subject, seeing that credit placements were
not part of its business.190 The court also concluded that the funds in question were
not “used by” the subject as they were just forwarded i.e. loaned to other entities.191
This decision was confirmed in the appellate proceedings by the second instance
court.192
108. Finally, in their Reply, Claimants repeat their argument that the Privatization
Agreement was not breached by the pledge, since the pledge was not established by
Mr. Obradovic, as the buyer, but by BD Agro.193 As Respondent has already explained
the absurdity of this assertion in the Counter-Memorial the Tribunal is kindly directed
to that discussion.194
2.1.3. Purpose of Article 5.3.4.
109. When it comes to purpose of Article 5.3.4. it was well defined in the decision of the
Commercial Court of Appeal in the Betonjerka case:
“The goal of the provision of Article 5.3.4. is to protect the

property of the subject of privatization and to safeguard the
material base of the business of the subject of privatization,
without which the buyer, due to their nature and the nature of the
contract, cannot fulfill other contractual obligations, cannot
secure continuity of business operations of the enterprise and
fulfillment of the agreed obligations.”195
110. The court clearly emphasized that the purpose of Article 5.3.4. is “[i] to protect the
property of the subject of privatization”; and [ii] to safeguard the material base of the
190
Judgment of the Commercial Court in Belgrade, No. 4.P 1744/10, dated 3 June 2011, p. 12, RE-370. (“[…]
the plaintiff has not […] proven that he acted in good faith during the conclusion of the said legal
arrangements i.e. it does not arise that these arrangements served the purpose of securing claims towards
the subject which stemmed from the regular business activity of the subject as its business are not credit
placements i.e. it does not arise that they have been concluded for the purpose of acquiring funds to be used
by the subject (in accordance with Article 5.3.4. of the Agreement)”).
191
Ibid.
192
Judgment of the Commercial Appellate Court No. Pž 8687/2011, 18 December 2012, CE-722.
193
Reply, para. 167.
194
195
Judgment of the Commercial Appellate Court No. Pž 8687/2011, 18 December 2012, p. 5, CE-722.
50
business of the subject of privatization.”196 The court just went on to add that the
values which are protected by Article 5.3.4, are also necessary, due to their nature and
the nature of the contract, to fulfill other contractual obligations, such as securing
continuity of business operations of the enterprise. This reasoning obviously stems
from the basic principles of the Law on Privatization, which include, inter alia, the
creation of conditions for economic development and social stability. 197 These
principles are the very reason why Article 5.3.4. was introduced. Pledges are basically
a synonym for liquidity issues and instability. Without such provision, the buyer
would be free to pledge all assets of the subject of privatization for the benefit of any
third persons (which Claimants state Article 5.3.4. allows) meaning that regardless of
the fulfillment of all other obligations, principles of economic development and social
stability would still not be achieved. Therefore, as also confirmed by Prof. Radovic,198
it is incorrect to state that after fulfillment of other obligations Article 5.3.4. lost its
purpose after the payment of the purchase price.
111. With this in mind it is more than clear how erroneous is Claimants’ (and their expert’s)
conclusion that “upon the payment of the full purchase price and the fulfilment of all
other obligations under the Privatization Agreement, Article 5.3.4. lost its purpose
because there was no longer any outstanding contractual performance to be
secured.”199
112. Claimants’ interpretation of the cited decision is illogical for another reason as well.
Payment of the purchase price is obligation that should have been executed by the
Buyer and without the effect on BD Agro’s property. Hence, Article 5.3.4. (which
protected the property of BD Agro) could not serve as a security for payment of the
purchase price.
113. On the other hand, Claimants argue that Respondent’s interpretation of Article 5.3.4.
is “nonsensical” since, according to the Privatization Agreement, BD Agro was free
to sell its land plots for EUR 2 million in December 2010 (assuming the 10% and 30%
limits would not have been reached) and loan or even donate the proceeds from the
196
Judgment of the Commercial Appellate Court No. Pž 8687/2011, 18 December 2012, p. 5, CE-722.
197
198
Second Expert Report of Prof. Mirjana Radovic, 24 January 2020, para. 27.
199
Reply, para. 402.
51
sale to other entities.200 Therefore, according to Claimants, the “more disruptive
option” (sale and donation or loan) is clearly allowed by the Privatization Agreement–
while under Serbia’s interpretation, the “less disruptive option” (pledge and loan)
would have been prohibited.
114. However, the truth is that Claimants’ interpretation would actually be the most
disruptive for BD Agro, as BD Agro would be free to pledge all of its land in exchange
for loans, and then donate or loan all of the funds thus acquired to third parties. Having
been used to a one way extraction of funds and assets from BD Agro, Claimants’ seem
to struggle with seeing the major difference between Articles 5.3.3. and 5.3.4. In case
of the former, BD Agro disposes of its assets, but the corresponding purchase price
for such assets returns back to the company. In case of the latter, funds only exit BD
Agro and its pledged assets are only put at a risk of being compulsorily sold with no
benefit for the company.
115. The idea behind Articles 5.3.3. and 5.3.4. is to disable uncontrolled disposal of BD
Agro’s property. Article 5.3.3. allowed the Buyer to freely dispose with limited scope
of the assets, meaning that, as suggested by Claimants, BD Agro could have sold its
land and donate the proceeds from the sale, as long as the 10% and 30% limitations
are not reached. This limitation in disposal of the property is exactly the reason why
the restriction from Article 5.3.4. was needed. Otherwise Article 5.3.3. would be
meaningless, as the 10% and 30% limitations could be easily evaded. In fact, this is
exactly what Claimants intend to do with their interpretation of Article 5.3.4. - to
render it meaningless.
2.2. Use of 221 Million Loan breached Article 5.3.4.
116. Contrary to Claimants’ irrational assertions,201 Mr. Obradovic’s breach of Article

5.3.4. of the Privatization Agreement was quite straightforward as out of the 221
Million Loan, which was secured by the 221 Million Pledge, almost 50% i.e. EUR
200
201
52
959,719.60, was used for benefit of Mr. Obradovic i.e. Inex and Crveni Signal,
companies owned by Mr. Obradovic202 i.e. Mr. Rand203.
117. The 221 Million Agreement - On 22 December 2010, Agrobanka as creditor and BD
Agro as debtor concluded the 221 Million Agreement for the amount of RSD
221,000,000 (app EUR 2 million),204 to be used for “the consolidation of the company
and related entities”.205
118. The 221 Million Pledge - Based on the 221 Million Agreement, BD Agro submitted
to the court the request for registration of pledge accompanied by the statement of
pledge.206 On 14 January 2011, the court registered the 221 Million Pledge as security
for repayment of the amount of RSD 221,000,000 (and other obligations from the
agreement) over BD Agro’s real estate. This pledge remains until today.207
119. By establishing the 221 Million Pledge, Mr. Obradovic obviously “encumbered with
pledge the fixed assets” of BD Agro, in the meaning of Article 5.3.4. of the
Privatization Agreement. He also evidently “disposed of its property” in the meaning
of Article 41a(1) of the Law on Privatization.
120. The next question that needs to be answered is: has Mr. Obradovic established the 221
Million Pledge for the purpose of securing claims towards BD Agro stemmed from its
regular business activities or for the purpose of acquiring of the funds for the benefit
of BD Agro (in accordance with Article 5.3.4)? The answer is a resounding “no”.
121. BD Agro guaranteed the repayment for Crveni Signal – Prior the 221 Million Loan
Agreement was concluded, on 2 June 2010, Crveni Signal concluded the Short Term
Loan Agreement with Agrobanka in the amount of RSD 65.000.000 (app EUR
202
Proposal of the Center for Control for the session of the Commission for Control of 25 April 2012, p. 2,
RE-72.
203
204
At the time the 221 Million Agreement was concluded, on 22 December 2010, the RSD middle exchange
rate of the National Bank of Serbia for EUR was 106.44 (221,000,000 ÷ 106.44 = 2,076,287.11). National
205
Short Term Loan Agreement no. K-571/10-00 of 22 December 2010, Article 1, RE-6.
206
Request for registration of pledge in accordance with the Short Term Loan Agreement no. K-571/10-00,
RE-7. Statement of pledge no. Ov-37246/2010 of 28 December 2010, RE-8.
207
Pledge was constituted over cadastral parcels no. 4670, 4673-4684, 4686-4687, 5516-518, 5527-5528,
5544, 5546-5549, 5550/1, 5553, 5574-5584, 5587-5589, 5023/1, 5023/5, 5023/7, 5521 and 5522, all located
in cadastral municipality Dobanovci and owned by BD Agro. Decision of the First Basic Court in Belgrade
no. Dn-14124/10 of 14 January 2011, RE-9; Excerpt from the Land Register no. 4031, cadastral
municipality Dobanovci of 13 March 2019, RE-45.
53
600,000).208 Simultaneously, BD Agro guaranteed the repayment of that loan to
Agrobanka.209 On the same day that Crveni Signal received the funds from
Agrobanka, it immediately transferred them to the personal bank account of Mr.
Obradovic.210 The said loan remained unsettled. That is where BD Agro came in.
122. Agreement on Assumption of Crveni Signal’s Debt - On 28 December 2010, only a

few days after the conclusion of the 221 Million Loan Agreement, Crveni Signal,
Agrobanka and BD Agro concluded the Agreement on Assumption of Debt under
which BD Agro assumed the entire debt of Crveni Signal towards Agrobanka from
the Short Term Loan Agreement of Crveni Signal, in the amount of RSD 65,000,000
(app EUR 600,000)211 plus interest, whereas Crveni Signal was released from the said
debt.212 The funds were provided from the 221 Million Loan.
123. Agreement on Interest-Free Loan to Inex - At the same time, on 29 December 2010,
BD Agro and Inex (another company owned by Mr. Obradovic213 i.e. Mr. Rand214)
concluded an Agreement on Interest-Free Loan to Inex by which BD Agro undertook
to provide to Inex a cash loan in the amount of RSD 32,000,000 (app EUR 300,000).215
Same as with Crveni Signal’s debt, these funds also ended up on Mr. Obradovic’s
private bank account.216 The pertinent funds were also provided from the 221 Million
Loan.
124. It is important to note that Claimants do not dispute these facts in any way. They only
disagree with legal qualification of whether or not these circumstances constituted a
208
Agreement on Assumption of Debt of 28 December 2010, Articles 1 and 4, RE-11. At the time the
Agreement on Assumption of Debt of Crveni Signal was concluded, on 28 December 2010, the RSD middle
exchange rate of the National Bank of Serbia for EUR was 106.08 (65,000,000 ÷ 106.08 = 612,745.09).
National Bank of Serbia RSD Exchange Rate on 28 December 2010, RE-81.
209
Guarantee agreement between BD Agro and Agrobanka, 2 June 2010, RE-005.
210
Crveni Signal Bank Statement, 2 June 2010, RE-372.
211
At the time the Agreement on Assumption of Debt of Crveni Signal was concluded, on 28 December 2010,
the RSD middle exchange rate of the National Bank of Serbia for EUR was 106.08 (65,000,000 ÷ 106.08 =
612,745.09). National Bank of Serbia RSD Exchange Rate on 28 December 2010, RE-81.
212
Agreement on Assumption of Debt of 28 December 2010, Articles 1 and 4, RE-11.
213
RE-72.
214
215
Agreement on Interest-Free Loan of 29 December 2010, Articles 1 and 4, RE-10. At the time the
Agreement on Interest-Free Loan to Inex was concluded, on 29 December 2010, the RSD middle exchange
rate of the National Bank of Serbia for EUR was 105.88 (32,000,000 ÷ 105.88 = 302,228.94). National Bank
of Serbia RSD Exchange Rate on 29 December 2010, RE-82.
216
Bank Statement of Mr. Obradovic’s, 14 February 2011, RE-437;
54
breach. Therefore, it is undisputed that (contrary to the clear wording of Article 5.3.4.)
BD Agro encumbered with pledge its fixed assets in order to, inter alia:
a) payout Crveni Signal’s debt towards Agrobanka in the total amount of RSD
70,944,422.27 (EUR 670,045.54),217 and
b) give out an interest free loan to Inex in the total amount of RSD 30,670,690
(EUR 289,674.06).218
125. The Agency discovered the said transactions in January 2011. In February 2011 it
notified the breach of Article 5.3.4. and requested an according remedy from Mr.
Obradovic. During the following four years, the Agency granted another eight
additional terms for remedying this same breach. Yet, all auditor’s reports Mr.
Obradovic delivered to the Agency throughout period 2011-2015 consistently showed
that the debts of Crveni Signal and Inex remained unpaid and that the 221 Million
Pledge remained registered.
126. What is shocking is that Mr. Obradovic and Claimants lie through their teeth (any
other phrase would be inappropriate) that the 221 Million pledge was erased i.e. that
it is only formality to erase it. They lied not once but three times. And they lied not
only to the Agency but also to the Tribunal. This fact speaks for itself.
127. First time Mr. Obradovic lied in his letter to the Agency of 10 September 2015, when
he explicitly stated that:
“[I] attached the evidence that BD Agro is in possession of all the

documents needed for deletion of pledges registered on its
immovable property as security instruments for the loans BD Agro
received from Nova Agrobanka [], which were partially used to
finance loans approved to related parties — Inex — Nova Varos
[] and Crveni Signal []. Since BD Agro repaid these loan
obligations in timely manner, on September 4, 2015, Nova
217
Audit report by Auditor doo of 29 April 2011, RE-13. On 29 December 2010, the RSD middle exchange
rate of the National Bank of Serbia for EUR was 105.88 (70,944,422.27 ÷ 105.88 = 670,045.54). National
218
Audit report by Auditor doo of 29 April 2011, RE-13. On 29 December 2010, the RSD middle exchange
rate of the National Bank of Serbia for EUR was 105.88 (30,670,690 ÷ 105.88 = 289,674.06). National Bank
of Serbia RSD Exchange Rate on 29 December 2010, RE-82.
55
Agrobanka provided appropriate statement for deletion of these
pledges […] This way, complete fulfillment of obligations referred
to in Article 5.3.4. of the Agreement was ensured, since all of the
conditions were met for the deletion of all disputed
aforementioned pledges (all necessary documents were obtained),
and BD Agro is waiting for an appropriate decision from the […]
Real Estate Cadastre Office on deletion of the pledges”.219
128. The second time Claimants lied in their Memorial. This time they attempted to deceive
the Tribunal in the same way Mr. Obradovic tried to deceive the Agency and provided
the same documentation that referred to removal of another pledge, not the 221
Million Pledge. They even dare argue how shocking it was of the Agency not to
accept these papers as evidence that the pledge, due to which the Privatization
Agreement was terminated, was deleted.220 However, after being confronted in
Respondent’s Counter-Memorial with the fact that the said documentation related to
a completely different pledge (while the 221 Million Pledge remains registered),221 in
their Reply Claimants have said nothing more in this regard, thereby ostensibly putting
an end to this embarrassing attempt of deception.
129. However, Claimants did not refrain from lying for the third time, by advancing another
misleading argument which states that the 221 Million Loan was repaid by a new loan
from Nova Agrobanka in 2012 (“Refinancing Loan”), and that Nova Agrobanka
“could not exercise any pledge rights after the repayment of the secured loan in
2012”.222 Claimants further stated that the “continuing formal existence of the pledge
[…] did not violate Article 5.3.4. of the Privatization Agreement”.223 Here, after all,
Claimants admit that the pledge continues to exist, albeit "formally". However, their
explanation is all wrong, just like the conclusion of the auditor Prva Revizija (on
219
Letter from Mr. Djura Obradović to Privatization Agency , 8 September 2015, p. 3, CE-48.
220
Memorial, paras. 213 (“Attached to the letter were documents showing BD Agro’s request to the Land
Register for removal of the pledge on BD Agro’s land securing Crveni Signal’s debt, which had been granted
on 7 September 2018. The letter also reminded the Privatization Agency that BD Agro’s auditors had
confirmed that the conditions for removal of the remaining pledges had been met because the secured loans
had been repaid”), 409 (“In fact, Mr. Obradović remedied the purported breach of Article 5.3.4. when all
the requirements for the removal of the allegedly non-compliant pledge were met and the pledge was
ultimately deleted from the Land Register on 7 September 2015”).
221
222
Reply, para. 425.
223
Reply, para. 426.
56
which Claimants rely) that “Mortgages on the basis of security for obligations of third
person have not been deleted, but those obligations have been settled and the
conditions have been met for deletion of mortgage on this basis”.224
130. First, by the Refinancing Loan, BD Agro indebted itself by another loan with the same
bank in order to repay the 221 Million Loan. The 221 Million Loan Agreement was
not terminated nor did the 221 Million Pledge became unenforceable or erased. Article
14 of the Refinancing Loan clearly stated:
“The Beneficiary agrees that in case of non-payment of

obligations within deadlines and under conditions prescribed in
this Agreement Nova Agrobanka is entitled to declare as due all
investments from all agreements concluded with the Beneficiary
before execution of this Agreement, in particular: […]
Short-Term Loan Agreement no. K-571/10-00, dated 22

December 2010; [i.e. 221 Million Loan]
[…]
In accordance with the previous paragraph, the Beneficiary

authorizes Nova Agrobanka to declare as due all claims in
accordance with this agreement and the agreements listed above,
and to take all necessary measures for collecting payments
through activation of security instruments.”225
131. Therefore, the refinancing of the 221 Million Loan obviously did not provide for a
deletion of the 221 Million Pledge, on the contrary, it clearly stated that this pledge
can be enforced under the Refinancing Loan. In addition to the permanent existence
of the 221 Million Pledge as from 2010, the funds used for the benefit of Inex and
Crveni Signal (or rather for the benefit of Mr. Obradović himself), obtained from
Agrobanka and secured by that pledge, remained unreturned. Therefore, breach of
224
Report on Factual Findings from Prva Revizija, 12 January 2015 (emphasis added), CE-327, p. 5.
225
Loan agreement between BD Agro and Nova Agrobanka, 22 June 2012 (emphasis added), CE-441.
57
Article 5.3.4. existed and in fact it would still exist (absent the termination of the
Privatization Agreement).
132. Second, the Refinancing Loan established new pledges on the fixed assets of BD
Agro.226 Therefore, even if Mr. Obradovic had managed to delete the 221 Million
Pledge, the fixed assets of BD Agro would still be pledged for funds that were used
by Inex and Crveni Signal. More precisely, BD Agro spent a part of the Refinancing
Loan (secured by new pledges) in order to “pay out” the 221 Million Loan which was
partially used by Inex and Crveni Signal. Yet, the 221 Million Loan was still on
standby, and the 221 Million Pledge remained registered and could have been
activated at any moment.
3. Contracting parties’ conduct regarding the breach of Article 5.3.4.
133. As Respondent has already explained in detail the exact content and chronology of
the Agency’s and Buyer’s communication regarding breach of Article 5.3.4. in its
CounterMemorial,227 it will not repeat itself herein. Instead, for ease of reference,
Respondent prepared the chart showing chronology of communication between the
Agency and the Buyer (see Appendix 1). This chronology clearly shows that (i) the
Agency was constantly on the position that the Article 5.3.4. was breached and that
the breach had to be remedied, or the agreement would be terminated according to
Article 41a of the Law on Privatization, (ii) that Mr. Obradovic also had no doubt that
he breached the Article 5.3.4. and that he kept promising that the breach would be
remedied but that at one point he changed his story.
134. Hereunder Respondent will point to only several, most indicative instances of
communication, and will afterwards address the contracting parties’ conduct in other
cases when Article 5.3.4. was breached.
226
Loan agreement between BD Agro and Nova Agrobanka 22 June 2012, Article 8, CE-441.
227
58
3.1. Agency’s conduct regarding the Breach of Article 5.3.4.
3.1.1. Agency’s notices
135. In January 2011, the Agency discovered numerous breaches of the Privatization
Agreement, including in particular the breach of Article 5.3.4. based on the 221
Million Pledge. Immediately upon discovering it, in February 2011, the Privatization
Agency notified Mr. Obradovic, stating in this regard that:
“[…] by the review of excerpts from real estate registers submitted

by the Subject of privatization on January 27, 2011, it was noted
that on the fixed assets of the Subject of privatization, inter alia,
pledge rights were registered to secure the obligations of third
parties, pledge rights to secure the funds (loans) whose
beneficiaries are third parties (partially or fully), pledge rights to
secure the loans from 2010 which were not shown in Final balance
as of December 31, 2010 […]”228
136. Furthermore, the Agency decided that:
“[…] in accordance with Article 41a of the Law on Privatization,

the Buyer is given additionally granted term of 60 days from the
day of the receipt of this Decision for fulfillment of obligations
referred to in items 5.3.3 and 5.3.4 of the Agreement and
submission of a report (previously approved by the Agency in
writing) […] containing the findings on actions of the Buyer
undertaken in the additionally granted term, stating whether the
Buyer has fulfilled the obligations referred to in items […] 5.3.4
of the Agreement […]”229
137. More specifically, the buyer was obliged to submit an audit report, which would
demonstrate, inter alia:
228
Notice of the Privatization Agency on Additional Time Period, 24 February 2011 (emphasis added), CE-
31.
229
31.
59
“ - whether all the encumbrances have been deleted and all other
security instruments for the obligations of third parties have been
returned and all encumbrances which have been registered on no
grounds were deleted (debt returned, new pledges and pledge of
chattels registered, the old ones not deleted);
- whether all the loans given to third parties by the Subject of

privatization from loan amounts secured by encumbrances on the
property of the Subject have been returned;”230
138. The consequence of not complying with the notice within the additionally granted
term was communicated equally clearly, stating:
“In the event of failure to comply with the above stated contractual
obligations within the additionally granted term as per this Notice,
the Privatization Agency will undertake the measures under
Article 41a of the Law on Privatization”231
139. Throughout the period of 2011-2015, this Agency’s stance with respect to the breach
of Article 5.3.4, its remedy and the ensuing consequences in case the breach was not
remedied remained the same.232
140. Notably, Claimants do not even argue that the Agency ever changed its position
regarding Mr. Obradovic's breach of Article 5.3.4. by using the 221 Million Loan.
Instead they state that the Agency’s requests were arbitrary as there was no need to
request both the deletion of the pledge and return of the funds used by Crveni Signal
and Inex.233 The truth is that the Agency only listed documentation which it regularly
required as a proof of the remedy of the breach of Article 5.3.4. As transcripts from
the sessions of the Commission for Control demonstrate, providing proof for either
one of the requested actions would have been a sufficient remedy for the Agency.234
230
31.
231
Notice of the Privatization Agency on Additional Time Period, 24 February 2011, CE-31.
232
See Appendix 1.
233
Reply, para. 424.
234
Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, p. 7, CE-
768 (“[…] what they are asking from them is either to delete the pledge or to act. Now, deleting pledge
could probably be a problem because of the settlement of other creditors’ claims by creditor classes, but
they could resolve this issue through repayment of funds by these third parties. Or, and we have requested
60
In any case, Mr. Obradovic never delivered any of the requested evidence - thereby
rendering Claimants’ argument in this regard moot.
3.1.2. Meetings with the Buyer
141. Besides the notices, the Agency also organized a number of meetings with Mr.
Obradovic. At all these meetings, the Agency’s stance remained the same, which is
also evident from the chronology of the communications with the Buyer presented in
the Appendix 1.
142. For instance, on 23 November and 16 December 2011, the Agency reiterated its
previous requests and concluded that the Buyer needs to deliver an appropriate audit
report containing, inter alia, explicit statements as to the fulfillment of his obligations
in accordance with Article 5.3.4. and including excerpts from the real estate
cadaster.235 In March 2012, the Agency again only repeated its previous requests,236
while in November 2012, the representatives from the Ministry of Economy explicitly
supported the Agency’s request at a meeting where they were present.237
143. At the meeting held on 4 February 2014, the Agency’s representatives very clearly
repeated their previous requests238 and stated that:
“the payment of the purchase price is only one of the contractual

obligations and that the execution of other contractual obligations
is independent of the obligation to pay the purchase price. [The
Agency’s representative] also stated that the Agency in its work
this, since this is a fault, so to say, of the buyer, we are treating this as the buyer’s fault, if the aforementioned
cannot be achieved, to repay this from his own funds as an extraordinary revenue (vanredni prihod)”
(emphasis added)).
235
Proposal of the Center for Control for the session of the Commission for Control of 21 December 2011, p.
2, RE-71.1.
236
RE-72.1.
237
Proposal of the Center for Control for the session of the Commission for undertaking measures of 7
November 2012, RE-75 (“representatives of the Ministry confirmed that the Buyer has the obligation to
submit to the Agency the auditor’s report with auditor’s statement on acting of the Buyer within the
additional deadline, as well as to submit explanation of reasons for not being able to meet the obligations
under the Agreement as a whole”)
238
Minutes from meeting held at the Privatization Agency on 4 February 2014, RE-36 (“By the representative
of the Center for Control of Performance of Agreements the Buyer was informed that the violation of
contractual obligations was established before the Buyer paid the full purchase price, and that before the
payment of the price the measures were taken towards the Buyer, i.e., there was a remedial period given to
him to submit proof that the violations have been cured and that the Buyer has still not acted accordingly.”)
61
applies the Law on Privatization and controls the concrete sale
contract, that all obligations are important and that what is signed
must be completed to the end. This is a standard form contract of
sale by public auction and the treatment during the control is the
same, for any offense, irrespective of the gravity of the offense.”239
144. Conveniently, Mr. Obradovic now claims to have no recollection of this meeting ever
taking place.240 In fact, he states that he does not recall ever meeting any of the
representatives of the Agency present there either (i.e. Dr. Albina Kecman Susnjar,
Ms. Angelina Jevtic and Ms. Katarina Misailovic). However, Mr. Obradovic
obviously has astonishingly bad memory (when necessary), as the Agency’s officials
present there frequently appeared at the meetings regarding BD Agro both before and
after February 2014.241 In particular, Ms. Misailovic was apparently present at all of
the earlier meetings held with Mr. Obradovic,242 and was even the one sending the
invitations for these meetings to him.243
145. The meetings that followed (held on 15 and 17 December 2014, 16 January, 20 and
27 April 2015) did not change the Agency’s stance in any way. The insistence that
there was a breach of Article 5.3.4. and the request for remedy were reiterated over
and over again.244
239
Minutes from meeting held at the Privatization Agency on 4 February 2014, RE-36.
240
Second Witness Statement of Mr. Djura Obradovic, 4 October 2019, para. 90.
241
See Proposal of the Center for Control for the session of the Commission for Control of 21 December 2011,
RE-71.1, Proposal of the Center for Control for the session of the Commission for Control of 25 April 2012,
RE-72.1, Proposal of the Center for Control for the session of the Commission for undertaking measures of
7 November 2012, RE-75.1; Minutes from meeting held at the Ministry of Economy on 17 December 2014,
RE-22, Minutes from meeting held at the Privatization Agency on 27 April 2015, RE-23; Minutes from
meeting held at the Privatization Agency on 30 January 2014 RE-28; Minutes from meeting held at the
Privatization Agency on 4 February 2014, RE-36; Minutes from meeting held at the Ministry of Economy
on 3 November 2014, RE-37; Minutes from meeting held at the Ministry of Economy on 15 December
2014, RE-38; Minutes from meeting held at the Ministry of Economy on 16 January 2015, RE-39; Minutes
from meeting held at the Privatization Agency on 20 April 2015, RE-41; Invitation to Mr. Obradovic to
attend the meeting of 30 October 2012, RE-80.
242
See Proposal of the Center for Control for the session of the Commission for Control of 21 December 2011,
RE-71.1; Proposal of the Center for Control for the session of the Commission for Control of 25 April 2012,
RE-72.1; Proposal of the Center for Control for the session of the Commission for undertaking measures of
7 November 2012, RE-75.1 (all of these reports were prepared by, inter alia, Ms. Katarina Misailovic).
243
Invitation to Mr. Obradovic to attend the meeting of 30 October 2012, RE-80.
244
Minutes from meeting held at the Ministry of Economy on 17 December 2014, RE-22, Minutes from
meeting held at the Privatization Agency on 27 April 2015, RE-23, Minutes from meeting held at the
Ministry of Economy on 15 December 2014, RE-38, Minutes from meeting held at the Ministry of Economy
on 16 January 2015, RE-39, Minutes from meeting held at the Privatization Agency on 20 April 2015, RE-
41.
62
3.1.3. Sessions of the Commission for Control
146. Claimants place a significant emphasis upon the transcripts from two sessions of the
Commission for Control that took place on 23 April and 19 June 2015245 and state that
the “audio recordings of the meetings of the Commission for Control show the
shocking true motivations for the Serbian government’s actions”.246 The recordings
however demonstrate that there was absolutely no bad faith on the part of the Agency.
On the contrary, the conversation between the members of the Commission for
Control is exactly how a good faith discussion and exchange of opinions looks like
before making a decision. Had there been any malicious intent of the Agency, the
members of the Commission would certainly not reexamine their positions nor
express any pro and contra stances, as the decision would have already been made in
advance.
147. To prove differently, Claimants however blatantly misrepresent the transcripts from
the meetings of the Commission for Control held on 23 April and 19 June 2015.
148. First, Claimants contend that the members of the Commission for Control were “well
aware that the Privatization Agreement did not allow Serbia to terminate the
agreement based on the alleged violation of Article 5.3.4”.247 In this regard, they cite
Ms. Vuckovic stating:
“First of these provisions, 5.3.3, was prescribed as basis for

termination of the agreement, and the other one [5.3.4], which
refers to pledges, in accordance with the agreement, was not
prescribed as basis for termination of the agreement […]”248
149. This is a textbook example of misleading and selective reading of a text. Namely,
what Claimants intentionally omit to include is the continuation of the same sentence,
which says:
245
Audio recording from meeting of the Commission for Control, 23 April 2015 CE-767; Transcript of the
audio recording from meeting of the Commission for Control, 23 April 2015 CE-768; Transcript of the
audio recording from meeting of the Commission for Control, 19 June 2015 CE-770; Audio recording from
meeting of the Commission for Control, 19 June 2015 CE-771.
246
Reply, Section II.P
247
Reply, para. 298.
248
Reply, para. 298 (citing CE-767, and CE-768, p. 2).
63
“[…] although article 41a of the Law on Privatization, which is
applicable on these agreements, prescribes that an agreement may
be terminated in case of explicitly listed violations of contractual
obligations and, in the last item of the article, it prescribes it may
be terminated in other cases as prescribed in the agreement.”249
150. It is thus completely evident that the Agency always properly interpreted Article 5.3.4.
of the Privatization Agreement as a legal ground for termination, in accordance with
Article 41a of the Law on Privatization.
151. Second, Claimants advance another misleading argument by saying that the Agency
“purposefully required remedies to the alleged breaches of Article 5.3.4. that it knew
the buyer was not able to perform”.250 In that regard, Claimants cite one of the
members of the Commission for Control who stated at the meeting held on 23 April
2015 that after the expiration of the additionally granted term of 90 days, the Agency
will “probably have to terminate” the agreement “since Juliana already said[251] that
there is no chance they will fulfil all of these contractual obligations. That is, they
have already stated publically that they… cannot fulfil some of these obligations”.252
Such a claim is absurd from more than one standpoint.
152. To start with, Ms. Vuckovic was wrongly paraphrased by her colleague. What Ms.
Vuckovic actually said just minutes before that quote, was that she received
information from the representatives of BD Agro that for a “part of obligations [the
Buyer] would require a bit more time.”253 Therefore, Ms. Vuckovic did not consider
that the pertinent remedies were impossible to perform, but said that they would have
to be delayed additionally (and they were, as the Buyer was given additional deadline
249
Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, p. 2
(emphasis added), CE-768.
250
Reply, Section II.P.4.
251
Mrs. Julijana immediately added: “This is according to the statement of the director of the mere subject.”
252
768.
253
(emphasis added), CE-768 (“What we received as information, and really in meetings, orally, from
representatives of the subject of privatization (telephone vibrates in the background), is that they will,
generally, have problems with repayment of certain funds from two or three legal persons; that part of their
obligations could be fulfilled, so to say, immediately and for another part of obligations they would require
a bit more time.”)
64
to remedy the breach254) because Mr. Markicevic said so.255 The transcripts also show
that, nevertheless, Ms. Vuckovic presented several quite plausible alternatives for Mr.
Obradovic to cure the said breaches, saying:
“according to that PPRP, they are prepared to invest in the subject

an investment of, I think, 4.5 or 5.5 million euros. So I think that
they should not have any problems regarding repayment of these
funds. Because, what they are asking from them is either to delete
the pledge or to act. Now, deleting pledge could probably be a
problem because of the settlement of other creditors’ claims by
creditor classes, but they could resolve this issue through
repayment of funds by these third parties. Or, and we have
requested this, since this is a fault, so to say, of the buyer, we are
treating this as the buyer’s fault, if the aforementioned cannot be
achieved, to repay this from its own funds as an extraordinary
revenue (vanredni prihod), which means that this should be
clearly stated.”256
153. In addition, even the other member of the Commission, that is cited by Claimants, said
that the Agreement would “probably” have to be terminated, meaning that it clearly
did not deem it “impossible” for the buyer to perform the obligations in question.
More importantly, the said discussion took place only in 2015 while the remedies for
the breaches of Article 5.3.4. had been requested already in 2011 and Mr. Obradovic
had never said that he was unable to remedy the breach. To the contrary, in many
occasions he promised to cure the breach.257
154. Third, Claimants’ quote Mrs. Vuckovic discussing the breach of Article 5.3.3. on the
Commission’s session of 19 June 2015, and state that the Agency requested Mr.
Obradovic to prove his compliance with this article even though the Privatization
254
The Agency granted Mr. Obradovic 90 days to remedy the breach by its letter of 27 April 2015. See Letter
from the Privatization Agency to D. Obradović, 27 April 2015, CE-348.
255
768 (“This is according to the statement of the director of the mere subject itself.”).
256
257
See Sections I. B. 3.2.1I. B. 3.2.1 and I. B. 3.2.2. See also Appendix 1.
65
Agency knew that that provision had not been violated.258 What however transpires
from the transcript is that Mrs. Vuckovic had an understanding for Claimants’ position
but needed a confirmation from competent auditors before taking a final stance.259
This is why the Buyer was constantly required to provide the audit report confirming
the compliance with Article 5.3.3.
155. Evidently, the only thing that this transcript shows is that members of the Commission
were openly discussing the breaches and exchanging their opinions in that regard.
When members of the Commission considered that certain behavior does not
represent a breach, they clearly said so – just as when they considered that certain
conduct was a breach. And indeed, the Privatization Agreement was not terminated
due to the breach of Article 5.3.3, but for the “far more critical […] issue of pledges
and disposals to the benefit of third parties.”260 In such circumstances, there was
obviously no malicious intent, as the Agency limited itself solely to what it ultimately
considered to be a breach.
3.2. Buyer’s conduct regarding the breach of Article 5.3.4.
156. In the period 2011-2015 Mr. Obradovic delivered total of six audit reports261 which
all confirmed that: (i) funds received by BD Agro from the 221 Million Loan were
used for the benefit of third parties, i.e. Crveni Signal and Inex; (ii) Inex did not repay
the funds to BD Agro; (iii) Crveni Signal did not repay the funds to BD Agro; and that
(iv) the 221 Million Pledge was still registered. The Buyer’s letters and the meetings
reveal that he was aware of the breach and its consequences.
258
259
Mrs. Vuckovic’s main concern with the breach of Article 5.3.3 was the fact that the audit report “[…]
stated that the buyer did not violate its contractual obligation and has not exceeded the percentage of 10%,
and did not give its opinion on the total percentage of 30%. So we are asking and reminding that this segment
should also be supplemented in the new auditor’s report […]” See Transcript of the audio recording from
meeting of the Commission for Control, 19 June 2015, p. 2, CE-770.
260
Transcript of the audio recording from meeting of the Commission for Control, 19 June 2015, p. 6, CE-
770.
261
Audit report by Auditor doo of 29 April 2011, RE-13; Audit report by Auditor doo of 19 July 2011, RE-
14; Audit report by Auditor doo of 2 February 2012, RE-17; Audit report by Auditor doo of 22 November
2011, RE-18; Audit report by Auditor doo of 13 December 2012, RE-19; Report on Factual Findings from
Prva Revizija, 12 January 2015 CE-327.
66
3.2.1. Letters
157. When it comes to letters sent to the Agency by Mr. Obradovic concerning the breach
of Article 5.3.4, Mr. Obradovic explicitly recognized that this article was breached
due to the use of the 221 Million Loan:
158. On 9 November 2011, Mr. Obradovic sent a letter to the Agency and noted: “In respect
of repayment of loans given to third parties out of loaned funds we deliver to you a
statement of responsible persons with attachments (attachment: Statement)”.262 The
said Statement of BD Agro read as follows: “As some assets of debtors are offered for
sale (Crveni signal, Ineks), our claim will be realized out of funds generated from
it.“263 There was not a single word denying that Article 5.3.4. was breached. Instead,
the repayment of the funds given to Inex and Crveni Signal was promised.
159. On 2 April 2012, Mr. Obradovic wrote to the Ministry of Economy to complain about
the Agency’s stance, but even then he did not argue that the 221 Million Pledge did
not breach Article 5.3.4, but simply said that the breach was irrelevant as no significant
damage occurred for BD Agro:
“Return of the loans BD AGRO gave to third parties from the loan
assets has been partially implemented. The loans which have not
been returned are the loans given to the company Crveni signal
(70 million dinars) and Inex, N. Varos (18 million dinars). We
think that these loans did not directly cause the damage to the
company […]”264
160. In July 2012, Mr. Obradovic wrote to the Agency:
“Regarding your [Notice] of 21 June 2012, received by BG AGRO

on 22 June 2012, concerning the additionally granted period for
the Buyer to act in accordance with the Decision of the Agency
dated 27 December 2011, we herewith inform you of the
262
Letter from Mr. Obradovic to the Privatization Agency attaching the statement from BD Agro’s director
of 9 November 2011, RE-60.
263
264
Letter from Mr. Djura Obradović to the Ministry of Economy, 2 April 2012, CE-77.
67
realization of part of contractual obligations which have not been
carried out in the previous reports […]
Regarding your other requests, there were no changes in the

meantime, so we [Mr. Obradovic and BD Agro] submit the
Request for an additional period during which the contractual
obligations may be realized pursuant to your [Privatization
Agency’s] Decision […]”265
161. As Respondent already indicated in its Counter-Memorial, Mr. Obradovic’s July 2012
letter was another clear admission that there were obligations that were not yet
fulfilled.266 In fact, Mr. Obradovic requested additional period to fulfill the remaining
obligations (although Claimants now complain that he was given too many additional
periods). However, in his second witness statement, Mr. Obradovic claims to have a
different understanding of this letter. Struggling to come up with a reasonable
response, Mr. Obradovic could say nothing more than that he “simply wanted to
continue discussions, hoping that the Privatization Agency would eventually
recognize that there had been no breach.”267 This ‘explanation’ does not hold water.
Instead of promising the remedy of the breach, if he really wanted "to continue
discussions" to convince the Agency that there was no breach, he could at least say
that there was no breach in the first place. But Mr. Obradovic did not do so because
he knew it would be just an empty story that even contradicts his own behavior in
previous cases involving the breach of the same provision. In addition, if Mr.
Obradovic was really on the position that he did not breach Article 5.3.4, then it was
only imprudent of him to promise compliance with Agency’s request that he never
intended to obey, just in order to “continue discussions”.
162. On the other hand, once Mr. Obradovic disagreed with other Agency’s requests (for
fulfillment of investment obligations), he openly said so, stating that such requests
were illegitimate and that he would not comply.268 However, he never communicated
anything of the sort with regard to the 221 Million Loan breach.
265
Letter from Mr. Obradovic and BD Agro to the Privatization Agency of 23 July 2012 (emphasis added),
RE-21.
266
267
268
Proposal of the Center for Control for the session of the Commission for Control of 25 April 2012, RE-72.
68
163. On 16 December 2014, Mr. Markicevic also sent a letter to the Agency, submitting,
inter alia, a supplemented audit report regarding the fulfillment of obligations from
the Privatization Agreement and certain documentation regarding the status of Crveni
Signal’s and Inex’s debts towards BD Agro.269 The letter contained absolutely no
objection or any hint of disagreement with the Agency’s position regarding the breach
of Article 5.3.4.
164. On 23 March 2015, Mr. Markicevic sent a rather confusing letter requesting from the
Agency issuance of “a Certificate on Fulfillment of the Obligations Referred to in the
[Privatization Agreement]”.270 The letter contained no further explanations. It did not
state to which obligations exactly was Ms. Markicevic referring to, nor what was the
legal ground for requesting the certificate. Furthermore, it certainly did not contain
any objection or disagreement with the Agency’s position that certain obligations
were not fulfilled. In fact, on 30 April 2015, Mr. Obradovic (re)submitted to the
Agency audit reports which again confirmed that the pertinent breaches of Article
5.3.4. were not remedied.271 Again, the letter contained absolutely no indication of
any kind of disagreement with the Agency’s stance in this regard.
165. On 2 July 2015, Mr. Markicevic sent a letter on behalf of BD Agro, confirming that
Mr. Obradovic submitted to the Agency audit reports which stated that the Buyer
fulfilled all contractual obligations, “except in relation to lending to third parties,
namely Inex Nova Varos ad Nova Varos and Crveni signal a.d. Beograd”.272 This was
a clear recognition of the existence of the breach and any further comment of that
statement, including interpretation of any witness, Claimants or Respondent, is
superfluous.
166. The letter also noted that the Prva Revizija audit report also stated how “Pledges given
as security for third-party liabilities have not been deleted, however, these obligations
have been settled and conditions have been met to delete the pledge on this basis.”273
This was obviously not a disagreement with the Agency’s position, but only an
unconvincing attempt in persuading the Agency that the breach was essentially
269
Letter from BD Agro to the Privatization Agency, 16 December 2014, CE-323.
270
Request for issuance of confirmation on fulfillment of obligations from the Privatization Agreement of 23
March 2015, RE-51.
271
Letter from Mr. Obradovic to the Privatization Agency of 30 April 2015, RE-42.
272
Letter from BD Agro to Privatization Agency, 2 July 2015 (emphasis added), CE-46.
273
Letter from BD Agro to Privatization Agency, 2 July 2015, CE-46.
69
remedied or about to be remedied at least. In any event, even the cited conclusion of
the auditor was untrue, as explained above (See Section I. B. 2.2).
3.2.2. Meetings
167. Mr. Obradovic acknowledged breach of Article 5.3.4. not only in his letter, but at the
meetings as well:
168. For instance, on 23 November and 16 December 2011, the Agency reiterated its
previous requests and it was concluded that the Buyer needs to deliver an appropriate
audit report containing, inter alia, explicit statements as to the fulfilment of Article
5.3.4. and including excerpts from the real estate cadaster.274
169. In March 2012, two meetings were held between Mr. Obradovic and the Agency.
There, Mr. Obradovic stated, inter alia, that he would invest additional efforts to have
Crveni Signal’s debt repaid and that Inex would likewise return the loan when
conditions were met.275 On the other hand, he stated that the Agency’s request for
fulfillment of investment obligations were not legitimate and that he would not fulfil
them.276 Mr. Obradovic apparently has no recollection of these meetings, other than
the fact that he allegedly did not accept that there had been a breach of the Privatization
Agreement. Likewise, at the meeting in November of that same year, Mr. Obradovic
apparently did not raise any objections either.277
170. At the meeting held on 4 February 2014, Mr. Obradovic stated that he “does not
understand why the Agency does not issue the said certificate [of execution of
contractual obligations] since he paid the price.”278 He again expressed no
disagreement with the Agency’s position on the breach of Article 5.3.4. but only
hoped that he could somehow prematurely achieve removal of the pledge established
over the privatized shares, based solely on the fact that he paid the purchase price.
274
Proposal of the Center for Control for the session of the Commission for Control of 21 December 2011,
RE-71.1, p. 2.
275
Proposal of the Center for Control for the session of the Commission for Control of 25 April 2012, RE-
72.1.
276
72.1.
277
Proposal of the Center for Control for the session of the Commission for undertaking measures of 7
November 2012, RE-75.1.
278
Minutes from meeting held at the Privatization Agency on 4 February 2014 (emphasis added), RE-36.
70
171. In December 2014, the Agency and the Ministry of Economy held another two
meetings with Mr. Markicevic. On 15 December 2014, Mr. Markicevic apparently
“committed to prepare for the next meeting [,,,] the materials on the state of the
mortgages registered on the property of the Entity undergoing privatization as a
collateral warranty for the liability of third parties.”279
172. On 17 December 2014, Mr. Markicevic:
“stated that the condition regarding the already stated audit

finding had not been changed, and that, in their opinion, the
biggest problems in execution of obligations of the Buyer from the
respective Agreement […] were claims which the Entity had
towards the company Crveni Signal Beograd and Inex Nova Varos
[…]”280
173. At the meetings held on 15 January281 and 20 April 2015,282 there were apparently no
objections by Mr. Markicevic either, while at the meeting held on 27 April 2015, Mr.
Markicevic:
“summarized the line of acting after receiving the decision of the

Agency, including: supplying audit report which confirms
execution of obligations within additionally approved deadline,
which should be submitted by the Buyer, Djura Obradovic […]”283
174. Thus, instead of raising an objection, Mr. Markicevic again confirmed that there was
a breach that should be remedied. However, the promised remedy never took place.
3.2.3. U-turn
175. After all of the letters exchanged and meetings held, on 10 September 2015, Mr.
Obradovic suddenly threatened with arbitration. This was also the first time that Mr.
279
Minutes from meeting held at the Ministry of Economy on 15 December 2014, RE-38.
280
Minutes from meeting held at the Ministry of Economy on 17 December 2014, RE-22.
281
Minutes from meeting held at the Ministry of Economy on 16 January 2015, RE-39.
282
Minutes from meeting held at the Privatization Agency on 20 April 2015, RE-41.
283
Minutes from meeting held at the Privatization Agency on 27 April 2015, RE-23.
71
Obradovic expressed disagreement with the Agency’s interpretation of Article 5.3.4,
albeit again confirming that he had indeed committed a breach:
“[…] In relation to [the breach of Article 5.3.4.], please find

attached the evidence that BD Agro is in possession of all the
documents needed for deletion of pledges registered on its
immovable property as security instruments for the loans […]
This way, complete fulfillment of obligations referred to in Article

5.3.4. of the Agreement was ensured, since all of the conditions
were met for the deletion of all disputed aforementioned pledges
(all necessary documents were obtained), and BD Agro is waiting
for an appropriate decision from the Republic Geodetic Authority-
Real Estate Cadastre Office on deletion of the pledges.
In addition, I must also point out that your Reply contains an

incorrect interpretation of Article 5.3.4. of the Agreement since it
claims that the article prevents giving loans or guarantees to
related parties. As you know, this article does not express any such
restriction, but it only refers to restriction on registration of
pledges on the fixed assets of BD Agro.”284
176. Therefore, Mr. Obradovic again admitted that Article 5.3.4. was breached by the 221
Million Pledge, and submitted documentation that allegedly proved that the said
pledge would be deleted from the cadaster. Upon inspection of the submitted
documentation, it was clear that it related to other pledges, and not to the 221 Million
Pledge.285 This was the last straw, after which the Agency finally terminated the
Privatization Agreement, seeing that additional deadlines would definitely be
pointless.
284
Letter from Mr. Djura Obradović to Privatization Agency, 8 September 2015 (emphasis added), CE-48.
285
Decision of the First Basic Court in Belgrade no. Dn-7084/10 of 7 June 2010, RE-3. Short Term Loan
Agreement no. 181/10-00 of 2 June 2010, RE-4. Guarantee Agreement no. J-182/10-00 of 2 June 2010, RE-
5. Confirmation by Nova Agrobanka on fulfillment of obligations from the Short Term Loan Agreement K-
181/10-00 of 4 September 2015, p. 1, RE-53. BD Agro’s request for deletion of pledge registered in excerpt
from the Land Register no. 2258, cadastral municipality Ugrinovci of 7 September 2015, p. 1, RE-54.
Decision of the Land Register of 7 September, p. 1, CE-87. Letter from BD Agro to the Privatization Agency
of 10 September 2015, CE-357.
72
177. In summary, from the moment that the 221 Million Pledge was discovered by the
Agency, up until the termination of the Privatization Agreement, Mr. Obradovic never
denied (and in fact admitted) that the 221 Million Pledge breached Article 5.3.4. It
should be noted in this regard that if Mr. Obradovic indeed thought that the Agency’s
requests for remedy of Article 5.3.4. were unsubstantiated and that there was no
breach at all, he could have easily sued the Agency before a court at any time, claiming
that it was the one breaching the Privatization Agreement through such conduct.
However, he never did so during the four years that he was unable to cure the breach.
Mr. Obradovic never did so because he knew that the Agency was right.
3.3. Parties’ conduct in other cases
178. The use of the 221 Million Loan was not the first time that such a breach of Article
5.3.4. was noticed by the Agency during the privatization of companies. Notably, the
Agency always acted consistently with respect to a breach of Article 5.3.4. It always
requested the remedy of that breach, and it always considered it to be a termination
reason.286 Mr. Obradovic, on the other hand, acted inconsistently only in the case of
the 221 Million Pledge. This can be seen from: (i) privatizations not involving Mr.
Obradovic; (ii) Mr. Obradovic’s breaches of Article 5.3.4. in cases other than BD
Agro; and (ii) previous breach of Article 5.3.4. in BD Agro privatization.
3.3.1. Privatizations not involving Mr. Obradovic
179. Mr. Obradovic’s case was not a unique situation. The Agency had encountered buyers
other than Mr. Obradovic who also committed breaches of Article 5.3.4. In each case,
the Agency’s conduct was the same. Besides the previously cited Betonjerka case,287
there were also other examples comparable with the present situation.
180. In 2008, in the Krusik case, the Agency discovered that the property of the subject
was pledged for the benefit of a third party i.e. it has been determined that three loan
agreements were concluded by the subject and that the security for all three loans were
pledges i.e. mortgages established on the subject’s real estate. Furthermore, the
Agency discovered that at the period after the conclusion of these agreements, there
286
See Counter-Memorial, paras. 124-125; Notice on termination of privatization agreement for subject of
privatization Betonjerka of 30 December 2008, RE-97.
287
Counter-Memorial, paras. 124-125; Notice on termination of privatization agreement for subject of
privatization Betonjerka of 30 December 2008, RE-97.
73
was a significant outflow of funds from the subject in the form of loans to other legal
entities. Consequently, the Agency concluded that a part of these outflowed funds was
acquired through the pertinent loans which were secured by the fixed assets of the
subject, thereby finding a breach of Article 5.3.4. of the privatization agreement. The
Agency thus granted the buyer an additional period to remedy the breach and to
deliver according evidence on: repayment of the funds given to other legal entities
(and an according reduction of credit debts); erasing the mortgages, and proper usage
of the remaining amount of loaned funds (which were secured by mortgages). It was
also noted that in case the buyer fails to act as requested the Agency will undertake
the measures as per Article 41a of the Law on Privatization.288
181. Likewise, in 2009 in the Rasadnici case, the Agency discovered that the subject
pledged the property of the subject in favor of a bank, for the purpose of securing a
loan used by the buyer. Hence, the Agency granted an additional term to the buyer to
remedy the breach of Article 5.3.4. i.e. to deliver proof that the mortgage in question
has been erased or to deliver the proof that the said loan has been spent purposefully
for the needs of the subject. The Agency noted that in case of noncompliance the
privatization agreement will be terminated as per Article 41a of the Law on
Privatization.289
182. In 2010 in the IHTM case, the Agency discovered that the subject entered into certain
guarantee and loan agreements, pledging the assets of the subject for the benefit of
third parties, thereby breaching Article 5.3.4. of the privatization agreement. The
Agency granted an additional term to the buyer, requesting remedy of the breach and
delivery of documentation proving that Article 5.3.4. has been fulfilled (including
statements from the cadaster). In this case as well, the Agency stressed that in case the
buyer fails to act as requested the privatization agreement will be terminated as per
Article 41a of the Law on Privatization.290
288
Notice from the Privatization Agency to Mr. Pera Jovanovic Krusik-plastika and NPCO, 31 December
2009, RE-364.
289
Notice from the Privatization Agency to Jugotehnika, 9 September 2009, RE-363.
290
Notice from the Privatization Agency to Mr. Milenko Zimonjic, 15 December 2010, RE-368.
74
3.3.2. Privatizations involving Mr. Obradovic, other than BD Agro
183. In approximately the same period that Mr. Obradovic breached Article 5.3.4. of the
Privatization Agreement, he made the same breach with respect to the privatization of
PIK Pester.
184. Specifically, on 23 December 2010 (just prior to the establishment of the 221 Million
Pledge), the Agency wrote to Mr. Obradovic as the Buyer of PIK Pester, explicitly
invoking Article 5.3.4, and stating that it discovered that a mortgage has been
established in favor of Agrobanka on certain land owned by PIK Pester, as security
for the bank’s claims towards an affiliated company of the buyer – Inex.291
185. Having determined the breach, the Agency also requested an according remedy within
an additional term of 30 days i.e. it requested evidence that the pledge has been
erased.292 The consequence of not complying with the additionally granted term was
communicated equally clearly in the letter from December 2010:
“In case the Buyer does not perform the state obligation within the
additionally granted term from the previous paragraph, we inform
you that the Agency will take measures in accordance with Article
41a of the Law on Privatization […]”293
186. Thus, at the time that Mr. Obradovic was spending the 221 Million Loan for the
benefit of Inex and Crveni Signal, he was explicitly informed in another privatization
that pledging the assets for obtaining the funds to be used by third persons represents
a breach of Article 5.3.4. and a justifiable reason for termination of the contract in that
case. He was requested to remedy the breach, and warned that the Agency would
terminate the privatization agreement in case he does not comply.
291
Letter from the Agency to Mr. Obradovic, 27 December 2010, RE-389 (“During the control performed on
23 November 2010, it has been determined that on the basis of the Decision of the Management Board no.
B-I/60-10 of 21 July 2010, a mortgage has been established in favor of “Agrobanka” ad Beograd on the
forest and agricultural land owned by the Subject of privatization […] as security for the Bank’s claims in
the amount of RSD 110.000.000, on the basis of the Short-Term Loan Agreement No. К-309110-00 of 21
July 2010, concluded with a third party, company “Inex” ad Nova Varos.”).
292
Letter from the Agency to Mr. Obradovic, 27 December 2010, RE-389.
293
Letter from the Agency to Mr. Obradovic, 27 December 2010 (emphasis added), RE-389.
75
187. Mr. Obradovic successfully remedied the breach with no objection.294 Interestingly,
this occurred less than two weeks after the first notice regarding the 221 Million
Pledge was issued to Mr. Obradovic.
188. Similarly, in the case of Beotrans, the Agency also requested documentation issued
by the cadaster as proof that Mr. Obradovic did not breach Article 5.3.4.295 After Mr.
Obradovic ignored two notices granting him with additional terms for the delivery of
the pertinent documentation, the Agency itself checked this information directly with
the cadaster and determined that Article 5.3.4. was not breached.296 Again the Agency
was clear that breach of Article 5.3.4. would not be tolerated.
3.3.3. Mr. Obradovic’s previous breach of Article 5.3.4. in BD Agro
189. The first time that the Agency ascertained that BD Agro’s property was pledged for
the benefit of third parties occurred at the beginning of 2009. The property in question
was pledged for the benefit of a company named Vihor (which was later accused of
fraudulently extracting funds from BD Agro together with Mr. Jovanovic297).
Consequently, on 24 February 2009, the Agency sent a letter to Mr. Obradovic,
informing him of the discovered breach of Article 5.3.4. and granting him an
additional term of 30 days to submit evidence on the deletion of the pledge from the
cadaster.298 The Agency also made sure to note that in case Mr. Obradovic would not
remedy the breach within the extended term, the privatization agreement shall be
deemed terminated. 299
294
Letter from Mr. Obradovic to the Privatization Agency, 4 March 2011, RE-390.
295
Letter from the Agency to Mr. Obradovic, 28 January 2011, RE-409; Letter from the Agency to Mr.
Obradovic, 18 March 2011, RE-473.
296
297
See Section I. F. 4.1.3.
298
24 February 2009, RE-99 (“Bearing in mind that the fixed assets of the Subject are provided as a real
security for the fulfilment of the obligation of a third party, that is, that the Subject is not using the obtained
loan funds, you are invited, within an additional 30-day deadline from the day of receipt, to submit evidence
on the abolishment of the Mortgage statement, the withdrawal of the application for registration of the
mortgage on immovable property of the mortgage debtor BD “Agro” Dobanovci, and in the event that the
said mortgage is registered in the registry of the Land Registry Court, you shall provide evidence of the
deletion of the mortgage from it.”).
299
24 February 2009, RE-99 (“In the event that you should not act in compliance with this Notice, the
[Privatization Agreement] shall be deemed terminated due to failure to comply in accordance with Article
41a. of the Law on Privatization”).
76
190. Soon afterwards, one more notice was sent, after another discovery of numerous
pledges being established on BD Agro’s real estate i.e. fixed assets. The pledges were
established, inter alia, as security for repayment of a loan taken by Inex.300 Again, the
Agency acted consistently and requested remedy of the breach of Article 5.3.4, under
the threat of termination.301 Another deadline was thus given to Mr. Obradovic.
191. As Mr. Obradovic was not remedying the breaches of Article 5.3.4, the Agency
continued to issue warning notices and grant him additional extensions.302 Mr.
Obradovic then stalled the Agency, delivering, inter alia, a statement from Erste Bank
confirming that it would erase the pertinent pledge after the Vihor loan was secured
by other property.303 He also claimed that Inex was in the process of obtaining funds
necessary for erasing the pledge in question.304
192. Despite the fact that the breach was not remedied after four additional deadlines, the
Agency continued to grant extensions to Mr. Obradovic, insisting upon the proper
remedy of the breach.305 In fact, during the control of 30 September 2009, the Agency
discovered another breach, as BD Agro entered into a leasing agreement for
equipment which was used by PIK Pester.306 However, instead of terminating the
Privatization Agreement after he repeatedly failed to remedy of two breaches and the
discovery of another one, the Agency gave yet another chance to Mr. Obradovic,
asking him to remedy all breaches within the additionally granted term.307
193. On 18 January 2010, BD Agro delivered to the Agency the documentation from the
cadaster that showed the pledges in question have been erased.308 Thus, these breaches
of Article 5.3.4. were successfully remedied with no objection from the buyer.
300
31 March 2009, RE-100.
301
31 March 2009, RE-100.
302
13 April 2009, RE-101; Notice on additionally granted term for compliance with Article 5.3.4. of the
Privatization Agreement of 1 June 2009, RE-102.
303
Letter from BD Agro to the Privatization Agency, 8 July 2009, RE-405.
304
Letter from BD Agro to the Privatization Agency, 8 July 2009, RE-405.
305
30 July 2009, RE-103.
306
Notice from the Privatization Agency to Mr. Obradovic, 16 October 2009, RE-384.
307
308
Email from BD Agro to the Privatization Agency, 18 January 2010, RE-406.
77
4. Ministry of Economy position
194. Bearing in mind that the Agency’s position regarding the pertinent breaches was quite
straightforward, Claimants argue that the Ministry of Economy in 2012 was at the
position that termination would be illegal.309 However, Claimants are refuted by the
fact that in 2012 the Ministry of Economy did not say anything about its legal position,
while in 2015, after Supervision Proceedings were conducted, it clearly stated that it
shared the position taken by the Agency – that the breach of Article 5.3.4. existed and
that it had to be remedied.
195. As Respondent already explained, the Ministry of Economy’s letter of 30 May 2012
focused on the “economic justification” of the termination, and it did not touch open
legal issues.310 This is also how it was understood at the time. As explained at the
session of the Commission for Control on 23 April 2015:
“[…] the competent ministry […] delivered its opinion that it

would not be expedient to terminate the agreement on sale of
capital, not saying anything regarding the agreement itself.
Therefore, the Agency even after that, that is, the Commission,
provided, I think, two additional terms and since we did not
receive the opinion of the ministry, it was agreed that further
proposals regarding BD Agro Dobanovci will not be put before
the Commission and that controls will not be carried out until we
get an official opinion from the ministry. The second opinion from
the ministry was not delivered, and on December 23, 2013 the
supervision procedure over the work of the Privatization Agency
was opened.”311
196. The fact that the Agency did not adopt the “economic” approach in its conduct towards
Mr. Obradovic once again shows that the Ministry of Economy was not “ordering”
the Agency what to do.
309
310
Letter from the Ministry of Economy to the Privatization Agency, 30 May 2012, CE-33.
311
78
197. When it comes to the Supervision Proceedings, these were initiated on 23 December
2013, upon request of BD Agro’s employees.312 While the Supervision Proceedings
were ongoing, the Agency could not take any measures with respect to BD Agro.313
The Supervision Proceedings ended in April 2015, with the Ministry of Economy
reaching the same conclusion as the Agency, and recommending that an additional
deadline of 90 days be granted to Mr. Obradovic in order to deliver evidence that the
breach of Article 5.3.4. had been remedied.314
198. Finally, Claimants’ complaint on the length of the Supervision Proceedings315 is

confusing and misplaced, as this only prolonged the period in which Mr. Obradovic
could remedy the pertinent breach, if he wanted to. In other words, there was no harm
done to Mr. Obradovic – just the opposite.
5. Legal ground for termination
199. After establishing the breach of Article 5.3.4, giving to Mr. Obradovic additional
deadline for performance of the obligation, and Mr. Obradovic’s failure to remedy the
breach, the Agency had to react accordingly. As Claimants’ expert, Mr. Milosevic,
correctly noted in his second expert report:
“[…] under Article 41a(1) of the Law on Privatization,

termination occurred ex lege if the buyer failed to remedy the
violation of the privatization agreement within an additional
deadline granted by the Privatization Agency.”316
200. In this section Respondent will explain that: (i) the Agency had a clear legal ground
for termination based on Article 41a(1) of the Law on Privatization; (ii) the Agency
could terminate the Privatization Agreement due to a breach of Article 5.3.4. only;
(iii) Article 5.3.4. could serve as a termination reason even after the payment of the
purchase price; (iv) the breach substantially impacted the Privatization Agreement;
(v) termination was a proportionate and, in fact, the only adequate measure in the
312
Decision of the Ministry of Economy, 23 December 2013, CE-206.
313
314
Report of Ministry of Economy on the Control over the Privatization Agency 7 April 2015, CE-98, p. 13
315
Reply, para. 247.
316
Second Expert Report of Mr. Milos Milosevic, 3 October 2019, para. 114.
79
circumstances; and (vi) the Agency’s decision was made independently, without being
affected by any outside “pressure”.
5.1. Article 41a(1) of the 2001 Law on Privatization
201. The legal ground for terminating the Privatization Agreement was prescribed in
Article 41a(1) of the Law on Privatization, i.e.:
“The agreement on sale of the capital or property shall be deemed

terminated due to non-fulfillment, if the buyer, even within an
additionally granted term for fulfillment […] disposes of the
property of the subject of privatization contrary to provisions of
the agreement”317
202. As Respondent already explained, according to the Serbian Law on Companies, case
law of the highest Serbian court, Privatization Agency’s practice in other cases and
the expert opinion of Prof. Radovic, “disposal of property” would undoubtedly
encompass the establishment of a pledge over BD Agro’s fixed assets (including, of
course, real estate).318 Consequently, a breach of Article 5.3.4. of the Privatization
Agreement falls under the Article 41a of the Law on Privatization, meaning that it
presents a statutory termination reason. As already explained, application of the ex
lege termination reasons is not excluded by the fact that the agreement did not
expressly stipulate them.319
203. On the other hand, Claimants and their expert have a different understanding of the
pertinent provision and rely solely on their own words to support it, as they have not
submitted a single court decision contradicting Respondent’s interpretation. Namely,
they agree that Article 41a(1) of the Law on Privatization has a mandatory nature.320
In other words, they agree that the parties cannot agree otherwise in privatization
317
Article 41a(1) of the 2001 Law on Privatization (emphasis added), CE-220.
318
Counter-Memorial, paras. 120 et seq.
319
Decision of the Constitutional court of Serbia of 6 October 2016, pp. 8 and 9, RE-95.
320
Second Expert Report of Mr. Miloš Miloševic, 3 October 2019, para. 92 („This does not by any means
violate the mandatory nature of Article 41a(1) of the 2001 Law on Privatization“, emphasis added). See also
Reply, para. 48 („The content of the Privatization Agreement was non-negotiable and most of its provisions
were prescribed by mandatory provisions of Serbian law.“); First Expert Report of Mr. Miloš Miloševic, 16
January 2019, para. 59(c) („the Privatization Agency's conduct in the entire privatization process, including
during and after fulfillment of the privatization agreement, was prescribed by the mandatory provisions of
the Law on Privatization“).
80
agreements. However, Mr. Miloševic is of the opinion that since Article 7.1 of the
Privatization Agreement did not expressly state that Article 5.3.4. is a reason for
termination “the parties intended not to allow for termination of the Privatization
Agreement in case of violation of Article 5.3.4. of the Privatization Agreement”.321
204. First of all, Mr. Milosevic’s stance defies fundamental legal principles since Article
41a(1) of the Law on Privatization was indisputably a mandatory provision. As such,
it is completely irrelevant whether the parties agreed to list Article 5.3.4. as a
termination reason in Article 7.1. of the Privatization Agreement or not. If a breach of
Article 5.3.4. represented a ground for termination under Article 41a(1) of the Law on
Privatization (which it obviously did), then the discussion whether the Privatization
Agreement lists it as a termination reason is redundant. Prof. Radovic confirms this as
well:
“Disposition of the property of the subject of privatization

contrary to provisions of the agreement was explicitly enlisted in
Article 41a(1)(3) of the 2001 Law on Privatization as one of the
possible grounds for contract termination. The said mandatory
statutory provision would even have priority over any conflicting
contractual provisions (in the present case, however, there was no
such conflicting contractual provision). Therefore, parties to a
privatization agreement were only free to determine which
dispositions of assets of the privatization subject are prohibited to
the buyer (para. 33 of my First Expert Report). On the other hand,
they were not at liberty to determine which of those prohibited
dispositions represented a valid ground for termination. This is
because each disposition contrary to provisions of the agreement
represented a mandatory ground for termination of privatization
agreements under the law.”322
205. Claimants’ feeble attempt at saying that the parties intended to deviate from this
provision by not explicitly mentioning Article 5.3.4. in Article 7.1 of the Privatization
Agreement is absurd. First, it is clear that the parties cannot contract away a mandatory
321
Second Expert Report of Mr. Miloš Miloševic, 3 October 2019, para. 91.
322
81
provision of law. Second, Claimants' interpretation renders Article 5.3.4. effectively
meaningless, as it would enable the buyer to breach the said provision with no
consequences. Namely, the only sanction available to the Agency for Buyer’s
breaches of Article 5 of the Privatization Agreement, was the Agreement’s
termination. Under Claimants’ reading of the Privatization Agreement, Mr. Obradovic
could effectively pledge 100% of BD Agro’s assets, transfer the funds to other
companies (or himself) and the Agency could never terminate the contract for this
reason. Such interpretation is manifestly absurd.
206. In addition, there is no proof whatsoever that the parties even intended to derogate
from a mandatory provision of 41a(1) of the Law on Privatization. Namely, Article
7.1 of the Privatization Agreement lists several instances in which the “Agreement
shall be considered terminated ex lege” but it does not state that the agreement shall
be terminated only in these cases, i.e. it does not state that the list of termination
reasons is exhaustive.
207. The court practice undoubtedly confirms that Respondent’s position is correct. Most
notable example of an analogous case is Betonjerka, another case where the
privatization agreement was terminated solely on the basis of Article 5.3.4. In that
case, Article 5.3.4. was also not explicitly prescribed as the termination reason in the
agreement. The case ended up before a court due to the alleged unlawfulness of the
termination and was decided in favor of the Agency.323 The second-instance court
confirmed this decision. However, Claimants dismiss this case as inapposite since the
privatization agreement was not terminated after the payment of the purchase price.
This is however irrelevant for the discussion whether the court practice was on the
stand that the privatization agreement may be terminated in accordance with Article
41a(1) of the Law on Privatization, despite of the fact that the breach of Article 5.3.4.
was not listed in the agreement as a reason for termination. In any event, in the cases
of Rasadnici and Geodetski Biro, the privatization agreements were both terminated
after the full payment of the purchase price and were terminated due to breaches that
323
82
were not listed as termination reasons in the pertinent agreements (including for
breaches of Article 5.3.4.).324
208. Mr. Milosevic then states that the case law provided by Respondent is “largely
irrelevant” because it related to privatization agreements concluded before 8 June
2005, i.e. before 2005 statutory changes of the Law on Privatization.325 This is
inapposite.
209. Before the pertinent amendments, the law did not provide a list of reasons for
termination but only stated that “[i]f the contractual price is paid in several
installments and the buyer does not pay installment within the agreed time, the
contract shall be terminated and the capital that is the subject of the sale shall be
transferred to the Share Fund.”326 After the 2005 amendments, the said article simply
became more detailed and provided a list of breaches leading to ex lege termination
of the privatization agreements.
210. However, as explained by professor Radovic, this change did not make the existing
case law irrelevant. On the contrary:
“Firstly, the case law Mr. Milošević refers to is not from the period
before 2005, but afterwards. Secondly, none of these court
decisions were based on Article 41a of the Law on Privatization.
Court’s stance that all obligations contained in a privatization
agreement are equally important is derived from Article 2(1)(1)
of the Law on Privatization which prescribes that the goal of
privatization is the development of the economy and social
stability. Finally, the case law in question also reflected general
rules of contract law, which do not differentiate between essential
and non-essential contract obligations.”327
324
Termination of Geodetski biro privatization agreement of 27 March 2013, RE-31; Notice on Termination
from the Privatization Agency to Jugotehnika, 20 November 2009, RE-562.
325
Second Expert Report of Mr. Miloš Miloševic, 3 October 2019, para. 29.
326
Article 41a of the 2001 Law on Privatization as amended in 2003, RE-137.
327
83
5.2. Termination due to breach of Article 5.3.4. only
211. Although Respondent provided a number of analogies showing that the Agency
terminated privatization agreements based on breaches of Article 5.3.4. even when
this was not explicitly listed as a termination reason, Claimants consider them
irrelevant since Article 5.3.4. was not the only breach that caused termination.328 This
contention is absurd, to say the least. If Article 5.3.4. was explicitly listed as a
termination ground in a notice on termination, then there is no doubt that the Agency
considered it as an independent basis for terminating a privatization agreement, with
or without other breaches found.
212. But Respondent also mentioned one case where a breach of Article 5.3.4. was the only
reason for the termination of the pertinent privatization agreement - the previously
cited case of Betonjerka. As already noted, this case even underwent court scrutiny
which confirmed the lawfulness of the Agency’s conduct.
5.3. Termination after the payment of the purchase price
213. In their Reply Claimants note that “[e]ven though the Privatization Agency accepted
the last installment of the purchase price and the Privatization Agreement was
consummated, the Privatization Agency continued to claim the purported violations
of Articles 5.3.3 and 5.3.4 and insisted on remedial actions”.329
214. Mr. Obradovic paid the Purchase Price on 8 April 2011 while the interest accrued
because of the delay in payments was performed on 30 December 2011.330 As the
Privatization Agreement was still in force at the time, the payment was simply
executed as a Buyer’s obligation, meaning that there was nothing to be “accepted” by
the Agency. Furthermore, the Agency clearly communicated its position regarding the
non-fulfillment of certain obligations to Mr. Obradovic significantly before the
pertinent payment. Specifically, until December 2011, Mr. Obradovic was already
granted four extensions for remedying the breach of Article 5.3.4. and had two
meetings with the Agency in that respect. In other words, Mr. Obradovic was more
than aware that the Agency considered Article 5.3.4. to be breached and that it
328
Reply, para. 406.
329
Reply, para. 188.
330
Banking excerpts confirming payment of installments of purchase price by Mr. Obradovic dated 15 October
2015, RE-33.
84
considered that breach to represent the reason for termination of the Privatization
Agreement.
215. In any event, Respondent provided examples of three other cases: Zastava PES,
Trayal Korporacija and Geodetski biro,331 all of which were terminated after the full
payment of the purchase price (Respondent now adds to this list the case of
Rasadnici332). Furthermore, Zastava PES, Trayal Korporacija and Rasadnici were all
terminated due to a breach of Article 5.3.4. (notably, Rasadnici and Geodetski biro
were also cases where the breach in question was not explicitly stipulated as a
termination ground in the privatization agreement).
216. As already explained, the case law of the Serbian Supreme Court of Cassation also
confirms that termination of a privatization agreement is fully possibly even after the
payment of the purchase price.333 On the other hand, Claimants failed to submit a
single court decision which would support their interpretation of the pertinent
provisions.
217. As for the Radovic & Ratkovic legal opinion rendered in 2013, 334 its analysis was
obviously conducted superfluously and arrived at completely wrong conclusions. This
can be seen from the fact that the case law of the Serbian Supreme Court of Cassation
and the Constitutional Court directly contradicts the legal findings of the Radovic &
Ratkovic opinion.335 Thus, the Agency’s disagreement with it was completely
331
Counter-Memorial, para. 109; Termination of Zastava PES privatization agreement of 9 April 2013, RE-
59; Termination of Geodetski biro privatization agreement of 27 March 2013, RE-31; Termination of Trayal
korporacija privatization agreement of 6 December 2013, RE-24.
332
Notice on Termination from the Privatization Agency to Jugotehnika, 20 November 2009, RE-562.
333
334
Reply, paras. 202-208; Legal Opinion on the Privatization Agency’s Recommendation for Termination of
the Agreement on Sale of Socially Owned Capital of the Subject of Privatization, “PPK Buducnost” from
Dobanovci (now “BD AGRO a.d.”), through Public Auction, 11 June 2013, CE-34.
335
Legal Opinion on the Privatization Agency’s Recommendation for Termination of the Agreement on Sale
of Socially Owned Capital of the Subject of Privatization, “PPK Buducnost” from Dobanovci (now “BD
AGRO a.d.”), through Public Auction, 11 June 2013, p. 3, CE-34 (“According to the agreement itself, the
Agency does not have the right to terminate the agreement due to violation of obligation referred to in
Article 5.3.4, because this is not stipulated as a reason for termination.”) cf. Judgment of the Supreme Court
of Cassation no. Prev. 132/13 of 29 May 2014, p. 4, RE-356 (“Failure to comply with any of the undertaken
obligations, even if not foreseen by the [privatization] contract as a termination reason, can be the reason
for termination of the contract in accordance with the law itself.”); Decision of the Constitutional court of
Serbia of 6 October 2016, pp. 8-9, RE-95 (“the fact that the privatization agreement did not expressly
stipulate that the agreement may be terminated in the case of the [buyer’s] failure to perform the investment
obligation in the subject of privatization within the agreed term, but other specific cases of termination of
this contract on privatization were stipulated […] does not preclude the application of the provisions of
Article 125 of the Law on Obligations, which establish the rules of termination of the contract due to failure
to fulfill the obligation within the agreed time.”); See also Judgment of the Supreme Court of Serbia, Prev.
85
legitimate and justified. Furthermore, the opinion was not “concealed” from anyone,
which is proven by the mere fact that Claimants easily obtained it. In this regard, Mr.
Markicevic, known for his false testimonies,336 has blatantly misled the Tribunal when
stating that Ms. Vuckovic allegedly told him that the Agency had received a legal
opinion on the violations of the Privatization Agreement, but the officials were told to
“put the legal opinion into a drawer” and forget about it.337 However, Ms. Vuckovic
testifies that:
”This is absolutely incorrect, I never said anything like that to Mr.

Markicevic. Not only that the subject opinion was not placed in a
drawer, but it was referred to members of the Commission who
also considered that legal opinion. The decision not to act in
accordance with that legal opinion was made by the Commission,
since that opinion was contrary to the stance of the Agency which
was taken not only in privatization of BD Agro, but in other
privatizations as well, and no convincing reasons due to which it
should act in different manner with regard to BD Agro were put
forward”338
218. In any event, Claimants now expressly accept that privatization agreements may be
terminated after the full payment of the purchase price (due to a breach of an essential
obligation), thereby putting an end to this discussion.339 What Claimants still advance,
however, is that Article 5.3.4. was not an “essential” obligation.340
410/2005 from 1 March 2006, RE-166 (“a contract on the sale of the socially-owned capital can be legally
terminated due to non-fulfillment of only one of the contracted commitments.”).
336
337
Reply, para. 207.
338
Witness Statement of Ms. Julijana Vuckovic, para. 21.
339
Reply, para. 410 (“To be clear: the Claimants are not arguing that a privatization agreement cannot be
terminated after the payment of the purchase price for violation of the buyer’s other essential obligations
relating, for example, to compliance with the agreed social program for the employees of the privatized
company. They argue—and show—that the Privatization Agreement could not be terminated for the alleged
violation of Article 5.3.4. alone after payment of the full purchase price and the fulfilment of all (other)
contractual obligations”).
340
Specifically, Claimants agree that the Privatization Agreement could have been deleted after full payment
of the purchase price, but only disagree that this could not have been done due to a breach of Article 5.3.4.
alone – as it was not an essential obligation of the contract. This statement directly contradicts Claimants’
other assertion on how: “There was no common understanding between the Privatization Agency and Mr.
Obradović and the Claimants that the Privatization Agreement could be terminated after the payment of the
purchase price.” (Reply, para. 396).
86
5.4. Breach was substantial
219. Claimants further contend that “an agreement can be terminated only for violation of
an essential obligation and only if such violation is not only minor.”341 In that respect,
they add that Article 5.3.4. did not regulate an essential obligation, as “[i]t has an
accessory character because it only secures the buyer’s performance of his other
obligations.”342
220. Respondent already explained and pointed to the practice of the Serbian Supreme
Court of Cassation confirming that “all contractual obligations are legally equally
relevant for the achievement of the purpose of privatization”.343 Hence, there is no
division to “essential” and “non-essential” obligations when it comes to privatization
agreements. In fact, as Prof. Radovic confirms, Serbian general contract law also does
not differentiate between essential and non-essential obligations, and allows for
termination of a contract due to a breach of any obligation.344
221. Furthermore, if Article 5.3.4. had the purpose “to protect the property of the subject
of privatization and to safeguard the material base of the business of the subject of
privatization” (which it clearly had),345 it is absurd to say that this was not an essential
obligation.
222. Claimants consider that the breach of Article 5.3.4. was only minor as the pertinent
funds secured by the 221 Million Pledge “represented an insignificant part of the
value of BD Agro’s assets.”346 However, Claimants seem to forget that the Purchase
Price for BD Agro amounted to EUR 5,548,996.46 EUR,347 while the funds that were
used for the benefit of Crveni Signal and Inex amounted to EUR 959,719.60 (RSD
101.615.112,57).348 Therefore, the value connected with the violation was
approximatelly 17% of the total Purchase Price, and 140% of the value of its one
341
Reply, para. 417.
342
Reply, para. 418.
343
Counter-Memorial, paras. 100-105; Judgment of the Supreme Court of Cassation of 14 November 2013,
p. 5, RE-62.
344
345
346
Reply, para. 419.
347
Article 1.2 of the Privatization Agreement, CE-17.
348
87
installment.349 Bearing in mind that the failure to pay just one of the installments of
the Purchase Price is indisputably a reason for termination, the pertinent funds were
obviously far from minor. Indeed, Claimants' assertion that the violation was minor is
wholly unconvincing considering that its value exceeded the value of an installment
of the Purchase Price, while Mr. Obradovic struggled with payment of five out of six
installments of the Purchase Price.350
223. Furthermore, Claimants’ contention that “[i]t simply did not make any sense for the
Privatization Agency to request that BD Agro obtain deletion of the pledge and
repayment of the funds from Crveni Signal and Inex—only to be perfectly free to give
them the money back and reinstate the pledges on the following day”351 is nonsensical
in itself. This stance relativizes all contractual obligations as breach of almost all of
them could be repeated immediately after it was remedied. Thus, according to
Claimants’ unreasonable position, there would be no sense in requesting Mr.
Obradovic to remedy any of the breaches as it would be in position to repeat each of
them "on the following day" after payment of the purchase price.
5.5. Termination was a proportionate measure
224. Claimants further insist that termination of the Privatization Agreement was a
disproportional measure by way of comparison with the breach of Article 5.3.4.352
However, their argument is misplaced from the onset. As Prof. Radovic explains:
“this was not a question of proportionality, but a question of

whether the breach of the Privatization Agreement was
insignificant or not […] This is because contract termination was
a commercial act of the Privatization Agency, which was
regulated by the Law on Obligations. Further, it can be said that
the rule preventing contract termination due to an insignificant
349
The value of one installment was EUR 684,909.09. See Banking excerpts confirming payment of
installments of purchase price by Mr. Obradovic, 15 October 2015, RE-33.
350
See Section I. B. 1.2.
351
Reply, para. 422.
352
88
breach is in a general sense a reflection of the principle of
proportionality.”353
225. In fact, Claimants contend that “the disproportionality of the termination is obvious.
The pledge caused no damage and did no harm to anyone.”354 Yet, this is far from the
truth.
226. First of all, even after partial repayments, the total debt of Crveni Signal and Inex
towards BD Agro still remains at RSD 70.386.222,01 (EUR 664.603,53).355 This
amount clearly represents the damage that has been caused to BD Agro by the breach
of Article 5.3.4.
227. In addition, considering that the installments of the Purchase Price amounted to EUR
684.909,09, the amount of funds provided to affiliated companies (EUR 959.719,60)
for which Mr. Obradovic pledged the land, was therefore much higher than an
installment of the Purchase Price. Therefore, if termination due to non-payment of just
one of the installments of the Purchase Price is a proportionate measure (which is
undisputed), then there is no reason why termination due to a pledge resulting in the
same (or even higher) loss to BD Agro would be disproportionate. This analogy gains
particular weight when viewed in light of the present case.
228. Furthermore, based on the banking documentation analyzed in more detail hereunder
(Section I. F. 2.3.4), it can be quite easily traced that the entire amount of over RSD
100 million spent for the benefit of Crveni Signal and Inex, actually ended up on the
accounts of Mr. Obradovic.356
229. First, based on the bank statement of Crveni Signal, it is evident that the entire amount
of RSD 65 million was paid directly to the bank account of Mr. Obradovic on the
same day that Crveni Signal acquired them.357 Second, a month and a half after BD
Agro gave the RSD 30 million loan to Inex, the latter company paid approximately
RSD 30 million to Mr. Obradovic on the day that he partially paid two installments of
353
354
Reply, para. 430.
355
Analytical card of debts owed by Inex on 25 March 2019, RE-1 (RSD 26.539.008,45); Analytical card of
debts owed by Crveni Signal on 25 March 2019, RE-190 (43.847.213,56)
356
Even the additional amount of RSD 84 million paid to Inex for allegedly provided “goods and services”
largely ended up with Mr. Obradovic.
357
Bank Statement of Crveni Signal, 2 June 2010, RE-372.
89
the purchase price for PIK Pester and BD Agro.358 Inex was also making substantial
payments to Mr. Obradovic in between receiving the loan and paying for the
installment, thereby leaving no doubt that the “benefit” of Inex was in fact personal
benefit of Mr. Obradovic.359 Bearing this in mind, the loss that BD Agro suffered due
to the payments for Crveni Signal and Inex was directly contributed to Mr. Obradovic,
and was more than enough to cover an installment of the Purchase Price (specifically,
the sixth installment, together with the accruing interest). Consequently, it can be
easily concluded that Article 5.3.4. in this instance most directly served the purpose
“to protect the property of the subject of privatization and to safeguard the material
base of the business of the subject of privatization”, and that the breach was even
misused to pay the Purchase Price.
230. Finally, it should be noted that Mr. Milosevic is of the opinion that the Agency failed
to adequately “consider whether termination of the Privatization Agreement was a
necessary and proportionate measure under the circumstances”.360 However, what
Mr. Milosevic ignores is that the Privatization Agreement and the applicable law left
no other measure at the Agency’s disposal except for termination. In other words, the
Agency did not have an option to choose between two or more measures. The only
thing it could have done was to grant extensions to Mr. Obradovic until he remedied
the breach. The only question was how much patience will the Agency have. After
four years of Mr. Obradovic’s failures to remedy the breach, there should be no doubt
that not only was termination a proportionate measure with respect to the 221 Million
Pledge, but it was the only available measure at the Agency’s disposal.
5.6. No outside “pressure”
231. Claimants’ also made sure to reiterate over and over again how the Agency’s conduct
was allegedly motivated by outside pressure applied by the unions and minority
shareholders (the alleged Ombudsman’s pressure is separately analyzed in Section I.
C. 2). The central “support” for this allegation are the transcripts from the sessions of
the Commission for Control, where Ms. Vuckovic stated at one point that
358
Mr. Obradovic’s Bank Statement from Vojvodjanska Banka for 14 February 2011, RE-437; Banking
excerpts confirming payment of installments of purchase price by Mr. Obradovic, 15 October 2015, RE-33.
359
See Sections I. F. 2.3.4 and I. F. 3.1.4.
360
90
“We have mentioned daily communications we are receiving from
the employees and trade unions, wherein they are requesting
urgent measure to be taken and stating that they generally have
big problems concerning business operations, in particular
maintaining production and keeping the cattle alive, which is the
core business activity of the subject of privatization”361
232. Claimants misleadingly attempt to present this as a conspiracy by “self-styled” and

“obscure” associations of employees and shareholders. However, the truth is that
minority shareholders and labor unions have been repeatedly requesting termination
of the Privatization Agreement for a number of years prior to the actual termination,
and even prior to the 221 Million Pledge.362 These letters were in fact very helpful in
discovering various instances of mismanagement of BD Agro and breaches of the
Privatization Agreement. However, they could never create pressure or impact the
Agency’s decision to terminate the Privatization Agreement in any way. This can be
best seen from the fact that the Agency granted over 30 extensions to Mr. Obradovic
while it was continuously receiving numerous letters from the unions and minority
shareholders requesting termination. Evidently, had the Agency felt any undue
pressure, it would have terminated the agreement much sooner. Mr. Obradovic
provided it with many opportunities throughout the term of the Privatization
Agreement to do so, but it nevertheless gave him second chances over and over again.
233. Transcripts of the sessions of the Commission for Control also confirm that the labor
unions’ letters had absolutely no impact upon the Agency,363 contrary to Claimants’
361
Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, pp. 4-5,
CE-768.
362
Requests of unions of BD Agro’s employees of 24 May 2013, RE-104. Letter from Center for education
and representation of shareholders and employees to the Government of the Republic of Serbia of 20
December 2010, RE-125; Letter from Center for education and representation of shareholders and
employees to the Privatization Agency of 26 January 2009, RE-114; Letter from Center for education and
representation of shareholders and employees to the Privatization Agency of 16 March 2009, RE-115; Letter
from Center for education and representation of shareholders and employees to the Government of Republic
of Serbia of 26 April 2010, RE-116. Letter from Center for education and representation of shareholders
and employees to the Privatization Agency of 11 February 2010, RE-118.; Letter from Center for education
and representation of shareholders and employees to the Privatization Agency of 21 March 2012, RE-147.
363
For instance, on 23 April 2015, after the discussion was well under way and after the Agency’s positions
were already clearly expressed, Ms. Vuckovic only “mentioned daily communications […] from the
employees and trade unions”, and later went on to say how “[b]earing in mind that we no longer monitor
this, our proposal would be to forward these communications to the competent labor inspectorate […]”.
This later quote was expectedly omitted by Claimant. The transcripts confirm that there is absolutely no
indication that anyone at the Agency was under any “outside” pressure to terminate the agreement.
91
absurdly dramatized interpretation of these discussions.364 In this regard, Ms.
Vuckovic further testifies that:
“the Agency never rendered any decision, including the decision

on termination of Agreement, because of complaints of unions. If
the complaints of unions could influence decision of the Agency
on whether it will terminate the Agreement, then the Agreement
would be terminated much earlier […]”365
234. Her colleague from the Agency, Ms. Branka Radovic Jankovic, likewise confirms
that:
“we never understood the letters of the labor unions as pressure

or influence to our decision. Labor unions could not have
influenced the decision on whether or not the Agreement was
breached and what would the next steps be. We sent the labor
union’s letters pointing out to Mr. Obradovic’s numerous illegal
actions, to the competent institutions for undertaking actions.”366
235. Claimants have even named a mastermind behind the conspiracy – Mr. Zoran Ristic,
director of an “alleged”367 Center for Education, Research and Privatization at a
“purported” 368 United Industry Unions “Independence”.369 Claimants indicate that
Mr. Ristic approached the Agency with respect to BD Agro back in 2013, and that the
Agency took him very seriously.370 In that regard, Claimants put great emphasis on
the fact that Mr. Ristic was named as the new General Manager of BD Agro after the
termination of the Privatization.371 In fact, they state that they “are left to wonder if
Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, pp. 4-5, CE-
768; Transcript of the audio recording from meeting of the Commission for Control, 19 June 2015, CE-770.
364
365
Witness Statement of Ms. Julijana Vuckovic, 22 January 2020, para. 26.
366
Witness Statement of Ms. Branka Radovic Jankovic, 23 January 2020, para. 16.
367
Claimants provide absolutely no explanation as to why they consider that the Center was an “alleged”
association.
368
Claimants provide absolutely no explanation as to why they consider that the Union was a “purported”
association.
369
Reply, para. 329.
370
Reply, para. 330.
371
Reply, paras. 458-460; Decision of the Serbian Business Register Agency, 15 December 2015, RE-414.
92
the appointment was intended to reward Mr. Ristić for his role in the expropriation of
the Claimants’ investment.”372
236. However, the truth of the matter appears significantly different when these facts put
in the proper context. First, Mr. Ristic373 was at the head of a section of only one of
the several labor associations which was protecting the rights of employees, not just
in BD Agro but also in other companies. The letters and requests of the labor unions
towards the Agency did not start and did not end with Mr. Ristic. Therefore, he was
obviously not the "reason" for the “pressure” by the employees and minority
shareholders. Second, being at the head of a devastated company at the verge of
bankruptcy proceedings was not an appealing task, and could not possibly be Mr.
Ristic’s motive for the purported conspiracy. Mr. Ristic proved as much when he
resigned the position of BD Agro’s General Manager in less than a month after he was
appointed.374 There would simply be no logic in orchestrating a conspiracy for
terminating the Privatization Agreement for more than two years, all in order to gain
a position that was abandoned in less than a month.
237. Complaints from labor unions and minority shareholders were nothing uncommon for
Mr. Obradovic. The same kind of letters were sent to the Agency in another similar
privatization involving a large number of employees and minority shareholders - PIK
Pester.375 However, the Agency did not terminate the agreement in that instance, as
the breaches were ultimately remedied after a number of extensions.376
238. Unfortunately, that was not the case with the 221 Million Loan breach which was not
remedied even after almost five years of additionally granted terms for performance.
Consequently, “under Article 41a(1) of the Law on Privatization, termination
occurred ex lege [since] the buyer failed to remedy the violation of the privatization
agreement within an additional deadline granted by the Privatization Agency.”377
372
Reply, para. 459.
373
CV of Mr. Zoran Ristic, RE-410.
374
Resignation of Mr. Zoran Ristic, 11 January 2016, RE-306.
375
Letter from the Minority Shareholders Association and the Labor Union Solidarnost, 8 April 2010, RE-
472.
376
Letter from the Privatization Agency to the Ombudsman, 22 June 2011, RE-358.
377
93
C. OMBUDSMAN’S INVOLVEMENT HAD NO UNDUE INFLUENCE OVER
THE AGENCY
239. Claimants’ case substantially hinges on a conspiracy theory saying that someone,
having political motives, exercised undue influence over the Agency in order to
procure unlawful termination of the Privatization Agreement and expropriation of Mr.
Obradovic’s shares in BD Agro. However, the main protagonists of this conspiracy
seem quite atypical as Claimants’ main suspects are labor unions and an ombudsman
in charge of protecting human rights.
240. Although the Ombudsman’s involvement in the case started much after the pertinent
breach of the Privatization Agreement was already discovered and seven notices under
the warning of termination were already issued to Mr. Obradovic, Claimants see no
obstacle in accusing Ombudsman of effectively causing the termination of the
Privatization Agreement. However, this preposterous theory fails for several reasons,
all of which have already been explained in the Counter-Memorial.378 Nevertheless,
as Claimants’ insist upon reiterating the same allegations in their Reply, Respondent
will once again briefly explain that Ombudsman’s: (1) involvement was lawful; (2)
recommendation had not been taken into account when deciding on whether or not to
terminate the Privatization; and (3) interventions also existed in other privatization
cases.
1. Ombudsman’s investigation was lawful
241. As Respondent previously explained,379 Ombudsman conducted his investigation in

accordance with the law, which resulted in the issuance of a completely lawful
recommendation to the Agency. Yet, in their Reply, Claimants’ repeat their
preposterous allegations from their previous submission, claiming the opposite.380
378
Counter-Memorial, Section II.B.
379
Counter-Memorial, Section II.B.1.
380
Reply, Section II.R.
94
1.1. Ombudsman acted upon employees’ petition concerning the violation of
human rights
242. As Claimants’ themselves confirm, the Ombudsman’s involvement was prompted by

BD Agro’s employees’ petition submitted in November 2013. 381 Yet, without any
explanation whatsoever, Claimants label the employees in question as “alleged
employees”.382 However, not only were these actual employees, but they were in fact
two presidents of two labor unions and the president of the striking committee at BD
Agro i.e. persons obviously representing the vast majority of BD Agro’s employees.383
243. Claimants further state that the Ombudsman did not have the jurisdiction to investigate
the conduct of the Ministry of Economy and the Agency with respect to BD Agro as
this was apparently “completely unrelated to the protection of citizens’ rights”.384 To
the contrary, as the Ombudsman normally does, he investigated the complaints in
order to determine whether there was a violation of human rights. In particular, the
employees were complaining that their human rights were violated by (i) Ministry of
Labor’s failure to properly conduct inspection of BD Agro regarding labor law
violations; and (ii) the Agency’s failure to finally decide on the status of the
Privatization Agreement. Namely, since BD Agro was brought to a disastrous
financial condition by Mr. Obradovic and his associates through their various
fraudulent activities and breaches of the Privatization Agreement, its employees were
in a state of uncertainty regarding their labor rights. Employees knew that Mr.
Obradovic was a notoriously negligent Buyer who indisputably failed to fulfill his
obligations from the Privatization Agreement, and were thus asking why the Agency
had not yet terminated the Privatization Agreement, in accordance with the Law on
Privatization.
381
Opinion of the Ombudsman, 19 June 2015, CE-42.
382
Reply, para. 332. With no explanation whatsoever, Claimants’ frequently label these, and all other unions
or organizations who complained at the management of BD Agro, as “alleged” and “obscure”. See e.g.
Reply, paras. 146, 328-329, 331.
383
Letter from Union “Independence” and an Independent Union BD Agro to the Prime Minister and Minister
of Interior, 24 May 2013, CE-783. See also Letter from Union “Independence” and an Independent Union
BD Agro to the Privatization Agency, 24 May 2013, RE-104.
384
Reply, para. 347.
95
244. Regarding the first aspect of the complaints i.e. those regarding labor law, the
Ombudsman determined that there were no violations of human rights committed by
the competent authorities.385
245. When it comes to the other aspect of the complaints, the Ombudsman started
investigating whether the Agency acted in accordance with the Law on Privatization
i.e. whether employees’ rights were violated by the Agency’s possible failure to
properly conduct its controls.
246. Having all of this in mind, the Ombudsman had all the right to investigate the situation.
As Prof. Radovic confirms:
“the Ombudsman was expressly authorized to control the legality

and proper work of authorities […], including holders of public
authority (such as the Privatization Agency). Since the
Privatization Agency was entrusted to control the privatization
process and to follow up on contract performance, in my view the
Ombudsman had the authority to look into the case of BD
Agro.”386
1.2. Ombudsman did not ignore the Agency’s and the Ministry of Economy’s
position
247. Claimants’ wrongly advance that the Ombudsman ignored the Agency’s and the
Ministry of Economy’s letters (from 11 November 2014 and 11 May 2015,
respectively) explaining their positions to him, and that: “[w]ithout any justification as
to why he disagreed with the explanations of the Ministry of Economy and the
Privatization Agency, the Ombudsman stated that the Privatization Agency should have
terminated the Privatization Agreement […]”.387
385
Letter from the Ombudsman to the Ministry of Labor, 8 October 2014, CE-774; Letter from the
Ombudsman to the Independent Union BD Agro AD Dobanovci, 8 October 2014, CE-775; Letter from the
Labor Inspectorate to the Ministry of Labor, 7 July 2014, CE-776.
386
Second Expert Report of Prof. Mirjana Radovic, 24 January 2020, para. 44 (emphasis added).
387
Reply, Section II.R.2. and 3, referring to Letter from the Privatization Agency to the Ombudsman, 14
November 2014, CE-43; and Letter from the Ministry of Economy to the Ombudsman dated 11 May 2015,
CE-44.
96
248. This is an astonishing example of how far are Claimants ready to go with
misrepresentation of the written evidence. A simple comparison of Claimants’
interpretation in paras 336 and 337 of the Reply and what was written in the letters
referred to therein388 is a good example. Contrary to Claimants’ (evidently) erroneous
assertions, the Agency and the Ministry were not explaining to the Ombudsman why
the Privatization Agreement should not have been terminated, but were explaining the
reasons why the status of the Privatization Agreement was not yet decided. In that
regard, in the letter from 14 November 2014 the Agency said that “there are several
reasons why the Agency did not yet render a decision on termination” and then it
elaborated those reasons.389 The Agency concluded that “the Buyer has not completely
fulfilled his contractual obligations”.390 Likewise, in its letter from 11 May 2015, the
Ministry of Economy informed the Ombudsman that, after the Supervision
Proceedings were conducted, it instructed the Agency, to grant Mr. Obradovic an
additional term for delivery of evidence on remedial actions, and instructed it to
undertake measures within its authority in case the Buyer does not comply.391 It could
not be any clearer that the Ministry of Economy also considered that there was an
uncured breach which constituted a termination reason.
1.3. Claimants, Mr. Obradović and BD Agro did not have to be informed of the
Ombudsman’s investigation
249. Claimants’ assertion that Claimants, Mr. Obradović and BD Agro were not informed
of the Ombudsman’s investigation, and that they were not able to defend themselves
before the Ombudsman’s final verdict was made public,392 is much ado about nothing.
250. Ombudsman’s investigation concerns solely the conduct of the state authorities and
organizations entrusted with certain public authorities. He is not a decision-making
body which administers any kind of contentious legal proceedings and decides upon
legal issues disputed amongst private parties. He only investigates whether individual
i.e. citizen rights were breached in the conduct of the pertinent subjects. There is
simply no legal basis upon which third parties, such as Mr. Obradovic, would be
388
Letter from the Privatization Agency to the Ombudsman, 14 November 2014, CE-43, and Letter from the
Ministry of Economy to the Ombudsman, 11 May 2015, CE-44.
389
Letter from the Privatization Agency to the Ombudsman, 14 November 2014, CE-43.
390
Letter from the Privatization Agency to the Ombudsman, 14 November 2014, CE-43.
391
Letter from the Ministry of Economy to the Ombudsman, 11 May 2015, CE-44.
392
Reply, Section II.R.2.
97
notified of the investigation or participate in it.393 There was particularly no reason to
do so in the present case, as the Ombudsman did not decide upon any rights of
Claimants,394 Mr. Obradovic nor BD Agro, as Respondent explains below.
1.4. The Recommendation was issued within the limits of Ombudsman’s authority
251. Claimants’ once again allege that the in his recommendation of 19 June 2015
(“Recommendation”), “Ombudsman concluded that the Privatization Agreement
should have been terminated”.395 This is yet another example of Claimants obvious
misrepresentation of the written evidence. As Respondent already pointed out,396 the
Ombudsman did not express his own position on the breach and the lawfulness of the
termination at any point, but simply determined that the Agency’s and the Ministry’s
delays in resolving the status of the Privatization Agreement breached employees’
rights. This was very clear from the Recommendation itself, which determined that:
“[…] the Privatization Agency […] and the Ministry of Economy

made omissions in their work to the detriment of the employees of
company [BD Agro] by doing the following, regardless of the fact
that it had been determined [by the Agency] on January 17, 2011
that the buyer of the subject of privatization failed to fulfill his
contractual obligations:
- In further procedure, the Privatization Agency failed to make a

decision whether […] legally prescribed requirements were met
for the Agreement on sale of socially owned capital to be deemed
terminated;
- The Ministry of Economy failed to give instructions to the

Privatization Agency on further actions […]
- Regardless of the fact that […] when the Ministry of Economy

initiated procedures for supervision […] it still had not taken a
393
394
Notably, it is also completely unclear why the Ombudsman would even consider ever contacting Claimants
at any point, since they had absolutely no connection with BD Agro and its employees.
395
396
98
stand whether the [Privatization Agreement] should be deemed
terminated […].”397
252. Consequently, further actions that were recommended likewise contained no position
of the Ombudsman on whether a breach indeed occurred or whether the termination
would be lawful, but it simply stated that the Agency:
“[…] shall take all necessary measures to determine, within the

shortest period of time, whether all conditions stipulated by the
Law on Privatization of 2001 for termination of the [Privatization
Agreement] have been fulfilled, in order to finally clarify legal
status of the subject of privatization […] and its employees who,
for a long period of time, have lacked any certainty regarding
manner of exercising of their labor rights.”398
253. By obvious misinterpretation of certain quotes,399 Claimants try to create the

impression that the Ombudsman took his own position on the existence of the breach
and lawfulness of the termination of the Privatization Agreement. On the contrary,
each misinterpreted quote used by Claimants reveals that the Ombudsman was
mentioning findings made by the Agency and the Ministry themselves in this regard.
This can be easily noticed by simply reading these quotes, where it was stated that:
“During the control performed on January 17, 2011, at the seat of

the subject of privatization […] the Privatization Agency
determined that there was a violation of the Agreement […]”400
or
“The Ministry of Economy and the Privatization Agency violated

their obligations […] since they failed to determine whether the
required conditions were met for termination of the Agreement on
sale of socially owned capital through the method of public
auction for the subject of privatization […] at the time when it was
397
Opinion of the Ombudsman, 19 June 2015, p. 1, CE-42.
398
Opinion of the Ombudsman, 19 June 2015, p. 2, CE-42.
399
400
Opinion of the Ombudsman, 19 June 2015, p. 6 (emphasis added), CE-42.
99
determined that there were violations of provisions of the
agreement.”401
or
“The Ombudsman has determined that despite the fact that several
years ago, it was ascertained that the buyer did not fulfil its
contractual obligations in the privatization procedure, the
Privatization Agency and the Ministry of Economy have not
terminated the Agreement, but rather have prolonged rendering
of the final decision and thus breached the rights of employees of
this company”402
254. As it is evident from the above, there was nothing in Ombudsman’s conduct that
overstepped the boundaries of his authority. Ombudsman issued a recommendation
that did not deal with how the Agency should decide in the present case, but only that
it should decide something as soon as possible.
2. Recommendation had not been taken into account when deciding on whether
or not to terminate the Privatization Agreement
255. Inexplicably, Claimants once more completely ignore the circumstances and the
timeline of the Ombudsman’s investigation, repeating that the “Agency reacted to the
Ombudsman’s findings by demanding new audit reports on compliance with the
Privatization Agreement”,403 and that the Agency “followed the unlawful instruction
of the Serbian Ombudsman in the termination of the Privatization Agreement”.404
256. Ombudsman’s investigation started at the moment when the Supervision Proceedings
were ongoing. Long before the Supervision Proceedings, the Agency took a clear
stance in saying that conditions for termination were already met and that the breach
of the Privatization Agreement must be remedied or termination would be
inevitable.405 The Supervision Proceedings ended on 7 April 2015,406 over two months
401
Opinion of the Ombudsman, 19 June 2015, p. 6 (emphasis added), CE-42.
402
Ombudsman’s On-Line Statement, 23 June 2015 (emphasis added), CE-45.
403
Reply, Section II.S.
404
Reply, para. 1001.
405
See Section I. B. 3.1.
406
Report of Ministry of Economy on the Control over the Privatization Agency, 7 April 2015, RE-98.
100
before the Ombudsman issued his recommendations, and the Ministry just repeated
what the Agency already concluded – that the breach of the Privatization Agreement
must be cured. At the sessions held on 23 April and 19 June 2015, the Agency’s
Commission for Control confirmed that it is still on that same position. There was no
mention of the Ombudsman whatsoever.407 Four days after the former session, on 27
April 2015,408 and four days after the latter session, on 23 June 2015,409 the Agency
sent letters to Mr. Obradovic in accordance with conclusions from its discussions.
257. It was only after the latter session of the Commission when, on 23 June 2015, the
Ombudsman published his Recommendation saying that the Agency should decide on
the status of the Privatization Agreement.410 In the previously described circumstances
existing at the time, it is literally impossible to say that the Recommendation could
have had any impact on what was obviously already imminent at that point.
258. Communication between the Ombudsman and the Agency following the
Recommendation, likewise contains no indication of any impact of the
Recommendation on the Agency’s decision-making process.
259. On 17 August 2015, the Agency simply informed the Ombudsman of the timeline and
current status of the case, and stated that it will inform him “of the measures
undertaken towards the Buyer […] as soon as the decision of the competent
Commission has been rendered”.411 As no decision had been made by the Agency for
almost a month after this letter (neither to terminate nor not to terminate), Ombudsman
replied on 18 September 2015, reiterating how his recommendations were given “in
order to finally clarify the legal status of the subject of privatization”, and to do so “in
the shortest possible period of time”.412 The Ombudsman’s letter again contained no
instruction to terminate the agreement,413 just to take actions to finally resolve the
situation.414 For the sake of clarity, besides terminating the Privatization Agreement,
407
See e.g. Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015,
CE-768; Transcript of the audio recording from meeting of the Commission for Control, 19 June 2015, CE-
771.
408
Letter from the Privatization Agency to Djura Obradovic, 27 April 2015, CE-348.
409
Letter from the Privatization Agency to Djura Obradovic and BD Agro, 23 June 2015, CE-351.
410
Opinion of the Ombudsman, 19 June 2015, CE-42.
411
Letter from the Privatization Agency to the Ombudsman, 21 August 2015, CE-725.
412
Letter from the Ombudsman to the Privatization Agency, 18 September 2015, CE-88.
413
Contrary to Claimants’ irrational interpretation. See Reply, Section II.U.
414
Letter from the Ombudsman to the Privatization Agency, 18 September 2015, CE-88 (“it is necessary that
[the Agency] submit to us a new notice on actions based on the recommendations and undertaken measures
101
the Agency could have finally resolved the situation by issuing a confirmation that the
Buyer fulfilled all of his contractual obligations415 (provided, of course, that he did in
fact fulfil them – which never occurred).
260. After the decision on termination was made, the Agency simply informed the
Ombudsman of this development.416 Consequently, the Ombudsman merely
acknowledged the content of the Agency’s decision, and noted that the Agency acted
in accordance with his Recommendation,417 since a decision was finally made. In
other words, it was not the termination as such that “satisfied” the Ombudsman,418 but
the fact that status of the Privatization Agreement was finally resolved, i.e. that a
decision was taken.
3. Ombudsman’s interventions in other cases
261. It should also be noted that BD Agro was not the only privatization of Mr. Obradovic
where the Ombudsman intervened. In May 2011, prompted by the employees’
complaints, the Ombudsman conducted an investigation regarding the Agency’s
conduct in case of privatization of PIK Pester. Just as in the case of BD Agro, the
employees were complaining that Mr. Obradovic breached the Privatization
Agreement, and that the Agency failed to adequately react to these breaches i.e. that
it failed to conduct proper control of the fulfilment of the buyer’s obligations.419 The
Ombudsman thus requested that the Agency provides him with a number of
explanations.420 Yet, unlike in the case of BD Agro, with respect to PIK Pester the
Agency stated that it did find breaches during the control of the privatization
agreement, but that it determined in its last control that all breaches were remedied
and that all obligations of the buyer were fulfilled.421 Having reviewed the Agency’s
explanations and the relevant documentation, the Ombudsman decided to terminate
in which you will inform us whether the issue of validity of disputable Agreement […] was solved or not
[…]”).
415
See e.g. Article 41(3) of the 2001 Law on Privatization, CE-220 (“After the buyer of capital or property
has fulfilled his obligations from the agreement on sale of the capital or property, which has to be proven
by the confirmation of the Agency, […]”); Article 2(1) of the Rulebook on criteria for decision-making of
30 April 2015, RE-92 (“The Commission renders decisions on fulfilment of obligations of the buyer […]
from agreements concluded in the process of privatization, […] decisions on termination […]”)
416
Letter from the Privatization Agency to Ombudsman, 14 October 2015, CE-726.
417
Letter from the Ombudsman to the Privatization Agency, 21 October 2015, CE-727.
418
Reply, Section II.V.2.
419
Letter from the Ombudsman to the Privatization Agency, 23 May 2011, RE-357.
420
Letter from the Ombudsman to the Privatization Agency, 23 May 2011, RE-357.
421
Letter from the Privatization Agency to the Ombudsman, 22 June 2011, RE-358.
102
his inquiry.422 This once again proves that it was not the Ombudsman’s intention to
achieve that the Agency terminate the Privatization Agreement but to, simply, finally
decide whether or not it should be terminated.
D. PLEDGE OVER THE SHARES IN BD AGRO WAS LAWFULLY KEPT AND

ACTIVATED
262. An inseparable part of the Privatization Agreement was the Share Pledge
Agreement,423 which prescribed that:
“The Pledgor undertakes to pledge with the Agency the

Confirmation of the shares of [BD Agro] which was purchased at
the auction held on September 29, 2005. […]
Confirmation of the shares […] is pledged with the Agency by the

Pledgor for the period of 5 years as of the day of conclusion of the
sale and purchase agreement, that is, until final payment of sale
and purchase price.”424
263. As explained in Counter Memorial,425 this agreement established a pledge over the
shares in BD Agro (“Pledge”) in order to secure that the shares could be transferred
back to the Share Fund in case the Privatization Agreement was terminated due to the
buyer’s fault.426 The transfer of the shares to the Share Fund was the mandatory
consequence of the termination and had to be effectuated regardless of termination
reason.427 However, Claimants’ and their expert Mr. Milosevic persistently
misrepresent the legal ground and the reasons for which the Pledge was established
422
Letter from the Ombudsman to the Privatization Agency, 28 February 2012, RE-359.
423
Articles 3.1.2. and 11.1 of the Privatization Agreement, CE-17 (“The Buyer and the Agency conclude the
share pledge agreement (confirmation of the shares) based on which the Buyer submits the confirmation of
the shares to the Agency, which is kept by the Agency until payment of sale and purchase price. […] The
following appendices shall constitute integral part of this agreement: […] Share Pledge Agreement –
Appendix 1” (emphasis added))
424
Articles 1 and 2 of the Share Pledge Agreement, CE-17.
425
See Counter Memorial, Section II C.
426
Article 41a(2) of the Law on Privatization, RE-136 (“In the event of termination of the agreement referred
to in paragraph 1 of this Article […] the capital that was the subject of sale shall be transferred to the Share
Fund.”).
427
Article 41a(2) of the Law on Privatization, RE-136.
103
and argue that the Pledge could not be retained after the payment of the Purchase
Price.428
264. Bearing this in mind, Respondent once again explains: (1) the purpose of the Pledge
in the privatization; (2) that the Agency had completely justified reasons for retaining
the Pledge; (3) that the Agency had a strong legal ground to retain the Pledge after
payment of the Purchase Price; and (4) that in any event, retaining the Pledge caused
no harm to Mr. Obradovic or Claimants.
1. Purpose of the Pledge
265. Claimants and their expert Mr. Milosevic’s argue that after payment of the Purchase
Price the Pledge should have been released,429 because “under Serbian law, a pledge
can only secure monetary claims”.430 This is incorrect.
266. First of all, there is no Serbian law provision that states that the pledge can only secure
monetary claims. Mr. Milosevic’s only source for this argument is a book which states
that “the pledge implies the settlement of that claim from the realization of the
acquired value of the pledged item”.431 Based on this Mr. Milosevic concludes that
the pledge can secure only monetary claims. However, Mr. Milosevic ignores the fact
that the book adds that “if a manual pledge is aimed to secure the execution of non-
monetary receivable, it must first be transformed in a certain way, it must be
"expressed in money", and then that monetary claim can be secured with pledge”.432
Therefore, the cited scholars confirm that non-monetary receivables can also be
secured by pledges, as long as they can be expressed in money.
267. In any event, the said discussion is inapplicable to the case at hand. As Prof. Radovic
explains,433 the purpose of the pledge over the shares of a privatized company was not
the same as the purpose of pledges in general (which is to secure collection of
receivables). In case of privatization:
428
Reply, paras. 180-187; Second Expert Report of Mr. Milos Milosevic, 3 October 2019, paras. 158-171.
429
Second Expert Report of Mr. Milos Milosevic, 3 October 2019, para. 171. Reply, para. 182.
430
431
D. Hiber, M. Zivkovic, Obezbeđenje i učvršćenje potraživanja [in English: Securing and Fortifying
Claims], (2015, Belgrade Law Faculty, Belgrade), p. 140, CE-719.
432
D. Hiber, M. Zivkovic, Obezbeđenje i učvršćenje potraživanja [in English: Securing and Fortifying
Claims], (2015, Belgrade Law Faculty, Belgrade), pp. 140-141, CE-719.
433
Second Expert Report of Prof. Mirjana Radovic, 24 January 2020, Section 4.
104
“the pledge secured the Privatization Agency’s (future and
conditional) right to claim shares back from the buyer in case his
potential breach of contract eventually led to termination of the
privatization agreement.”434
268. In particular, Article 41a(2) of the Law on Privatization prescribed that after
termination of a privatization agreement privatized shares are being returned to the
Share Fund.435 This obligation was the reason for constitution of the pledge over the
shares and not the payment of the purchase price. This is confirmed by the fact that
there was no possibility of selling the shares by activation of a pledge in order for the
purchase price to be collected, which is the general purpose of pledge as means of
security. Rather, the Law on Privatization prescribed that in case of nonpayment of
the purchase price (as well as in case of other breaches) the privatization agreement
will be ex lege terminated while the shares will be returned to the Share Fund.436
Consequently, the purpose of the pledges over privatized shares could not be to secure
the payment of the purchase price as Claimants contend.
269. The fact that the above understanding of the purpose of the pledges in privatization is
correct one is further confirmed by the Law on Privatization enacted in 2014. Article
37(8) of that law prescribed that the pledge over the privatized shares is erased only
after “the buyer performs his last contractual obligation”.437 The lawmaker explained
that these amendments were made “based on good experiences from the previous
period”,438 thereby indicating that this was an already applied rule.
270. Furthermore, Prof. Radovic’s analysis also confirms that, due to the principle of
publicity, “it was justified to keep the pledge in place, in order to inform all third
parties that shares in question could be transferred to the Share Fund if the agreement
was terminated.”439
434
435
Article 41a(2) of the 2001 Law on Privatization
436
Article 41a of the 2001 Law on Privatization, RE-136.
437
Article 37(8) of the 2014 Law on Privatization, CE-223.
438
Draft 2014 Law on Privatization, p. 38, available at: www.parlament.gov.rs (28.12.2019), RE-482.
439
105
2. Agency’s reasons for retaining the Pledge were justified
271. Claimants assert that the Agency “kept the pledge in place, with the sole purpose of
preventing Mr. Obradović from transferring the Privatized Shares—and making sure
that the Privatization Agency would be able to expropriate them.”440 They rely in this
regard to the transcripts from the sessions of the Commission for Control held on 23
April and 19 June 2015, which Claimants have preposterously dramatized and
misrepresented with respect to multiple topics, including this one.441
272. The truth of the matter is that the Agency did not keep the Pledge in order to be able
to expropriate the shares but in order to secure the fulfillment of the obligations from
the Privatization Agreement. Ms. Vuckovic confirmed this at the session of 23 April
2015:
“[…] if the Agency was to render a decision on deletion of pledge

against shares to the buyer registered to his benefit, it would be
free to dispose of them, which would be certain bearing in mind
the buyer’s request for assignment of the agreement. If this
disposal of shares is permitted, and the buyer is, I repeat, entitled
to this in accordance with the agreement, generally the Agency
would no longer be in a contractual relation with someone and
you would no longer be able to take measures against the
contracting party, when the legal ground had generally ceased
with it, and the buyer would be free to dispose of its shares.”442
273. In Claimants’ view,443 this quote demonstrates that the Agency considered that the
Pledge over the shares should have been released after payment of the Purchase Price.
However, what Claimants omit to note is that the Agency was actually concerned with
the fact that Mr. Obradovic, as a notoriously negligent buyer in clear breach of the
Privatization Agreement, would use the first opportunity to dispose of the shares and
440
Reply, para. 187.
441
Reply, Section II.P.
442
(emphasize added), CE-768.
443
Reply paras. 291-292.
106
effectively hinder the Agency’s efforts to obtain remedy of the breach of the
Privatization Agreement.
274. Furthermore, at the same session of the Commission, it was noted that keeping the
Pledge would be in line with its very purpose. In that regard, immediately after the
above quote, Ms. Vuckovic stated:
“Also, the new Law, let us remind, in article 37 paragraphs 8 and

9, prescribes that on the day of certification of the agreement on
sale of capital, the Agency acquires a statutory pledge right
against the capital which was the subject of the sale, and it is
obligated, within 15 days after fulfilment of the last contractual
obligation of the buyer, to notify the competent registry for the
purposes of deletion of the statutory pledge against the capital.
This provision of the law was, in fact, an attempt to, so to say,
prevent and avoid that what we had as a clear omission in our
agreements [...] where we allowed disposal of capital during the
validity of the agreement, we generally allowed shares to be
alienated and we were still monitoring the agreement which was
a substantial problem.”444
275. Interestingly, in their Reply, Claimants omit to mention this explanation in which the
Agency was evidently considering that the purpose of the Pledge was to secure the
fulfilment of all obligations of the Buyer, not just the payment of the Purchase Price.
Other quotes from the session of 23 April 2015, that Claimants referred to, only further
confirm this:
“Sasa Novakovic: And the agreement on purchase of capital, it

stated that the buyer can dispose of the shares, right? Freely?
Female voice 2: That it can once it had paid the purchase price.
Which it did. But if we were to decide like this, at least in my
opinion, I would not be inclined to, although I have a problem with
the provision of the agreement such as it is, if we were now to
444
107
release this pledge he would be free to dispose of the shares freely,
but then it is a problem, so I would rather advocate that we
postpone deletion of pledge until [fulfillment],[445] that is until
expiry of this deadline until which it had not fulfilled its
contractual obligations we have ordered it to fulfil, that is, that is
not us, but the minister ordered it. And we will confirm such
decision (laugh).”446
276. The above quote clearly demonstrates that the intention was not shares to be
expropriated, but the Pledge to be retained until “fulfillment” of the remaining
obligation or (only in case the remaining obligations are not fulfilled) until “expiry of
this [additional] deadline”.
277. Claimants further state that the Commission for Control undoubtedly understood that
the Buyer would not be able to comply with the requested remedies within 90 days
and that this would give the Agency the opportunity to terminate the agreement before
the Buyer procures court protection.447 Allegedly, this can be seen from another
selective quote from the same session of the Commission:
“Female voice 2: […] Now, I just don’t know, they can enter into
certain dispute and we are in violation of contractual...
Saša Novaković: True.
Julijana Vučković: Well, certainly.
Female voice 4: Ninety days will pass quickly and the dispute will
not even get scheduled in 90 days. So we will resolve this before,
I mean… dear God knows”448
445
Claimants translated this word (“izvršenje”) as “execution”, although the more accurate term in this context
would be “fulfillment”, as Claimants have correctly translated it in the continuation of the same sentence.
446
447
Reply, para. 305.
448
768.
108
278. Again, Claimants intentionally omit to include the continuation of the quoted
conversation, where it was stated:
“Female voice 2: It all depends whether we will be able to resolve

this issue if we maybe change the rulebook and loosen the
conditions a little bit for the buyer which...
Female voice 3: On the other hand, [the Buyer] should fulfil, it did
not fulfil obligations from the agreement, these obligations for
which we are granting the additional deadline of 90 days?
Julijana Vuckovic: That is correct. That is correct. Others, it had

fulfilled.
Female voice 2: Okay, we have 90 days, afterwards we will see

what we will do.[449] Within 90 days and proposal of these
measures there is nothing new to… that’s [instructed][450] to us in
supervision... and we can never…”451
279. Clearly, there were no bad faith intentions towards Mr. Obradovic. To the contrary,
members of the Commission have discussed how they could use the 90 days period to
change the Agency’s rulebooks and “loosen the conditions a little bit” for the benefit
of the Buyer. In fact, the Agency obviously hoped that the Buyer will be able to
remedy the breach and even discussed possibility of granting him yet another
additional deadline in case he again fails to remedy the breach. In that regard, at the
session of 19 June 2015, one of the members of the Commission stated:
“Do we need, after expiry of these 90 days, to render a final

decision on what to do with the company; if [the Buyer] fulfilled
its contractual obligations all is well, but if it did not fulfil the
contractual obligations then we know what the sanction is. Or do
we have the right to provide it with another additional term. This
449
Claimants have incorrectly included a reference to a „laugh“ at this moment. However, after reviewing the
audio transcripts, no laugh can be heard.
450
Claimants translate this word as „order“ („naložiti“) although it would be more accurately translated as
„instruct“.
451
109
is imposed on me as a strictly legal question, I am not asking from
you to give me an answer now, but this is something we need to
deal with.”452
280. Obviously, this whole discussion would serve no purpose if the Agency’s intention
was to simply “expropriate” Mr. Obradovic’s shares in BD Agro.
281. Bearing all of the above in mind, there should be no doubt that the transcripts of the
sessions of the Commission for Control do not contain even a glimpse of bad faith.
On the contrary, they evidence that members engaged in a good faith discussions of
the Agency’s contractual options (just as any other contractual party would do) and
that they were conscientiously and diligently doing their jobs and even trying to help
Mr. Obradovic.
282. On a related note, Claimants’ allegation on how the Agency’s “officials purposefully
switched off the recording for the last part of their discussion about BD Agro”,453 is
utterly speculative. Ms. Vuckovic, who attended the said session held on 23 April
2015, does not remember the recording being switched off at any point, but is
completely confident that even if there was any interruption of the recording, this did
not occur because a hidden agenda was to be discussed.454 Given the apparent
openness of the discussions at these sessions, Claimants’ sensationalist interpretation
of this event indeed seems highly unlikely.
2.1. The Buyer was familiar with the reasons for retaining the Pledge
283. Even when Mr. Obradovic inquired on why the certificate necessary for deletion of
the Pledge was not issued after he paid the Purchase Price, the Agency provided him
with the same explanation that was later put forward at Commission’s sessions i.e.:
“that the payment of the purchase price is only one of the

contractual obligations and that the execution of other contractual
obligations is independent of the obligation to pay the purchase
price. She also stated that the Agency in its work applies the Law
452
Transcript of the audio recording from meeting of the Commission for Control, 19 June 2015, p. 5
453
Reply, Section II.P.7.
454
Witness Statement of Ms. Julijana Vuckovic, 24 January 2020, para. 25.
110
on Privatization and controls the concrete sale contract, that all
obligations are important and that what is signed must be
completed to the end. This is a standard form contract of sale by
public auction and the treatment during the control is the same,
for any offense, irrespective of the gravity of the offense.”455
284. The stance conveyed by the Agency was obviously understood and accepted by Mr.
Obradovic, as BD Agro subsequently proposed, in one of its letters regarding the
transfer of shares to Coropi, that:
“Pledge on shares of BD Agro […] would still be in favor of the

Republic of Serbia until the moment of fulfillment of remaining
obligations from the [Privatization Agreement]”456
285. Therefore, this letter was obviously an admission that BD Agro i.e. Mr. Obradovic,
knew full well that the Pledge was not to be removed until he remedied the breaches
in question.
2.2. Retention of pledges in other privatizations
286. The Agency’s stance that the Pledge cannot be removed because there were some
outstanding obligations of the Buyer, was followed in other privatization cases as well.
287. For instance, in the case of privatization of VS Ada, the buyer paid the full purchase
price in 2013, and requested deletion of the pledge immediately thereafter.457
However, the Agency only accepted to issue him with the certificate of payment of
the purchase price.458 The approval of deletion of the pledge was not given because at
the time there were certain obligations that were yet to be fulfilled (continuity of
business operations had to be maintained for seven years, which expired in 2015, i.e.
after the payment of the purchase price). Therefore, only after it was determined that
455
Minutes from meeting held at the Privatization Agency on 4 February 2014 (emphasis added), RE-36.
456
Letter from BD Agro to the Privatization Agency, 26 February 2015 (emphasis added), CE-334.
457
Letter from Mr. Rusak Jozef to the Privatization Agency, 31 May 2013, RE-334.
458
Confirmation on payment of the purchase price for VS Ada, 17 June 2013, RE-335. Letter from Mr. Rusak
Jozef to the Privatization Agency, 22 August 2013, RE-336.
111
the buyer fulfilled all his obligations within the terms prescribed by the Privatization
Agreement,459 the buyer’s repeated request on deletion of the pledge460 was granted.
288. Similarly, in the case of privatization of Vocno Lozni Rasadnik, the buyer paid the last
installment of the purchase price on 8 January 2014. A few days later, the buyer
requested the confirmation that the purchase price was paid,461 which was issued on
29 January 2014.462 However, a couple of months prior to the purchase price being
paid, the Agency sent a notice to the buyer regarding alienation and pledging of the
fixed assets of the subject, as it was not able to determine with certainty whether the
buyer breached the relevant provisions of the privatization agreement. 463 In the
following months the buyer delivered documentation, including two audit reports,
confirming that there were no breaches of the pertinent provisions. The Agency
analyzed the documentation and determined that the buyer fulfilled all his obligations
from the privatization agreement.464 After that, on 12 June 2014, the buyer requested
deletion of the pledge over the privatized shares, having in mind that he “settled his
obligations and paid the purchase price”.465
289. Having in mind these examples, it is evident that it was clear to all concerned that the
Agency had a practice of retaining pledges until fulfilment of all obligations from the
pertinent privatization agreement (which the buyers accepted). It follows that the
Agency obviously did not have an intention to “expropriate” the shares in case of BD
Agro, but followed its practice to secure that the privatization agreement was complied
with, and was ready to release the pledge when this occurred, as in other cases.
Unfortunately, the Buyer never complied with his obligations in the case of BD Agro.
3. Legal ground for retaining the Pledge
290. As Respondent previously explained,466 the Agency had a clear legal ground to keep
the pledge over the shares in BD Agro even after the payment of the Purchase Price
459
Report from the 17th control of contractual obligations for VS Ada, 24 April 2015, RE-337.
460
Letter from Mr. Rusak Jozef to the Privatization Agency, 16 June 2015, RE-338.
461
Report from the 16th control of the contractual obligations for Vocno Lozni Rasadnik, 29 May 2014, RE-
339.
462
Confirmation on payment of the purchase price for Vocno Lozni Rasadnik, 29 January 2014, RE-340.
463
Report from the 16th control of contractual obligations for Vocno Lozni Rasadnik, 29 May 2014, RE-339.
464
Report from the 16th control of contractual obligations for Vocno Lozni Rasadnik, 29 May 2014, RE-339.
465
Letter from Kolubara Gradjevinar to the Privatization Agency, 12 June 2014 (emphasis added), RE-341.
466
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because the Buyer did not fulfil his other obligations. The legal ground for such
conduct is based on Article 122 of the Law on Obligations, that states:
“(1) In bilateral contracts, no party shall be bound to fulfill its

obligation unless the other party fulfills, or is simultaneously
ready to fulfill, its obligation […]”467
291. Therefore, the Agency was not bound to release the Pledge until the Buyer fulfilled
his obligations from the Privatization Agreement. Specifically, the Agency was not
bound to release the Pledge until Mr. Obradovic fulfilled i.e. was ready to
simultaneously fulfil his obligations from Article 5.3.4.
292. Claimants state that “application of Article 122 of the Law on Obligation would violate
Serbian law because the pledge would effectively secure also the Privatization
Agency’s non-monetary claims from the Privatization Agreement”.468 However, as
explained above in Section I. B. 2.1.3, securing non-monetary claims would be
completely permissible as the purpose of the pledge in privatizations is to secure all
claims from the privatization agreement.
293. Claimants and their expert further contend that Article 122 was not applicable in the
case at hand, because (i) obligation from Article 5.3.4. and obligation to release the
Pledge were not reciprocal obligations; and (ii) the pledge was established i.e. agreed
upon solely for securing payment of the Purchase Price. 469 As Respondent explains
below, these arguments are completely unfounded as well.
3.1. Reciprocity
294. Claimants contend that Article 122 only applies to reciprocal obligations, while
“Article 5.3.4 of the Privatization Agreement was not reciprocal to the Privatization
Agency’s obligation […] to release the pledge”.470 First of all, Article 122 does not
stipulate that it applies only to reciprocal obligations.
467
Law on Obligations, Article 122 (1), RE-32.
468
Reply, para. 184.
469
Reply, paras. 291-294; Second Expert Report of Mr. Milos Milosevic, 3 October 2019, paras. 167-171.
470
Reply, para. 183.
113
295. Nevertheless, as already explained, releasing the Pledge was reciprocal to fulfillment
of all obligations from the Privatization Agreement.471 Hence, refusal to release the
Pledge was absolutely reciprocal to the Buyer’s failure to fulfil his obligations and
remedy the breach from Article 5.3.4.
3.2. Accessority
296. Claimants recycle the same reciprocity argument under the principle of accessority as
well. Namely, they contend that the said principle was violated by the application of
Article 122 because in that way, the pledge would secure all of Mr. Obradović’s
obligations instead of only the obligations that it was agreed to secure.472 However, as
Prof. Radovic explains:
“[Claimants’] arguments in this respect are entirely based on the

assumption that payment of the purchase price was the only claim
secured by the Pledge. However, […] this was not the case. The
Pledge secured a future and conditional claim arising out of
contract termination in case the buyer breached any of the
obligations listed in Article 41a of the 2001 Law on Privatization.
For this reason, the principle of accessority was not violated since
the claim against the buyer was indeed secured by the Pledge”473
297. Bearing in mind the above, the Agency had more than compelling legal grounds (and
a duty) to retain the Pledge after the payment of the Purchase Price, as Mr.
Obradovic’s obvious breaches of the Privatization Agreement were discovered and
were not remedied before that point in time.
4. In any event, the Pledge caused no harm to Claimants
298. Another question that needs to be answered is - what harm did retaining of the Pledge
actually cause to Mr. Obradovic i.e. Claimants? The answer is none.
299. Regardless of the Pledge, Mr. Obradovic was completely free to manage BD Agro as
he deemed fit. The only thing that Mr. Obradovic could not do prior to remedying the
471
472
Reply, para. 185.
473
Second Expert Report of Prof. Mirjana Radovic, 24 January 2020, para. 51 (emphasis added).
114
breaches was to transfer the pledged shares. Thus, BD Agro’s business was
unhindered by the Pledge. Hence, the Pledge had absolutely no negative effects to the
Claimants’ purported “investment”.
300. According to the Claimants’ narrative, their purported investment in BD Agro was
structured as the venture in which Mr. Obradovic was the nominal owner of BD Agro,
while the company was beneficially owned by Mr. Rand. Claimants have not so far
offered any persuasive explanation as to why the transfer of merely “nominal” title in
shares from Mr. Obradovic to Coropi was essential for their business operation. The
answer is clear – it was not. If that would be the case, Claimants would not structure
the operation in a way which allegedly they did. The fact that Mr. Obradovic retained
his nominal ownership after 2013 did not in any way prevent Claimants from
operating BD Agro’s business in the same manner in which this business was,
according to Claimants, operated ever since October 2005.
E. REQUEST FOR ASSIGNMENT OF THE PRIVATIZATION AGREEMENT TO

COROPI
301. Claimants’ continue to complain about another situation for which they have nobody
else to blame but themselves – the unsuccessful attempt to transfer the shares to
Coropi. It is an undisputed fact that Mr. Obradovic was the only buyer of BD Agro
under the Privatization Agreement and was the only one registered as the majority
owner of the shares of BD Agro in the period of 2005-2015. What is contended by
Claimants, however, is that Mr. Obradovic held this status only “nominally”, and that
all along the real “beneficial” owner of BD Agro was Mr. Rand i.e. Claimants. Under
their interpretation, the “beneficial” owners exercised full control over the company
and had all the benefits of legal ownership, while Mr. Obradovic essentially had
nothing.474
302. Nevertheless, under Claimants’ story, the “beneficial” owner wanted to change this
arrangement in 2013. He wanted to have Mr. Obradovic’s “nothing” as well.475
474
Reply, Sections II.A-II.F.
475
Peculiarly, with the request for assignment, Claimants apparently did recognize the significance of being
the contractual party under the Privatization Agreement and having registered ownership, but seemed to
have developed a different understanding when defending their position in this arbitration – where they
essentially see no difference in the effects of “beneficial” and legal ownership.
115
Apparently, the reason for this move was that the company needed additional capital,
which “Mr. Rand was more than willing to inject […] but planned to do so only after
having Mr. Obradović transfer the nominal ownership of BD Agro”.476 So, Mr. Rand
did not mind allegedly investing millions of dollars without being the registered owner
for years, but suddenly refused to invest a single cent without acquiring registered
ownership first. This story is simply illogical.477
303. Be it as it may, having in mind that Claimants have continued to advance their
tenacious story in accusing the Agency of maliciously not approving their request for
assignment, Respondent once again explains below that the request: (1) was prepared
negligently; (2) was submitted as incomplete; (3) could not have been considered
during the Supervision Proceedings; (4) was never updated i.e. completed after the
Supervision Proceedings; and (5) did not fulfill the requirements for being approved
at any single point in time.
1. Negligent preparation of the request for the assignment
304. In June 2013, the Agency was approached for the first time with a request to transfer
the Privatization Agreement from Mr. Obradovic to a company affiliated with Mr.
Rand. Specifically, on 11 June 2013, Mr. Markicevic inquired with the Agency
regarding this possibility and received a list of documents that a buyer was required
to submit together with a request for assignment under the Agency’s bylaws.478
However, Claimants assert that the assistant who allegedly gave Mr. Markicevic the
list (Ms. Jelena Jelic), also explained to him that the list “had been created for Serbian
assignees and, if some of the required documents were impossible to obtain for foreign
entities, an adequate foreign equivalent document or an affidavit would do”.479 As it
is the case with many of Claimants’ crucial allegations, their only support for this
claim is Mr. Markicevic’s plain assertions.480
476
Memorial, para. 143.
477
A more plausible scenario would be that e.g. Mr. Rand wanted to acquire BD Agro from Mr. Obradovic
as compensation for some outstanding obligations that Mr. Obradovic owed to him.
478
Reply, para. 212.
479
Reply, para. 212.
480
The only indication that Ms. Jelic allegedly gave the list to Mr. Markicevic was her handwritten name and
phone number on the same paper. However, this handwriting miraculously disappeared from the original
when Claimants mistakenly submitted the same document with their Reply - thereby leaving serious doubt
as to the authenticity of this exhibit and the testimony of Mr. Markicevic. See List of documents requested
116
305. In any event, Mr. Rand, an experienced businessman in charge of a multimillion dollar
empire, apparently relied heavily on an oral and unofficial explanation of the
assignment procedure, given to Mr. Markicevic by an assistant working at the Agency.
And, for the next two years, Messrs. Obradovic and Rand persistently relied on that
alleged explanation with no effort at providing what was actually written on that piece
of paper i.e. what was envisaged by the applicable regulation. The truth is that Mr.
Obradovic and Claimants acted carelessly in their attempt to assign the Privatization
Agreement to Coropi and that they are the only ones to blame for the assignment not
being approved.
2. Submission of an incomplete request for assignment
306. First, the request for assignment was submitted by Mr. Obradovic on 1 August 2013,
with no supporting documentation whatsoever.481 Having in mind that Mr. Obradovic
admittedly had previous experience in assigning privatization agreements,482 and that
Mr. Markicevic was even provided with a list of required documents two months
before, Mr. Obradovic was fully aware that he submitted an incomplete request. This
already demonstrated how “diligent” the attempt to assign the Privatization
Agreement was.
307. Throughout the following two months, the request was supplemented as many as four
times, concluding with 26 September 2013.483 However, even after the request was
repeatedly supplemented, the documentation was still not complete, given that Coropi
did not manage to deliver everything that was required by the applicable regulation.
308. Specifically, out of the documents required at the time of the request, Claimants’
request did not contain: (i) an appropriate bank guarantee; (ii) certificate issued by a
competent authority, not older than six months, that the controlling member or
shareholder has not been convicted for any criminal offences referred to in Article 12
by the Privatization Agency, 11 June 2013, CE-272; cf. List of documents requested by the Privatization
Agency, 11 June 2013, CE-564.
481
Letter from D. Obradović to the Privatization Agency, 1 August 2013, CE-273.
482
Reply, para. 222.
483
Letter from Coropi to the Privatization Agency, 26 August 2013, RE-55; Letter from DPB Lawyers a.o.d.
to the Privatization Agency, 2 September 2013, RE-56; Statement of the controlling shareholder of Coropi,
19 August 2013, RE-57; Letter from Coropi to the Privatization Agency, 26 September 2013, CE-275;
Agreement on Assignment of the Privatization Agreement between D. Obradović and Coropi, 21 September
2013, CE-274.
117
of the Law on Privatization; and (iii) certificate issued by a competent authority, not
older than six months, that against the natural person that is the controlling member
or shareholder no proceedings have been conducted for any criminal offences referred
to in Article 12 of the Law on Privatization.484
3. Supervision Proceedings enabled consideration of the request for assignment
309. On 23 December 2013, the Supervision Proceedings were initiated, 485 after which the
Agency informed Messrs. Obradovic, Markicevic and Broshko that during these
proceedings the Agency could not take any measures or render any decisions with
regard to BD Agro.486 Nevertheless, the Agency also informed them that the
documentation submitted with the request was incomplete.487 The Agency’s stance in
that regard was repeatedly and consistently confirmed and communicated to Mr.
Obradovic, BD Agro and Coropi throughout the duration of the Supervision
Proceedings.488 The Supervision Proceedings ended on 7 April 2015.489
310. Therefore, between 23 December 2013 and 7 April 2015, the request for assignment
had to be put on hold, and Mr. Obradovic and Coropi knew this full well.490
4. Failure to update and complete the request for assignment
311. After the Supervision Proceedings ended, the Agency again acquired the possibility
to decide upon the request. However, the Agency had no doubt that the previously
submitted request was incomplete even before the Supervision Proceedings were
initiated, as it was clearly noted at the session of the Commission for Control of 23
April 2015:
“[…] in August 2013, the buyer submitted a request for

assignment of the agreement to one Canadian company […] the
Centre for Control reviewed the documentation submitted by the
484
Procedure for Conducting of Activities of the Center for Control of 29 November 2011, Article 8.2., RE-
107; See also Counter-Memorial, paras. 167-170.
485
Decision of the Ministry of Economy, 23 December 2013, CE-206.
486
Minutes of the meeting held at the Privatization Agency on 30 January 2014, RE-28; Minutes of the
meeting held at the Privatization Agency on 4 February 2014, RE-36. See also Counter-Memorial, paras.
155-160.
487
Counter-Memorial, paras. 156.
488
489
Report of Ministry of Economy on the Control over the Privatization Agency, 7 April 2015, CE-98.
490
118
assignee, and we determined at that point that the assignee did not
submit the entire documentation, which was pointed out on several
occasions in meetings held at the mere headquarters of the
Agency”491
312. Yet, Mr. Obradovic and Coropi did absolutely nothing to change this state of affairs.
4.1. Certificates on criminal record and criminal proceedings
313. Claimants do not contest the fact that the certificates regarding criminal convictions
and proceedings were never submitted.492 Instead, Claimants argue that, Mr. Jennings,
as the “nominal” controlling shareholder of Coropi, mentioned in his statement
submitted to the Agency that he was never convicted and that there were no criminal
proceedings open against him. 493 But this was not what the regulation required. The
regulation required the certificate to be issued by a competent authority,494 such as a
court or the justice department in the home state of the shareholder.
314. Yet, Claimants consider that this requirement was unnecessary. They state that in
“practice”, foreign citizens were basically relieved of this obligation “if it was
impossible to obtain the required document in their home jurisdiction”.495 However,
they have provided absolutely no support for the existence of any such practice, except
for their usual “source of all knowledge”, Mr. Markicevic.496
315. Nevertheless, Claimants have not even stated nor tried to prove why it was
“impossible” for Mr. Jennings to obtain the requested certificates in his home
jurisdiction, be it Cyprus497 or Ireland.498 Furthermore, even if it was impossible for
Mr. Jennings to obtain it (quod non), Mr. Rand, as the claimed “beneficial” controlling
shareholder behind the Ahola Trust, was free to obtain it for himself in Canada.
491
492
Reply, para. 227.
493
494
107.
495
Reply, para. 227.
496
Third Witness Statement of Mr. Igor Markicevic, 3 October 2019, para. 94.
497
Home state of Coropi. See Corporate register of Coropi, 5 September 2019, CE-83.
498
Home state of Mr. Jennings. See Witness Statement of Mr. Robert Jennings, 3 October 2019, para. 1.
119
316. Moreover, Claimants completely ignore the fact that the requested certificates must
not have been older than six months.499 Therefore, even if a statement of the
controlling shareholder could have replaced a certificate issued by a competent state
authority (quod non), then, mutatis mutandis, Mr. Obradovic had to submit these
statements updated after the Supervision Proceedings ended. However, he had never
done so.
4.2. Bank guarantee
317. While the previous version of the Rulebook indicated that there were several forms of
guarantees, Article 34 of the Rulebook on Undertaking of Measures from 7 April
2014, changed the said provision and provided that a bank guarantee in the value of
30% of the purchase price had to be submitted together with the request.500 When the
Supervision Proceedings ended, on 7 April 2015,501 this provision was still in force.
During the validity of this rulebook, the bank guarantee was never submitted. In any
event, as the Agency announced to Mr. Markicevic, a new Rulebook abandoned the
requirement of a bank guarantee as of 30 April 2015.502
4.3. Opinion of the authority for the prevention of money laundering
318. At the same time, the new Rulebook of 30 April 2015 also introduced the requirement
of the delivery of an “[o]pinion of the competent organization for the prevention of
money laundering in accordance with Article 13 of the Law on Privatization and non-
existence of obstacles on the receiver’s part for the assignment of the Agreement on
sale, i.e. for acquiring the capacity of the buyer.”503 This opinion was never submitted.
319. Claimants do not contest the fact that they never delivered this document.504 What
they do contend is that this requirement was irrelevant as it was introduced in April
2015 - meaning that it could not have been the reason for not approving the assignment
in September 2013.505 However, Respondent never asserted that this was the reason
499
107.
500
Article 34 of the Rulebook on undertaking of measures of 7 April 2014, RE-93.
501
Report of Ministry of Economy on the Control over the Privatization Agency, 7 April 2015, CE-98.
502
503
504
505
Reply, para. 229.
120
for not approving the request back in 2013. The opinion of the organization for money
laundering should have been submitted after 30 April 2015, since the request for
assignment was still active at the time. However, this never happened.
320. It is also preposterous to claim that the opinion was not submitted since it was not on
the list of documents that Mr. Markicevic obtained in June 2013.506 The list of required
documents that he received back then was not invariable and eternal, and Messrs.
Obradovic, Markicevic and Broshko were clearly informed that they have to update
the assignment request in accordance with the applicable regulation.507 They also had
benefit of professional legal advice.508 However, they chose to do nothing, as they
have not even bothered to simply read the requirements from the applicable rulebooks.
Regardless of their meetings with the Agency, all they had to do is go to the website
of the Agency and download the rulebook applicable at the time. The archived
webpage of the Agency demonstrates that the uploaded rulebooks were up-to-date and
were very easily accessible to anyone at all relevant times.509 Therefore, Claimants
have no excuse for not being aware of what documentation had to be submitted at
what period.
5. Conditions for assignment were not fulfilled at any moment
321. In summary, since its submission on 1 August 2013, up until the termination of the
Privatization Agreement on 1 October 2015, the request for assignment was not
complete at any point. In fact, the status of the missing documentation was as follows:
Period Missing documents under the rulebook applicable at the

time
1 Aug 2013 - (i) Certificate of competent authority on no criminal convictions

(ii) Certificate of competent authority on no criminal proceedings
506
Reply, para. 230.
507
Counter-Memorial, paras. 156-157, 161-165.
508
Reply, para. 264 (noting that Mr. Rand’s lawyer in these discussions was Mr. Doklestic); E mail from Mr.
Jakovljevic to the Privatization Agency of 16 April 2013, RE-108 (demonstrating that, months before the
request for assignment, Mr. Rand was already advised in this regard by another attorney, Mr. Jakovljevic).
509
See Archived Website of the Privatization Agency as of 3 July 2014, RE-479; Archived Website of the
Privatization Agency as of 8 April 2015, RE-480; Archived Website of the Privatization Agency as of 8
May 2015, RE-481.
121
7 Apr 2014510 (iii) Bank guarantee (as one of the forms of a guarantee)
(i) Certificate of competent authority on no criminal convictions

7 Apr 2014 –
30 Apr 2015511
(iii) Bank guarantee amounting to 30% of the Purchase Price
(i) Certificate of competent authority on no criminal convictions

30 Apr 2015 -
512
1 Oct 2015
(iii) Opinion of the Authority on prevention of money laundering
322. Claimants’ negligent approach in requesting assignment was probably best described
at the session of the Commission for Control of 23 April 2015, where it was stated
how:
“[…] representatives of this Canadian investor […] expressed

their interest in assignment of the agreement, of course with plenty
of misunderstanding about our positive regulations and
obligations they have, asking that we decide immediately on the
request for assignment of the agreement, not understanding that
the documentation they submitted, firstly, was obsolete and could
not be accepted as such […]”513
323. Indeed, as they did in many other aspects of their case, Claimants acted carelessly and
ignored the regulations of the host state, thereby being the only cause of their failure.
F. DEVASTATING MANAGEMENT AND ABUSE OF BD AGRO
324. Although Claimants desperately try to showcase BD Agro as an increasingly

successful business enterprise in the period that followed conclusion of the
510
Procedure for Conducting of Activities of the Center for Control of 29 November 2011, Article 8.2, RE-
107.
511
Rulebook on undertaking of measures of 7 April 2014, Article 34, RE-93.
512
Rulebook on undertaking of measures of 30 April 2015, Article 25, RE-93
513
122
Privatization Agreement,514 they cannot escape the undeniable facts which
demonstrate that their story is pure fiction. Instead of flourishing after privatization,
BD Agro withered. The reason for this is simple: BD Agro was disastrously
mismanaged, as Respondent already elaborated in its Counter-Memorial.515
325. Claimants’ defense in this regard comes down to accusing the labor unions and
minority shareholders’ organizations as being “obscure” and advancing obviously
meritless claims.516 Furthermore, Mr. Obradovic briefly dismisses all accusations
claiming that financial auditors did not notice the claims raised by employees and the
media.517 And yet, it was precisely the financial auditors who were not able to confirm
that Mr. Obradovic fulfilled his obligations from the Privatization Agreement.518
Moreover, financial fraud would not be a fraud if it was obvious when analyzing the
documentation prepared by the fraudster himself. Claimants’ cannot escape the
undeniable evidence which proves not only that BD Agro was mismanaged, but that
this was largely done in order to deceive the Agency and falsely show that the Buyer
fulfilled its contractual obligations - paid the purchase price and made necessary
investments. In reality, however, it was BD Agro who paid the price for its own shares
and financed investment in its business. The outcome of these machinations is yet to
be seen in many criminal proceedings initiated against Mr. Obradovic and his partners.
All this will be elaborated in detail in this Section, in particular it will be demonstrated:
(1) that BD Agro financed its own Privatization; (2) that BD Agro was heavily
mismanaged; (3) that performance of the Privatization Agreement was
misrepresented; (4) that a number of criminal proceedings were accordingly initiated.
1. BD Agro financed its own Privatization
326. The underlying reason behind the mismanagement of BD Agro is that Mr. Obradovic
was using a privatization model that ensured that, at the end of the day, his exposure
i.e. financial investment was essentially zero. Since he had the option of paying the
514
Reply, Section II.C.
515
Counter-Memorial, Section II.E.
516
Reply, para. 146 („Serbia’s allegations are predominantly based on several letters sent by an obscure
group, self-styled as the “Center for Education and Representation of Shareholders and Workers”, to the
Agency and the Council of Ministers. The allegations set out in these letters are clearly without any merit.“),
328 („the Ombudsman was responding, same as the Agency, to requests for termination of the Privatization
Agreement allegedly coming from obscure labor unions.“).
517
518
See Section I. B. 3.2
123
Purchase Price in installments, he misused this option and abused the property of BD
Agro in order to finance the Privatization and considerably increase his personal
wealth, as explained in more detail below (See Sections I. F. 2.1 and I. F. 3.2).
327. In his second witness statement Mr. Obradovic states that “[…] all of the funds used
for the acquisition of the Privatized Shares and for further investment in BD Agro,
were secured by Mr. Rand. They were provided to me through loans from the Lundin
family […]”. He also claims that: “[t]he total amount of funds I received from the
Lundin family and its associated entities amounted to approximately EUR 13.8
million.”519 However, Claimants are only able to produce evidence of foreign
payments being made to Mr. Obradovic’s personal bank accounts, but cannot provide
any trace of where that money ultimately ended up. Having in mind that in the same
period when these payments were made there were also several privatizations where
Mr. Obradovic appeared as the buyer (and where Mr. Rand claims to be the beneficial
owner), it is virtually impossible to conclude how these funds were used. He could
have use them for his personal benefit or for the benefit of any affiliated company
other than BD Agro. Therefore, Claimants have not adduced contemporaneous
evidence that the Lundins’, the Claimants’ and/or Mr. Obradovic’s money was in fact
used to finance the Privatization of BD Agro.
328. In his Second Witness Statement, Mr. Obradovic claims that: “Sembi also provided to
me the funds for the payment of the remaining installments of the purchase price under
the Privatization Agreement. I received these funds indirectly, from BD Agro, as a
repayment of the loans that I had provided from the Lundins’ money to BD Agro and
that I transferred to Sembi under the Sembi Agreement as assets held by me related
to the business of BD Agro.”520 However, as it is explained in more detail below,
remaining installments of the Purchase Price were actually paid by BD Agro. Again,
there is no trace that these funds originated from the Lundins’ i.e. Sembi’s money.
2. Mismanagement of BD Agro
329. It seems that under the leadership of Mr. Obradovic and his accomplices, BD Agro
essentially had no chance of success. Over-indebting the company, extracting its
519
Second Witness Statement of Mr. Obradovic, 3 October 2019, paras 19 and 20.
520
124
assets for personal gain, and making unreasonable expenditures, was a one-way street
leading to the only possible outcome – bankruptcy. To be clear, this is not a case of
minor irregularities in making and performing an investment. This is a case
completely tainted by unlawfulness, misrepresentation, fraud and corruption in all of
its phases. As Respondent elaborates below, Mr. Obradovic: (i) deceitfully financed
himself and his affiliated companies at the expense of BD Agro; (ii) performed various
machinations with BD Agro’s land; (iii) over-indebted BD Agro through various loans
taken from banks; and (iv) performed other unjustified spending of BD Agro’s assets
for personal gain.
2.1. Payments to Mr. Obradovic and his affiliated companies
330. Respondent will first explain Mr. Obradovic’s two most frequently used ways of
extracting money from BD Agro’s accounts i.e. money siphoning by: (i) repayment
of the alleged shareholder loans to Mr. Obradovic and (ii) giving out loans and making
other payments to Mr. Obradovic’s affiliated companies.
Repaying the alleged shareholders loans
331. In his Second Witness Statement Mr. Obradovic claims that he had a significant
receivable against BD Agro that steamed from his loans to BD Agro.521 Indeed, when
going through BD Agro’s financial reports one can notice that significant loans were
recorded as going in and out of BD Agro.522 Based on BD Agro’s financial
documentation, the ultimate balance between Mr. Obradovic and BD Agro should be
zero.
332. The truth is, however, that Mr. Obradovic’s elaborate scheme of asset extraction was
mainly grounded on his alleged shareholder loans. Specifically, Mr. Obradovic
indebted BD Agro directly towards himself through allegedly providing a remarkably
high number of loans to both BD Agro and BD Agro Mlekara. 523 As Respondent
already explained in more detail in its Counter-Memorial,524 Mr. Obradovic thus
created an intricate but dubious web of loans between BD Agro, BD Agro Mlekara
521
Second Witness Statement of Mr. Djura Obradovic, 3 October 2019, para 40.
522
See e.g. Notes to Financial Statements of BD Agro for year 2007, 3 July 2017 (accessed), CE-418; Notes
to Financial Statements of BD Agro for year 2008, 3 July 2017 (accessed), CE-419.
523
524
125
and himself. Expectedly, although being in a devastating financial condition, BD Agro
returned each loan that Mr. Obradovic seemingly gave to it. 525 In fact, BD Agro
returned more than it received from Mr. Obradovic. However, this cannot be seen
solely from BD Agro’s financial documentation, which is likely the reason why
various auditors did not pick up on this financial fraud.526 Only when analyzing BD
Agro’s bank accounts one can determine what actually occurred i.e. it can determine
that there is a significant misbalance between the financial books and reality. Having
in mind the relatively long period under review, as well as an enormous number of
active accounts, many of which were in banks that were later extinguished, this was
an extremely burdensome task.
333. As established in the second expert report of Mr. Cowan, in the years that followed
Privatization (i.e. period from 2005-2015), Mr. Obradovic paid to BD Agro’s accounts
(including its subsidiaries) a total of RSD 496,871,720 (EUR 4,828,651.59527). Out of
this amount:
(i) RSD 359,859,365 was referenced as “shareholder loan”;
(ii) RSD 21.114.000 was referenced as “investment”;
(iii) RSD 58,348,524 was referenced as payment for “goods and services”;
(iv) RSD 57,414,463 was referenced as “transfers”; and
(v) RSD 135,369 was referenced as “other transactions”.528
334. On the other hand, BD Agro (including its subsidiaries) paid to Mr. Obradovic’s
personal bank accounts a total of RSD 608,232,801 (EUR 6,824,020.02529). Out of
this amount:
525
Second Expert Report of Mr. Sandy Cowan, 24 January 2020, Appendix 3, Question 1.
526
See Second Expert Report of Mr. Djura Obradovic, 3 October 2019, para. 57.
527
Calculated as the sum of all annual net cash flows (Question 1 of Mr. Cowan’s analysis) which were
previously divided by the according annual middle exchange rate of the National Bank of Serbia. See
Average exchange rates of the dinar against the world’s leading currencies, National Bank of Serbia, RE-
365.
528
529
365.
126
(i) RSD 406,857,417 was referenced as “return of shareholder loan”;530
(ii) RSD 100,000 was referenced as payment for “goods and services”;
(iii) RSD 199,075,356 was referenced as “transfers”; and
(iv) RSD 2,200,028 was referenced as “other transactions”.531
335. Therefore, in total, BD Agro repaid to Mr. Obradovic RSD 111,361,081 more than it
ever received from him (608,232,801 - 496,871,720).
336. However, for the purpose of calculating how much money did Mr. Obradovic siphon
from BD Agro without a ground, this balance needs to exclude two categories of
payments made by Mr. Obradovic to BD Agro: (i) “investments”, as these payments
were Mr. Obradovic’s obligation under the Privatization Agreement; and (ii) “goods
and services”, as these payments were made in exchange for some specific goods (e.g.
land) or services received by Mr. Obradovic from BD Agro. Thus, when comparing
only those payments which could be considered as loans, there is a difference of RSD
190,723,605 (approx. EUR 1,995,368.43532), as shown in the following table:
Data from BD Agro bank accounts in relation to Mr. Obradovic
Year Payments from BD Agro Payments to BD Agro Net cashflow
2005 - 8,000,000 8,000,000
2006 (4,700,000) 279,956,265 275,256,265
2007 (120,891,332) 19,717,463 (101,173,870)
2008 (206,994,147) 31,803,000 (175,191,147)
2009 (66,316,506) 9,716,369 (56,600,137)
2010 (139,387,111) 32,009,100 (107,378,011)
2011 (39,938,684) 33,647,000 (6,291,684)
530
Documentary evidence shows that BD Agro even gave loans to Mr. Obradovic. For instance, on 27
December 2010, BD Agro concluded an interest-free loan agreement with Mr. Obradovic, thereby “lending”
him RSD 2.300.000. Apparently, the loan remained unreturned. See Report of the Privatization Agency on
Control of BD Agro, p. 10, CE-30.
531
532
365.
127
2012 (28,624,021) 2,480,000 (26,144,021)
2013 (1,281,000) 80,000 (1,201,000)
TOTAL: (608,132,801) 417,409,196 (190,723,605)
337. In addition, the analysis of bank accounts transactions do not reveal other means in
which BD Agro ‘made payments’ to Mr. Obradovic. For example, such was the case
with a EUR 400.000 land assignment in 2007 from BD Agro to Mr. Obradovic. As it
will be explained further below, Mr. Obradovic transferred certain land of BD Agro
to himself as means of settling an alleged shareholder loan in the amount of EUR
400.000. Having the above, the amount of money which BD Agro gave to Mr.
Obradovic as “repayment” of a shareholder loan increases to at least EUR
7,224,020.02, raising the total amount of siphoned money to astonishing:
EUR 2,395,368.43
338. Furthermore, it should be noted that all payments from BD Agro to Mr. Obradovic
which came from bank loans, meant that BD Agro suffered additional costs beyond
such payments, as it had to pay high interest rates to banks. Therefore, the above
difference between Mr. Obradovic's "loans" to BD Agro and the latter's repayments
of nearly RSD 353 million was Mr. Obradovic’s profit, while the damage to BD Agro
was significantly higher than that amount, when considering: (i) high interest rates
paid on the loaned funds; (ii) numerous pledges that were established over BD Agro’s
property in order to acquire the loaned funds, and (iii) sale of BD Agro’s property at
an undervalue.
339. Aware that it is impossible to prove that he actually loaned to BD Agro the amount
that BD Agro returned to him, Mr. Obradovic now states that he „did not keep record
of BD Agro’s repayments […] and their subsequent use for the payment of the last
installments due to the Agency“ and that he was not able to retrieve the information
regarding his accounts from Vojvođanska and Unicredit banks (which were used “to
receive payments from BD Agro and make payments to the Privatization Agency”).533
Allegedly, “both banks informed [Mr. Obradovic] that due to the lapse of time and
533
Second Witness Statement of Mr. Đura Obradovic, 3 October 2019, paras. 49-50.
128
changes to their software, they could not retrieve the requested information.”534 We
now know that this is not true. First of all, it is unlikely that a person would not keep
record of multimillion transactions with the company that is still in the sphere of his
interests. Second, Mr. Obradovic provided no proof that he ever attempted to obtain
the bank statements, or that any bank responded negatively to him. Third, and most
important is that Respondent provides transactions from all active bank accounts of
BD Agro (as well as its subsidiaries BD Agro Mlekara and Veterinarska sluzba) for
the period 2005-2015,535 in which all payments between BD Agro and Mr. Obradovic
are easily detectable.
Payments to Mr. Obradovic’s related companies
340. As previously elucidated, besides effecting payments to his own accounts, Mr.
Obradovic also used BD Agro’s funds to finance his other companies (now claimed
to be beneficially owned by Mr. Rand), such as Crveni Signal, Inex, PIK Pester,
Beotrans and Obnova. Unjustified payments were also made towards Mr. Rand’s
Serbian company – MDH doo (“MDH Serbia”).
341. The First Expert Report of Mr. Sandy Cowan provides a useful overview of these
loans.536 The best indicator of the fact that these payments were unjustified is that the
affiliated companies of Messrs. Obradovic and Rand still remain largely in debt
towards BD Agro. More precisely, the balance sheet of these debts (as of March 2019)
demonstrates that the total outstanding debt of six different affiliated companies
stands at RSD 89.517.139,42537 (approx. EUR 760.000).
534
Second Witness Statement of Mr. Đura Obradovic, 3 October 2019, para. 50
535
Lists of transactions conducted through bank accounts owned by BD Agro, RE-515; Lists of transactions
conducted through bank accounts owned by BD Agro Mlekara, RE-516; Lists of transactions conducted
through bank accounts owned by Veterinarska sluzba BD Agro, RE-517.
536
First Expert Report of Mr. Sandy Cowan, 19 April 2019, Appendix 7.
537
debts owed by Crveni Signal on 25 March 2019, RE-190 (43.847.213,56); Analytical card of debts owed
by PIK Pester on 1 January 2019, RE-373 (9.116.181,37); Analytical card of debts owed by MDH doo on
1 January 2019, RE-376 (8.804.698,31); Analytical card of debts owed by Mica Mlekarica on 1 January
2019, RE-375 (RSD 856.589,60); Analytical card of debts owed by Obnova on 1 January 2019, RE-374
(RSD 353.448,13).
129
2.2. Machinations with BD Agro’s land
342. BD Agro was the owner of substantial amount of land which Mr. Obradovic saw as a
significant source of his funding.
343. For instance, in 2008, BD Agro sold substantial land to Hypo Park Dobanovci. The
value of the transaction was RSD 1,220,010,327.33 (EUR 15,187,480.73538).
According to the specification of spending of these funds, BD Agro paid to Mr.
Obradovic the amount of RSD 59.309.385 (EUR 738,321.73539 i.e. more than the
value of one installment of the Purchase Price) acquired from this sale, referencing it
as repayment of shareholder loans.540 In other words, BD Agro was selling some of
its most valuable property in order to make payments towards Mr. Obradovic.
344. Likewise, after the sale of its land to the company Eko Elektofrigo, BD Agro used a
significant part of the price thus acquired to make payments towards Mr. Obradovic,
again referenced as repayment shareholder loan, which he in turn immediately used
to pay the fourth installment of the Purchase Price.541
345. Even more striking are cases with obvious conflict of interest, in which BD Agro’s
land was sold to Mr. Obradovic below the market price or likewise used as means of
settling of an alleged debt towards him.
346. In 2007, Mr. Obradovic, as the majority shareholder and president of the Management
Board of BD Agro, directed BD Agro to give to him personally more than 4 ha (=
42.172 m2) of land in Dobanovci as means of settling of an (alleged) debt of EUR
400,000 (cca. 9.5 EUR/m2).542 The agreement on the assignment of land was
concluded on 14 February 2007. Only four months later, on 21 June 2007, Mr.
Obradovic concluded an agreement on sale of that same land to a company named
538
At the time the Hypo Park Agreement was concluded, on 11 June 2008, the RSD middle exchange rate of
the National Bank of Serbia for EUR was 80.33 (1.220.010.327,33 ÷ 80.33 = 15,187,480.73). See NBS
middle exchange rates from 2008 to 2013, RE-192.
539
At the time the Hypo Park Agreement was concluded, on 11 June 2008, the RSD middle exchange rate of
the National Bank of Serbia for EUR was 80.33 (1.220.010.327,33 ÷ 80.33 = 15,187,480.73). See NBS
middle exchange rates from 2008 to 2013, RE-192.
540
Specification of spending of the funds acquired from the contract no. 1210 dated 11 June 2008, RE-371
(submitted as attachment to the Letter from Center for education and representation of shareholders and
employees to the Privatization Agency of 26 January 2009, RE-114).
541
See Section I. F. 3.1.2
542
Decision on approval of transfer of land of 13 February 2007, RE-146.
130
Calpo Project, for the purchase price of EUR 1,417,000,543 which was over one million
euros more than the price for which he acquired it from BD Agro. Only three months
after this sale, Calpo sold the same land to its current owner, a company named Hit
International, for the astonishing price of EUR 3,331,667.544 Therefore, in the period
of just seven months, the price of the land that Mr. Obradovic took from BD Agro
seemed to have mysteriously skyrocketed i.e. increased in value over eight times.
Needless to say, BD Agro was substantially and intentionally damaged by Mr.
Obradovic, who directly benefited from this arrangement for at least EUR
1,017,000.545 Having in mind the price that the land achieved when resold to Hit
International in that same year, it is evident that, through the described
“compensation”, Mr. Obradovic caused damage to BD Agro amounting to EUR
2,931,667.
347. However, the highpoint of the story actually lies in the fact that BD Agro ultimately
repaid in cash to Mr. Obradovic’s personal bank accounts the full EUR 400,000 for
which the land was assigned to him.546 Therefore, Mr. Obradovic in fact acquired the
land with no compensation, and directly earned at least EUR 1,417,000 on it in just a
few months, all at the expense of BD Agro.
348. Although it might seem unbelievable, this was not the largest known land machination
conceived by Mr. Obradovic. On 12 April 2010, as his appetites grew, Mr. Obradovic
concluded an agreement with BD Agro on sale of around 20 hectares of BD Agro’s
land in Dobanovci for the purchase price of EUR 3,038,880.547 First, the price for
which the land was sold is, according to Claimants’ expert, an unrealistically low price
for such land. Specifically, Claimants’ expert values this land to 30 EUR/m2,548
meaning that its price would lie somewhere in the neighborhood of EUR 6,000,000
i.e. double of the agreed price. While Respondent objects to this valuation as inflated
543
Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, pp. 2-3, 21-
22, RE-426.
544
Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, p. 22, RE-
426; Agreement on purchase of land between Djuro Obradovic and Calpro project doo, 21 June 2007, RE-
488.
545
Assuming that he did not have any interest in the highly suspicious resale of the land to Hit International
(which is hard to believe).
546
547
Report of the Privatization Agency on Control of BD Agro of 25 February 2011, pp. 21-22, CE-30.
548
Expert Report of Mr. Krzystof Grzesik, 3 October 2019, paras. 6.11, 6.14, 6.19.
131
(which is confirmed by Ms. Ilic549) and considers that it should not be accepted by the
Tribunal, it must be indicated that, if accepted, it heavily incriminates Mr. Obradovic’s
attempt at repeatedly abusing his position. Second, Mr. Obradovic actually never paid
a cent of the price to BD Agro. A part of the price (EUR 66.411,97) was paid by
setting off previous debt allegedly owed by BD Agro to Mr. Obradovic. In addition,
RSD 28,114,000 (EUR 282,435.23) was paid from the money that Mr. Obradovic
obtained from another of his privatized (and then devasted) companies, Inex.550 The
remaining amount that Mr. Obradovic owed for the land was EUR 2,689,803.60.
Given that the payment of that amount (which represented almost 90% of the purchase
price)551 was never effectuated, Mr. Obradovic had to terminate the agreement on sale
of the land. Notably, termination came only after the intervention of the Agency. 552
While this land machination was successfully prevented, this does not exonerate Mr.
Obradovic from his bad faith attempt of repeatedly abusing the property of BD Agro.
349. Mr. Obradovic also misused BD Agro’s land for the benefit of his close associates.
The most notable example is the case of Ms. Zlatija Nedeljkovic, the director’s
secretary,553 and the later president of the Shareholders’ Assembly, 554 to whom BD
Agro, under the instructions of Mr. Obradovic, simply gave 12.445 m2 of land in
Dobanovci with no compensation whatsoever. Although the land was allegedly
transferred for resolving her “residential issues”, Ms. Nedeljkovic immediately
divided the land into smaller plots and started selling it to third parties for 12 EUR/m2
in average.555 Evidently, BD Agro was again damaged by the fraudulent actions of
Mr. Obradovic.
549
Expert Report of Ms. Danijela Ilic, 24 January 2020, Section 4.c.
550
Notably, a part of the price paid to BD Agro, ended up in the account of Mr. Rands related company, MDH
Serbia. See Letter from Agency to BD Agro, 20 July 2015, p. 4, CE-47 („out of 349,076.40 EUR received
from sale of industrial land, the Subject gave loans to third parties, that is, that "out of the said funds, the
Subject gave a loan to "Marine Drive d.o.o." Belgrade in the amount of 745,000.00 RDS as per Contract of
October 16, 2009, as well as a loan to "BD Agro Mlekara d.o.o." Dobanovci in the amount of 3,300,000.00
dinars as per Contract of December 23, 2009. These loans have not been returned by the date of this
Report".“ [emphasis added]); Audit report by Auditor doo of 2 February 2012, p. 30, RE-223
551
Report of the Agency on Control of BD Agro of 25 February 2011, pp. 21-22, CE-30.
552
Report of the Agency on Control of BD Agro of 25 February 2011, p. 22, CE-30; Materials for the Session
of the Commission, 28 September 2015, p. 28, RE-89.
553
“Minority Shareholders accuse the owner of BD ‘Agro’ for theft and misdeeds”, Kurir, 24 May 2009, RE-
109; Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, p. 7, RE-
426;
554
Decision of the Shareholders Assembly of BD Agro dated 17 June 2008, RE-425.
555
Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, p. 2, RE-426.
132
350. Another machination was also a fraudulent land exchange with the Ministry of
Agriculture, which is elaborated in more detail in Sections I. F. 3.3 and I. F. 4.1.2.
351. Expectedly, the described activities also became the subject of multiple criminal
proceedings initiated against Mr. Obradovic, as also explained further below (see
Section I. F. 4.1).
2.3. Indebting for the benefit of Mr. Obradovic and his related companies
352. The most notable fact that led to the devastation of BD Agro was the severe indebting
of the already indebted BD Agro, mainly for the benefit of Mr. Obradovic or his other
companies.
353. During the time of Mr. Obradovic’s management, BD Agro concluded a number of
loan agreements of substantial value with various banks,556 ultimately increasing the
debt of the company in excess of EUR 20 million.557 Documentary evidence shows
that the funds from these loans were used by or in the interest of third parties, and not
BD Agro. The company likewise guaranteed for a number of debts of third persons
i.e. companies, without justification.558
556
See Report of the Agency on Control of BD Agro of 25 February 2011, CE-30, Materials for the Session
of the Commission, 28 September 2015, CE-89; and Decision of the Privatization Agency on the Transfer
of BD Agro’s Capital, CE-105 (evidencing the following loans: Loan Agreement between BDA and NLB
Interfinanz ag Zurich, 9 July 2007; Long Term Loan Agreement between BDA and Banca Intesa, 29
December 2008; Loan Agreement no. 10331000-5100277615 between BDA and Erste Bank, 14 April 2009;
Short Term Loan Agreement no. K-232/10 between BDA and Agrobanka, 16 June 2010; Short Term Lease
Agreement no. K-233/10 between BDA and Agrobanka, 16 June 2010; Agreement on Assignment of Debt
from Vihor doo Beograd, no. 10832300-5100565089, between Vihor, BD Agro and Erste Bank, 28 June
2010; Long Term Lease Agreement no. D-330/10-00 between BDA and Agrobanka, 10 August 2010; Short
Term Lease Agreement no. K-423/10-00 between BDA and Agrobanka, 6 October 2010; Short Term Lease
Agreement no. 2658/10 between BDA, Privredna banka Beograd and Mr. Đura Obradovic, 14 October 2010;
Short Term Lease Agreement no. K-482/10-00 between BDA and Agrobanka, 6 December 2010; Loan
Agreement no. K-571/10-00 between BDA and Agrobanka, 22 December 2010; Long Term Lease
Agreement between Nova Agrobanka and BDA no. D-07/12-NA-00, 22 June 2012).
557
Counter-Memorial, paras. 181-182;
558
Proposal of the Center for Control for the session of the Commission for Control of 10 July 2013, p. 23,
RE-49 (“it may be concluded that the Subject issued bills of exchange related to diverse Surety Contracts,
but the Control Centre does not have the information for all the agreements and which obligations they
provide”). See also Guarantee agreement between BD Agro and Agrobanka, 2 June 2010, RE-5; Agreement
on Assumption of Debt of 28 December 2010, Articles 1 and 4, RE-11.
133
The EUR 8.2 Million Loan from NLB
354. On 7 July 2007, BD Agro loaned EUR 8.200.000 from NLB Interfinanz.559 According
to the specification of the spending,560 the said loan was used for, inter alia, payments
of:
- third instalment of the Purchase Price in the amount of EUR 684,909.09; and
- repayment of alleged shareholder loan to Mr. Obradovic in the amount of EUR
507,449.49.
355. Therefore, almost 15% of the NLB loan, i.e. EUR 1,192,358.58, was used directly for
the benefit of Mr. Obradovic.561 The analysis of BD Agro’s bank accounts conducted
by Mr. Cowan likewise confirms this percentage. Specifically, Mr. Cowan determined
that, out of the loaned funds (RSD 650,570,168), BD Agro used RSD 91,495,242
(EUR 1,154,715.16562) for repayments of alleged shareholder loans to Mr.
Obradovic.563
The EUR 9.9 Million Loan from Intesa
356. Bank documentation also reveals that Mr. Obradovic misused the EUR 9.900.000
long-term loan taken by BD Agro from Banca Intesa in 2008. Specifically, Mr.
Obradovic received from this loan a total amount of RSD 49,299,000,564 and directly
used RSD 47,400,000 to effectuate the payment of the fourth installment of the
Purchase Price.565 In addition, these EUR 9.9 million were secured by first class
mortgages on the vast majority of BD Agro’s land plots and buildings (i.e. 85 out of
92 plots and 16 out of 18 buildings).566 Needless to say, having in mind the value of
the loan and the value of BD Agro’s land pledged,567 it was evidently irrational to
restrict so many assets of BD Agro with this arrangement (as the secured assets
559
Report of the Agency on Control of BD Agro of 25 February 2011, p. 15, CE-30.
560
Specification of expenditures from NLB Bank, RE-117.
561
The percentage is calculated as follows: (i) 684.909,09 + 507.449,49 = EUR 1,192,358.58, and (ii)
8.200.000 / 1.192.358,58 = 0.145 i.e. 14,5%.
562
This amount was calculated by using the exchange rate applicable as at 31 December 2007. The likely
reason for the minor discrepancy between the specification of spending and actual bank transactions is the
application of a different exchange rate (depending on when an installment of the loan was paid).
563
564
565
566
See Section I. G. 2.1.1.
567
Expert Report of Ms. Danijela Ilic, 24 January 2020, Section 9.
134
significantly exceeded the value of the loan). It should also be noted that it was exactly
this kind of irresponsible lending that ultimately served as an ignition spark to the
bankruptcy of BD Agro, as it was Banka Intesa who subsequently initiated this
process, based on the claims it had under the EUR 9.9 Million Loan.568
The EUR 1.25 Million Loan from Erste
357. Mr. Cowan’s analysis further reveals that a loan taken by BD Agro from Erste Bank
in 2009, amounting to EUR 1,250,000, was likewise largely spent for the benefit of
Mr. Obradovic and his affiliated companies. Specifically, out of the loaned funds
(RSD 117,168,375), BD Agro paid RSD 30,748,324 to Mr. Obradovic as repayment
of an alleged shareholder loan, and another RSD 32,807,145 as payment for allegedly
provided goods and services of affiliated companies.569 In other words, BD Agro spent
54% of the Erste Loan (approx. EUR 675,000) in order to make payments towards
Mr. Obradovic and his affiliated companies.
The RSD 221 Million Loan from Agrobanka
358. As Respondent already explained,570 around 50% of 221 Million Loan (for which Mr.
Obradovic pledged the land of BD Agro) was used exclusively for settling debts of
and giving out loans to two other companies owned by Mr. Obradovic – Crveni Signal
and Inex. More specifically, BD Agro used the loan to pay out Crveni Signal’s debt
towards Agrobanka of around RSD 71 million and to give an interest-free loan to Inex
in the amount of around RSD 30 million.571 Obvious as it can be, there was absolutely
no benefit for BD Agro in such actions.572 On the contrary, while BD Agro had to pay
the interest of 1.2% on the loaned amount on a monthly basis 573 (i.e. RSD 2.652.000
per month or RSD 31,824,000 per year), it spent the loaned funds for the benefit of
Crveni Signal and Inex without collecting any interest from them. In addition, BD
568
See Section I. G. 2.1.1.
569
570
Counter-Memorial, para. 21-23.
571
BD Agro Bank Statement from Agrobanka, 29 December 2010, RE-427.
572
Mr. Obradovic’s allegations of how Crveni Signal later “helped out” BD Agro in guaranteeing a loan for
it, and how BD Agro actually returned an earlier favor to Inex, are completely inapposite (Second Witness
Statement of Mr. Djura Obradovic, 3 October 2019, paras. 69-70). All of these companies were owned by
Mr. Obradovic and were only serving his interests at all times. See also Section I. B. 2.2.
573
Short Term Loan Agreement no. K-571/10-00 of 22 December 2010, Article 4, RE-6.
135
Agro used another RSD 84,130,160 from the said loan to pay to Inex for allegedly574
provided “goods and services”.575 Therefore, out of the 221 Million Loan, BD Agro
in fact paid a total of RSD 185,745,273 to his affiliated companies, which constitutes
84% of the total loan.576
359. What is even more interesting is that the Crveni Signal’s funds from Agrobanka
eventually ended up on Mr. Obradovic’s account:
(i) on 2 June 2010, Crveni Signal concluded the Short Term Loan Agreement
with Agrobanka in the amount of RSD 65.000.000 (app EUR 600,000);577
simultaneously, BD Agro guaranteed the repayment of that loan to
Agrobanka;578
(ii) on 2 June 2010 Crveni Signal received RSD 65.000.000 from Agrobanka;
(iii) immediately after it received the payment Crveni Signal transferred RSD
65.000.000 to the personal bank account of Mr. Obradovic;579
(iv) on 22 December 2010, BD Agro concluded 221 million Loan Agreement with
Agrobanka;
(v) on 28 December 2010, Crveni Signal, Agrobanka and BD Agro concluded the
Agreement on Assumption of Debt under which BD Agro assumed the entire
debt of Crveni Signal towards Agrobanka from the Short Term Loan
Agreement of Crveni Signal, in the amount of RSD 65,000,000 (app EUR
600,000)580 plus interest, whereas Crveni Signal was released from the said
debt;581
574
Based on available documentation, it remains unknown what “goods and services” were provided by Inex,
if any.
575
BD Agro Bank Statement from Agrobanka, 29 December 2010, RE-427.
576
For the sake of clarification, Respondent notes that this percentage is caluculated by taking into account
how the entire 221 Million Loan was spent. In the Counter-Memorial (paras. 8, 23, 95), Respondent focused
only on the two spendings which were identified as a breach of Article 5.3.4. i.e. the RSD 71 million of
Crveni Signal’s debt and the RSD 30 million loan to Inex. However, after the analysis of BD Agro’s bank
accounts, a more comprehensive calculation was made.
577
Agreement on Assumption of Debt of 28 December 2010, Articles 1 and 4, RE-11. At the time the
Agreement on Assumption of Debt of Crveni Signal was concluded, on 28 December 2010, the RSD middle
exchange rate of the National Bank of Serbia for EUR was 106.08 (65,000,000 ÷ 106.08 = 612,745.09).
National Bank of Serbia RSD Exchange Rate on 28 December 2010, RE-81.
578
Guarantee agreement between BD Agro and Agrobanka, 2 June 2010, RE-005.
579
Crveni Signal Bank Statement from Agrobanka, 2 June 2010, RE-372.
580
At the time the Agreement on Assumption of Debt of Crveni Signal was concluded, on 28 December 2010,
the RSD middle exchange rate of the National Bank of Serbia for EUR was 106.08 (65,000,000 ÷ 106.08 =
612,745.09). National Bank of Serbia RSD Exchange Rate on 28 December 2010, RE-81.
581
Agreement on Assumption of Debt of 28 December 2010, Articles 1 and 4, RE-11.
136
(vi) on 29 December 2010, Agrobanka paid RSD 221.000.000 to the account of
BD Agro, referencing it as payment under the 221 Million Loan Agreement;582
(vii) on 29 December 2010, BD Agro paid RSD 70.944.422,27 as means of settling
the loan previously given by Agrobanka to Crveni Signal (money from this
loan had been transferred to Mr. Obradovic’s personal account).
360. The funds loaned to Inex had a very similar fate, since the entire RSD 30 million loan
(and most of the “payment for goods and services”) ended up on the personal accounts
of Mr. Obradovic:
(i) on 29 December 2010, Agrobanka paid RSD 221,000,000 to the account of

(ii) on 29 December 2010, BD Agro paid RSD 30,670,690 to the account of Inex,
referencing it as an interest free loan; 584
(iii) on 29 December 2010, BD Agro paid RSD 84,130,160 to the account of Inex,
referencing it as payment for allegedly provided goods and services; 585
(iv) in the period of 18 January 2011 - 8 April 2011, Inex paid a total of at least
RSD 103,400,000 to the personal bank account of Mr. Obradovic.586
361. In summary, BD Agro took the 221 Million Loan, pledged its land for that loan, and
Mr. Obradovic extracted 84% of that loan to his affiliated companies, out of which at
least half of the loan (i.e. RSD 95,400,000) was transferred to his personal bank
accounts using Inex and Crveni Signal as vehicles. As one would expect, most of these
funds were never repaid to BD Agro. Inex still owes it RSD 26,539,008.45, while
Crveni Signal owes it RSD 43,847,213.56.587
582
BD Agro Bank Statement from Nova Agrobanka for 29 December 2010, RE-427.
583
584
585
586
Payments to Mr. Obradovic’s bank account no. 245-0100101831196-74 in Nova Agrobanka, for the period
of 18-25 January 2011, RE-551; Payments to Mr. Obradovic’s bank account no. 245-0100101831196-74 in
Nova Agrobanka, for 8 April 2011, RE-552; Mr. Obradovic’s Bank Statement from Vojvodjanska Banka
for 14 February 2011, RE-437.
587
debts owed by Crveni Signal on 25 March 2019, RE-190 (RSD 43.847.213,56).
137
362. Other than the RSD 221 Million Loan, Agrobanka frequently loaned funds to BD
Agro throughout the period of 2008-2012. Expectedly, BD Agro frequently used these
loans to effectuate payments towards Mr. Obradovic and his affiliated companies.
363. One such loan was the RSD 100 Million Loan taken by BD Agro in 2010. As Mr.
Cowan’s analysis confirms, BD Agro used this loan to pay RSD 12,765,000 to Mr.
Obradovic, as repayment of an alleged shareholder loan, and another RSD 36,748,690
to pay to Mr. Obradovic’s affiliated companies for allegedly provided goods and
services, and for “payment after billing”.588 In total, BD Agro thus used around 50%
of this Agrobanka Loan to effectuate payments towards Mr. Obradovic and his
affiliated companies.
364. Mr. Cowan also analyzed a payment under an unidentified Agrobanaka loan taken in
March 2010, where a RSD 50.000.000 loan payment received from Agrobanka was
simply transferred as repayment of a an alleged shareholder loan to Mr. Obradovic.589
Thus, 100% of this loan was used for the benefit of Mr. Obradovic. Interestingly, Mr.
Obradovic immediately paid the fifth installment of the Purchase Price by using the
same funds.590
The RSD 17.5 Million Loan from Agrobanka
365. Finally, another Agrobanka loan taken in December 2010, in close proximity of the
221 Million Loan, was used predominantly for the interests of Mr. Obradovic.
Specifically, BD Agro loaned RSD 17,500,000 from Agrobanka, and used RSD
15,300,000 to make payments towards Mr. Obradovic under the well-known guise of
repayment of a purported shareholder loan.591 Thus, BD Agro used 87% of this loan
to make payments towards Mr. Obradovic.
588
589
590
591
138
2.4. Other unjustified spending of BD Agro’s assets for personal gain
366. Mr. Obradovic and his associates were also known for their other lavish and
unjustified spending of BD Agro’s assets.
367. In 2008, BD Agro purchased a brand new helicopter for approximately 250.000
EUR592 - thereby becoming one of rare private owners of this type of aircraft in
Serbia.593 However, the helicopter was obviously unnecessary for the functioning of
an agricultural company, and there is in fact no evidence that it was ever used for the
benefit of BD Agro. Thus, one can only assume that the aircraft was used solely for
the personal enjoyment of Mr. Obradovic and/or his close associates or family
members. Interestingly, when inquired by journalists at the time regarding the
helicopter purchase, Mr. Obradovic stated that the helicopter was “bought with his
own money”,594 although we now know that this was absolutely not true.595 The same
helicopter was sold four years later for less than half the price that it was paid.596
368. Even when travelling by land, Mr. Obradovic did not spare BD Agro’s assets in order
to accommodate his (and his associates’) luxurious lifestyle. That is how in 2008, after
deciding that a 3-year old Mercedes SUV was already outdated, BD Agro’s assets
were used to buy a brand new BMW SUV priced at EUR 80.000.597 Apparently,
another expensive vehicle was bought / leased for EUR 65.394 in the same time period
as well.598
369. Having in mind that purchases of helicopter and expensive cars occurred in the midst
of the global economic crisis (which Mr. Obradovic used as an excuse for his delays
in paying out the Purchase Price at the time599), and that BD Agro’s business was
592
Specification of spending of the funds received from the sale of Hypo Park Dobanovci – Contract 1210
dated 11 June 2008, RE-371.
593
Only 11 other private persons/entities were a helicopter owner in Serbia in 2010, most of which were
companies from the aviation industry. See Register of aircraft (Serbia), 4 October 2010, RE-225;
“Helicopter: a luxury from 50.000 to several million EUR”, Blic, 5 May 2010, RE-226.
594
“Minority Shareholders accuse the owner of BD ‘Agro’ for theft and misdeeds”, Kurir, 24 May 2009, RE-
109.
595
Specification of spending of the funds received from the sale of Hypo Park Dobanovci – Contract 1210
dated 11 June 2008, RE-371
596
Invoices no. 12/0100290-1, 12/0100290-2, 12/0100290-3, 4 October 2012, RE-377.
597
Decision of BD Agro’s Managing Board no. 2169, 15 September 2008, RE-227.
598
Overview of loans and the intended expenditures of the loaned funds, 14 October 2008, RE-378.
599
139
operating at a loss throughout the period after Privatization,600 such expenditures were
obviously irrational and unjustified.
370. In 2008, BD Agro entered into a leasing arrangement for acquiring equipment for
sheep milking in the amount of CHF 81,388.49.601 While this generally appears as a
justified expense for an agricultural company, the main problem was that BD Agro
did not use this equipment as it did not own a single sheep. 602 Instead, the equipment
was actually used by Mr. Obradovic’s other privatized company – PIK Pester.603 Once
more, BD Agro had absolutely no financial interest in buying this equipment and the
arrangement was used solely for the benefit of Mr. Obradovic.
371. Yet, one of the most severe cases of unjustified spending and fraudulent
mismanagement relates to the alleged investments into BD Agro’s buildings. Namely,
Claimants’ allege that, under the management of Mr. Rand, very significant funds
were used “to completely overhaul BD Agro’s buildings, stables and barns and to put
in place a new system of connections between stables and pastures”.604 However, what
Claimants intentionally withhold from the Tribunal is that these significant funds
substantially exceeded the value of the works actually conducted on the farm. As
explained in more detail below (Section I. F. 4.1.3), Mr. Markicevic, on behalf of BD
Agro, filed a criminal complaint against the former CEO of BD Agro, Mr. Jovanovic,
in 2014, accusing him (together with seven other accomplices) of abusing his
managerial position and committing a fraud in relation to these construction works,
thereby damaging BD Agro in the amount of as much as EUR 2.775.549,58 (the
difference between the actual value of the works and the amount paid).605
600
First Expert Report of Mr. Sandy Cowan, 19 April 2019, Section 4.
601
Letter from Center for education and representation of shareholders and employees to the Agency, 8 July
2009, p. 2, RE-228;; Leasing Agreement between no. 1619 dated 11 August 2008, RE-378.
602
Letter from Center for education and representation of shareholders and employees to the Agency, 8 July
2009, p. 2, RE-228.
603
604
Reply, para. 88. Messrs. Rand and Obradovic even repeatedly praise this “overhaul” as their significant
accomplishment. See Witness Statement of Mr. William Rand, 5 February 2018, para. 26; Second Witness
Statement of Mr. William Rand, 3 October 2019, para. 29
605
Criminal Complaint against Mr. Jovanovic and others, 8 December 2014, p. 5, RE-258.
140
372. There were also other examples of BD Agro’s fixed assets being sold for less than
their actual value or even without compensation,606 as well as reports of Mr.
Obradovic using BD Agro’s funds for a number of other unreasonable expenditures.607
3. Misrepresentation of the performance of the Privatization Agreement
373. Not only was the irresponsible handling of BD Agro’s assets devastating for its
financial condition, but it was also seriously misleading the Agency in terms of Mr.
Obradovic’s performance of the Privatization Agreement. More specifically, Mr.
Obradovic used the property of BD Agro to create an appearance that he genuinely:
paid the price for BD Agro, and performed his investment obligations, in accordance
with the Privatization Agreement.608 In addition to that, he also disregarded the
contractual obligation concerning the restitution of land.609
3.1. Payments of the Purchase Price
374. The purchase price for BD Agro shares amounted to RSD 470,000,000 i.e. EUR
5,548,996.46. It was payable in six installments. As Mr. Obradovic had to pay the
deposit before the auction in the amount of RSD 179,941,000, this was calculated as
the first installment. Therefore, the remaining Purchase Price was to be paid in another
five equal installments amounting to EUR 684.909,09, payable in RSD according to
the exchange rate valid at the time of each payment (which was nearly RSD 60 million
at the time of the auction). Although the Purchase Price for the shares was ultimately
paid in full, the origin of the funds used for the payments is a different matter.
606
Counter-Memorial, paras. 180, 186; Proposal of the Center for Control for the session of the Commission
for Control of 10 July 2013, pp. 26, RE-49 (“according to the data from the supplied audit reports, it was
determined that certain fixed assets were alienated/sold without compensation and below the bookkeeping
value, such as for example: Zlatija Nedeljkovic – employed in the Subject to whom land was given of the
area 1ha24a45m2 without compensation in 2006; donation of basic herd worth 113,233 dinars – Audit
report from April 2011. In addition, a part of fixed assets was sold to below its bookkeeping value, such as
for example: mill in Dec with bookkeeping value of 97,882,811 dinars and sold for 99,000 EUR, Yugo Scala
car of bookkeeping value of 259,574.43 dinars sold for 2,000 dinars to Slavica Obradovic”).
607
Requests of unions of BD Agro’s employees of 24 May 2013, RE-104. Letter from Center for education
and representation of shareholders and employees to the Government of the Republic of Serbia of 20
December 2010, RE-125. Letter from Center for education and representation of shareholders and
employees to the Agency of 21 March 2012, RE-147. Letter from Center for education and representation
of shareholders and employees to the Government of Republic of Serbia of 26 April 2010, RE-116. Letter
from Center for education and representation of shareholders and employees to the Agency of 11 February
2010, RE-118.
608
Mr. Obradovic apparently did the same in relation to his other privatized companies. See e.g. Criminal
Complaint against Mr. Đura Obradovic, 24 November 2015, RE-229.
609
141
375. Most commonly, a payment would be made to Mr. Obradovic from the account of BD
Agro, being referenced as a “return of the shareholder’s loan”. On that same day (or
the day after), a corresponding payment in the identical or almost identical amount
would be transferred to the account of the Agency. Having in mind the disastrous
financial condition of BD Agro, the funds for these transactions were obtained from
the sale of BD Agro’s land or various loans that only further indebted BD Agro.
Third installment
376. Third installment of the Purchase Price in the amount of RSD 53,305,241.64 (EUR
684,909,09610) was paid from the EUR 8.2 Million Loan from NLB611:
(i) on 9 October 2007, NLB Bank paid RSD 54,425,000 (EUR 700.000)612 to BD
Agro, referencing it as payment under the EUR 8.2 million loan agreement;613
(ii) on 10 October 2007, BD Agro paid RSD 42,215,693,55 (EUR 541,909.09)
from that same account to the personal bank account of Mr. Obradovic,
referencing it as repayment of a shareholder loan;614
(iii) on 10 October 2007, NLB Bank paid another RSD 15,486,000 (EUR
200,000)615 to BD Agro, referencing it as payment under a loan agreement;616
(iv) on 11 October 2007, BD Agro paid RSD 14,259,548.09 (EUR 183,218.27)
from that same account to the personal bank account of Mr. Obradovic,
referencing it as another repayment of a shareholder loan;617 and finally
(v) on 11 October 2007, Mr. Obradovic paid RSD 53,305,241.64 from that same
personal bank account to the account of the Agency, referencing it as payment
of the third installment of the purchase price for BD Agro.618
610
Each instalment of the purchase price amounted to EUR 684.909 but the amount that was paid to the
Agency was in dinars and depended on the exchange rate applicable at the date of payment.
611
Specification of expenditures from NLB Bank, RE-117; BD Agro’s Investment Project for the Period of
2008-2012, 20 March 2008, p. 3, RE-392.
612
Payment Instruction under the NLB Loan Agreement, 11 October 2007, RE-430.
613
BD Agro Bank Statement from Banka Intesa for the period of 9-11 October 2007, RE-431; Instruction for
payment of the loan dated 9 October 2007, RE-230.
614
BD Agro Bank Statement from Banka Intesa for the period of 9-11 October 2007, RE-431.
615
Payment Instruction under the NLB Loan Agreement, 9 October 2007, RE-230.
616
617
618
2015, RE-33.
142
Fourth installment
377. On 13 October 2008, Mr. Obradovic wrote to the Agency confirming that he has not
paid the fourth installment on time and asking for an extension. In his letter, he stated:
“Having in mind that I am expecting an inflow of funds until 5

November 2008 based on investing, I am referring to you with a
plea for an extension of the deadline for payment of the fourth
installment of the purchase price until the said date.”619
378. On 17 November 2008, Mr. Obradovic explained his request in even more detail,
saying:
“Having in mind the world economic crisis which has started to

be felt in our country, the expected money inflow has not yet came
to my account, and it is certain that this is the reason for the
belatedness of the said inflow. I personally expect that the inflow
will occur in the additional deadline which you have left to me for
the fulfillment of the due installment, but because of all the current
events on the world monetary market, it is possible that there will
be unplanned delays, so I am referring to you for these reasons
with a plea to consider the possibility of approving an additional
deadline of 20 days, for the payment of the fourth installment of
the purchase price.”620
379. And indeed, only a few days later, on 25 November 2008, the expected inflow did
come into Mr. Obradovic’s account - but from BD Agro, who had to sell some of its
land to another company in order to obtain these funds.621 After he received the
money, Mr. Obradovic paid the first part of the fourth installment of the Purchase
Price:
619
Letter from Mr. Obradovic to the Agency, 13 October 2008 (emphasis added), RE-231.
620
Letter from Mr. Obradovic to the Agency, 17 November 2008 (emphasis added), RE-232.
621
See Section I. F. 2.2.
143
(i) on 24 November 2008, a company named Eko Elektrofrigo paid a total of RSD
40,552,927.95 to the account of BD Agro, referencing as payment for the
purchase of real estate;622
(ii) on 25 November 2008, Agrobanka paid RSD 25,311,604.73 to the account of
BD Agro, referencing it as a loan (i.e. “overnight minus coverage”);623
(iii) on 25 November 2008, BD Agro paid RSD 17,720,000 to the personal bank
account of Mr. Obradovic, referencing it as repayment of a shareholder loan;624
(iv) on 25 November 2008, Mr. Obradovic paid RSD 17,701,780 from that same
personal bank account to the account of the Agency, referencing it as partial
payment of the fourth installment of the purchase price for BD Agro.625
380. However, as this was only a partial payment of the fourth installment, Mr. Obradovic
had to stall the Agency further. On 28 November 2008, Mr. Obradovic again wrote to
the Agency, saying:
“Having in mind that the current unfavorable financial situation

is dictating a slow tempo of business and financing, I am referring
to you with a plea to accept the fulfillment of the remaining debt
in the amount of EUR 484.909 towards the Agency until 31
December 2008.” 626
381. And exactly on 31 December 2008, Mr. Obradovic’s “unfavorable financial situation”
suddenly got better, but at the expense of BD Agro. Namely, on that day, BD Agro
received the EUR 9.9 Million Loan from Banka Intesa, and simply forwarded the
necessary funds for Mr. Obradovic’s payment of the installment.627 Mr. Obradovic
then paid the second part of the fourth installment of the Purchase Price628:
622
Out of these funds, RSD 28.306.676,34 was used to settle a loan towards Agrobanka while approx. 12
million was used for tomorrow’s payment to Mr. Obradovic. See BD Agro Bank Statement from Nova
Agrobanka for the period of 24-25 November 2008, RE-433.
623
Out of these funds, RSD 19,974,240.00 was used to purchase foreign currency, while approx.. RSD 7.7
million was used for the payment to Mr. Obradovic. See BD Agro Bank Statement from Nova Agrobanka
for the period of 24-25 November 2008, RE-433.
624
BD Agro Bank Statement from Nova Agrobanka for the period of 24-25 November 2008, RE-433.
625
2015, RE-33.
626
Letter from Mr. Obradovic to the Privatization Agency, 28 November 2008 (emphasis added), RE-434.
627
628
BD Agro’s Investment Project for the Period of 2008-2012, 20 March 2008, p. 10, RE-392.
144
(i) on 31 December 2008, Banka Intesa paid RSD 447,234,834.11 to BD Agro,
referencing it as payment under a long-term loan agreement;629
(ii) on 31 December 2008, BD Agro paid RSD 47,400,000 to the personal bank
account of Mr. Obradovic, referencing it as repayment of a shareholder loan;630
(iii) on 31 December 2008, Mr. Obradovic paid RSD 42,963,430.29 from that same
of the fourth installment of the purchase price for BD Agro.631
Fifth installment
382. Fifth installment of the Purchase Price was paid from an unidentified Agrobanka loan:
(i) on 3 March 2010, Agrobanka paid RSD 50,000,000 to BD Agro, referencing

it as payment under a short-term loan agreement; 632
(ii) on 3 March 2010, BD Agro paid RSD 50,000,000 from that same account to
the personal bank account of Mr. Obradovic, referencing it as repayment of a
shareholder loan;633
(iii) on 3 March 2010, Mr. Obradovic paid RSD 50,000,000 from that same
of the fifth installment of the purchase price for BD Agro.634
Sixth installment
383. Sixth installment was likewise paid by BD Agro’s funds, but this time by an indirect
path through Inex, one of Mr. Obradovic’s affiliated companies:
(i) on 29 December 2010, Agrobanka paid RSD 221,000,000 to the account of

(ii) on 29 December 2010, BD Agro paid RSD 30,670,690 to the account of Inex,
referencing it as an interest-free loan; 636
629
BD Agro Bank Statement from Banka Intesa for 31 December 2008, RE-432.
630
631
2015, RE-33.
632
BD Agro Bank Statement from Nova Agrobanka for 3 March 2010, RE-435.
633
BD Agro Bank Statement from Nova Agrobanka dated 3 March 2010, RE-435.
634
2015, RE-33.
635
636
145
(iii) on 29 December 2010, BD Agro paid another RSD 84,130,160 to Inex,
referencing them as payment for allegedly provided “goods and services”;637
(iv) on 18 January 2011, Inex paid RSD 9,000,000 from its account to the personal
bank account of Mr. Obradovic, referencing it as repayment of a shareholder
loan;638
(v) on 18 January 2011, Mr. Obradovic paid RSD 9,000,000 from that same
personal bank account to the account of the Agency, referencing it as partial
payment of the sixth installment of the purchase price for BD Agro;639
(vi) on 14 February 2011, Inex paid RSD 30,400,000 to the personal bank account
of Mr. Obradovic;640
(vii) on 14 February 2011, Mr. Obradovic paid RSD 16,014,724 to the Agency, as
partial payment of the sixth installment of the Purchase Price.641
(viii) on 8 April 2011, Inex paid RSD 50,000,000 from its account to the personal
bank account of Mr. Obradovic, referencing it as repayment of a shareholder
loan;642
(ix) on 8 April 2011, Mr. Obradovic paid RSD 47,261,296.70 from that same
of the sixth installment of the purchase price for BD Agro.643
384. Mr. Obradovic even paid the interest rate for the sixth installment directly from the
funds of BD Agro:
(i) on 29 December 2011, BD Agro paid RSD 6,500,000 from its account to the
personal bank account of Mr. Obradovic, referencing it as repayment of a
shareholder loan;644 while
637
638
Payments to Mr. Obradovic’s bank account no. 245-0100101831196-74 in Nova Agrobanka, for the period
of 18-25 January 2011, RE-551.
639
2015, RE-33.
640
Mr. Obradovic’s Bank Statement from Vojvodjanska Banka for 14 February 2011, RE-437.
641
2015, RE-33.
642
Payments to Mr. Obradovic’s bank account no. 245-0100101831196-74 in Nova Agrobanka, for 8 April
2011, RE-552.
643
2015, RE-33.
644
146
(ii) on 30 December 2011, Mr. Obradovic paid RSD 5,690,000 from that same
personal bank account to the account of the Agency, and another RSD
309,949.45 from a different account, referencing both as payment of the
interest for the belated sixth installment of the purchase price for BD Agro.645
BD Agro actually paid for its shares
385. As can be seen, and as absurd as it may sound, BD Agro effectively took loans and
sold its property in order to pay the purchase price for itself (instead of Mr.
Obradovic). Previous analysis shows that approximately 51% of the total Purchase
Price, i.e. RSD 241,936,472.63 (approx. EUR 2.85 million646) was evidently paid
from BD Agro’s own funds. This percentage was even higher, as Mr. Obradovic was
continuously extracting funds from BD Agro.
386. Also, having in mind that the first and the largest installment of the Purchase Price
had to be paid before Mr. Obradovic took control of BD Agro, there was no possibility
for him to misuse BD Agro’s funds for that payment.647 Therefore, in the period when
Mr. Obradovic had the opportunity to abuse BD Agro’s property (i.e. when paying the
remaining five installments), it turns out that a total of 83% of his payments of the
Purchase Price in fact originated from BD Agro.
387. Taking all of this into account, it is abundantly clear that Mr. Obradovic or Mr. Rand,
according to Claimants’ narrative, acquired the shares in BD Agro by mismanaging
the property of BD Agro itself. On the other hand, the Agency was effectively
precluded from determining this kind of fraud as its tasks ended with simply verifying
whether an installment was paid or not.648 The Agency could do nothing more than to
forward the various letters from the minority shareholders and employees to the
police, which led to several criminal proceedings being initiated (see Section I. F. 4.1
below).
645
2015, RE-33.
646
Using the amount of Purchase Price as a reference point, as expressed in Article 1.2 of the Privatization
Agreement, CE-17.
647
2015, RE-33.
648
Section 1.5.1 of the Directive on determining the procedures for control of performance of the agreements
for sale of social and state capital, Privatization Agency, 2006, RE-440.
147
3.2. Fulfillment of the investment obligation
388. According to Article 5.2.1 of the Privatization Agreement (as amended in 2006), Mr.
Obradovic had to invest in BD Agro EUR 1,998,554.649 The investment had to be
made from Mr. Obradovic’s own funds and had to be done in the fixed assets used
solely for performance of main business activity of BD Agro. However, Mr.
Obradovic misrepresented fulfillment of the investment obligation as well.
389. In 2006, Mr. Obradovic procured two auditor’s reports confirming that he had fulfilled
his obligation of investing RSD 168,683,000 (approximately EUR 1,982,000) in BD
Agro’s fixed assets.650 The auditor’s reports showed that Mr. Obradovic made a series
of payments to the suppliers of BD Agro and to BD Agro itself. The latter payments
were recorded as payments of investment obligations. Bank account transactions now
reveal that during the entire period of 2005-2015, only RSD 21,114,000 were
“invested” by Mr. Obradovic in BD Agro (and even that amount was repaid to him
under repayment of alleged shareholder loans).651 According to Mr. Cowan’s analysis
of the bank account transactions, there have been no “investments” paid by any of the
other affiliated companies of Mr. Obradovic, nor any such payments from Mr. Rand
and his affiliated companies.652
390. Based on those data, the auditor issued its confirmations, which led the Agency to
consequently issue its own confirmation of the fulfilled investment obligation.653
However, after Mr. Obradovic acquired the necessary validations, his “investments”
were suddenly viewed differently in BD Agro’s accounting books. More specifically,
the same payments were now obviously being recorded as shareholder loans which
were to be returned to Mr. Obradovic.654 This has now only been confirmed by the
analysis of Mr. Cowan, which points to a substantial difference between the
accounting books of BD Agro and the actual bank transactions.655
649
Article 5.2.1. of the Privatization Agreement, CE-17; Article 2 of the Amendment I to the Privatization
Agreement dated 9 January 2006, CE-110.
650
Audit Report from Konsultant - revizija, 10 March 2006, CE-51; Audit Report from Konsultant - revizija,
9 June 2006, CE-52.
651
652
653
Confirmation of the Privatization Agency of the Completion of Investment, 10 October 2006, CE-18.
654
655
148
391. Furthermore, through a subsequent control by the Agency, it was discovered that a
significant part of the allegedly acquired fixed assets (which were recorded as fulfilled
investment obligations), was actually not in the possession of BD Agro. This was also
confirmed by financial experts and auditors.656 Interestingly, Claimants seem to
categorically deny Mr. Obradovic or BD Agro ever being confronted with these issues
by the Agency.657 However, this is evidently not true as such issues were the cause of
considerable discussions with the Agency regarding the fulfilment of the Privatization
Agreement.658
392. Such was the case with e.g. two brand new SUV’s which were purchased by Mr.
Obradovic in 2005 and presented as part of the fulfillment of the investment obligation
into BD Agro,659 although they were actually used (without compensation) by PIK
Pester. It was only in 2011 that they were returned to BD Agro, upon the initiative of
the Agency.660
393. Having all of that in mind, it is more than evident that Mr. Obradovic severely
misrepresented the fulfillment of his investment obligations under the Privatization
Agreement in multiple ways. If nothing else, documentary evidence shows that Mr.
Obradovic paid RSD 608,232,801 to BD Agro, and directly received a total of RSD
496,871,720.661 Thus, it was BD Agro who “invested” into Mr. Obradovic and not the
other way around.
394. It should also be noted that Mr. Cowan’s comprehensive analysis of BD Agro’s bank
accounts did not find a single example of a payment being made by Claimants i.e.
Sembi Investments Ltd., Rand Investments Ltd., or Mr. Rand himself to BD Agro,
except for the minor EUR 0,2 million loan in 2008.662
656
Proposal of the Center for Control for the session of the Commission for Control of 10 July 2013, pp. 25-
28, RE-49.
657
Reply, para. 148 (“It therefore comes as no surprise that neither the Privatization Agency nor the Ministry
of Economy ever brought any of these issues to the attention of the Claimants’ representatives, Mr.
Obradović and BD Agro.”).
658
Proposal of the Center for Control for the session of the Commission for Control of 10 July 2013, pp. 27-
28, RE-49
659
Overview of investments into the fixed assets for performing the regular business of the Subject of
privatization, RE-393 (attachment of the Auditor’s report of 10 March 2006, CE-51).
660
Letter from BD Agro to the Agency, 9 November 2011, RE-60.
661
662
149
3.3. Restitution of land
395. One of the machinations was a land swap agreement between BDA and Ministry of
Agriculture which Mr. Obradovic procured through collusion with two officials from
the Ministry of Agricultur. Namely, one of the processes which Serbia underwent
during its transition to market economy was the restitution of private real estate
nationalized by the State authorities during the communist era. As BD Agro was
previously a socially-owned company, a significant part of its land was nationalized
land which was to be returned to its previous owners.663 Mr. Obradovic agreed to
comply with any such restitution and this was also explicitly stipulated in Article 6 of
the Privatization Agreement.664
396. However, as Respondent already explained,665 in the period between 2008-2010, Mr.
Obradovic had BD Agro propose666 and then conclude an agreement with the Ministry
of Agriculture, by which BD Agro exchanged 46 hectares of its land that was returned
to its previous owners in the restitution process, for new unburdened plots granted by
the Ministry of Agriculture, valued at RSD 622,852,000 (app EUR 7,800,000).667 This
exchange was conducted although BD Agro was explicitly informed by the Land
Cadaster in 2008 (at the latest) that those same land plots were to be returned to their
previous owners in accordance with the Law on Restitution of Property.668 Two years
later, on 4 January 2010, the contract was concluded between BD Agro and the
Ministry of Agriculture, and the land was exchanged. As a result, instead of returning
the land to its previous owners, Mr. Obradovic defrauded the State together with his
accomplices, including state officials from the Ministry, and thus acquired for BD
663
664
Article 6.1 of the Privatization Agreement, CE-17 (“Before the day of the auction, the Buyer of the capital
is aware of the fact that integral part of the subject’s property includes nationalized property and agrees
that the nationalized property should be treated pursuant to the provisions of the Law on Property
Restitution and Compensation […] The Buyer shall return nationalized property in its natural state in cases
stipulated by the law.”).
665
666
Letter from BD Agro to the Ministry of Agriculture, Forestry and Water Management, 13 April 2007, RE-
401.
667
Agreement on exchange of land between the Ministry of Agriculture, Forestry and Water Management and
BD Agro, 4 January 2010, RE-396; Indictment of the Prosecutor’s Office for Organized Crime, no. KTI
65/16 dated 15 December 2016, p. 8, RE-399; Letter from the Land Cadaster to BD Agro, 8 February 2008,
RE-395.
668
Letter from the Land Cadaster to BD Agro, 8 February 2008, RE-395.
150
Agro unburdened and unrestricted State land worth almost EUR 8 million (that was
subsequently encumbered for obtaining several significant bank loans).
397. The exchange had no legal basis and never acquired the necessary approvals, as
Respondent already indicated in its Counter-Memorial.669 In their Reply, Claimants
respond by simply saying that the information in question came from a newspaper
article and that:
“The truth is that there was nothing illegal about the land swap
with the Ministry of Agriculture. BD Agro approached the
Ministry of Agriculture with a request for the swap and the
Ministry agreed and approved the swap. Serbia cannot seriously
claim that the Privatization Agreement was violated by a
transaction that was expressly approved by the Ministry of
Agriculture.”670
398. However, what Claimants ignore is that such an exchange of land should have actually
been approved by the Government’s decision,671 which was never obtained. The
Ministry only gave a proposal (not the approval as Claimants contend), while the
approval had to come from the Government. The reason for the lack of an approval
lies in the fact that an exchange of state land was allowed only if this would lead to
consolidation of smaller land plots into a larger whole.672 The exchange proposed by
BD Agro had exactly the opposite effect.673 This lack of legal ground is why the
proposed exchange did not even pass the State Attorney’s scrutiny,674 let alone the
Government’s. However, the management of BD Agro nevertheless decided to pursue
this exchange together with two officials from the Ministry of Agriculture, currently
accused for corruption in connection to said transaction.675
399. Not only that, by this exchange of land, Mr. Obradovic breached Serbian law and
committed a criminal offence, but he also breached the Privatization Agreement,
669
670
671
Law on Agricultural Land, Article 73(2), RE-234.
672
Law on Agricultural Land, Article 73(1), RE-234.
673
Opinion of the Office of the State Attorney, 16 February 2010, RE-394.
674
Opinion of the Office of the State Attorney, 16 February 2010, RE-394.
675
I.e. Messrs. Nikola Jaksic and Tomislav Pavlovic.
151
which in Article 6.3.1 expressly prohibited the Buyer from taking any actions in order
to prevent application of the restitution law.676 In other words, Mr. Obradovic did not
fulfill his obligations regarding restitution, but chose to fraudulently avoid them at the
expense of Respondent, by transferring the land in question to Serbia (and receiving
“clean” land instead). This is why Serbia initiated litigation proceedings against BD
Agro for the purpose annulling the pertinent agreement and returning ownership of its
land.677
400. In the Reply, Claimants contend that the said breach of the Privatization Agreement
was never alleged by any of the auditors, the Agency nor the Ministry of Economy.678
What Claimants purposefully ignore is that it is precisely the difficulty to notice an
irregularity what makes fraudulent activities – fraudulent. The illegality of the
exchange required a more thorough investigation aimed at the specific transaction.
The investigation did occur, and ultimately led to the arrest and trial of Messrs.
Obradovic and Jovanovic, together with other persons, as will be elaborated further
below.679 This arrest occurred in December 2015, two months after the Privatization
Agreement was terminated. This is why the breach of Article 6.3.1 was never claimed
– it was discovered when the agreement had already been terminated.
401. Finally, it should be noted that the fraudulent acquisition of the land served an
important purpose. Namely, Mr. Obradovic pledged the said land obtained from
Serbia for several substantial bank loans from Agrobanka and Intesa680 (including in
particular the 65 Million Loan of Crveni Signal) by which, as explained hereunder, he
financed himself and his other companies and caused the bankruptcy of BD Agro.
4. Criminal proceedings
402. As one would expect, Mr. Obradovic’s various illicit activities ultimately led to
criminal prosecution as well. In fact, several criminal proceedings are currently
676
Article 6.3.1 of the Privatization Agreement, CE-17 (“The Buyer undertakes that he shall not, until
adoption of the law, undertake legal and factual actions in order to prevent application of special
regulations which define the issues of restitution of property to previous owners”).
677
List of BD Agro’s land which was not sold, dated 30 June 2018. RE-451 (land plots for which it is noted
that there is a court dispute with the Republic of Serbia, are the same land plots exchanged by Mr.
Obradovic).
678
679
680
Indictment of the Prosecutor’s Office for Organized Crime, no. KTI 65/16 dated 15 December 2016, pp.
9-10, 49-50, RE-399.
152
ongoing in relation to Mr. Obradovic’s mismanagement of BD Agro. Besides
proceedings regarding Mr. Obradovic’s actions, there are currently open
investigations under a number of other criminal complaints filed against responsible
persons of BD Agro, Crveni Signal, Inex and PIK Pester.681 All these proceedings are
intertwined and relate to, among other things, various parts of the elaborate scheme
by which Mr. Obradovic illicitly extracted the funds from the companies which he
privatized, including in particular BD Agro.
4.1. Criminal proceedings against Mr. Obradovic and his associates
403. Criminal proceedings against Mr. Obradovic and his close associates are anything but
new. Initially, after an expert team of the Minority Shareholders’ Association
conducted a financial analysis of BD Agro’s business in 2007, it proposed to the
minority shareholders of BD Agro to submit a criminal complaint against Mr.
Obradovic for illicit extraction of funds from the company.682
404. Likewise, the minority shareholders of BD Agro asked the Agency to submit a
criminal complaint i.e. initiate criminal prosecution of Mr. Obradovic and the
management of BD Agro on multiple occasions, much before the initiation of the
present proceedings.683 The suspicions concerned the misrepresentation of the
performance of the Privatization Agreement by Mr. Obradovic (misrepresented
payment of the purchase price and investment obligations), as well as the continuous
financial destruction of BD Agro through various illicit activities. Although the
Agency did react to these claims accordingly, minority shareholders and employees
of BD Agro also directly submitted criminal complaints in this regard against the
management of BD Agro on several occasions.684
405. All these initiatives did lead to specific actions.
681
Report of Police Department for the Suppression of Economic Crimes, 18 July 2019, RE-195.
682
Financial Analysis of BD Agro’s business in the period of 1 January – 31 December 2006, Expert Team
of the Minority Shareholders’ Association, 10 April 2007, p. 19, RE-275.
683
Letter of Center for education and Representation of the shareholders and employees to the Agency as of
21 May 2009, RE-436; Letter from Center for education and representation of shareholders and employees
to the Privatization Agency of 21 March 2012, RE-147.
684
See e.g. Criminal Complaint against Mr. Đura Obradovic and others, 20 September 2009, RE-411.
153
4.1.1. Fraudulent mismanagement and illicit extraction of funds
406. Regarding Mr. Obradovic’s various instances of fraudulent behavior and asset
extraction from BD Agro, several criminal proceedings were initiated and are still
very much active.
407. First, minority shareholders of BD Agro submitted a direct criminal complaint against
Mr. Obradovic and the management of BD Agro in June 2009, while the District
Public Prosecutor’s Office in Belgrade acted upon the complaint and initiated
investigative activities already in July and August 2009.685 In September 2009, a more
extensive criminal complaint was also filed by the minority shareholders against Mr.
Obradovic and his associates, regarding various instances of criminal behavior,
including malpractice, abuse of position, fraud, tax evasion and failure to report a
criminal act.686 The complaints contained detailed suspicions of, inter alia, illicit
extraction of funds through shareholder loans and misrepresentation of investment
obligations. The prosecution authorities acted upon that criminal complaint as well
and also initiated investigative activities back in 2009.687 Throughout the past years,
the prosecution was largely slowed down by apparent difficulties in obtaining the
relevant information, especially when BD Agro was still in the hands of Mr.
Obradovic.688 However, the public prosecutor’s office kept requesting information
685
Request for the collection of necessary information no. KTR 2466/09, District Public Prosecutor’s Office,
17 July 2009, RE-235.
686
Criminal Complaint against Mr. Đura Obradovic and others, 20 September 2009, RE-411.
687
Request for Collection of Necessary Notifications no. KTI 2643/09, Fourth Basic Public Prosecutor’s
Office, 10 November 2009, RE-236.
688
The prosecutor’s office sent numerous letters requesting additional information from the police authorities.
See e.g. Request for Collection of Necessary Notifications no. KTI 2643/09, Fourth Basic Public
Prosecutor’s Office, 10 November 2009, RE-236; Decision of the First Basic Court in Belgrade no. Ki
11453/12, 26 November 2012, RE-237; Letter from the Second Basic Court in Belgrade to the First Basic
Court in Belgrade no. Ki 141/13, 15 January 2013, RE-238; Letter from the First Basic Court in Belgrade
to the Second Basic Court in Belgrade no. Ki 11453/12-S, 8 March 2013, RE-239; Order of the Second
Basic Court in Belgrade no. Su 1-92/13, 1 November 2013, RE-240; Letter from the Third Basic Public
Prosecutor’s Office to the Third Basic Court in Belgrade, 13 March 2014, RE-241; Letter from the Third
Basic Public Prosecutor’s Office to the Criminalistic Police Authority - Sector for Combating Commercial
Crime no. KT 1033/14, 20 March 2015, RE-242; Letter from the Third Basic Public Prosecutor’s Office to
the Prosecutor’s Office for Organized Crime no. KT 1033/14, 14 July 2016, RE-243; Letter from the Third
Crime no. KT 1033/14, 8 December 2016, RE-244; Letter from the Third Basic Public Prosecutor’s Office
to the Criminalistic Police Authority - Sector for Combating Commercial Crime no. KT 1033/14, 30 March
2017, RE-245; Letter from the Third Basic Public Prosecutor’s Office to the Criminalistic Police Authority
- Sector for Combating Commercial Crime no. KT 1033/14, 22 September 2017, RE-246; Letter from the
Third Basic Public Prosecutor’s Office to the Criminalistic Police Authority - Sector for Combating
Commercial Crime no. KT 1033/14, 7 February 2018, RE-247;Letter from the Third Basic Public
Prosecutor’s Office to the Criminalistic Police Authority - Sector for Combating Commercial Crime no. KT
1033/14, 4 September 2018, RE-248; Letter from the Third Basic Public Prosecutor’s Office to the
154
from the competent police authorities (both before and after the initiation of the
present proceedings) and is still in the process of ongoing investigative activities.
408. Likewise, the Agency accordingly notified the competent investigative authorities of
the various suspicions raised by minority shareholders’ complaints. On 4 March 2009,
the Agency sent an official request to the Police Authority – Sector for Combating
Commercial Crime, to investigate the management of BD Agro regarding the
allegations of minority shareholders.689 The Agency even followed up on its request
on 19 June 2009 in order to expedite the process.690 After inspecting the allegations
of the Agency, the police authorities referred the case to the District Public
Prosecutor’s Office.691
409. In this regard, the Agency regularly notified the competent authorities of the
suspicions of criminal activity of Mr. Obradovic in BD Agro.692 The Agency was also
actively seeking updates on the status of the ongoing criminal proceedings. 693 On the
other hand, the police and prosecution authorities specialized in organized crime and
corruption, conducted various investigative activities in this regard throughout the
Criminalistic Police Authority - Sector for Combating Commercial Crime no. KT 1033/14, 8 February 2019,
RE-249; Letter from the Third Basic Public Prosecutor’s Office to the Criminalistic Police Authority -
Sector for Combating Commercial Crime no. KT 1033/14, 11 April 2019, RE-250; Letter from the Third
Crime no. KT 1033/14, 16 September 2019, RE-251.
689
Letter from the Agency to the Criminalistic Police Authority, Sector for Combating Commercial Crime,
4 March 2009.
690
19 June 2009, RE-277.
691
Letter from the Criminalistic Police Authority, Sector for Combating Commercial Crime to the Agency,
10 July 2009, RE-278.
692
30 June 2011, RE-279; Letter from the Agency to the Higher Public Prosecutor’s Office and the
Criminalistic Police Authority, 29 April 2013, RE-280; Letter from the Agency to the Higher Public
Prosecutor’s Office and the Criminalistic Police Authority, 12 May 2014, RE-281; Letter from the Agency
to the Higher Public Prosecutor’s Office and the Criminalistic Police Authority, 30 May 2014, RE-282;
Letter from the Agency to the Higher Public Prosecutor’s Office, 30 September 2015, RE-284.
693
19 June 2009, RE-277; Letter from the Agency to the Higher Public Prosecutor’s Office, 24 February 2011,
RE-285; Letter from the Agency to the Higher Public Prosecutor’s Office, 7 October 2011, RE-286; Letter
from the Agency to the Higher Public Prosecutor’s Office and the Criminalistic Police Authority, 29 April
2013, RE-280.
155
relevant period.694 The Agency also regularly complied with the requests for
information from these authorities.695
410. Second, on 24 November 2015, yet another criminal complaint was submitted against
Mr. Obradovic for several similar criminal offences i.e. abuse of position, abuse of
authority and fraud.696 More specifically, Mr. Obradovic was again accused of illicit
extraction of funds and assets from BD Agro and its subsidiaries through misuse of
his powers and various forms of misrepresentation. He was accused of financially
destroying BD Agro, indebting it and selling out its assets for personal gain.
Furthermore, Mr. Obradovic was accused for similar acts in relation to Inex, Crveni
Signal, PIK Pester and Uvac Gazela.697 The Higher Public Prosecutor’s Office acted
accordingly and initiated the investigative collection of necessary information in
December 2015.698
411. The pending criminal proceedings i.e. investigations regarding the charges raised in
the above described complaints, are still very much active.699
4.1.2. Land machinations
412. It comes as no surprise that, besides in cases of financial fraud and money siphoning,
Mr. Obradovic became a criminal suspect regarding some of the previously described
machinations with BD Agro’s land.
413. First, on 9 December 2015, a formal investigation was ordered against Mr. Obradovic
for: (i) the improper transfer of significant amount of land without compensation to
Mr. Obradovic’s associate i.e. employee at BD Agro, Ms. Zlatija Nedeljkovic, and (ii)
694
Letter from the Criminalistic Police Authority - Sector for Combating Organized Crime to the Agency,
10 October 2014, RE-287; Request from the Criminalistic Police Authority - Sector for Combating
Organized Crime to the Agency, 28 July 2015, RE-288; Email from Police Inspector Zoran Radevic to the
Agency, 4 September 2015, RE-289; Letter from the Higher Public Prosecutor’s Office to the Agency no.
KTR 2466/09, 10 May 2013, RE-290.
695
Letter from the Agency to the Criminalistic Police Authority - Sector for Combating Organized Crime, 29
June 2009, RE-291; Letter from the Agency to the Criminalistic Police Authority - Sector for Combating
Organized Crime, 18 April 2013, RE-292; Letter from the Agency to the Criminalistic Police Authority -
Sector for Combating Organized Crime, 23 October 2014, RE-293; Letter from the Agency to the
Criminalistic Police Authority, 14 August 2015, RE-295.
696
Request for Collection of Necessary Notifications no. KT 1109/15, Higher Public Prosecutor’s Office, 14
December 2015, RE-252.
697
Criminal Complaint against Mr. Đura Obradovic, 24 November 2015, RE-229.
698
Request for Collection of Necessary Notifications no. KT 1109/15, Higher Public Prosecutor’s Office, 14
699
Report of Police Department for the Suppression of Economic Crimes, 18 July 2019, RE-195.
156
the improper acquisition of BD Agro’s land by Mr. Obradovic himself, 700 which
caused significant financial harm to BD Agro in excess of at least EUR 1 million.
Both of these acts were conducted in the period of 2006-2007, in the midst of the
alleged investment activities in BD Agro. On 14 February 2018, after gathering
sufficient evidence, the Higher Public Prosecutor’s Office raised a 22-page indictment
against Mr. Obradovic.701 These criminal proceedings are still ongoing.
414. Second, another subject of criminal proceedings was the fraudulent exchange of land
that occurred in the period of 2008-2010 (as elaborated above in Section I. F. 3.3).
These actions resulted in Messrs. Obradovic’s and Jovanovic’s arrest and one-month
detention on 28 December 2015 (along with six other accused),702 for suspicion of
committing the criminal offence of abuse of position.703 Their prosecution was
actually part of a large scale anti-corruption operation “Shredder” in which 80 persons
in total were arrested and prosecuted for various corruption-related criminal
offences.704 After an extensive investigation, a 62-page indictment was raised against
Messrs. Obradovic and Jovanovic, together with four other accused (two officials
from the Ministry and two other employees of BD Agro).705 The trial for the said
criminal act is still ongoing before the Special Court for Organized Crime in Belgrade.
Messrs. Obradovic and Jovanovic are each facing potential sentences of up to 10 years
in prison.706
4.1.3. Fraudulent construction works
415. On 8 December 2014, Mr. Markicevic, as the new CEO of BD Agro, filed a criminal
complaint (on behalf of BD Agro) against Mr. Jovanovic and seven other persons for
abuse of position and fraud.707 The charges related to the construction and
reconstruction of buildings of BD Agro by a company named Vihor. Mr. Markicevic
stated the works that BD Agro paid for substantially differed from the works that were
700
Order on Conducting Investigation no. KTI 460/15, Higher Public Prosecutor’s Office, 9 December 2015,
RE-254.
701
Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, RE-426.
702
“They caused financial harm to the state in the amount of billion dinars!”, Blic, 29 December 2015, RE-
124.
703
Order on Conducting an Investigation no. KTI 40/15, Prosecutor’s Office for Organized Crime, 27
704
“Action “Shredder”, detainment for the suspects”, RTS, 28 December 2015, RE-256.
705
Indictment of the Prosecutor’s Office for Organized Crime, no. KTI 65/16 dated 5 April 2017, RE-399.
706
Article 234(3) of the Criminal Code, RE-257.
707
Criminal Complaint against Mr. Jovanovic and others, 8 December 2014, RE-258.
157
actually conducted. An expert report confirmed that the damage which BD Agro
suffered in this way amounted to EUR 2.775.549,58.708 This was apparently a
consequence of misrepresentations and fraudulent conduct of BD Agro’s and Vihor’s
top management. Therefore, contrary to Claimants’ assertions now, not even BD
Agro’s management709 believed that “BD Agro was not mismanaged.710 The
prosecutor’s office acted upon the complaint of Mr. Markicevic and initiated an
investigation.711
4.1.4. Illicit operations while BD Agro’s accounts were blocked
416. While Mr. Markicevic wrote the criminal complaint against Mr. Jovanovic, BD
Agro’s employees were writing a criminal complaint against him. On 26 November
2014, a criminal complaint was submitted against Mr. Markicevic and another official
of BD Agro for the criminal offence of abuse of position in commerce, in relation to
the mismanagement of BD Agro.712 The complaint alleged that the suspects engaged
in illicit selling of BD Agro’s movable and immovable property while the company’s
bank accounts were blocked, and that various related companies were used to
effectuate illegal payments under the blockage, including in particular MDH Serbia.
The prosecutor’s office initiated the collection of necessary information upon the
receipt of the complaint, and the proceedings are currently ongoing.713
4.1.5. False presentation of facts in the pre-pack reorganization plan
417. On 24 November 2017, a criminal complaint was filed by BD Agro against Mr.
Markicevic and his associates from Crveni Signal for the suspicion of committing the
criminal offence of false presentation and concealment of facts in the pre-pack
reorganization plan.714 More specifically, the accused are suspected of intentionally
misrepresenting i.e. disputing the RSD 65 million debt towards BD Agro in the pre-
pack organization plan of Crveni Signal, in order to preclude BD Agro’s voting rights
708
Criminal Complaint against Mr. Jovanovic and others, 8 December 2014, p. 5, RE-258.
709
I.e. Mr. Markicevic.
710
Reply, Sec. II.F.3.
711
Request for Collection of Necessary Notifications no. KT 5765/14, Third Basic Public Prosecutor’s Office,
19 August 2015, RE-259.
712
Criminal Complaint against Mr. Markicevic and others, 26 November 2014, RE-260.
713
Request for the Collection of Necessary Notifications no. KTR 2960/14, Third Basic Public Prosecutor’s
Office, 4 December 2014, RE-261; Request for the Collection of Necessary Notifications no. KTR 2960/14,
Third Basic Public Prosecutor’s Office, 21 August 2019, RE-262.
714
BD Agro’s Criminal Complaint against Mr. Markicevic et al., 24 November 2017, RE-263.
158
(as a major creditor) in the adoption of the plan.715 Therefore, these criminal
proceedings directly relate to the damage caused to BD Agro. The prosecutor’s office
initiated investigative activities regarding this criminal complaint before the initiation
of the present arbitration proceedings, and the process is still ongoing.716
4.1.6. False testimony
418. Criminal proceedings against Mr. Markicevic are not limited solely to activities
regarding BD Agro. Mr. Markicevic, one of Claimants’ crucial witnesses in this
arbitration, is also suspected of abusing his authority, giving false statements before
courts and falsely accusing another person for criminal acts. The charges in question
was submitted on 26 February 2019 by two individuals, Messrs. Samardzic, against
whom Mr. Markicevic falsely testified before the court.717 The First Basic Public
Prosecutor’s Office accordingly initiated investigative activities.718 Interestingly,
Messrs. Samardzic stated that the acts were just a small part of Mr. Markicevic’s
undue pressure against them in order to force them to sell their real estate to Mr.
Markicevic “and his affiliates”.719
4.2. Claimants misuse the present arbitration to obstruct criminal prosecution
419. As it is clear from the above, a number of criminal proceedings are currently ongoing
against the former management of BD Agro. Most of these proceedings are in the
criminal investigation phase, some have even come to the trial phase, and virtually
all720 of the proceedings pre-date the commencement of this arbitration.
420. Throughout the past years, the public prosecutor’s office kept requesting information
from the competent police authorities (both before and after the initiation of the
present proceedings) and is still in the process of ongoing investigative activities,
which are slowed down due to difficulties in obtaining the relevant information. This
715
BD Agro’s Criminal Complaint against Mr. Markicevic et al., 24 November 2017, RE-263.
716
Report of Police Department for the Suppression of Economic Crimes dated 18 July 2019, RE-195;
Request for Collection of Necessary Notifications no. KT 7123/17, First Basic Public Prosecutor’s Office,
28 September 2018, RE-264; Official Note no. 7123/17, Deputy of the First Public Prosecutor, 28
September 2018, RE-265; Request for Collection of Necessary Notifications no. KT 7123/17, First Basic
Public Prosecutor’s Office, 26 December 2017, RE-266.
717
Criminal Complaint against Mr. Igor Markicevic, 26 February 2019, RE-267.
718
Judicial Summons for the Suspect Igor Markicevic no. KT 3849/19, 10 July 2019, RE-270.
719
Criminal Complaint against Mr. Igor Markicevic, 26 February 2019, p. 2, RE-267.
720
Only the proceedings initiated by Messrs. Samardzic were initiated during the present proceedings.
159
is exactly what happened when police officers legitimately tried to obtain information
from Mr. Markicevic regarding Crveni Signal in July 2019. 721 Instead of providing
the officers with the requested information, as any citizen acting in good faith would
do, Mr. Markicevic declined to do so and immediately tried to intimidate the
Respondent by approaching the Tribunal.722
421. In their Reply, Claimants have misused and manipulated information about criminal
proceedings by dedicating an entire section of their submission to the assertion that
“Serbia has been intimidating the Claimants’ Serbian witnesses in this arbitration”.723
In this regard, Claimants knowingly make a series of inaccurate allegations, including
that these investigations are sudden and new.724
422. However, the truth is that these investigations are anything but sudden or new. The
first criminal complaints and investigations have been initiated as early as in 2009,
and they have been ongoing throughout the past years, as it has been explained in
greater detail above (Section I. F. 4.1). In fact, all criminal proceedings concerning
BD Agro and other privatized companies were initiated before the initiation of the
present arbitration proceedings.725 Claimants, their witnesses and their counsel must
be well aware of these facts.
423. Therefore, instead of asking Serbia to explain why the Serbian police is doing its job,
Claimants should explain the obvious mismanagement and the plethora of illicit
activities conducted during their purported control of BD Agro.
424. Nevertheless, as evidenced by the Claimants’ 11 July 2019 letter and their Reply, any
further action towards the suspects in relation to the mismanagement and fraudulent
activities of Mr. Obradovic’s companies, would give rise to great opposition by
Claimants and misused in the present arbitration. This certainly does not make easier
721
Claimants’ Letter to the Tribunal, 11 July 2019; Respondent’s Letter to the Tribunal, 22 July 2019; Report
of Police Department for the Suppression of Economic Crimes dated 18 July 2019, RE-195 (noting that
„police officers talked with director Igor Markicevic exclusively in order to obtain the documentation of the
company “Crveni signal” a.d. and that documentation has not been delivered to them until this day.“).
722
Claimants’ Letter to the Tribunal, 11 July 2019;
723
Reply, Section II.Z.
724
Reply, para. 482. Third Witness Statement of Mr. Igor Markicevic, 3 October 2019, para. 167; Second
Witness Statement of Mr. Đura Obradovic, para. 95.
725
Only the investigation regarding the false testimony and accusation of Messrs. Samardzic was initiated in
the period after the initiation the present arbitration proceedings, at the request of persons unrelated to this
case.
160
the task of Respondent’s criminal authorities, to say the least. On the contrary, it
directly obstructs and interferes with Respondent’s sovereign powers in the area of
prosecution of criminal acts.
G. BD AGRO’S BANKRUPTCY
425. The core of Claimants’ arguments concerning BD Agro’s bankruptcy is that it is the
Agency that should be blamed for managing BD Agro directly into the bankruptcy. In
this section, Respondent will demonstrate that this is untrue, and that BD Agro would
have gone bankrupt even if the Privatization Agreement had not been terminated.
Respondent will also demonstrate that the sale of BD Agro in bankruptcy proceedings
was done in accordance with the law. Before elaborating on these topics, Respondent
will briefly explain relevant regulation of bankruptcy proceedings in Serbia.
1. Bankruptcy proceedings in Serbia
426. Bankruptcy proceedings (in Serbian “stecajni postupak”) in Serbia are conducted
against a legal entity when one of the bankruptcy reasons has been met. One of the
bankruptcy reasons is permanent insolvency of bankruptcy debtor.726
427. Bankruptcy proceedings are initiated upon a proposal filed by a creditor, debtor or
liquidation trustee (‘bankruptcy proposal’).727 Bankruptcy Law envisages several
types of creditors, one of them being creditors who have secured their receivables, i.e.
claims towards the bankruptcy debtor by constituting a pledge on bankruptcy debtor’s
assets, and who have priority in settlement (secured creditors).728
726
Article 11(2) stipulates that bankruptcy reasons are: (i) permanent insolvency; (ii) threatening insolvency;
(iii) indebtedness; (iv) failure to comply with the approved reorganization plan and if the reorganization plan
was fraudulently or illegally carried out. See Article 11(2) of Bankruptcy Law, RE-445.
727
Article 55 of Bankruptcy Law prescribes that:
“Bankruptcy proceedings are initiated by the proposal of a creditor, debtor or liquidation trustee.
The creditor files a proposal for initiating bankruptcy proceedings in the event of a permanent insolvency,
failure to comply with the approved reorganization plan and if the reorganization plan was fraudulently or
illegally carried out.
The bankruptcy debtor files a proposal for initiating bankruptcy proceedings in the event of one of the
bankruptcy reasons referred to in Article 11, paragraph 2 of this Law.
The liquidation trustee files a proposal for initiating bankruptcy proceedings in cases prescribed by the law
governing the legal status of companies.” See Article 55 of the Bankruptcy Law, RE-445.
728
Articles 49(1) and (2), and 133(11) of Bankruptcy Law, RE-445.
161
428. Bankruptcy proceedings may be conducted in one of two possible ways: (i) "classic"
bankruptcy (‘insolvency’ or ‘bankruptcy’ – in Serbian ‘bankrotstvo’), and (ii)
reorganization.729
429. Insolvency v. Reorganization. Insolvency represents disbursement of creditors by

selling all of the debtor’s assets, i.e. by selling the debtor as a legal entity. 730 On the
other hand, reorganization represents disbursement of creditors in accordance with the
adopted reorganization plan, which entails redefining creditor-debtor relationship.731
430. It is important to note that reorganization is conducted if it ensures more favorable

disbursement of creditors in comparison to bankruptcy, especially if there are
economically justified conditions for continuation of the debtor’s business.732 The
court practice is on a stance that if both reorganization and insolvency proceedings
are initiated towards the same bankruptcy debtor, reorganization proceeding shall
prevail.733
431. Insolvency. After filing the bankruptcy proposal, bankruptcy judge renders a
resolution on initiating preliminary bankruptcy proceedings, in order to examine
whether any of the bankruptcy reasons exist in each particular case. 734 If it does, the
judge renders resolution on opening of bankruptcy proceedings, 735 and makes the
announcement on opening of bankruptcy proceedings, which, inter alia, contains
invitation to all creditors to report their receivables towards the bankruptcy debtor.736
In case the reorganization of the bankruptcy debtor is not an option, bankruptcy judge
729
Article 1(2) of Bankruptcy Law, RE-445.
730
731
732
733
This stance was also confirmed by the Serbian commercial courts. See Questions and Answers from the
Commercial Appellate Court, Court Practice of Commercial Courts, Bulletin no. 4/2015, dated November
2015,p. 2, RE-458.
734
It should be noted that the bankruptcy judge does not have to render resolution on initiating preliminary
bankruptcy proceedings. Instead, he may immediately render resolution on opening of bankruptcy
proceeding, provided that: (i) bankruptcy debtor files the Proposal, with all necessary documents and
appendices; (ii) creditor files the Proposal, and bankruptcy debtor admits the existence of a particular
bankruptcy reason; (iii) in case of the existence of an assumption of permanent insolvency stipulated under
the Article 12 of this Law. See Article 60 of Bankruptcy Law, RE-445.
735
736
After the expiration of the term for reporting receivables, bankruptcy trustee makes a list of all the accepted
and disputed receivables which creditors have towards the bankruptcy debtor. Final list of all the reported
receivables is made at the hearing for examination of creditors’ receivables. Based on such final list,
bankruptcy judge then renders a conclusion on the list of accepted and disputed receivables. See Articles
70(1)(5), 71, 113, 114(1) and 116 of Bankruptcy Law, RE-445.
162
renders the resolution on insolvency (i.e. resolution by which he confirms that the
bankruptcy proceedings would be continued through classic bankruptcy).737
432. In the further course of the proceedings, bankruptcy judge and bankruptcy trustee
undertake actions in order to cash-in the assets of bankruptcy debtor in the most
favorable manner possible.738 One of possible ways to do so is selling bankruptcy
debtor as legal entity,739 which was done in case of BD Agro.740 After cashing-in of
assets is performed, creditors’ claims are being settled (usually only partially, while
claims secured by pledges are first settled from the receivables obtained through the
sale of the pledged assets741) and subsequently bankruptcy proceedings are
terminated.742
433. Reorganization. Reorganization is initiated by filing a reorganization plan.743

Reorganization plan can be filed either along with the bankruptcy proposal (as a pre-
pack reorganization plan) or after opening the bankruptcy proceedings.744 As will be
explained hereunder, pre-pack reorganization plans were (unsuccessfully) filed in
several occasions in BD Agro case.
434. Provided that the bankruptcy proposal, along with the pre-pack reorganization plan is
prepared in accordance with the law,745 bankruptcy judge renders resolution on
737
Article 131 of Bankruptcy Law stipulates that resolution on insolvency shall be rendered by the bankruptcy
judge if: (i) it is obvious that the bankruptcy debtor expresses no interest for reorganization within the
deadline for filing the reorganization plan; (ii) at the first creditors' hearing, the appropriate number of
bankruptcy creditors votes for that, in accordance with Article 36(4) of this Law; (iii) bankruptcy debtor
fails to cooperate with the bankruptcy trustee or the creditors' committee in responding to reasonable
requests for providing data and information in accordance with the provisions of this Law; (iv) bankruptcy
debtor fails to follow orders of the bankruptcy judge; (v) no reorganization plan has been submitted in the
prescribed deadline; (vi) no reorganization plan has been adopted at the hearing for considering
reorganization plan. See Article 131 of Bankruptcy Law, RE-445.
738
739
Article 135 of Bankruptcy Law, RE-445.
740
Announcement of sale of BD Agro dated 7 March 2019, RE-442.
741
742
Articles 138, 140(1) and (4), 143(1), 148(1) and (7) of Bankruptcy Law, RE-445.
743
Article 161(1) stipulates that: “Reorganization plan may be filed by the bankruptcy debtor, bankruptcy
trustee, secured creditors having at least 30% of the secured receivables in relation to total receivables
towards the bankruptcy debtor, bankruptcy creditors having at least 30% of the unsecured receivables in
relation to total receivables towards the bankruptcy debtor, as well as persons owning at least 30% of the
debtor's capital.” See Article 161(1) of Bankruptcy Law, RE-445.
744
745
Pre-pack reorganization plan must contain, inter alia, an extraordinary auditor’s report reflecting the state
of business books established not later than 90 days before the date of filing of pre-pack reorganization plan
(i.e. ‘cut-off date’), with an overview of all receivables and the percentage of participation of each creditor
in the appropriate class of the plan. However, in case that more than nine months elapses from the cut-off
date, until the date for which the hearing for voting on the pre-pack reorganization plan is scheduled, a new
163
initiating preliminary proceedings for examining whether conditions for opening
bankruptcy proceedings in accordance with the pre-pack reorganization plan are
fulfilled, and he schedules hearing for deciding and voting on the pre-pack
reorganization plan.746 At the same time, bankruptcy judge makes the announcement
by which he invites all interested persons to submit their objections to pre-pack
reorganization plan.747
435. With respect to creditors’ voting of the pre-pack reorganization plan, it should be
noted that the creditors are voting for the plan within the class in which they are
classified. The bankruptcy debtor is the one who defines classes of creditors in the
pre-pack reorganization plan and classifies all the creditors thereunder.748 The plan is
considered adopted in one class if the creditors having majority in that class voted for
its adoption, while the plan will be adopted only if all the creditors’ classes adopt the
plan.749
436. If the pre-pack reorganization plan is adopted at the hearing, bankruptcy judge renders
resolution by which he simultaneously opens bankruptcy proceedings, confirms the
adoption of the pre-pack reorganization plan and discontinues bankruptcy
proceedings.750 Bankruptcy debtor, bankruptcy trustee, and all creditors can file an
appeal against this resolution.751
extraordinary auditor’s report must be submitted, which must reflect the state of the debtor’s business books
on the last day of the month preceding the month in which that order was given. See Articles 156(4)(5) and
160(3) of Bankruptcy Law, RE-445.
746
To the contrary, if the Proposal, along with the pre-pack reorganization plan, is not made in accordance
with the law, bankruptcy judge will dismiss it. See Articles 158 and 159(1) of Bankruptcy Law, RE-445.
747
Article 159(6)(2) of Bankruptcy Law, RE-445.
748
Article 165(3) of Bankruptcy Law, RE-445. Notably, when it comes to the secured creditors, for the
purpose of their voting for pre-pack reorganization plan, bankruptcy judge makes an estimation of likelihood
of settlement of their receivables from the secured property. If the bankruptcy judge estimates that the
likelihood of settlement is such that a secured creditor can settle its all of its receivables from the secured
property, that creditor shall exercise its voting right solely in the class of secured creditors. To the contrary,
if the bankruptcy judge estimates that the likelihood of settlement is such that a secured creditor can only
partially settle its receivables from the secured property, that creditor shall exercise its voting right as follows
– for the part of its receivables which could be settled from the secured property, that creditor shall exercise
its voting right in the class of secured creditors; for the remaining part of its receivables which could not be
settled from the secured property, this creditor shall exercise its voting right in the class of unsecured
creditors. See Article 165(4) and (5) of Bankruptcy Law, RE-445.
749
It should be noted that reorganization plan is considered adopted in one class if creditors who have simple
majority of receivables in the total amount of receivables of creditors belonging to that class of creditors,
voted for the reorganization plan. If all the creditors’ classes adopt the plan in this manner, the plan is
considered adopted. See Article 165(10) and (12) of Bankruptcy Law, RE-445.
750
751
Articles 160(7) and 166(1) and (4) of Bankruptcy Law, RE-445.
164
2. BD Agro would have gone bankrupt regardless of termination of the
Privatization Agreement
437. As Respondent will explain, the reason for BD Agro’s bankruptcy was not the
Agency’s lack of response to Mr. Markicevic’s letter of 26 October 2015, as Claimants
assert.752 To the contrary, the real reason was BD Agro’s permanent insolvency due
to its management’s machinations with its property; 753 and Banca Intesa’s repeated
insistence on BD Agro going bankrupt. Chronology of events that preceded BD
Agro’s insolvency proves this best.
2.1. Chronology of relevant events
438. Despite the efforts BD Agro made for its reorganization both before and after
termination of the Privatization Agreement, Banca Intesa, as one of BD Agro’s major
creditors, constantly insisted on BD Agro going bankrupt. Eventually, the bankruptcy
was what happened.
2.1.1. Banca Intesa’s receivables
439. Having in mind the role which Banca Intesa ultimately had in BD Agro’s bankruptcy,
Respondent hereby provides a brief overview of Banca Intesa’s receivables towards
BD Agro.
440. It should first be noted that it was Mr. Obradovic who made Banca Intesa BD Agro’s
creditor. In particular, Banca Intesa had receivable towards BD Agro on the basis of
the Loan Agreement dated 29 December 2008, in the amount of app. EUR 9,5
million.754 The collaterals for this receivable were first ranked mortgages on 85 (out
of 92) of BD Agro’s cadastral parcels, as well as on 16 (out of 18) of BD Agro’s
buildings.755 Thus, Banka Intesa was a secured creditor of BD Agro.
752
753
See Section I(F) of Rejoinder; Email from I. Markićević to R. Waschuk, W. Rand et al. dated 18 December
2013, CE-310.
754
This was counter value of RSD 1,142,380,867, which consisted of RSD 1.064.236.390 being the principal
debt, and RSD 78.144.477 being the interest. See Objections of Banca Intesa to Original pre-pack
reorganization plan dated 6 January 2015, p. 2, RE-459; Amendment to the Pre-pack Reorganization Plan
of BD Agro, dated 6 March 2015, p. 126, CE-101; Appeal of Banca Intesa dated 29 July 2015, p. 7, CE-
354.
755
Appeal of Banca Intesa dated 29 July 2015, p. 5, CE-354.
165
441. Having in mind that BD Agro’s accounts were permanently blocked from 8 March
2013,756 as well as that BD Agro could not have repaid the loan to Banca Intesa,757
Banca Intesa wanted BD Agro bankrupt.758
2.1.2. Events before termination of the Privatization Agreement
442. The reason for commencement of BD Agro’s reorganization was the fact that as of 8
March 2013, BD Agro’s account was blocked due to the enforced collection. The
amount of money for which the collection was sought in November 2014 amounted
to app. EUR 7 million.759 According to Bankruptcy Law, this reason was sufficient
enough for opening bankruptcy over BD Agro.760 Thus, BD Agro’s management
commenced unsuccessful attempt of its reorganization.
443. On 25 November 2014, BD Agro filed a pre-pack reorganization plan with the
Commercial Court (‘Original plan’),761 which was prepared based on the valuation
of BD Agro’s property made by the valuation company Adventis Real Estate
Management doo (‘Adventis’).762 According to Adventis’s valuation, the value of BD
Agro’s land and buildings amounted to EUR 20,770,561.763
444. The Original plan envisaged that out of these EUR 20,770,561, app. EUR 17,5 million
represented the value of BD Agro’s land and buildings encumbered with mortgages.764
This included real estate encumbered by Banca Intesa’s mortgage, which, according
to Banca Intesa, was valued at app. EUR 15 million.765 This meant that Banka Intesa
756
Original pre-pack reorganization plan, November 2014, p. 8, CE-321.
757
Email from K. Lutz to P. Djurišić attaching letter from Mr. Rand dated 2 June 2013, p. 3, CE-295.
758
It is important to note that Banca Intesa is not a state-owned entity. Instead, it is 100% owned by private
entity Intesa Holding International S.A which means that it is not in any way under the control of
Respondent. Thus, it was a completely private entity who opposed BD Agro’s reorganization and insisted
on it going bankrupt. See Print screen from the website of National bank of Serbia, dated 27 December 2019,
RE-446.
759
At the time it was RSD 819,899,739. See Original pre-pack reorganization plan, November 2014, p. 8, CE-
321.
760
Article 11(2)(1) of Bankruptcy Law, RE-445.
761
BD Agro’s submission accompanying the Pre-pack Reorganization Plan dated 25 November 2014, CE-
085; Original pre-pack reorganization plan, November 2014, p. 8, CE-321.
762
Reply, paras. 270-273; Third witness statement of Igor Markicevic, paras. 19-22; Valuation Report,
Adventis Real Estate Management d.o.o., September 2014, CE-508.
763
Valuation Report, Adventis Real Estate Management d.o.o., September 2014, p. 2, CE-508.
764
Original pre-pack reorganization plan, November 2014, pp. 85-89, CE-321.
765
Appeal of Banca Intesa dated 29 July 2015, p. 7, CE-354; Objections of Banca Intesa to Amended pre-
pack reorganization plan dated 7 May 2015, p. 9, RE-460.
166
would be the majority creditor in the class consisting of creditors who had secured
receivables towards BD Agro (in the Original plan that was Class A766).767
445. However, Banca Intesa was not classified in the Class A,768 but instead its receivable
was marked as ‘contentious’.769 Had Banca Intesa been classified in the Class A, it
would have been the creditor with the majority vote in the Class A.770 This meant that
adoption of the Original plan would depend on Banca Intesa.771 This was obviously
something that Mr. Obradovic and Mr. Markicevic wanted to avoid as they knew that
Banca Intesa would never give its support to the Original plan. Namely, before Mr.
Markicevic filed this plan to the Commercial Court, he sent its drafts to Banca
Intesa;772 however, Banca Intesa never responded to these e-mails, let alone showed
any support for BD Agro’s reorganization.
446. On 5 January 2015, Banca Intesa filed its Objections to the Original plan. Among
other, Banca Intesa argued: (i) that BD Agro wrongfully denied Banca Intesa’s right
to vote on the Original plan by designating its clam as ‘contentious’; 773 (ii) that by
filing the Original plan, BD Agro is trying to prevent creditors from settling their
766
Creditors whose receivables were put in the Class A were: Nova Agrobanka, Galenika Fitofarmacija,
Ekostep Petrol and Imlek. See Original pre-pack reorganization plan, November 2014, pp. 34 and 35, CE-
321.
767
pack reorganization plan dated 7 May 2015, p. 3, RE-460.
768
Original pre-pack reorganization plan, November 2014, CE-321.
769
Original pre-pack reorganization plan stated that Banca Intesa’s receivable was contentious since BD Agro
is in disputes concerning Banca Intesa’s receivable towards it, but that in case BD Agro finally lost these
disputes, Banca Intesa’s receivable would be settled in the same manner and under the same conditions as
receivables of other creditors in Class A. With this in mind, it should be noted that, in the document which
Claimants filed as Original pre-pack reorganization plan (CE-321), pages 50 and 51 are missing from the
Serbian original version (and consequently from the English translation). It is on the missing page 51 of the
Serbian original version that Banca Intesa’s contentious receivable is mentioned. See Original pre-pack
reorganization plan, November 2014, p. 28, CE-321; Original pre-pack reorganization plan, p. 51, dated
November 2014, p. 2, RE-463; Objections of Banca Intesa to Original pre-pack reorganization plan dated 6
January 2015, pp. 2 and 3, RE-459; Amendment to the Pre-pack Reorganization Plan of BD Agro, dated 6
March 2015, p. 126, CE-101.
770
Article 165(4) of the Bankruptcy Law, RE-445; Original pre-pack reorganization plan, November 2014,
pp. 85-89, CE-321; Appeal of Banca Intesa dated 29 July 2015, p. 7, CE-354; Objections of Banca Intesa
to Original pre-pack reorganization plan, dated 6 January 2015, pp. 2 and 3, RE-459; Objections of Banca
Intesa to Amended pre-pack reorganization plan, dated 7 May 2015, pp. 3 and 9, RE-460.
771
Objections of Banca Intesa to Amended pre-pack reorganization plan, dated 7 May 2015, pp. 9 and 10,
RE-460; Appeal of Banca Intesa dated 29 July 2015, pp. 7 and 8, CE-354.
772
Email from I. Markićević to Banca Intesa dated 28 March 2014, CE-297; Email from I. Markićević to
Banca Intesa dated 10 November 2014, CE-298; Email from I. Markićević to P. Djurišić dated 11 December
2013, CE-296.
773
Objections of Banca Intesa to Original pre-pack reorganization plan dated 6 January 2015, p. 2, RE-459.
167
receivables in the only way possible – by selling BD Agro’s real estate in enforcement
or classic bankruptcy proceedings.774
447. Having in mind Banca Intesa’s objections, it is more than obvious that Banca Intesa
was against BD Agro’s reorganization in the first place, and that it saw classic
bankruptcy proceedings as the only option.
448. On 6 January 2015, regardless of the filed Original plan, Banca Intesa filed request
for opening bankruptcy proceedings over BD Agro due to BD Agro’s permanent
insolvency.775 On 21 January 2015, the Commercial Court accepted Banca Intesa’s
request and rendered decision on initiating preliminary bankruptcy proceedings over
BD Agro, in order to determine the existence of bankruptcy reasons.776
449. On 8 January 2015, Banca Intesa filed a submission with the Commercial Court, by
which it proposed that the Court delivers subject case files to the Public Prosecutor's
office in order to be determined whether BD Agro, by filing the Original plan,
committed criminal offence of Misrepresentation and concealment of facts in the
Original plan.777 Banca Intesa argued that the Original plan contained
misrepresentation and concealment of facts relevant for court’s decision and creditors’
voting on this plan.778
450. On 18 February 2015, Banca Intesa commissioned independent valuation company,

Jones Lang LaSalle d.o.o. (‘JLL’) for the purpose of considering BD Agro’s
reorganization. As Banca Intesa noted, the purpose of JLL’s valuation was the
assessment of the value of the real estate pledged in favor of Banca Intesa.779
According to JLL, the value of this real estate amounted to EUR 14,6 million.780 Thus,
774
Objections of Banca Intesa to Original pre-pack reorganization plan dated 6 January 2015, p. 5, RE-459.
775
Decision of the Commercial Court in Belgrade on opening bankruptcy proceedings over BD Agro dated
30 August 2016, p. 8, CE-109.
776
30 August 2016, p. 8, CE-109.
777
This criminal offence incriminated misrepresentation and concealment of facts relevant for the court’s
decision or creditors’ voting on the reorganization plan. See Banca Intesa’s Notification on technical mistake
with the proposal for further conduct, dated 8 January 2015, RE-464.
778
Banca Intesa’s Notification on technical mistake with the proposal for further conduct, dated 8 January
2015, RE-464.
779
pack reorganization plan, pp. 3 and 4, RE-460.
780
Jones Lang LaSalle d.o.o., Report on the Valuation of Immovable Property of BD Agro, located in
Dobanovci, Serbia, dated February 2015, p. 3, CE-176.
168
the valuation prepared by Adventis (who valued the same real estate at app. EUR 15
million)781 and JLL valuation were almost the same.
451. On 6 March 2015, BD Agro filed the amended pre-pack reorganization plan
(‘Amended plan’) based on a new valuation of its property (prepared by Mr.
Mrgud).782
452. BD Agro stated that the Amended plan was submitted since, inter alia, Adventis’s
valuation of the real estate, prepared for the Original plan, was extremely low.783 Mr.
Markicevic explains in his witness statements that immediately after BD Agro
received Adventis’s valuation, he had doubts about it,784 but that, since the Bankruptcy
Law obliged BD Agro to submit reorganization plan until the end of November, they
decided to go with Adventis’s valuation,785 and to subsequently submit the Amended
plan with the proper valuation of BD Agro’s land.786 This is inaccurate. Rather, the
goal was to prevent Banka Intesa to be the majority creditor in the Class A, because
BD Agro new that Banka Intesa will not support the reorganization plan:
453. Banka Intesa’s clam was not included in the Class A in the Original plan, but was
classified as contentious.787 As can be seen from Banca Intesa's submissions in the
bankruptcy proceedings, the reason for this was that Banka Intesa would be the major
creditor in the Class A according to Adventis’s valuation of the land submitted with
the Original plan. This BD Agro wanted to avoid, because in that case the plan would
not be adopted, since Banka Intesa would have prevented Class A from accepting it
781
pack reorganization plan, dated 7 May 2015, pp. 3 and 4, RE-460.
782
BD Agro’s submission to Commercial Court accompanying the Pre-pack Reorganization Plan, 6 March
2015, CE-116; Amendment to the Pre-pack Reorganization Plan of BD Agro, dated 6 March 2015, CE-101.
783
BD Agro’s submission to Commercial Court accompanying the Pre-pack Reorganization Plan, 6 March
2015, pp. 5 and 6, CE-116.
784
Second witness statement of Igor Markicevic, para. 88; Third witness statement of Igor Markicevic, para.
21.
785
In particular, Mr. Markicevic states that the cut-off date stipulated in the Original pre-pack reorganization
plan was 31 October 2014. Under the Bankruptcy Law, BD Agro had 90 days from the cut-off date to submit
pre-pack reorganization plan, which means that it needed to submit it on or before 29 November 2014. In
case BD Agro failed to do so, they would have had to set a new cut-off date and prepare new documentation.
See Second witness statement of Igor Markicevic, para. 89; Third witness statement of Igor Markicevic,
para. 22.
786
Third witness statement of Igor Markicevic, para. 23.
787
Original pre-pack reorganization plan, November 2014, p. 28, CE-321; Original pre-pack reorganization
plan, p. 51, dated November 2014, p. 2, RE-463.
169
(the plan had to be adopted by all classes of creditors).788 This is why, in the Original
plan, BD Agro decided to contest the claim of Banka Intesa instead of including it in
the Class A.
454. Subsequently, however, BD Agro included Banca Intesa in the Class A of the
Amended plan, even though there was no change with respect to contentiousness, i.e.
probability of Banca Intesa’s claim.789 Yet, BD Agro had to find another way to
prevent Banka Intesa to be the one who would ultimately decide whether the Class A
would accept the plan or not. It appears that this was achieved by BD Agro's obtaining
valuation of Mr. Pero Mrgud for the purpose of the Amended plan. He valued the part
of BD Agro’s land at app. EUR 87 million790 (i.e. almost six times higher than
Adventis and JLL). The consequence of this increase of the value of the land was that
Banca Intesa’s vote in the Class A would have no impact on the adoption of the
Amended plan, as Nova Agrobanka and not Banka Intesa would be a major creditor
in that class.791 Thus, after obtaining this new valuation, it was now safe for BD Agro
to include Banka Intesa in the Class A.
455. On a separate note, it should be noted the Claimants and Mr. Markicevic place great
reliance on the fact that the Amended plan stipulated that Mr. Rand would provide
additional financing as a support for BD Agro.792 This is yet another misrepresentation
of the facts. The Amended plan only stated: “Attached to this Plan is the statement of
one of the interested investors - Mr. William Rand from Canada, on general readiness
for provision of financial support to the Company's business.”793 The Amended plan
does not even mention the amount which Mr. Rand was, in general, ready to provide.
788
Objections of Banca Intesa to Original pre-pack reorganization plan dated 6 January 2015, p. 2, RE-459;
Objections of Banca Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. 2-4 and 7-10,
RE-460; Appeal of Banca Intesa dated 29 July 2015, pp. 7 and 8, CE-354.
789
BD Agro’s court dispute with Banka Intesa was not yet decided. See Amended pre-pack reorganization
plan dated 6 March 2015, p. 126, CE-101.
790
Report on the valuation of the market value of construction land in the BD Agro complex Zones A, B and
C in the town of Dobanovci, pp. 3-4, CE-175.
791
Objections of Banca Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. pp. 2-4 and
7-10, RE-460; Appeal of Banca Intesa dated 29 July 2015, pp. 7 and 8, CE-354.
792
Reply, para. 455; Third witness statement of Igor Markicevic, para. 118.
793
Amendment to the Pre-pack Reorganization Plan of BD Agro, dated 6 March 2015, pp. 114 and 119, CE-
101.
170
456. All the above machinations concerning pre-pack plan were noted and explained in
Banca Intesa’s Objections to Amended plan filed on 7 May 2015.794 Interestingly,
Banka Intesa also noted that BD Agro initiated reorganization proceedings with the
only purpose of preventing the opening of classic bankruptcy proceedings, in which
the bankruptcy trustee would have to examine the real reason for BD Agro’s
bankruptcy, which BD Agro obviously wanted to avoid.795 On 5 June 2015, Banca
Intesa filed supplement to its Objections on Amended plan from 7 May 2015 where,
among other things, it repeated that it is better for Banca Intesa to collect its receivable
in classic bankruptcy.796
457. On 25 June 2015, the Commercial Court held a hearing on which the Amended plan
was adopted.797 The majority of creditors voted for this plan, while Banca Intesa (as
minority creditor in the Class A due to Mr. Mrgud’s valuation of the property) and
certain other minority creditors (in the Class D of creditors) voted against it.798 On the
same day, the Commercial Court rendered resolution by which it confirmed the
adoption of Amended plan.799
458. On 30 July 2015,800 Banca Intesa filed an appeal against the resolution of the
Commercial Court from 25 June 2015, stating, inter alia, that the Amended plan used
794
In that sense, Banca Intesa argued: (i) that BD Agro was familiar with the fact that Banca Intesa was against
the adoption of the Original pre-pack reorganization plan, and that it would not vote for it, so that it
intentionally classified Banca Intesa’s receivable as contentious in the Original pre-pack reorganization plan,
by which it denied Banca Intesa the right to vote against the plan; (ii) that BD Agro classified Banca Intesa’s
receivable in the Class A of secured creditors in the Amended pre-pack reorganization plan when it realized
that it could not legally prevent it to vote on BD Agro’s reorganization plan, but at the same time based this
plan on wrong and overestimated value of BD Agro’s property, which in turn resulted in denying Banca
Intesa the status of major creditor in the Class A; (iii) that by basing the Amended pre-pack reorganization
plan on such wrong estimation, BD Agro wrongly determined that Nova Agrobanka had more votes in the
Class A than it should have had, which resulted in Nova Agrobanka being the major creditor on whom the
adoption of the plan depended; (iv) that BD Agro gave Nova Agrobanka larger percentage of votes in Class
A, since it expected to obtain Nova Agrobanka’s consent for its reorganization. See Objections of Banca
Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. 2-10, RE-460.
795
Objections of Banca Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. 9 and 10,RE-
460.
796
Banca Intesa’s Supplement to the Objections to Amended pre-pack reorganization plan, dated 5 June 2015,
p. 3, RE-461.
797
Court hearing minutes, 25 June 2015, CE-039.
798
Court hearing minutes, 25 June 2015, pp. 12 and 13, CE-039.
799
Resolution of the Commercial Court on adoption of BD Agro’s Amended pre-pack reorganization plan,
dated 25 June 2015, RE-462.
800
In July and August 2015, Tax Administration, City of Belgrade, Izoteks doo, Vihor doo, and Komercijalna
Banka ad, also appealed the Amended plan. Conspicuously, as Mr. Markicevic noted, Tax Administration
was one of BD Agro’s major creditors. See Amendment to the Pre-pack Reorganization Plan of BD Agro,
dated 6 March 2015, pp. 131 and 133, CE-101; Email from I. Markićević to R. Waschuk, W. Rand et al.
dated 18 December 2013, CE-310; Appeal of the Tax Administration of the Republic of Serbia dated 29
July 2015, CE-041. Appeal of the City Administration of the City of Belgrade, Secretariat for Finance dated
171
the wrong and overestimated valuation of BD Agro’s property prepared by Mr.
Mrgud;801 and that it contained contradictory information in the part dealing with
comparison of the reorganization and bankruptcy, as it essentially stipulated that the
bankruptcy would be more favorable for creditors than the reorganization.802 Notably,
with respect to using Mr. Mrgud’s valuation as a base for the Amended plan, Banca
Intesa stated that this false valuation of BD Agro’s property was obtained with the
only intent of manipulating the votes in Class A of creditors.803
459. On a separate note, it should not be disregarded that Banca Intesa appealed against the
Amended plan even though this plan stipulated that Mr. Rand would provide
additional financing in case of BD Agro’s reorganization. In other words, Banca Intesa
wanted BD Agro’s bankruptcy despite Mr. Rand’s financing.
460. On 6 August 2015, the Commercial Court discontinued preliminary bankruptcy

proceedings and dismissed the request of Banca Intesa for opening bankruptcy
proceedings over BD Agro, since BD Agro’s attempted reorganization was
ongoing.804
461. On 28 September 2015, Notice on Termination of the Privatization Agreement was

issued.805
2.1.3. Events after termination of the Privatization Agreement
462. On 30 September 2015, the Commercial Court of Appeals accepted Banca Intesa’s
appeal, revoked the court resolution confirming the adoption of the Amended plan,
and returned the case for retrial.806 In particular, the second instance court stated: (i)
that it was necessary that the data from the Amended plan be double-checked, as there
was substantial difference between Adventis’s valuation of BD Agro’s property and
12 August 2015, CE-040. Decision of the Appellate Court dated 30 September 2015, p. 1, CE-358. Decision
of the Appellate Court dated 30 September 2015, p. 1, CE-358.
801
Appeal of Banca Intesa dated 29 July 2015, pp. 5-8, CE-354.
802
Appeal of Banca Intesa dated 29 July 2015, pp. 8 and 9 CE-354.
803
Appeal of Banca Intesa dated 29 July 2015, pp. 6 and 8, CE-354.
804
30 August 2016, p. 8, CE-109.
805
Notice on Termination of the Privatization Agreement, CE-50.
806
In addition to accepting Banca Intesa’s appeal, Commercial Appellate Court also accepted appeals filed by
Izoteks, Vihor, City of Belgrade and Tax Administration. See Decision of the Appellate Court dated 30
September 2015, p. 9, CE-358.
172
Mr. Mrgud’s valuation;807 (ii) that BD Agro needed to submit another extraordinary
audit report and update Amended plan in accordance with that new audit report.808
463. On 7 October 2015, the Commercial Court of Appeals revoked the decision of the
Commercial Court from 6 August 2015 dismissing Banca Intesa’s request for opening
bankruptcy proceedings over BD Agro.809
464. On 16 October 2015, the Commercial Court rendered Conclusion by which BD Agro,
whose director was Mr. Markicevic, was ordered to act upon the instructions of the
Commercial Court of Appeals from 30 September 2015, i.e. to submit another
extraordinary audit report and update Amended plan in accordance with that new audit
report.810 BD Agro did not comply.811
465. On 8 December 2015, due to the fact that BD Agro did not comply with the court’s
order from 16 October 2015, the Commercial Court rendered the resolution by which
it discontinued the proceedings and dismissed BD Agro’s proposal for conducting
bankruptcy proceedings in accordance with the Amended plan.812 On 5 January 2016,
this resolution became final.813
466. On 11 January 2016, BD Agro filed another proposal for initiation of the bankruptcy
proceedings in accordance with the pre-pack reorganization plan (‘Second plan’).814
807
Decision of the Appellate Court dated 30 September 2015, p. 9, CE-358.
808
Decision of the Appellate Court dated 30 September 2015, p. 8 CE-358.
809
Decision of the Commercial Appellate Court dated 7 October 2015, RE-465.
810
Notice from the Commercial Court in Belgrade dated 16 October 2015, CE-359; Decision of the Appellate
Court dated 30 September 2015, p. 8, CE-358.
811
See paras. 473-487 of Rejoinder.
812
Decision of the Commercial Court in Belgrade dated 8 December 2015, CE-361.
813
30 August 2016, p. 9, CE-109.
814
Second pre-pack reorganization plan dated 11 January 2016, CE-369.
173
467. On 21 January 2016, Imlek filed request for opening bankruptcy proceedings against
BD Agro.815 On 2 February 2016, the Commercial Court accepted this proposal and
initiated preliminary bankruptcy proceedings upon Imlek’s proposal. 816
468. On 8 February 2016, the Commercial Court dismissed BD Agro’s proposal for
initiation of the bankruptcy proceedings in accordance with the Second plan.817 On 24
March 2016, the Commercial Court of Appeals confirmed this decision.818
469. On 17 February 2016, the Agency sent a letter to the Ministry of Economy, in which
it noted that it had previously addressed Banca Intesa as BD Agro’s ‘key’ creditor,
with respect to discussing Banca Intesa’s acceptance on BD Agro’s reorganization
plan; however, Banca Intesa never responded.819 Obviously, Banca Intesa continued
to object to BD Agro being reorganized, even when the Agency installed BD Agro’s
new management.
470. On 16 May 2016, BD Agro filed new proposal for initiation of the bankruptcy
proceedings in accordance with another pre-pack reorganization plan (‘Third
plan’).820 On 17 May 2016, the Commercial Court rendered decision by which it
815
It should be noted that, contrary to what Claimants and Mr. Markicevic argue, there is no evidence on the
record that Imlek was very supportive of BD Agro’s reorganization. In fact, Imlek’s “support” boils down
to e-mails which Mr. Markicevic sent to Imlek wherein he attached various versions of pre-pack
reorganization plan and asked for Imlek’s opinion in that regard. However, this is not enough to show that
Imlek was strongly opposed to BD Agro going bankrupt, all the more so when Imlek, which is a private
company, also wanted BD Agro bankrupt. In the same vein, it should be noted that, although Claimants and
Mr. Markicevic state that other creditors as well, such as Mlekara Sabac, Somboled, Almex and Mivaka
were very supportive of the idea of BD Agro’s reorganization, they failed to prove this. Namely, Mr.
Markicevic invokes e-mails which he sent to Imlek; however, it goes without saying that these e-mails do
not even concern Mlekara Sabac or Somboled, let alone prove that these companies supported BD Agro’s
reorganization as opposed to its bankruptcy. Worse yet, when it comes to ‘support’ of Almex and Mivaka,
Claimants produced no evidence whatsoever. Thus, Claimants’ and Mr. Markicevic’s arguments in this
regard are meaningless. See Reply, para. 269; Third witness statement of Igor Markicevic, paras. 37-29;
Email from I. Markićević to Nova Agrobanka dated 10 November 2014, CE-290; Email from I. Markićević
to Imlek dated 19 December 2013, CE-300; Email communication between I. Markićević and Imlek dated
12-28 March 2014, CE-301; Email communication between I. Markićević and Imlek dated 10-25 November
2014, CE-303; Email from I. Markićević to B. Milojević dated 10 March 2015, CE-341; Print screen of the
Central Securities Depository and Clearing House concerning Imlek’s ownership structure, dated 28
December 2019, RE-457; Resolution on initiating preliminary bankruptcy proceedings upon Imlek’s
proposal, dated 2 February 2016, RE-466.
816
Resolution on initiating preliminary bankruptcy proceedings upon Imlek’s proposal, dated 2 February
2016, RE-466.
817
30 August 2016, p. 10, CE-109.
818
30 August 2016, p. 9, CE-109.
819
Letter from R. Knežević to the Ministry of Economy, dated 17 February 2016, CE-371.
820
30 August 2016, p. 10, CE-109.
174
dismissed BD Agro’s proposal, while on 13 July 2016, this decision was revoked by
the second instance court and case was returned for a retrial.821
471. Finally, on 30 August 2016, the Commercial Court rendered the decision on opening
of bankruptcy proceedings over BD Agro. This decision was rendered upon the
proposal of Banca Intesa from 6 January 2015, 822 and Imlek from 21 January 2016
(which were joined on 15 March 2016).823 The court noted that BD Agro’s was facing
permanent insolvency, as its account had been blocked for the period of over three
years and for the amount of app. EUR 7,3 million.824 Interestingly, the court also noted
that BD Agro was abusing its powers by repeatedly submitting pre-pack
reorganization plans.825
2.2. The opening of the bankruptcy proceedings was not caused by the Agency
472. Claimants and Mr. Markicevic claim that it was the Agency that managed BD Agro
into bankruptcy.826 This is untrue.
2.2.1. Mr. Markicevic could and should have acted upon Commercial
Court order
473. Claimants state that after the Commercial Court ordered Mr. Markicevic to submit
another extraordinary audit report and update the Amended plan accordingly, he sent
a letter to Agency on 26 October 2015,827 requesting instructions on further steps but
that the Agency never responded.828 They further argue that, without the Agency’s
prior instructions, Mr. Markicevic would have made several breaches of Article 47 of
821
30 August 2016, p. 10, CE-109.
822
After the Commercial Appellate Court revoked on 7 October 2015 the decision of the Commercial Court
from 6 August 2015 by which Banca Intesa’s request for opening bankruptcy proceedings over BD Agro
was dismissed, proceedings for opening bankruptcy over BD Agro upon Banca Intesa’s proposal were
remanded for retrial in November 2015. See Decision of the Commercial Appellate Court dated 7 October
2015, RE-465.
823
30 August 2016, CE-109; Print screen from the course of proceedings before Commercial Court in
Belgrade, regarding bankruptcy proceedings no. St. 15/16, dated 20 January 2020, p. 2, RE-467.
824
30 August 2016, p. 8, CE-109.
825
30 August 2016, pp. 10 and 11, CE-109.
826
Reply, paras. 442-466; Third witness statement of Igor Markicevic, paras. 110-121.
827
Letter from I. Markićević to the Privatization Agency dated 26 October 2015, CE-360.
828
Reply, paras. 456 and 457; Third witness statement of Igor Markicevic, paras. 120 and 121.
175
the Law on Privatization, had he filed the updated Amended plan as per the court’s
order.829
474. All of these arguments are completely meritless. As Respondent already pointed out
in its Counter-Memorial,830 the Agency had no authority to give the requested
instructions. Namely, Article 47 of the Law on Privatization does not prescribe the
obligation of obtaining the Agency’s instructions for any actions of the subject of
privatization after the privatization agreement is terminated, nor it gives the Agency
the right to issue any instructions. On the other hand, Mr. Markicevic, as BD Agro’s
manager (i.e. director), was not only allowed, but also obliged to act as ordered by the
court.
475. Under Article 61 of the 2015 Law on Companies, one of the persons who has special
duties towards a company is its manager.831 One of those duties is duty of care:
“The persons referred to in Article 61(1)(4) [i.e. manager of the

company]… of this Law are in this capacity obliged to perform
their duties bona fide, with the care of a good businessman, and
in a reasonable belief that they are acting in the best interests of
the company.”832
476. According to Mr. Markicevic, the best interest of BD Agro was its reorganization.
Thus, Mr. Markicevic, as BD Agro’s manager, should have made every effort that its
reorganization be eventually performed. In that sense, the Law on Privatization
contained no provision which prevented him to obtain a new auditor’s report and
update the Amended plan accordingly. All Claimants’ arguments to the contrary are
completely meritless.
477. First, Claimants argue that the Law on Privatization obliged Mr. Markicevic to
request Agency’s approval for any action with respect to bankruptcy procedure,
including the procedure for approval of the reorganization plan.833 They further state
that Mr. Markicevic’s submission of updated pre-pack reorganization plan would
829
830
831
Article 61 of the 2015 Law on Companies, RE-443.
832
833
Reply, para. 445, 447 and 448; Second witness statement of Igor Markicevic, para. 195.
176
violate Article 47(3) of the Law on Privatization, which prohibits management from
rendering decisions on reorganizations, because filing of the updated plan would be a
decision on BD Agro’s reorganization.834 This is incorrect.
478. Article 47(3)(3) of the 2014 Law on Privatization stipulates that:
“After termination of the agreement on sale of the capital, the

management bodies of the subject of privatization cannot, prior to
selection of new management bodies, render the decisions on the
following:
1) decrease or increase of the capital of the company;

2) acquisition or disposal of real estate or the high value property;
3) reorganization of the company;
4) pledging assets, mortgaging, and applying other kinds of property
encumbrance;
5) renting or leasing property;
6) settlement with creditors.”835
479. Therefore, in case privatization agreement is terminated, old management cannot

decide to commence reorganization of the subject of privatization ("render […] the
decision on... reorganization of the company"). The quoted provision does not
stipulate that the management cannot undertake any action with respect to already
initiated bankruptcy, i.e. reorganization procedure.
480. Since BD Agro already decided to commence its reorganization at its shareholders
assembly on 25 April 2014,836 the Agency’s approval was redundant.
481. In fact, as Mr. Markicevic himself explained “BD Agro only needed to submit a new
extraordinary auditor’s report and update the Amended pre-pack reorganization plan
so that it would reflect accounting data that would be no older than nine months.”837
And concluded: “I considered these changes to be mere technicality.”838
834
Reply, paras. 450 and 451.
835
2014 Law on Privatization, Article 47(3), CE-223.
836
Decision of BD Agro’s Shareholders Assembly dated 25 April 2014, RE-468.
837
838
177
482. A technical change in the Amended plan certainly does not amount to ‘a decision on
reorganization of the company’, as Claimants wrongfully try to put.839
483. Second, Claimants argue that Mr. Markicevic’s submission of updated pre-pack
reorganization plan would violate Article 47(2) of the Law on Privatization, which
prohibits the management from rendering decisions on acquisition and disposal of
high value property.840 Claimants’ argument is completely beside the point, as Mr.
Markicevic was not supposed to decide about acquisition and disposal of the high
value property. This was already done when the Amended plan was filed on 6 March
2015.
484. Third, Claimants argue that Mr. Markicevic’s submission of updated pre-pack
reorganization plan would violate Article 47(6) of the Law on Privatization, which
prohibits the management from rendering decisions on settlement with creditors,
because the pre-pack reorganization plan is adopted for the very purpose of settling
with creditors.841 Again, Mr. Markicevic was not supposed to decide about settlement
with creditors as the Amended plan already contained BD Agro’s decision on
settlement of the creditors.
485. Fourth, Claimants aver that Mr. Markicevic could not have filed the updated pre-pack
reorganization plan because the Amended plan was ‘dependent upon’ additional
financing to be provided by Mr. Rand.842
486. This Claimants’ argument is erroneous as Mr. Rand never gave assurances that he will
indeed invest a cent in BD Agro, but rather just noted his general readiness for
provision of financial support to the Company's business.
487. Finally, what should also be noted is that although Mr. Markicevic asked for the
Agency’s instructions with respect to the adoption of the Amended plan, he actually
never bothered to send the Amended plan to the Agency.
839
840
Reply, para. 453.
841
Reply, Reply, para. 454.
842
Reply, para. 455.
178
2.2.2. Agency wanted BD Agro’s reorganization
488. Claimants further state that Agency wanted BD Agro bankrupt,843 and argue that on
the meeting held on 16 January 2015, Ms. Mira Kostic, representative of the Agency
stated that BD Agro should indeed be forced into bankruptcy.844
489. First of all, the Minutes from the meeting of 16 January 2015 do not mention that Ms.
Kostic said this. Second and more importantly, even if she did, that is of no
consequence, as the Agency obviously disagreed with such approach. After
termination of the Privatization Agreement, BD Agro’s management installed by the
Agency after the termination submitted to the court two pre-pack reorganization
plans.845 It is beyond any common sense that one wishes to force a debtor into
bankruptcy and still initiates procedure for its reorganization.
2.2.3. Banca Intesa insisted on BD Agro’s bankruptcy
490. The chronology of events clearly shows that BD Agro went bankrupt because of the
persistent insisting on bankruptcy of one of its biggest creditors - Banca Intesa. Yet,
Claimants state that Respondent’s argument on BD Agro's going bankrupt because of
Banca Intesa’s request, does not make any sense.846
491. They submit that during the preparation of BD Agro’s pre-pack reorganization plan,
Mr. Markicevic was constantly communicating with Banca Intesa’s management,
who firstly expressed its support for BD Agro’s reorganization, but shortly before the
plan was submitted to the court, Banca Intesa suddenly changed its mind and started
making requests that BD Agro could not fulfil.847 This very argument speaks for itself
and confirms Respondent’s stance that the bankruptcy was inevitable because Banka
Intesa kept on insisting on it, no matter what.
492. The evidence shows that ‘support of BD Agro’s reorganization’848 never actually
came from Banka Intesa. What happened is that in May 2013, Banca Intesa gave BD
Agro three months to come up with a business plan on settlement of its receivables;
843
Reply, para. 1295.
844
Reply, para. 1295.
845
Second pre-pack reorganization plan dated 11 January 2016, CE-369.
846
Reply, para. 463.
847
848
Reply, para. 267.
179
however soon afterwards, Banca Intesa withdrew that proposal and blocked BD
Agro’s accounts.849 After that, Banca Intesa’s ‘support’ boiled down solely to Mr.
Markicevic’s (unanswered) e-mails which he sent to Banca Intesa.850
493. After termination of the Privatization Agreement, Banca Intesa’s position remained
the same – it was still against BD Agro’s reorganization.851
2.2.4. Neither the assignment of Privatization Agreement to Coropi, nor

Mr. Rand’s financing, could have helped avoiding BD Agro’s
bankruptcy
494. As already noted, Banka Intesa was against reorganization under any circumstances –
assignment of Privatization Agreement to Coropi, or Mr. Rand’s financing were
irrelevant and could not change its decision.
495. In addition to Banka Intesa, there were several other creditors (i.e. Izoteks, Vihor, City
of Belgrade, Komercijalna banka ad, Tax Administration) that appealed and objected
to the adoption of the Amended plan, the very plan that envisaged Mr. Rand’s
financing.852 Moreover, there is not a single proof that any creditor of BD Agro voted
for that plan because of Mr. Rand's financing, or that any creditor conditioned its
support to the reorganization with the assignment of Privatization Agreement to
Coropi.853
496. Nevertheless, Claimants and Mr. Markicevic state that Nova Agrobanka, as well as
the Deposit Insurance Agency which is Nova Agrobanka’s trustee, believed that the
pre-pack reorganization plan would succeed only if the Privatization Agreement was
849
Email from K. Lutz to P. Djurišić attaching letter from Mr. Rand dated 2 June 2013, CE-295.
850
As evident from these e-mails, Mr. Markicevic addressed Banca Intesa in order to ask for a meeting to
discuss the possibilities for restructuring BD Agro’s debt, as well as to deliver drafts of pre-pack
reorganization plan. See Email from I. Markićević to P. Djurišić dated 11 December 2013, CE-296; Email
from I. Markićević to Banca Intesa dated 28 March 2014, CE-297; Email from I. Markićević to Banca Intesa
dated 10 November 2014, CE-298.
851
Letter from R. Knežević to the Ministry of Economy, dated 17 February 2016, CE-371.
852
Decision of the Appellate Court dated 30 September 2015, p. 3, CE-358.
853
Claimants and Mr. Markicevic also conveniently omit to say who exactly were ‘certain other creditors’
who initially (apart from Nova Agrobanka) conditioned their approval of BD Agro’s reorganization by prior
resolving of BD Agro’s ownership issues, but later gave up on it also ‘due to the delays associated with
assigning of Privatization Agreement and understanding of BD Agro’s difficult position’. In fact, apart from
making such vague assertion, Claimants neither state who those creditors were, nor do they provide any
evidence for that matter. See Reply, para. 325; Second witness statement of Igor Markicevic, para 161.
180
assigned to Coropi and if Mr. Rand provided additional financing to BD Agro.854 This
is not true.
497. Nova Agrobanka voted for the adoption of the Amended plan even though
Privatization Agreement had not been assigned to Coropi.855 This is the best proof that
assignment of Privatization Agreement was not a precondition for Nova Agrobanka’s
vote in favor of the Amended plan. When it comes to Mr. Rand’s financing it was
never mentioned by Nova Agrobanka. On 11 March 2015, Nova Agrobanka sent an
e-mail to Mr. Markicevic, stating: “We have received the Plan, thank you, but we are
interested to know if consent is obtained from the Ministry for the change of the
majority owner.”856 Further, on 26 March 2015, Nova Agrobanka made a submission
to the Commercial Court, stating that: “The opinion of Nova Agrobanka is that it is
not expedient to proceed with voting before solution of the ownership matters.”857 As
can be seen, all that Nova Agrobanka was inquiring about was the ownership status
of BD Agro, but it did not say that without assignment to Coropi it would not vote for
the plan and it certainly did not mention Mr. Rand’s financing in any way.
498. The same goes for the Deposit Insurance Agency. On 11 June 2015, Director and
Committee for monitoring of reorganization plans of the Deposit Insurance Agency
issued their individual Consents, by which they stated that reorganization plan would
be approved, provided that BD Agro accepts certain objections which related to the
content of the plan.858 Had it been that the Deposit Insurance Agency conditioned its
approval of the plan by prior assignment of Privatization Agreement, that condition
would have also been mentioned in these two Consents. It was not.
2.3. Conclusion
499. Chronology of relevant events both prior, as well as after termination of Privatization
Agreement, proves that the reason for BD Agro’s bankruptcy had nothing to do with
the Agency and its termination of Privatization Agreement, as Claimants wrongly
argue. BD Agro would have gone bankrupt regardless of termination of Privatization
854
Reply, para. 266; Third witness statement of Igor Markicevic, para. 28.
855
Court hearing minutes, 25 June 2015, p. 13, CE-039.
856
Email communication between I. Markićević and Nova Agrobanka dated 10-11 March 2015, CE-342.
857
Nova Agrobanka’s submission to Commercial Court Belgrade dated 26 March 2015, CE-294.
858
Consent of the Director of the Deposit Insurance Agency dated 11 June 2015, CE-567; Consent of the
Committee for monitoring of reorganization plans, dated 11 June 2015, CE-568.
181
Agreement. The reason was quite simple - BD Agro was permanently insolvent, and
Banca Intesa, as one of its major creditors, insisted on it going bankrupt. Thus, it
consistently objected to its reorganization.
500. In so far as the Agency is concerned, it certainly did not want BD Agro to go bankrupt.
The management appointed by the Agency after termination of the Privatization
Agreement submitted two pre-pack reorganization plans after the shares were
transferred to the Agency. However, apparently, bankruptcy was the inevitable result
of devastating business policy of BD Agro’s management, with Messrs. Obradovic859
and Markicevic on top of it.
3. Sale of BD Agro in bankruptcy proceedings was done in accordance with law
501. Claimants, Mr. Markicevic and Mr. Broshko imply that the sale of BD Agro in
bankruptcy proceedings was improperly conducted.860 Notably, they do not point to a
single provision of the law which was presumably breached. As will be explained
hereunder, the announcement of BD Agro’s sale, sales documentation, payment of
deposit for participation in the sale, and the sale itself, was all done in accordance with
law.
3.1. Mr. Rand never objected to sale of BD Agro
502. At the outset, it should be noted that one of BD Agro’s creditors was Mr. Rand. 861
However, in the bankruptcy proceedings, Mr. Rand had never raised any objections
concerning the sale of BD Agro, although he had the right to do so.
503. When a bankruptcy debtor is being sold as legal entity, bankruptcy trustee must make
a so-called suitability assessment, which needs to show that it is more suitable to sell
debtor as a legal entity, than to sell its assets separately.862 In the present case, the
859
Even Mr. Markicevic confirmed that BD Agro was facing unmanageable debt obligations incurred by the
previous management. See Email from I. Markićević to R. Waschuk, W. Rand et al. dated 18 December
2013, CE-310.
860
Reply, paras. 467-476; Third witness statement of Igor Markicevic, paras. 124-138; Third witness
statement of Erinn B. Broshko, paras. 28-38.
861
Commercial Court in Belgrade Decision number 9. St-321/2015, Decision on the List of Determined and
Contested Claims, dated 30 March 2018, CE-136.
862
In that sense, Article 132(2) of Bankruptcy Law states that:
“The bankruptcy trustee is obliged to assess the suitability of the sale of bankruptcy debtor as a legal entity,
i.e. the entire assets of the bankruptcy debtor, in comparison with the sale of bankruptcy debtor’s assets in
parts, and to inform the creditors’ committee thereof.”
182
suitability assessment showed that selling BD Agro as legal entity was more favorable
way to settle the creditors than selling its assets separately, so BD Agro was sold as
legal entity.863 Pursuant to Bankruptcy Law, before the sale is conducted, creditors
and all other interested persons had the opportunity to object to the proposed sale.864
Yet, Mr. Rand never raised any objection. Much into the same vein, Mr. Rand, as
creditor, could have objected to the sale of BD Agro after the sale was performed.865
Again, Mr. Rand did not bother to raise any objections.
504. Under the Bankruptcy Law, approval of creditors’ committee for selling bankruptcy
debtor as a legal person was a necessary precondition for the sale. 866 In the present
case, creditors’ committee approved BD Agro’s sale on 19 February 2019.867
In the same vein, Section VIII(2) of the National standard no. 5 of the Rulebook on the Establishment of
National Bankruptcy Management Standards (‘National standard no. 5’), prescribes that:
“In the case of sale of the bankruptcy debtor as a legal entity, the assessment must show that this type of sale
is more favorable, i.e. that the assessed value of the legal entity is greater than the assessment of the total
value of the individual parts of the property.” See Article 132(2) of Bankruptcy Law, RE-445; Section
VIII(2) of the National standard no. 5 of the Rulebook on the Establishment of National Bankruptcy
Management Standards, RE-444.
863
Report on evaluation of market value of bankruptcy debtor’s property and evaluation of debtor as legal
entity “BD AGRO“ AD DOBANOVCI IN BANKRUPTCY on the date of 30 June 2018 (Valuation team
headed by Mr Tibor Bodolo) dated January 2019, p. 35, CE-511.
864
Namely, Article 133(1) of Bankruptcy Law stipulates that:
“Prior to the sale of the property, the bankruptcy trustee is obliged to submit to bankruptcy judge, creditors’
committee, creditors who have their claim secured on the property that is subject to sale, and all those
persons who have expressed their interest in the property, regardless of the basis, the notification on the
manner, plan, terms, deadlines of sale, as well as the notice on the suitability assessment, referred to in
Article 132(2) of this Law.”
Article 133(7) of Bankruptcy Law further stipulates that:
“Creditors and other interested parties may object to the proposed sale not later than ten days before the
proposed date of sale or transfer, if there is a proper basis for it…” See Article 133(1) and (7) of Bankruptcy
Law, RE-445.
865
Article 133(9) of Bankruptcy Law prescribes that:
“Creditors may object to the performed sale if there are grounds for it. The objection does not affect the
performed sale, but represents the basis for determining the liability of the bankruptcy trustee if the damage
was caused by the bankruptcy trustee's action in the sale process. The basis for the complaint may be fraud,
bias of the trustee, incomplete notification or any other reason for the trustee conducting the sale at the
expense of the bankruptcy estate. Mere assertion that the price reached is too low is not a sufficient basis
for raising objection.” See Article 133(9) of Bankruptcy Law, RE-445. As stated in the Article 133(8) of
Bankruptcy Law, one of the possible reasons for their objection could have been the incomplete notification
by the bankruptcy trustee, or any other reason why the trustee conducted the sale at the expense of the
bankruptcy estate. Likewise, all these creditors could have complained that trustee performed the sales
procedure to the detriment of BD Agro’s bankruptcy estate. See Article 133(9) of Bankruptcy Law, RE-
445.
866
Article 135(1) of the Bankruptcy Law, RE-445.
867
Announcement of sale of BD Agro dated 7 March 2019, p. 1, RE-442.
183
3.2. Claimants concerns related to sale of BD Agro are all erroneous
505. The fact that Mr. Rand never used any of the legal means he could have used in the
bankruptcy proceedings to object or at least comment on the sale of BD Agro and the
manner in which the sale was conducted, does not stop Claimants to argue in the
present proceedings that the sale was improperly conducted. They should not be
allowed to do so.
3.2.1. Announcement of sale of BD Agro was done in accordance with law
506. Claimants state that, on 7 March 2019, BD Agro’s bankruptcy trustee announced a
public sale of BD Agro for an initial price of RSD 1,535,376,081.65 (EUR
13,012,000) and that the public auction was scheduled for 9 April 2019.868 They
further state that the announcement was published on a single day, in Cyrillic, in two
Serbian newspapers – ‘Politika’ and ‘Novosti’.869
507. Although Claimants, Mr. Markicevic and Mr. Broshko seem to imply that there was
something wrong with the fact that BD Agro’s sale was announced in this manner,
they do not say which regulation was breached. This does not surprise, since
everything was done in accordance with the provisions of the Bankruptcy Law.
508. Article 132(6) of the Bankruptcy Law stipulates that:
“If the sale is made through public bidding… the bankruptcy

trustee is obliged to announce the sale in at least two high-
circulation daily newspapers that are distributed throughout the
territory of the Republic of Serbia, and on the website of the
authorized organization, not later than 30 days before the date set
for public bidding or submission of offers.”870
509. In the present case, all of these conditions were met. First, BD Agro’s sale was
published in newspapers ‘Politika’ and ‘Novosti’, which are both high-circulation
daily newspapers, distributed throughout the whole territory of the Republic of
868
Reply, para. 467; Third witness statement of Igor Markicevic, para. 126; Third witness statement of Erinn
B. Broshko, para. 31.
869
Reply, para. 467.
870
Article 132(6) of the Bankruptcy Law, RE-445.
184
Serbia.871 Second, BD Agro’s sale was also published on the website of the Agency
for Licensing of Bankruptcy Trustees, which is the ‘authorized organization’ in the
sense of Bankruptcy Law.872 Third, the announcements of BD Agro’s sale in
‘Politika’, ‘Novosti’, and on the website of Agency for Licensing of Bankruptcy
Trustees were published on 7 March 2019, which was more than 30 days before 9
April 2019, as the date when the public bidding took place.873 Fourth, the official and
commonly used script in the Republic of Serbia is Cyrillic, so there is nothing unusual
in the fact that the state authorities and newspapers used it, on the contrary.
3.2.2. Sale’s documentation was in accordance with law
510. Claimants further state that the documentation on sale of BD Agro contained outdated
information about its land and that, due to the strike of the Cadastral Office, bidders
interested in the purchase of BD Agro (i.e. Mr. Broshko) could not obtain real
information about the land.874 Mr. Markicevic confirms this,875 and states that the
bankruptcy trustee required the potential bidders to pay RSD 150,000, i.e. app. EUR
1,200 for a copy of the sales documentation, which could have been a nuisance for
interested bidders mainly located outside of Serbia since Serbian banks do not accept
payments in foreign currencies to accounts denominated in Serbia.876
511. First of all, Claimants provide no evidence that sale’s documentation was indeed
outdated,877 nor do they state which exact documentation was outdated. In any event,
veracity of the documentation could have been verified on the website of the cadaster,
which contains searchable information about land parcels.878 In addition, the potential
871
Print screen from Politika’s website, dated 20 January 2020, p. 1, RE-447; Print screen from Novosti’s
website, dated 29 December 2019, p. 1, RE-448.
872
Print screen from Agency for Licensing of Bankruptcy Trustees’s website, concerning announcement on
sale of BD Agro, dated 29 December 2019, RE-449.
873
Agency for Licensing of Bankruptcy Trustees, Announcement of the sale of BD Agro, Novosti dated 7
March 2019, CE-548; Agency for Licensing of Bankruptcy Trustees, Announcement of the sale of BD Agro,
Politika dated 7 March 2019, CE-549; Announcement of sale of BD Agro dated 7 March 2019, RE-442.
874
Reply, para. 472.
875
Third witness statement of Igor Markicevic, paras. 133-135.
876
877
Section III(3) of the National standard no. 5 prescribes:
“For the purposes of the sale, the bankruptcy trustee makes sales documentation that contains all the
information on the subject of the sale.” Thus, bankruptcy trustee is obliged to include in sales documentation
all information on subject of sale. It goes without saying that this means that all information (including those
concerning BD Agro’s real estate) must be complete and up-to-date. See Section III(3) of the National
standard no. 5 of the Rulebook on the Establishment of National Bankruptcy Management Standards, RE-
444.
878
http://www.rgz.gov.rs/usluge/ekatastar/po%C4%8Detna, accessed on 15 January 2019.
185
buyers could have also contacted BD Agro’s bankruptcy trustee, as his phone number
was published in ‘Politika’ and ‘Novosti’ newspapers, and on the Agency for
Licensing of Bankruptcy Trustees’ website, for the very purpose of providing to
potential buyers all relevant information concerning BD Agro.879
512. Finally, the argument concerning the alleged nuisance for interested bidders outside
of Serbia to pay RSD 150,000 for a copy of sales documentation, is wrong and
irrelevant. Dinar is the official currency in the Republic of Serbia, and all payments
(with only few exceptions) must be made in dinars. Mr. Broshko also managed to pay
the said amount in dinars.880
3.2.3. Requested deposit and its delivery were in accordance with the law
513. Claimants state that the potential bidders for BD Agro’s sale had to make a deposit of
RSD 614,150,432.66 (i.e. EUR 5,205,000) in cash or in the form of bank guarantee
within less than four weeks, i.e. by 2 April 2019, while the newspaper announcements
stated the wrong address for the delivery of bank guarantee.881
514. The deadline for paying the deposit was in accordance with law. It should first be
noted that the Bankruptcy Law does not stipulate the deadline for payment of deposit.
This deadline is mentioned in by-law, i.e. in the Rulebook on the Establishment of
National Bankruptcy Management Standards, which in National standard no. 5
prescribes that interested buyers are obliged to pay the deposit no later than three days
before the date of the sale.882
515. BD Agro’s sale was scheduled for 9 April 2019, which means that the deadline for the
payment of the deposit could have been set at the latest on 6 April 2019. But there is
nothing that prevented its setting before that day, i.e. on 2 April 2019, as was requested
in BD Agro case. Thus, the fact that the interested bidders had deadline of less than
879
Politika dated 7 March 2019, CE-549; Announcement of sale of BD Agro dated 7 March 2019, p. 4, RE-
442.
880
Third witness statement of Erinn B. Broshko, para. 32.
881
Reply, para. 471.
882
In particular, National standard no. 5 prescribes that: “the amount of deposit that interested buyers are
obliged to deposit no later than three days before the date of the sale, as well as the date of depositing in
cash or producing a bank guarantee with detailed conditions, including a notice on the manner and place
of taking over the sales documentation;” See Section V(3)(7) of the National standard no. 5 of the Rulebook
on the Establishment of National Bankruptcy Management Standards, RE-444.
186
four weeks to pay the deposit is completely beside the point, as such deadline was in
complete accordance with the law. In any case, potential bidders had more than three
weeks to obtain and submit a bank guarantee which is more than reasonable time to
do so.
516. The address for the delivery of the bank guarantee. The bank guarantee was
supposed to be sent to the Financial Department of Agency for Licensing of
Bankruptcy Trustees, located at the address Terazije 23, 6th floor, office no. 610. This
exact address was stated in the announcements in ‘Politika’ and ‘Novosti’,883 but
instead of the Agency for Licensing of Bankruptcy Trustees, the announcements
stated that the guarantee should be delivered to the Privatization Agency. However,
this mistake was remedied on the very next day, so both ‘Politika’ and ‘Novosti’
published announcements in which they correctly designated Agency for Licensing of
Bankruptcy Trustees as the recipient of the bank guarantee.884 So this was an obvious
error, which was immediately corrected.
517. It is completely unclear how could this unintentional error in the newspapers, which
was immediately corrected, make the sale of BD Agro unlawful.
3.3. Selling BD Agro to Agrounija was in accordance with law
518. Claimants further state that creditors’ committee approved the sale of BD Agro in
bankruptcy proceedings by 2:1 vote and that, while Imlek was voting against the sale,
the "state managed" Nova Agrobanka and Agrounija voted in favor of the sale. 885
Claimants also state that Agrounija was in clear conflict of interest when it voted for
the sale of BD Agro, but never get to say explicitly why Agrounija was in conflict of
interest. Instead, they only imply that this was because Agrounija was the one who at
the same time voted for the sale and the one who was interested buyer.886 In addition,
Claimants do not point to any provision of Bankruptcy Law which was supposedly
breached due to the alleged ‘conflict of interest’. The reason for this is quite simple -
883
Politika dated 7 March 2019, CE-549.
884
Announcement Correction published in Politika, dated 8 March 2019, RE- 477; Announcement Correction
published in Novosti, dated 8 March 2019, RE-478.
885
Reply, para. 468.
886
187
Bankruptcy Law does not forbid member of creditors’ committee to buy the
bankruptcy debtor or its property.
519. Claimants further argue that Mr. Miodrag Kostic, the ultimate owner of Agrounija,
participated in the auction for privatization of BD Agro shares back in 2005. 887 This
only proves that he was interested to buy BD Agro even 14 years earlier, which is
fully legitimate. Likewise, the fact that in 2016 Agrounija bought Banca Intesa’s
secured receivables towards BD Agro, in the amount of EUR 12,755,216 888 (due to
which fact it became member of creditors’ committee),889 does not question the
legality of the process of the sale. Private companies, which Intesa and Agrounija both
are, are free to dispose with their receivables.
520. Claimants' observation that, at the auction held on 9 April 2019, Agrounija was
‘accidentally’ the only bidder, which is why it bought BD Agro for the opening price
of EUR 13,012,000,890 - is pointless and irrelevant. Anyone could have participated
in the auction, raised the winning bid and became BD Agro’s new owner. There was
nothing that prevented Mr. Broshko, any other member of Mr. Rand’s entourage, or
any third person, to participate in the sale of BD Agro and ultimately buy it. The
bankruptcy proceedings of BD Agro lasted for years and it was publicly known that
BD Agro possessed valuable land,891 so it is not credible to argue that BD Agro’s sale
was a setup since there were not many interested buyers. What the lack of interest can
indicate is only that the price of the land that was sold to Agrounija as part of BD
Agro, was not underestimated during the sale, or otherwise there would have been
more interested buyers. In fact, BD Agro was sold to Agrounija for the opening price
of EUR 13,012,000, because other interested buyers (Mr. Broshko’s company Maple
Leaf Investments and MPZ Agrar doo892) ultimately decided not to participate in the
auction.
887
Reply, para. 469.
888
Reply, para. 470.
889
Decision of the Commercial Court in Belgrade on Agrounija’s receivables dated 30 March 2018, CE-551;
Decision of the Commercial Court in Belgrade dated 21 June 2017, CE-553.
890
Reply, para. 476.
891
“BD AGRO” from Dobanovci is building a modern cow farm, ekapija, dated 8 November 2007, CE-757;
“’BD Agro’ got to 1% of Agrobanka’s shares”, eKapija, dated 27 July 2010, RE-216.
892
Minutes from takeover of sales documentation, RE-450.
188
521. Also, Claimants’ ‘expectations’ that Agrounija will receive most of the purchase price
it paid (app. EUR 13,012,000) as distribution from the bankruptcy estate on the basis
of its receivables towards BD Agro (app. EUR 12,748,243),893 is completely beside
the point. Agrounija has a secured claim towards BD Agro, so it is completely legal
that its claim is settled from the proceeds received by selling the land pledged in its
favor894 (i.e. in favor of Banka Intesa from whom Agrounija bought the receivable
towards BD Agro).
522. Claimants and their witnesses also make much of the fact that it was not all of BD
Agro’s land that was put up for sale – according to them, coincidentally, only 70% of
BD Agro’s land was sold, just so that Agrounija could later on buy up the rest of the
land and realize its full capacity value.895 This is nothing but a speculation and proves
nothing even if it was true.
523. In reality, a part of BD Agro’s land of app. 400 ha was not put up for sale because
there were numerous disputes and other claims concerning that land, or because BD
Agro was not its owner.896 It would be harder to find a buyer which would be
interested to acquire also the land that is encumbered with numerous disputes and
mortgages, and which could eventually be taken away from the buyer. In the same
vein, there is no provision in the Bankruptcy Law which would mandate that selling
of the bankruptcy debtor as legal entity means selling all of its assets. To the contrary,
Article 136(2) of Bankruptcy Law prescribes that contract for sale of the bankruptcy
debtor as a legal entity must contain a provision that the assets of the bankruptcy
debtor that were not subject to the valuation (and consequently the sale), shall enter
the bankruptcy estate.897 Had it been that all the debtor’s assets must be sold in case
the debtor itself is sold, Article 136 would be meaningless. In any event, at some point
in time, bankruptcy trustee will have to sell all BD Agro’s remaining assets. It is
893
Reply, para. 476.
894
When it comes to settlement of Agrounija after the sale of BD Agro, Article 136(5) prescribes that: “In
cases when the bankruptcy debtor is sold as a legal entity, secured and pledge creditors who had secured
right over any part of the bankruptcy debtor’s property, have the priority right in distribution of the proceeds
from the sale, in accordance with the priority rank they had obtained in accordance with the law, and in
proportion to the estimated share of the value of property that is subject of the secured right, when compared
to the estimated value of the legal person.” See Article 136(5) of Bankruptcy Law, RE-445.
895
Reply, paras. 473 and 474; Third witness statement of Igor Markicevic, para. 135; Third witness statement
of Erinn B. Brosko, paras. 36 and 37.
896
List of BD Agro’s land which was not sold, dated 30 June 2018, RE-451.
897
189
however unproven that selling BD Agro’s assets in this way would be harmful in any
way, including that selling all assets at once would achieve higher price for the assets.
524. Messrs. Markicevic and Broshko state that the price at which Agrounija bought BD
Agro was very low.898 This argument is illogical from economic point of view. Should
that be accurate, then it would be more potential buyers that would participate at the
auction and try to acquire the valuable land for a low price. In any event, it should be
noted that the purchase price Agrounija paid was determined in accordance with the
relevant regulation. Section V(7) of the National standard no. 5, prescribes that:
“The opening price is the value at which the public bidding

procedure commences. At the first public bidding, the opening
price amounts to 50% of the estimated value of the subject of
sale.”899
525. Also, Section V(11) of the National standard no. 5, stipulates that:
“If there was only one person who acquired the status of
participant in the public bidding, and that person accepts the
opening price, that person shall be declared as the buyer, whereas
the opening price shall be declared as the purchase price.”900
526. Having in mind that the value of BD Agro was estimated at RSD 3,070,752,163.30
(i.e. EUR 26,008,423.68),901 50% of that amount was RSD 1,535,376,081 (i.e. EUR
13,012,000). That amount was set as the opening price. Also, as already stated, after
the withdrawal of Mr. Broshko and MPZ Agrar, Agrounija was left as the only
interested bidder at the auction. After Agrounija accepted the opening price of RSD
1,535,376,081, that price was declared as the purchase price, while Agrounija was
declared BD Agro’s owner.
898
Third witness statement of Igor Markicevic, para. 128; Third witness statement of Erinn B. Broshko, para.
35.
899
Section V(7) of the National standard no. 5 of the Rulebook on the Establishment of National Bankruptcy
Management Standard, RE-444.
900
Section V(11) of the National standard no. 5 of the Rulebook on the Establishment of National Bankruptcy
Management Standard, RE-444.
901
entity “BD AGRO“ AD DOBANOVCI IN BANKRUPTCY on the date of 30 June 2018 (Valuation team
headed by Mr Tibor Bodolo) dated January 2019, CE-511.
190
3.4. Conclusion
527. Contrary to Claimants’ and their witnesses’ unsubstantiated insinuations, there was
nothing ambiguous in BD Agro’s sale. As Respondent demonstrated above, each step
of the sale was done in accordance with the relevant regulations. Claimants provided
no evidence showing the opposite.
528. Most importantly, Mr. Rand, who is the creditor of BD Agro, had the right to challenge
the sale, both before and after it was completed, but he never did. Not a single decision
or action in the bankruptcy proceedings was ever disputed by Mr. Rand.
Consequently, Claimants complaints concerning the bankruptcy proceedings raised in
this arbitration obviously lack any merit.
H. REPEATED PATTERN OF DESTRUCTION
529. Although Claimants are persistent in presenting Mr. Rand and his associates as a
successful management team making wonders with their investments in Serbia,902 the
truth is obviously quite different, which can be seen from their other endeavors as
well. It was only with their third submission that Claimants asserted that Mr. Rand is
the beneficial owner of several other companies privatized by Mr. Obradovic i.e.
Crveni Signal, Inex Nova Varos, Obnova, Beotrans and PIK Pester.
530. One would expect that the companies where Respondent did not “intervene” should
be long “flourishing” under the allegedly exquisite managerial capabilities of Mr.
Obradovic (or Mr. Rand according to Claimants' narrative) and his associates.
However, this is far from the truth, as literally all of the mentioned companies are
either bankrupt or in a disastrous financial condition today.
531. First, Crveni Signal is recording losses throughout the past years, ending the 2018
financial year with a loss of RSD 118.602.000 (approx. EUR 1.000.000).903 Its
shattering financial condition has culminated in October 2017, when preliminary
bankruptcy proceedings have been opened against the company.904 The accounts of
902
Memorial, Section III.C; Reply, Section II.C.
903
Crveni Signal Balance Sheet for 2018, RE-414.
904
Decision of the Commercial Court in Belgrade No. 10 Reo-32/2017, 5 October 2017, RE-413.
191
Crveni Signal have mostly been blocked in the last nine years, and remain blocked
until today.905
532. Second, publicly available annual reports of Inex show that the company was
recording losses of RSD 42 million (approx. EUR 350.000) and RSD 60 million
(approx. EUR 500.000) in 2012 and 2013, respectively.906 The accounts of Inex have
been continuously blocked for the last eight years, and remain blocked until this day
because of a debt in excess of RSD 100 million (approx.. EUR 900.000).907 Likewise,
even Inex Napredak, a company within the Inex group, 908 has remained inactive for
the last couple of years after recording losses of nearly RSD 21 million in 2016.909
533. Third, PIK Pester, another major agricultural company privatized by Mr. Obradovic,
has had the same fate as his other projects. The company has been recording losses
throughout the past years, ending the 2018 financial year with a loss of almost RSD
350 million (approx. EUR 3,000,000).910 Unsurprisingly, the accounts of PIK Pester
have even been continuously blocked for the last six and a half years, and remain
blocked until today, because of a debt of almost RSD 300 million (approx. EUR
2.500.000).911
534. Fourth, Obnova has also been recording losses throughout the past years, ending the
2018 financial year with a loss of RSD 110 million (nearly EUR 1.000.000).912 The
accounts of Obnova have been blocked for the last eleven and a half years, and remain
blocked until this day because of a debt of RSD 44 million (approx. EUR 350.000).913
905
Report on illiquidity days for Crveni signal AD, 4 December 2019, RE-302.
906
Annual Financial Report of Inex for 2013, RE-441.
907
Report on illiquidity days for Inex Nova Varos, 4 December 2019, RE-303.
908
Already in July 2010, the employees of Inex Napredak, a company within the Inex group, organized a
strike and blocked the entrance into Inex, accusing its majority owner (Mr. Obradovic) of not paying them
as many as 16 monthly salaries. On the other hand, Mr. Obradovic accused the employees of being lazy and
incompetent to make profit. See “Nova Varos: Agricultural Cooperative Workers’ Strike Continues”, Kurir,
6 July 2010, RE-412.
909
Inex Napredak Balance Sheet for 2016, RE-416; Statement of inactivity for 2017 for Inex Napredak, RE-
417; Statement of inactivity for 2018 for Inex Napredak, RE-418.
910
Annual financial report for 2018 for PIK Pester, RE-419.
911
Report on illiquidity days for PIK Pester Sjenica, 4 December 2019, RE-305.
912
Obnova Balance Sheet for 2018, RE-420.
913
Report on illiquidity days for Obnova AD Beograd, 4 December 2019, RE-304.
192
535. Fifth, Beotrans’ fate has been sealed when it was compulsorily erased from the
companies’ register in December 2018.914
536. Finally, Messrs. Obradovic and Rand forgot to mention another company privatized
by Mr. Obradovic in the 2000s - Uvac Gazela. That company was declared bankrupt
and consequently erased from the companies’ register in 2010.915
537. The overview of Mr. Obradovic’s other privatized companies only confirms that BD
Agro’s bankruptcy came as no surprise. Every company that was ever privatized by
Mr. Obradovic was subsequently destroyed by a disastrous management and today is
either bankrupt, on the verge of bankruptcy, or simply non-existent.
538. Yet, Claimants contend that BD Agro, whose accounts were also blocked for several
years before its bankruptcy, who was heavily indebted towards banks and other
creditors, whose employees were not receiving their salaries for years, and whose
production overall was in a ruinous condition, was somehow just about to rise from
the ashes, avoid bankruptcy and transform itself into a profit-making company.
However, such a fictional scenario, amounting to a miracle, would obviously not have
occurred, and has in fact never occurred when it comes to the companies privatized
by Mr. Obradovic.
539. To illustrate the situation even better, Respondent submits some of the pictures of Mr.
Rand’s remaining business empire in Serbia today.916
914
Excerpt from the Serbian Companies’ Register for Beotrans, RE-421; Report on illiquidity days for
Beotrans AD Beograd, RE-301.
915
Excerpt from the Serbian Companies’ Register for Uvac Gazela, RE-422.
916
Photographs of the premises of Crveni Signal, Inex and Obnova, RE-423.
193
II. JURISDICTIONAL OBJECTIONS
A. NO JURISDICTION RATIONE MATERIAE UNDER THE CANADA - SERBIA

BIT
1. The Canadian Claimants did not acquire ownership of Mr. Obradović’s shares
in BD Agro
540. The Claimants case on jurisdiction rests primarily on the assertion that the Canadian
Claimants (Rand Investments, Mr. Rand, Ms. Kathleen Elizabeth Rand, Ms. Allison
Ruth Rand and Mr. Robert Harry Leander Rand) owned the shares in BD Agro
acquired in the privatization process by Mr. Djura Obradović.917
541. Under the Claimants’ narrative, the Canadian Claimants acquired the shares by virtue
of the share purchase agreement concluded between Marine Drive Holdings (MDH),
a company incorporated in British Virgin Islands and owned by Mr. Rand, and Mr.
Obradović on 19 September 2005 (the Share Purchase Agreement).918 According to
Claimants, Mr. Obradović transferred his ownership in shares yet again to a Cypriot
company as a result of the agreement concluded on 22 February 2008 between Sembi
Investment Limited and Mr. Obradović (the Sembi Agreement).919
542. Neither of the two agreements was able to confer to the Canadian Claimants the right
of ownership over “a share, stock or other form of equity participation in an
enterprise” protected under Article 1 of the Canada – Serbia BIT. However, the
preliminary problem with the Claimants’ argument is the fact that it is in itself
contradictory and irreversible flawed.
543. As already explained in Respondent’s Counter-Memorial,920 Mr. Obradović was not

able to transfer his ownership interest twice – first by concluding the Share Purchase
917
918
Share Purchase Agreement dated 19 September 2005, CE-15. Although Claimants’ Memorial designated
the contract as Share Purchase Agreement, which corresponds with the document’s title and content, Reply
refers to the same document as “MDH Agreement.”
919
Agreement between D. Obradović and Sembi, 22 February 2008, CE-29.
920
Respondent’s Counter-Memorial, paras. 330-333.
194
Agreement in 2005 with MDH, and afterwards by virtue of the Sembi Agreement in
2008.
544. Claimants attempt to deal with this contradiction in their Reply by admitting that the
Share Purchase Agreement and the Sembi Agreement could not exist side by side and
by arguing that the Share Purchase Agreement was terminated on 22 February 2008.921
Claimants also assert that the existence of ownership must be established at the time
of the alleged breach of the Canada – Serbia BIT.922 Respondent agrees with this
assertion.
545. According to Claimants, Respondent’s “most serious breach” of the BIT occurred on
21 October 2015.923 Thus, under Claimants’ own case, the Share Purchase Agreement
was non-existent at the relevant time and the only instrument that could possibly give
the Canadian Claimants the ownership of Mr. Obradović’s shares was the Sembi
Agreement.
546. This removes the need to analyze the effects and validity of the Share Purchase
Agreement and renders the issue moot. However, out of precaution, Respondent will
here again explain why said agreement was unable to give to the Canadian Claimants
the property right that they now invoke as a “covered investment” under the Canada –
Serbia BIT.
1.1. Serbian law is applicable to the issue of ownership of “a share, stock or other
form of equity participation in an enterprise” under the Canada – Serbia BIT
547. Claimants could not lose what they have never had. Therefore, in order to enjoy the
protection under the Canada – Serbia BIT Claimants first need to prove that they had
acquired rights defined as “investment” under the relevant BIT.
548. It is generally accepted by investment tribunals that international law does not create
property rights as such:
921
922
923
Claimants’ reply, para. 748.
195
“Public international law does not create property rights. Rather, it
accords certain protections to property rights created according to
municipal law.”924
549. The principle claim advanced in this arbitration is that Respondent expropriated shares
in BD Agro held by Mr. Obradović and beneficially owned by the Canadian
Claimants. The right of ownership is a property right, and not a contractual (personal)
right, as Claimants apparently argue.925 In particular, the ownership over “a share,
stock or other form of equity participation in an enterprise” referred to in Article 1 of
the Canada Serbia BIT is by definition a right in rem. This is the only reading of the
relevant provision that would be in accordance with the ordinary meaning of the terms
used.926 The “enterprise” in this particular instance is BD Agro, a joint stock company
with its seat in the Republic of Serbia and its shares listed at the Belgrade Stock
Exchange.927 The only question that remains to be answered is following: what is the
municipal law applicable to the issue of the acquisition and the substance of the
ownership right with regards shares in BD Agro.
550. Respondent submits that whether the Canadian Claimants indeed acquired the
ownership over the BD Agro’s shares must be determined in accordance with the
relevant laws of Serbia.
551. When the jurisdiction of an investment tribunal depends on the acquisition by the
putative investor of shares in a company incorporated in the host State, investment
tribunals without exception apply the municipal law of that State. For example, in
Vestey v. Venezuela the tribunal formulated the following test when deciding whether
a UK investor had acquired shares in a local company:
924
Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media
Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Award, 16 April
2014, para. 162, RLA-110; Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation,
Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision
on Annulment, March 9, 2017, paras, 168; Lion Mexico Consolidated L.P. v. United Mexican States, ICSID
Case No. ARB(AF)/15/2, Decision on Jurisdiction, 30 July 2018, para. 231, RLA-183.
170, RLA-2.
925
926
Vienna Convention on the Law of Treaties, Article 31(1); RLA-44.
927
Claimants use the term “shares” in order to describe the equity participation in BD Agro. For the ease of
reference and the convenience of the Tribunal, Respondent employs the same term in its written
submissions. It should be said, however, that the correct term is “stock” since BD Agro is a joint stock
company.
196
“In the present case, the investment out of which the dispute arose is
Vestey’s interest in the cattle farming enterprise, Agroflora, a company
incorporated under Venezuelan law. The relevant inquiry is thus whether
the Claimant held title to the shares in Agroflora under Venezuelan
law.”928
552. Similarly, in Libananco v. Turkey the tribunal applied the law of Turkey to establish
whether certain acts were effective to transfer ownership of shares in two Turkish
companies to the claimant, a company incorporated in Cyprus.929
553. The same reasoning was applied by the tribunal in Gallo v. Canada, where the main
issue was whether the US claimant had acquired shares in the Canadian enterprise at
the relevant date:
“In accordance with the principle actori incumbit probatio, it is for the
Claimant to marshal convincing evidence showing the date when he
acquired ownership of the Enterprise's share capital, in accordance with
applicable law, in this case Ontario corporate law.”930
554. Therefore, the Canadian Claimants’ status of “owners” of shares acquired by Mr.
Obradović depends exclusively on the fact whether Serbian law recognized them as
entities able to use their purported right of ownership against BD Agro and third
persons, to collect the fruits of that ownership and to freely transfer the ownership to
any third party. In other words, Serbian law defines a person who is the owner of
shares in a joint stock company and which subjective rights belong to the owner.
555. At the very core of the Claimants’ jurisdictional argument is the assertion that the
Canadian Claimants obtained the beneficial ownership of shares acquired by Mr.
Obradović and that Serbian law is irrelevant for the existence of their alleged
beneficial ownership of BD Agro’s shares. This is manifestly wrong. In order to
succeed with the theory based on the beneficial ownership, Claimants must prove that
928
Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016,
para. 195, CLA-32.
929
Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Award, 2 September
2011, para. 385, RLA-181.
930
Vito G. Gallo v. The Government of Canada (UNCITRAL), PCA Case No. 55798, Award, 15 September
2011, para. 284 (emphasis added), RLA-6.
197
the Serbian law recognizes and protects this particular kind of property rights and that
the Serbian legal system perceives them rather than Mr. Obradović as owners of the
shares.
556. Claimants argue that their ownership of BD Agro’s shares was created under the laws
of British Virgin Islands and Cyprus – the laws supposedly applicable to the Share
Purchase Agreement and the Sembi Agreement.931 This is wrong for at least two
reasons.
557. First, the argument aims at confusing the issue at stake. Claimants would naturally
very much prefer to debate whether the two Agreements validly create contractual
rights between MDH/Sembi and Mr. Obradović under the laws governing two
contracts. However, the discussion is off point and irrelevant.
558. The alleged investment, according to the case advanced by Claimants, is their right of
ownership over BD Agro’s shares. The only relevant question here regarding the
Share Purchase Agreement/the Sembi Agreement is as follows – were the Agreements
able to result in crating the right of ownership (as a right in rem) for the Canadian
Claimants in respect to shares of BD Agro acquired by Mr. Obradović. The choice of
law analysis offered by Claimants is wrong because it rests upon the wrong premise -
the issue here is not whether the Canadian Claimants could hold Mr. Obradović
responsible for the breach of the contract under the contractual statute, but whether
the Share Purchase Agreement/the Sembi Agreement could have any effect with
regard to the transfer of ownership of shares in a joint-stock company seated in Serbia.
As further explained below, the answer is clearly no.
559. Second, application of the law governing the contractual relationship to the issue of
acquisition of ownership would, in this particular instance, lead to an absurd result –
whether an entity has acquired the ownership of shares in a Serbian joint stock
company would depend on the application of a third State’s law (the law of Cyprus or
British Virgin Islands). This is virtually unheard of.
560. The right question is, therefore, what is the law that should govern the acquisition and
transfer of ownership over the BD Agro’s shares. The correct classification of the
931
Claimants’ Reply, paras. 509 and 538.
198
issue under the rules of Private International Law speaks in favor of the application of
Serbian law as well. Since the right of ownership of shares is a right in rem, the
governing law is the lex rei sitae – the law of the country in which shares are
situated.932 Shares of joint stock companies in Serbia are dematerialized and registered
in Central Securities Registry.933 According to the case law of Serbian courts, shares
of a joint stock company registered in Serbia are the property located in the territory
of Serbia.934
561. In sum, whether the Share Purchase Agreement and the Sembi Agreement were
effective to transfer ownership of shares in BD Agro from Mr. Obradović to any of
the Claimants must be established according to Serbian law.
1.2. The Canadian Claimants did not acquire ownership of BD Agro’s shares
based on the Share Purchase Agreement
1.2.1. The Share Purchase Agreement did not result in the acquisition of
ownership by the Canadian Claimants under the relevant rules of Serbian
law
562. The Share Purchase Agreement could not and did not give the Canadian Claimants
the ownership of shares in BD Agro acquired by Mr. Obradović in 2005. It was simply
unable to make MDH the owner of the BD Agro’s capital sold in the privatization
process under Serbian law.
563. At the time the Share Purchase Agreement was concluded, the rules on the acquisition
and transfer of ownership in shares of joint stock companies in Serbia were abundantly
clear - a lawful owner of shares was the person registered as the owner in the Central
Securities Registry.935 Accordingly, BD Agro’s Articles of Association envisaged that
the shareholders of the company shall be the persons registered in such capacity in the
932
The Law on Resolution of Conflict of Laws with Regulations of Other Countries (1982), Article 18, RE-
315.
933
First Expert Report of Professor Mirjana Radovic, para. 18.
934
Answers to questions of commercial courts defined at the session of the Commercial Disputes Section of
the Appellate Commercial Court held on 3/11/2015, 4/11/2015 and 26/11/2015 and at the session of the
Economic Offences and Administrative Accounting Disputes Section held on 30/11/2015 – Case Law of
Commercial Courts – Bulletin no. 4/2015, p. 2, RE-272.
935
2004 Law on Companies, Article 207(1), RE-096; 2002 Law on Market in Securities and other Financial
Instruments, Article 11(3), RE-119
199
Central Securities Registry.936 The transfer of rights pertaining to shares was possible
by transferring the shares to a new owner who acquired the ownership also by way of
registration in the Central Securities Registry.937
564. The Claimants’ entire jurisdictional argument rests upon a single premise – Serbian
law on the acquisition and transfer of ownership in shares of a joint stock company
applies only to the so-called “legal” title.938 In its essence, the argument presupposes
that the relevant rules of Serbian law represent a kind of a pseudo-legal system which
regulates only the acquisition and transfer of the nominal title in shares, while
allowing for the free disposition of legal rights representing the substance of
ownership. Naturally, this cannot be correct.
565. At the relevant time, the status of a shareholder in a joint stock company, rights
pertaining to shares and the way in which a shareholder can dispose of those rights
were regulated by provisions of the 2004 Law on Companies and the 2002 Law on
Market in Securities and other Financial Instruments.
566. According to the 2004 Law on Companies:
“[1] A shareholder as against the joint stock company and third persons
is the person entered into the Central Securities Registry, in accordance
with the law regulating the market of securities.”939
567. The same act listed the rights stemming from the ownership of shares:
“Each ordinary share of the joint-stock company gives the shareholder

the same rights, in accordance with this law, the founding act of the
company and its statute, which include, in particular the following:
right of access to legal acts and other documents and information on the
company;
right of participation in the assembly of the company;
936
2008 BD Agro’s Articles of Association, Article 25, RE-300.
937
2002 Law on Market in Securities and other Financial Instruments, Article 11(5), RE-119.
938
939
2004 Law on Companies, Article 207(1), RE-096.
200
voting rights in the assembly, such that one share gives the right to one
vote;
right to the payment of dividends, after the dividends on all preferential

shares had been paid in full;
right of participation in the distribution of liquidation surplus, after the

payment of creditors and shareholders of any preferential shares;
right of pre-emption on all new emissions of shares and convertible bonds;
right of disposal of shares of all types in accordance with the law.
(2) Ordinary shares of a joint stock company cannot be converted into

preferential shares or any other securities.
(3) Rights referred to in Paragraph 1, Subparagraphs 4 and 5 of this

Article can be transferred by contract from the shareholder to third
parties.”940
568. Thus, the economic rights creating the substance of ownership belonged to the
registered owner of shares under the relevant rules and, save from the very limited
exceptions, could not be transferred by contract to third parties.
569. On a more general level, the issue was regulated by the 2002 Law on Market in
Securities and other Financial Instruments
“[5] Transfer of rights pertaining to securities shall be conducted by

transferring the securities into the account of a new owner in the Central
Securities Registry.”941
570. The conclusion that follows from the cited provisions is unambiguous: as a general
rule, the economic rights arising from the registered ownership in shares of a joint
stock company necessarily followed the ownership. To put it in Claimants’ way of
speech – the nominal owner is the beneficial owner of shares under the Serbian law.
In other words, “the quintessential rights of the controlling shareholder” supposedly
940
2004 Law on Companies, Article 208 (emphasis added), RE-320.
941
2002 Law on Market in Securities and other Financial Instruments, Article 11(5), RE-119
201
vested in MDH through the Share Purchase Agreement942 could not be acquired
separately from the legal title and without MDH’s registration as the new owner in the
Central Securities Registry.
571. As explained by Professor Radovic in her Second Expert Report, unlike some other
legal systems, Serbian law does not allow for the split of ownership between the legal
owner and the beneficial owner.943
572. In order for the beneficial ownership to qualify as a property right (right in rem), the
beneficial owner would need to have more than just personal rights against the holder
of the title and to be able to enforce his rights against third parties as well. 944 This is
impossible under Serbian law. That is why, according to Professor Radovic, any
contractual rights arguably acquired by Claimants through the Share Purchase
Agreement and the Sembi Agreement cannot be deemed as ownership of shares in BD
Agro, but only as personal rights against the contracting party (Mr. Obradović).945 For
example, had Mr. Obradović decided to transfer his shares to a third party, the transfer
could have been valid without Claimants’ consent and even against their will.946
Claimants would not have any recourse under Serbian law and would not be able to
recover the shares from a third party who acquired the shares. 947 Thus, even if
Claimants were able to acquire certain rights pertaining to shares through the contract
with Mr. Obradović, those rights would still not qualify as “ownership.”
573. Claimants argue that Serbian law does recognize the beneficial ownership in shares
of a joint stock company948 and put forward several arguments in that regard. All of
the Claimants’ arguments are misplaced.
574. First, Claimants misinterpret the English translation of the 2002 Law on Market in
Securities and other Financial Instruments. The Law stipulates, inter alia, that “[T]he
owner of the securities account held with the Central Securities Registry shall be
942
Claimants’ Reply, paras. 514, 515.
943
Second Expert Report of Professor Mirjana Radovic, para. 58.
944
945
946
947
948
202
considered a legal title holder of securities (hereinafter: legal title holder).”949 In
Claimants’ reading, the provision means that “[t]he Central Security Registry only
registers nominal owners, and not beneficial owners.”950 This is incorrect. As
explained above, the Central Securities Registry registers lawful (legal) owners of
shares who are, at the same time, enjoying economic rights pertaining to the ownership
(i.e. beneficial owners). The fact that the beneficial ownership in shares is not
registered separately speaks in favor of the fact that there is no separation of ownership
between a “legal” and the beneficial owner. The word “legal” (in Serbian: zakoniti) is
an adjective that describes the holder of securities and not the title.
575. Second, Claimants rely on Article 2(34) of the 2011 Law on Capital Markets that
allegedly introduces the term “beneficial owner” in Serbian law.951 However, the
Claimants’ translation of the relevant provision is incorrect and misleading.952
Claimants’ translate Serbian phrase “posredni vlasnik” as “beneficial owner”. In
reality, the correct translation of the phrase is “indirect owner”. The relevant
provision, in the accurate translation, reads:
“indirect owner is the person who, even when it is not a lawful title holder
of the financial instrument, enjoys the benefits of ownership over that
financial instrument in whole or in part, including the ability to influence
the voting, disposing with the financial instrument or enjoying the
economic advantages of ownership over that financial instrument.”953
576. There is a perfect example of an “indirect owner” of BD Agro’s shares in the case at
hand. Namely, it is Mr. Rand who was an indirect owner of 3.9% of BD Agro’s shares
through his wholly-owned Serbian company (MDH Serbia). It was Mr. Rand who,
although not being a holder of shares himself, was able to direct the voting of MDH
Serbia’s shareholding, to ultimately receive the dividends paid to MDH Serbia or to
have his company dispose of its shareholding. The provision does not mean, as it is
apparently the Claimants’ position, that Mr. Rand was an indirect owner of shares
949
2002 Law on Market in Securities and other Financial Instruments, Article 11(3) (emphasis added), RE-
119
950
951
952
2011 Law on Capital Markets, Arts. 2(33) and (34), CE-728.
953
Article 2(34) of the 2011 Law on Capital Markets, RE-316.
203
owned by another natural person (Mr. Obradović) or that he could, even indirectly,
exercise proprietary rights that belonged to Mr. Obradović.
577. Third, Claimants’ reliance on the 2018 Serbian Law on Central Record of Ultimate
Beneficial Owners954 is inapposite as well, for several different reasons.
578. As evident from the proposal submitted to the Serbian Parliament by the Government
of Serbia, the Law on Central Record of Ultimate Beneficial Owners was enacted
based on the recommendation issued by the Financial Action Task Force (FATF), an
inter-governmental body dedicated to fighting money laundering and financing of
terrorism.955 The purpose of the law is explicitly stated in the Governmental proposal
– an improvement of the existing system for the discovery and prevention of money
laundering and financing of terrorism and the harmonization of Serbian law with all
international standards in this area.956 The Law designates only natural persons as
beneficial owners and does not establish any rights of such persons.957
579. Crucially, the Law on Central Record of Ultimate Beneficial Owners does not apply
to public joint stock companies in Serbia. Article 2 (not included in the text submitted
by Claimants as evidence) expressly excludes companies such as BD Agro from the
obligation to record their beneficial owners:
“This Law shall apply to the following legal entities and other entities
registered in the Republic of Serbia in accordance with the law (hereinafter
referred to as: Registered Entities):
1) companies other than public joint stock companies;

2) cooperatives;
3) branch offices of foreign companies;
4) business associations and associations other than political parties,
trade unions, sports organisations and associations, churches and
religious communities;
5) foundations and endowments;
954
Law on Central Record of Ultimate Beneficial Owners, RE-519.
955
Draft of the Law on Central Record of Ultimate Beneficial Owners, RE-274.
956
Draft of the Law on Central Record of Ultimate Beneficial Owners, RE-274.
957
Law on Central Record of Ultimate Beneficial Owners, Article 3, RE-519.
204
6) establishments;
7) representative offices of foreign companies, associations, foundations and
endowments.
This Law shall not apply to companies and establishments where the Republic
of Serbia, an autonomous province or a local government is the sole member
or founder.”958
580. The reason for the exclusion of public joint stock companies from the scope of the
Law was given in the Opinion on the application of the Law, adopted by the Serbian
Ministry of Economy:
“Considering the foregoing provisions of the Law, only public joint-stock

companies registered in the Republic of Serbia are exempted from the
obligation to identify and record the beneficial owner, for as their ownership
structure is already registered in the relevant register i.e. the Central
Securities Registry.”959
581. Thus, the enactment of the Law on Central Record of Ultimate Beneficial Owners
only serves to confirm the indisputable fact – under Serbian law, a person or an entity
registered as the owner of shares in a public joint stock company is both nominal and
the beneficial owner.
582. Fourth, Claimants’ state (relaying on the expert report submitted by Mr. Milošević)
that Serbian law “[i]mposes certain legal obligations on the basis of beneficial
ownership and rights that form a part of or stem from beneficial ownership.”960
Neither Claimants nor Mr. Milošević offer an example of rights that would stem from
the beneficial ownership of shares in the Serbian legal system. This is unsurprising
since there are no such rights.
958
Law on the Central Record of Ultimate Beneficial Owners, Article 2 (emphasis added), RE-519.
959
Opinion of the Ministry of Economy, no. 011-00-000106/2018-10 of 16 July 2018, p. 2 (emphasis added),
RE-273.
960
205
583. Even courts in other jurisdictions that were faced with the question of whether Serbian
law recognized the concept of beneficial ownership answered the question in the
negative. For example, the 2015 judgment of the High Court of Singapore records that
a client in the commission agency agreement cannot be deemed as owner of funds
deposited in his commission agent’s bank account, although the funds were paid to
the agent as a purchase price under the sale agreement it concluded “for account” of
the client, precisely because Serbian law does not recognize beneficial ownership.961
584. As explained above, the Share Purchase Agreement could not result in the transfer of
ownership in BD Agro’s shares. MDH (denoted as “Purchaser” in the Share Purchase
Agreement)962 could not be considered as the lawful owner of shares in BD Agro
under Serbian law without the proper registration of its ownership in the Central
Securities Registry. The requirement of registration is not merely a formality. It
represents modus acquirendi (means of acquisition) of ownership in Serbian legal
system.963 The beneficial ownership of shares in a public joint stock company could
not be acquired without the simultaneous acquisition of the legal title. This should by
itself be enough to put an end to the Claimants’ jurisdictional theory based on the
ownership of “Beneficially Owned Shares”.
585. However, there are additional reasons why the Share Purchase Agreement was unable
to create any effect with regards the transfer of ownership in shares held by Mr.
Obradović.
586. The Share Purchase Agreement represented a sale of shares in a public joint stock
company outside the organized market of shares, in blatant disregard of the mandatory
rule contained in Article 52 of the 2002 Law on Market in Securities and other
Financial Instruments:
[1] Securities shall be traded only through a public offer on an organized

market, unless this law provides otherwise.
[2] Only broker-dealer companies and authorized banks that are members of
the stock exchange may trade in securities on the organized market, while
961
Westacre Investments Inc v. the State-Owned Company Yugoimport SDPR (also known as Jugoimport-
SDPR) and others, [2015] SGHC 143, 27 May 2015, paras. 39, 47-57, RE-319.
962
Share Purchase Agreement dated 19 September 2005, CE-15.
963
206
other persons may trade only through the mediation of stock exchange
members.964
587. This provision was, without any doubt, mandatory in its nature. Claimants’ legal
expert, Professor Grušić agrees that Article 52(1) of the 2002 Law on Market of
Securities and other Financial Instruments represented an overriding mandatory rule
of Serbian law - parties trading in securities in Serbia could not exclude the application
of said provision.965
588. The Supreme Court of Serbia considers the sale of shares in public joint stock
companies outside the organized market as null and void.966 Claimants attempt to
refute the relevance of the Supreme Court’s decision Prev. 438/2007 by arguing that,
in the particular case, “[t]he Supreme Court considered a share purchase agreement
null and void not because it was agreed outside the BSE, but because it provided for
the actual transfer of shares in a public joint stock company outside the BSE.”967
589. Professor Radovic explains that this is simply wrong – Serbian law does not
differentiate between a share purchase agreement and a “share transfer agreement”.968
The transfer of shares is effectuated based on a valid share purchase agreement
concluded over the stock exchange.969 In this particular case, the Share and Purchase
Agreement between MDH and Mr. Obradović was concluded outside the stock
exchange and it did not fall under any exception to the mandatory trade over the stock
exchange.970 Equally, the fact that the 2001 Law on Privatization was amended in
2008 to repeal Article 59 by which shares in privatized companies had to be traded in
the organized market (stock exchange) is of no importance and does not affect the
reasoning adopted by the Supreme Court. The shares of BD Agro remained listed at
the BSE and the trading in shares of the company still had to be conducted under the
mandatory provision of the 2002 and the 2006 Law on Market in Securities and other
Financial Instruments, i.e. over the stock exchange.971
964
2002 Law on Market in Securities and other Financial Instruments, Article 52 (emphasis added), RE-119.
965
Grušić ER, para. 75.
966
Decision of the Supreme Court of Serbia, Prev. 438/2007, March 19, 2008, RE-2.
967
968
969
970
971
207
590. In dealing with this obstacle, Claimants argue that the option to purchase shares from
Mr. Obradović established for the benefit of MDH in Article 1 of the Share Purchase
Agreement was valid under Serbian law, since “[S]erbian law does not prevent
shareholders in listed privatized joint stock companies from selling their shares to a
specific buyer and on negotiated terms.”972 Relaying on the Expert Opinion of Ms.
Tomić Brkušanin, Claimants assert that such transactions could be effectuated by: “(i)
a block trade transaction on the BSE; (ii) an in-kind contribution of the shares into a
LLC and subsequent transfer of the shares of the LLC to the buyer; or (iii) after 3
January 2008, by delisting the shares and subsequently transferring them to the buyer
outside of the BSE.”973
591. The argument is entirely misplaced.
592. First, all of the hypotheticals offered here presuppose that the parties to the Share
Purchase Agreement conclude one or several additional contracts or enter into
additional transactions in order to effectuate the transfer of ownership.974 For example,
in order to execute a block trade transaction, the parties would neeed to reach a
preliminary agreement outside the BSE and to give their coordinated trade orders
through a stock exchange member.975 If the block trade transaction is approved by the
BSE (depending on the fulfilment of conditions envisiged in the BSE Rules), the block
trade transaction is concluded at the stock exchange session.976 However, the relevant
issue here is not whether Claimants were able to conclude a contract that would have
valid effects under Serbian law in an undetermined future, but whether the particular
contract that already existed – the Share Purchase Agreement – could have resulted in
transfer of ownership in BD Agro’s shares.
593. Second, none of the methods referred to by Claimants could have been used under the
terms of the Share Purchase Agreement in any case.
594. The requirements for block trade transactions were at the time regulated by the 2004
and the 2009 BSE Rules.977 The relevant Rules proscribed, inter alia, that the block
972
973
974
975
976
977
208
trade was possible only if the price for shares agreed between the parties did not
deviate more than 20% from the average price of shares during the last three trading
days.978 The requirement was obviously not met by the Share Purchase Agreement
which provided that Mr. Obradović was under the obligation to sell his 70%
shareholding in BD Agro to MDH for the price of only EUR 1,000.979 Although Ms.
Tomić Brkušanin implies that the BSE Board of Directors had a discretionary power
to allow for a larger discrepancy in price,980 this could not have been done on case-
by-case basis, but only through the amendment of the requirements for block trade in
general.981
595. As for the contribution in kind as a purported method of transferring the ownership to
MDH – this option would entail Mr. Obradović setting up a new limited liability
company, transfering his shares in BD Agro as a contribution to this newly founded
company and selling the shares in limited liability company to MDH. 982 As a result,
an elaborate scheme would mean that the hypothetical limited liability company (and
not MDH) would become the owner of shares in BD Agro. If MDH would want the
limited liability company to transfer its shares in BD Agro to MDH (in accordance
with the terms of the Share Purchase Agreement), such transfer would again need to
fulfill all of the requirements proscribed in the Law on Market in Securities and other
Financial Instruments, since BD Agro remained a public joint stock company with
shares listed at the BSE.983
596. Furthermore, delisting of shares in BD Agro was never an option that was available
to Mr. Obradović as the potential seller of shares. As explained by Professor Radovic,
during the lifetime of the Share Purchase Agreement, the 2004 Law on Companies
specifically prohibited the transformation of public joint stock companies with more
than 100 shareholders (which BD Agro was) to closed joint stock companies or limited
liability companies.984
978
Article 109(1)(3) of the 2004 BSE Rules, RE-323; Article 110(1)(3) of the 2009 BSE Rules, RE-324.
979
Share Purchase Agreement dated 19 September 2005, Article 1, CE-15.
980
Tomić Brkušanin ER, para. 31.
981
982
983
984
Second Expert Report of Professor Mirjana Radovic, paras. 119, 120.
209
597. Third, none of the hypothetical methods of transferring the ownership in shares owned
by Mr. Obradović has ever been used by the parties to the Share Purchase Agreement.
Therefore, the issue is anyhow moot. The Claimants’ argument essentially boils down
to the conclusion that MDH could have validly acquired shares in BD Agro under
Serbian law but it did not do so.
598. There are several additional reasons why the Share Purchase Agreement could not
have resulted in the valid acquisition of ownership under Serbian law. The 2002 Law
on Market in Securities and other Financial Instruments, in force at the time, contained
a number of provisions aimed at protecting the integrity of the market and rights of
shareholders in joint stock companies. For example, it proscribed that a person
acquiring certain percentages of shares and corresponding voting rights had to notify
the body in charge for the protection of competition and the Securities Commission
about the acquisition, under the penalty of losing the voting rights. 985 A person or an
entity intending to acquire more than 25% of voting shares in a joint stock company
was required to issue a take-over bid previously approved by the Securities
Commission and directed towards all shareholders of a joint stock company.986
599. Claimants’ response to this has been consistent and uniform – the rules at stake did
not apply to them since Claimants did not acquire nominal ownership of shares.987 In
reality, Claimants argue that it was open to them to acquire every prerogative of
ownership without being under an obligation to follow any restriction imposed by
Serbian law. If Claimants could indeed be deemed as owners of Mr. Obradović’s
shares that would render any restriction on the acquisition and trading of shares in
joint stock companies virtually meaningless.
600. Finally, in an attempt to defend the validity of the Share Purchase Agreement,
Claimants resort to their fall back argument – the contract was governed by British
Columbia law.988 As already explained, the argument is inapposite since the real issue
here is whether the conclusion of the Share Purchase Agreement could have
effectuated the transfer of ownership in accordance with Serbian law.
985
2002 Law on Market in Securities and other Financial Instruments, Article 59, RE-119.
986
2002 Law on Market in Securities and other Financial Instruments, Article 67(1), Article 69(1) and 69(2),
Article 70, RE-119.
987
988
210
601. In any event, under Serbian rules of Private International Law, Serbian law is
applicable to the Share Purchase Agreement. Contrary to the opinion of Claimants’
legal expert, Dr. Grušić,989 parties to the Share Purchase Agreement made neither
express nor tacit choice of British Columbia law as the governing law for their
contract. In the absence of parties’ choice, the law governing the contract of sale is
the law of the seller’s (Mr. Obradović’s) domicile,990 which in this case was Serbia.
In addition, Serbian courts would not even engage into the conflict of laws analysis,
since the Share Purchase Agreement contradicted relevant provisions of the 2002 Law
on Market in Securities and other Financial Instruments. As expressly recognized by
Claimants’ legal expert, Dr. Grušić,991 Article 52(1) of that Law represents an
overriding mandatory provision – a provision which must be applied even if the
foreign law is otherwise applicable to the transaction by virtue of a relevant choice of
law rule.
602. Claimants also argue that, under Serbian law, the Share Purchase Agreement would
survive the nullity of Article 2.992 Claimant’s expert on Serbian law asserts that the
nullity of the call option contained in Article 2 would not release Mr. Obradović from
the obligation to transfer his shareholding to MDH, by a method possible under
Serbian law.993 However, as it was demonstrated above, no such method was ever
available to Claimants under the terms of the Share Purchase Agreement.
603. In conclusion, the Share Purchase Agreement did not result in the acquisition of
ownership in BD Agro by MDH. Consequently, Mr. Rand did not acquire the right of
ownership protected under Article 1 of the Canada – Serbia BIT.
989
Grušić ER, paras. 24, 43.
990
Private International Law Act, Article 20(1), CE-445.
991
Grušić ER, para. 76.
992
Tomić Brkušanin ER, para. 59. Article 2 of the Share Purchase Agreement reads: “Upon the exercise of
the option, the Seller shall deliver the Shares and debt instruments in negotiable form (the “Share Transfer
Materials”) to the order of the Purchaser. The Share Transfer Materials shall consist of share certificates
duly indorsed for transfer and guaranteed or in street of bearer form and shall be in a form sufficient to
enable the Purchaser to become the registered and beneficial owner of the Shares. At the Purchaser’s
request, at any time during the term of the option, the Share Transfer Materials shall be executed by the
Seller and lodged with a trustee appointed by the Purchaser.”
993
Tomić Brkušanin ER, para. 59.
211
1.2.2. The Share Purchase Agreement was concluded in contravention with
the Privatization Agreement
604. The Privatization Agreement prohibited Mr. Obradović from concluding the Share
Purchase Agreement.
605. Under Article 5.3.1. of the Privatization Agreement, the buyer (Mr. Obradović)
undertook an obligation not to “sell, assign or otherwise alienate shares in the period
of 2 years as of the day of conclusion of the agreement.”994
606. Claimants argue that the conclusion of the Share Purchase Agreement did not
constitute a breach of Article 5.3.1. of the Privatization Agreement. According to
Claimants, the Privatization Agreement restricted only alienation of “legal ownership”
(“a change of a legal owner”) of shares.995 The argument seems to be that, because
the Privatization Agreement did not restrict the transfer of beneficial ownership, Mr.
Obradović was free to alienate all of the substantive rights stemming from ownership
except his nominal title in shares.
607. Claimants’ legal expert Mr. Milosević asserts that, under Serbian law, “alienation
denotes a change of legal owner.”996 However, the provision of the Privatization
Agreement is unequivocal – it prohibits any kind of disposition of shares acquired by
Mr. Obradović. It does not distinguish between nominal and beneficial ownership of
shares and certainly it does not allow Mr. Obradović to alienate all of the attributes of
ownership, to divest his ownership of any practical significance and to keep the mere
nominal title in shares.
608. As Professor Radovic explains, constitution of MDH’s beneficial ownership (even if

it was possible under Serbian law) would indisputably be regarded as a disposition of
shares, bearing in mind that it would lead to stripping all material elements of
ownership from Mr. Obradović and leaving him with only nuda proprietas.997
609. An interpretation offered here by Claimants – that the Privatization Agreement

prohibits Mr. Obradović from transferring a legal title over the shares but somehow
994
Privatization Agreement, Article 5.3.1. (emphasis added), CE-17.
995
996
Milošević Second ER, para. 188.
997
212
allows him to strip his ownership of any rights that would have practical meaning – is
a travesty and would make the prohibition of Article 5.3.1. virtually without any
significance.
610. Claimants’ assertion that the Privatization Agreement did not restrict the transfer of
the beneficial ownership in BD Agro’s shares by virtue of the Share Purchase
Agreement is contradictory as well.
611. Claimants explicitly admit that Article 5.3.1. prohibited the conclusion of the Sembi
Agreement while the provision was in effect.998
612. It is the Claimants’ case that the purpose of the Share Purchase Agreement and the
Sembi Agreement was identical – the transfer of the beneficial ownership in BD Agro
to Mr. Rand (his companies). It is beyond comprehension how the same provision
could prohibit the transfer of the beneficial ownership under the Sembi Agreement
and, at the same time, allow for the very same thing when it comes to the Share
Purchase Agreement.
613. This demonstrates that the Claimants’ argument with regard to the relationship of
Article 5.3.1. of the Privatization Agreement and the Share Purchase Agreement is
illogical and disingenuous and it must be rejected.
614. Finally, Mr. Obradović was unable to sell what he did not own. Article 2.1. of the
Privatization Agreement contains the following provision:
“With conclusion of this agreement, which has the effect of the articles of
incorporation of the subject, the buyer acquires the right of management,
participation in profit and the right to a part of the liquidation mass,
proportionately to the amount of purchased capital. The right to free disposal
of purchased capital is acquired by the buyer pursuant to the provisions of
Article 456 of the Company Law and provisions of the agreement, and in
proportion to paid value of sale and purchase price.”999
998
999
Privatization Agreement, Article 2.1. (emphasis added), CE-17.
213
615. Clearly, the provision entails that Mr. Obradović was free to alienate the entire
shareholding in BD Agro acquired in the privatization process only after 8 April 2011,
when he paid the last installment of the purchase price.1000
616. Therefore, the Share Purchase Agreement was concluded in clear contradiction with
terms of the Privatization Agreement and had no effect on the transfer of ownership
in shares held by Mr. Obradović.
1.2.3. Under the Share Purchase Agreement itself, the transfer of both
nominal and beneficial ownership was conditioned upon the exercise of
the call option by MDH
617. The Share Purchase Agreement was evidently concluded with the idea that Mr.
Obradović would acquire both nominal and beneficial ownership in shares of BD
Agro during the privatization.
618. Article 3 of the Share Purchase Agreement stipulated:
“The Seller [Mr. Obradović] represents that he is, or will become, subject to
being successful at the upcoming auction, the sole and beneficial owner of
the Shares and, on and after September 29, 2006, will have the exclusive right
to sell and transfer same to the Purchaser [MDH] as herein provided.”1001
619. Article 1 of the same Agreement established an option for MDH (“the Purchaser”) to
acquire all of the interest in BD Agro held by Mr. Obradović (“the Seller), during the
time period stipulated in the Share Purchase Agreement.1002
620. Article 2 specifies that Mr. Obradović would deliver his shares to MDH in the form
that would enable the Purchaser to become both “the registered and beneficial owner
of the Shares.”
621. As explained by Respondent in its Counter-Memorial, the call option gave MDH a
power to cause creation of the share purchase agreement in the future. 1003 MDH has
1000
Confirmation of the Privatization Agency on the Buyer’s full payment of the Purchase Price, 6 January
2012, CE-19.
1001
Share Purchase Agreement dated 19 September 2005, Article 3 (emphasis added), CE-15.
1002
Share Purchase Agreement dated 19 September 2005, Article 1, CE-15.
1003
Respondent’s Counter-Memorial, para. 230.
214
never exercised the option and the option anyway ceased to exist together with the
rest of the contract on 22 February 2008. The argument that Mr. Rand, acting through
MDH, automatically obtained beneficial ownership of BD Agro’s shares at the date
Mr. Obradović concluded the Privatization Agreement with the Privatization Agency
contradicts the clear language of the Share Purchase Agreement.
622. The Claimants’ Reply does not deal with this contradiction and does not explain why
Article 2 of the Share Purchase Agreement conditions the acquisition of both
registered and beneficial ownership in shares on the exercise of the option that has
never been exercised. Instead, they choose to pretend that Article 2 of the SPA relates
only to the transfer of the registered ownership and does not include the word
“beneficial” in its text. Claimants state that “[T]his provision, however, does not
contradict Mr. Obradović’s obligation to transfer beneficial ownership to MDH under
Article 4 and 5 immediately upon acquiring the Beneficially Owned Shares, even
without MDH’s exercise of the call option.”1004 The argument simply ignores the
content of Articles 2 and 3 of the Share Purchase Agreement.
1.2.4. MDH has never considered itself to be beneficial owner of BD Agro
623. During the document production phase of the proceeding, Respondent requested
submission of MDH financial documents for the period between 2005 and 2008,
recording its alleged ownership interest in BD Agro. No such documents were ever
produced by Claimants.
624. In addition, on 22 February 2008, Mr. Rand, Mr. Obradović, Sembi and the Lundin
Family entered into an agreement by which Sembi Investments Limited (designated
as “Purchaser”) agreed to repay the Lundin Family the loan that Mr. Obradović had
taken for the purpose of the acquisition of BD Agro.1005
625. Although the Agreement was concluded almost three years after the Share Purchase
Agreement, it does not refer to the alleged MDH’s beneficial ownership in BD Agro’s
shares acquired by Mr. Obradović. Instead, it specifically refers to “Mr. Obradović’s

1004
Agreement between Dj. Obradović, The Lundin Family, W. Rand and Sembi dated 22 February 2008,
1005
CE-28.
215
interest in the Contract [The Privatization Agreement]” as a security for funds
provided by the Lundin family to Mr. Obradović.1006
626. This clearly demonstartes that not even MDH has ever considered itself to be
beneficial owner of BD Agro and casts serious doubts on the Claimants’ version of
events – that the Share Purchase Agreement was the instrument that created MDH’s
beneficial ownership in shares obtained by Mr. Obradović.
1.2.5. In any event, MDH has never paid any consideration for the purported
acquisition of Mr. Obradović’s shares
627. There is no evidence on the record that would suggest that MDH paid any
consideration at the time it supposedly acquired shares from Mr. Obradović under the
Share Purchase Agreement.
628. It seems that Claimants are not disputing that no considerable consideration was ever
paid. Apart from the statements of Messrs. Rand and Obradović that Mr. Obradović
received ten Canadian dollars from Mr. Rand at the time the Share Purchase
Agreement was concluded, there are no evidence confirming that any payments were
made by MDH.1007
629. In a recent award in Anglo Adriatic v. Albania, the tribunal explained that “[S]everal
investment tribunals have concluded that investors who had not paid any
consideration, or only a nominal price, were not entitled to investment protection.”1008
630. Relaying on awards of the tribunals in KT Asia v. Kazakhstan1009 and Quiborax v.

Bolivia,1010 the Anglo Adriatic tribunal sided with Albania and concluded that the
claimant in that case was unable to prove that it had paid any consideration in return
1006
Agreement between Dj. Obradović, The Lundin Family, W. Rand and Sembi dated 22 February 2008,
Recitals, para. B, CE-28.
1007
Rand Second WS, para. 19; Obradović Second WS, para. 14.
1008
Anglo-Adriatic Group Limited v. Republic of Albania, ICSID Case No. ARB/17/6, Award, February 7,
2019, para. 246, RLA-7.
1009
KT Asia Investment Group B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/09/8), Award, 17
October 2013, para. 206, RLA-95.
1010
Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID
Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, para. 232, RLA-24.
216
for receiving beneficial ownership of shares in an Albanian investment fund
(AAIF).1011 Accordingly, the claim was dismissed for lack of jurisdiction.1012
631. Respondent respectfully submits that since MDH did not pay any consideration in
exchange for beneficial ownership in shares it allegedly received from Mr. Obradović,
the Tribunal should find that there was no transfer of beneficial ownership based on
the Share Purchase Agreement.
1.3. The Sembi Agreement did not result in transfer of ownership in BD Agro’s
shares from Mr. Obradović to Sembi
1.3.1. The Sembi Agreement was unable to create the right of ownership for
the Canadian Claimants under Serbian law
632. In their Reply, Claimants again venture to explain that the Canadian Claimants were
the owners of BD Agro’s shares (“Beneficially Owned Shares”) as a result of the
Sembi Agreement, concluded between Sembi and Mr. Obradović on 22 February
2008.1013 By virtue of the Agreement, Sembi (designated as the “Purchaser”) assumed
all of Mr. Obradović’s obligations towards the Lundin Family and the PA in
connection with his investment in BD Agro and the Privatization Agreement.1014 In
turn, Mr. Obradović’s obligation was stipulated in Article 4 of the Sembi Agreement:
“Mr. Obradović, in consideration for the Purchaser assuming such

obligations, has agreed to transfer to the Purchaser all his right, title and
interest in and to the Contract. Mr. Obradović agrees to sign any such
documents and do all such things as may be necessary to effect the transfer
to the Purchaser of the Contract together with any other assets whatsoever
held by Mr. Obradović which are related to the business of BD Agro.”1015
633. The Sembi Agreement provides for the application of the Cypriot law.1016
1011
2019, para. 245, RLA-7.
1012
2019, para. 247, RLA-7.
1013
Claimants’ Reply, paras. 536-544.
1014
Articles 1-3, Agreement between D. Obradović and Sembi, 22 February 2008, CE-29.
1015
Article 4, Agreement between D. Obradović and Sembi, 22 February 2008, CE-29.
1016
Article 9, Agreement between D. Obradović and Sembi, 22 February 2008, CE-29.
217
634. Claimants go to great lengths to explain how the law of Cyprus governs the issue of
whether the contract can result in transfer of ownership over the shares in joint stock
company seated in Serbia, simply because the contracting parties (Sembi and Mr.
Obradović) opted for the application of that law to their contract. However, this is an
impossible task. As already submitted by Respondent, whether a right of property
(ownership of shares in a company) is validly created, what is the content of that right
and how and if it can be transferred to a third person are all questions governed
exclusively by the law of the host State.1017
635. Claimants’ analysis tends to unnecessary complicate and to obscure a question that it
is otherwise quite simple. The question is clear – who would be considered an owner
of BD Agro under Serbian law (Mr. Obradović or Sembi) and can the Sembi
Agreement, after its conclusion, affect the answer to that question in any way? The
answer is also straightforward – Mr. Obradović remained the owner of BD Agro’s
shares after 22 February 2008 since the Sembi Agreement could not result in transfer
of ownership in shares under Serbian law. This is for the same reasons that prevented
Mr. Obradović from transferring his shares in BD Agro to Marine Drive Holding
almost three years earlier.
636. According to Professor Emilianides, an expert in Cyprus contract and Private

International Law, Serbian law would also be applied by a Cypriot court to the issues
of acquisition and transfer of ownership in BD Agro’s shares, as the law of the situs
of shares.1018
637. In an attempt to circumvent the fact that the property right they invoke as “covered
investment” never existed under Respondent’s law, Claimants simply argue that Mr.
Obradović acquired BD Agro’s shares in accordance with the Serbian law.1019 The
argument is inapposite. The issue here is whether the Canadian nationals who act as
claimants in this proceeding acquired BD Agro in accordance with the law of Serbia
1017
Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation, Venezuela Holdings, B.V.,
et al.) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Annulment, March
9, 2017, paras, 168, 170, RLA-2; Gambrinus, Corp. v. Bolivarian Republic of Venezuela ICSID Case No.
ARB/11/31, Decision on Annulment, October 3, 2017, para. 202, RLA-2.
1018
Expert Report of Professor Achilles C. Emilianides, para. 25.
1019
Claimants’ Reply, para. 575, 576.
218
i.e. whether the Sembi Agreement in particular was able to confer on them the right
of ownership under Serbian law.
638. As explained above, ownership of shares protected under Article 1 of the Canada –
Serbia BIT relates to right in rem. By definition, a shareholder in a joint stock
company (as an owner of shares) is able to invoke his ownership and to use rights
stemming from ownership towards the company itself and all third parties. Claimants,
on the other hand, submit that their ownership does not “hinge on the enforceability
of the Claimants’ beneficial ownership against BD Agro or against the Privatization
Agency.”1020 Claimants also assert that “[T]here is no requirement under
international law that the bundle of rights creating beneficial ownership be
enforceable against anyone other than the nominal owner.”1021 This cannot be correct
with regard to the ownership of shares in a company. The ownership of BD Agro’s
shares that cannot be enforced against BD Agro is not ownership at all, at least not in
the meaning contemplated by Article 1 of the BIT. In support of their contention
Claimants rely on Occidental v. Ecuador and Saghi v. Iran.1022
639. Contrary to the Claimants’ interpretation, the Committee in Occidental did not
conclude that the AEC’s contractual rights, created under the Farmout Agreement,
must enjoy protection regardless of whether such rights are enforceable against
PetroEcudaor or Ecuador.1023 The Annulment Committee did not decide on whether
the hypothetical claim of AEC against Ecuador would be justified since AEC did not
participate in the arbitration. All that can be inferred from the decision on annulment
in Occidental is a general proposition that AEC can enjoy protection of its beneficial
interest under the relevant BIT concluded by its home state. 1024 The Committee did
not in any way suggest that AEC’s potential claim would be sustained and, most
importantly, it did not opine that economic rights acquired in breach of contract or the
host State’s law must be protected, regardless of whether or not those rights are
enforceable against the State, which seems to be the Claimants’ understanding.
1020
1021
1022
1023
1024
Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The
Republic of Ecuador, ICSID Case No. ARB/06/11, Decision of the Annulment Committee, 2 November
2012, para. 272, CLA-5.
219
640. Claimants’ reliance of the Iran – US Claims Tribunal’s (IUSCT) award in Sahgi v.
Iran is equally misplaced. Claimants invoke Saghi in an attempt to prove that the
protection of beneficial ownership of shares does not depend on whether or not such
form of ownership exists under particular national law.1025 However, the offered
analysis is fatally flawed since it fails to account for crucial differences between the
instrument that served as a jurisdictional basis in Saghi and the Canada – Serbia BIT.
The Iran – US Claims Tribunal drawn its jurisdiction from the Claims Settlement
Declaration (CSD) between the US and Iran.1026 The CSD established the jurisdiction
of the IUSCT for outstanding claims of nationals of the two respective countries
against the other, arising out of “debts, contracts (including transactions which are
the subject of letters of credit or bank guarantees), expropriations or other measures
affecting property rights…”. 1027 The instrument in question, therefore, creates ratione
materiae jurisdiction of the IUSCT that is particularly broad – it includes all claims
with regard the measures affecting any property right. The IUSCT itself in Saghi
recognized that the tribunal’s jurisdiction is broad enough to include the beneficial
ownership within the definition of “ownership interest” referred to in the CSD.1028
641. In contrast, the consent to arbitration offered by Canada and Serbia in Article 1 of the
BIT is much narrower. The consent only relates to “covered investments” within the
meaning of the relevant provision. In the dispute at hand, Claimants’ case depends on
whether they are able to prove the acquisition of ownership with regard “share, stock
or other form of equity participation in an enterprise.”1029 As already elaborated
earlier, Claimants can be considered to be the owners of shares in a joint stock
company in Serbia, only if they have fulfilled the conditions for the acquisition of
those shares proscribed by Serbian law.
642. However, even if it is accepted, for the sake of the argument, that the ownership of “a
share, stock or other form of equity participation in an enterprise”1030 could have
some universal meaning, rather than be interpreted in accordance with the law of
1025
1026
Iran – US Claims Settlement Declaration, RLA-173.
1027
Article II of the Iran - US Claims Settlement Declaration, RLA-173.
1028
James M. Saghi, Michael R. Saghi and Allan J. Saghi v. The Islamic Republic of Iran, IUSCT Case No.
298, Award, para. 24, CLA-80.
1029
Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments,
Article 1, CLA-1.
1030
Article 1, CLA-1.
220
Respondent, the Sembi Agreement is simply not an instrument which could result in
transfer of beneficial ownership to Sembi and the Canadian Claimants, regardless of
the law applicable to it (Serbian or the law of Cyprus). This is explained in detail
below.
1.3.2. The Sembi Agreement was concluded in breach of the prohibition of

assignment from the Law on Privatization
643. Under the scenario offered by Claimants, the alleged transfer of beneficial ownership
here was a result of the assignment of the “rights, title and obligations” in the
Privatization Agreement by Mr. Obradović to Sembi. The law applicable to the
Privatization Agreement specifically prohibited such assignment without the prior
authorization of the Privatization Agency:
“Subject to prior consent of the Agency, the buyer of the capital (hereinafter:
assignor) may assign the agreement on sale of the capital or property to a
third party (hereinafter: assignee) under the conditions stipulated by this law
and the law on obligations.”1031
644. The way in which Claimants deal with this obstacle in their submission is peculiar.
645. First, Claimants admit that the assignment of the Privatization Agreement and the
Beneficially Owned Shares was thus never effective vis-à-vis the Privatization Agency,
or BD Agro.1032 Respondent does not dispute this contention.
646. However, Claimants do not explain how exactly the Agency (to which Claimants refer
as the organ of Serbia) could be held responsible towards Claimants for the
termination of the Privatization Agreement or for its refusal to release the Pledge on
Mr. Obradović’s shares in BD Agro, if the assignment of the Agreement and the BD
Agro’s shares was never effective in relation to the Agency. The premise on which
the Claimants’ argument rests is genuinely nonsensical: the Agency (and Respondent)
should be responsible for the alleged breach of the contract assigned to a third party
(Sembi), even though it was unaware of Sembi’s existence and regardless of the fact
that it did not authorize the assignment of the Privatization Agreement, based on the
1031
2001 Law on Privatization, Article 41ž (emphasis added), CE-220.
1032
221
choice of law clause from the Sembi Agreement which the Agency did not conclude.
This is beyond absurd.
647. The Canada – Serbia BIT excludes situations such as this from its scope. Article 2(1)
of the BIT reads:
“This Agreement shall apply to measures adopted or maintained by a Party

relating to:
(a) an investor of the other Party; and
(b) a covered investment.”1033
648. A similar provision contained in Article 1101(1) of the North American Free Trade
Agreement (NAFTA) has been interpreted by NAFTA tribunals as demanding a
legally significant connection between the measure and the investor for the
application of the treaty.1034
649. Since the assignment of the Privatization Agreement to Sembi was not effective vis-
à-vis the Agency, the measures complained of – termination of the Privatization
Agreement and refusal to lift the pledge over the shares – were adopted in relation to
the other contractual party i.e. Mr. Obradović, and not Claimants. The Agency cannot
be held responsible because its lawful termination of the Privatization Agreement
indirectly affected Mr. Obradović’s contractual relationship with a third party
(Sembi/MDH). It would not be reasonable to interpret the Canada – Serbia BIT in a
way that Respondent intended to subject itself to arbitration based on a measure taken
in relation to a domestic investor, regardless of incidental effects that the measure may
or may not have on Mr. Obradović’s contracts with third parties.
650. Liability of a third party for interference with the contract can be established on the
basis of actual notice, i.e. only if a third party (in this case: the Agency) has an actual
knowledge that the contractual relationship with which it actions interfere actually
1033
Article 2(1), CLA-1.
1034
Methanex Corporation v. United States of America (UNCITRAL), Partial Award (Preliminary Award on
Jurisdiction and Admissibility), 7 August 2002, para. 139, RLA-187; William Ralph Clayton and others v.
Government of Canada, PCA Case No. 2009-04, Award on Jurisdiction and Liability, 17 March 2015, para.
240, RLA-169.
222
exists. The difference between property rights (such as rights in rem) and contractual
rights in the context of expropriation was given by the tribunal in Accession Danubius
v. Hungary.1035 The tribunal explained the difference in the following manner:
“It is widely accepted that a state can be liable for an indirect or de facto
expropriation regardless of whether the state intended to expropriate the
rights in question or whether it even had actual knowledge of the existence of
the investor’s rights to property. This is defensible because everyone,
including the state and its organs and officials, has constructive notice of
property rights. Property rights are good against the whole world. For this
reason, in many national legal systems, liability for the usurpation of control
over someone else’s property does not require actual notice of the rights to
that property and liability for damage to someone else’s property is also
imposed without the requirement of actual notice.”1036
651. The tribunal continued to make a distinction with regards contractual rights:
“150. This is not defensible, however, in relation to rights that are not
property rights, such as pure contractual rights.
151. A contractual right is a right to the performance of someone. The

characteristics of that someone, the dutyholder, are of fundamental
importance to the rightholder. Is the dutyholder good for the money? Does
the dutyholder have the necessary expertise or qualifications or resources or
reputation or experience to give the performance that the rightholder has
bargained for? In contrast, the holder of a property right has no means of
ascertaining the identity of the potential dutyholders and their personal
attributes ex ante. For this reason, the obligations of third parties in respect
of property rights are simple and straightforward: property rights always
generate duties of abstention.
152. In national legal systems, liability for interferences with contractual

rights can only be imposed on the basis of actual notice; whereas in relation
1035
Accession Mezzanine Capital L.P. and Danubius Kereskedöház Vagyonkezelö Zrt. v. Hungary, ICSID
Case No. ARB/12/3, Award, 17 April 2015, RLA-148.
1036
Case No. ARB/12/3, Award, 17 April 2015, para. 149, RLA-148.
223
to property rights there is no requirement for actual notice. In the contractual
context, a party to a contract has actual notice of its counterparty’s rights
under the contract and of course can be liable for breaching its
corresponding obligations. In the limited circumstances in which a third
party can be liable for interferences with contractual rights, there must also
be actual notice of such rights in the form of a specific intent to cause
prejudice to them; this is domain of the intentional tort for procuring a breach
of contract that exists in many national legal systems.”1037
652. The Agency in the case at hand neither knew nor ought to have known that, by
declaring termination of its contract with Mr. Obradović, it affects the performance of
Mr. Obradović’s contractual obligations towards Sembi. This is why no liability of
Respondent can arise under international law in such circumstances.
653. The second step of the Claimants’ analysis is a contention that, although the
assignment was prohibited by the Law on Privatization, the prohibition relates only to
the assignment of legal title to the Privatization Agreement, and not to the transfer of
beneficial ownership in any rights/assets.1038
654. The Claimants’ argument in reality rests, once again, on the assumption that the
prohibition of assignment in the Law on Privatization does not relate to the assignment
of economic rights of a contractual party and does not affect the validity of the
assignment of those rights between Mr. Obradović and Sembi.
655. This kind of interpretation would effectively mean that any agreement for sale of
socially-owned entities during the privatization process in Serbia could be transferred
(together with the right of ownership acquired by the privatization agreement) despite
the explicit prohibition on assignment under the Serbian legal framework for
privatization. The buyer (in this case, Mr. Obradović) would retain only a nominal
title in the agreement, while all his interest and rights would be transferred to a third
party. All that would be required is that an assignor and an assignee make a provision
for the application of the law of Cyprus in their contract. The argument is not only
absurd but it fails simply because the prohibition of assignment in Article 41ž means
1037
Case No. ARB/12/3, Award, 17 April 2015 (Emphasis added), RLA-148.
1038
224
prohibition on assignment of both nominal and beneficial interest in the Privatization
Agreement. There are two main points to be made here.
656. First, the contention similar to the one used here by Claimants was already tested and
rejected by the tribunal in the case on which Claimants heavily rely – Occidental v.
Ecuador.1039
657. In Occidental v. Ecuador, claimants argued that the contract concluded between
Occidental and AEC, a Bermudan company (the Farmout Agreement), by which
Occidental assigned 40% of its economic interest in, inter alia, the Participation
Contract that it had previously entered into with PetroEcuador, a national oil company
of Ecuador, did not represent an assignment of contractual rights.1040 The assignment
was specifically prohibited by the Participation Contract, without prior authorization
from the relevant Ministry.1041 Claimants contended that the Farmout Agreement
contemplated two different phases – first, in which Occidental would transfer 40% of
its economic interest in the Participation Contract, and second, in which the
assignment of the legal title to the Participation Contract would be assigned to AEC,
subject to the prior governmental approval. Claimants in Occidental argued that the
restriction on assignment from the Participation Contract applied only to the transfer
of the nominal legal title in interest of a contracting party. 1042 The argument was met
with the outright rejection by the tribunal:
“Although the Farmout was sometimes characterized by the Claimants as

“merely” transferring to AEC, in 2000, a 40% economic interest in Block 15,
as opposed to legal title to an interest in Block 15, the Tribunal does not
accept that the transaction, whatever may have been the parties’ intention,
did not serve to effectuate a transfer of rights and obligations requiring
authorization on the part of the Ecuadorian authorities. As noted above,
neither the Participation Contract nor the HCL allow a narrow reading of
1039
Republic of Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012, CLA-75.
1040
Republic of Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012, para. 213, CLA-75.
1041
1042
225
the concepts of transfer or assignment. They must be read as including all
forms of such transfers or assignments, be they total or partial in nature.”1043
658. Just as it was the case with the Farmout Agreement in Occidental, contractual parties
to the Sembi Agreement clearly intended for Sembi to take place of Mr. Obradović in
the Privatization Agreement and to acquire all of Mr. Obradović’s “right, title and
interest” in the Agreement. Article 41ž of the Law on Privatization cannot be
interpreted as to allow a buyer of the privatized entity to transfer all of his rights and
interest in the privatization agreement to a third party and to retain only a formal
position of a contractual party. For that reason only, Claimants’ contention that the
Sembi Agreement resulted in the acquisition of the beneficial title to the Privatization
Agreement and to BD Agro’s shares1044 must fail.
659. Second, Claimants allege that Serbian law recognizes the concept of beneficial
ownership and the division between the nominal and beneficial title over property.1045
If this contention, arguendo, is accepted as correct, this would only imply that the
prohibition stipulated in Article 41ž of the Law on Privatization must be interpreted
in that context as well – as a prohibition of transfer of both nominal title and economic
interest in the Privatization Agreement without the proper authorization. Provisions
of Serbian law regulating the ownership of property cannot be interpreted sometimes
as referring only to the nominal ownership (when Claimants attempt to avoid
restrictions on transfer imposed by relevant laws) and sometimes as denoting both the
beneficial and nominal ownership (when it suits the Claimants’ attempts to prove that
Serbian law allows for the acquisition of the beneficial ownership). Claimants simply
cannot have it both ways.
1.3.3. The prohibition from the Law on Privatization invalidates the

assignment of rights created under the Privatization Agreement
660. The prohibition of assignment of the Privatization Agreement without prior approval
from the Agency is, in this particular instance, fatal for the Sembi Agreement even
under the rules of Cyprus law.
1043
1044
1045
226
661. First, under the Cypriot choice of law rules, the assignability of claims stemming from
the Privatization Agreement is governed by Serbian law.
662. As explained by Professor Emilianides, Article 14(2) of the Rome I Regulation on the
law applicable to contractual obligations, applied by courts in Cyprus, envisages that
the law governing the assigned claim shall be applicable to its assignability.1046 In the
case at hand, the object of the purported assignment are claims from the Privatization
Agreement, and the Privatization Agreement is governed by Serbian law. 1047 Parties
to the Sembi Agreement (Sembi and Mr. Obradović) were free to designate the law of
Cyprus as applicable to their contractual relationship.1048 Nevertheless, the
assignability of claims from the Privatization Agreement is not governed by the same
law: “[t]he question whether a right is capable of assignment, and if so under what
conditions, is governed by the law applicable to the claim and not the law of the
contract of assignment.”1049 Consequently, as long as the law applicable to the
assignability of claims (i.e. Serbian law) contained prohibition on assignment (which
it did), such assignment would not be recognized as effective and legally binding by
Cypriot courts.1050
663. Second, based on the expert report submitted by Mr. Georgiades, Claimants argue that
even when the original contract prohibits assignment, the assignment is still valid “in
equity” between the assignor (Mr. Obradović) and the assignee (Sembi).1051 This
argument is misplaced even prima facie since, as explained, the validity of the
assignment (assignability of claims) is governed, according to the choice of law rules
applicable in Cyprus, not by the law of Cyprus but by Serbian law.
664. However, even if accepted, for the sake of the argument, that the substantive law of
Cyprus is relevant in this particular instance, the argument raised by Claimants is still
fatally flowed since it fails to mention the crucial caveat - the prohibition from the
original contract invalidates the assignment even under the rules of equity invoked
here by Claimants, if the identity of the original contractual party (the assignor) is of
1046
1047
1048
1049
1050
1051
227
importance to the debtor.1052 Here, the identity of the buyer as a contracting party
under the terms of the Privatization Agreement was of particular importance for the
Agency. The Privatization Agreement could not have been concluded with just any
person or an entity. As explained previously by Professor Radovic, the agreement for
sale of socially-owned capital in privatization could have been concluded only with
the winner of public auction and the buyer had to fulfill certain conditions from the
Law on Privatization and to submit certain statements and certificates.1053 Hence, even
application of the rules of equity would not render valid the assignment under the
Sembi Agreement.
665. Third, Professor Emilianides also explains that, according to the Cypriot contractual
law, a contract that is considered void under the relevant statutory rules cannot create
any rights in equity.1054 The assignment agreement is void if the assignment prejudices
the interest of the debtor and cannot create any effect, even between the assignor and
the assignee.1055
666. Fourth, relaying on the expert report of Mr. Georgiades,1056 Claimants argue that the
prohibition of assignment in the original contract (the Privatization Agreement) would
not prevent the interpretation of the Sembi Agreement as a declaration of trust between
the assignor and the assignee.1057 The obvious problem with the Claimants’ theory is
that such declaration by Mr. Obradović is nowhere to be found in the Sembi
Agreement. In addition, the construction of a transaction as a declaration of trust is
impossible when it is inconsistent with wording or purpose of the original contract1058
which was certainly the case with the Privatization Agreement.
667. In sum, even if the Claimants’ contention that Claimants’ alleged beneficial ownership
depends solely on whether their rights under the Sembi Agreement are enforceable
against Mr. Obradović under the law of Cyprus1059 is accepted as correct, Claimants’
case still fails when measured against the standard suggested by Claimants – rights
1052
1053
1054
Expert Report of Professor Achilles C. Emilianides, paras. 30, 31.
1055
Expert Report of Professor Achilles C. Emilianides, para. 31
1056
Georgiades Second ER, para. 3.20.
1057
1058
1059
228
supposedly conferred upon Sembi under the Sembi Agreement are not enforceable
under the Cypriot law.
668. Accordingly, the Sembi Agreement was unable to confer any rights upon Claimants,
irrespective of the applicable law (Serbian or the law of Cyprus).
669. Claimants are again unable to point to a single award of an investment tribunal in
which it was accepted that the beneficial ownership of shares in a joint stock company,
“nominally” owned by a natural person that is a citizen of a respondent state, was a
valid jurisdictional basis. Instead, Claimants offer repeated reliance on obiter from the
Annulment Committee’s decision in Occidental Petroleum v. Ecuador.1060 Apart from
the general proclamation that “neither the international law principles nor the
Committee’s decision imply that investors holding beneficial ownership are left
unprotected from interferences by host States”, the decision does little to help
Claimants’ case. In fact, the analogy works directly against it.
670. Both the Committee’s decision and the award of the tribunal in Occidental clearly
suggest that the beneficial interest in a contract cannot validly be acquired if the
contractual framework prohibits assignment of contractual rights and duties. The
major difference and the point of disagreement between the tribunal and the
Committee was the issue of whether the nullity of the assignment must be declared by
a judge under the law of Ecuador: while the tribunal held that the Farmout Agreement,
because it was concluded without proper governmental authorization, “lacked an
essential element required for life” and that there was no requirement that the
assignment be declared invalid by a judge,1061 the Committee disagreed and held that
the Ecuadorian Civil Code requires the nullity of the contract to be declared by a judge
“ in order to produce the voidance of a validly executed contract.”1062
1060
1061
1062
Republic of Ecuador, ICSID Case No. ARB/06/11, Decision of the Annulment Committee, 2 November
2012, para. 233, CLA-5.
229
671. Under Serbian law, the contract concluded in breach of an imperative rule of law is
null and void ab initio, and has no effect whatsoever without the need for the
declaration of the competent court.1063 Claimants do not argue otherwise.
672. Instead, Claimants engage into unnecessary debate on whether private parties to a
contract can designate the law applicable to their contractual relationship.1064 It is one
thing to state that the parties to a contract can select the law that will govern their
contractual relationship inter partes. It is another thing completely to claim that the
designation of foreign law can somehow dispose of requirements of Serbian law for
the acquisition of shares in joint stock companies or nullify an imperative rule
contained in Article 41Ž of the Law on Privatization.
673. Claimants submit, inter alia, that “Contracts governed by “foreign law” are routinely
accepted as protected investment and their validity is not being tested against the host
State’s law.”1065 This contention is naturally correct with regards investment contracts
entered into by an investor and a host state or a state-owned company. In fact, all
authorities relied on by Claimants in order to support their argument fall into this
category.1066 More importantly, none of those cases is analogue to the case at hand
and to the Sembi Agreement – designation of a foreign law as applicable in a contract
between two private parties, with an aim to circumvent and replace mandatory rules
on acquisition of proprietary rights in place in Serbia with the law of Cyprus. A state
is obviously free to designate foreign law as applicable to its contractual relationship
with the other contracting party. However, it does not follow from this that two private
parties (Mr. Obradovic and Sembi) could opt for the applicability of any national law
to their contract and that such choice of law could (unbeknownst to Respondent)
1063
1064
1065
1066
Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31
October 2012, paras. 12, 13, CLA-67 (designation of English law as applicable in a Heading Agreement
between Deutsche Bank and Ceylon Petroleum Corporation (CPC), Sri Lanka’s national petroleum
company); Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction
and Admissibility, 4 August 2011, paras, 48-51, CLA-81 (sovereign bonds issued by Argentina in
international financial markets, denominated in foreign currency and governed by the laws of different
jurisdictions); Koch Minerals Sàrl and Koch Nitrogen International Sàrl v. Bolivarian Republic of
Venezuela, ICSID Case No. ARB/11/19, Award, para. 5.1., CLA-82 (the Offtake Agreement concluded
between the claimant (Koch Nitrogen International) and Petroquímica de Venezuela (a wholly-owned
subsidiary of Venezuela’s state-owned oil company, designating the New York law as applicable).
230
render mandatory rules of the Law on Privatization inapplicable or create proprietary
effects that otherwise would not exist under Serbian law.
674. In any event, the argument made by Claimants is irrelevant since, as previously noted,
neither the application of Serbian nor the law of Cyprus could result in Sembi’s
acquisition of Mr. Obradovic’s rights under the Privatization Agreement, including
the ownership of BD Agro’s shares.
1.3.4. The transfer of beneficial ownership does not follow from the text of the
Sembi Agreement
675. Finally, perhaps the most significant deficiency of the Claimants’ jurisdictional theory
is the fact that the Sembi Agreement on its face does not purport to transfer beneficial
ownership from Mr. Obradović to Sembi. The Sembi Agreement only focuses on
assignment of the Privatization Agreement and does not contain any provisions on
voting at the shareholders meetings of BD Agro, transfer of risk or transfer of income
from shares etc. This is why it cannot serve as basis for establishing beneficial
ownership.1067
676. Claimants rely on Anglo – Adriatic v. Albania as an authority for the proposition that
“even where an instrument conferring beneficial ownership contains significant
deficiencies—including an allegedly incorrect identification of who transfers the
shares to whom—the tribunal should examine whether the subsequent conduct of the
parties confirms their alleged intention to create such a beneficial ownership.”1068
Claimants’ interpretation of the Anglo – Adriatic award is utterly wrong. In fact, the
tribunal’s award demonstrates precisely the opposite – whether an instrument can be
seen as transferring beneficial ownership in shares is the fact that needs to be discerned
objectively, based on the text of the instrument and not on the investor’s after-the-fact
interpretation of his own intent.
677. In Anglo – Adriatic, the tribunal analyzed the Trust Deeds that supposedly vested the
beneficial ownership of shares in the claimant (Anglo – Adriatic Group or AAG).
Although AAG claimed that its designation as both the settlor and the beneficiary in
1067
1068
231
the Trust Deeds was “a mistake”1069 and submitted expert opinions that the Trust
Deeds were valid and enforceable under the English law that governed them,1070 the
tribunal still deemed the beneficial ownership of the claimant as nonexistent.1071 This
is despite the fact that AAG submitted that the intent of the parties was always to
establish a relationship in which trustees would hold shares for the benefit of AAG.1072
The tribunal’s finding was not affected by testimonies of supposed trustees that they
held their shares in trust for AAG.1073 The tribunal simply concluded that: “this is not
the reality which the Trust Deeds represent.”1074
678. The main problem which Claimants face with regard to the Share Purchase Agreement
and, more importantly, the Sembi Agreement is to explain why those instruments are
not even cryptic but virtually silent when it comes to the alleged transfer of the
beneficial ownership from Mr. Obradović to Mr. Rand (MDH and Sembi). In all
awards that Claimants invoke in support of their beneficial ownership argument, legal
instruments used as basis of investors’ supposed acquisition of beneficial ownership
were at least unequivocal about parties’ intention to create such an effect.
679. For instance, in Occidental v. Ecuador, the Farmout Agreement clearly acknowledged
the transfer of “economic interest” previously acquired by Occidental by way of its
contract with the Ecuadorian national oil company to AEC, and specifically stated that
Occidental would continue to hold that economic interest as a “nominee” or “bare
trustee” for the benefit of AEC.1075
1069
Anglo-Adriatic Group Limited v. Republic of Albania, ICSID Case No. ARB/17/6, Award, 7 February
2019, para. 235, RLA-7.
1070
2019, para. 229, RLA-7.
1071
2019, para. 247, RLA-7.
1072
2019, para. 235, RLA-7.
1073
2019, para. 200, RLA-7.
1074
2019, para. 232, RLA-7.
1075
232
680. In Anglo – Adriatic, the claimant’s case rested on trust deeds which (although not
accepted by the tribunal as validly transferring the beneficial ownership in that case)
expressly designated settlors, the beneficiary and trustees.1076
681. In Saghi v. Iran, the claimants transferred shares in an Iranian company (N.P.I.) to the
company’s nineteen employees and provided them with loans to buy the shares, by
way of shareholder’s agreements.1077 Those agreements were straightforward about
the claimants withholding the beneficial ownership. The agreements stipulated that
the Claimants would hold the shares in custody until the full repayment of loans and
that the claimants would retain rights that “shall be similar and equivalent to the
owner of said shares in all respects and with no limitation” including the right to
transfer shares to third parties while the debts were outstanding.1078
682. In the case at hand, the Sembi Agreement is anything but clear and unambiguous with
regard to the alleged separation of the nominal and beneficial title in BD Agro’s shares
and respective roles of Mr. Obradović and Claimants in those transactions. The
Agreement, crucial for the establishment of Claimants’ alleged beneficial ownership
at the time of the purported breach of the BITs, does not say anything about it. It does
not stipulate that the economic interest in the Privatization Agreement or beneficial
ownership of BD Agro would be held by Sembi. Nor does it designate Mr. Obradović
as a nominee or a trustee for the benefit of Sembi. It is a typical agreement of
assignment, concluded in breach of the legal rules applicable to the Privatization
Agreement. Claimants invest considerable efforts to explain that the Sembi
Agreement established a trust relationship between contractual parties even though
the plain wording of the Agreement contradicts that argument. On its face, the Sembi
Agreement simply does not say what Claimants wish it would. Just as in Anglo –
Adriatic v. Albania, the reality that the Sembi Agreement presents is different.
683. For this reason alone, the assertion that the Sembi Agreement created beneficial
ownership for Claimants must fail.
1076
2019, para. 228, RLA-7.
1077
1078
233
2. The issue of the alleged disclosure of Claimants’ purported beneficial
ownership
684. Claimants once again reiterate that they disclosed their beneficial ownership to Serbia
and offer a list of governmental officials, as well as employees of the Agency that
supposedly knew about the business arrangement between Mr. Obradovic and Mr.
Rand.1079 There are numerous problems with the Claimants’ contentions.
685. First, documentary evidence on the record simply do not support Claimants’
assertions. For instance, in order to prove that Mr. Bubalo, then the Minister of
Economy, was aware of Mr. Rand’s alleged beneficial ownership of BD Agro,
Claimants rely on several documents which, for example, prove only that Mr. Bubalo
had met with Mr. Rand who professed his interest to buy BD Agro before the public
auction,1080 that Mr. Bubalo discussed with Mr. Rand the possibility of Mr. Rand’s
acquisition of another company (Centroprom) in 2004,1081 or that Mr. Rand was in a
possession of Mr. Bubalo’s phone number.1082
686. Second, there are no documents to prove that such disclosure was ever made in
Claimants’ direct communication with any governmental official. Claimants seem to
argue that the Agency should consider itself duly notified about Mr. Rand’s position
as a contractual counter-party in the Privatization Agreement simply because Mr.
Rand’s claim on beneficial ownership of BD Agro was allegedly communicated to
certain officials by third persons. For example, Claimants rely on the e-mail sent on
18 December 2013 by Mr. Kostić, a person acting without any official capacity, to
Mr. Radulović, who was at the time Minister of Economy, asking Mr. Radulović to
schedule a meeting with Mr. Rand’s representatives.1083 Mr. Radulović considered
this matter to be in the competence of SIEPA (Serbian Investment and Export
Promotion Agency) and immediately forwarded the e-mail to Mr. Vladimir
Milenković who was at the time the director of the SIEPA.1084
1079
Claimants’ Reply, paras. 581, 501-503.
1080
E-mail from W. Rand to P. Bubalo dated 4 June 2005; CE-14.
1081
Letter from W. Rand to P. Bubalo, 1 November 2004, CE-581.
1082
E-mail from Aleksandra Janicić to Mr. Rand, 16 July 2008, CE-704.
1083
Email communication between M. Kostić, S. Radulović and V. Milenković, 18 December 2013, p. 3,
CE-769.
1084
Email communication between M. Kostić, S. Radulović and V. Milenković, 18 December 2013, p. 1,
CE-769.
234
687. The only written evidence that records Claimants’ understanding of the ownership
structure with regard to the BD Agro investment is an e-mail sent by Mr. Goran
Džafić, an assistant director of SIEPA, to Mr. Milenković on 19 December 2013,
describing the content of the Mr. Džafić’s meeting with Messrs. Broshko and
Markićević.1085 However, the e-mail contains one crucial statement that was not
mentioned in witness statements of Mr. Markićević and Mr. Broshko or in the
Claimants’ submissions: Mr. Rand’s representatives explained that Mr. Obradović,
although he had purchased BD Agro „in the name and for the account“ of Rand
Investment, was registered as the owner “[S]ince our [Serbian] law does not
recognize ownership in this form…”.1086 Claimants were, therefore, perfectly aware
that they could not be considered as owners of BD Agro under Serbian law.
688. This explains why Claimants were, while communicating directly with the
Government and the Agency, rather discrete about their purported ownership.
Respondent has already explained in its Counter-Memorial the way in which
Claimants negotiated with the Agency and the Ministry of Economy in an attempt to
take over Mr. Obradović’s role in the Privatization Agreement.1087 The negotiations
took place between 2013 and 2015. During this time several letters were sent by Mr.
Rand and Mr. Markićević to different Serbian officials, proclaiming Mr. Rand’s
intention to take over Mr. Obradović’s ownership in BD Agro1088 or his readiness to
invest in BD Agro, once the privatization process is concluded or the Privatization
Agreement assigned to one of his companies.1089 There is not one reference to Mr.
Rand’s ownership of BD Agro in the entire communication on the record. This casts
serious doubts on Claimants’ contention that Mr. Rand’s beneficial ownership was
well known to the Agency and Respondent.
689. In Mr. Rand’s letter of 18 September 2014 to the Serbian Prime Minister and the
Minister of Economy there is no even a hint of the possibility that this could be a letter
1085
1086
Email communication between G. Džafić and I. Markićević, 19 December 2013, p. 2, CE-311.
1087
Respondent’s Counter – Memorial, paras. 256-274.
1088
Letter from Mr. William Rand to the Serbian Prime Minister and Minister of Economy of 18 September
2014, CE-38.
1089
Letter from BD Agro to Privatization Agency dated 2 July 2015, CE-46; Letter from BD Agro to the
Ministry of Economy and Privatization Agency dated 5 November 2014, p. 1, CE-320; Letter from BD
Agro to the Privatization Agency dated 13 August 2014, CE-316.
235
of BD Agro’s owner.1090 Mr. Rand asked for the Ministry of Economy’s approval for
the transfer of ownership in BD Agro to Mr. Rand or one of his companies.1091 He
pointed to the fact that he had financially supported BD Agro since the summer 2013
in the amount of approximately 450,000 euros.1092 The letter does not contain the
assertion Claimants are making in the present arbitration – that Mr. Rand provided
financing for the acquisition of BD Agro – let alone any statement that BD Agro was,
in fact, in his ownership all along.
690. Claimants apparently consider that the lack of any indication of Mr. Rand’s status as
the owner was justified since “the Privatization Agency already knew about Mr.
Rand’s beneficial ownership and obviously did not have any issue with it.”1093 This
statement is disingenuous. Claimants were well aware that the Agency had no way of
knowing about the arrangement between Mr. Obradović and Mr. Rand at the time. It
should be noted that some of the “evidence” supposedly supporting Claimants’
contention are genuinely bizarre. For instance, Claimants introduced as evidence a
photograph of Mr. Obradović greeting Mr. Bubalo, during the official visit of the
company by members of Serbian government in 2007, showing that several flags
(Canadian included) were displayed at the entrance of the company. 1094 It seems that
Claimants suggest that the presence of the Canadian flag should have serve as a formal
notice that the owner of the company is Canadian and that the Agency (apparently, by
way of association with Mr. Bubalo), should have known this. Respondent
respectfully submits that this kind of arguments cannot be taken into serious
consideration.
691. Third, even if Claimants’ assertions that some governmental officials knew about Mr.
Rand’s role as a “true” owner of BD Agro are taken on their face as correct – that fact
alone is still not able to create his right of ownership in BD Agro under Serbian law.
The existence of a claim for the deprivation of property under international law
depends on whether Claimants were holding that property in accordance with
1090
2014, CE-38.
1091
2014, pp. 1-2, CE-38.
1092
2014, p. 2,CE-38.
1093
1094
236
applicable rules of Serbian law.1095 By Claimants’ own admission, this was not the
case with BD Agro’s shares.1096
692. Fourth and most importantly, contrary to Claimants’ assertions,1097 Mr. Rand’s
alleged beneficial ownership was never disclosed to the Agency. In an effort to refute
Respondent’s arguments, Claimants resort to blatant mischaracterization of
Respondent’s statements. Respondent does not assert, as Claimants now suggest, that
Serbia heard for Mr. Rand for the first time in 2013.1098 However, it is certainly true
that the Agency was presented with “natural person from Canada who is interested
in investing in the company BD Agro… and in this respect, interested to take over the
Privatization Agreement of that company from the current majority shareholder”1099
and the Canadian investor who “…expressed serious interest in taking over the
majority shareholding in BD Agro…” in 2013,1100 eight years after the Privatization
Agreement was concluded.
693. Claimants now assert that Messrs. Broshko and Markićević disclosed Mr. Rand’s
beneficial ownership during the 30 January 2014 meeting with the Agency and argue
against the nonexistent contention of Respondent that they cannot rely on the alleged
disclosure because their representative did not offer any proof of ownership.1101 To be
clear – Respondent does not submit that Mr. Broshko’s disclosure needed to be
supported with evidence of ownership. It submits that such disclosure was never
made. According to the Minutes of the meeting, Mr. Broshko stated that he
represented the company which had provided all of the funds invested into BD
Agro.1102 He offered no proof to support that statement while the issue of ownership
was never mentioned. To expect that the Agency should have somehow inferred from
this statement that Mr. Rand was the beneficial owner of BD Agro under the law of
British Columbia, at the time the Agency was negotiating about the transfer of
ownership from Mr. Obradović to Rand Investment, is clearly absurd. It should be
1095
Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April,
2016, para. 257, CLA-32.
1096
Email communication between G. Džafić and I. Markićević, 19 December 2013, p. 2, CE-311.
1097
1098
1099
E mail from Mr. Jakovljevic to the Privatization Agency of 16 April 2013, RE-108.
1100
Letter from BD Agro to the Ministry of Economy and Privatization Agency dated 5 November 2014, p.
1, CE-320.
1101
1102
Minutes of the meeting in the Privatization Agency of 30 January 2014; RE-28.
237
noted, however, that even this statement of Mr. Broshko was not correct. It contradicts
the witness statement of Mr. Obradovic who himself testifies that the necessary funds
were obtained through the loan agreement concluded between Mr. Obradović and the
Lundin Family.1103
694. Obviously displeased with the content of minutes and other documents created by the
Agency during the course of the Agency’s contractual relationship with Mr.
Obradović, Claimants suggest that the Tribunal should take a peculiar approach when
assessing the evidentiary value of documents. Since those documents are “in stark
contradiction” with witness statements of Mr. Broshko and Mr. Markićević, the
Tribunal should, in Claimants’ opinion, accept the witness statements of two
individuals materially interested in the outcome of the proceeding as true and
disregard the documents provided by Respondent.1104 Respondent submits that such
innovative approach in determination of probative value of documents should not be
followed by the Tribunal.
695. In any event, even the evidence submitted by Claimants themselves reveals that
Claimants never communicated the alleged beneficial ownership of Mr. Rand to the
Agency. In September 2015, more than a year and a half after the purported disclosure
of Mr. Rand’s beneficial ownership in the January 2014 meeting, Mr. Obradović sent
a letter to the Agency asking it to release the pledge on his shares and to issue a
decision on the succesful completion of the privatization process.1105 In the letter
(suposedly drafted by, inter alia, Messrs. Broshko and Markićević and approved by
Mr. Rand)1106 Mr. Obradović once again refers to Mr. Rand as “reputable Canadian
investor” ready to invest in BD Agro once the privatization process is finalized:
“However, a precondition for Mr. Rand (as well as for any other serious
investor) to invest money in BD Agro is 1) completion of the BD Agro
privatization procedure and 2) deletion of pledge on shares. These are
minimal security conditions that every serious investor will need in order to
invest money in BD Agro.”1107
1103
1104
1105
1106
1107
Letter from Mr. Obradovic to the Privatization Agency dated 8 September 2015, p. 5, CE-48
238
696. It seems, therefore, that the role of Mr. Rand regressed once more from the “beneficial
owner of BD Agro” in January 2014, to a potential Canadian investor in September
2015. This again clearly demonstrates the disingenuous character of Claimants’
assertions with regards the communication with the Agency.
697. Furthermore, the Agency would not enter into the Privatization Agreement with Mr.
Obradović, had it known that it was in fact selling BD Agro to a third person
(MDH/Mr. Rand). This is for the simple reason that such arrangement would be illegal
under Serbian legal framework for privatization. As previously explained, agreements
for sale of socially-owned capital were agreements concluded with the winner of the
public auction. The buyer had to fulfill certain legal prerequisites in order to
participate in auction and to make several warranties and disclosures when entering
the contract.1108 In addition, some options and incentives were offered exclusively to
buyers who possessed Serbian citizenship and were indeed used by Mr. Obradović.
The option to pay the purchase price in installments could not be given to Mr. Rand
without the breach of the legislation in force at the time.1109 Therefore, the assertion
that “[M]r. Rand’s role did not contravene the Law on Privatization in any
manner”1110 is clearly inapposite.
698. Fifth, Claimants apparently attempt to downplay the importance of the disclosure to
the Agency by stating that the disclosure of the transfer of beneficial ownership to a
third party does not invalidate the transfer of ownership. Relying on Anglo – Adriatic
case, Claimants invoke the principle that cannot be found in the text of the tribunal’s
award: a deficient contract allegedly establishing beneficial ownership can still create
the effect of transfer if this was the intention of the parties. 1111 In this paradigm, a
disclosure of transfer is only one of the factors in determining the intention.1112 In the
cases such is the present one – in which the transfer of ownership should have been
authorized by the other contracting party in the Privatization Agreement – the issue of
the disclosure is far more important. The issue of the disclosure (or rather the lack of
it) goes to the heart of the matter in the dispute at hand. The undeniable fact is that the
Agency never accepted, acknowledged or considered Mr. Rand or Sembi to be the
1108
Respondent’s Counter – Memorial, para. 246.
1109
See above, para. 68.
1110
1111
1112
239
contractual party to the Privatization Agreement. This is why any measure that the
Agency adopted with regard to the Privatization Agreement, including its termination,
was a measure relating to Mr. Obradović and not to Claimants. This puts measures
that Claimants are complaining of outside of the Canada – Serbia BIT’s scope under
Article 2.
3. The Canadian Claimants did not control BD Agro’s shares owned by Mr.
Obradović
699. In their Reply, Claimants once again assert that Mr. Rand controlled shares of BD
Agro owned by Mr. Obradović.1113 Jurisdiction of the Tribunal depends on Claimants’
ability to prove the existance of control over the investment under article 1 of the
Canada – Serbia BIT,1114 at the time of the alleged breach.1115 For reasons set out
below it is clear that Claimants failed to meet the burden of proof in this regard.
700. First, Claimants built their case arguing that Mr. Rand exercised control over BD
Agro. However, this is irrelevant in the case at hand. Claimants’ purported investment
is “a share, stock or other form of equity participation in an enterprise” in the meaning
of the Canada – Serbia BIT. Consequently, Claimants need to establish the existence
of control over shares (stock) acquired by Mr. Obradović.
701. In order for the control over the investment to be protected under the BIT, Claimants
must first demonstrate that they invested funds in the acquisition of the investment.
Otherwise, the mere fact that Claimants controlled the investment would not qualify
such control for the protection under the BIT. This was the reasoning adopted by the
B Max v. Mexico tribunal in a similar context of control over an enterprise under
NAFTA Article 1117:
“Article 1117 cannot be read as allowing the nationals of one NAFTA Party
to pursue Treaty claims on behalf of an enterprise of another NAFTA Party
if they cannot show to have an investment in that enterprise. If the Claimants
were right, it might be possible, for example, for a Mexican company to
1113
Claimants’ Reply, Section III.A.1.e.
1114
Caratube International Oil Company LLP v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12,
Award, 5 June 2012, para. 401, RLA-11.
1115
2011, para. 325, RLA-6;
240
appoint a US national as its sole director and for that director then to pursue
claims under the Treaty on behalf of the Mexican company against Mexico,
claiming that she need not be an “investor” herself to pursue such Treaty
claim if she exercises de facto control. That proposition runs counter not only
to the terms of Chapter 11, but also to its fundamental object and purpose,
which is the protection of investments by investors of another NAFTA
Party.”1116
702. Evidence on the record show that Mr. Rand did not invest in the acquisition of Mr.
Obradović’s shares. In fact, funds necessary for the purchase of those shares were
obtained partially from the loan taken by Mr. Obradović from the Lundin family.1117
The largest ammount of the purchase price for the BD Agro’s capital was paid using
BD Agro’s funds.1118 What Claimants now ask is to be afforded the protection of the
Canada – Serbia BIT simply based on the Mr. Rand’s alleged de facto control over
shares bought and partially paid for by Mr. Obradović. This cannot be in accordance
with the object and purpose of the BIT: the promotion and the protection of
investments of investors of one Party in the territory of the other Party.1119
703. Second, “control” necessarily means a legal capacity to control investment under the
applicable law.1120 Relaying on the B Mex award, Claimants plead for the application
of the criterion of de facto control.1121 According to Claimants, an investor can
establish control even without owning a single share in the company, as long as it is
“otherwise able to exercise de facto control.”1122 This is the test so broad that its
application would widen the consent of Parties beyond any reasonable limits.
704. Applied to the circumstances of the particular dispute, de facto control advocated by
Claimants suggests that just any person able to even informally influence Mr.
Obradović’s decision making process could be considered protected investor under
1116
B-Mex, LLC and others v. United Mexican States, ICSID Case No. ARB(AF)/16/3, Partial Award, 19
July 2019, para. 246, CLA-83.
1117
1118
See above, paras. 327, 328.
1119
Preamble, CLA-1
1120
Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s
Objections to Jurisdiction, 21 October 2005, para. 264, RLA-10.
1121
1122
241
the BIT. It does not come as a surprise that no investment tribunal has ever accepted
jurisdiction based on such subjective criterion alone: de facto control of one natural
person over the other.
705. Claimants again rely on two paragraphs in the decision on annulment rendered by the
Annulment Committee in Caratube v. Kazakhstan in support for their assertion that
de facto control over an entity can be sufficient for establishing jurisdiction.1123 The
Claimants’ argument based on the Committee’s decision is again equally misplaced.
706. The Committee in Caratube interpreted Article 25(2)(b) of the ICSID Convention
(allowing parties to treat any juridical person of Contracting State party to the dispute
as a national of another Contracting State, based on “foreign control”). It concurred
with the finding of the Caratube tribunal that “control” represents actual control of
an entity and that a tribunal may investigate whether actual control exists,1124 in
addition to the legal control:
“Under Article 25(2)(b) a local juridical person, to have access to the ICSID
adjudication mechanism, must be under “foreign control”. For these purposes,
control is the capacity of a person or a company to decide the main actions to be
undertaken by a juridical person. Such juridical persons are usually governed by a
corporate body (e.g., the general shareholders meeting), in which decisions are
taken by votes. Control is premised on the right to cast a majority of votes in such
main corporate body.
Control is a factual element. The ownership of a majority of the share capital,

granting the capacity to cast a majority of the votes, constitutes circumstantial
evidence of control and even creates a presumption of control. But, when applying
Article 25(2)(b) of the Convention, tribunals may have to establish whether the
presumption of control corresponds to the real situation or, in other words, whether
1123
Claimants’ Reply, paras. 602, 603; Caratube International Oil Company LLP v. Republic of Kazakhstan,
ICSID Case No. ARB/08/12, Decision on Annulment, 21 February 2014, paras. 253-254, CLA-16.
1124
Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/08/12,
Decision on Annulment, 21 February 2014, para, 250, CLA-16.
242
the formal majority owners of a company also exercise actual control over the
company.”1125
707. Therefore, the decision in Caratube clearly suggests that the actual control test is used
in order to restrict jurisdiction of an ICSID tribunal (when the owner of an entity does
not engage in actual control), not to broaden it based on de facto control.
708. Third, Mr. Rand did not have a legal capacity to control Mr. Obradovć’s shares at the
relevant time. Since control over the investment must exist at the time of the alleged
breach,1126 and since the Share Purchase Agreement was terminated on 22 February
2008,1127 the only legal instrument that could possibly establish Mr. Rand’s capacity
to control Mr. Obradović’s shares is the Sembi Agreement.1128 However, the Sembi
Agreement was without effect under Serbian and the law of Cyprus and could not vest
in Mr. Rand control over shares belonging to Mr. Obradović. As explained earlier, it
is nothing more than a defective contract on assignment. As such, it could not prevent
Mr. Obradović from voting his shares in any way he deemed appropriate, nor could it
restrict Mr. Obradović in disposing of shares. Simply put – had there been no pledge
over shares that Mr. Obradović purchased from the Privatization Agency, he would
be entirely free to transfer those shares to any third person, and Mr. Rand would not
be able to do anything to stop it.
709. Moreover, the plain reading of the text does not reveal how exactly the Sembi
Agreement confers the control over Mr. Obradović’s shares to Mr. Rand. There are
no provisions stipulating that, for example, Mr. Obradović assigns his voting rights to
Mr. Rand or that Mr. Obradović is restricted in desposing of his shares. Claimants’
attempt to retrospectively read into the Sembi Agreement what simply is not there is
of no avail.
1125
Decision on Annulment, 21 February 2014, paras, 252, 255, CLA-16.
1126
2011, para. 325, RLA-6;
1127
1128
243
710. Fourth, Claimants assert that Mr. Rand’s control over BD Agro existed under criteria
of Serbian law, relaying on certain provisions of the 2006 Takeover Law and the 2018
Law on Central Record of Ultimate Beneficial Owners.1129
711. This is again a discussion that is irrelevant for the Claimants’ case on jurisdiction.
What Claimants actually argue here is that the Tribunal should accept jurisdiction
based on a premise that Mr. Rand indirectly controls Mr. Obradović’s shares, by
directly controlling Mr. Obradović. Serbian law does not allow for control of one
natural person over the other. For example, the 2006 Takeover Law defines control
(as a basis for acting in concert solely for the purpose of that Law) and allows for the
control only over a legal person.1130 Likewise, Claimants’ reliance on the Law on
Central Record of Ultimate Beneficial Owners in support of the proposition that
Serbian law allows for de facto control over joint stock companies is misplaced as
well. This is so since the Law expressly excludes type of companies such as BD Agro
(open joint stock companies) from its scope of application.1131
712. As Professor Radovic explains in her expert report, relevant provisions for
establishment of control over companies in Serbia are contained in the 2004 and the
2011 Law on Companies.1132 Since neither MDH nor Sembi ever acquired
shareholding in BD Agro, the only way in which Mr. Rand could indirectly and
lawfully acquire control over BD Agro was through concluding a contract with BD
Agro itself. Because the Share Purchase Agreement was concluded between MDH
and Mr. Obradović (and not BD Agro), the contract was unable to validly give control
of the company to MDH (Mr. Rand).1133 The same goes for the control supposedly
obtained through the Sembi Agreement.1134
713. In any event, the Share Purchase Agreement and the Sembi Agreement could not serve
as a valid basis for Mr. Rand’s control after 9 December 2005 when Mr. Rand became
a member of BD Agro’s Board of Directors, since the contract by which a shareholder
undertakes to use his voting rights upon the instructions of the company’s director is
1129
1130
1131
Law on the Central Record of Ultimate Beneficial Owners, Article 2, RE-519.
1132
1133
1134
Second Expert Report of Professor Mirjana Radovic, paras. 94, 95.
244
considered null and void according to the express stipulation of both the 2004 and the
2011 Law on Companies.1135
714. Fifth, even if it is accepted, arguendo, that the Tribunal’s jurisdiction depends on
Claimants’ ability to demonstrate that Mr. Rand controlled BD Agro (and not Mr.
Obradović’s shares as purported “investment”) and even if such control could exist
without valid legal grounds for control (de facto control), Respondent submits that
Claimants did not succeed in discharging the burden of proof in this matter.
715. Mr. Obradović’s ownership of BD Agro’s equity creates presumption of his control.
This rule has been accepted by two different ICSID Annulment Committees. The
Caratube Annulment Committee held, for instance, that the ownership of majority
stake in the company’s capital, together with the right to cast a majority of votes in
corporate bodies, creates such presumption.1136 The Annulment Committee in
Occidental v. Ecuador confirmed that in, absence of special circumstances, the owner
of a company must be deemed to control it as well.1137
716. It is up to Claimants to prove the existence of “special circumstances” which would

rebut the presumption of Mr. Obradović’s control. In doing so, Claimants’ evidence
must reach a threshold that is exceptionally high. In Thunderbird v. Mexico, the
tribunal discussed the meaning of the term “control” contained in Article 1117 of
NAFTA and held that the legal control over the company can be substituted by de
facto control only if such control is proven beyond any reasonable doubt:
“The term “control” is not defined in the NAFTA. Interpreted in accordance

with its ordinary meaning, control can be exercised in various manners.
Therefore, a showing of effective or “de facto” control is, in the Tribunal’s
view, sufficient for the purposes of Article 1117 of the NAFTA. In the absence
1135
2004 Law on Companies, Article 295, RE-320; 2011 Law on Companies, Article 359, RE-321; Second
Expert Report of Professor Mirjana Radovic, paras. 90-92.
1136
Decision on Annulment, 21 February 2014, para, 255, CLA-16.
1137
Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic
of Ecuador, ICSID Case No. ARB/06/11, Decision on Annulment of the Award, November 2, 2015, para.
104, CLA-5.
245
of legal control however, the Tribunal is of the opinion that de facto control
must be established beyond any reasonable doubt.”1138
717. The application of the Thunderbird standard of proof is particularly warranted here,
since Claimants not only ask the Tribunal to accept jurisdiction based on Mr. Rand’s
informal influence over Mr. Obradović and his business, but, at the same time, to
ignore the fact that the owner of BD Agro’s majority capital had the full legal capacity
to control the investment.
718. One of the key factors in establishing the existence of de facto control is the economic
exposure to the business.1139 A person who is receiving an economic return from
investment and can eventually be held responsible for improper decisions is the one
controlling the investment.1140 In the case at hand, as shown by evidence that
Respondent marshaled, it was Mr. Obradović who received economic gains from his
business venture and it was Mr. Obradović who suffered both legal and economic
consequences of decisions with regard to the BD Agro’s business.
719. The record demonstrates that Mr. Obradović received and kept considerable sum of
money from BD Agro. The constant flow of BD Agro funds to his personal accounts
is comprehensively documented by Respondent in this proceeding.1141 Most notable
example is the payment that eventually resulted in the termination of the Privatization
Agreement and was only discovered during the course of this arbitration.1142
720. Mr. Obradović used BD Agro’s funds for his personal gain and for the benefit of his
other companies.1143 Claimants attempted to rebut this fact by stating that other Mr.
Obradović’s companies to which he channeled BD Agro’s assets were in fact
beneficially owned by Mr. Rand.1144 However, this contention is easily disproved by
documentary evidence.
1138
International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral
Award, 26 January 2006, para. 106, CLA-95.
1139
B-Mex, LLC and others v. United Mexican States, ICSID Case No. ARB(AF)/16/3, Partial Award, 19
July 2019, para. 240(e), CLA-83.
1140
Award, 26 January 2006, para. 108, CLA-95.
1141
See above, paras. 330-372.
1142
1143
1144
Rand Second WS, para. 6.
246
721. Shares of joint stock companies bought by Mr. Obradović in the privatization process
(Crveni Signal, PIK Pešter, Inex and Obnova) were all transferred to the Cypriot
limited liability company Kalemegdan Investments Ltd. 1145 The same Cypriot
company is also the sole shareholder of the Serbian limited liability company
Kalemegdan Investments DOO. Mr. Obradović is registered as the beneficial owner
of Kalemegdan Investments DOO under the Law on Central Record of Ultimate
Beneficial Owners.1146 More importantly, according to the data from the Cypriot
Department of Registrar of Companies and Current Receiver, Mr. Obradović is a sole
shareholder and owner of Kalemegdan Investments Ltd. 1147 Therefore, all of those
companies are at this time owned by Mr. Obradović. The fact that Mr. Obradović was
receiving economic returns from his ownership of shares attest to the fact that he was
the one to control them. In addition, it demonstrates (coupled with other circumstances
of this case)1148 that it was Mr. Obradović who held both nominal ownership and
economic rights stemming from the ownership of shares in BD Agro.
722. On the other hand, Claimants’ extensive submissions in the present proceeding offer
next to nothing in terms of shading light onto Mr. Obradović’s exact role in the
acquisition and activities of BD Agro. Under the Claimants’ narrative Mr. Obradović
was no more than one of Mr. Rand’s employees who was working pro bono for ten
years. Witness statements of Messrs. Rand and Obradović reveal that he received ten
Canadian dollars for his efforts in “overseeing” BD Agro’s business for ten years.1149
723. The precise details of the arrangement between Mr. Rand and Mr. Obradović remain
obscure. In his two witness statements Mr. Obradović is silent about his motives to
enter such arrangement. Claimants have also failed to submit any documents that
would attest to the particulars of the venture with regards BD Agro. The lack of
persuasive explanation as to Mr. Obradović’s part in this endeavor does not speak
1145
See List of shareholders of Crveni Signal, 20 June 2014, CE-759; List of shareholders of Obnova ad
Beograd, 11 June 2012, CE-760; List of shareholders of Beotrans Beograd 10 June 2012, CE-761; List of
shareholders of Inex, 22 January 2020, RE-491; List of shareholders of PIK Pester, 22 January 2020, RE-
492.
1146
Excerpt from the Register of Real Owners for Kalemegdan Investments doo, 22 January 2020, RE-493.
1147
List of Shareholders of Kalemegdan Investments Ltd, website of the Cyprus Department of Registar of
Companies and Official Receiver, RE-513.
1148
1149
Rand Second WS, para. 16; Obradović Second WS, para. 14.
247
favorably about truthfulness of Claimants’ contention that it was Mr. Rand who both
owned and controlled Mr. Obradović’s shares.
724. Respondent does not contest that Mr. Rand was involved to an extant in BD Agro’s
business. At certain point he was a creditor of BD Agro and, together with Mr. Lucas
Lundin (who actually provided Mr. Obradović with the loan for the purchase of BD
Agro’s capital), was a member of BD Agro’s management.1150 This, however, does
not mean that it was Mr. Rand who solely controlled Mr. Obradović’s shares. Since
Mr. Obradović was a lawful owner of BD Agro’s shares and since he was using rights
originating from the ownership (most notably the right to acquire profit from BD
Agro’s business), Respondent respectfully submits that the Tribunal should conclude
that Claimants failed in discharging the burden of proof as regards the criterion of
control under the Canada – Serbia BIT.
4. The Canadian Claimants’ “indirect interest” in the Sembi Agreement is not an

investment protected under the Canada – Serbia BIT
725. As explained earlier, the Sembi Agreement did not result in the transfer of ownership
of Mr. Obradović’s shares to Sembi. That is why the Canadian Claimants did not
obtain the ownership rights that would enjoy protection under Article 1 of the Canada
– Serbia BIT. In addition to this and as a separate purported “investment”, Claimants
argue that the Sembi Agreement vested upon them “indirect interest” in Sembi’s
rights under the Sembi Agreement.1151
726. However, Claimants are simply unable to explain to which “indirect interest” they are
referring to, in addition to Sembi’s alleged ownership of Mr. Obradović’s shares.
Their argument to this regard is nothing more than mere repetition of the assertions
based on the ownership of “Beneficially Owned Shares”. For example, Claimants
argue that the Sembi Agreement gave Sembi “an interest in the enterprise that entitles
the owner to share in income or profits of the enterprise”.1152 Obviously, Sembi was
never entitled to share in income of BD Agro since it never acquired Mr. Obradović’s
shares.
1150
1151
1152
248
727. In a similar fashion, Claimants assert that the Sembi Agreement resulted in Sembi’s
acquisition of “an interest arising from the commitment of capital or other resources
in the territory of a Party to economic activity in that territory.”1153 Again, Claimants
do not venture to explain which interest precisely this is, if not the alleged ownership
of BD Agro’s shares held by Mr. Obradović.
728. In any event, to whichever Sembi’s interest Claimants now refer, it is certain that no
“indirect interest” of the Canadian Claimants could arise if Sembi itself could not
obtain any rights based on the Sembi Agreement. Put differently, the existence of
Sembi’s purported contractual interest hinges upon the validity and effects of the
Sembi Agreement.
729. The purpose of the Sembi Agreement was to transfer, by way of assignment, Mr.
Obradović’s “right, title and interest in and to the [Privatization Agreement].”1154
This was against the express prohibition of assignment without the prior approval of
the other contracting party – the Privatization Agency – contained in Article 41ž of
the Law on Privatization, as the law applicable to the Privatization Agreement.1155
Article 41ž(1) reads:
Subject to prior consent of the Agency, the buyer of the capital (hereinafter:
assignor) may assign the agreement on sale of the capital or property to a
third party (hereinafter: assignee) under the conditions stipulated by this law
and the law on obligations.1156
730. Claimants’ attempt to argue that the Sembi Agreement is not in conflict with Article
41ž of the Law on Privatization1157 is inapposite.
731. First, Claimants in essence assert that the purpose of the Sembi Agreement was to
transfer Mr. Obradović’s rights and obligations from the Privatization Agreement
without assigning the Privatization Agreement itself. Under this interpretation, the
Sembi Agreement only contemplates a possibility of the future assignment.1158
1153
1154
Article 4 of the Sembi Agreement, CE-29.
1155
Recitals of the Privatization Agreement, CE-17.
1156
2001 Law on Privatization, Article 41ž(1), CE-220.
1157
1158
249
732. The Claimants’ effort to read into the Sembi Agreement what it does not say is
obviously made with the purpose of serving Claimants’ interest in this arbitration and
it is unpersuasive as much as it is original. Had the parties to the Sembi Agreement
indeed intended to transfer the economic interest in the Privatization Agreement
separately from the “nominal” position of the contracting party, this could have been
stated expressly, as it was, for example, the case with the Famout Agreement that was
in the center of the dispute in Occidental v. Ecuador.1159 The text of the Sembi
Agreement simply does not say what Claimants wish it does. Claimants’ peculiar
interpretation of the Sembi Agreement is merely a post hoc intellectual construct.
733. Second, even if Claimants’ interpretation of the Sembi Agreement could be accepted
as correct for the sake of the argument, the Sembi Agreement would still be in conflict
with Article 41ž(1) of the Law on Privatization. Under Claimants’ reading of Article
41ž(1), the provision prohibits the assignment of the Privatization Agreement without
prior approval of the Privatization Agency and yet, somehow, it allows Mr. Obradović
to freely transfer his rights and obligations stemming from the same contract. Such
interpretation would not only render any prohibition on assignment meaningless but
it is also in direct contravention with the text of the Law on Privatization.
734. Article 41ž(4) reads:
After the assignment of agreement on sale of the capital or property, the

assignee shall attain all the rights and obligations from the agreement on
sale.1160
735. Therefore, the acquisition of the rights and obligations from the Privatization
Agreement is subject to the prior assignment of the Agreement. In turn, the assignment
is subject to the prior approval of the Agency.1161 To argue that the economic rights
from the Privatization Agreement could have been transferred separately from the
Agreement itself to a third party (Sembi) and that such transfer was in conformity with
the Law on Privatization is obviously misplaced.
1159
Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic
of Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012, para. 128, CLA-75.
1160
2001 Law on Privatization, CE-220.
1161
250
736. As explained earlier, the fact that Mr. Obradović attempted to transfer his rights and
obligations from the Privatization Agreement without the prior approval from the
Agency is also fatal for the Claimants’ argument that the Sembi Agreement transferred
equitable title to the Privatization Agreement and Mr. Obradović’s shares to Sembi,
based on the law of Cyprus.1162
737. In sum, the Sembi Agreement did not result in Sembi’s acquisition of any “right, title
and interest” held by Mr. Obradović as a party to the Privatization Agreement.
Consequently, the Canadian Claimants did not obtain an indirect interest in Sembi’s
rights.
738. Alternatively, even if the Sembi Agreement could create any contractual rights for
Sembi, the fact remains that the Canadian Claimants are not entitled to make a direct
claim based on the contractual rights belonging to Sembi. This was explained, for
example, by the tribunal in ST-AD v. Bulgaria:
“It has been repeatedly held by arbitral tribunals that an investor has no
enforceable right in arbitration over the assets and contracts belonging to the
company in which it owns shares.”1163
739. The proposition was accepted by the tribunal in Karkey v. Pakistan:
“Moreover, the Tribunal finds that Karkey is not entitled as a matter of

international law to make a direct claim in relation to Karpak’s contractual
rights, as Karkey does not have standing to assert claims based on the host-
State’s treatment of the contracts and assets of the company in which it holds
shares.”1164
740. This is by itself enough to put an end to the Claimants’ case based on the “indirect
interest” of Sembi allegedly created under the Sembi Agreement.
1162
1163
ST-AD GmbH v. Republic of Bulgaria (UNCITRAL), PCA Case No. 2011-06, Award on Jurisdiction,
para. 278, RLA-79.
1164
Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1,
Award, 22 August 2017, para. 716, RLA-178.
251
5. Mr. Rand’s payments for the benefit of BD Agro do not qualify as an
investment under the Canada – Serbia BIT
741. In their Reply, Claimants reiterate the assertion that Mr. Rand’s payments to BD
Agro’s Canadian suppliers, as well as certain payments to consultants for services
provided to the company, represent a protected investment under the Canada – Serbia
BIT.1165 However, Claimants’ reading of Article 1 of the BIT is wrong as a matter of
law.
742. First, although Claimants now characterize all of those payments (at least initially) as
“a loan to an enterprise”1166 it follows from the rest of their submission that they are
unable to decide whether the payments should indeed treated as such or rather as
expenses aimed at securing the continuity of BD Agro’s business operations.1167
Respondent submits that those payments certainly cannot be both. This is the essence
of the reasoning offered by the Inmaris v. Ukraine tribunal - payments made in
furtherance of the investment are not investments itself.1168 Thus, if Claimants were
the owners of BD Agro and its business, as they claim, the payments made and
expenses incurred in day to day operations of BD Agro cannot be regarded as a
separate investment under the Canada – Serbia BIT.
743. Second, Claimants also submit that payments made for the benefit of BD Agro gave
rise to Mr. Rand’s monetary claim against the company and that such claim is an asset
that represents an investment. The problem with Claimants’ reasoning is the fact that
not all monetary claims are included into the ambit of the Canada Serbia BIT. In
reality, most of those claims are expressly excluded from the protection offered by the
BIT.
744. Article 1 of the BIT contains clarifications as to what does not represent an
investment:
“but “investment” does not mean:
1165
1166
1167
1168
Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8,
Decision on Jurisdiction, 8 March 2010, para. 101, RLA-13.
252
(k) a claim to money that arises solely from:
a commercial contract for the sale of a good or service by a national or enterprise

in the territory of a Party to an enterprise in the territory of the other Party, or
(ii) the extension of credit in connection with a commercial transaction, such as

trade financing; or
(l) any other claim to money;
that does not involve the kinds of interests set out in subparagraphs (a) to
(j);”1169
745. If Claimants now argue (as they apparently do) that all of these payments must be
characterized as “a loan to an enterprise” in accordance with item (d) of the Canada
– Serbia BIT’s definition of investment, it us up to them to provide the evidence in
support of such characterization. However, they offered no evidence to this regard.
There are no documents on the record that would serve as evidence of the agreement
on and terms of “loans” between Mr. Rand and BD Agro. For example, the large
majority of Mr. Rand’s payments – nearly EUR 2.2 million according to Claimants1170
– were made for the purchase and transport of heifers to BD Agro. Those payments
were recorded as Mr. Rand’s monetary claim against BD Agro in the bankruptcy
proceedings.1171 However, the Decision of the Commercial Court in Belgrade records
specifically that “[T]he Creditor [Mr. Rand] did not make payments on grounds of an
agreement concluded with the bankruptcy debtor [BD Agro].”1172 The payments for
the purchase of livestock were recorded in bankruptcy as “unofficial uncommanded
agency under Article 220 of the Law on Contracts and Torts [Law on
Obligations].”1173 As a result, those payments must be treated as “any other claim to
money” under item (l), expressly excluded from the scope of protection offered by the
1169
Article 1; emphasis added, CLA-1.
1170
1171
Commercial Court in Belgrade Decision number 9. St-321/2015 (30 March 2018), Decision on the List of
Determined and Contested Claims, p.2 (English translation), CE-136.
1172
Determined and Contested Claims, p.2 (English translation), CE-136.
1173
Determined and Contested Claims, p.2 (English translation), CE-136. The Law on Obligations also refers
to this form of quasi-contractual liability as “carrying out the transaction of another person, without order
or authority.” See Article 220 of the Law on Obligations, RE-32.
253
Canada – Serbia BIT. The same applies to the payments made to the BD Agro’s
consultants Messer. Wood and Calin.1174
746. Third, even if the payments could be considered as loans, such loans are explicitly
excluded from the definition of investment under the Canada – Serbia BIT. Under
item (k)(ii) of Article 1, “investment” does not mean “the extension of credit in
connection with a commercial transaction, such as trade financing.” What is a
commercial transaction can be deduced from item (k)(i) of Article 1 which defines
commercial contract as a “contract for the sale of a good or service by a national or
enterprise in the territory of a Party to an enterprise in the territory of the other
Party.”1175 If Mr. Rand’s payments for the purchases of livestock from the Canada –
based suppliers were indeed loans extended to BD Agro, those loans fit squarely into
the exception mentioned above.
747. Apart from the clear wording used in Article 1 of the Canada – Serbia BIT, the
negotiating history of the BIT also confirms that it was the Parties’ intention to
exclude transaction such as loans for the purchase of goods and services from the
Treaty’s protection. The Report of the Serbian Ministry of Trade from the second
round of negotiations between representatives of Serbia and Canada, held in Ottawa
from 23 to 25 May 2013, records the understanding with regard to the meaning of
certain provisions of the Canada - Serbia BIT’s final text (excluding Annexes).1176
Paragraph 5 of the Report discusses the exceptions contained in items (k) and (l) of
Article 1:
“Based on the past practice it may be stated that it is a very important fact
that, also at the proposal of the Serbian side, the wording incorporates that a
claim to money that arises from receivables as a result of a commercial
contract for the sale of a good or service between economic entities of the two
parties or loans taken out in order to perform such contracts shall not be
deemed an investment, securing so additional protection from a possible
dispute, i.e. from a situation in which a Canadian investor could claim
1174
1175
Article 1, CLA-1.
1176
Report from the negotiations regarding conclusion of the Agreement between Canada and the Republic of
Serbia for the Promotion and Protection of Investments, held in Ottawa, from 23 – 25 May 2013, RE-271.
254
protection of its rights from the so-called commercial risks which is not the
purpose or aim of this Agreement.”1177
748. Therefore, the negotiating history testifies to the existence of an unequivocal

understanding that the loans referred to by Claimants are not to be considered as
investment under the Canada – Serbia BIT. This is why the Claimants’ argument that
Mr. Rand’s payments for the benefit of BD Agro represent an investment must be
dismissed.
B. NO JURISDICTION RATIONE MATERIAE UNDER THE CYPRUS – SERBIA

BIT
749. Article 1(1) of the Cyprus – Serbia BIT defines the term “investment” in the following
manner:
2. The term "investment" shall mean any kind of assets invested by investor
of one Contracting Party in the territory of the other Contracting Party in
accordance with its laws and regulations and in particular, though not
exclusively, shall include:
a) movable and immovable property and any other in rem property rights
such as mortgages, liens or pledges;
b) shares, bonds and other form of securities;
c) claims to money or to any performance under contract having economic

value;
d) intellectual property rights such as copyrights and other related rights and
industrial property rights such as patents, licences, industrial designs and
models, trade marks, as well as goodwill, technical processes and know-how;
1177
Report from the negotiations regarding conclusion of the Agreement between Canada and the Republic of
Serbia for the Promotion and Protection of Investments, held in Ottawa, from 23 – 25 May 2013, para. 5
(emphasis added), RE-271.
255
e) concessions in accordance with the laws and regulations of the
Contracting Party in whose territory the investment is made, including
concessions to search for, extract and exploit natural resources.1178
750. The provision explicitly requires that an investment is made in accordance with laws
and regulations of the Contracting Party receiving investment. Unlike the Canada –
Serbia BIT, the Cyprus – Serbia BIT does not extend protection to investments
controlled by natural persons or entities of the other Contracting Party.
751. Claimants assert that Sembi’s purported investment comprises of assets listed under
items b) and c) of Article 1(1).1179 However, Sembi has never acquired shares owned
by Mr. Obradović or claims under the Sembi Agreement.
1. Sembi has never owned Mr. Obradović’s shares in BD Agro
752. In order to reach the jurisdictional threshold, Claimants must be able to prove that
Sembi acquired the ownership of BD Agro’s shares. Set on this task, Claimants are
unbothered by the clear and unambiguous text of the Cyprus – Serbia BIT. The
cornerstone of their case is the contention that the word “shares” contained in Article
1(1)(b) should be read as “Beneficially Owned Shares”.1180 Respondent respectfully
submits that Article 1(1) of the Cyprus – Serbia BIT means what it says – the
protection under the BIT is offered to assets such as shares, acquired in conformity
with Serbian laws and regulations. To be clear: the fact that the BIT contains the so-
called in conformity clause only reiterates the principle generally accepted by
investment tribunals - international law does not create property rights. It simply
offers protection to such rights created under the municipal law of the Host State.1181
753. The Sembi Agreement did not result in Sembi’s acquisition for reasons already
explained above. In a nutshell, at the time the Sembi Agreement was concluded, only
a person registered in the Central Securities Registry was considered to be a lawful
1178
Article 1 of the Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal
Promotion and Protection of Investments, dated 23 December 2005, CLA-2.
1179
1180
1181
Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media
Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Award, 16 April
2014, para. 162, RLA-110.
256
holder of equity in a Serbian joint stock company.1182 Contrary to what Claimants now
suggest,1183 the registration of ownership did not imply only nominal ownership of
shares. It gave to the registered owner full benefits of ownership and corresponding
rights.1184 Those economic rights linked to the ownership of shares could not be
transferred to a third party by a contract.1185 In sum, to use the Claimants’ paradigm,
the beneficial ownership of shares could not be validly transferred to another person
or an entity without and independently from the legal title on shares. Transfer of those
rights was possible (with minor exceptions) only by transferring securities into the
account of the new owner.1186 Thus, the Sembi Agreement was not only unable to
transfer the nominal ownership from Mr. Obradović to Sembi under Serbian law, but
it was incapable to result in transfer of right comprising the beneficial ownership as
well.
754. The Claimants’ argument on Sembi’s purported acquisition of BD Agro’s shares is,
therefore, fatally flawed. However, it is utterly absurd when put in the context of other
assertions Claimants made in their submission. In essence, Claimants argue that both
Mr. Rand (the Canadian Claimants) and Sembi were beneficial owners of Mr.
Obradović’s shares at the same time. The purpose of the beneficial ownership
doctrine, as submitted by Claimants themselves,1187 is to establish “the real and
equitable owner of an international claim”.1188 It is simply impossible that each and
every entity up the corporate chain hold the position of an equitable owner of the same
asset simultaneously. As already explained by Respondent, the notion of the beneficial
owner, by definition, means that there cannot be “direct” and “indirect” beneficial
owners of an asset. Claimants attempt to deal with this problem by arguing that
“[U]ltimate beneficial owner” is not a pleonasm and “direct beneficial owner’” is
not an oxymoron.”1189 This is hardly a legal argument and it certainly cannot support
the assertion that defies common sense and basic legal logic.
1182
Article 19(1) of the 2006 Law on Market in Securities and other Financial Instruments, RE-111.
1183
1184
1185
1186
Article 19(3) of the Law on Market in Securities and other Financial Instruments (2006), RE-111.
1187
1188
David J. Bederman, “Beneficial Ownership of international Claims,” International and Comparative Law
Quarterly, Vol. 38, 1989, p. 936, CLA-78.
1189
257
2. Sembi has never acquired claims under the Sembi Agreement
755. Claimants’ argument with regards the alleged acquisition of “claims to money or to
any performance” under the Sembi Agreement is a simple reiteration of their
argument based on Sembi’s purported beneficial ownership of BD Agro’s shares.
Claimants argue, for example, that Sembi acquired the beneficial ownership of Mr.
Obradović’s shares and, consequently, a right to compel Mr. Obradović “to vote the
Beneficially Owned Shares as instructed by Sembi.”1190 This is wrong as a matter of
law.
756. First, Sembi could not have acquired the beneficial ownership of BD Agro’s shares
based on the Sembi Agreement under Serbian law, as expressly required by the Cyprus
– Serbia BIT. Mr. Obradović was prohibited from transferring his economic interest
(including the right to vote the shares) to any third party. 1191 Simply put, the Sembi
Agreement did not give Sembi any claims under Serbian law. Even if the Cypriot law
would be relevant for the matter at hand (which it is not), the result would remain the
same. As explained by professor Emilianides, the Sembi Agreement did not result in
transfer of the equitable title over Mr. Obradović’s shares even under the law of
Cyprus.1192
757. Second, the Sembi Agreement was unable to convey upon Sembi any other right or
interest of Mr. Obradović stemming from the Privatization Agreement. Mr. Obradović
entered the Sembi Agreement without the prior approval of the PA, in direct
contravention with the Law on Privatization.1193 As explained earlier, the Claimants’
argument that the prohibition of assignment from the Law on Privatization did not
apply to the Sembi Agreement is without any merit.
758. To conclude – Sembi has never possessed any claim based on the Sembi Agreement
that would come under the scope of Article 1(1) of the Cyprus – Serbia BIT.
1190
1191
1192
Expert Report of Professor Achilles C. Emilianides, paras. 26-37.
1193
258
3. Sembi did not invest in the territory of Serbia
759. The fact that Sembi has never acquired any asset in accordance with Serbian laws and
regulations is alone and of itself enough to put an end to Claimants’ case on
jurisdiction ratione materiae under the Cyprus – Serbia BIT. However, in addition to
this, Claimants are unable to demonstrate that Sembi invested anything of value in the
territory of Serbia.
760. Article 1(1) of the Cyprus – Serbia BIT affords protection to “any kind of assets
invested by investor of one Contracting Party in the territory of the other Contracting
Party…”.1194 The term “invested” necessarily implies an active contribution of a
putative investor. In other words, a simple fact that the investor holds shares in a local
company does not make the ownership of shares “investment” if the acquisition of an
asset was not the result of the contribution made by the investor.
761. This was the conclusion recently reached by the tribunal in Clorox v. Venezuela.1195
The tribunal in this case interpreted Article I(2) of the Spain – Venezuela BIT,
containing the language similar to Article 1(1) of the Cyprus – Serbia BIT,1196 and
found that the phrase “invested by investors of one Contracting Party in the territory
of the other Contracting Party” to require an act of investing by the investor.1197 The
tribunal declined jurisdiction over the claim submitted by a Spanish entity (Clorox
Spain) which owned 100% of shares in a local company (Clorox Venezuela) based on
the fact that the claimant did not pay any consideration for the shares it received and
did not make any contribution after it had acquired Clorox Venezuela.1198
762. Similarly, in Alapli v. Turkey, the tribunal denied protection of the Netherlands –
Turkey BIT to a Dutch entity which made no meaningful contribution to Turkey:
1194
Article 1(1) of the Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal
Promotion and Protection of Investments, RLA-130.
1195
Clorox Spain S.L. v. Bolivarian Republic of Venezuela, PCA Case No. No. 2015-30, Award, 20 May 2019,
RLA-170.
1196
para. 799, RLA-170.
1197
para. 815, RLA-170.
1198
paras. 831, 834, RLA-170.
259
“To be an investor a person must actually make an investment, in the sense
of an active contribution.31 Status as a national of the other contracting state
is not in itself enough. The Dutch entity, [the First Project Company], has not
demonstrated that it actually made any investment in Turkey, in the sense of
a meaningful contribution to Turkey. To the extent that contributions were
made, they came from nationals or companies of the United States and
Turkey.”1199
763. The tribunal in Alapli particularly emphasized the fact that the claimant served only
as a “conduit” through which US entities financed the local company whose shares
were held by the Dutch claimant and that the claimant itself did not make any
monetary contribution:
“Claimant served as a conduit through which [X], in particular […] and […],
funneled financial contributions to [the Second Project Company], such
contributions comprising the entirety of that entity’s statutory capital. [X],
not Claimant, funded all capital for the corporate interest characterized as
“shares of stock” by Netherlands-Turkey BIT Article 1(b)(ii) and “shares,
stock or other form of equity” in ECT Article 1(6)(b).”1200
764. Just as in Standard Chartered Bank v. Venezuela,1201 the tribunal in Alapli held that,
in order for an investment to be “of” the investor, the investor must be able to show
that it transferred something of value from one treaty party to another:
“Put differently, the treaty language implicates not just the abstract existence
of some piece of property, whether stock or otherwise, but also the activity of
investing. The Tribunal must find an action transferring something of value
(money, know-how, contacts, or expertise) from one treaty-country to
another.”1202
1199
Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Excerpts of Award, 16 July 2012,
para. 350, RLA-166.
1200
para. 340, RLA-166.
1201
Standard Chartered Bank v. United Republic of Tanzania, ICSID Case no. ARB/10/12, Award, 2
November 2012, para. 232; RLA-15.
1202
para. 360 (emphasis added), RLA-166.
260
765. In the case at hand, Sembi did not make any active contribution in the territory of
Serbia.
766. First, even if the Sembi Agreement could have led to Sembi’s acquisition of shares in
BD Agro (which it could not), the purported purchase of Mr. Obradović’s shares was
not financed by Sembi. By Claimants’ own admission, the funds for the entire
operation were “ultimately committed” by Mr. Rand.1203 It was Mr. Rand, a Canadian
national, who apparently repaid Mr. Obradović’s debt to the Lundin Family, using the
Sembi’s bank account merely as a conduit for such payments. Contrary to the
Claimants’ assertions,1204 those payments cannot be regarded as Sembi’s contribution.
767. Second, there is no evidence that Sembi ever made any contribution after its purported
acquisition of Mr. Obradović’s shares. In particular, Claimant are obviously incapable
to produce any document proving that it was Sembi who paid more than EUR 2
million owed by Mr. Obradović to the PA which was Sembi’s obligation under the
Sembi Agreement.1205 It is certainly peculiar that a company does not possess financial
records for the payment of such a large sum of money. On the other hand, the record
indicates that it was Mr. Obradović who paid remaining installments of the purchase
price to the PA1206 (albeit using BD Agro’s funds, as demonstrated by
Respondent).1207 In addition, Claimants have never even asserted that Sembi made its
contribution through other, non-monetary forms such as contribution in know-how or
expertise.
768. Third, Claimants cannot rely on the fact that BD Agro’s business activities were
conducted in Serbia in order to prove that Sembi’s purported investment was made in
the territory of Serbia.1208 BD Agro, as a Serbian company, obviously did engage into
activities in Serbian territory. However, the fact that a business project is located in
1203
1204
1205
1206
Banking excerpts confirming payment of installments of purchase price by Mr. Obradovic dated 15
October 2015, RE-33.
1207
See above, paras. 374-387
1208
261
Serbia means only that there is an investment in the territory of Serbia and not that the
investment was made by Sembi.1209
769. Finally, the fact relied on by Claimants – that BD Agro’s business was regularly
discussed during the meetings of Sembi’s directors1210 - does not add anything to the
Claimants’ argument. Holding discussion about BD Agro’s activities is not the same
as making an active contribution to the investment and it cannot replace the
requirement of contribution.
770. To conclude, even if Sembi was the owner of Mr. Obradović’s shares in BD Agro
(which it was not), Claimants would still fail to prove that Sembi invested in the
territory of Serbia.
C. THE TRIBUNAL DOES NOT HAVE JURISDICTION RATIONE VOLUNTATIS

UNDER THE TREATIES
1. Respondent did not consent to arbitrate disputes about investments made in

breach of its laws
771. In case the Tribunal finds that Claimants are investors who made an investment in the
meaning of the Treaties, the case at hand must nevertheless be dismissed for lack of
jurisdiction ratione voluntatis, due to its illegal nature. Claimants have shown utter
disrespect to the Serbian law and legal system, and their entire purported investment
is tainted with unlawfulness, fraud and deceit, due to which it is unworthy of
protection.
772. In this section, Respondent will show that: (i) legality of an investment is a
prerequisite for investment protection under both Treaties; and that (ii) Claimants’
purported investments are suffused by unlawful and deceitful conduct, which renders
them irrefutably illegal.
1209
See Clorox Spain S.L. v. Bolivarian Republic of Venezuela, PCA Case No. No. 2015-30, Award, 20 May
2019, para. 814, RLA-170.
1210
262
1.1. Legality of an investment is a prerequisite for protection under the Treaties
773. In their fleeting response to this objection, Claimants do not seem to have disputed
that legality is a prerequisite for protection under the Treaties. In fact, they provide no
response in that regard. Yet, for the sake of precaution, Respondent explains the
content of this standard below.
1.1.1. Subject matter of the legality requirement
774. As Respondent already explained,1211 various ICSID tribunals have so far found that
the breach of the Host State’s law in making of investment removes the offer to
arbitrate previously given by the state.
775. This is the case under both the Cyprus-Serbia BIT, which contains an explicit legality
requirement,1212 and the Canada-Serbia BIT, which contains an implicit legality
requirement.1213 Likewise, it is generally established that access to protection under
the ICSID Convention itself is also restricted by an implicit legality requirement.1214
776. Furthermore, the legality requirement is not limited to a breach of strictly national
laws and regulations. It also relates to the breach of general international legal
principles, such as the principle of good faith (e.g. by fraudulent conduct).1215
Specifically, as elaborated by the tribunal in Hamester v. Ghana, the legality
requirement means that:
“An investment will not be protected if it has been created in violation of

national or international principles of good faith; by way of corruption,
fraud, or deceitful conduct; or if its creation itself constitutes a misuse of
the system of international investment protection under the ICSID
Convention. It will also not be protected if it is made in violation of the host
1211
Counter-Memorial, Section III.B.1.
1212
Article 1(1) of the Cyprus-Serbia BIT RLA-130 (“The term "investment" shall mean any kind of assets
invested by investor of one Contracting Party in the territory of the other Contracting Party in accordance
with its laws and regulations” [emphasis added])
1213
Counter-Memorial, paras. 355, 358-359 (citing Fraport II, Mamidoil v. Albania and Cortec v. Kenya).
1214
Counter-Memorial, para. 356 (citing Phoenix v. Czech Republic).
1215
Jean Engelmayer Kalicki, Dmitri Evseev, et al., 'Chapter 9: Legality of Investment', in Meg Kinnear,
Geraldine R. Fischer, et al. (eds), Building International Investment Law: The First 50 Years of ICSID,
Kluwer Law International (2015), p. 127 RLA-182 (“The underlying theory is that treaty protection does
not attach to, and investor-State arbitration is unavailable for, investments that: (1) are inherently illegal
as a matter of host State law or international public policy; or (2) were procured only as the result of
illegality or misconduct”).
263
State’s law (as elaborated, e.g. by the tribunal in Phoenix). These are
general principles that exist independently of specific language to this effect
in the Treaty”1216
777. Likewise, as stipulated in Minnotte v. Poland:
“it is now generally accepted that investments made on the basis of

fraudulent conduct cannot benefit from BIT protection; and this is a
principle that is independent of the effect of any express requirement in a
BIT that the investment be made in accordance with the host State’s law”1217
778. A number of other tribunals have taken the same approach.1218 Recently, the stance
was also confirmed by the Annulment Committee in Teinver v. Argentina, by stating:
“The fact for an investor to use the investment to commit a fraud to the
detriment of the host State may be considered as depriving the investment
from the protection granted to it by international law”1219
779. Therefore, as summed up by the tribunal in Metal-Tech v. Uzbekistan, on the basis of

the existing case law:
“the subject-matter scope of the legality requirement covers: (i) non-trivial

violations of the host State's legal order […], (ii) violations of the host
State's foreign investment regime […], and (iii) fraud – for instance, to
1216
Hamester, Award, paras. 123-124 RLA-115.
1217
David Minnotte & Robert Lewis v. Republic of Poland, ICSID Case No. ARB (AF)/10/1, Award, 16 May
2014, para. 131.RLA-159.
1218
Getma International and others v. Republic of Guinea [II], ICSID Case No. ARB/11/29, Award, 16
August 2016, para. 174, RLA-160 (“only legal investments, carried out in good faith, are to be protected
by the ICSID arbitration, and that the Arbitral Tribunal must decline jurisdiction, if it appears that the
investment was made fraudulently or as a result of corruption”); Churchill Mining PLC and Planet Mining
Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40, Award, 16 December 2016, para.
504, RLA-131 (“The theory of abuse of process, which is a variation of the prohibition of abuse of rights
and, like the latter, an emanation of the principle of good faith also found application in the context of
inadmissible corporate restructurings. That theory is another manifestation of the general principle that
one does not benefit from treaty protection when underlying conduct is deemed improper.”);
1219
Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine
Republic, ICSID Case No. ARB/09/1, Decision on Argentina’s application for annulment para. 129, RLA-
162.
264
secure the investment […] or to secure profits. There is no doubt that
corruption falls within one or more of these categories.”1220
780. Furthermore, the Tribunal should not limit its scrutiny solely to one aspect of the
investment. The best (and often the only) way of determining unlawfulness,
misrepresentation and fraud is when analyzing the acquisition of an investment within
a larger context. Therefore, the investor’s conduct must be assessed comprehensively
throughout the relevant period. As the tribunal rightly determined in Yukos v. Russia:
“an examination of the legality of an investment should not be limited to

verifying whether the last in a series of transactions leading up to the
investment was in conformity with the law. The making of the investment
will often consist of several consecutive acts and all of these must be legal
and bona fide”1221
781. Applied to this case that would require the Tribunal to determine whether investment
in BD Agro was legal and bona fide throughout the relevant period, as Claimants’
purported investment was not a one-time act conducted on a single day. To the
contrary, this was a complex transaction starting from the initial privatization process
(before the auction), which continued in the years that followed through the payment
of the purchase price and the alleged investments into BD Agro.
782. It should also be noted that an investor does not have to be the direct perpetrator of
the illegal or fraudulent conduct. The specific act or acts may have been committed
by a third person, while the investor should have been in a position in which he should
have known or inquired about the illegalities in question.1222 In the present case,
1220
Metal-Tech v. Uzbekistan, ICSID Case No. ARB/10/3, Award, para 165 RLA-161; See also Quiborax
S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No.
ARB/06/2, Decision on Jurisdiction, para. 266 RLA-24.
1221
Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227,
Final Award, 18 July 2014, para. 1369, RLA-163 (emphasis added).
1222
David Minnotte & Robert Lewis v. Republic of Poland, ICSID Case No. ARB (AF)/10/1, Award, 16 May
2014, para. 163, RLA-159 (“ There may be circumstances in which the deliberate closing of eyes to evidence
of serious misconduct or crime, or an unreasonable failure to perceive such evidence, would indeed vitiate
a claim”) (emphasis added); Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia,
ICSID Case No. ARB/12/14 and 12/40, Award, 16 December 2016, para. 504, RLA-131 (“[…] the so-
called “head-in-the-sand problem”, also sometimes referred to as “Nelsonian knowledge”, where a
claimant knew or should have known of third-party wrongdoing in connection with an investment and still
chose to do nothing (as opposed to just failing to take due care)”) (emphasis added); Alasdair Ross Anderson
et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010, paras. 55, RLA-164
(“If the transaction by which the Villalobos acquired the deposit was illegal, it follows that the acquisition
265
Claimants’ responsibility seems unquestionable as it is far above the mentioned
threshold. As Claimants’ themselves stipulate:
“Mr. Rand had full control over the investment. Mr. Rand directed Mr.
Obradovic on all important matters relating to BD Agro, and Mr.
Obradovic always followed Mr. Rand’s directions”1223
783. In their Reply, Claimants described this relationship in ever more detail and, among
other things, state:
“For ten years Mr. Rand directed Mr. Obradovic and BD Agro’s
management on all important matters relating to BD Agro and for ten years
they have always followed his instructions.”1224
784. Therefore, in case the Tribunal accepts Claimants’ argument that they were the actual
owners of BD Agro who exercised full control over BD Agro, then it is simply
impossible to find that they were unaware of the gross irregularities in the
management of BD Agro.
1.1.2. Timing of the legality requirement
785. Besides the scope, another important element of the legality requirement is its timing.
More specifically, the question is what is the moment in which legality affects the
protection of the investment itself. Investment arbitration practice has firmly
established that an illegality occurred at the time of making the investment deprives
the investor of protection under the relevant treaty as a matter of jurisdiction.1225
by each Claimant of the asset resulting from that transaction was also not in accordance with the law of
Costa Rica. Although the Claimants may not have committed a crime by entering into a transaction with the
Villalobos, the fact that they gained ownership of the asset in violation of the Organic Law of the Central
Bank means that their ownership was not in accordance with the laws of Costa Rica and that therefore each
of their deposits and resulting relationships with Villalobos did not constitute an “investment” under the
BIT”) and 58 („prudent investment practice requires that any investor exercise due diligence before
committing funds to any particular investment proposal. An important element of such due diligence is for
investors to assure themselves that their investments comply with the law. Such due diligence obligation is
neither overly onerous nor unreasonable.“) (emphasis added).
1223
Counter-Memorial, para. 310 (emphasis added) (referring to the witness statements of Messrs. Obradovic
and Rand).
1224
Reply, para. 610.
1225
Fraport v. Philippines II, Award, para. 467, RLA-18 (“The illegality of the investment at the time it is
made goes to the root of the host State’s offer of arbitration under the treaty. […] Lack of jurisdiction is
founded in this case on the absence of consent to arbitration by the State for failure to satisfy an essential
condition of its offer of this method of dispute settlement.”); Oxus v. Uzbekistan, Final Award, para. 707,
266
786. However, illegality conducted or occurred during the performance of the investment
is far from being irrelevant. On the contrary, notable tribunals and scholars have found
that such illegality could nevertheless defeat the claims as a matter of merits.1226 This
line of reasoning also finds support in the jurisprudence of the International Court of
Justice, which established that:
“One of the basic principles governing the creation and performance of

legal obligations, whatever their source, is the principle of good faith.”1227
787. As Respondent will further explain below, the illegality existing in the present case
spans through the entire period of making Claimants’ purported investment, and even
continues thereafter, during the performance of the investment. Having that in mind,
the preponderance of irregularities that pervade Claimants’ conduct, should be fatal
to their case not only as a matter of jurisdiction, but also as regards admissibility and
merits.1228
RLA-123 (“In order to lose the protection under the BIT, it is however necessary […] that the illegality
affects the “making”, i.e. arises when initiating the investment itself and not just when implementing and/or
operating it”) Hamester v. Ghana, Award, para. 123, RLA-115 (“An investment will not be protected if it
has been created in violation of national or international principles of good faith”); Minnotte v. Poland,
Award, para. 131, RLA-159 (“investments made on the basis of fraudulent conduct cannot benefit from BIT
protection).
1226
Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia,
ICSID Case No. ARB/06/2, Award, para. 129 RLA-108 (“To the extent that the Respondent’s allegations
refer to the operation or performance of the investment (Bolivia’s allegations of “ongoing illegality”) […]
they are matters for the merits which the Tribunal will address when determining whether the Respondent
breached its BIT obligations” (emphasis added)); Kim v. Uzbekistan, Decision on Jurisdiction, ICSID Case
No. ARB/13/6, para. 377, RLA- 165 (“The Tribunal therefore holds that the scope of application of the BIT
is limited by a legality requirement that an investment must be “in compliance with [Host State] legislation”
at the time that the investment is made. This limitation does not discount the possibility that there may be
illegal action by Claimants at a later date or an illegal action unrelated to the making of the investment, but
any such later illegality would be a matter for the Tribunal to consider at the merits stage of these
proceedings.” (emphasis added)) Hamester v. Ghana, Award, para. 127, RLA-115 (“on the wording of this
BIT, the legality of the creation of the investment is a jurisdictional issue; the legality of the investors conduct
during the life of the investment is a merits issue”); Jean Engelmayer Kalicki, Dmitri Evseev, et al., 'Chapter
9: Legality of Investment', in Meg Kinnear, Geraldine R. Fischer, et al. (eds), Building International
Investment Law: The First 50 Years of ICSID, Kluwer Law International (2015), p. 127, RLA-182
(“illegality or misconduct during the life of an investment may give rise to a merits defense” (emphasis
added)).
1227
Nuclear Tests (New Zealand v. France), Judgment, [1974] I.C.J. Reports 457, para. 49, RLA-179
(emphasis added).
1228
Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, para. 7.48 RLA-
180 (“the effect of international public policy under the Treaty as a matter of international law and also as
a matter of Egyptian law, proven corruption by the Claimant in procuring the SPA would be fatal to the
Claimant’s claims derived from the SPA in this arbitration, as regards jurisdiction, admissibility and the
merits.” (emphasis added)).
267
1.1.3. Standard of proof
788. With respect to the standard of proof to be applied to allegations of illegality,

Respondent asserts that the regular evidentiary threshold applied in investment
arbitration is not heightened in any way. On the contrary, having in mind the inherent
difficulties of proving fraudulent behavior, circumstantial evidence is often the only
available way of doing so.
789. For instance, as it was clarified in Libananco v. Turkey:
“the Tribunal accepts that fraud is a serious allegation, but it does not
consider that this (without more) requires it to apply a heightened standard
of proof.”1229
790. In fact, as stipulated by the tribunal in Union Ferosa v. Egypt:
“the standard of proof remains “the balance of probabilities.” As has long

been recognised, corruption is rarely proven by direct cogent evidence; but,
rather, it usually depends upon an accumulation of circumstantial evidence.
Circumstantial evidence of corruption is as good as direct evidence in
proving corruption. There is no reason in this arbitration, which is not a
criminal proceeding, to impose a higher standard of proof”1230
791. Likewise, when determining whether there were illegal activities regarding the
investment, the tribunal in Glencore v. Colombia endorsed:
“time-honoured methodology followed by tribunals in all jurisdictions to

establish truth based on indicia or circumstantial evidence: if a party
marshals evidence that proves the existence of certain indicia, and it is
possible to infer from these indicia (using experience and reason) that a
certain fact has occurred, the tribunal may take such fact as
established.”1231
1229
Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Award, para. 125
RLA-181.
1230
Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, para. 7.52, RLA
-180
1231
Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6,
Award. 27 August 2019, para. 670, RLA-176.
268
792. Many other renowned tribunals have applied the same approach.1232
793. Furthermore, it should also be noted that, as inferred from the Union Ferosa quote
above, the standard of proof in investment arbitration is not the same as the standard
of proof in criminal proceedings. Therefore, if an illegal activity alleged in investment
arbitration proceedings could qualify as a criminal act under national law, it is not
required that the same act has already been punished, put to trial or even investigated
by domestic criminal authorities. As recently established by the tribunal in Glencore
v. Colombia:
“The Criminal Complaint and this procedure operate in different legal

spheres, are subject to diverging standards of proof, and may reach
conflicting results. The fact that the Colombian criminal system has not
punished (in fact, in accordance with the available record, has not even
investigated) the alleged corrupt practices […] does not preclude a
hypothetical finding by this Tribunal that corruption has occurred. And
vice-versa.”1233
794. Other tribunals have recently also endorsed the same line of reasoning.1234
795. However, regardless of the above described standard of proof, the Tribunal in the
present case has an overwhelming evidentiary record before it, which devastatingly
reveals many severe illegalities undermining the entire investment that Claimants
1232
Getma International and others v. Republic of Guinea [II], ICSID Case No. ARB/11/29, Award, paras.
181-184 RLA-160; Metal-Tech v. Uzbekistan, Award, para. 243, RLA-161 (“the Tribunal will determine
on the basis of the evidence before it whether corruption has been established with reasonable certainty. In
this context, it notes that corruption is by essence difficult to establish and that it is thus generally admitted
that it can be shown through circumstantial evidence”); Fraport AG Frankfurt Airport Services Worldwide
v. Republic of the Philippines, ICSID Case No. ARB/11/12, Award, 10 December 2014, para. 479, RLA-
18 (“considering the difficulty to prove corruption by direct evidence, the same may be circumstantial“
(emphasis added)).
1233
Award. 27 August 2019, para. 673, RLA-176 (emphasis added).
1234
Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited
("Bapex") and Bangladesh Oil Gas and Mineral Corporation ("Petrobangla"), ICSID Case No. ARB/10/18,
Decision on Corruption Claims, 25 February 2019, para. 804, RLA-175 (“The Tribunals have pointed out
repeatedly that they are not a criminal court; their findings on corruption thus do not necessarily require
application of the exacting standards of proof that justify criminal sanction.”); Lao Holdings N.V. v. Lao
People’s Democratic Republic (I) ICSID Case No. ARB(AF)/12/6, Award, 6 August 2019, para. 110, RLA-
177 (“[…] whether the alleged act of corruption is established to a standard higher than the balance of
probabilities but less than the criminal standard of beyond reasonable doubt, although of course proof
beyond a reasonable doubt would be conclusive”).
269
ostensibly made. Hence, the probative threshold achieved in this instance is far beyond
the standard required by investment arbitration practice.
1.1.4. Burden of proof
796. Finally, as for the burden of proof, the starting point for proving allegations of
illegality is the standard one – each party has the burden of proving the facts on which
it relies. Therefore, Respondent bears the initial burden for presenting facts and
evidence which prove or indicate that certain illegalities exist in relation to an
investment.1235 Respondent has done so in its Counter Memorial,1236 and all Claimants
had to say is that assertion with regard to illegality of their investments are pure
fiction.1237
797. However, if the respondent party proves sufficient facts in order to raise suspicions of
fraudulent i.e. unlawful behavior, the investor bears the burden of proof to prove
otherwise. As the tribunal in Karkey v. Pakistan stated:
“Respondent bears the burden of proof with respect to its allegations of

corruption pursuant to the well-established principle onus probandi
incumbit actori (the party that asserts must prove). However, the Tribunal
finds that it can shift the burden of proof with respect to corruption and
fraud to [the claimant] should the Tribunal be satisfied that there is
unequivocal (or unambiguous) prima facie evidence in this regard.”1238
798. Having in mind that the Respondent provided an abundance of documentation which
directly proves that the alleged investment is illegal, the burden of proof now
undoubtedly lies with Claimants.
1.2. Illegality of Claimants’ investment
799. The described facts of the case should leave no doubt that the severe illegality existing
in Claimants’ investment warrants complete dismissal of their case. As Respondent
1235
Award, para. 497, RLA-178.
1236
1237
1238
Award, para. 497, RLA-178. See also Metal-Tech v. Uzbekistan, Award, para. 239, RLA-161.
270
explains below, Claimants’ purported investment was rendered unlawful due to illicit
and deceitful conduct present in the: (i) participation in the public auction for BD Agro
and conclusion of the Privatization Agreement; (ii) payment of the Purchase Price;
(iii) fulfilment of investment obligations; (iv) disposal of BD Agro’s land; and (v) the
overall asset extraction scheme applied against BD Agro.
1.2.1. Acquisition of the shares through the public auction
800. In this section, Respondent demonstrates that the initial step in the acquisition of the
shares was rendered illegal due to the fact that : (i) the true bidder i.e. owner of the
shares was concealed i.e. misrepresented in bad faith; and (ii) the arrangement used to
create Mr. Rand’s “beneficial ownership” severely violated Serbian law.
a) Misrepresentation of the true bidder i.e. owner
801. The first and the most noticeable misrepresentation made by Claimants was in the
previously described approach to the acquisition of BD Agro. Assuming that Mr.
Rand’s story is true, he then avoided i.e. abused the legal framework applicable to the
privatization in Serbia by acquiring BD Agro through a natural person with Serbian
citizenship – Mr. Obradovic.
802. Motive behind this abuse was twofold:
803. A legal entity always has an owner which can be traced (more or less easily), but a
natural person is where the ownership chain always ends. A natural person does not
have a shareholder. A natural person does not have a parent company. A natural
person cannot be owned or controlled. Thus, it is practically impossible to even
discover (let alone prove) that a company owned by a natural person is actually owned
or controlled by another person or entity. This kind of arrangement would be quite
useful in case a person would wish to engage in illegal activities with the company in
question. In the event that the illegalities were to be discovered by the authorities, any
criminal prosecution would be directed towards the “nominal” controlling owner and
manager of the company (as it indeed happened in the numerous criminal proceedings
against BD Agro). In other words, in case an investor wanted to purchase a company
271
in order to engage in lawful business activities, it would do so in a transparent manner
– not under share purchase agreements shrouded in secrecy.1239
804. Besides the evasion of liability, another substantial motive behind the described
arrangement was also deceit for the purpose of acquiring a significant advantage
available exclusively to Serbian nationals. As already explained above (see Section
I.B), according to Serbian law, only Serbian natural persons acting alone were allowed
to buy companies in the process of privatization through payment of the purchase
price in six installments.1240 The legislator’s intention to provide this possibility only
to Serbian nationals was more than evident as this advantage was not possible even
for foreign nationals bidding through the companies they own in Serbia (Serbian
companies also had to pay the price at once). However, Mr. Rand decided to evade
the law and acquire an advantage otherwise not available to him by hiding behind Mr.
Obradovic.
805. And he did not do this once – he, at least according to Claimants, admittedly acquired
six Serbian companies in total by misrepresenting the actual buyer and consequently
paying out the purchase price in six installments.1241
806. The tribunal in Inceysa v. El Salvador faced a very similar situation. In that case, the
investor also committed misrepresentations and falsified the facts during the bidding
process for the investment in question.1242 More specifically, the investor breached
the bidding rules and misrepresented his financial and other characteristics relevant
for the public tender in which he participated. Therefore, just like Claimants, he
deceived the other parties and gained rights which were otherwise not accessible to
him. Consequently, the tribunal established that:
1239
See e.g. Metal-Tech v. Uzbekistan, Award, para. 202, RLA-161 („if the Consultants had engaged in lawful
lobbying, they would have rendered their services in a transparent manner – not under consulting contracts
shrouded in secrecy. Payments too could have been made and received directly rather than through
interconnected offshore companies.“).
1240
Regulation on the Sale of Capital and Property at a Public Auction (52/2005), Article 39 (1), RE-218.
1241
Assignment agreement between V. Vukelic and D. Obradovic, 2 March 2007, Article 1, CE-565;
Privatization Agreement (Crveni Signal), 21 February 2003, Article 4, RE-210; Privatization Agreement
(Inex), 26 November 2004, Article 1.3, RE-220; Privatization Agreement (PIK Pester), 3 March 2006,
Article 1.3, RE-210; Privatization Agreement (Beotrans), 14 March 2007, Article 1.3, RE-221; Privatization
Agreement (Uvac Gazela), 18 March 2003, Article 4, RE-222. Although the Regulation on Sale changed in
2005, the provision in question remained the same throughout the time of the conclusion of all of these
privatization agreements (2001-2008). See Regulation on the Sale of Capital and Property at a Public
Auction (45/2001), Article 31, RE-218.
1242
Inceysa v. El Salvador, Award, para. 236, RLA-19.
272
“EI Salvador gave its consent to the jurisdiction of the Centre, presupposing
good faith behavior on the part of future investors. El Salvador did not have
any basis to suppose that Inceysa would submit false information and would
commit fraudulent acts for the purpose of establishing a legal relationship
with MARN, which was embodied in the Contract that gives rise to this
dispute.
By falsifying the facts, Inceysa violated the principle of good faith from the
time it made its investment and, therefore, it did not make it in accordance
with Salvadoran law. Faced with this situation, this Tribunal can only
declare its incompetence to hear Inceysa's complaint, since its investment
cannot benefit from the protection of the BIT, as established by the parties
during the negotiations and the execution of the agreement.”1243
807. In the present case, Mr. Rand deceived the authorities that he was not the actual bidder
i.e. buyer of BD Agro. Instead, Mr. Obradovic was presented as the person bidding at
the auction for BD Agro in his own name and on his own behalf,1244 enabling payment
of the purchase price for the shares in six installments. As it later turned out, the
advantage of paying in instalments was actually used as the basis for the money
siphoning operation, enabling Mr. Obradovic’s abuse of BD Agro’s assets to
fraudulently pay the Purchase Price and fulfil his investment obligations.1245
808. Therefore, Mr. Rand’s acquisition of shares in BD Agro through Mr. Obradovic, was
done by committing a fraud, by breaching Serbian laws and by taking unlawful
advantage over other participants at the auction for Privatization. Mr. Rand effectively
had a grace period of one year following the auction,1246 after which he had to pay the
remaining Purchase Price in five equal annual installments, with no interest. Had the
other participants (one domestic and one foreign company) enjoyed the same
advantage as Mr. Rand, one could only guess what would be the highest amount that
they would be ready to offer for BD Agro.1247 On the other hand, had Mr. Rand been
in the same position as the other participants (as he should have been), it is also likely
1243
Inceysa v. El Salvador, Award, paras. 238-239, RLA-19.
1244
1245
See above para. 795.
1246
As the previously paid deposit for participation was counted as the first installment. See Banking excerpts
confirming payment of installments of purchase price by Mr. Obradovic, 15 October 2015, RE-33.
1247
273
that he would not be ready to offer the same amount as he was with Mr. Obradovic’s
participation. It is thus doubtful whether Mr. Obradovic i.e. Rand would be able to
prevail in the auction had there not been for their unequal position with the other
bidders. In other words, in case the Tribunal accepts that Mr. Rand (i.e. Claimants)
was the actual owner of the shares in BD Agro, than it must also accept that such
ownership was acquired through a severe misrepresentation which obviously had bad
faith motives behind it. Consequently, Claimants should be deprived of protection
under the Treaties as their investment is illegal.
b) Unlawfulness of the acquisition under Serbian law
809. As Respondent already explained in greater detail (see Section II.2.A&B), the
beneficial ownership over the shares in BD Agro was not a valid property right under
Serbian laws and regulations. Consequently, Claimants did not obtain any property
right protected as an investment (i.e. there is a lack of jurisdiction ratione materiae).
However, Respondent also noted1248 that, in case the Tribunal would consider that the
purported beneficial ownership asserted by Claimants is capable of protection under
the Treaties, it should be regarded that the acquisition i.e. the making of the investment
was nevertheless conducted contrary to Serbian laws and regulations. This deficiency
deprives the Tribunal of jurisdiction ratione voluntatis.
810. Obviously struggling to understand the difference between these two concepts,
Claimants chose the easy way out – they completely avoided to respond to
Respondent’s objection ratione voluntatis. More specifically, Claimants’ merely
stated that:
“[…] substituting the words “materiae” for “voluntatis” is not a sufficient

ground for creating a new jurisdictional battlefield. […] Accordingly,
Serbia’s first ratione voluntatis objection must be dismissed for the same
reasons as Serbia’s ratione materiae objection”1249
811. This is an evidently frivolous comment. Respondent’s ratione materiae objection

relates to the existence of an investment in terms of recognized property rights, while
the ratione voluntatis objection stems from the fact that illegal investments do not
1248
1249
274
deserve investment treaty protection. For example, if an investor obtains a license by
bribing a state official, it may have acquired a license as a matter of property law i.e.
it may have made an investment (ratione materiae). However, since the investment
was made in breach of the host State’s law (and the international public policy), it is
deprived of investment treaty protection (ratione voluntatis). Likewise, if Claimants
obtained beneficial ownership over BD Agro’s shares by breaching Serbian law, the
Tribunal could find (although that would be incorrect) that they acquired ownership
as a matter of property law i.e. that they have made an investment (ratione materiae).
However, as it is evident from the expert reports of Prof. Radovic,1250 in this particular
case the violations of the Serbian law and regulations were far from trivial which
means that even if Claimants acquired BD Agro’s shares as a matter of property law,
they nevertheless made an investment in breach of the host State’s law, which is why
they are deprived of investment treaty protection (ratione voluntatis).
812. The Share Purchase Agreement entered into by MDH and Mr. Obradovic was contrary
to the imperative provisions of the Law on Market in Securities and other Financial
Instruments (2002) and the Law on Privatization (2001), while the Second Sembi
Agreement entered into by Sembi and Mr. Obradovic was in breach of the mandatory
norms of the Law in Market of Securities and other Financial Instruments (2006), the
Law on Privatization (2001) and the Law on Takeovers of Joint Stock Companies
(2006).
813. In response to the allegation of these serious breaches, the Claimants’ fragile defense
essentially came down to three feeble grounds:
1250
Expert Report of Prof. Mirjana Radovic, 19 April 2019, paras. 54, 81; Second Expert Report of Prof.
Mirjana Radovic, 24 January 2020, Sections II.7 and II.8.
275
i. ownership over a Serbian company is governed by British Columbia1251 and
Cypriot1252 laws - hence, all restrictions under Serbian law are completely
evaded as Serbian law should not be applied;
ii. the violated Serbian mandatory provisions relate to nominal ownership, but
not to beneficial ownership1253 - hence, all restrictions are completely evaded
as provisions on acquisition of beneficial ownership do not even exist in
Serbian law; and
iii. MDH never exercised its purported call option and the agreed manner of
effectuating the transfer was not even possible under Serbian law, 1254 but,
had MDH exercised the option, there were some other ways of potentially
executing the transfer (subject to further mandatory restrictions).1255
Likewise, Mr. Obradovic was not able to assign the Privatization Agreement
nor transfer the shares to Sembi under Serbian law, but Sembi nevertheless
acquired equity rights towards Mr. Obradovic under Cypriot law1256.
1251
Reply, para. 533 („Serbia’s assertion that the MDH Agreement is null and void under Serbian law is
incorrect. The MDH Agreement was not governed by Serbian law, but rather by British Columbia law. […]
despite the fact that the method of transfer of shares stipulated under Article 2 of the MDH Agreement could
not be effectuated under Serbian law—the MDH Agreement is perfectly valid under the laws of British
Columbia. […] Accordingly, even if any provision of the MDH Agreement conflicted with the mandatory
provisions of Serbian law, this would still have no bearing on the validity of the MDH Agreement.“)
1252
Reply, para. 544 („Even if the Sembi Agreement conflicted with a mandatory provision of Serbian law
(quod non), the issue of the validity of the Sembi Agreement and mutual obligations between Mr. Obradovic
and Sembi would still fall to be assessed under its governing law, that being the Cyprus law.“)
1253
Reply, paras. 522 (“The cited provisions do not purport to regulate any contractual arrangements relating
to exercise of voting rights attached to the registered shares, composition of board of directors or transfer
of economic benefits stemming from the shares to other shareholders or third parties. In other words, the
Central Security Registry only registers nominal owners, and not beneficial owners”), 526 (“Claimants were
never registered in the Central Securities Registry only proves the uncontested fact that they have never
acquired nominal ownership of the Beneficially Owned Shares. It is wholly irrelevant to the existence of the
Claimants’ beneficial ownership”), 527 (“the takeover rules under the 2002 Securities Law only applied to
transfer of nominal ownership in a joint stock company. The conclusion of the MDH Agreement did not
cause transfer of nominal ownership to any shares and thus did not trigger any takeover-bid obligation.”),
1254
Reply, para. 511 (“Article 2 of the MDH Agreement contemplated that, upon MDH’s exercise of the call
option, Mr. Obradovic would transfer the Beneficially Owned Shares to MDH by endorsing share
certificates. Such a method of transfer of shares could not be performed under Serbian law because shares
of Serbian joint stock companies, including BD Agro, may only be issued in a dematerialized form.”)
1255
Reply, para. 511 (“had MDH exercised the call option, Mr. Obradovic would have been required to
perform his obligation to transfer the legal title to the Beneficially Owned Shares in any manner compliant
with Serbian law.”).
1256
Reply, para. 541 („[…] under Article 41z of the 2001 Law on Privatization, the assignment of the
Privatization Agreement required prior approval of the Privatization Agreement. Such an approval was
never granted by the Privatization Agency, and the assignment of the Privatization Agreement and the
Beneficially Owned Shares was thus never effective vis-à-vis the Privatization Agency, or BD Agro.
Nevertheless, under Cyprus law, a restriction on assignment contained in the original contract—here the
276
814. Although Respondent already explained1257 why each of these grounds of defense fails
as a matter of jurisdiction ratione materiae, it must be noted that each of them also
fails under additional reasons as a matter of jurisdiction ratione voluntatis.
1. Legality is a matter of the host state’s law
815. First, illegality of investments is always determined in accordance with the host state’s
law (and international public policy and principles). This position has been widely
accepted in investment arbitration practice.1258 There is no application of conflict of
law provisions in that regard, and the Claimants’ convenient attempt to avoid
mandatory Serbian regulation by resorting to Cypriot or British Columbia law - is of
no avail to them in this instance either.
2. Mandatory provisions of Serbian law cannot be evaded by simply

qualifying the ownership as “beneficial”
816. Claimants also wrongly consider that they can avoid all mandatory restrictions of
Serbian law (company, privatization, financial and securities) as long as their
purported ownership is unrecognized by the Serbian legal system. According to their
position, all the investor has to do in order to avoid applicability of the host state
mandatory legal provisions, is to use a legal concept unknown to the host state’s legal
system. This is on its face erroneous. An illustrative example of this reckless behavior
is given by Mr. Rand himself, who stated that:
“The MDH Agreement contemplated a potential transfer of the BD Agro

shares by the endorsement of the certificates representing such shares. I
included this provision only because endorsement of share certificates was
the common way of transfer of shares pursuant to British Columbia law. In
Privatization Agreement—does not invalidate the assignment as between the assignor and assignee. Instead,
the assignment is fully effective between them in equity.“)
1257
See Sec.II.A.
1258
Hamester v. Ghana, Award, paras. 122-123, RLA-115 (“An investment will not be protected if […] it is
made in violation of the host State’s law”); Metal-Tech v. Uzbekistan, Award, para. 165, RLA-161 (“(i)
non-trivial violations of the host State's legal order […], (ii) violations of the host State's foreign investment
regime […], and (iii) fraud […].”); Quiborax v. Bolivia, Decision on jurisdiction, para. 266, RLA-24 (same
definition as in Metal-Tech); Mamidoil v. Albania, para. 359, RLA-20 (“investments are protected by
international law only when they are made in accordance with the legislation of the host State”); Saluka v.
Czech Republic, para. 204, RLA-73 (“an investment must have been made in accordance with the provisions
of the host State’s laws”); Phoenix v. Czech Republic, para. 101, RLA-5 (“States cannot be deemed to offer
access to the ICSID dispute settlement mechanism to investments made in violation of their laws.”).
277
reality, I did not really care about the specific way in which the shares
would be transferred, as long as it would allow MDH to be registered as
the owner of the Privatized Shares.”1259
817. This statement demonstrates the complete lack of due diligence and respect for the
laws of the Republic of Serbia. Mr. Rand apparently did not think of Serbian law when
intending to invest millions of euros in Serbia. For some inexplicable reason, he only
thought of British Columbia law when concluding an agreement with a Serbian
national regarding shares in a Serbian company. Mr. Rand did not even inquire about
the allowed manner of transferring shares in BD Agro to him, let alone whether the
MDH Agreement actually acquired him any rights under Serbian law.
818. One of the fundamental principles on which the Serbian company law system rests is
the transparency and publicity of the ownership structure of companies. 1260 With
respect to shareholding companies, the restrictions upon the ownership and transfer
of shares are the highest. As Prof. Radovic has explained, the restrictions applicable
here are contained in three different laws and are evidently highly mandatory in
nature.1261
819. However, Claimants downplay the significance of these strict limitations by treating
nominal ownership as a mere formality. More specifically, they consider that the cited
rules relate only to nominal, as opposed to beneficial ownership. And yet, Claimants
ignore the fact that there is no such distinction in Serbian law. Serbian law recognizes
only “nominal” ownership over shares. What Claimants subsume under this
expression is actually legal ownership – the only kind of ownership that Serbian law
gives effect to. Therefore, if one wishes to legally i.e. lawfully own or transfer shares
of a Serbian company, it must comply with the applicable legal requirements
established under Serbian law.
820. These requirements also relate to the notion of “control”, contrary to Claimants’
contentions. According to the Law on Companies (2004) applicable at the time the
MDH and Sembi agreements were concluded, control over a company is always
1259
1260
Evident from the insistence upon registration of all relevant information. See e.g. Articles 3 and 6 of the
Law on Companies (2011), RE-321; Articles 8 and 10 of the Law on Companies (2004), RE-320.
1261
Expert Report of Prof. Mirjana Radovic, 19 April 2019, paras. 54, 81.
278
associated with the legal title over the shares i.e. a direct legal connection with the
company itself.1262 Furthermore, the only kind of a control agreement allowed under
this law was between two affiliated companies – and even this agreement had to be
registered in order to be considered valid.1263
821. Claimants’ reference to the introduction of the notion of “indirect owner” in the 2011
Law on Capital Markets and “actual owner” in the 2018 Law on Centralized Records
of Real Owners is of no help either, but this is already explained in Section II.A.
dealing with ratione materiae objection and thus will be no repeated here.
822. Furthermore, it is particularly ironic that Claimants invoke these rules to show that
they have lawfully acquired the shares as no restrictions were applicable to “beneficial
owners”, since Claimants’ have not even followed the obligations required by the laws
“recognizing” such ownership.
823. For instance, as the Claimants’ own expert confirms, if Mr. Rand would be considered
as the owner of the shares held by Mr. Obradovic (quod non), then MDH doo’s
acquisition of 3.9% of BD Agro's shares triggered an obligation to issue a mandatory
takeover bid for the remainder of BD Agro's shares not yet held by them.1264 However,
as no such bid was ever issued, this would mean that Mr. Rand committed a punishable
commercial offence under the Serbian law, while making his respective
investment.1265 As Prof. Radovic explains, the consequence of this offence was much
more severe than Ms. Tomic Brkusanin tries to present it. Specifically, the ensuing
sanction for this offence meant that “not only MDH Serbia, but also Mr. Obradović
would have lost all their voting rights in BD Agro”.1266 Consequently, had this offence
been discovered, Messrs. Obradovic and Rand would completely lose control over BD
Agro. Therefore, the indirect acquisition of 3,9% of the shares in BD Agro by Mr.
1262
Law on Companies (2004), Article 367, RE-320 (“A controlling shareholder of a limited liability company
or a joint stock company, within the meaning of this law, is the person who alone or with other persons who
act together with him (acting in concert): 1) has more than 50% of voting rights in the company, which in
case of a joint stock company means ownership and voting rights from more than 50% of ordinary shares
(majority shareholding); 2) in another way exercises controlling influence over managment and conducting
business of the company on the basis of his capacity as a member or a shareholder (or on the basis of a
contract concluded in accordance with this law).” The situation remained the same in the new version of
the law. See Article 62 of the Law on Companies (2011), RE-321. See also Second Expert Report of Prof.
Mirjana Radovic, 24 January 2020, Section II.6.1.
1263
Law on Companies (2004), Articles 373-376, RE-320.
1264
Expert Report of Mrs. Bojana Tomic Brkusanin, 3 October 2019, paras. 110-112.
1265
Expert Report of Mrs. Bojana Tomic Brkusanin, 3 October 2019, para. 113.
1266
279
Rand was obviously made in breach of mandatory rules of Serbian law, and is as such
– illegal.
824. On a separate note, it should also be noted here that despite the newly-introduced
obligation to report and register the “actual” (i.e. ultimate) owners of companies in
Serbia, the public registries still lead only to Mr. Obradovic as the ultimate owner of
all of the other companies which Mr. Rand purportedly acquired through Mr.
Obradovic. Although these entities, as public joint-stock companies, are not obliged
to report on their ultimate owner, their shareholders are publicly listed. Thus, it can be
easily traced that Kalemegdan Investments Inc. is their majority shareholder,1267
while the registered “ultimate owner” of Kalemegdan Investments Inc. is none other
than Mr. Obradovic.1268 Therefore, Mr. Rand is again nowhere to be found, although
he claims to be their “beneficial owner” under the 2018 Law on Centralized Records
of Real Owners. This once again demonstrates that Claimants have absolutely no
respect for the Serbian legal system in which they purportedly invest.
1.2.2. Acquisition of the shares through payment of the purchase price
825. The acquisition i.e. making of Claimants’ purported investment was not a one-time
act. It was to be conducted in accordance with the Privatization Agreement as an
underlying legal instrument governing the ownership over BD Agro. Hence, the
legality of the investment must be viewed throughout the period of making the
investment in accordance with the Privatization Agreement.
826. The most notable activity inseparably tied to the acquisition of the shares was the
contribution i.e. the payment of the purchase price. Therefore, the making of the
investment lasted throughout the payment of each installment of the purchase price.
827. According to Article 2 of the Privatization Agreement:
1267
See List of shareholders of Crveni Signal, 20 June 2014, CE-759; List of shareholders of Obnova ad
Beograd, 11 June 2012, CE-760; List of shareholders of Beotrans Beograd 10 June 2012, CE-761; List of
shareholders of Inex, 22 January 2020, RE-491; List of shareholders of PIK Pester, 22 January 2020, RE-
492.
1268
Although Kalemegdan Investments Inc. is a company registered in Cyprus, its wholly owned subsidiary
in Serbia – Kalemegdan Investments doo, had an obligation to register their ultimate owner. See Excerpt
from the Register of Real Owners for Kalemegdan Investments doo, 22 January 2020, RE-493; See also
List of Shareholders of Kalemegdan Investments Ltd, website of the Cyprus Department of Registar of
Companies and Official Receiver, 12 March 2019, RE-513.
280
“With conclusion of this agreement, which has the effect of the articles of
incorporation of the subject, the buyer acquires the right of management,
participation in profit and the right to a part of the liquidation mass,
proportionately to the amount of purchased capital. The right to free
disposal of purchased capital is acquired by the buyer pursuant to the
provisions of Article 456 of the Company Law and provisions of the
agreement, and in proportion to paid value of sale and purchase price.”1269
828. Therefore, the Privatization Agreement leaves no doubt that the buyer acquired certain
ownership rights over BD Agro only in proportion to the price i.e. the installments
paid. Furthermore, having in mind that the established pledge over the shares
prevented free disposal of the shares, full ownership rights were to be acquired only
after the fulfillment of all buyer’s obligations as only in that moment the condition for
removing the pledge would be fulfilled.1270
829. This understanding is also confirmed in the preamble of the Sembi Agreement, which
states:
“Mr. Obradovic entered into an agreement (the "Contract") with the

Privatization Agency of the Government of Serbia and Montenegro in
October of 2005, pursuant to which he could acquire, by making payments
over a period of six years, 70% of the shares of the agricultural business
known as "BD Agro"”1271
830. This reveals that Mr. Obradovic and the Claimants were fully aware that there was no
acquisition of the shares (i.e. the investment) without the payments being made under
the Privatization Agreement.
831. However, as it was explained above in more detail, the payment of the purchase price
was completely contaminated by deceit and fraud.
1269
Article 2.1 of the Privatization Agreement, 4 October 2005, CE-17.
1270
Second Expert Report of Prof. Mirjana Radovic, 24 January 2020, Section II.4.
1271
Agreement between Mr. Obradović and Sembi, 22 February 2008, CE-29.
281
832. First, if Mr. Rand was the beneficial owner i.e. buyer of the shares in BD Agro, then
he was not entitled to pay the purchase price in installments. Serbian regulation
applicable at the time of the auction was clear:
“If the declared buyer at the auction is a domestic individual, he may pay
the purchase price in up to six annual installments.”1272
833. As Mr. Rand was definitely not a domestic individual i.e. a citizen of the Republic of
Serbia, he could not have paid the purchase price in six annual installments. Instead,
his only option was to pay the entire price at once, immediately after the auction.
Therefore, Mr. Rand deceitfully used a right which did not belong to him under
Serbian law. Furthermore, this presented a significant advantage in the auction itself,
as Mr. Obradovic i.e. Rand was consequently in a better starting position to offer a
higher price than all the other bidders (none of which was a domestic individual). This
already renders the acquisition of the investment i.e. the shares in BD Agro, illegal.
834. Second, payment of the Purchase Price was the obligation of the buyer. Therefore,
using i.e. siphoning funds and assets of the privatized company to pay for the purchase
price would undoubtedly present a fraud. However, this is exactly what happened in
the case of BD Agro. As Respondent explained above, most of the installments were
effectuated by siphoning funds and assets from BD Agro. More specifically,
documentary evidence indisputably demonstrates that:
i. the third installment was paid out of the loan which was transfered to BD
Agro from NLB Bank, and on that same day simply forwarded from BD
Agro’s to Mr. Obradovic’s bank account immediately before the price was
transfered to the Privatization Agency;
ii. the fourth installment was paid out of the funds acquired from the sale of BD
Agro’s land, a loan from Agrobanka and a loan from Banka Intesa, which
were transferred from BD Agro’s to Mr. Obradovic’s bank account
immediately before the according part of the Purchase Price was transferred
to the Privatization Agency;
iii. the fifth installment was paid out of the loan which was transferred to BD
Agro from Agrobanka, and on that same day simply forwarded from BD
1272
Regulation on the Sale of Capital and Property at a Public Auction (52/2005), Article 39 (1), RE-220.
282
Agro’s to Mr. Obradovic’s bank account immediately before the price was
transfered to the Privatization Agency; and
iv. the sixth installment and the interest for its belated payment was paid out of
the funds transferred from BD Agro’s to Inex’s and Mr. Obradovic’s bank
accounts before the according part of the price was transferred to the
Privatization Agency.
835. The above instances are only examples which are directly visible from bank account
statements. However, as Mr. Obradovic’s asset extraction scheme had a much broader
impact i.e. caused much greater damage, it can be considered that virtually all of the
installments were ultimately paid using BD Agro’s funds (See Section I.F).
836. In summary, Mr. Rand falsely presented Mr. Obradovic as the purchaser in order to
be able to pay the Purchase Price for BD Agro in installments, which then enabled
him to commit yet another deceit by paying out the installments from the funds and
assets of BD Agro. Needless to say, the described misrepresentations render the
making of the investment completely fraudulent and, consequently, illegal.
1.2.3. Acquisition of the shares through the fulfillment of investment

obligations
837. The making of the investment was not limited solely to the bidding process i.e.
payment of the purchase price. The acquisition of the shares in BD Agro came with
another mandatory financial requirement: fulfillment of minimum investment
obligations.
838. Namely, when the public call for the auction in BD Agro was published, it was
explicitly stated that: (i) the starting price for BD Agro was approx. EUR 4.3 million,
and that (ii) the minimum investment obligation was approx. EUR 2 million.1273
Therefore, all potential investors i.e. bidders were informed that the minimum amount
of money necessary for the acquisition of the shares in BD Agro was approx. EUR
6.3 million. The investment obligation was thus an inseparable part of the contribution
for the shares purchased at the auction.
1273
Public Call for the Auction in BD Agro, 26 August 2005, RE-397; Average exchange rates of the dinar
against the world’s leading currencies, National Bank of Serbia, RE-365.
283
839. Furthermore, it was through the purported fulfillment of mandatory investment
obligations that Mr. Obradovic increased his shareholding in BD Agro from 70% to
75.8719%.1274 Thus, execution of these investments was even a direct contribution for
at least 5.8719% of the shares held by Mr. Obradovic.
840. Lastly, the investments in BD Agro are also presented as an additional form of
Claimants’ investment under the Treaties, besides the beneficial and indirect
ownership of shares in BD Agro.1275
841. Therefore, other than the payment of the Purchase Price, illegality in investing further
funds into BD Agro also presents a jurisdictional impediment for Claimants’ case,
having in mind that these actions must be considered as the making of the investment.
842. In that regard, Respondent already explained that Mr. Obradovic’s i.e. Claimants’
purported investments into BD Agro were only illusory. More specifically, Mr.
Obradovic made sure that any funds and assets that entered BD Agro in this way, were
not there to stay for long, as they were ultimately recorded as shareholder loans. The
astoundingly high number of the loans was thus “repaid” to Mr. Obradovic, thereby
negating all “investments” in this regard. Not only did these actions eliminate the
contribution as an essential element of an “investment”, but they have also rendered
it unlawful as the Privatization Agency and the minority shareholders of BD Agro
were obviously defrauded in this manner.
843. Another previously described way of misrepresenting the fulfilled investment

obligations occurred through the unlawful alienation of the invested assets for the
personal benefit of Mr. Obradovic (i.e. Mr. Rand) and/or one of his affiliated
companies. An investment would thus enter BD Agro, but was in fact used by a third
person. In other words, many “investments” in BD Agro were actually investments
into another entity, which undoubtedly amounts to fraud and deception as well.
844. Therefore, the Tribunal should accordingly deny protection to Mr. Obradovic’s i.e.
Mr. Rand’s investments into BD Agro, as they were evidently unlawful.
1274
Memorial, para. 11; Reply, para. 97.
1275
Claimant’s Memorial, para. 299.
284
1.2.4. Fraudulent disposal of BD Agro’s land
845. One of the most devastating types of asset extraction and fraud conducted by Mr.
Obradovic in BD Agro was through his land machinations.
846. First, as explained in more detail above, Mr. Obradovic was able to fraudulently
extract for himself and his associates between approx. EUR 1.4 and 3.3 million from
only two of such machinations that were discovered.1276 Likewise, there was another
attempt at extracting even higher multimillion values from a land disposal that was,
however, successfully prevented by the Agency.
847. Besides the obvious purpose of fraudulently earning enormous amounts of money at
the expense of BD Agro, these types of activities also helped Mr. Obradovic finance
his obligations under the Privatization Agreement (including the Purchase Price and
investment obligations). Likewise, by concealing the actual value of the disposed land,
Mr. Obradovic effectively prevented the Agency to comprehensively control the
fulfillment of the Privatization Agreement (in particular, Article 5.3.3.).
848. Not only were the minority shareholders and the Agency defrauded by land
machinations, but Mr. Obradovic made sure to directly damage Respondent as
well.1277 Namely, as it was explained above, one of the obligations of the buyer under
the Privatization Agreement was restitution of land to its previous owners. However,
Mr. Obradovic, together with Mr. Jovanovic and several other accomplices (including
certain State officials), fraudulently managed to exchange the land that BD Agro was
supposed to return to certain individuals, with completely unburdened State land.1278
849. He did so contrary to legal regulation and contrary to Article 6.3.1 of the Privatization
Agreement. Again, this breach was never alleged by the Privatization Agency simply
because it was only after termination of the Privatization Agreement that the pertinent
corruption scandal was revealed to the public.1279 The breach of legal regulation was
far from trivial, as there was simply no legal basis nor approval to conduct the
1276
See Sec.I.F.
1277
Although, by abusing BD Agro in order to fulfill the Privatization Agreement, Respondent was already
indirectly damaged as the holder of the social capital being privatized.
1278
Indictment no. KTI 65/16, 5 April 2017, RE-399.
1279
“Action “Shredder”, detainment for the suspects”, RTS, 28 December 2015, RE-256.
285
exchange, while the land in question was valued at RSD 622.852.0001280 (approx..
EUR 5,3 million according to the current exchange rate1281).
850. Mr. Obradovic is currently being prosecuted in criminal proceedings for all of the
above land disposals.1282 He is facing up to 10 years in prison in each case.1283 The
illicit acquisition of the land and evasion of restitution obligations also denies
protection to Claimants’ investment, as the described frauds breached the
Privatization Agreement and attempted to increase the investment in an unlawful
manner.
1.2.5. Asset stripping of BD Agro
851. Having in mind the above, it should be completely evident by now that the described
conduct of Mr. Obradovic and his associates was aimed at stripping the assets and
siphoning funds out of BD Agro.
852. Not only does this kind of activity (i) eliminates contribution as an element of an
investment and (ii) renders the specific investments made in that manner illegal, it
also (iii) independently denies the legality of the whole investment regardless of its
connections to the payment of the purchase price and investment obligations. This is
because the asset stripping practice demonstrates that Mr. Obradovic i.e. Mr. Rand
had an obvious bad faith motive when investing in Serbia and had in fact used the
investment as a vehicle for the realization of his illicit goals.
853. Thus, it is more than obvious that such an investment cannot benefit from the
protection of the Treaties.
1280
Indictment no. KTI 65/16, 5 April 2017, RE-399.
1281
365.
1282
Indictment of the Higher Public Prosecutor’s Office no. KTO 93/18 dated 14 February 2018, RE-426.
1283
Article 234 of the Criminal Code, RE-257.
286
2. Respondent did not consent to arbitrate dispute with regard damage allegedly
suffered by MDH Serbia
854. Respondent hereby reiterates that Mr. Rand should not be allowed to submit a claim
on his own behalf for harm allegedly suffered by his Serbian subsidiary – MDH
Serbia. It is Claimants’ case that MDH Serbia’s shares in BD Agro were indirectly
expropriated by Serbia. It follows from here that the damage allegedly suffered was
inflicted directly to the company owned by Mr. Rand (MDH Serbia), while Mr.
Rand’s loss was merely of reflective nature. In such circumstances, the Canada –
Serbia BIT requires that both the investor and his local subsidiary waive their right to
instigate proceedings before the court of the Respondent Party. Since Claimants
omitted to submit a proper waiver issued by MDH Serbia at the relevant time, the
Tribunal does not have jurisdiction to adjudicate the claim relating to the MDH
Serbia’s 3.9% shareholding in BD Agro.
2.1. Mr. Rand cannot claim damages on his own behalf for loss suffered directly
by MDH Serbia
855. The Canada – Serbia BIT allows the investor to submit a claim on his own behalf, for
loss or damage suffered by the investor (Article 21(1) of the BIT) or on behalf of an
enterprise of a Respondent Party, when the loss or damage was incurred to the
enterprise (Article 21(2) of the BIT).1284
856. Claimants argue that it is up to the investor to freely choose between the two
options.1285 Specifically, Claimants assert that Mr. Rand has brought a claim on his
own behalf pursuant to article 21(1) of the Canada-Serbia BIT, and that, conseqently,
they did not need to submit any waiver issued by MDH Serbia in accordance with
Article 22(2)(f) of the BIT.
857. However, Respondent submits that Mr. Rand’s claim with regard to the loss of MDH
Serbia’s shareholding in BD Agro should be properly characterized as a claim on
behalf of MDH Serbia.
1284
Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments;
emphasis added, CLA-1.
1285
287
858. The relevant provisions of the Canada-Serbia BIT are same in wording as provision
of NAFTA on the same issue. Namely, article 21(1) of the Canada-Serbia BIT directly
corresponds to article 1116 of NAFTA, and article 21(2) of the Canada-Serbia BIT
directly corresponds to article 1117 of NAFTA. Therfore, the findings of the NAFTA
tribunals can serve as guidance for interpretation of Articles 21(1) and 21(2) of the
Canada – Serbia BIT. However, neither the practice of NAFTA tribunals nor the
position taken by NAFTA’s contracting Parties support the Claimants’ assertion that
an investor can simply choose to submit a claim on his own behalf for any loss or
damage suffered directly by his local subsidiary.1286
859. The relationship between NAFTA Articles 1116 and 1117 has been discussed by
tribunals in the context of recovery of damages. The tribunal in Mondev v. USA
warned that “a NAFTA tribunal should be careful not to allow any recovery, in a claim
that should have been brought under Article 1117, to be paid directly to the
investor.”1287 The tribunal also emphasized the important distinction between claims
advanced under the two provisions: [T]he principal difference relates to the treatment
of any damages recovered. If the claim is brought under Article 1117, these must be
paid to the enterprise, not to the investor (see Article 1135(2)). This would enable
third parties with, for example, security interests or other rights against the enterprise
to seek to satisfy these out of the damages paid. It could also make a difference in
terms of the tax treatment of those damages.”1288
860. Respondent does not contend that Mr. Rand was indeed allowed to submit the claim
on his own behalf. However, his claim in accordance with Article 21(1) of the BIT
can encompass only loss that was inflicted to his property interests directly. Claims
for indirect (reflective) loss suffered by shareholders as a result of direct losses
incurred to their subsidiaries falls out of Article 21(1).
861. The main reason why an investor cannot claim damages on his own behalf for loss
that is merely consequential upon harm inflicted on his subsidiary (for example,
destruction of assets belonging to the subsidiary) is to be found in the relationship
1286
1287
Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, 22 October 2002,
para. 86, RLA-39.
1288
Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, 22 October 2002,
para. 84, RLA-39.
288
between Article 21(1) and 21(2) of the BIT and their interpretation in light of Article
31 of the VCLT. Namely, if an investor would be allowed to submit a claim on his
own behalf for any loss suffered by an enterprise, Article 21(2) of the Canada – Serbia
BIT would be obsolete.
862. This was the conclusion reached most recently by the tribunal discussing the
relationship between NAFTA Articles 1116 and 1117. The tribunal in Clayton v
Canada analyzed meaning of the phrase “the investor has incurred loss or damage”
from Article 1116 (identical to the text of Article 21(1) of the Canada – Serbia BIT)
and made a series of observation applicable to the issue at stake here:
“371. The starting point for the interpretation of Articles 1116 is Article 31(1)
of the VCLT under which treaties are to be “interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty
in their context and in the light of its object and purpose”. The critical
question in this case is the meaning of “the investor has incurred loss or
damage” arising out of the breach. The terms of Article 1116 do not make
clear whether they are limited to direct loss or they can include indirect loss
that is, reflective loss.
372. However, if the words of Article 1116 are to be read “in their context”
then Article 1117 has to be considered. This provision allows an investor to
claim for loss to an enterprise thus providing for the recovery of reflective
loss. As a result, to permit reflective loss to be recovered under Article 1116
would raise questions about the relationship between the two provisions
perhaps rendering Article 1117 inutile. This is the point made by the
Respondent. The Investors argue that the potential for conflict only arises
when claims are brought under both Article 1116 and Article 1117, but this
only reinforces the question of why Article 1117 was included into NAFTA if
claims can be brought for reflective loss under Article 1116.
373. Both the Respondent and the United States in their submissions argue
that the inclusion of separate provisions in Article 1116 and Article 1117 was
deliberate. Article 1116 gave effect to the traditional rule of customary
international law that a party can sue for its losses arising out of the breach
289
of an international obligation. Article 1117 was designed to permit claims by
an investor on behalf of its investment, thus permitting a claim for reflective
loss. In the absence of that provision a claim for reflective loss would
otherwise be barred under customary international law by virtue of the ICJ
judgment in Barcelona Traction, which rejected the right of shareholders to
bring claims in place of the corporation.
374. The Tribunal finds this to be a plausible explanation for the existence of
the two separate provisions in NAFTA Chapter Eleven, which would argue
against overlap between them and would mean that reflective loss could not
be recovered under Article 1116.”1289
863. The tribunal in Clayton NAFTA jurisprudence on the issue (including the award in
UPS v. Canada, relied on by Claimants in their submission)1290 and concluded that
“[n]o consistent position on the distinction in the scope of application of Article 1116
and Article 1117 has emerged in the Chapter Eleven cases.”1291 The tribunal,
however, endorsed the position espoused by the Mondev tribunal about importance of
distinguishing between claims brought by investor on his own behalf and claims
submitted as a result of reflective loss:
“In light of the above, the Tribunal is persuaded that the Respondent and the
United States are in principle correct. Articles 1116 and 1117 are to be
interpreted to prevent claims for reflective loss from being brought under
Article 1116. This follows from the wording of Article 1116 in its context,
which includes Articles 1121 and 1135. Moreover, the Tribunal takes account
of the common position of the NAFTA Parties in their submissions to Chapter
Eleven tribunals.”1292
864. Respondent submits that Mr. Rand cannot advance the claim for indirect loss suffered
directly by MDH Serbia under Article 21(1) of the Canada Serbia – BIT. Mr. Rand
1289
Bilcon of Delaware et al. v. The Government of Canada, PCA Case No. 2009-04, Award on Damages, 10
January 2019 (emphasis added), RLA-154.
1290
1291
January 2019, para. 387, RLA-154.
1292
290
cannot escape the obligation to sue on behalf of the enterprise (MDH Serbia) by
simply labeling MDH Serbia’s assets (3.9% shareholding in BD Agro) as his own. If
that would be indeed possible, an investor could claim for loss or damage to any
tangible asset of his subsidiary, merely because he “indirectly owns” the asset.
865. It does not follow otherwise from the findings of the tribunal in Copper Mesa v.
Ecuador, another case Claimants relay on in their submission.1293 There, the claimant
argued that Ecuador indirectly expropriated the claimant’s shares in a local subsidiary
by taking the subsidiary’s assets and destroying the value of shares entirely. Thus, the
claimant in Copper Mesa grounded its claim on damage inflicted on its property
(shares in Ascendant Ecuador) and not on the property of its local subsidiary.1294
866. To be clear – Respondent does not dispute that Mr. Rand was free to submit a claim
on his own behalf for loss or damage affecting the value of his shareholding in MDH
Serbia. In such scenario, the requirement of waiver by MDH Serbia applies as well.1295
What he cannot do under Article 21(1) of the Canada – Serbia BIT is to treat MDH
Serbia’s assets (its shareholding in BD Agro) as his own for the purpose of that
provision. To claim for indirect damage suffered by MDH Serbia directly is possible
only under Article 21(2) of the BIT.
2.2. Claimants’ claim with regard to MDH Serbia’s shareholding in BD Agro does
not fulfill requirements from Article 22 of the Canada – Serbia BIT which
leaves the Tribunal without jurisdiction
867. As explained above, Mr. Rand’s claim in relation to MDH Serbia’s shareholding can
be properly qualified as either the claim on his own behalf for loss or damage to his
interest in MDH Serbia (in accordance with Article 21(1) of the BIT), or as the claim
submitted on behalf of MDH Serbia for loss or damage incurred by the company (in
accordance with Article 21(2) of the BIT).
868. In both of those instances, Claimants were under obligation to submit a proper waiver
of MDH Serbia’s right to initiate proceeding before administrative tribunal or court
1293
1294
Copper Mesa Mining Corporation v. Republic of Ecuador, PCA No. 2012-2, 15 March 2016, Award,
para. 6.6., RLA-120.
1295
Article 22(2)(e)(iii) of the Agreement between Canada and the Republic of Serbia for the Promotion and
Protection of Investments, CLA-1.
291
under Serbian law or to use any other dispute settlement procedure to remedy the
damage allegedly suffered.1296
869. Claimants do not dispute that no waiver from MDH Serbia was ever submitted.
Instead, they argue that, even if the Canada – Serbia BIT did require Claimants to
include the waiver, the absence of waiver cannot affect jurisdiction of the Tribunal.1297
Claimants put forward two main arguments in support of the proposition, both equally
flawed.
870. First, Claimants assert that MDH Serbia effectively fulfills the requirement of waiver
since it cannot seek redress for the alleged expropriation of its shareholding in any
other proceedings.1298 This is evidently wrong. The fact that MDH Serbia is not a
contracting party in the Privatization Agreement does not prevent it in any way to
pursue redress for the allegedly wrongful act of the Agency before Serbian courts
based on general rules on torts from the Law on Obligations.1299 If what Claimants
assert would be correct – that only persons/entities in privy to contractual arrangement
with the Agency could initiate proceedings before local courts – the requirement of
waiver would be hypothetically applicable only to Mr. Obradović and could not affect
any of the Claimants. This is naturally not so.
871. Second, Claimants relay on Thunderbird v. Mexico in order to prove that “the
requirement of a waiver is merely procedural and its initial absence does not deprive
the investment tribunal of jurisdiction.”1300 The argument is made in clear
contradiction with Article 25(1) of the Canada – Serbia BIT. Any discussion on
whether the absence of waiver is procedural or jurisdictional issue is unnecessary in
light of unequivocal provision of the BIT:
1296
Article 22(2)(e)(iii) and Article 22(2)(f)(ii) of the Agreement between Canada and the Republic of Serbia
for the Promotion and Protection of Investments; emphasis added, CLA-1. In case of submission of a claim
on behalf of the enterprise, the investor is required to submit a document recording consent of the enterprise
to arbitration as well (Article 22(2)(a)).
1297
1298
1299
Law on Obligations, Section 2 (Torts), RE-32.
1300
292
Each Party consents to the submission of a claim to arbitration in accordance
with the procedures set out in this Agreement. Failure to meet a condition
precedent listed in Article 22 nullifies that consent.1301
872. Third, in line with Article 22(4) of the Canada – Serbia BIT, the waiver and consent
refered to in paragraph 2 of the same Article must be enclosed together with a
submission of a claim to arbitration. The relevant provision uses the word “shall”
which clearly implies the mandatory character of the obligation to submit waivers at
the time the claim is submitted to arbitration. The waiver which was submitted by
Claimants with their Reply does not comply with this requirement.1302 Thus,
Claimants cannot unilateraly “cure” inexistence of waiver at the relevant time.
Absence of formally valid waiver means that the precondition for Respondent’s
consent to arbitrate and a valid arbitration agreement did not materialize. This was
precisely the position of the tribunal in Renco v. Peru, relied on by Claimants in their
submission.1303 In that case Renco argued that it is allowed to cure deficiencies in its
waiver by submitting a new one.1304 The dispute was arbitrated under the United States
– Peru Trade Promotion Agreement which contains in Article 10.18(2). a provision
eliminating consent to arbitrate in absence of required waivers at the time a claim is
submitted to arbitration, in a way similar to Article 22 of the Canada – Serbia BIT.1305
The tribunal held that, as a result of deficient waiver, no arbitration agreement ever
came into existence:
“Under Article 10.18, the submission of a valid waiver is a condition and

limitation on Peru’s consent to arbitrate. This is a precondition to the initial
existence of a valid arbitration agreement, and as such leads to a clear timing
issue: if no compliant waiver is served with the notice of arbitration, Peru’s
1301
Article 25(1) of the Agreement between Canada and the Republic of Serbia for the Promotion and
Protection of Investments; emphasis added, CLA-1
1302
See Claimants’ Reply, para. 723.
1303
The Renco Group, Inc. v. The Republic of Peru, ICSID Case No. UNCT/13/1, Partial Award on
Jurisdiction, 15 July 2016, para. 135, CLA-97.
1304
1305
293
offer to arbitrate has not been accepted; there is no arbitration agreement;
and the Tribunal is without any authority whatsoever.”1306
873. Therefore, in line with the clear language of Article 22 of the Canada – Serbia BIT,
the initial absence of a waiver that should have been submitted by MDH Serbia
nullifies Respondent’s consent to arbitrate the dispute about the company’s
shareholding in BD Agro. Subsequent submission of waiver by Claimants cannot cure
inexistence of consent at the relevant time.
2.3. Respondent’s objection was submitted in due time and does not represent
abuse of process
874. In their last argument with regard absence of valid waiver issued by MDH Serbia,
Claimants essentially ask the Tribunal to divest Respondent of its procedural rights
under the ICSID Arbitration Rules and Procedural Order No. 1. According to
Claimants, the objection with regard to the lack of proper waiver was submitted
belatedly.1307 This is manifestly incorrect.
875. Respondent’s objection was submitted (together with other jurisdictional objection)
in full compliance with ICSID Arbitration Rule 45(1):
Any objection that the dispute or any ancillary claim is not within the
jurisdiction of the Centre or, for other reasons, is not within the competence
of the Tribunal shall be made as early as possible. A party shall file the
objection with the Secretary-General no later than the expiration of the time
limit fixed for the filing of the countermemorial, or, if the objection relates to
an ancillary claim, for the filing of the rejoinder—unless the facts on which
the objection is based are unknown to the party at that time.1308
876. In addition, the objection was raised in accordance with the procedural calendar
envisaged in Annex A of the Procedural Order No. 1.1309 Respondent had previously
announced to the Tribunal and Claimants its intention to submit preliminary
1306
Jurisdiction, 15 July 2016, para. 158 (emphasis added), CLA-97.
1307
1308
ICSID Arbitration Rules, Rule 41(1), emphasis added, CLA-17.
1309
Procedural Order No. 1 of 28 November 2018, Annex A.
294
objections on jurisdiction and the procedural calendar was clearly drafted with this in
mind.1310
877. Although the fact that Respondent intended to raise all of its jurisdictional objections
in its Counter-Memorial was well known to Claimants, they now argue that
Respondent should have made the objection during the pre-arbitration
communications.1311 The argument presupposes that the text of ICSID Arbitration
Rule 41(1) instructing respondent States to make jurisdictional objections “as early
as possible” defines the moment in which any objection must be raised, while the
precise time limit from the same provision (no later than the expiration of the time
limit fixed for the filing of the countermemorial) is only an additional time limit,
operating as a secondary rule.1312 This kind interpretation basically means that the
time limit posed in Article 41(1) bears no significance. That cannot be correct.
878. First, the role of the time limit designated specifically in said provision is explained
by the tribunal in Urbaser v. Argentina: „[c]laimants rightly observe that for
Arbitration Rule 41(1) the primary rule is that jurisdictional objections be made “as
early as possible.” However, the secondary rule is that such objections shall be raised
no later than at the end of the time-limit for the counter-memorial. This second rule
overrides any possible sanction of an objection for not having been raised as early as
possible but still within this second time-limit.“1313 In that case the tribunal did not
find that Argentina’s had submitted two jurisdictional objections belatedly even thou
the State submitted its new objections only during the exchange of second round of
submissions on jurisdiction.1314
879. Indeed, ICSID tribunals are rightfully hesitant to deny respondents the right to object
the existence of jurisdiction when the objection itself was submitted in accordance
with time limit set in ICSID Arbitration Rule 41(1). The only case that Claimants rely
on in their submission in which the tribunal had found that objections raised in the
1310
Procedural Order No. 1 of 28 November 2018, Annex A.
1311
1312
1313
Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine
Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, para. 257, RLA-192.
1314
Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine
Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, para. 258, RLA-192.
295
State’s counter-memorial were submitted belatedly is Pac Rim v. El Salvador.1315
However, Claimants’ reliance on that case is obviously misplaced. In Pac Rim the
tribunal decided to bifurcate the proceedings and to decide on El Salvador’s
jurisdictional objections preliminary. The State submitted its preliminary objections
to jurisdiction in 2010, parties to the dispute exchanged written submissions on the
issue and the tribunal rendered the decision on jurisdiction in June 2012. El Salvador
then raised new objections to jurisdiction in its counter-memorial on the merits, three-
and-a half years after its initial objections to jurisdiction were submitted and more
than one-and-a half years after the tribunal issued its decision on jurisdiction.1316 Why
the reasoning of the Pac Rim tribunal is not applicable to the circumstances of the
present dispute warrants no further explanation.
880. Claimants also rely on Desert Line v. Egypt in support of proposition that
jurisdictional objections must be made “as early as possible.”1317 Claimants omit to
note that the tribunal in that case, although declaring that it saw no reason why the
objections of Egypt could not have been submitted earlier, accepted to examine the
objections.1318
881. Claimants’ reliance on the award in AMTO v. Ukraine is inapposite as well.1319 The
dispute in AMTO concerned the application of Article 26(2) of the Energy Charter
Treaty (the provision on amicable settlement procedure prior to arbitration) and, in
particular, the issue of whether letters sent by the claimant to Ukraine were sufficient
to trigger the start of the cooling off period, in circumstances in which Ukraine was
already aware that the dispute existed.1320 The reasoning of the AMTO tribunal – that
Ukraine was under obligation to immediately communicate to the claimant that the
requirements under Article 26(2) of the Energy Charter Treaty were not fulfilled –
clearly does not apply to the case at hand, in light of unequivocal provision of ICSID
1315
1316
Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Award, 14 October 2016,
para. 5.40, CLA-99.
1317
1318
Desert Line Projects LLC v Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008,
paras. 97, 98, CLA-100.
1319
1320
Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award, 26 March 2008,
paras. 49, 52, RLA-99.
296
Arbitration rule 41(1) – Respondent is allowed to submit any jurisdictional objection
within the time limit set by the Tribunal for submission of counter-memorial.
882. Second, ICSID tribunals have in the past accepted to deal with jurisdictional
objections raised even after passage of the time limit set in ICSID Arbitration Rule
41(1). This is because ICSID Arbitration Rule 41(2) allows the tribunal to decide, on
its own initiative, whether the dispute is within its competence or jurisdiction of the
Centre.1321 Most prominent example of such approach is recent award in Besserglik v.
Mozambique.1322 The tribunal in that case dismissed the claimant’s claim for lack of
jurisdiction based on Mozambique’s objection that the BIT was not in force, submitted
six years after it was fist notified about the dispute, almost three years after the
registration of the request for arbitration and only after the State had submitted its
counter-memorial and rejoinder in the proceeding.1323 In applying Article 45(3) of
ICSID Additional Facility Rules (the text of which corresponds to ICSID Arbitration
Rule 41(2)), the tribunal decided to dismiss the claim for lack of consent to arbitrate:
“The Tribunal would have been inclined to rule the objection out of
consideration had the matter been one where Respondent by its delay had
secured a procedural advantage or raised a defense of a non-fundamental
nature. The objection in this case, however, is that the BIT is not in force. If
that be the case, then Respondent cannot be said to have given its consent to
ICSID arbitration. Without consent there can be no ICSID arbitration. The
objection, therefore, goes to the very root of the jurisdiction of this
Tribunal.”1324
883. Thus, even if the Respondent’s objection was belated (which evidently it was not), the
absence of proper waiver nullifies Respondent’s consent to arbitrate1325 the claim with
1321
ICSID Arbitration Rules, Rule 41(2), CLA-017.
1322
Oded Besserglik v. Republic of Mozambique, ICSID Case No. ARB(AF)/14/2, Award, 28 October 2019,
RLA-167.
1323
paras. 245, 257, 261, 262, RLA-167.
1324
1325
Article 25 in connection to Article 22 of the Agreement between Canada and the Republic of Serbia for
the Promotion and Protection of Investments, CLA-1
297
regard MDH Serbia’s shareholding in BD Agro and the Tribunal would had to
examine the issue on its own initiative.
884. Third, Claimants advance utterly unsubstantiated assertion that the Republic of Serbia,
by invoking provisions of the Canada – Serbia BIT that unequivocally nullify its
consent to arbitrate in absence of MDH Serbia’s waiver, committed the abuse of
right.1326 Respondent resolutely rejects such accusations.
885. Claimants’ abus de droit theory falls flat primarily because it rests on the wrong
premise – MDH Serbia “substantively fulfills the purpose of a waiver” since it cannot
theoretically pursue any remedy before Serbian courts for the alleged expropriation of
its shares.1327 As it was explained above, that is plainly wrong. MDH Serbia does not
“substantively” fulfill the purpose of waiver any more than any of the Claimants. Yet,
Claimants did not see any problem with “purely formalistic” requirement of waiver
from Article 22 of the Canada – Serbia BIT when it comes to them.
886. Claimants’ attempt to question Respondent’s motives for raising jurisdictional

defense is of no avail. The issue at stake is not overly complicated: the Canada – Serbia
BIT contains an arbitration agreement. Respondent’s consent to arbitrate was given
with certain qualifications and conditioned with several requirements. If any of those
requirements is not met, Respondent has no duty to arbitrate. In Renco v. Peru the
tribunal accepted Peru’s objection grounded on absence of formally valid waiver and
submitted four years after the notice of arbitration.1328 Claimants rely on certain
fragments of the Renco award in support of their assertion that jurisdictional objection
based on waiver, in theory, could be abusive.1329 What they neglect to mention is that
the tribunal in that case rejected the claimant’s argument on abuse, with rationale that
can be applied here as well:
„Having considered the issue with great care, the Tribunal has concluded
that, in raising its waiver objection, Peru has sought to vindicate its right to
receive a waiver which complies with the formal requirement of Article
10.18(2)(b) and a waiver which does not undermine the object and purpose
1326
1327
1328
1329
298
of that Article. In so finding, the Tribunal does not accept the contention that
Peru’s waiver objection is tainted by an ulterior motive to evade its duty to
arbitrate Renco’s claims. Indeed,Peru has no duty to arbitrate Renco’s claims
under the Treaty unless Renco submits a waiver which complies with Article
10.18(2)(b).“1330
887. Thus, if Claimants’ formal acceptance of Respondent’s standing offer to arbitrate does
not fulfil all of requirements envisiged in the Canda – Serbia BIT, there can be no
Respondent’s attempt to“evade its duty to arbitrate”1331 simply because there is no
duty to arbitrate.
888. Finally, no prejudice to Claimants’ interest whatsoever followed from the

Respondent’s decision to submit all of its jurisdictional objections simultaneously and
in its Counter-Memorial. Claim about alleged expropriation of MDH Serbia’s
shareholding in BD Agro is just one of many claims put forward in this arbitration.
Even if the objection had been submitted in earlier stage of the proceeding and
accepted by the Tribunal, that would still not dispose of other claims raised by
Claimants. If anything, the way in which Respondent decided to use its procedural
rights reduces costs and time. It would not be in interest of efficiency for the Parties
to discuss merely one of several jurisdictional objections separately.
889. In sum, Respondent submits that it did not give consent to arbitrate claims with regards
MDH Serbia’s shareholding in BD Agro. Respondent’s jurisdictional objection was
submitted in due time, fully in conformity with the applicable procedural rules and
procedural calendar established by the Tribunal and does not represent abuse of rights.
1330
Jurisdiction, 15 July 2016, para. 186 (emphasis added), CLA-97.
1331
299
D. NO JURISDICTION RATIONE TEMPORIS UNDER THE CANADA – SERBIA
BIT
890. In the Counter-Memorial Respondent submitted two separate ratione temporis

preliminary objections.1332 In their Reply, Claimants extensively argued against these
objections.1333 Hereby Respondent reiterates its preliminary objections and arguments
to refute Claimant’s arguments and prove that the tribunal lacks ratione temporis
jurisdiction. The Respondent’s first ratione temporis objection is based on Article 22
of the Canada – Serbia BIT whereas the second is based on the general principle of
non-retroactivity envisaged by general international law and Article 28 of the Vienna
Convention on the Law of Treaties (VCLT). Respondent also submits that it is entitled
to argue facts underpinning its preliminary objections, in general, but especially
because of the directions embedded in the Tribunal’s Procedural Order No. 3 dated 24
June 2019.
1. The Tribunal does not have jurisdiction because the three-year limitation
period set forth in Article 22 of the BIT elapsed before the submission of the
Claim to Arbitration.
1.1. Legal framework
891. In its Counter-Memorial Respondent argued that conditions set forth in Article 22 of
the Canada-Serbia BIT are imperative conditions for the existence of consent within
the meaning of Article 25 of the same BIT. Without such consent there is no
jurisdiction of the Tribunal. Claimants agree with the existence of these conditions as
a matter of principle but deny that the conditions set forth in this provision were not
met.
892. Article 22 of the Canada-Serbia BIT unconditionally sets forth the preclusive three-
year limitation period within which the investor/enterprise must submit claim from
the date on which the investor/enterprise first acquired, or should have first acquired,
knowledge of the alleged breach and knowledge that the investor/enterprise has
1332
Respondent’s Counter-Memorial, Section III C., paras. 377-424.
1333
Claimants’ Reply, Section III E., paras. 745-834.
300
incurred loss or damage thereby.1334 According to Article 25 of the Canada-Serbia
BIT “[F]ailure to meet a condition precedent listed in Article 22 nullifies that
consent.”1335
893. Respondent has already provided extensive overview of other international

agreements containing the same provision, as well as commentaries and case-law
unequivocally reaffirming both the relevance and interpretation of this provision,
which Respondent hereby reasserts.1336 Mandatory and categorical conditions set forth
in Article 22 are vital for consent,1337 and consequently for the jurisdiction of arbitral
tribunals. Given that Article 22 of the Canada-Serbia BIT was drafted in line with the
Canada Model BIT, the following commentary is equally applicable in this case:
“It would appear that this express provision has been added to address
conflicting NAFTA jurisprudence on whether procedural conditions for
bringing a claim are also jurisdictional requirements. The additions to the
Model can be explained in light of NAFTA arbitrations in which investor
compliance with time and waiver requirements were at issue and in which
tribunals suggested that non-compliance with procedural requirements
should not be treated in an overly strict or technical manner. In contrast, the
Model expressly provides that non-compliance with the required conditions
nullifies consent, in which case the tribunal would have no jurisdiction.”1338
894. Other sources as well as relevant case law, such as awards in cases Corona v
Dominican Republic,1339 Feldman v Mexico1340 or Ansung v China,1341 demonstrate
1334
Articles 21(1)(2) of the Agreement between Canada and the Republic of Serbia for the Promotion and
Protection of Investments, CLA-1.
1335
Article 25 of the Agreement between Canada and the Republic of Serbia for the Promotion and Protection
of Investments, CLA-1.
1336
1337
“Having regard to the ordinary meaning of the terms, read in their context and in light of the Agreement’s
object and purpose, the DR-CAFTA Parties have plainly conditioned their consents to arbitration. If a
claimant does not comply with the conditions and limitations established in Article 10.18, its claim cannot
be submitted to arbitration.“ – Corona Materials LLC v. Dominican Republic, ICSID Case No.
ARB(AF)/14/3, Award, 31 May 2016, para. 191, RLA-28.
1338
Céline Lévesque, Andrew Newcombe, Canada, in: Chester Brown (ed.), Commentaries on Selected Model
Investment Treaties, Oxford University Press, 2013, p. 109, RLA-1.
1339
Corona Materials LLC v. Dominican Republic, ICSID Case No. ARB(AF)/14/3, Award, 31 May 2016,
paras. 191-192, RLA-28.
1340
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16
December 2002, para. 58, RLA-29.
1341
Ansung Housing Co., Ltd. v. People's Republic of China, ICSID Case No. ARB/14/25, Award, 9 March
2017, para. 29, RLA-30.
301
that the three-year limitation period is clear and rigid rule not subject to any
suspension, prolongation, or other qualification. In Ansung v China the Tribunal
refused to rely solely on the presentation of claim as submitted by the claimant and
found that the facts presented, even only to the most minimal extent for the purposes
of Rule 41(5) procedure, paint a picture different to the one the claim asserts, i.e. that
the knowledge of loss and breach occurred earlier than claimed by the claimant: “After
these multiple and clear pleadings, the Tribunal cannot accept Ansung’s attempts to
characterize these pre-October 2011 dates in its Observations and at the Rule 41(5)
Hearing as mere background information.“1342 This is relevant for the case at hand
for several reasons: if facts presented by Claimants even prima facie disclose the
existence of potential loss and alleged breach earlier than asserted by Claimants such
facts can be treated as moving the cut-off date further back than it is formally claimed
by Claimants. The Claimants’ facts, as presented in all pleadings, can equally work
against them. Second, in Ansung v China, despite the fact that the claim passed the
critical date for only couple of days, the rigidness of the time-limitation rule still
prevented the tribunal to even minimally extend the prescribed deadline.
895. The same conclusion was arrived at by the tribunal in Spence International
(Berkowitz) v Costa Rica, where two temporal issues were combined: the compliance
with the limitation period provision and temporal application of the CAFTA which
entered into force after the claimants first acquired knowledge of the measures
constituting the cause of action of their international arbitration claim. Practically all
claims were dismissed on the basis of the time limitation clause and the case was
subsequently terminated. In this case more than one finding of the tribunal elucidates
the interpretation and scope of the limitation clause and relevance of the treaty’s entry
into force with regard to the acts possibly constituting breach. First, it is not the last
measure but the time when the claimants first acquired the knowledge of the breach
that is relevant for assessment of the limitation period clause.1343 Second, if the
challenged conduct following the effective date of the treaty is rooted in and cannot
be separated from the conduct after the treaty’s entry into force, this is relevant for the
1342
2017, para. 108, RLA-30.
1343
Aaron C. Berkowitz, Brett E. Berkowitz and Trevor B. Berkowitz (formerly Spence International
Investments and others) v. Republic of Costa Rica, ICSID Case No. UNCT/13/2, Interim Award of the
Tribunal (Corrected), 30 May 2017, para. 213, RLA-31.
302
temporal application of the treaty.1344 Third, for whether the consequence of the post-
effective date conduct was separable from the earlier acts of which the claimants were
aware: the final point was that the limitation clause is not just plain formality or undue
formalism but rigid rule to be given full effect by way of the proper interpretation and
application of the treaty.1345 Despite the fact that the claimants were close to the cut-
off date the tribunal did not alter its position.
896. Case law testifies that the tribunals search for the “earliest possible date”1346 or “the
first date”1347 of the knowledge of potential breach causing loss or damage. Tribunals
also agree that no “tolling” or “prolongation” of the relevant dates is possible. The
recent arbitral practice demonstrates that in relation to the loss or damage “the
limitation clause does not require full or precise knowledge of the loss or damage…
such knowledge is triggered by the first appreciation that loss or damage will be (or
has been) incurred.”1348 Therefore, the Claimants’ arguments that it is “the first day
when the Claimants acquired definitive knowledge that they had incurred loss”1349
and that what is relevant is the fact that “[t]he Claimants’ claim on quantum quantifies
their loss as of the same date 21 October 2015”1350 are plainly contrary to the
established standard according to which “[t]he limitation period begins with an
investor’s first knowledge of the fact that it has incurred loss or damage, not with the
date on which it gains knowledge of the quantum of that loss or damage”1351. Equally
flawed is the Claimants’ argument “that actual damage, rather than predicted future
1344
“In any event, as the Tribunal has observed in its preceding discussion, the alleged conduct on which the
Claimants found the claims is deeply and inseparably rooted in the Respondent’s pre-CAFTA entry into
force conduct.“ - Ibid., para. 298, RLA-31.
1345
Ibid.
1346
“The Tribunal shall thus proceed in two steps: First, it shall determine the earliest possible date on which
the Claimant would be permitted to have acquired actual or constructive knowledge of the alleged breach of
the Treaty and of the incurred loss or damage for the Claimant’s claims to have been submitted within the
time limit for the purpose of Article 10.18.1.“ - Corona Materials LLC v. Dominican Republic, ICSID Case
No. ARB(AF)/14/3, Award, 31 May 2016, para. 196, RLA-28.
1347
“The limitation period begins with an investor’s first knowledge of the fact that it has incurred loss or
damage, not with the date on which it gains knowledge of the quantum of that loss or damage.“ - Ansung
Housing Co., Ltd. v. People's Republic of China, ICSID Case No. ARB/14/25, Award, 9 March 2017, para.
110 (emphasis original), RLA-30.
1348
1349
Claimants’ Reply, para. 749 (emphasis added).
1350
1351
2017, para. 110 (emphasis original), RLA-30.
303
damage, is required to trigger the three year limitation period”1352 is refuted by the
recent case law. This was the original position of Respondent that was incorrectly
reproduced in the Claimants’ Reply. Claimants argue: “Remarkably, Serbia
completely failed to discuss the requirement of the Claimants’ knowledge of loss in its
ratione temporis objection based on the three-year time limit.”1353 To prove this false
accusation Claimants quote only the half of the Respondent’s statement. The full
argument demonstrates that Respondent raised the issue of loss, on the basis of the
recent and pertinent case law, in the following terms:
“The knowledge of the possible breach and loss must have been triggered at
that point – it is not required to have loss at that time. The first appreciation
that such loss may occur triggers the limitation clause: ‘the limitation clause
does not require full or precise knowledge of the loss or damage…. such
knowledge is triggered by the first appreciation that loss or damage will be
(or has been) incurred. It neither requires nor permits a claimant to wait and
see the full extent of the loss or damage that will or may result.’”1354
897. Therefore, Respondent argues now, as it has argued in its previous pleadings, that the
issue of loss is to be relevant with either actual or constructive knowledge at earliest
possible date of the first appreciation that loss or damage will be incurred.
1.2. The Canadian Claimants failed to observe the three-year limitation period in
the Canada-Serbia BIT
898. Respondent hereby reasserts its arguments set forth in its Counter-Memorial that the
Canadian Claimants do not meet the requirement of the three-year limitation period
set out in Article 22 of the Canada-Serbia BIT which leaves the Tribunal without
jurisdiction on the basis of the lack of consent to arbitrate within the meaning of
Article 25 of the Canada-Serbia BIT.
899. In order to assess the three-year limitation period there are several dates which need
to be determined in relation to the date of knowledge of breach causing the loss. The
claim must be submitted within the three years from “the date on which the investor
1352
1353
1354
Respondent’s Counter-Memorial, para. 401 (citing Spence v. Costa Rica, para. 213).
304
[and/or the enterprise] first acquired, or should have first acquired, knowledge of the
alleged breach and knowledge that the investor has incurred loss or damage
thereby.”1355 Given that the Request for Arbitration was received by the ICSID
Secretariat on 14 February 2018 it follows that the cut-off date is 14 February 2015.
Therefore, the earliest possible date of knowledge, either actual or constructive, of a
potential breach causing loss, is set forth at 14 February 2015. Accordingly, if the
knowledge, either constructive or actual, originates in the period preceding the cut-off
date it follows that the claim is time-barred no matter how close it is to the cut-off
date. Claimants agree that the cut-off date is 14 February 2015.1356
900. The issue of knowledge is not necessarily as easy to resolve as relevant critical and
cut-off dates because, even when the knowledge is to be constructed, it is based on a
number of subjective but presumably identifiable elements. In Grand River v. United
States the tribunal found that “‘Constructive knowledge’ of a fact is imputed to person
if by exercise of reasonable care or diligence, that person would have known of that
fact. Closely associated is the concept of ‘constructive notice.’ This entails notice that
is imputed to a person, either from knowing something that ought to have put the
person to further inquiry, or from willfully abstaining from inquiry in order to avoid
actual knowledge.“1357 In Grand River the tribunal rejected the claimants’ claim of
the actual knowledge but established instead that, given that investors were
experienced and substantial participants in the market, it is the constructive knowledge
test that was to be applied.1358 The constructive knowledge of loss coincided with the
constructive knowledge of the act that eventually (although much later) caused the
alleged loss – the claimants simply should have known all the implications of the act
the moment it was adopted.1359 Similarly, in Mercer v Canada, the tribunal found that
the claimant knew the implications of the electricity procurement agreement when
that particular contract was entered into and not after the measures complained of took
1355
Article 22 of the Agreement between Canada and the Republic of Serbia for the Promotion and Protection
of Investments, CLA-1
1356
Claimants’ Reply, paras. 781, 789, 798, 809.
1357
Grand River Enterprises Six Nations Ltd., et al. v. United States of America, (NAFTA/UNCITRAL),
Decision on Objections to Jurisdiction, 20 July 2006, para. 59 (references omitted), RLA-32.
1358
Decision on Objections to Jurisdiction, 20 July 2006, para. 71, RLA-32.
1359
Decision on Objections to Jurisdiction, 20 July 2006, paras. 73, 82-83, RLA-32.
305
effect.1360 Therefore, the moment the breach was notified to Mr. Obradović, he must
have been aware of the potential loss as the Notice represented sufficient knowledge
inevitable loss. In line with the finding of the Corona tribunal, which refused the
following claimant’s argument:
“based on what he was told he still believed that there was a possibility that
the Environmental Ministry may reconsider its Negative Environmental
Decision and issue and Environmental Decision for the Project”1361 it follows
that the similar argument of Claimants in the case at hand may not stand: “the
Claimants obviously believed that the Privatization Agency would rectify its
incorrect assessment and recognize that there was no breach of the
Privatization Agreement.”1362
901. The Respondent’s position is that Claimants were well aware of all circumstances
leading to the alleged breach and loss given that all facts constituting their cause of
action were familiar to them well before the cut-off date. In the words of Mercer
tribunal, the Claimants had sufficient knowledge of the immediate implications of
notices of and other information regarding the breach. In the words of Grand River
case it is unreasonable to assume the irrelevance of the notices of breach leading to
the inevitable termination of the contract given the extensive and substantial
experience of Mr. Obradović in privatizations in Serbia. In the words of the Spence
case Mr. Obradović’s “knowledge is triggered by the first appreciation that loss or
damage will be (or has been) incurred. It neither requires nor permits a claimant to
wait and see the full extent of the loss or damage that will or may result.”1363
902. Claimants place much emphasis on the First Notice of Breach, dated 25 February 2011
and received by BD Agro on 1 March 2011,1364 for the pretense argument that:
“Indeed, while the Privatization Agency erred in its assessment of the existence of a
breach of the Privatization Agreement already on 1 March 2011, the Claimants could
1360
Mercer International Inc. v. Canada, (ICSID Case No. ARB(AF)/12/3, Award, 6 March 2018, para. 6.16.,
RLA-185.
1361
Corona Materials LLC v. Dominican Republic, ICSID Case No. ARB(AF)/14/3, Award, 31 May 2016,
para. 47, RLA-28
1362
1363
1364
Notice of the Privatization Agency on Additional Time Period dated 24 February 2011, CE-31.
306
not have conceivably expected that this erroneous assessment of the fulfillment of the
Privatization Agreement would lead to outright violations of Serbia’s investment
obligations several years later.”1365 In other words, Claimants argue they could not
possibly know, on 1 March 2011 or at any point before the cut-off date, that the
Privatization Agreement would be terminated due to the substantial breach of the
contract.
903. It is worth here to be reminded of the content of the First Notice.1366 The Privatization
Agency informed the Buyer of several breaches of the Privatization Agreement and
of multiple breaches of Article 5.3.4. thereof together with reasons for this decision
and evidence for establishing these breaches. The Privatization Agency provides for
the period of 60 days for remedying the breach, and states clearly what the
consequences would be:
“In the event of failure to comply with the above stated contractual
obligations within the additionally granted term as per this Notice, the
Privatization Agency will undertake the measures under Article 41a of the
Law on Privatization (“Official Gazette of RS”, Nos. 38/01, 18/03, 45/05 and
123/07).”1367
904. Three clarifications are mandated here. First, it was indeed possible to avoid
termination by way of remedying the breach, i.e. by reinstating the funds that were
unlawfully loaned to third parties but this was completely within the powers and duties
of Mr. Obradović. Second, there were no fewer than seven notices of breach before
the cut-off date and several meetings where it was directly conveyed to Mr. Obradović
or to representatives of BD Agro that the existence of unremedied breach was the
major issue between the parties to the contract. Therefore, documentary evidence
amply demonstrates that on at least dozen occasions preceding the cut-off date Mr.
Obradović (and presumably thus the Claimants) knew the very same breach was the
major issue for the performance, termination and assignment of the Privatization
Agreement. Third, Mr. Obradović was experienced and substantial participant in
1365
1366
Notice of the Privatization Agency dated 25 February 2011 received by BD Agro on 1 March 2011, CE-
31.
1367
Notice of the Privatization Agency dated 25 February 2011 received by BD Agro on 1 March 2011, p. 3,
CE-31
307
privatizations in Serbia who should have known from the first (if not from the seventh)
notice of what was going to happen if he failed to remedy the breach.
905. Therefore, it was not only the First Notice of Breach that must have triggered the
knowledge of breach and consequential loss. Following the “First Notice” dated 25
February 2011 (received by BD Agro on 1 March 2011), 1368 there were six more
notices of breach before the cut-off date: Notice of 24 June 2011,1369 Notice of 7
October 2011,1370 Notice of 27 December 2011,1371 Notice of 22 June 2012,1372 Notice
of 3 August 2012,1373 Notice of 9 November 2012.1374 In between these formal notices
and around the same time there were a series of other events that revolved around the
same facts – breach, remedy and termination. Most notably, two meetings shortly after
the Notice of 7 October 2011,1375 and the meetings held on 2 November 20121376 and
on 4 February 2014.1377 In the course of these meetings, Mr. Obradović and/or his
representatives conceded to the breach and were requesting further extensions in order
to remedy the breach. On 23 July 2012 Mr. Obradović requested further extension and
again conceded to the breach.1378 On 23 December 2013 Ministry of Economy
launched inquiry into privatization of BD Agro upon the request of
employees/stockholders who submitted complaints regarding unpaid salaries and
fears that BD Agro was being stripped of its assets contrary to the Privatization
Agreement.1379 Also, during the same period, Mr. Obradović was resending the
1368
Notice of the Privatization Agency on Additional Time Period, dated 24 February 2011, CE-31.
1369
Notice of 24 June 2011 reconfirmed the breach and found that no remedy was put in place. The
Privatization Agency extended the period for remedying the breach for 60 days, CE-96.
1370
Notice of 6/7 October 2011 repeated its conclusions and instructions giving a further extension of 30 days
for remedying the breach. – CE- 97.
1371
Notice of 27 December 2011 again confirmed the existence of the very same breach of Article 5.3.4 of
the Privatization Agreement and requested the Buyer to provide evidence that the breach was remedied, CE-
32.
1372
Notice on Additional Time Period of 22 June 2012, p. 1, RE-15.
1373
This as all other previous notices confirmed the fact that the original breach remained unremedied referring
back to 24 February Notice and breach of Article 5.3.4. of the Privatization Agreement, CE-78.
1374
Reaffirming earlier decisions and granting upon the request of the Buyer additional extension of 60 days
for remedying the very same breach as before. See Notice of the Privatization Agency on Additional Time
Period, dated 8 November 2012, CE-79.
1375
Proposal of the Center for Control for the session of the Commission for Control of 21 December 2011,
RE-71.
1376
Proposal of the Centre for Control for BD Agro of 7 November 2012, RE-75.
1377
1378
Letter from Mr. Obradovic and BD Agro to the Privatization Agency of 23 July 2012, RE-21.
1379
Decision of the Ministry of Economy, dated 23 December 2013, CE-206.
308
misleading and often identical audit reports in order to buy more time and
manipulatively responded to the requests for remedying the breach.1380
906. Mr. Obradović was substantial and experienced participant in the privatization in
Serbia. Given his experience in the privatizations in Serbia he must have known well
what the consequence of both the breach and failure to remedy the breach was:
termination of the contract. He knew that from the very first to the very last notice of
breach. This plain and simple illustration proves that Mr. Obradović knew all too well
the whole structure of the legal framework for privatization, applicable law and
consequences of the breach, which in turn makes the Claimants’ pretense statement
that Claimants could not have conceivably expected the consequences patently
unconvincing.
907. By all notices and directly at the meetings the Buyer was informed over and over again
of the same breach and the consequences that were to follow. All these events took
place well before the cut-off date. If not from the First Notice than from the later chain
of events Mr. Obradović (Claimants) should have gained knowledge of the facts that
were major issues for performance of the Privatization Agreement. Claimants for the
first time in their Reply come up with the dates of their alleged actual knowledge of
the breach and loss.1381 However, Respondent submits that the Mr. Obradović’s
constructive knowledge, especially taking into account the proficiency of Mr.
Obradović in privatizations in Serbia, evidently came into existence long before the
cut-off date.
908. All the information and the events, together with the information that the pledge on
shares would not be removed until the breach is remedied,1382 are the dates of
constructive knowledge – dates on which Claimants should have been put on alert of
both constructive breach and constructive loss. These are the dates when diligent and
informed businessman, with extensive experience in Serbian privatization program,
could predict consequences and undertake all possible legal actions to vindicate its
rights under the contract. This is a self-standing obligation and may not be in any case
1380
1381
1382
Minutes from meeting held at the Privatization Agency on 4 February 2014, p.1, RE-36.
309
removed by the fact that effective date was posterior to the loss that now figures as
the cause of action before this Tribunal.
909. Throughout their earlier pleadings Claimants conveniently avoided to state clearly the
relevant dates whit regards conditions set forth in Article 22 of the Canada-Serbia
BIT. It was not until the last of the Claimants’ pleadings, in their Reply, and at the end
of the lengthy ratione temporis section, to finally come up with the dates when they
allegedly acquired actual knowledge of the claimed breaches of the BIT. There
Claimants concede that claims are based on acts preceding the effective date of the
Canada-Serbia BIT but equally that these are separate facts and circumstances leading
to different claims arising under the Canada-Serbia BIT.1383
910. Claimants admit that their claims are based on separate alleged breaches: 1384 “[A]nd
the Claimants argue in this arbitration that the following three instances of conduct
violated Serbia’s obligations under the Canada-Serbia BIT: First, Serbia’s
continuous refusal of the Privatization Agency to release the pledge over the
Privatized Shares, second, the unjustified and arbitrary investigation of BD Agro by
the Ombudsman and his unlawful issuance of his “recommendations, and third,
Serbia’s unlawful termination of the Privatization Agreement and the subsequent
unlawful transfer of BD Agro shares.”1385 Also: “It is true that the expropriation was
not Serbia’s first breach because Serbia had already been in breach of its obligation
to release the pledge over BD Agro’s shares…”1386
911. Therefore, it is justified to assess these alleged breaches separately. Claimants pursue
different, separate breaches out of which one should be of a continuous character, such
as the refusal of the Privatization Agency to release the pledge under the contract.
Before going to the heart of the Claimants’ argument regarding the construct of the
“continuous act” which presumably constitutes an internationally wrongful act under
1383
1384
Inter alia: “Serbia’s most serious breach of its obligations under the Canada-Serbia which eventually
prompted this arbitration occurred with Serbia’s direct expropriation of BD Agro’s shares…” (Claimants’
Reply, para. 748); “It is true that the expropriation was not Serbia’s first breach because Serbia had already
been in breach of its obligation to release the pledge over BD Agro’s shares since the Privatization
Agreement expired on 8 April 2011.” (Claimants’ Reply, para. 750); “Serbia’s single most important breach
of the Canada-Serbia BIT – the expropriation of the Claimants’ investment in BD Agro – occurred on 21
October 2015…” (Claimants’ Reply, para. 753); Also: paras. 765
1385
1386
Claimants’ Reply, para. 750. Similarly, paras. 753, 765, 817-819.
310
international law, Respondent would like to illustrate the artificiality of the Claimants’
“continuous act” case. The Claimants say that “Serbia violated its obligations under
the Canada-Serbia BIT by continuous refusal of the Privatization Agency to release
the pledge of the Privatized Shares. This breach was ongoing when the Canada-Serbia
BIT entered into force and lasted until the expropriation of the Claimants’
investment.”1387 Therefore, Claimants believe that the first moment of refusal to
release the pledge was unlawful and started before the effective date. For Claimants it
was so manifest that it was marked as illegal from its inception and spotted as unlawful
on the very same date the Canada-Serbia BIT entered into force.1388
912. Against this amazing diligence and prompt qualification starkly stands the
unpersuasive argument of Claimants according to which the “none of Serbia’s later
violations of the Canada-Serbia BIT could have realistically have been foreseeable to
the Claimants at the time that the Privatization Agency sent its First Notice to Mr.
Obradović on 1 March 2011.“1389 So, the contractual refusal to release the pledge was
imminently suspicious of international illegality but it was never suspicious as being
contrary to contract law – Mr. Obradović has never challenged the retention of pledge
as a contractual breach before the competent forum agreed upon in the Privatization
Agreement. Equally unsuspicious were numerous notices on the breach of the very
same contract leading to its termination and they allegedly could not have been
“realistically foreseeable” to Claimants. It is simply impossible that dozens of
warnings did not put Mr. Obradović on alert. This is not plausible and illustrates how
Claimants manipulatively construct their case in order to overcome the ratione
temporis hurdle.
913. Therefore, Claimants argue that the date of the actual knowledge of the possible
separate breach and loss arising under the heading of the alleged breach due to the
decision of the Privatization Agency not to release pledge over the shares/stocks in
BD Agro is the very same date on which the Canada-Serbia BIT entered into force:
“First, the Claimants acquired knowledge of the loss caused by Serbia’s refusal to
release the pledge over the BD Agro’s shares on 27 April 2015, i.e. after the cut-off
1387
1388
“First, the Claimants acquired knowledge of the loss caused by Serbia’s refusal to release the pledge over
the BD Agro shares on 27 April 2015, i.e. after the cut-off date of 14 February 2015.”Claimants’ Reply,
para. 809.
1389
311
date of 14 February 2015.”1390 and “Serbia was thus in breach of this obligation
[Serbia’s continuous refusal to release the pledge over BD Agro’s shares] on the cut-
off date of 27 April 2015 and subsequently”.1391 Claimants continue with the argument
of a continuous act which as such, in their opinion, overcomes equally and
simultaneously both the effective date of the Canada-Serbia BIT and the cut-off date
envisaged in Article 22 of the same BIT. However, this argument may not stand for
several reasons.
914. First, this pledge was agreed upon in the contract and the Agency, as a party to the
contract, conditioned the release by the fulfillment of obligations agreed upon in the
contract. Therefore, this was a contractual relationship between two parties to the
contract. Additionally, there was no definite and categorical refusal to release the
pledge but simply the reliance of one party to the contract on its right to secure the
performance of the contract – once the performance of Mr. Obradović was completed
the pledge would have been removed – it is a very simple contractual axiom. Finally,
had the decision of the Agency to secure its rights under the contract by withholding
the pledge over the shares been so egregious, it should have been challenged before
the Commercial Court in Belgrade, the forum agreed upon in Article 9 of the
Privatization Agreement.1392 Mr. Obradović deliberately failed to challenge the
contractual acts before the competent forum, while these contractual acts now figure
as a basis of the Claimants’ claims under the BIT. Such failure has several
repercussions for the case at hand. Contractual act is not in itself a wrongful act and
as such cannot qualify for a continuing wrongful act under international law.
Therefore, the continuing act, in terms of the retention of the pledge as a security for
the performance under the contract, has never come into existence under international
law as it has never reached the threshold of an internationally wrongful continuing
act. As plainly explained by the tribunal in the Generation Ukraine case:
1390
1391
Claimants’ Reply, para. 817 (emphasis original). This is probably a lapsus calami because 27 April 2015
is effective and not a cut-off date. Elsewhere the Claimants argue that the cut-off date is 14 February 2015
(e.g. paras. 781, 789, 798, 809 of the Claimants’ Reply).
1392
Share Pledge Agreement is Appendix 1 to the Privatization Agreement pursuant to Article 11 thereof.
Privatization Agreement’s Article 8.2 (Entire Agreement) provides that “the Agreement with annex and
appendixes (which make its integral part) and documentation which refers to auction procedure and which
was signed by the Buyer constitute the entire agreement which refers to this transaction and they are the
only ones binding for contracting parties.” – CE-17.
312
“an international tribunal may deem that the failure to seek redress from
national authorities disqualifies the international claim, not because there is
a requirement of exhaustion of local remedies but because the very reality of
conduct tantamount to expropriation is doubtful in the absence of a
reasonable – not necessarily exhaustive – effort by the investor to obtain
correction.”1393
915. This conclusion was reaffirmed by other tribunals as well, such as in Parkerings v.
Lithuania.1394 Applied to this case it follows that failure of Mr. Obradović to challenge
and demonstrate before the competent courts that the pledge was unlawfully withheld
is fatal to the qualification of a contractual act as internationally wrongful, i.e. as a
breach of the BIT. As Parkering tribunal observed: “the Claimant failed to show that
the Municipality of Vilnius terminated the Agreement wrongfully and therefore
breached the Agreement.”1395 Mr. Obradović never explained why he failed to
challenge the acts under the Share Pledge Agreement or Privatization Agreement if
the Agency so “blatantly disregarded the terms of these contracts.”1396 A single
contractual act, such as the retention of the pledge, without having been challenged
before the forum to which the Buyer expressly consented in the contract, is ineligible
for any internationally wrongful act of any type including a continuing one. It is prima
facie evident that no judicial challenge regarding the pledge was ever instituted by the
Buyer.
916. Given that Mr. Obradović was substantial and experienced participant in Serbia’s
privatizations he knew that the pledge was a legal entitlement of a contracting party
to preserve its rights under the contract as this is precisely the purpose of any pledge.
The refusal to remove the pledge should have been alarming then for both Mr.
Obradović and Claimants, alarming enough to judicially protect their rights. Now
Claimants engineered the argument that the very same Agency’s legitimate act around
1393
Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award of 16 September, 2003, para.
20.30., RLA-74.
1394
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, 11 September
2007, paras. 316-320, 448-454, RLA-114.
1395
2007, para. 319, RLA-114.
1396
313
which this case revolves continued conveniently just long enough to cross two
hurdles: effective date of the Canada-Serbia BIT and Article 22 cut-off date.
917. Therefore, Mr. Obradović failed to undertake any available act that any prudent
investor would have almost instinctively made. Instead, Claimants rely on the
continuous act argument in order to revive the alleged right which have lost its force
due only to the fault of Mr. Obradović and his failure to act.
918. Respondent therefore submits that so-called refusal to release the pledge over the
shares cannot be treated as a continuous act due to its genuine contractual nature,
failure of the Claimants to challenge these acts before the competent forum, but also
because the combination of several facts, including Mr. Obradović’s indolence to
remedy the alleged breaches, taken together with manipulative promises addressed to
the Agency, demonstrate the case of “tolling, extension….modification….” of the cut-
off date. Respondent submits that it is not acceptable that Claimants base their claim
on their own failures.
919. Respondent respectfully submits that the failure to meet a condition precedent,
including the preclusive three-year limitation period, which does not allow
suspensions, extensions or other modifications,1397 nullifies the consent. Respondent
submits that this is exactly the case here: Claimants, even if taken as investors, failed
to observe the three-year limitation period with the effect of nullifying the consent
leading to the lack of jurisdiction of the Tribunal. The claims submitted simply lie
outside of the BIT’s Article 22 three-year period which in turn nullifies the Republic
of Serbia’s consent to this arbitration under Article 25 of the BIT.
1397
“In substance, in view of the Tribunal, such suspension or “tolling” of the period of limitation is
unwarranted. NAFTA Article 1117(2) does not provide for any suspension of the three-year period of
limitation.“ - Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1,
Award, 16 December 2002, para. 59, RLA-29.
314
2. The principle of non-retroactivity prevents the Tribunal from exercising
jurisdiction over claims based on acts or facts, and constituting dispute
preceding the Canada-Serbia BIT’s entry into force
2.1. The principle of non-retroactivity is enshrined in the Canada-Serbia BIT and

its application removes from the jurisdiction of the Tribunal the claims based
on acts and facts preceding the Canada-Serbia BIT’s entry into force
920. In its objection ratione temporis Respondent has relied on the principle of non-
retroactivity, which has been well-established in international law as evidenced by
Article 28 of the VCLT and Article 13 of the ILC’s Articles on State
Responsibility.1398 Hereby Respondent reiterates this claim and submits that the
application of this principle leaves this Tribunal without jurisdiction. This principle
equally excludes application of the BIT to all acts and disputes preceding its effective
date.
921. The principle of non-retroactivity was not dispensed with by the Canada-Serbia BIT.
BIT was drafted on prospective basis and its Article 42 does not provide for retroactive
application of the BIT. In the absence of any provision that effectively enables
application of a treaty to acts or facts preceding its effective date, the basic principle
of non-retroactivity is to be applied.1399 In line with abundant case law,1400 the
principle is that legal obligations arising under the international agreement may not
bind parties with respect to acts or facts that existed before the legal obligation came
into existence. This equally applies to disputes that arose before the entry into force
of the applicable treaty.1401 Accordingly, the principle of non-retroactivity operates
1398
1399
Mark Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties, Martinus Nijhoff
2009, p. 384, RLA-37.
1400
Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, para. 11.2.,
RLA-74; Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction,
24 December 1996, pp. 179-180, RLA-38; Mondev International Ltd. v. United States of America, ICSID
Case No. ARB(AF)/99/2, 22 October 2002, paras. 57-75, RLA-39; Impregilo S.p.A v. Islamic Republic of
Pakistan, ICSID, Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, RLA-33; Sergei Paushok,
CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia, para.
431, RLA-36; M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No.
ARB/03/6, Award, 31 July 2007; Marvin Roy Feldman Karpa v. United Mexican States, paras. 61-62, RLA-
29.
1401
“The Tribunal observes that a prior dispute may evolve into a new dispute, but the fact that this new
dispute has arisen does not change the effects of the non-retroactivity of the BIT with respect to the dispute
prior to its entry into force. Prior disputes that continue after the entry into force of the BIT are not covered
315
indirectly to limit ratione temporis the application of the jurisdictional clause in the
applicable treaty: “The reason is that the ‘disputes’ with which the clause is concerned
are ex hypothesi limited to ‘disputes’ regarding the interpretation and application of
the substantive provisions of the treaty which […] do not normally extend to matters
occurring before the treaty came into force.”1402
922. As Respondent has amply demonstrated, all Claimants’ claims are based on the acts
and facts which either existed before the effective date or were nothing but direct and
imminent result of Mr. Obradović’s breach of the Privatization Agreement that
occurred in December 2010.1403 This was notified to Mr. Obradović on 1 Mach 2011.
The formal notice of breach was not submitted only once before the effective date but
on seven occasions coupled with numerous meetings where the very same message
was conveyed to Mr. Obradović. Therefore, the violation of the Privatization
Agreement, formal and other notifications presented to the buyer on the existence of
breach, pledge over the shares and its retention by the other party to the contract, as
well as the concern of the employees/stockholders over their status and property rights
that gave rise to their complaint to the Ombudsman did exist before the effective date.
923. The Respondent’s position is that not only these acts cannot serve as the ground for
responsibility under the Canada-Serbia BIT but that all these events demonstrate that
the alleged conduct on which Claimants found their claims is deeply and inseparably
rooted in the pre-BIT entry into force events. Also, the proven and undisputed facts
unequivocally show that the termination of the Privatization Agreement was perfected
and inevitable before the effective date while its formalization was postponed solely
due to the manipulation of Mr. Obradović. Finally, all together they indeed show that
the claim is deeply rooted in and inseparable from the facts that existed before the
effective date.
924. Therefore, the acts or facts that took place before 27 April 2015, which is the effective
date of the Canada-Serbia BIT, cannot constitute breach of the BIT because neither
by the BIT.” – M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No.
ARB/03/6, Award, 31 July 2007, para. 66, RLA-34.
1402
Cited from: Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The
Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, para. 466,
RLA-36.
1403
Report of the Privatization Agency on Control of BD Agro of 25 February 2011, p. 12, CE-30.
316
the standards of protection nor the jurisdictional clause became binding and legally
enforceable before that date.
925. The main argument of Claimants regarding the non-retroactivity hurdle is that some
of these acts are either conveniently continuous or they are indeed momentous but
originated just after the effective date of the Canada-Serbia BIT. For example,
Claimants argue, although in a meandering fashion and often conflating two different
temporal objections, that the relevant dates for the alleged expropriation are 27 July
20151404 and 21 October 2015.1405 Then for the retention of the pledge, Claimants set
the date at (pre-effective date) 4 February 2014 but then claim that the refusal to be of
continuous character.1406 The Claimants concede that the Ombudsman’s control was
initiated in late 2014 but claim that it was not known to them until 23 June 2015.1407
926. The Respondent rejects the Claimants’ arguments as they cannot withstand the test of
facts. The Respondent submits that all the acts and circumstances complained of in
this arbitration originated in the period prior to the effective date. The circumstances
complained of belong to the pre-effective date period and they inevitably led to the
termination of the Privatization Agreement which could have been avoided solely by
Mr. Obradović’s remedial action he deliberately chose not to employ.
2.2. Termination of the Privatization Agreement was inevitable before the

effective date while its formalization was postponed solely due to the
manipulation of Mr. Obradović
927. As already explained by Respondent, following the breach of the Privatization

Agreement, the following sequence of events was foreseeable and inevitably led to
the termination of the Privatization Agreement. Foreseeability is evidenced by
numerous letters exchanged between Mr. Obradović and the Agency, existing legal
framework and previous experience of Mr. Obradović. Therefore, he knew what
consequences of the breach of contract would inevitably follow.
1404
“Thus, it is the date of the actual expropriation of the BD Agro shares which falls to be assessed for the
purpose of assessing the compliance with the principle of non-retroactivity.” – Claimants’ Reply, para. 831.
1405
1406
1407
317
928. Once the breach was declared and remedies suggested, there were only two possible
options: termination by the Agency or performance by Mr. Obradović. During the
whole period Mr. Obradović was conceding to the breach and remedy, but would then
send wrong audit reports to falsely present the fulfilment of the remedy, 1408 would
then argue against the breach in order to achieve the removal of the pledge,1409 and
then would again reassure the Agency of its full commitment to the Privatization
Agreement.1410 While some of these letters disclose his discontent, Mr. Obradović
failed to challenge any of these acts before the competent forum.
929. Position of the Agency was clear and repeated on numerous occasions. Formality of
terminating the contract that had already collapsed happened to occur after the
effective date but only because Mr. Obradović constantly manipulated with false
promises that the contract would be remedied. On different occasions he was assuring
the Agency (and never challenged its acts before the court) that the restoration of the
removed assets was about to happen.1411 He failed to remedy the contract but
postponed the termination with false promises that these remedies would be in place.
He simply misled the Agency and on this basis now the Claimants are seeking
international protection. Needless to say, the Claimants in this case never even
attempted themselves to either remedy the breach.
930. Thus, the only effort that Mr. Obradović invested was to postpone the decision of the
Agency to formalize the termination. In other privatization engagements, Mr.
Obradović remedied the breaches when warned by the Agency about possible
termination.1412 Interestingly, only in this case he was diligent only in furnishing false
promises. Had he felt that there was no breach he could have challenged the suggested
remedy before the contractually agreed forum. Failure to do so equally proves his
understanding of the causes and consequences of the contractual breach.
931. Therefore, the sole reason why the formalization of terminating the Privatization
Agreement happened to occur after the effective date was the false pretenses of Mr.
1408
1409
Letter from Mr. Djura Obradović to the Ministry of Economy, 2 April 2012, CE-77.
1410
1411
72; Letter from Mr. Obradovic and BD Agro to the Privatization Agency of 23 July 2012, RE-21.
1412
318
Obradović that the breach would be remedied. The postponement was granted by the
Agency on numerous occasions – this in itself is a solemn proof of the Agency’s intent
to keep the contract in force once remedy was in force. This is also the reason why the
Claimants’ argument is nothing short of cynical - only because of false promises of
Mr. Obradović, the formal termination of the Privatization Agreement was postponed.
As a result, Claimants are able to relay on formal termination occurring after the
effective date (27 April 2015) in their ratione temporis argument. However, the
manipulation should not now bear fruit for the Claimants’ temporal jurisdiction
argument and the Respondent submits that on this ground alone it should be rejected.
2.3. The acts for which the Claimants argue to be of continuous character do not
qualify for a continuous act under international law and therefore fall out of
the temporal jurisdiction of the tribunal
932. Retention of the pledge is the only continuous act argued by Claimants. As already
explained by Respondent, retention of pledge was undertaken under the contract and
not as a matter of governmental authority. Contractual act is not in itself a wrongful
act and as such cannot qualify for a continuing act under international law. As clearly
stated in the ILC Draft Articles on State Responsibility: “Of course the breach by a
State of a contract does not as such entail a breach of international law. Something
further is required before international law becomes relevant, such as a denial of
justice by the courts of the State in proceedings brought by the other contracting
party.”1413
933. Therefore, the retention of the pledge as a security for the performance under the
contract cannot constitute a wrongful act under international law in the absence of
judicial challenge or a specific treaty provision raising the contractual obligations to
the level of treaty obligations. None of these conditions exist in the case at hand.
Respondent has already argued against the continuous character of the retention of
pledge on the basis of the Generation Ukraine v. Ukraine1414 and Parkerings v.
1413
Draft articles on Responsibility of States for Internationally Wrongful Acts with commentaries, p. 41
(commentary to Article 4, para. 6), CLA-24
1414
Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award of 16 September, 2003, para.
20.30., RLA-74.
319
Lithuania cases,1415 and these arguments are equally applicable here. Regardless of
the issue of attribution the contractual acts as such cannot constitute international
wrongful act: “Attribution does not change the extent and content of the obligation
arising under the ASRO Contract and the Sky Contract, that remain contractual, nor
does it make Romania party to such contracts.”1416 Unchallenged contractual acts in
relation to pledge are not eligible for any internationally wrongful act and as such
cannot constitute continuing wrongful act under international law.
934. Claimants indirectly concede that it is the breach of contract that lies at the heart of
their claim: “the Privatization Agency was in continuous breach of its obligation to
release the pledge over the BD Agro shares from the moment when it first refused to
release the pledge after the full purchase price under the Privatization Agreement was
paid on 8 April 2011 until the shares of BD Agro were expropriated on 21 October
2015. Serbia.”1417 Claimants clearly point to the breach of contract which it herein
designates as continuous. This proves the contractual character of the retention of
pledge. Entry into force of the BIT could not change the contractual character of the
pledge nor could it rectify the failure of Mr. Obradović and Claimants to dispute the
retention as a matter of contractual breach under the contract and governing law.
Performance under the contract bears no relationship at all to the concept of an
internationally wrongful act. Therefore, falling short of the threshold for
internationally wrongful act the alleged conduct of the Agency equally falls short of
a continuous act under international law. In addition, it is the Claimants’ case that the
refusal to release the pledge occurred on 4 February 20141418 which is both before the
cut-off date and effective date.
935. The cases on which Claimants rely in relation to the concept of continuous acts amply
prove such conclusion because they do not demonstrate the existence of a contractual
act or a continuing breach of contract. In Société Générale v. Dominican Republic, on
which Claimants heavily rely,1419 the acts complained of were those of regulatory
1415
2007, RE-114..
1416
EDF (Services) Limited v Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, para 319, RLA-
87.
1417
1418
1419
Claimants’ Reply, pp. 217-219.
320
framework governing the electricity sector: “The measures the Claimant alleges that
have been at the root of this situation relate to the Respondent’s regulatory framework
governing the electricity sector and the changes that it argues have taken place or
other related aspects.”1420 The Feldman v. Mexico case, on which the Claimants also
rely,1421 was about the tax rebates for exported cigarettes,1422 and therefore unrelated
to any contractual issues – it was the regulatory governmental framework that might
have been susceptible for a continuous act contrary to the NAFTA.
936. Respondent does not contest the existence of the concept of internationally wrongful
acts of a continuous character nor Article 14 of the ILC Draft Articles. Respondent
disputes that continuous act exists in this case for the various reasons already
explained. Finally, Claimants do not spend much of their arguments on explaining
why the refusal to release the pledge under the contract should be of a continuous
character as such. For example, in Impregilo v. Pakistan claimant argued that
respondent’s failure to pay the price continued up to the treaty’s entry into force and
then breached the treaty. The Impregilo tribunal dismissed this argument finding that
“the acts in question had no ’continuing character’ …; they occurred at a certain
moment and their legality must be determined at that moment, and not by reference to
a Treaty which entered into force at a later date.“1423 Therefore, failure to pay the
price under the contract did not amount to a continuing act contrary to the applicable
BIT. Failure to release the pledge patently falls into the same category.
937. In M.C.I. Power Group and New Turbine v. Ecuador the tribunal found that it lacked
jurisdiction ratione temporis to entertain the claim that Ecuador failed to pay its
contractual debt. The first refusal to pay debt occurred before the effective date while
the last refusal occurred after the effective date. The ground for the claimants’
argument was that these refusals represented continuous and/or composite acts. The
M.C.I. tribunal refused this argument and declined jurisdiction with respect to these
1420
Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad
del Este, S.A. v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927, Award on Preliminary
Objections to Jurisdiction, dated 19 September 2008, para. 63, CLA-106.
1421
1422
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16
December 2002, para. 7, RLA-29.
1423
Impregilo S.p.A v. Islamic Republic of Pakistan, ICSID, Case No. ARB/03/3, Decision on Jurisdiction, 22
April 2005, para. 312, RLA-33.
321
specific acts, despite the fact that the final refusal did occur after the BIT entered into
force. During the annulment procedure, the Annulment Committee upheld the award
denying temporal jurisdiction and clarified the position of the M.C.I. Group tribunal:
“It thus appears that the Tribunal did regard Ecuador’s refusal to pay the alleged
accounts receivable as an instantaneous act occurring before the date of the entry
into force of the BIT rather than as a continuing omission extending beyond that
date.“1424
938. Therefore, the refusal to release the pledge authorized under the contract cannot
amount to a continuing act contrary to the applicable BIT.
2.4. The alleged conduct on which Claimants found their claims is deeply and
inseparably rooted in the Respondent’s pre-BIT entry into force conduct – the
non-retroactivity of the BIT excludes its application to disputes arising prior
to its entry into force
939. As already argued by Respondent, in Spence International (Berkowitz) v Costa Rica

the tribunal found that the alleged conduct on which the claimants found their claims
were “deeply and inseparably rooted in the Respondent’s pre-CAFTA entry into force
conduct.”1425 The facts of the case at hand demonstrate that Claimants’ claims are
essentially based on and deeply and inseparably rooted in the conduct that predates
the Canada-Serbia entry into force. The breach of contract, dozens of notices and
warnings that the contract would be terminated, the pledge retention, all predate the
effective date of the Canada-Serbia BIT and, despite the Claimants’ argument that
these events represent only factual background to the alleged subsequent breaches,
they patently demonstrate what the causes and roots of this case are – it is impossible
to divorce termination of the contract from its breach, or to divide the retention of
pledge from the performance under the contract, or equally to delineate breaches of
contract and interests of BD Agro’s employees and minority shareholders initiating
the procedure with Ombudsman. The Claimants’ argument that the case is rooted in a
mere formal act of termination, the act announced on dozens occasions, and the only
1424
M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6,
Decision on Annulment, 19 October 2009, para. 48, RLA-35.
1425
Tribunal, 30 May 2017, para. 298, RLA-31.
322
act that falls after the effective date is artificial and purposefully tailored to overcome
the temporal impediment. Respondent respectfully submits that the non-retroactivity
principle guards temporal jurisdiction and prevents the Tribunal from examining such
facts and entertaining the dispute.
940. In line with the Spence case it is not necessary that all facts underlying the ongoing
dispute occur before the effective date to exclude the jurisdiction of international
tribunals and courts to entertain the dispute as a whole. This is the principle known to
other international courts as well. For example, in the Blećić v. Croatia case, the
European Court of Human Rights found that it lacked temporal jurisdiction and
dismissed the case on that ground, despite the fact that the last of the decisions, the
decision of the Constitutional Court of Croatia, confirming the deprivation of property
rights of the applicant, was adopted after the European Convention on Human Rights
entered into force for Croatia. The ECtHR opined:
“77. It follows from the above case-law that the Court’s temporal jurisdiction
is to be determined in relation to the facts constitutive of the alleged
interference. The subsequent failure of remedies aimed at redressing that
interference cannot bring it within the Court’s temporal jurisdiction.
...
79. Therefore, in cases where the interference pre-dates ratification while the
refusal to remedy it post-dates ratification, to retain the date of the latter act
in determining the Court’s temporal jurisdiction would result in the
Convention being binding for that State in relation to a fact that had taken
place before the Convention came into force in respect of that State. However,
this would be contrary to the general rule of non-retroactivity of treaties (see
paragraphs 45 and 70 above).“1426
941. In the M.C.I. Power Group and New Turbine v. Ecuador case the tribunal found that
it did not have jurisdiction over disputes which arose before the applicable treaty came
into force. In reaching this decision the tribunal did not rely on any provision in the
1426
Blečić v. Croatia, European Court for Human Rights, App. no. 59532/00, Grand Chamber, Judgment of
8 March 2006, paras. 77, 79.
323
applicable treaty but it relied on general international law.1427 The tribunal said: “The
non-retroactivity of the BIT excludes its application to disputes arising prior to its
entry into force. Any dispute arising prior to that date will not be capable of being
submitted to the dispute resolution system established by the BIT. The silence of the
text of the BIT with respect to its scope in relation to disputes prior to its entry into
force does not alter the effects of the principle of the non-retroactivity of treaties.“1428
942. Therefore, the non-retroactivity of the Canada-Serbia BIT excludes its application to
disputes arising prior to 27 April 2015. Any dispute arising prior to that date may not
be capable of being submitted to the dispute resolution system established by the BIT.
The silence of the text of the Canada-Serbia BIT with respect to its scope in relation
to disputes prior to 27 April 2015 does not alter the effects of the principle of the non-
retroactivity of treaties. Respondent has already argued that the dispute had arose
before 27 April 2015 because the acts and facts on which Claimants essentially base
their claim demonstrate the existence of a dispute prior to 27 April 2015 – the breach
of the Privatization Agreement, numerous notices on breach, meetings in relation to
the breach, requests to the buyer to remedy the breach, inquiries of Ombudsman,1429
requests and refusals in relation to the pledge, etc. All the arguments of Respondent
in relation to the knowledge of the Claimants in relation to Article 22 BIT are
submitted here as they plainly demonstrate the existence of a dispute before the
effective date.
943. All these events prove both the existence of a dispute and how Claimants’ claims are
deeply and inseparably rooted in the pre-BIT entry into force conduct. Respondent
has already made this submission relying on the Spence International (Berkowitz) v
Costa Rica.1430 The Claimants’ sole argument was that “Serbia can neither find solace
in Spence v. Serbia which stated that ‘the tribunal cannot evaluate conduct on which
the Claimants found their claims because these claims are deeply and inseparably
rooted in the pre-BIT entry into force conduct.’ Respondent agrees with this finding
of the Spence v. Costa Rica tribunal.
1427
Award, 31 July 2007, para. 59, RLA-34.
1428
M.C.I. Power Group, para. 61, RLA-34.
1429
See Opinion of the Ombudsman dated 19 June 2015, CE-42.
1430
Respondent’s Counter-Memorial with Preliminary Objections, para. 416.
324
944. The relevance of the “real cause” of a dispute for assessing when the dispute came
into existence was recently reaffirmed in the EuroGas & Belmont v. Slovakia case.
The tribunal first reviewed abundant and long-standing case law on this issue to
conclude that “What matters is the real cause of the dispute.“1431 In searching for the
real cause of the dispute the EuroGas tribunal reached for the first act of one of the
officials of Belmont to find the discontent which would later on develop into a chain
of events.1432 However, this development did not transform the real cause of the
dispute – the reassignment – that remained as a crucial event despite that local courts
decided on the issue after the effective date. In terms of the case at hand, the real cause
of the dispute was the breach of the Privatization Agreement and all events that ensued
were a consequence of this event: notices of breach, suggested remedy, retention of
the pledge, numerous meetings, requests for assignment of the Privatization
Agreement to Mr. Rand (Coropi), inspection of the Ministry of Economy, inquiries of
Ombudsman, and termination of the Privatization Agreement. Mr. Obradović disputed
the position of the Agency about the breach of the Privatization Agreement in April
2012.1433 However, as the EuroGas tribunal observed, relying on a string of cases:
“The Tribunal does not accept that an investor may invoke the last event in a series of
related or similar actions by the State to claim the benefit of the treaty.“1434
945. Respondent has already relied on the EuroGas & Belmont v. Slovakia award in
arguing that the principle of non-retroactivity prevents the Tribunal to establish
jurisdiction over dispute that arose before the effective date because it falls outside
the temporal scope of the Canada-Serbia BIT.1435 Claimants disputed the relevance of
the EuroGas & Belmont for the case at hand because of “a wholly different wording
of the provision setting the relevant time limitation”1436 so “this Tribunal is faced with
a wholly different issue – whether the Claimants brought their claims under the
Canada-Serbia BIT no later than three years after they acquired knowledge of
1431
EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Award, 18
August 2017, para. 453, RLA-43.
1432
1433
Letter from Mr. Djura Obradović to the Ministry of Economy of 2 April 2012, p. 2, CE-77.
1434
1435
Respondent’s Counter-Memorial, Sec. III.C.2 (The principle of non-retroactivity prevents the Tribunal
from exercising jurisdiction), paras. 418-419.
1436
325
Serbia’s breach of that treaty and the resulting loss.”1437 However, Respondent has
not relied on EuroGas & Belmont in relation to the three-year limitation period but
with respect to the issue that is exactly the same in EuroGas and in the case at hand:
existence of the real cause of a dispute prior to the critical date under a treaty leaves a
treaty-based tribunal without ratione temporis jurisdiction to decide the case.
Therefore, Claimants deliberately imputed the false arguments to the Respondent in
order to engineer their own response. Finally, there was indeed difference in dispute
settlement clauses between the Canada-Slovakia and the Canada-Serbia BITs but that
difference is without relevance for the issue here. The Canada-Slovakia BIT
differentiated between the effective and critical dates, the first being the date of entry
into force whereas the second is the date before which the dispute should not have
arisen (three years before the effective date). The Canada-Slovakia BIT deliberately
departed from the general principle of non-retroactivity by setting up the deadline for
prior disputes that otherwise would not have been eligible for settlement under the
treaty. This is of no relevance for the Canada-Serbia BIT where effective and critical
dates coincide given that no exception was agreed upon. Under rules of general
international law and the principle of non-retroactivity, and in line with the finding of
the M.C.I. Power tribunal that “silence of the text of the BIT with respect to its scope
in relation to disputes prior to its entry into force does not alter the effects of the
principle of the non-retroactivity of treaties.”1438 Therefore, the findings of the
EuroGas & Belmont award are apposite for the case at hand.
946. Finally, the existence of a dispute prior to the effective date is confirmed by Claimants
in their Reply. Claimants concede that the refusal to release the pledge was found by
one of the Claimants (Sembi) to be “a violation of the Cyprus-Serbia BIT before it
became a violation of the Canada-Serbia BIT.”1439 Owners of Sembi are Canadian
nationals who figure in this arbitration also as Claimants in their own right. It follows
that it is the Claimants’ case that there was a dispute preceding the effective date of
the Canada-Serbia BIT.
1437
1438
Award, 31 July 2007, para. 61, RLA-34.
1439
Claimants’ Reply, FN 812 (emphasis added).
326
947. Therefore, Respondent submits that Claimants’ claims are deeply and inseparably
rooted in the pre-BIT entry into force acts and facts. Respondent also submits that it
has been demonstrated that the dispute arose before the effective date of the Canada-
Serbia BIT and that the principle of non-retroactivity excludes its application to this
dispute and leaves this Tribunal without ratione temporis jurisdiction.
3. The Respondent is entitled to argue both facts and law underlying its
preliminary objections
948. In an apparent attempt to achieve a cursory dismissal of the Respondent's ratione

temporis objection, Claimants suggest that it is for them – exclusively – to determine
the factual basis for the Tribunal's jurisdiction. This assertion is not only incorrect, but
also downright illogical, in light of the proceedings as they stand thus far. Moreover,
it is contradictory to the Claimants' own previous arguments, as well as unsupported
by the very case law they cite.
949. First, Respondent would like to remind Claimants that there was a request for
bifurcation in this proceeding. Yet, it was rejected. In line with the Claimants' request,
by Procedural Order no. 3, the Tribunal decided to join the jurisdictional and merits
phases: this incontrovertibly shows the Tribunal to believe the facts underlying
jurisdiction to be such as to necessitate full consideration which may only be achieved
by hearing both parties – and decidedly not by merely relying on what the Claimants
allege, to cite their pleadings.1440
950. This reasoning is supported by the Order, which expressly states that the facts likely
to be involved in determining the Respondent’s jurisdictional objections appear wide
ranging and intertwined with the merits.1441 The Tribunal repeats this twice and it is
indeed worth stressing: the facts regarding jurisdiction do not appear separate and
discrete or unrelated to the merits.1442 The Tribunal further specifies that the ratione
temporis objection under the Canada-Serbia BIT would involve not only an analysis
of the relevant Treaty provisions, but also a review of the record.1443 It is – plain and
1440
Claimants' Reply, para. 764.
1441
Procedural Order no. 3, para. 18 (b).
1442
Procedural Order no. 3, para. 18 (b).
1443
Procedural Order no. 3, para. 17.
327
simple – evident that the facts must be argued, and that they must be done so now:
there is no later.
951. Second, the Claimants' argument on this point reveals itself particularly unsound when
considering the views they express in the Reply to the Request for Bifurcation.
Namely, not too long ago, they believed the factual basis of most of the Respondent’s
jurisdictional objections to be "inextricably intertwined" with the merits of the case,
as they saw "clear, from even a cursory review of the objections"1444. A fortiori,
according to them, the scope of evidence and arguments in the merits phase would be
"almost identical" to those pleaded at the hypothetical jurisdictional stage.1445 The
Claimants fail to state why this has all suddenly become unclear or why they would
now like a de facto bifurcation: carrying on as if there were a separate jurisdictional
phase.
952. A further distinction must be made here. Contrary to what Claimants suggest,
Respondent does not argue against the principle that it is for the claimant, in general,
to formulate the alleged breaches1446 at the outset of the proceedings. However, a
respondent in turn has the undeniable procedural right to dispute what a claimant
presents as facts – including "those factual measures that the Claimants allege
constitute Serbia's breaches"1447. In light of the joint proceedings, requesting the
Tribunal to simply accept the factual basis of jurisdiction as formulated by the
Claimants is tantamount to outright asking it to take the Claimants' word on merits
and decide in their favour.
953. In almost identical wording, the PSEG Global v. Turkey and Joy Mining v. Egypt
tribunals plainly demonstrated the inequitable consequences of the Claimant's
proposed approach:
“If, as in the present case, the parties have such divergent views about the
meaning of the dispute in the light of the Contract and the Treaty, it would
not be appropriate for the Tribunal to rely only on the assumption that the
contentions presented by the Claimant are correct. The Tribunal necessarily
1444
Claimants’ Reply to the Request for Bifurcation, para. 7.
1445
Claimant’s Reply to the Request for Bifurcation, para. 12.
1446
1447
328
has to examine the contentions in a broader perspective, including the views
expressed by the Respondent, so as to reach a jurisdictional determination.
This is the procedure the Tribunal will adopt.”1448
954. Finally, to buttress their longshot attempt at a claim, the Claimants resort to the straw
man fallacy. They rely on Infinito v. Costa Rica, Glamis Gold v. USA and Eli Lilly v.
Canada, that all explicitly confirm principles which Respondent never disputed: the
Claimants' right to (a) formulate its claims (i.e. alleged breaches)1449 and (b) have its
arguments prima facie accepted as valid at the jurisdictional stage1450. Yet,
importantly, none of these tribunals – nor any other tribunal - expressed the view that
it is the Claimants' prerogative to formulate the facts and have them not be disputed
when preliminary issues are joined with the merits. The implausibility of this
argument is indicated further by the Claimants' relying predominantly on Infinito,
wherein the proceedings were, unlike these, bifurcated, and the cited reasoning stems
from the respective tribunal's Decision on Jurisdiction, not on merits.
955. Claimants were free to submit that the Tribunal has jurisdiction ratione temporis and
furnish their claim with proof of measures which are – allegedly – within the Canada-
Serbia BIT's temporal application and which made them factually “aware of the
breach and loss”. Having done so, they tilted the balance of evidence to Respondent's
side. The Respondent would, however, be unable to challenge jurisdiction in any
capacity, were it not itself free to dispute the Claimants' proposition and prove the
facts with its own evidence. Not only were the actual or constructive knowledge
acquired at an earlier date, falling outside the time limit, but the dispute and the alleged
wrongful acts were, in any event, existent and perfected before the effective day of
the treaty – thus precluding jurisdiction on the grounds of the principle of non-
retroactivity.
1448
Joy Mining Machinery Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on
Jurisdiction, 6 August 2004, para. 30, RLA-94; PSEG Global Inc., The North American Coal Corporation,
and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No.
ARB/02/5, Decision on Jurisdiction, 4 June 2004, paras. 64, 65, RLA-189.
1449
1450
329
E. NO JURISDICTION RATIONE PERSONAE UNDER THE CYPRUS – SERBIA
BIT
956. In the present proceedings, the Tribunal lacks jurisdiction ratione personae over the
claims of Sembi, having in mind that Sembi does not represent qualified investor
pursuant to Article 1(3)(b) of the BIT which defines investor as:
“a legal entity incorporated, constituted or otherwise duly

organised according to the laws and regulations of one
Contracting Party having its seat in the territory of that same
Contracting Party and investing in the territory of the other
Contracting Party”.1451
957. Evidently, the BIT requires three criteria to be met by the investor: first, that it is
incorporated, constituted or otherwise duly organised according to the laws and
regulations of Contracting Party; second, that it has its seat in the territory of that
same Contracting Party; and third, that it is investing in the territory of the other
Contracting Party. Contrary to Claimants’ assertions, Sembi does not meet the
criteria set out for the notion of “investor”, given that it does not have its seat in
Cyprus.
958. It is undisputed between the Parties that incorporation and seat represent two distinct
criteria for a company to be regarded as investor under the BIT. 1452 However, if the
term “seat” was to be equated with the term “registered office” (as Claimants seek to
do), it would mean that the wording “having its seat in the territory of that Contracting
Party” – would be superfluous, since the requirement of a registered office is already
encompassed by the requirement that the legal entity is “incorporated, constituted or
otherwise duly organized in accordance with the laws and regulations of one
Contracting Party”. Hence, as will be elaborated in this Section below, requirement
of “seat” should be considered separately from incorporation, i.e. registered office.
1451
Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal Promotion and
Protection of Investments, RLA-130.
1452
Request for arbitration, para. 185.
330
1. Incorporation and seat under the BIT
959. According to Article 1(3)(b) of the BIT, criteria of incorporation should be interpreted
according to the laws and regulations of a Contracting Party (in this case Cyprus),
whereas, such determination is not made when it comes to the criteria of seat
However, what is determined in Article 9(4) of the BIT is application of international
law in case of disputes under the BIT. Therefore, the notion of incorporation must be
assessed from the perspective of the Cyprus law while the notion of seat must be
assessed from the perspective of international law.
1.1. Registered office is subsumed under incorporation as per the laws and
regulations of Cyprus
960. Under Cypriot law, a company must have a registered office to which all
communication and notices may be addressed. Registered office is an element of
incorporation of a company in Cyprus, i.e. registered office is a formal prerequisite
for legal existence of a company under Cypriot law and cannot be regarded as separate
criterion from incorporation. No company can be incorporated in Cyprus without at
the same time having its seat there. This is confirmed by Professor Papadopulos:
“Companies established in Cyprus are obliged to have a

registered office. Without a registered office, a company cannot
be considered as lawfully established in Cyprus and could not
start doing business in Cyprus. The most important provision is
Art. 102 of the Cyprus Companies Law. Art. 102 was amended
significantly by Law 89(I)/2015. The major change brought by
Law 89(I)/2015 to Art. 102 is that the completion of the
incorporation of a company in Cyprus entails simultaneously the
establishment and acquisition of a registered office. In case the
requirements of Art. 102 for notification regarding the registered
office are not fulfilled, the Registrar of Companies could
remove/strike-off this company from its registry.”1453
1453
Expert Report of Dr. Thomas Papadopoulos, para. 14.
331
1.2. The term “seat” represents a separate criterion and means effective
management under international law
961. In the Reply, Claimants assert that the meaning of the term “seat” as provided by
Cyprus – Serbia BIT is not governed by international, but municipal, i.e. Cyprus law.
Claimants justify such point of view by claiming that: (i) international law does not
include an autonomous definition of “seat” and that, hence, the subject term should be
interpreted by renvoi to municipal law, (ii) findings of investment tribunals under
different treaties are not determinative for the analysis of the applicable BIT due to
their different wording, as well as that (iii) the international law does not allow for the
importation of the requirement of effective management into the definition of investor,
since such interpretation of Article 1(3)(b) of the BIT would be contrary to good
faith.1454 As will be shown in this Section below, all of Claimants’ arguments in this
particular case are misplaced.
962. Respondent will show that, contrary to Claimants’ assertions: (1) term “seat” has its
own meaning in international law, (2) renvoi to Cyprus law cannot be applied for
interpreting the term “seat” under Article 1(3)(b) of the BIT, (3) findings of tribunals
in other investment arbitration cases to which Respondent referred in Counter-
Memorial can and should be applied, (4) treaty practice of Serbia and Cyprus show
that “seat” entails something more than incorporation, i.e. registered office (5)
requirement of “seat” within the meaning of place of effective management represents
inherent component of Article 1(3)(b) of the BIT, as well as that (6) conclusions of
Mera tribunal are incorrect and thus, cannot be applied in this case.
1.2.1. Term “seat” has its own meaning in international law
963. Claimants assert that the international law does not provide for an autonomous
definition of the term “seat”.1455 This statement is not supported by Separate Opinion
of Professor Park in CEAC case, nor with findings of the tribunal in Mera case to
which they refer. What those authorities state is that there are no international rules
providing the definition of “seat”, as well as that it is not defined in ICSID Convention
1454
1455
332
or in the BIT.1456 However, that does not mean that international law does not provide
adequate basis for interpretation of the term when it is used in treaties.
964. As already elaborated in detail in Counter Memorial,1457 as well as in this Section

above, the meaning of the term “seat” should be looked for in international law and
Respondent demonstrated that arbitral practice is on the stance that seat connotes the
place of effective management (see AFT and Tenaris Talta awards).1458 Respondent
has also offered several scholarly writings which clearly indicate that international
law recognizes the term ‘seat’ and gives it the meaning of place of effective
management.1459 Apart from stating that “compelling authority” is absent,1460
Claimants never addressed these scholarly positions, let alone attempted to dispute
them, nor did they present any scholarly writings arguing the opposite. Therefore, if
the Tribunal accepts that the term ‘seat’ should be interpreted under international law,
it should be understood as the place of effective management and not as the place of
registered office.
1.2.2. Renvoi to Cypriot law would be an incorrect approach in this case
965. As opposed to Claimants’ assertions,1461 Respondent points out that applying the
principle of renvoi would represent incorrect approach in this case.
966. What should be noted first is that renvoi is always provided by an explicit legal rule.
In this particular case, as previously elaborated,1462 Article 1(3)(b) of the BIT refers
to national law only in respect to incorporation, and does not refer to national law for
determination of what “seat” is (while Article 9(4) BIT stipulates application of
international law in case of disputes under the BIT). The Tenaris Talta tribunal, as
well as the Orascom tribunal, to which Claimants themselves refer,1463 both agreed
1456
1457
Counter-Memorial, paras. 429-460
1458
Alps Finance and Trade AG v. The Slovak Republic (UNCITRAL), Award, 5 March 2011, paras. 215, 216
and 217, RLA-71; Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian
Republic of Venezuela, para. 154 RLA-45.
1459
Pierre Sauve, Trade and Investment Rules: Latin American Perspectives, UN Economic Commission for
Latin America and the Caribbean, 2006, p. 22; RLA-47; E. Schlemmer, Investment, Investor, Nationality,
and Shareholders, in Muchlinsky/Ortino/Schreuer (EDS), International Investment Law (2008), at 79, as
cited in Central European Aluminium Company (CEAC ) v. Montenegro, ICSID Case No. ARB/14/8,
Award, 26 July 2016, para. 127, CLA-21.
1460
1461
Reply, para. 840.
1462
Counter-Memorial, paras. 438 and 439.
1463
333
that, when there is no explicit renvoi to national law in order to determine the criteria
used in the definition of the investor, international law must be applied.1464 Claimants
have not disputed this.
967. Nevertheless, as explained in this Section below, even if Claimants’ argument that
renvoi to Cyprus law were to be accepted, the term “seat” could not be given the
meaning of “registered office”.
1.2.3. Findings of other tribunals
968. Given that we have established that the interpretation of the term “seat” depends on
the stance of international law, findings of other tribunals in investment arbitration
cases cannot be disregarded.
969. Claimants’ however assert that cases cited by Respondent cannot be taken into
account because investment treaties applicable in those cases are “differently
worded”.1465 However, Claimants’ themselves heavily rely on Orascom v. Algeria
case which was decided based on a differently worded BIT. This reliance makes
Claimants argument inapposite.
970. Claimants have not disputed Respondent’s reference to findings of the tribunal in AFT
v. Slovakia. As a reminder, in this case, the tribunal found “seat” to be a “distinct
element in addition to “constitution and organization under Swiss law”” and
characterized it as “effective center of administration of the business operations”.1466
Now, pursuant to Slovak – Swiss BIT, applicable in said case, investors are defined
as “legal entities … which are constituted or otherwise duly organized under the law
of that Contracting Party and have their seat, together with real economic activities,
in the territory of that same Contracting Party”.1467 As can be concluded by mere
reading of this definition, this BIT adds another criteria to the definition of investor in
addition to the BIT applicable in the present case (which contains two criteria,
1464
Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No.
ARB/12/35, Award, dated 31 May 2017, paras. 278-281, CLA-111, and Tenaris S.A. and Talta - Trading e
Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of Venezuela, para 165, RLA-45.
1465
Reply, para. 846.
1466
Alps Finance and Trade AG v. The Slovak Republic (UNCITRAL), Award, 5 March 2011, paras. 216 and
217, RLA-71.
1467
Alps Finance and Trade AG v. The Slovak Republic (UNCITRAL), Award, 5 March 2011, para. 86,
[emphasis added] RLA-71.
334
incorporation and seat) - the real economic activities of the investor. Apart from that,
the definition of investor is almost the same as the one provided in Cyprus – Serbia
BIT. However, the tribunal expressly defined seat as “effective center of
administration of the business operations” regardless of this additional criteria of real
economic activities of the investor, which was considered in another section of the
award separately from the criterion of “seat”.1468 Thus, different wording of the treaty
in AFT v. Slovakia case does not influence tribunal’s conclusions on the meaning of
the term “seat”.
971. Award reached in case of Tenaris and Talta v. Venezuela is also relevant for the
present case. Particularly, both Belgium-Luxembourg Economic Union – Venezuela
and Portugal – Venezuela BITs provided for two distinct criteria for investors, as is
the case in this arbitration - the first being the constitution of legal person in
accordance with the laws of contracting party, and the second one having “siège
social” and “sede” in one of the contracting parties.1469 When definitions of “investor”
from the Belgium-Luxembourg Economic Union – Venezuela and Portugal –
Venezuela BITs, are compared to the definition of investor in the BIT applicable in
the present case, it is evident that the criteria in all three BITs are the same, i.e. that
Belgium-Luxembourg Economic Union – Venezuela and Portugal – Venezuela BITs
do not add supplementary criteria apart from incorporation and seat.
972. Therefore, findings of Tenaris and Talta v. Venezuela tribunal are fully applicable in
this case and Claimants cannot escape the conclusion that “neither “siège social” nor
“sede” can mean simply “registered office” or “statutory seat” in a purely narrow
and formal sense, since neither term would then have any effective meaning”, as well
as that “both “siège social” and “sede” in the Treaties in issue in this case mean the
place of actual or effective management”.1470
1468
Alps Finance and Trade AG v. The Slovak Republic (UNCITRAL), Award, 5 March 2011, paras. 219-
228, RLA-71.
1469
Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of
Venezuela, para. 115, RLA-45.
1470
Venezuela, paras. 148 and 154, RLA-45.
335
1.2.4. Treaty practice of Serbia and Cyprus confirms that “seat” is a distinct
criterion from incorporation
973. Claimants argue that all foreign-controlled companies would be excluded from the
protection of Cypriot investment treaties if the interpretation of the notion “seat” as
place of effective management is accepted.1471 This argument does not help
Claimants’ case. In the present BIT, as well as in many other BITs, Cyprus agreed to
a higher threshold and included “seat” as an additional criteria to incorporation.1472
On the other hand, in a number of other BITs, Cyprus excluded seat as criterion that
the investor must fulfill. There is no viable explanation why the definition of the
investor from this BIT (and other BITs having seat as the criterion as well) would be
equated with the definition of the BITs lacking the criterion of seat.1473 Had the
Contracting Parties wanted to limit themselves solely to incorporation test, they could
have done so, but they did not; instead, they introduced the criterion of “seat”.
974. In addition, Claimants did not provide any reasons that would warrant effectively
substituting the term “seat” with “registered office”. For example, unlike in the
Orascom case,1474 there are no travaux preparatoires that would show that parties to
the BIT objected to a criterion that would require something more than
incorporation/registered office. On the other hand, Montenegro, as the successor state
1471
1472
Agreement on reciprocal promotion and protection of investments between the Government of the
Republic of Cyprus and the Government of the Islamic Republic of Iran, Article 1(2)(b), RLA-53;
Agreement on the Reciprocal Promotion and Protection of Investments between the Lebanese Republic and
the Republic of Cyprus, Article 1(1)(b), RLA-54; Agreement on the promotion and the reciprocal protection
of investments between the Government of the Republic of Cyprus and the Great Socialist People's Libyan
Arab Jamahiriya, Article 1(2), RLA-55; Agreement on the reciprocal promotion and protection of
investments between the Government of the Republic of Cyprus and the Government of the Republic of San
Marino, Article 1(1)(b), RLA-56; Agreement between the Government of the Republic of Cyprus and the
Government of the Syrian Arab Republic on the promotion and reciprocal protection of investments, Article
1(2)(b), RLA-57; The Agreement between the Republic of Cyprus and Serbia and Montenegro on
Reciprocal Promotion and Protection of Investments, Article 1(3)(b), RLA-130.
1473
Agreement on the Promotion and the Reciprocal Protection of Investments between the Council of
Ministers of the Republic of Albania and the Government of the Republic of Cyprus, Article 2(b), RLA-50;
Agreement between the Government of the Republic Of Cyprus and the Government of the Hungarian
People's Republic on Mutual Promotion and Protection of Investments, Article 1(3)(b), RLA-51; Agreement
Between the Republic of Cyprus and the Republic of Poland for the Promotion and Reciprocal Protection
of Investments, Article 1(3)(b), RLA-52.
1474
ARB/12/35, Award, dated 31 May 2017, paras. 310-313, CLA-111.
336
to the BIT, confirmed in a separate case that its understanding is also that “seat” cannot
mean “registered office”.1475
1.2.5. Requirement of “seat” in the sense of effective management is

incorporated in the definition of investor
975. Claimants contend that Respondent, by claiming that “seat” means place of effective
management, attempts to impermissibly write a new requirement into Article 1(3)(b)
of the BIT, contrary to Article 31(1) VCLT, as well as that Respondent offers no
authorities for such interpretation.1476 In order to support their stance, Claimants place
much reliance on Orascom v. Algeria case and commit as much as three pages in their
Reply to it.1477 To Claimants’ misfortune, findings from Orascom v. Algeria case
cannot be applied to this specific case for several reasons.
976. The applicable BIT in Orascom v. Algeria does not even use the term seat - it is not
written in English but in French, Dutch and Arab, and in French, utilizes the phrase
“siege social”.1478 In that sense the tribunal in Orascom case noted:
“The ordinary meaning of the term siège social is not univocal. In

and of themselves, these terms merely refer to the seat of a
corporation, as opposed to anything else, for instance an arbitral
tribunal. Beyond that, a corporate seat or siège social can either
be statutaire, referring to the seat appearing in the company‘s
bylaws or statutes, or réel, referring to the effective seat where the
company is actually managed.”1479
977. In other words, the tribunal concluded that siège social can mean either registered
office (seat appearing in the company’s bylaws or statutes) or effective seat (being
the place where the company is actually managed). Therefore, tribunal in Orascom
case differentiated between registered office and effective seat.
1475
CEAC Holdings Limited v. Montenegro, ICSID Case No. ARB/14/8, Separate Opinion of William W.
Park, 26 July 2016, Sections VI.B.2-3 (emphasis added), CLA-023.
1476
1477
1478
ARB/12/35, Award, dated 31 May 2017, paras. 180 and 182, CLA-111.
1479
Ibidem, para. 273.
337
978. After it made a difference between these two possible interpretations of the term siège
social, the tribunal decided to assign to this term the meaning of siège social statutaire
i.e. registered office.1480 However, it did so for reasons which were only relevant for
that particular BIT, and which do not figure in the case at hand:
 During its analysis, arbitral tribunal turned to French, Dutch and Arab
dictionaries, and noted that these dictionaries ordinarily translate the respective
terms siege social and maatschappelijke zetel as registered office;1481
 Unofficial English translation of the BLEU-Algeria BIT deposited by Belgium

with the United Nations Treaty Series translates siège social as registered
office;1482
 BLEU Model BIT, which is in English, likewise refers to registered office. Also,
majority of BLEU BITs also use siège social in French and registered office in
English and in many of those BITs, English is the prevailing text;1483
 During negotiations of BLEU – Algeria BIT, Belgium explicitly rejected

introduction of any criterion conditioning protection upon the existence of a
“genuine connection” to the home State, such as the presence of a management
body. Tribunal took this as reason not to interpret siege social as “place of
effective management” or siège reel.1484
979. In the case at hand, the situation is completely different. English, which is the official
text of the BIT, uses the term “seat”, and not the term registered office. Also, unlike
with BLEU – Algeria BIT, neither of the parties rejected conditioning protection upon
the existence of a “genuine connection”.
980. However, while accepted by the majority of the tribunal, the term siège social,
apparently can be also assigned a different meaning even in the BIT applicable in that
case - one of the arbitrators, Ms. Brigitte Stern, argued that siège social as referred to
1480
Ibidem, para. 303.
1481
Ibidem, paras. 282-286.
1482
Ibidem, para. 301.
1483
Ibidem, para. 303.
1484
Ibidem, para. 313.
338
in the BIT can only mean siège reel (that is, the real seat). Ms. Stern further concluded
that real seat does not coincide with the registered office.1485 The same view is also
adopted by the legal theory:
”Siège social, or the seat of a corporation, is more commonly used

to define nationality in treaties concluded by civil law countries.
It connotes the place of effective management, and therefore
reflects a more genuine link between the entity and the home
country than the place of incorporation.”1486
981. But, more importantly, tribunal in Orascom v. Algeria clashed over the meaning of
the term siege social because of the absence of cumulatively listed criteria which
might have struck out one of the two possible meanings. In the present case, however,
terms “registered office” (incorporation) and “seat” are listed cumulatively, which
clearly excludes possibility that those terms have the same meaning. Consequently,
we are not facing a similar dilemma of whether “seat” means seat or “registered
office”.
982. Therefore, the meaning ascribed to the term siège social in Orascom case can be of
no help for analysis of the term seat in the Cyprus-Serbia BIT, other than to prove that
Respondent’s argument is correct, and that registered office is an element of
incorporation while (real) seat represents the effective seat where the company is
actually managed.
983. In addition, as Claimants stated,1487 in the Orascom case, the law of the contracting
parties did not recognize the concept “siege social”. As opposed to this, this is not an
issue in the present case, since Cyprus law does recognize the concept of “seat” as a
distinct term from the “registered office”, as explained previously1488 and in this
Section below. The reference to international law is needed not because the term
“seat” is unknown to Cyprus law, but, as explained in this Section above, because the
1485
Ibidem, para. 356.
1486
Rachel Thorn and Jennifer Doucleff, 'Part I Chapter 1: Disregarding the Corporate Veil and Denial of
Benefits Clauses: Testing Treaty Language and the Concept of “Investor”', in Michael Waibel, Asha
Kaushal, et al. (eds), The Backlash against Investment Arbitration, Kluwer Law International 2010), pp. 7
an 8, RLA-158.
1487
Reply, para. 868.
1488
339
BIT does not refer to municipal law when designating the “seat” criterion in Article
1(3)(b) of the BIT. Hence, this is yet another reason why the reasoning of Orascom
tribunal cannot be applied in the present case.
984. Consequently, interpreting the term “seat” as registered office would not only render
the term agreed upon in the BIT as superfluous, contrary to effet utile principle, but it
would also be contrary to the understanding of the term under municipal law of
investor’s home state.
1.2.6. Conclusions of Mera tribunal are erroneous
985. At the outset, it should be noted that conclusions reached by the Mera tribunal are
wrong. To begin with, Mera tribunal firstly opted for renvoi to a Cypriot law (instead
of applying international law) although that was contrary to the provisions of the BIT,
and then it wrongly applied the provisions of Cypriot law.
986. The reason why Mera tribunal decided not to apply international law was the lack of
uniformly accepted definition of seat.1489 This is however obviously wrong as lack of
uniform definition does not justify disregarding international law altogether and
recourse to interpretation by way of renvoi to municipal law, but requires additional
effort of the tribunal to determine what definition, according to that tribunal, would
be correct one, and of course to offer a plausible argument for that. It is precisely the
task of the arbitrators to give the term seat, as stipulated in the Article 1(3)(b) of the
BIT, the meaning it could have in the sense of international law application of which
is clearly envisaged in Article 9(4) of the BIT. By applying the Cypriot law when
looking for definition of the term seat, Mera tribunal disregarded the fact that Article
1(3)(b) of the BIT clearly stipulated that Cypriot law could have been applied only to
the issue of incorporation of the company, not while defining the seat.
987. In addition, Mera tribunal made a mistake when applying Cypriot law. It disregarded
the fact that Brussel I Regulative dated 2002 represents an integral part of the Cypriot
law, and that according to that regulation the term “seat” is alternatively defined
through three criteria, one of them being the place of central administration or
1489
Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction,
30 November 2018, para. 89 CLA-022.
340
principal place of business.1490 This means that according to Cypriot law, seat has
meaning which Respondent argues it has.
988. Further, as Respondent already stated in the Counter-Memorial,1491 conclusions that

the tribunal in Mera reached disregarded that, under Cypriot law, company cannot be
established without a registered office, i.e. designation and maintenance of a
registered office is inevitable element of company’s incorporation, which is why
registered office cannot at the same time be deemed as a second condition for
establishing nationality of an investor pursuant to Article 1(3)(b), and thus, cannot be
equated with “seat”, as well as the fact that terms “registered office” and “seat” are
intentionally used in Cypriot Companies Law as distinct notions, as will be further
elaborated in this Section below.
2. “Seat” as criterion according to the Cypriot law
989. Although Article 1(3)(b) of the BIT does not refer to municipal law when introducing
the term “seat” as criterion for establishing the notion of “investor”, and thus, the
proper basis for interpreting that criterion is international law, Respondent will
nevertheless explain that even from the standpoint of the Cyrus law, the term “seat”
retains the same meaning – the one of effective management.
990. Respondent’s Cyprus law expert, Professor Thomas Papadopoulos, explains that
Cyprus incorporated in its mixed legal system notions of continental law, one of them
being the notion of “seat”, which was introduced “by various amendments to Cyprus
Companies Law (Chapter 113-Cap. 113) from 2000 to 2016 … (Greek word: “έδρα”)
in Cyprus company law … in many different articles … rather than “registered
office””.1492 Instead of following its legislative tradition and using solely the term
“registered office”, it intentionally incorporated the concept of “seat”. The
introduction of the term “seat” started in 2000 during the process of the accession to
the EU, and the term was not intended to simply re-label “registered office”, but rather
to exist as a separate term, while the notion of “registered office” continued to exist
and was also regularly used in post-2000 amendments to the Cyprus Company
1490
Article 63 of the Regulation (eu) no 1215/2012 of the european parliament and of the council of 12
December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial
matters (recast), RLA-199.
1491
1492
Second Expert Report of Dr. Thomas Papadopoulos, paras. 4-11.
341
Law.1493 It should be recalled that it was during this time the Cyprus – Serbia BIT was
concluded, in 2005.
991. Claimants attempt to defend the stance that the notion of “seat” from Cyprus
Companies Law is a notion alternative to “registered office”, since “registered office”
does not necessarily determine company’s place of incorporation.1494 As thoroughly
explained by Professor Papadopoulos, such reasoning is incorrect. Particularly,
Professor Papadopoulos elaborates that:
““Registered office” … refers to place of incorporation as a

reference to the law applicable to this company. … In fact,
“Registered office” is “the place of incorporation” for both
companies incorporated for the first time in Cyprus and for
companies having transferred their registered office to Cyprus
under articles 354A-354R of Cyprus Companies Law (Chapter
113-Cap. 113). … When it comes to companies previously
incorporated abroad and which transferred their registered office
in Cyprus (under articles 354A-354R of Cyprus Companies Law
(Chapter 113-Cap. 113)), such a company is being reincorporated
in Cyprus. Hence, the reincorporation determines the law
applicable to such companies, which is Cyprus law. A
reincorporation represents a “second” incorporation in the new
jurisdiction… Thus, ‘registered office’ and ‘place of
incorporation’ substantially do not constitute different terms and
they can only go hand in hand, i.e. the company’s registered office
and place of initial incorporation or subsequent reincorporation
could only be within the same jurisdiction.”1495
992. Therefore, incorporation goes hand in hand with registered office which makes
Claimants’ reasoning incorrect.
993. Further, the conclusion of Claimants’ legal expert, Mr. Georgiades, that the terms
“seat” and “registered office” are used interchangeably due to the fact that articles
1493
Ibidem, paras. 10 and 11.
1494
1495
Second Expert Report of Dr. Thomas Papadopoulos, para. 17.
342
354K and 57B(1)(d) of Cyprus Companies Law (Chapter 113-Cap. 113) refer to the
notion of seat, while the general title for Arts. 354A-354R is “Transfer of Registered
Office of Companies to and from the Republic”,1496 is refuted by Professor
Papadopoulos. Particularly, he noted that it is far from clear that the lawmaker of
Companies Law used this terms interchangeably in these provisions, on the contrary,
“[i]f the terms seat and registered office had the same meaning, Cyprus legislature
would not have used both terms within the same provision. It would be really
confusing and against legal certainty for a legislature to use a term in the title of a
part of Cyprus Companies Law (Chapter 113-Cap. 113), with an identical meaning
as another term appearing in one of the provisions”.1497
994. That the use of the term “seat” in the Cyprus Companies Law is far from “a result of
translation problems in connection with Cyprus’ accession to the EU”, as
unfoundedly claimed by Claimants,1498 is supported by Article 391A of Cyprus
Companies Law.1499 This Article, for the purposes of providing certain exemptions to
the companies with links to the North part of Cyprus, before its unlawful Turkish
occupation since 1974, puts “on an equal basis: ’seat’/head office or ’place of
business’ or ’whole property’ and which apply in addition, and cumulatively to the
criterion of incorporation.”1500 In particular, Professor Papadopoulos explains:
“In case this company, on top of its registered office, has its seat
or place of business or the whole of their property in occupied or
inaccessible areas and is no longer trading and/or does not own
any other property apart from the property that is in areas not
controlled by the Republic, it is not obliged to pay the levy.
However, in its articles of association, this company might
1496
Second Expert Report of Agis Georgiades on Issues of Cyprus Law in ICSID Arbitration Case No.
ARB/18/8, Rand Investments Ltd, Sembi Investment Limited, William Archibald Rand, Kathleen Elizabeth
Rand, Allison Ruth Rand & Robert Harry Leander Rand v. Republic of Serbia, para. 2.7.
1497
1498
Reply, para. 882.
1499
“Exception for companies which are based in areas not controlled by the Republic from the
obligation to pay the levy and file annual returns. Art. 391A Companies which were incorporated under
the provisions of the basic law prior to 14 August 1974 and have had their seat or place of business or
the whole of their property in occupied or inaccessible areas and are no longer trading and/or do not own
any other property apart from the property that is in areas not controlled by the Republic, are not obliged to
pay the levy provided for in s.391, nor any other levies or charges provided they give notification to the
registrar in the prescribed manner”, Article 391A of the Cyprus Companies Law (as currently in force), [emphasis
added] RE-184.
1500
343
continue to have its registered office in the above address at the
occupied part, but it is managed from the unoccupied/free part,
where its seat is found, and in that case, such company would not
be exempted from payment of the subject levy. Therefore, Art.
391Α of the Cyprus Companies Law (Chapter 113-Cap. 113),
clearly expresses the position of Cyprus law that the terms “seat”
and “registered office” have a different meaning.”1501
995. Taking the above into account, there is no doubt that the Cyprus Companies Law
makes clear distinction between the terms “seat” and “registered office”, and that it
treats “seat” as something more than just a place “to which all communications and
notices may be addressed”,1502 i.e. that it treats it as center of place of management.
This entirely refutes Mr. Georgiades’ conclusion that there is nothing in the
Companies Law to suggest that the term “seat” has a different meaning.1503
Apparently, Claimants are well aware of that, so they try to attribute inconsistencies
in their arguments to alleged translation problems in connection with Cyprus’
accession to the EU or to the lack of specific definition of the term in the law. 1504
Claimants have not provided any credible evidence that the introduction of the term
“seat” in the Cyprus Companies Law is a consequence of translation problems. On the
other hand, Claimants simply cannot seek to deprive of meaning any term which is
not specifically defined, just because it does not suit their argument.1505
996. Respondent agrees with Claimants that the term “seat” was introduced to Cypriot law
as consequence of the EU accession and the implementation of EU law.1506 However,
it does not agree that it was introduced as alternative to the term “registered office”,
but “that the term “seat” has the meaning accepted in the EU law (head office), as
implemented in the Cyprus law since Cyprus was an EU country when it concluded
the BIT with Serbia (21-7-2005)”, as well as that Cyprus legislature took into account
1501
Ibidem.
1502
Article 102 of Cyprus Companies Law 89(I)/2015, RE-183.
1503
1504
Reply, para. 885.
1505
Second Expert Report of Dr. Thomas Papadopoulos, para. 23: “This argument of Mr. Georgiades that the
terms, which are not expressly defined, should not be taken into account could not be accepted, because this
would mean that all terms, which are not specifically defined cannot be applied.”
1506
Reply, para. 883; Second Expert Report of Dr. Thomas Papadopoulos, para. 29.
344
the real seat theory for the needs of European Companies based in Cyprus when
applying European Company Statute to Cyprus. 1507
997. Finally, it should be noted that the case law to which Claimants refer does not show
interchangeable use of the terms “seat” and “registered office” as misleadingly put
forward by Claimants.1508 In fact, none of the cases to which Mr. Georgiades referred
in his report,1509 even mention “registered office”, let alone use it interchangeably with
the term “seat”.
3. Sembi does not have a seat in Cyprus
998. As explained in this Section above, the term “seat” in Article 1(3)(b) of the BIT
represents separate criterion within the definition of “investor” which indicates
effective management.1510 Sembi does not meet this criterion.
999. Before elaborating on Sembi’s lack of standing in these proceedings, it is necessary

to define effective management.1511 According to Black’s Law Dictionary, manager
is “[o]ne who has charge of corporation and control of its business, or of its branch
establishments, divisions, or departments, and who is vested with a certain amount of
discretion and independent judgment… The designation of "manager" implies general
power and permits reasonable inferences that the employee so designated is invested
with the general conduct and control of his employer's business”.1512
1000.In other words, managers are persons who have the power to control a company and
its business, which entails making decisions which are of material importance for the
company and for its business, and controlling the implementation of such decisions.
They are people who have and exercise “a certain amount of discretion” and
“independent judgment”.
1507
1508
Reply, para. 884.
1509
1510
Venezuela, para 150, RLA-45.
1511
Counter-Memorial, paras. 462 and 463.
1512
Black’ Law Dictionary, definition of “manager“, RLA-200.
345
1001.It is unequivocally admitted by Claimants that Sembi was always under full control
of Mr. Rand:
“…Sembi is, and at all relevant times was, controlled by Mr. Rand.
Mr. Rand is, and always was, a director of Sembi. Mr. Rand
controlled the conduct of all other directors of Sembi. Mr.
Markićević, who has been a director of Sembi since June 2013,
and Mr. Obradović, who was a director of Sembi between
December 2007 and June 2013, became directors based on Mr.
Rand’s instructions and agreed to always follow Mr. Rand’s
orders. The other two directors of Sembi have been supplied by
HLB Axfentiou Limited (“HLB”)—a Cypriot company providing
domiciliary and fiduciary services to Sembi, including providing
remaining directors of Sembi. As is customary with offshore
holding companies, Mr. Rand has an agreement with HLB that
gives him full control over Sembi.”1513
1002.On top of that, the trustee of Ahola Family Trust, which owns all of ordinary shares
issued by Sembi, Mr. Jennings, seeks and follows instructions from Mr. Rand in
respect of all matters involving the subject trust, as well as his ownership on behalf of
the trust of the shares in Sembi.1514 Mr. Jennings also admitted that:
“In line with this provision and the Control Agreement, I have left
the management of and control over both Sembi and Coropi to Mr.
Rand, who was, and remains to this day, a director of both
companies.”1515
1003.Therefore, it is clear that the effective management of Sembi is not performed in

Cyprus, but in Canada, where Mr. Rand lives.1516
1513
Reply, para. 105.
1514
Jennings WS, paras. 7 and 10.
1515
Jennings WS, para. 14. Emphases added.
1516
Memorial, para. 39.
346
1004.In addition, Sembi does not meet the Tenaris tribunal requirements for holding
companies.1517 First of all, it is not explained by Claimants how exactly is Sembi
considered as a holding company. Even if it is, Tenaris tribunal criteria still requires
holding companies to have “effective management” in the territory of a contracting
state, which Sembi, as explained in this Section above, simply does not have.
1005.Claimants put a lot of weight on alleged “modern premises” at which Sembi is located,
and due to which, according to Claimants, Sembi meets the requirement of “seat”.1518
It is unclear from where Claimants drew the conclusion that the seat is where the
company has “modern premises”. Whether modern or not, Sembi’s alleged premises
are not the place from which it is managed and thus these premises cannot be place of
Sembi’s seat.1519
1006.Finally, Claimants try to justify the fact that Sembi has not submitted annual returns
after 31 December 2011,1520 by stating that the obligations to maintain books or
registers do not constitute pre-conditions for a place to be designated as registered
office.1521 Claimants’ unfortunate attempt to disregard the importance of submitting
annual returns pursuant to Cyprus Companies Law does not hold water. Particularly,
it is a requirement for every registered company to submit, at least once a year, an
annual return with information about company and its structure.1522 The fact that these
annual returns were not submitted for years brings into question Sembi’s activity in
Cyprus.
1007.Taking everything mentioned above into account, it is clear that Sembi does not have
effective management in Cyprus, and thus, it cannot be regarded as investor pursuant
to Article 1(3)(b) of the BIT.
1517
Venezuela, para 199, RLA-45.
1518
1519
Counter-Memorial, para
1520
Print-screens of the online search of Sembi’s corporate history, RE-120.
1521
Reply, para. 895.
1522
Article 118(1) of the Companies Law of Cyprus, RE-184.
347
F. NO JURISDICTION RATIONE MATERIAE UNDER THE ICSID
CONVENTION
1. Claimants did not make an investment under the ICSID Convention
1008.Article 25(1) of the ICSID Convention does not contain a definition of “an
investment” for the purpose of establishing the jurisdiction of the Centre. As explained
by the tribunal in KT Asia v. Kazakhstan, this implies that the Contracting States
intended to give this term its ordinary meaning under Article 31(1) of the VCLT.1523
The notion of an investment under the ICSID Convention must be given an objective
meaning1524 which does not depend solely on the instrument recording the disputing
parties’ consent. This was explained in no uncertain terms by the tribunal in Saba
Fakes v. Turkey:
“First, the Tribunal considers that the notion of investment, which is one of
the conditions to be satisfied for the Centre to have jurisdiction, cannot be
defined simply through a reference to the parties’ consent, which is a distinct
condition for the Centre‟s jurisdiction. The Tribunal believes that an
objective definition of the notion of investment was contemplated within the
framework of the ICSID Convention, since certain terms of Article 25 would
otherwise be devoid of any meaning.”1525
1009.It seems that Claimants now argue that the term “investment” used in Article 25(1) of
the ICSID Convention has no meaning at all, since (according to Claimants) “ICSID
jurisdiction is restricted only by the investment treaty applicable between the parties
to a dispute.”1526 This is manifestly wrong. Respondent does not see the reason to
engage into a needless debate about the issue that has long been settled by the arbitral
jurisprudence and that is “beyond argument”1527 – Article 25 of the ICSID Convention
1523
KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October
2013, para. 165, RLA-95.
1524
1525
Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, para. 108, CLA-
90.
1526
1527
Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11,
Award, 1 December 2010, para. 43, RLA-172.
348
“fixes the “outer limits” of ICSID jurisdiction and that parties can consent to that
jurisdiction only within those limits.”1528
1010.The objective definition of “an investment” under Article 25(1) of the ICSID
Convention is based on four elements contained in the Salini test - the existence of a
substantial contribution by the investor; certain duration; the assumption of risk and
the contribution of the activity to the host State’s development.1529
1011.The fourth criterion – contribution to the host State’s development – originates from
the ICSID Convention’s Preamble1530 and it is the only objective requirement that can
be gleaned from the Convention itself.1531 The four-requirement test has been
followed by many ICSID tribunals, most recently by the tribunals in Karkey v.
Pakistan1532 and Union Fenosa v. Egypt.1533
1012.While Claimants deny that the contribution to the host State’s development is an
element of “an investment” under the ICSID Convention, they argue that
“[C]laimants’ investment complied even with the broadest of tests put forth by any
tribunal.”1534 As it will be demonstrated below, this is incorrect.
1.1. Claimants did not make a substantial contribution
1013.Claimants submit that their contributions comprise of:
- the EUR 5,549,000 purchase price for the Privatized Shares;
- EUR 2 million additional investment in BD Agro;
- the EUR 0.2 million purchase price for Mr. Rand’s Indirect Shareholding;
1528
Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation, Venezuela Holdings, B.V.,
et al.) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June
2010, para. 156, RLA-193.
1529
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4,
Decision on Jurisdiction, 31 July 2001, para. 52, CLA-20.
1530
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4,
Decision on Jurisdiction, 31 July 2001, para. 52, CLA-20.
1531
Christoph Shreuer, Loretta Malintoppi, August Reinisch, Anthony Sinclair, The ICSID Convention: A
Commentary, 2nd ed., Cambridge University Press, 2009, pp. 116, 117, para.121, RLA-97
1532
Award, 22 August 2017, para. 633, RLA-178.
1533
Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award of the Tribunal,
31 August 2018, para. 6.66, RLA-180.
1534
349
- Mr. Rand’s EUR 2.2 million financing of the replacement of BD Agro’s herd and
other payments and loans made for the benefit of BD Agro.1535
1014.Payment of the purchase price - As for the purported payment of the purchase price
for the BD Agro’s shares and the money supposedly advanced for the additional
investments in the company, there is absolutely no evidence that the commitment of
capital was made by Claimants. In order to overcome this obstacle, Claimants
misconstrue the argument put forward by Respondent in its Counter – Memorial and
engage into misrepresentation of facts.1536
1015.First, Respondent does not contend, as Claimants would like to see it, that Claimants’
contributions should be disregarded because the money was wired to the PA by Mr.
Obradović.1537 Rather, the problem is that the money used by Mr. Obradović to pay
the purchase price and to invest in BD Agro was not provided by any of the Claimants.
There are no documents such as wire transfer records or bank account statements that
would suggest that the capital used to purchase BD Agro in the privatization originated
from Mr. Rand, MDH or Sembi. It was Mr. Obradović who obtained the necessary
funds through the loan taken from the Lundin Family.1538 It was Mr. Obradović who
paid all of the installments of the purchase price for the BD Agro’s capital.1539 As a
matter of fact, documents revealed in this arbitration demonstrate that the price for the
BD Agro’s shares was not covered even with the funds advanced by the Lundin
Family. The initial installment under the Privatization Agreement of EUR
2,124,451.01 was paid in October 2005, almost three months before Mr. Obradović
received the first payment of 399 500 EUR on 2 January 2006,1540 presumably based
on the loan agreement with the Lundin Family. In addition, Mr. Obradović used the
funds of BD Agro to effectuate the payment of at least four out of five remaining
installments.1541
1535
1536
Respondent’s Counter – Memorial, paras. 498, 499.
1537
1538
Witness Statement of Mr. Aksel Azrac dated 16 January 2019, para. 13; Agreement between Dj.
Obradović, The Lundin Family, W. Rand and Sembi dated 22 February 2008, CE-28.
1539
Banking excerpts confirming payment of installments of purchase price by Mr. Obradovic dated 15
October 2015, RE-33.
1540
Confirmation of transfer EUR 399,950 from Oil Company to Mr. Obradović, 2 January 2006, CE-385;
1541
350
1016.Alleged additional investment in BD Agro - The same can be said about Claimants’
alleged additional investment in BD Agro – there is simply no documentary evidence
to support the assertion advanced by Claimants. The amount of EUR 2 million
purportedly invested in BD Agro is not an insignificant amount. Yet, Claimants are
unable to point to the paper trail of payments and to prove that those payments were
actually made and, more importantly, that the payments were made by any of the
Claimants.
1017.Unable to prove that Mr. Rand actually paid for Mr. Obradović’s acquisition of BD
Agro, Claimants argue that “Mr. Rand had also secured the financing from his
longtime business partners, the Lundin Family.”1542 Again, Claimants fail to explain
the exact meaning of such contention. There is no document on the record that would
contain the terms of the financial arrangement between Mr. Rand, the Lundin Family
and Mr. Obradović. When prompted by Respondent to submit the agreement
concluded with the purpose of financing BD Agro’s privatization, Claimants were
unable to locate and produce any document.1543 Thus, the precise role of Mr. Rand in
this transaction remains uncertain. The only thing certain is that Mr. Rand did not
secure the financing for the purchase of BD Agro.
1018.Second, it is unclear from the Claimants’ submission whether Claimants contend that
Mr. Rand’s repayment of Mr. Obradović’s debt to the Lundin Family in 2008 and
2010 should be treated as the Claimants’ payment of the purchase price for BD Agro
on behalf of Mr. Obradović.1544 In any event, funds which Mr. Obradović obtained
through the loan from the Lundin Family were not used to pay the price for the
acquisition of BD Agro and Mr. Rand’s settlement of Mr. Obradović’s debt cannot be
treated as payment of the purchase price. Additionally, transfer of money from Mr.
Rand to the Lundin Family and their companies is irrelevant since it did not lead to
the acquisition of Mr. Obradović’s shares in BD Agro by Sembi and the funds were
not used for the purpose of furthering the BD Agro’s business.
1019.Claimants also seem to argue that the same monetary contributions of one of them
(Mr. Rand) should count as a contribution of each and every Claimant. The absurdity
1542
1543
Respondent’s Redfern Schedule, point 4(a).
1544
351
of the argument is most noticeable when it comes to the relationship between Mr.
Rand and Sembi with regards Mr. Rand’s repayment of Mr. Obradović’s loans.
1020.Claimants themselves admit that the Sembi’s bank account were used to transfer to
the Lundins funds that were “ultimately committed” by Mr. Rand.1545 Yet, Claimants
essentially argue that the same contribution should give Mr. Rand the right of standing
under the Canada – Serbia BIT and, simultaneously, provide Sembi with the status of
the investor under the Cyprus – Serbia BIT. Unfortunately for Claimants this kind of
double–dipping is impermissible. Sembi cannot rely on the contribution made by its
ultimate owner as basis of its separate claim under the Cyprus – Serbia BIT,1546
especially when its owner uses the same contribution to advance his own claim in the
same proceeding. In order to hold “an investment” under the ICSID Convention both
Mr. Rand and Sembi must prove that they made separate monetary contributions.
1021.This was the reasoning behind the decision to reject jurisdiction, for example, in
Doutremepuich v. Mauritius. There, the tribunal found that the payment of EUR 300,
000 into the account of a holding company owned jointly by two claimants were made
solely by the first claimant (Christian Doutremepuich).1547 This was enough for the
tribunal to conclude that the second claimant (Antoine Doutremepuich) did not make
an investment under the France – Mauritius BIT.1548
1022.Third, Sembi has never made any contribution of capital to the BD Agro project. As
explained previously, the repayment of Mr. Obradović’s loan was effectuated with
funds committed by Mr. Rand. There is no evidence that Sembi has ever paid the
remaining installments of the purchase price under the terms of the Sembi Agreement.
Even if it would be accepted, for the sake of the argument, that Sembi owned the
shares in BD Agro, the mere ownership cannot replace the requirement of
contribution.1549
1545
1546
2013, paras. 192, 205, RLA-95.
1547
Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37,
Award on Jurisdiction, 23 August 2019, paras. 13, 128-130, RLA-171.
1548
Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37,
Award on Jurisdiction, 23 August 2019, para. 131, RLA-171.
1549
352
1023.Consequently, the other Canadian Claimants (Rand Investments, Ms. Kathleen
Elizabeth Rand, Ms. Allison Ruth Rand and Mr. Robert Harry Leander Rand), as
Sembi’s shareholders, cannot benefit from its inexistent contribution.
1024.In what appears to be an alternative proposition, Claimants argue that Mr. Rand’s
children can rely on his contribution for the purpose of the Tribunal’s ratione materiae
jurisdiction under the ICSID Convention.1550 Claimants rely on the award by the
tribunal in Renée Rose Levy de Levi v. Peru to support their argument.1551 The
Claimants’ argument is misplaced.
1025.The circumstances in Levy v. Peru were considerably different from the facts in the
case at hand. Jurisdiction of the tribunal in Levy was premised on the claimant’s
ownership of shares in a Peruvian bank. The acquisition of shares was a result of a
gratuitous assignment from the claimant’s father. Essentially, the initial investment
was made by the claimant’s relatives and later on transferred to Ms. Levy de Levi free
of charge.1552 Neither her father nor any other relative were involved in the
proceeding. Here, Claimants argue that both Mr. Rand and his children made the
initial investment based on the same monetary contributions and they all pursue the
claim based on the payments apparently made by only one of the Claimants (Mr.
Rand). To put it plainly – the analogy with Levy v. Peru could arguably work in
Claimants’ favor only if Mr. Rand would not be a party in the present proceeding and
if his claim was effectively assigned to his children.
1026.Fourth, Rand Investments’ expenditures for consulting fees in 2013 were made in the
preparation for Mr. Rand’s acquisition of BD Agro’s capital from Mr. Obradović. This
follows from Mr. Rand’s letter to the Serbian Prime Minister and Minister of
Economy of 18 September 2014.1553 The letter was sent more than a year after Mr.
Obradović had agreed to assign the Privatization Agreement to Coropi, a company
owned by Mr. Rand.1554 In the letter, Mr. Rand stated that he had supported BD Agro
1550
1551
Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014,
CLA-91.
1552
Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014,
para. 146, CLA-91.
1553
2014, CE-38.
1554
Agreement on Assignment of Agreement on Sale of Socially Owned Capital Through Public Auction
between Djura Obradović and Coropi Holdings Limited; CE-274.
353
since the summer 2013 and noted that he was reluctant to continue doing so without
the transfer of ownership from Mr. Obradović to himself.1555
1027.As pre-investment expenditures, Rand Investments’ payment of consulting fees

cannot be treated as the investment under the Canada – Serbia BIT or the ICSID
Convention.1556 Furthermore, the amount of aproximatelly 162,000 EUR was the only
monetary contribution ever made by Rand Investments.1557 The amount itself suggets
the lack of substantial contribution as an element necessary for an investment to
qualify for the protection under the ICSID Convention. The issue was discussed by
the tribunal in Casinos Austria v. Argentina where it was held that the application of
the Salini test may exclude from the protection “wholly insignificant activities and
assets that, while having a commercial value, do not amount to a significant
contribution to the host State’s economic life.”1558
1028.Purchase price for Mr. Rand’s Indirect Shareholding - As for the purchase price
for Mr. Rand’s 3.9 % indirect shareholding in BD Agro,1559 it is unclear exactly how
did Claimants come up with the price of 200,000 EUR allegedly paid for the shares.
No evidence of such payment has ever been submitted. Since the owner of shares was
Mr. Rand’s Serbian company (MDH Serbia), it can be inferred that it was MDH Serbia
that paid for the acquisition of those shares.
1029.Claimants should not be allowed to argue the piercing of the corporate veil only when
it suits them. This has been a reoccurring feature of the Claimants’ case on
jurisdiction. For example, payments made by Mr. Rand as a shareholder of Sembi are
his own when Claimants need to establish the existence of Mr. Rand’s monetary
contribution. However, the same payments are attributed to Sembi because they were
made using the company’s bank account.1560
1555
2014, pp. 1-2, CE-38.
1556
Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No.
ARB/00/2, Award, 15 March 2002, paras. 50, 51, 60, 61, RLA-78.
1557
Overview of Payments to Mr. David Wood, CE-62; Overview of Payments to Mr. Gligor Calin, CE-68;
Rand First WS, paras. 40-44.
1558
Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic,
ICSID Case No. ARB/14/32, Decision on Jurisdiction, 29 June 2018, para. 189, RLA-168.
1559
1560
Claimants’ Reply, para. 675, fn. 745.
354
1030.In any event, the purported payment of 200,000 EUR for the 3.9% of BD Agro’s
shares cannot be considered as a significant contribution to the Respondent’s
economic life.
1031.Payment for the purchase and transport of heifers - Finally, Mr. Rand’s partial
payment for the purchase and transport of heifers is irrelevant since it did not lead to
the acquisition of BD Agro’s assets. Furthermore, the origin of funds used for the
payment is uncertain. This is so because the flow of money between Mr. Obradović
and Mr. Rand and his companies remain obscure. For example, the Sembi Agreement
records that Mr. Obradović borrowed some EUR 13,8 million from the Lundins for
the acquisition and further investments in BD Agro.1561 A significant part of that
money never found its way to Mr. Obradović or BD Agro. Out of that sum, EUR
3,327,740 was transfered to MDH and not to Mr. Obradović.1562 It should not be too
burdensome for Claimants to explain how exactly those funds were spent. If Claimants
are unable or unwilling to do so, the only possible conclusion would be that the
payments for the benefit of BD Agro were made using the money borrowed by Mr.
Obradović.
1032.In conclusion – the expenditures that Claimants rely on are either inexistent of
irrelevant for the purpose of jurisdiction under Article 25(1) of the ICSID Convention.
1.2. The Claimants’ purported investment involved no significant duration
1033.Claimants have never obtained any asset that could be deemed as investment under
the two BITs and the ICSID Convention. This by definition eliminates the possibility
of a significant duration of the investment from the analysis. The Claimants’ argument
presupposes that BD Agro was acquired and operated by Claimants.1563 Since
Claimants never owned BD Agro, certain expenditures that were made by some of the
Claimants did not result in long-term commitments. For instance, the one-time
1561
Agreement between Dj. Obradović and Sembi dated 22 February 2008, para. C; CE-29.
1562
Confirmation of transfer of EUR 3,312,740 from Mr. Lundin to Marine Drive Holding, 15 September
2005, CE-384; Confirmation of transfer of EUR 5,000 from Mr. Lundin to Marine Drive Holding, 3 March
2006, CE-391; Confirmation of transfer from Longdale Assets Ltd of EUR 10,000 to Marine Drive Holding,
5 July 2006, CE-398.
1563
355
payment of consulting fees by Rand Investments certainly does not represent the
involvement of significant duration.
1.3. Claimants bore no risk associated with the purported investment
1034.BD Agro was acquired and managed by Mr. Obradović and not by any of the
Claimants. The funds required for the acquisition of BD Agro were obtained by Mr.
Obradović. For some of the Claimants it is even prima facie clear that they made no
commitment of any capital or other resources in the BD Agro project. This is in
particular the case with Sembi and those of the Canadian Claimants relaying on
Sembi’s supposed contribution (Ms. Kathleen Elizabeth Rand, Ms. Allison Ruth Rand
and Mr. Robert Harry Leander Rand). In absence of any contribution, the risk that
would follow from the investment does not exist.1564 It seems that even Claimants do
not contend otherwise.
1.4. Claimants’ “investment” did not contribute to the development of the

Republic of Serbia
1035.In their Reply, Claimants insist that their investment transformed BD Agro from a
socialist-style farm to the most modern cow farm in Europe.1565 Once again, that
assertion is made based on the opinion of a journalist espoused in the newspaper
article published in 2010.1566
1036.The fact remains, however, that BD Agro was de facto bankrupt since March 2013
when the company’s bank account was blocked by its creditors.1567 This was not a
result of any actions or omissions of Respondent, but a consequence of Mr.
Obradović’s management. BD Agro generated loss in almost every year it was
managed by Mr. Obradović.1568 For instance, 2010 was the first year in which BD
Agro’s revenue was lower than interest on the company’s loans alone. With the
exception of 2011, the pattern continued in 2012 and 2013.1569 Therefore, the assertion
1564
2013, paras. 218, 219, RLA-95.
1565
1566
News Article “Where cows listen to Beethoven” published on 27 November 2010, CE-26.
1567
The Company’s business account was blocked under the enforce collection procedure on 8 March 2013
and remained blocked ever since. See Pre-pack Reorganization Plan dated November 2014, p. 8, CE-321.
1568
First Expert Report of Sandy Cowan, para. 2.6.
1569
First Expert Report of Sandy Cowan, para. 4.32.
356
that “the Privatization Agency managed BD Agro into bankruptcy” is disingenuous,
to say the least.1570
1037.Finally, as already described above, certain activities of Mr. Obradović with regards
BD Agro were illigal.1571 Some of those resulted in the criminal prosecution of Mr.
Obradović.1572 To consider such business venture as an investment that contributes to
the development of the host State would be absurd.
2. Claimants have no standing under the ICSID Convention
1038.All claims advanced in this arbitration are effectively based on the incorrect
assumption that the Agency illegally terminated the Privatization Agreement it had
concluded with Mr. Obradović, and not with any of the Claimants.
1039.Claimants do not have jus standi to advance those claims before the Tribunal, since
the Tribunal “cannot go into the substance of a claim if that claim is submitted to the
Tribunal by a legal entity that is not bound by the Contract on which the claim is
based.”1573
1040.Claimants’ attempt to drow a parallel between the case at hand and cases in which the
investment contract was concluded by the investor’s subsidiary is clearly
inapposite.1574 Mr. Obradović entered into the agreement in his personal capacity,
taking full advantage of his Serbian nationality in the process and obtaining the right
to pay the purchase price for the BD Agro’s capital in six installments.1575 To support
their argument Claimants rely on authorities that contemplate circumstances
profoundly different from those in the present dispute – a local company owned by a
putative investor concludes a contract with the host State and the contract is later on
affected by measures attributable to the State.1576 The only way in which the analogy
1570
Claimants’ Reply, Section II.X.
1571
See, for instance, paras. 402-414 above.
1572
Ibid.
1573
Consortium Groupement L.E.S.I.- DIPENTA v. République algérienne démocratique et populaire, ICSID
Case No. ARB/03/08, Sentence, 10 janvier 2005, part II, para. 41; (English Translation from ICSID website),
part II, para. 37(iv), RLA-98.
1574
1575
1576
See, for instance, Gas Natural SDG, S.A. v. Argentine Republic, ICSID Case No. ARB/03/10, Decision of
the Tribunal on Preliminary Questions on Jurisdiction, 17 June 2005, para. 50, CLA-66 (cited in Claimants’
Reply, para. 693).
357
offered by Claimants would work is if Mr. Obradović woud be deemed as Claimants’
subsidiary, which is clearly impossible.
1041.Claimants’ attempt to distinguish the case at hand from the circumstances in

Consortium v. Algeria is equally unavailing. In Consortium, the tribunal dismissed the
claim for lack of jurisdiction because the claimant was not a contracting party in the
contract that represented a basis of the claimant’s investment. The contract was
concluded between two Italian companies (LESI and DIPENTA) and the Algerian
National Dams Agency (ANB).1577 In Claimants’ interpretation, the lack of standing
in that case was a consequence of the fact that Consortium did not own an interest in
the two companies that actually concluded the contract. Claimants then argue that,
unlike in Consortium, “[t]he Canadian Claimants all own (nominally or beneficially)
shares in Sembi and thus have standing under the Canada-Serbia BIT and the ICSID
Convention to bring the claims relating to Serbia’s interference with the Privatization
Agreement, despite the fact that they are not party thereto.”1578
1042.The argument is clearly misplaced since it presumes that Sembi was a contracting
party in the Privatization Agreement. However, as explained earlier, Sembi was never
a party in the Privatization Agreement and the Agency was never contractually bound
to Sembi.
1043.As for the assertion that “[t]he primary basis of the Claimants’ investment is their
interest in BD Agro—and not only their interest in the Privatization Agreement”,1579
Claimants’ inability to demonstrate that they actually owned Mr. Obradović’s
shareholding interest in BD Agro is equally fatal for their right of standing before the
Tribunal under the ICSID Convention.1580
G. CLAIMANTS’ CLAIMS AMOUNT TO ABUSE OF PROCESS
1044.The dispute at hand arises out of a domestic investment and it boils down to the issue
of whether the Privatization Agency of Serbia validly and justifiably terminated the
1577
Consortium Groupement L.E.S.I.- DIPENTA v. République algérienne démocratique et populaire, ICSID
Case No. ARB/03/08, Sentence, 10 janvier 2005, part II, para. 41; (English Translation from ICSID website),
part II, para. 37(iv), RLA-98.
1578
1579
1580
Sections II.A.1 i II.B.1. of Rejoinder
358
contract it had concluded with Mr. Obradović, a Serbian national and the buyer of BD
Agro’s capital in privatization.
1045.The initiation of the present proceeding is nothing more than an attempt of Claimants
to internationalize the domestic dispute and to misuse the ICSID System for purposes
it was not intended, in contravention with the principle of good faith.1581
1046.Claimants are obviously right to assert that the abuse of process exist when a purported
investor attempts to initiate the arbitration based on forged documents or on ex post
restructuring of the investment.1582 However, it does not follow from this that a failed
attempt to restructure the investment in order to obtain a right to international
arbitration releases the alleged investor from the obligation not to manipulate the
system of protection, especially when the claimant is fully aware that he does not own
the investment.
1047.Respondent does not assert that a bona fide claim of an investor that fails at the
jurisdictional level should necessarily be considered an abuse of process. What
matters here is that Claimants commenced the arbitration fully cognizant of the fact
that they did not acquire a property right that was recognized and protected under the
laws of the host State.
1048.Over a period of more than two years, between 2013 and 2015, Mr. Rand
unsuccessfully attempted to obtain the Agency’s approval for the transfer of Mr.
Obradović’s shares in BD Agro to one of Mr. Rand’s Cypriot companies (Coropi).1583
However, Claimants must have been aware that the legally valid assignment of the
Privatization Agreement (and consequently, Mr. Obradović’s equity in BD Agro) was
possible only upon a prior authorization by the Agency. Yet, Claimants commenced
the arbitration asserting that the assignment took place anyway, some five years earlier
when Sembi and Mr. Obradović concluded the Sembi Agreement. This cannot be
considered a claim made in good faith.
1581
Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 113,
RLA-5; ST-AD GmbH v. Republic of Bulgaria (UNCITRAL), PCA Case No. 2011-06, Award on
Jurisdiction, para. 423, RLA-79.
1582
1583
Letter from D. Obradović to the Privatization Agency of 1 August 2013, CE-273; Email from I.
Markićević to the Privatization Agency attaching letter to Ms. Uzelac, CE-309; Letter from Mr. William
Rand to the Serbian Prime Minister and Minister of Economy of 18 September 2014, CE-38.
359
1049.Claimants have never offered a convincing explanation for Mr. Rand’s effort to
acquire the ownership of shares that he supposedly already owned. Instead, Claimants
submit that “[S]erbia purposefully ignores the distinction between nominal and
beneficial ownership.”1584 The real problem with the Claimants’ case is the fact that
Serbian law ignores the distinction.
1050.According to Claimants, the only motive for Mr. Rand’s attempt to acquire Mr.
Obradović’s position as the contractual party in the Privatization Agreement and to
unite Mr. Rand’s alleged beneficial with “nominal” ownership was the fact that Mr.
Obradović’s services in overseeing BD Agro’s business were no longer needed.1585
However, contemporaneous written evidence tell a different story.
1051.In February 2014, during the meeting with the officials of the Agency, Mr. Obradović
explained that he had submitted the request for the assignment of the Privatization
Agreement so he could exchange his ownership interest in BD Agro for shares held
by his “partner” in another company - PIK Pester Sjenica.1586 According to Mr.
Obradović:
“[h]e had submitted to the Agency a Request for the assignation of the
Agreement precisely in order to make easier the division with the partner and
avoid trading in securities through the Stock Exchange and that this was one
of the variants for the division of ownership between them and not because
the Agreement was not executed.”1587
1052.There are two important conclusions that follow from the cited document.
1053.First, not only that Mr. Obradović was the only person who the Agency could treat as
a lawful owner of BD Agro’s shares under the Privatization Agreement and the
relevant Serbian legislation, but he also consistently acted as one.1588
1054.Second, and more importantly, the beneficial ownership theory was fabricated in order
to circumvent jurisdictional obstacles and the arbitration is used as means of settling
1584
1585
1586
Minutes of the meeting at the Privatization Agency held on 4 February 2014, p. 1, RE-36.
1587
Minutes of the meeting at the Privatization Agency held on 4 February 2014, p. 1, RE-36.
1588
360
outstanding issues from the business relationship between Mr. Obradović and Mr.
Rand. This cannot be in accordance with the purpose for which the ICSID mechanism
was established.
1055.Conveniently enough, it seems that Mr. Obradović has lost the recollection of the
February 2014 meeting.1589 While Mr. Obradović does not go so far as to assert that
the minutes of the meeting were forged, for the avoidance of doubt, Respondent
strongly rejects any insinuation of the sort.
1056.Finally, had Mr. Rand been succesful in obtaining legally valid ownership of Mr.
Obradović stake in BD Agro in 2013-2015, this would still be too late for the
establishment of the Tribunal’s jurisdiction.
1057.Restructuring of an investment, by way of changing its owner, at the time the dispute
with the host State is foreseeable and in order to obtain the right to arbitrate has been
consistently considered by investment tribunals as the abuse of the arbitration
mechanism. For instance, relaying on previous arbitral awards, the tribunal in Phillip
Morris v. Australia held:
“On this basis, the initiation of a treaty-based investor-State arbitration

constitutes an abuse of rights (or an abuse of process, the rights abused being
procedural in nature) when an investor has changed its corporate structure
to gain the protection of an investment treaty at a point in time when a specific
dispute was foreseeable. The Tribunal is of the opinion that a dispute is
foreseeable when there is a reasonable prospect, as stated by the Tidewater
tribunal, that a measure which may give rise to a treaty claim will
materialise.”1590
1058.In the case at hand, Claimants attempted to acquire the Privatization Agreement at the
time when the dispute between the Agency and Mr. Obradović was ongoing. At this
time, there was no only “a reasonable prospect” that the Privatization Agreement
would be terminated. The termination was immanent since Mr. Obradović has never
genuinely intended to remedy the contractual breach, even though he was warned by
1589
Second WS Obradović, para. 90.
1590
Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12,
Award on Jurisdiction and Admissibility, 17 December 2015, para. 554 (emphasis added), RLA-188.
361
the Agency about the possible consequences of the breach already in February
20111591 and given plenty of opportunities to do so.
1059.Based on the foregoing, Respondent respectfully requests the Tribunal to dismiss the
claims for lack of jurisdiction, as a result of the Claimants’ abuse of process.
III. ATTRIBUTION
A. GENERAL
1060.The Parties disagree on attribution of conduct of the Agency to Respondent. In the

Reply, Claimants continue to insist on its theory that public purpose of the Agency's
activities is crucial for attribution of its acts to Respondent, while its separate legal
personality is a mere form, and in this way completely ignores international authorities
and arbitral practice pointing just the opposite, which was invoked in Respondent's
Counter-Memorial. Claimants also repeat its conclusions about the Agency's lack of
financial and managerial autonomy, although evidence clearly indicates otherwise.
1061.Claimants' Reply starts their discussion of the attribution by relying on a short excerpt
from a single 2008 judgment of the Higher Commercial Court, which it elevates to a
conclusive statement about attribution of all conduct of the Agency to Respondent.
The excerpt reads as follows:
"The notice of the Agency regarding the termination (...) represents the state's
will to terminate the contract due to the non-performance. The act of
notification (…) is not an administrative act, but an act by which the
Privatization Agency uses its legal power, obtained by the transfer of authority
under public law from the state, to terminate the agreement that did not achieve
the legal goal and the social purpose of privatization due to non-
performance."1592
1591
Notice of the Privatization Agency on Additional Time Period of 24 February 2011, CE-31.
1592
Judgment of the Higher Commercial Court, Pž. 6463/2007 from 8 December 2008, p. 4, RE-164, quoted
in Reply, para. 908.
362
1062.Before addressing Claimants' specific conclusions based on this excerpt, it is
necessary to provide its proper context. The case concerned damage claims of a
privatized company against the buyer, the Agency and the Republic of Serbia,
following termination of a privatization agreement. The company's claim against the
Republic of Serbia sought to make the latter being jointly and severally liable for
damage allegedly caused by acts of the Agency during the company's privatization.
The first instance court denied the claim against the Republic of Serbia by holding
that it cannot be liable for acts of the Agency and was not a party to the privatization
agreement.1593 On appeal, a chamber of the Higher Commercial Court confirmed this
ruling, but used a different reasoning to support its conclusion, the one that is invoked
by Claimants in the present case. The chamber sought to explain that there was no
responsibility of the Agency, so accordingly the question of responsibility of the
Republic of Serbia did not even arise. It is in that context that the chamber made a
remark that the notice of termination by the Agency was not an administrative act, and
then noted that it manifested "state will" to terminate the privatization agreement, and
that the Agency obtained a legal power to do so by the "transfer of authority under
public law from the state". Clearly, the remark in question did not seek further to
explain the nature of relationship between the Agency and the State, it rather served
to support the argument that the former's notice of termination was not an
administrative act.
1063.Another chamber of the Higher Commercial Court made it clear that a notice of
termination was an act of the Agency itself as a party to a privatization agreement:
"In this specific case, this procedure does not involve an administrative act that
is suitable for annulment in court proceedings, but it is a unilateral declaration
of will of one contracting party to the other contracting party in the sense of
Article 41 of the Law on Privatization in conjunction with Article 124 of the
Law on Obligations..."1594
1593
"It also found that the third defendant, the Republic of Serbia, cannot be held liable for the Agency's
obligations, that the Agency did not appear on behalf of the Republic of Serbia, nor the Republic of Serbia
is a contracting party in the Contract on the sale of socially owned capital", Judgment of the Higher
Commercial Court, Pž. 6463/2007 from 8 December 2008, p. 1, RE-164, quoted in Reply, para. 908.
1594
Decision of the Higher Commercial Court, Pž. 9899/2008 from 21 January 2009, p. 1, RE-157.1 (emphasis
added).
363
1064.This reasoning was given in a decision that was issued after the one invoked by
Claimants (in 2009) and, interestingly, it accords with the first instance decision in the
latter case and other court practice, as confirmed by Professor Radovic.1595
1065.With reference to the above quoted excerpt from the 2008 judgment, Claimants first
conclude that since the notice of termination was "an expression of the Serbian state's
will", it is "attributable to Serbia under public international law".1596 However, the
court's remark about expression of the state will, on which Claimants base their
contention about attribution under international law, was made in domestic legal
proceedings concerning joint and several civil liability. As such, it does not provide
any elements to discuss the relationship between the Agency and Respondent from
the point of international law, but is a remark made in a completely different context.
Accordingly, it clearly does not warrant the conclusion that Claimants make out of it.
1066.The second conclusion Claimants make, again with reference to the above quoted
excerpt, is that a notice of termination constitutes "the use of delegated public law
authority [which] is a sovereign activity" and thus attributable to Respondent. Again,
the statement used by Claimants is taken out of its context and, moreover, was not
followed in subsequent practice of the Higher Commercial Court, which clearly stated
that a notice of termination was "a unilateral declaration of will of one contracting
party to the other contracting party", i.e. a commercial act of the Agency.1597
1067.Claimants also insist on the statements that privatization serves a social purpose, that
the Agency is specifically tasked to assess fulfillment of such social purpose and to
enforce it, which constitutes sovereign activity.1598 However, Claimants' general
allegation is certainly not sufficient for establishing attribution of specific actions of
the Agency to Respondent, rather, they need to show that each such action was an
exercise of governmental powers. Moreover, the fact that the Agency's purpose was
to advance certain public goals in the privatization process is not sufficient for
attribution:
"What matters is not the 'service public' element, but the use of 'prérogatives
1595
See Second Expert Report of Professor Mirjana Radovic, para. 12, footnote 13; Expert Report of Professor
Mirjana Radovic, para. 44.
1596
Reply, para. 910.
1597
See, also, Second Expert Report of Professor Mirjana Radovic, para. 12.
1598
See Reply, paras. 912-918.
364
de puissance publique' or governmental authority."1599
1068.In this context, Claimants also argue that the Agency's separate legal personality was
"merely an issue of form"1600 because it exercised governmental powers and was akin
to state regulatory authorities, which may have a separate legal personality but
exercise governmental functions.1601 According to Claimants, "the essential issue is
that such authorities - just like the Privatization Agency - carry out governmental
functions and are entitled with powers to decide on the rights of the private
parties."1602
1069.However, separate legal personality cannot be "merely an issue of form" because it is

an important factor in establishing whether there is attribution of an entity's conduct
to the state.1603 In fact, it seems that Claimants here argue that the conduct of the
Agency is attributable to Respondent on the basis of Article 5 of the ILC Articles on
State Responsibility, but in doing so they seek to establish attribution for all conduct
of the Agency on account of the fact that it may be tasked to exercise some
governmental authority.1604 This is plainly against applicable rules on state
responsibility, according to which the impugned act itself must be performed in the
exercise of governmental authority.1605 But this Claimants fail to prove, as will be
discussed below. Moreover, it is simply not accurate that the Agency "is entitled to
decide on the rights of the private parties". This is based on an isolated view of
Claimants' expert that the Agency's actions in the present case were administrative
acts, which is not shared by anyone else.1606
1599
Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13,
Award, 6 November 2008, para. 170, RLA-83.
1600
Reply, para. 916.
1601
1602
Reply, para. 918.
1603
See Draft articles on Responsibility of States for Internationally Wrongful Acts with commentaries, p. 48,
para. 6, CLA-24 ("Since corporate entities, although owned by and in that sense subject to the control of
the State, are considered to be separate, prima facie their conduct in carrying out their activities is not
attributable to the State unless they are exercising elements of governmental authority within the meaning
of article 5.").
1604
For more on Agency's governmental authority, see Sec.III.C.2.
1605
See Article 5 of ILC Articles, Draft articles on Responsibility of States for Internationally Wrongful Acts
with commentaries, CLA-24; Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt,
ICSID Case No. ARB/04/13, Award, 6 November 2008, paras. 163 & 170, RLA-83.
1606
For more, see Expert Report of Professor Mirjana Radovic, paras. 16-17; Second Expert Report of
Professor Mirjana Radovic, paras. 8-11.
365
1070.In conclusion, Claimants fail to show that the Agency was an organ of Respondent,
or that impugned conduct in their case was anything else but a commercial conduct of
a contracting party, so they have to resort to generalizations and distortions as they
do, once again, in their Reply.
1071.The following sections will discuss and refute (1) various Claimants' allegations
concerning the relationship between the Agency and Respondent and (2) Claimants
interpretation of applicable rules of attribution.
B. THE AGENCY AND RESPONDENT
1. Financing
1072.The Parties do not disagree about statutory provisions regulating financing of the
Agency.1607 Claimants however posit that Respondent is "incorrect when it argues
that the Privatization Agency was a financially autonomous entity", rather it "had
strictly no say on the use of the funds it acquired in the privatization process" whose
flow it channeled to the state budget.1608 However, Claimants' statement that the
Agency had no say on the use of funds acquired in the privatization process does not
prove that it was not a financially autonomous entity. For this reason, Claimants
argument that the Agency did not have any ownership rights over the privatized assets
and had to transfer all revenues from their sale to the state budget is clearly
irrelevant.1609 The same goes for the fact that the percentage of the commission
collected by the Agency was determined by the minister in charge of economic
affairs.1610 The real question however is who had the authority to dispense with the
Agency's own funds.
1073.It has not been contested that the Agency's director disposed independently with its
funds, in accordance with the financial plan adopted by the Agency's managing board.
According to the testimony of its former director, the Agency
1607
Reply, para. 921 & Counter-Memorial, paras. 548-549.
1608
Reply, paras. 919 & 924.
1609
See Reply, para. 922.
1610
366
"had its own bank account and budget; the budget was disposed of
independently by the director in accordance with the financial plan adopted
by the Managing Board. Financial resources for the PA’s budget came from
its own revenue, which the Agency, due to its independence, collected under
the law, as a fee for the preformed privatization activities, expressed as a
percentage of the achieved sales price of the companies."1611
1074.Claimants are conspicuously silent on the question of who decided on the use of the
Agency's funds and financing of its operation. They only state, without offering any
evidence whatsoever, that their funds "were not subject to its autonomous decision-
making".1612 This should be contrasted with the above testimony of Mr. Cvetkovic,
the Agency's former director.
1075.In conclusion, the Agency was not only a separate legal person from Respondent, but
also had financial autonomy and disposed with its own budget.
2. Relationship with the Ministry of Economy and the Government
1076.Claimants argue that the Agency was subject to direction and supervision of the
Ministry of Economy and that it did not have managerial autonomy, as can be seen
from applicable law and reality.1613 However, Claimants’ arguments are without
merit.
1077.To start with, the fact that members of the Managing Board of Agency were appointed
and dismissed by the Ministry of Economy, or that the director of the Agency was
appointed and dismissed by the Government, does not mean that either the Managing
Board or director were in any way controlled or instructed by the Government.
1078.As Claimants recognize, the Agency had certain reporting obligations, such as to send
semi-annual reports to the Ministry of Economy, which is not an indication of
control.1614
1611
Witness statement of Mr. Vladislav Cvetkovic, para. 4.
1612
Reply, para. 920.
1613
Reply, para. 925 et seq.
1614
2001 Law on Privatization Agency, Articles 11 and 18, CE-238; see, also, Reply, para. 928.
367
1079.Claimants state that the Agency's conduct in the privatization process was subject to
"review and instructions" of the Ministry of Economy.1615 This is a distortion. The
Ministry acted as an appeal body against decisions of the Agency taken in the process
of privatization,1616 from which it does not follow that the Agency did not have
managerial autonomy. On the contrary, the idea of appeal presupposes separation
between the body taking a decision, and the body reviewing it on appeal. In any case,
this aspect is irrelevant for the case at hand, because the Agency's conduct complained
of in the present case was not and could not due to its nature, be subject to an appeal,
because it was not an administrative act.1617
1080.Claimants also point to the Ministry of Economy's supervision of the Agency's

implementation of the Law on Privatization as evidence of lack of managerial
autonomy.1618 This is also inaccurate, because this control was the control of legality
of the Agency's implementation of the law, where the Ministry did not take place of,
or influence, the Agency's managerial autonomy and discretion.1619
1081.The fact that the Agency cooperated with the Ministry of Economy in the course of
the supervision of legality procedure, by providing documents and information,
cannot possibly indicate its subordination or lack of managerial autonomy, as
Claimants contend,1620 but merely cooperation in accordance with law.
1082.Finally, the fact that the Agency refrained from issuing further decision in the case of
BD Agro until the supervision procedure was completed is also not evidence of
subordination, as Claimants contend.1621 Rather, it was a prudent course of action, and
procedurally proper, to wait with a decision until the Ministry of Economy provides
guidance on how the Law on Privatization should be implemented. When this
guidance was issued, it did not contain specific instructions on what decision to take,
but directed the Agency to ask Mr. Obradovic for further information, and "[i]n case
the Buyer failed to deliver evidence on fulfillment of the obligations within
additionally granted term, the Agency shall undertake the measures within its legal
1615
1616
See 2001 Law on Privatization, Articles 32 and 39, CE-220.
1617
See Second Expert Report of Professor Mirjana Radovic, para. 14.
1618
See 2001 Law on Privatization, Article 62, CE-220.
1619
See Second Expert Report of Professor Mirjana Radovic, paras. 13-14.
1620
1621
368
authorizations." 1622 This is, by itself, clear evidence that no specific instructions were
given on which decision to take and that the Agency clearly had managerial autonomy.
1083.Finally, Claimants allege that Respondent's arguments about managerial autonomy of

the Agency are "in stark contrast with the reality" but fails to provide any evidence
for this "reality". The only contemporaneous evidence it offers is the Agency's
communication to the Ombudsman stating that the Ministry of Economy's instructions
in the supervision procedure are obligatory to the Agency. However, as has been seen,
these instructions concern legality of implementation of the Law on Privatization and
not managerial autonomy and taking decisions, in particular those that are commercial
in nature.
1084.Rather, the reality of the relationship between the Agency and the Ministry of
Economy is well-illustrated by the episode where the Agency did not follow the
position of the Ministry of Economy that there was no economic justification to
terminate the Privatization Agreement and continued to insist that BD Agro and Mr.
Obradovic remedy their violations of the Privatization Agreement.1623 Claimants
cannot invoke this episode in order to argue that the Agency acted unreasonably, and
then completely forget it when discussing attribution. It clearly shows that the Agency
acted independently from the Ministry.
1085.Finally, and importantly when it comes to the reality of their relationship, Claimants
are silent about the unequivocal statement of the former director of the Agency that
"In accordance with the Law, the PA was making decisions independently,
without interference from the Ministry of Economy or other state authorities,
which I know from my direct experience acquired during the time I worked at
the PA. Indeed, this does not mean that certain communication between the
Ministry of Economy, other state authorities and the PA did not exist, but the
PA was making its own decisions. In big and complex privatization cases,
which by their nature had to be coordinated with other authorities, institutions
and local communities, the PA cooperated through inter-sectoral working
1622
Report of Ministry of Economy on the Control over the Privatization Agency, 7 April 2015, p. 14, CE-
98, also quoted in Reply, para. 934.
1623
See Counter-Memorial, para. 556; see, also, Witness Statement of Vladislav Cvetkovic, para. 5; Law on
Privatization Agency, Article 18, CE-238; The letter of the Ministry of Economy to the Privatization Agency
dated 30 May 2012, CE-33.
369
groups and their participation in tender committees and other forms of joint
meetings, with the participation of the Ministry of Economy and other relevant
ministries. However, such working groups served for adequate coordination of
participants in the process and did not affect the independence of the PA with
regard to its competences. The Ministry of Economy had the possibility of
administrative oversight which it could activate through its role as the second-
instance authority in the PA’s decision-making procedure, and which it
exercised in several cases through the institute of oversight of the PA’s
work."1624
1086.Clearly, Claimants' contentions about complete subordination of the Agency to the

Ministry of Economy are without merit and are based on distortion of the relevant
statutory provisions. The Agency was a separate legal person, with managerial and
financial autonomy, whose conduct was only supervised for its legality by the
Ministry of Economy, which amounted to providing guidance on legal interpretation
on application of certain provisions of the Law on Privatization.
C. NO ATTRIBUTION OF AGENCY'S CONDUCT UNDER INTERNATIONAL

LAW
1. Article 4 of ILC Articles
1.1. Agency is not a de facto state organ
1087.Claimants do not challenge that internal law of a state is the starting point for
characterizing a person or entity as a state organ.1625 Further, Claimants seem to have
implicitly abandoned their argument that the Agency is a de jure organ of Respondent,
and instead only argue that it is an organ de facto.1626
1088.In doing so, Claimants completely disregard the substance of the standard for de facto
organs in international law, in particular, the unequivocal position of the ICJ that in
1624
Witness statement of Mr. Vladislav Cvetkovic, para. 5.
1625
Counter-Memorial, para. 542, with reference to Draft Articles on Responsibility of States for
Internationally Wrongful Acts with commentaries, p. 42, para. 11, CLA-24; and, also, Jan de Nul N.V. and
Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November
2008, para. 163, RLA-83.
1626
Reply, para. 940 et seq.
370
such situation "persons, groups or entities act in 'complete dependence' on the State,
of which they are ultimately merely the instrument".1627 Claimants' Reply fails to
address this pronouncement, which was quoted and relied upon in the Counter-
Memorial.1628
1089.The standard of "complete dependence" is a demanding one. It is also incompatible

with any sort of managerial autonomy or financial independence. As discussed in the
previous section, the Agency had managerial autonomy, which was also confirmed by
the testimony of its former director, Mr. Cvetkovic.1629 This is further confirmed by
the documents invoked by Claimants themselves, showing that the Agency did not
follow opinion of the Ministry of Economy that there was no economic justification
to terminate the Privatization Agreement, and instead kept issuing notices seeking Mr.
Obradovic's compliance with it and insisting on its right to effectuate termination in
the case of non-compliance.1630 Further, the Agency not only had its own bank account
but also its own independent means of financing (commission from sales), and was
independent in disposing with its budget.1631 All this clearly shows that the Agency
was not in relationship of "complete dependence" with the Ministry of Economy, or
that Respondent exercised control over the Agency. It also shows that its structural
independence was not "purely formal" or that Respondent's approach is "formalistic",
as Claimants contend.1632
1090.Claimants further contend that case law invoked by Respondent does not lend support
to its position. First, Claimants state that the tribunal in Jan de Nul reached its
conclusion about lack of attribution on the basis of Article 4 of the ILC Article "on
the basis that the SCA operated in a manner comparable to business corporations, its
activities thus qualified as commercial in nature, and its budget was autonomous".1633
While the commercial nature of SCA activities and an autonomous budget were
1627
Case concerning Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), ICJ, Judgement of 26 February 2007, I.C.J.
Reports 2007, para. 392, RLA-86; Case Concerning Military and Paramilitary Activities in and Against
Nicaragua (Nicaragua v. United States of America), ICJ, Merits, Judgment of 27 June 1986, I.C.J. Reports
1986, p. 52, para. 109, RLA-9.
1628
1629
See Witness statement of Mr. Vladislav Cvetkovic, para. 4; see, also, Counter-Memorial, para. 556.
1630
See The letter of the Ministry of Economy to the Privatization Agency dated 30 May 2012, CE-33.
1631
See Witness statement of Mr. Vladislav Cvetkovic, para. 4; see, also, Counter-Memorial, paras. 549-550.
1632
1633
Reply, para. 943.
371
factors that lead the Jan de Nul tribunal to conclude that it was "not part of the
Egyptian state",1634 they need not be necessarily replicated in the present case for the
Tribunal to come to the same conclusion. But they are, in large part: the Agency had
an autonomous budget1635 and its activities were in large part commercial.1636
Claimants disregard all that and argues that the Agency was set up to "pursue
governmental tasks" and "endowed with corresponding public powers".1637 But
Claimants fail to note that the fact that an entity (also) exercises certain activities of
public nature (like SCA or the Agency) does not mean that this entity should be
automatically considered a state organ, which was precisely the point in Jan de
Nul.1638
1091.Respondent relied on Almas v. Poland in its analysis of de facto organs to conclude

that the Agency was not one.1639 Claimants disagree, and this disagreement is based
on their inaccurate reading of the relationship between the Agency and Respondent,
in particular the Ministry of Economy.
1092.First, as discussed above, Claimants are wrong that the Agency was not financially
independent. Further, the Almas tribunal emphasized the fact the Polish Agricultural
Property Agency had its own bank account and held property in its own name, and the
same goes for the Agency.1640
1093.Second, as far as the control is concerned, it has already been showed that the Agency
had management autonomy. Claimants aver that Poland's supervisory powers in
Almas were restricted to general regulations and approvals of specific categories of
1634
Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13,
Award, 6 November 2008, para. 161, RLA-83.
1635
See above Sec.III.B.A; see Witness statement of Mr. Vladislav Cvetkovic, para. 4.
1636
See Law on Privatization Agency, Article 6(2), CE-238.
1637
Reply, para. 944.
1638
"There is no doubt that from a functional point of view, the SCA can be said to generally carry out public
activities, as acknowledged by the Respondent itself. However, structurally, it is clear that the SCA is not
part of the Egyptian State." Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt,
ICSID Case No. ARB/04/13, Award, 6 November 2008, para. 161, RLA-83; see Counter-Memorial, paras.
553-554 ("The same goes for the Privatization Agency, which to an extent carried a public activity but was
structurally separate from Respondent.").
1639
Counter-Memorial, paras. 545 & 548-552.
1640
See, Kristian Almås and Geir Almås v. The Republic of Poland, PCA Case No. 2015-13, Award, 27 June
2016, para. 213, RLA-85. The Privatization Agency had its own bank account, see Law on Privatization
Agency, Article 2, CE-238; The Privatization Agency sold shares of BD Agro in its own name and after
termination of privatization agreements held these shares in its own name, see Law on Privatization Agency,
Article 6(2), CE-238; see, also, Expert Report of Professor Mirjana Radovic, para. 28 & Second Expert
Report of Professor Mirjana Radovic, para. 10.
372
sales of shares.1641 However, Claimants' own evidence indicates that the relevant
minister had a power of supervision over the Polish Agricultural Property Agency
distinct from issuing regulations for its operation,1642 which is again similar to the
Agency in the present case where the Ministry of Economy supervised legality of
implementation of the Privatization Law, including by the Agency. However, the
latter did not require approval for concluding privatization agreements for sale of
socially-owned capital,1643 while the Polish Agency had to seek approval of certain
sales. In both cases, government appointed and removed respective managements.
Significantly, the Polish Agency had been tasked with, inter alia, privatization of state
land, which indicates that it also helped implement a state policy.1644 It seems that, on
balance, the extent of governmental control is roughly the same in both cases (of
Polish Agency and the Agency). It certainly does not amount to "complete
dependence".
1094.Respondent also relied on Bayandir v. Pakistan in support of its proposition that a

separate legal personality "creates a strong presumption" that an entity is not a state
organ within the meaning of Article 4 of the ILC Articles.1645 Claimants
(mis)represent Respondent's argument as if it stated "that a separate legal personality
is the decisive criterion for the issue of attribution under Article 4".1646 While this is
certainly so in respect of de jure organs,1647 a general conclusion regarding Article 4
must be more nuanced, hence, the Counter-Memorial used the words "a strong
presumption". Further, Claimants state that the Bayandir tribunal never examined
1641
1642
See USA International Business Publications (2007). Lithuania Mineral & Mining Sector Investment and
Business Guide: Vol. 1, Strategic Information and Regulation (Washington D.C.: International Business
Publications), p. 113, CE-790 ("Legal entity APA is a state legal person under the supervision of the
Minister responsible for the matters of Rural Development. APA operates according to the legislation and
to the statute, which are issued by the Minister responsible for Rural Development").
1643
With regard to selling of state-owned property, the Agency required consent of the government, but this
is not relevant in the present case, which concerns the Privatization Agreement on selling of socially-owned
capital of BD Agro to Mr. Obradovic. See Article 17 of the Law on Privatization, CE-220.
1644
See USA International Business Publications (2007). Lithuania Mineral & Mining Sector Investment and
Business Guide: Vol. 1, Strategic Information and Regulation (Washington D.C.: International Business
Publications), p. 111, CE-790 (indicating that one of APA's purposes was restructuring and privatization of
the State Treasury property used for agricultural purposes).
1645
See Counter-Memorial, paras. 542-544.
1646
Reply, para. 947.
1647
See Kristian Almås and Geir Almås v. The Republic of Poland, PCA Case No. 2015-13, Award, 27 June
2016, para.208, RLA-85: "As the Respondent notes in the Rejoinder, tribunals have determined that an
entity is not a State organ according to the terms of a State’s legal order when it has independent personality
in that order. For example, in Bayindir v. Pakistan, the tribunal rejected the claim that Pakistan’s National
Highway Authority was a State organ, because of its separate domestic legal personality.“
373
whether the Pakistani entity in question was a de facto organ, because it found
attribution on the basis of Article 8 of the ILC Articles. 1648 However, this is only
partially correct. First, Respondent relied on Bayandir to support its proposition that
a separate legal personality creates a presumption that an entity is not a state organ,
not that it completely rules out it being a de facto organ. Second, Respondent relied
on Bayandir to show that the presence of governmental officials in the bodies of an
otherwise autonomous entity does not lead to attribution under Article 4 of the ILC
Articles.1649 In this context, Bayandir addresses, at least indirectly, the question of de
facto organs, when it states that
"The Claimant also asserts, however, that NHA's conduct was in fact the mere
execution of decisions taken by government officials. This argument would
appear to suggest that the acts incriminated emanate from government
officials, who are themselves organs of the State under Article 4 of the ILC
Articles. Given that – as already indicated above – NHA is a separate legal
entity and that the acts in question are those of NHA as a party to the
Contract, the Tribunal considers that there are no grounds for attribution by
virtue of Article 4."1650
1095.It is obvious that Claimants cannot escape Bayandir in the context of Article 4 of the
ILC Articles, either in the context of de jure or de facto organs.
1.2. The functional "perspective" and Awdi v. Romania distinguished
1096.Claimants further contend that Respondent allegedly avoids to discuss the functional
perspective and the governmental tasks of the Agency, which they consider equally
relevant for the application of Article 4.1651 It should be noted that exercise of
governmental powers, as such, need not lead to attribution under Articles 4, as
Claimants seem to suggest. For as long as an entity exercising governmental powers
also performs other, commercial activity, it is not, without more, an organ under
Article 4. As noted by the tribunal in Almas v. Poland:
1648
Reply, para. 947.
1649
1650
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Award, 27 August 2009, para. 119, RLA-84.
1651
374
“The ILC’s commentary to Article 4 suggests that ‘the conduct of certain
institutions performing public functions and exercising public powers (e.g.
the police) is attributed to the State even if those institutions are regarded in
internal law as autonomous and independent of the executive government’.
By contrast, where an entity engages on its own account in commercial
transactions, even if these are important to the national economy, this
inference will not be drawn.” 1652
1097.As discussed in the Counter-Memorial, the Agency had exercised certain public
functions delegated to it, but this does not make it a state organ within the meaning of
Article 4 of the ILC Articles, because it also engaged in commercial activity, as in the
present case. In fact, Claimants' broad suggestion that exercise of certain
governmental powers by the Agency automatically makes it a state organ in the sense
of Article 4 of the ILC Articles would make Article 5 completely redundant.
1098.The Parties disagree about significance of Awdi v. Romania award in the context of
attribution under Article 4. Claimants argue that there is a parallel between the
Romanian Privatization Authority and the Agency in the present case by pointing to
Awdi tribunal's statement that the former acted as an organ of the Romanian State
when signing the privatization agreement in pursuance of public policy and not merely
in private capacity.1653 However, as Respondent pointed out, the Awdi tribunal did not
provide any information about the place of the Romanian Privatization Authority in
the state structure, or its status or powers under Romanian law.1654 Its discussion of
attribution is compressed in two paragraphs and actually starts with the statement that
the Romanian Privatization Authority is a state organ.1655 Claimants are wrong when
they state that the Awdi award provided "ample information of AVAS's status and
functions",1656 because they again point to what the award said about its powers in the
privatization process, but cannot point to any information about its position in the state
structure and other functions, in particular whether AVAS was a de jure organ of
1652
Kristian Almås and Geir Almås v. The Republic of Poland, PCA Case No. 2015-13, Award, 27 June 2016,
para. 210, RLA-85 (footnote omitted).
1653
See Reply, para. 950, with reference to Awdi, para. 323.
1654
1655
See Hassan Awdi, Enterprise Business Consultants, Inc. And Alfa El Corporation v. Romania, ICSID
Case No. ARB/10/13, Award, 2 March 2015, paras. 322-323, CLA-26 the pronouncement is in the second
sentence of paragraph 322.
1656
Reply, para. 952.
375
Romania. However, if one takes a look at the government ordinance by which AVAS
was established, it is immediately clear that this entity was part of the state structure
under full control of the Romania government:
"The Authority for the Administration of State Assets, hereinafter referred to

as A.A.A.S., is a specialized institution of central public administration, with
legal personality, subordinated to the Government and coordinated by the
Minister of Economy."1657
1099.Therefore AVAS was legally part of the state administration and subordinated to the
government of Romania. This is in stark contrast to the position the Agency had with
respect to Respondent.
1100.For this reason, Awdi is not of much use in the present context. Moreover, its
interpretation put forward by Claimants - that "pursuance of public interest" makes
an entity a state organ1658 - is clearly not in line with cases such as Jan de Nul and
Almas, which held that conduct of an entity pursuing a public interest or a policy is
not, without more, attributable to the state.
1.3. The remark of the European Court of Human Rights should not be given
weight
1101.Claimants make much of the fact that the European Court of Human Rights referred
to the Agency as "a state body".1659 It dismisses Respondent's argument that the court
did so in a different and a very specific context,1660 by stating that the regime of the
European Convention for Human Rights is not isolated from general international law,
while decisions of the European Court of Human Rights were referred to by both the
ILC Articles on Responsibility and investment tribunals.1661 Claimants however
completely neglect the point that specificities of each treaty regime must be taken into
1657
Decree by urgent procedure No.23, Article 1(2), RE-331.
1658
Case No. ARB/10/13, Award, 2 March 2015, para. 322, CLA-26.
1659
1660
1661
376
consideration in its application and that international rights and obligations under
different agreements have separate existence and dispute resolution procedures.1662
1102.The pronouncements referred to by Claimants were indeed made in a specific context

of discussion of admissibility of ECHR applications ratione personae, i.e, whether,
under Article 34 of the European Convention for Human Rights, Serbia was
responsible for conduct of socially-owned companies,1663 or whether such companies
could file applications against Serbia.1664 The court concluded that Serbia was
responsible for conduct of socially-owned companies and, conversely, that such
companies could not file applications against it.1665 In Kacapor, which inter alia
concerned Serbia's responsibility for conduct of a socially-owned company, the
European Court of Human Rights offered the following reasoning for its decision:
"The Court notes, in this respect, that the debtor is currently owned by a
holding company predominantly comprised of social capital (see paragraph 56
above) and that, as such, it is closely controlled by the Privatisation Agency,
itself a State body, as well as the Government (see paragraph 75 above),
irrespective of whether any formal privatisation had been attempted in the past.
The Court therefore considers that the debtor, despite the fact that it is a
separate legal entity, does not enjoy “sufficient institutional and operational
independence from the State” to absolve the latter from its responsibility under
the Convention (see, mutatis mutandis, Mykhaylenky and Others v. Ukraine,
nos.35091/02, 35196/02, 35201/02, 35204/02, 35945/02, 35949/02, 35953/02,
36800/02, 38296/02 and 42814/02, § 44, ECHR 2004-XII).
1662
See International Tribunal for the Law of the Sea, MOX Plant Case (Ireland v. United Kingdom), Order
on Request for Provisional Measures, December 3, 2001, (MOX Plant Case), paras. 50-51 Exhibit RLA-
194.
1663
See R. Kačapor and others v. Serbia, App. nos. 2269/06, 3041/06, 3042/06, 3043/06, 3045/06 and
3046/06, ECtHR, Judgement of 15 January 2008, paras. 97-99, CLA-25.
1664
See Zastava It Turs v. Serbia, No. 24922/12, ECtHR 2013, paras. 19-23, CLA-69.
1665
See R. Kačapor and others v. Serbia, App. nos. 2269/06, 3041/06, 3042/06, 3043/06, 3045/06 and
3046/06, ECtHR, Judgement of 15 January 2008, para. 99, CLA-25; see, also, Zastava It Turs v. Serbia,
No. 24922/12, ECtHR 2013, paras. 22-23, CLA-69.
377
Accordingly, the Court finds that the applicants’ complaints are compatible
ratione personae with the provisions of the Convention, and dismisses the
Government’s objection in this respect." 1666
1103.As can be seen, this decision concerns the question of responsibility of the state for
conduct of socially-owned companies, not for conduct of the Agency. Further, the
European Court did not really explain why it considered State responsible for conduct
of socially-owned companies, i.e. whether this was so because the Agency, which had
to approve transactions of socially-owned companies outside the scope of regular
business operations, was "a State body", or because the Government itself approved
their decisions on status and reorganization, or for both reasons. Therefore, apart from
the remark that the Agency was "a State body", this case does not provide any useful
information about the relationship between the Agency and Respondent, let alone
about possible attribution of the former's conduct to Respondent. Finally, it should
also be noted that the European Court of Human Rights has been subject to strong
criticism for its interpretation of international law rules of state responsibility, which
belies Claimants' reliance on its jurisprudence in the present context.1667
1104.Claimants agree that attribution under Article 5 presupposes that (1) an entity is
empowered to exercise elements of governmental authority and (2) the act itself must
be performed in the exercise of governmental authority.1668
1105.However, Claimants argue that "the design of the entire privatization process was
governmental, not commercial in nature" and on this basis conclude that the Agency
fulfilled the first limb of the test.1669 However, Claimants' generalizations are of no
use in the context of Article 5. Rather, this provision always relates to particular
situations and requires that an entity was empowered to exercise governmental powers
1666
R. Kačapor and others v. Serbia, App. nos. 2269/06, 3041/06, 3042/06, 3043/06, 3045/06 and 3046/06,
ECtHR, Judgement of 15 January 2008, paras. 97-99, CLA-25 (emphasis added).
1667
See, in particular, Marko Milanovic, Tatjana Papic, As bad as it gets: The European Court of Human
Rights's Behrami and Saramati Decision and General International Law, International and Comparative
Law Quarterly, Vol. 58, 2009, p. 1, RLA-132 (dissecting Court's attribution analysis in the well-known
Behrami and Saramati admissibility decision in order "to demonstrate that the Court’s analysis is entirely
at odds with the established rules of responsibility in international law, and is equally dubious as a matter
of policy.").
1668
Reply, para. 960.
1669
378
and that the act complained of was performed in the exercise of governmental powers.
Therefore, the analysis must be specific not general, so it is irrelevant whether the
Agency was empowered to exercise governmental powers generally or in some other
phases of the privatization process. As noted by the ILC:
"The justification for attributing to the State under international law the
conduct of “parastatal” entities lies in the fact that the internal law of the State
has conferred on the entity in question the exercise of certain elements of the
governmental authority. If it is to be regarded as an act of the State for
purposes of international responsibility, the conduct of an entity must
accordingly concern governmental activity and not other private or
commercial activity in which the entity may engage."1670
1106.Therefore, what is relevant is whether specifically termination of the Privatization

Agreement or refusal to release pledge over Mr. Obradovic's BD Agro shares were
governmental powers for which the Agency was empowered, and whether this power
was exercised in the particular instance.
1107.Therefore, the essential inquiry is whether the activity itself was commercial or
exercise of governmental powers. As has been submitted in the Counter-Memorial,
the test is whether "[a]ny private contract partner could have acted in a similar
manner".1671 Therefore, the question in the present case is whether only the Agency
or any other private entity could terminate an agreement or release pledge over shares
- obviously a private entity could do so, as well.
1108.Claimants disagree and argue that these Agency's activities were not commercial
because the Agency was pursuing "governmental objectives" and therefore using its
governmental powers.1672 This is obviously a circular argument because Claimants
consider that the termination and refusal to release the pledge are governmental
powers because they constituted exercise of governmental powers. Instead, the inquiry
should be concerned with substance of an act. To use the example given by the ILC,
a railway company may be granted certain police powers and its conduct would be
1670
Draft Articles on Responsibility of States for International Wrongful Acts with commentaries, p. 43, para.
5, CLA-24.
1671
See Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No.
ARB/04/13, Award, 6 November 2008, para. 170, RLA-83.
1672
379
considered as an act of the State under international law "if it concerns the exercise of
those powers, but not if it concerns other activities", such as sale of tickets.1673
Therefore, one must start with the substance of acts when analyzing whether they
involve exercise of governmental powers, while other factors may also be taken into
account, such as the way they are conferred on an entity, the purpose of their exercise
and accountability to government for their exercise.1674 The substance of the
termination and refusal to release pledge is obviously commercial and it is not a
function "of a public character normally exercised by State organs", to use the ILC
phrase describing governmental powers.1675
1109.Claimants put into question the commercial substance of the impugned acts by
alleging that their motivation was not commercial but political, because the Agency
"simply gave in to the political pressure for the termination of the Privatization
Agreement (and the subsequent seizure of the Beneficially Owned Shares)
exercised by the Ombudsman upon the urging of the trade unions..."1676
1110.First, this allegation is not supported by evidence.1677 In particular, it is not supported

by the transcript of the session of the Commission for Control frequently (mis)used
by Claimants to support their allegations. The complaints that the Agency was
receiving from BD Agro's employees and trade unions are mentioned at the end of
Ms. Vuckovic's presentation of the case, matter-of-factly and with a remark that some
complaints were not accurate. The proposal was to simply transmit the complaints to
the Labor Inspectorate.1678 There is no indication whatsoever that the Agency felt any
1673
Draft Articles on Responsibility of States for International Wrongful Acts with commentaries, p. 43, para.
5, CLA-24.
1674
See Draft Articles on Responsibility of States for International Wrongful Acts with commentaries, p. 43,
para. 6, CLA-24.
1675
para. 2, CLA-24.
1676
Reply, para. 983; see, similarly, ibid., para. 970, with regard to the release of the pledge.
1677
For more, see Sec.I.C.2.
1678
This is best illustrated by the transcript itself: "So this is it. These are the two topics regarding BD Agro
Dobanovci. You also have the rest here in the materials. We have mentioned daily communications we are
receiving from the employees and trade unions, wherein they are requesting urgent measures to be taken
and stating that they generally have big problems concerning business operations, in particular maintaining
production and keeping the cattle alive, which is the core business activity of the subject of privatization.
We have stated this as well. One of those from BD Agro Dobanovci who have addressed us also states that
salaries are not being paid for a long period, from November 2013, December and so on...even for the
entirety of 2014. We have even held a meeting at the request of the director of BD Agro Dobanovci and the
bankruptcy trustee. And in oral communication these allegations are false. Bearing in mind that we no
longer monitor this, our proposal would be to forward these communications to the competent labor
380
kind of pressure. In addition, there is not a hint that the Agency or anyone present at
the meeting was influenced in any way by Ombudsman, indeed, he is not even
mentioned in discussion.
1111.Second, Claimants' insistence on motivation for termination and refusal to release

pledge as a factor indicating governmental nature of an act is wrong as a matter of
law. In particular, Claimants are wrong to state, with reference to Jan de Nul that
"[t]he motivation for the Privatization Agency's acts is extremely important".1679 The
part of the award relied upon by Claimants does not provide support for their
argument, on the contrary, the tribunal actually stated that what mattered was whether
the governmental authority was used when performing certain act, "irrespective of the
reasons" for the act itself.1680 The ILC Commentary also does not seem to consider
motivation behind the impugned act as a relevant consideration in this context.1681
1112.Further, following Jan de Nul, public goals and purposes of privatization or, in
Claimants' words, "statutory motivation", should also not be relevant for
characterizing an act as exercise of governmental powers, because "[w]hat matters is
not the "service public" element, but the use of “prérogatives de puissance publique”
or governmental authority." 1682 The test here, as already mentioned, is whether any
other private actor could do the same thing,1683 which in case of contract termination
and refusal to release the pledge is clear it could.
1113.In conclusion, an action will be outside the scope of Article 5 of the ILC Articles if it
is commercial in substance and could be performed by any other private actor.
inspectorate and it should act within its competence and request from the subject of privatization to abide
by the Labor Law." Transcript of the audio recording from meeting of the Commission for Control dated 23
April 2015, pp. 4-5, CE-768.
1679
Reply, para. 984.
1680
"What matters is not the "service public" element, but the use of “prérogatives de puissance publique” or
governmental authority. In this sense, the refusal to grant an extension of time at the time of the tender does
not show either that governmental authority was used, irrespective of the reasons for such refusal." Jan de
Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award,
6 November 2008, para. 170, RLA-83 (emphasis added).
1681
para. 6, CLA-24.
1682
See Jan de Nul, para. 170. Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt,
ICSID Case No. ARB/04/13, Award, 6 November 2008, para. 170, RLA-83.
1683
381
Whether the act was motivated by narrow commercial reasons or considerations of
general or public importance does not change this analysis.
1114.In this sense, Claimants' pointing to the Ministry of Economy's statement that there
was no economic justification for termination of the Privatization Agreement is
irrelevant in the context of Article 5.1684 It should also be noted that "economic
justification" mentioned by the Ministry of Economy referred to BD Agro company
only, and did not relate to other commercial (or public) considerations of the Agency
connected with ensuring general compliance with privatization agreements.
1115.Finally, Claimants make a number of specific points in this context, which would be
addressed in turn.
1116.Claimants state that the only purpose of Agency’s refusal to release the Pledge was to
exercise governmental power to terminate the Privatization Agreement, which makes
the refusal itself an exercise of governmental power.1685 As already discussed in this
section, termination is not a governmental power. Further, it should also be noted that
the purpose of refusal to release the pledge was to enable the Agency to take all
measures to make Mr. Obradovic comply with the Privatization Agreement, while
termination would be the ultimate consequence of non-compliance under the Law on
Privatization.1686 Most importantly, the refusal to release the pledge was in accordance
with the Privatization Agreement, as confirmed by Professor Radovic.1687
1117.As regards the termination of the Privatization Agreement, Claimants rely on a single
decision of a Serbian court stating that termination "represents the state's will to
1684
Reply, para. 985. The fact that the Privatization Agency did not follow the Ministry of Economy's opinion
is relevant in the context of Article 4 of ILC Articles, because it illustrates that the Ministry of Economy did
not exercise control over the Privatization Agency.
1685
Reply, para. 968.
1686
As Ms. Vuckovic stated at the meeting of the Commission for Control: "... if the Agency was to render a
decision on deletion of pledge against shares to the buyer registered to his benefit, it would be free to dispose
of them, which would be certain bearing in mind the buyer’s request for assignment of the agreement. If this
disposal of shares is permitted, and the buyer is, I repeat, entitled to this in accordance with the agreement,
generally the Agency would no longer be in a contractual relation with someone and you would no longer
be able to take measures against the contracting party, when the legal ground had generally ceased with it,
and the buyer would be free to dispose of its shares." This was echoed by another participant: "... in
accordance with the agreement, the pledge should be deleted, practically, when it pays the purchase price
which it did pay. On the other hand we have an uncertainty – what will it do with the entire property since
it would then be free to dispose of its shares. In that case there is no necessity in providing this term or
anything, because it will do as it wants." Transcript of the audio recording from meeting of the Commission
for Control dated 23 April 2015, pp. 4 & 6, CE-768 (emphasis added).
1687
See Second Expert Report of Professor Mrijana Radovic, para. 48.
382
terminate the contract",1688 which was already discussed at the beginning of the
present attribution chapter. This decision was not followed,1689 and does not reflect
the practice of Serbian courts, which considered act of termination as an act of a
contracting party.1690 It is also irrelevant that the termination is an ex lege consequence
of the breaches under the Law on Privatization.1691 The ex lege termination is also a
category of general contract law, as can be seen from the Law on Obligations.1692
1118.Finally, Claimants also discuss the transfer of BD Agro's shares to the Agency in this
context and consider that it had "public law aspect", although they do not explicitly
say that this was an exercise of governmental powers.1693 In any case, Claimants
discussion is inapposite, because the transfer of the shares was an automatic
consequence of the termination mandated by Law on Privatization, as the law
applicable to the Agreement. The transfer was also accessory to termination, the latter
being an act of a contracting party.1694 As the termination could be challenged by the
buyer in a civil court, the latter could also seek interim measure to prevent the Agency
from further disposing with shares.1695 This also shows that Claimants are wrong to
state that the notice of termination gave rise to "an irrebuttable presumption" that the
buyer acted as a dishonest party.1696 If the buyer is successful it would to restore its
rights under the privatization contract and could also seek compensation of damages
incurred.
1119.Claimants also allege that the Agency's refusal to release the pledge, as well as the
termination of the Privatization Agreement, should be attributed to Respondent on the
basis of Article 8 of the ILC Articles, because the Agency acted both "on the
instructions" and "under direction or control" of Respondent.1697
1688
1689
See Decision of the Higher Commercial Court, Pž. 9899/2008 from 21 January 2009, Judicial Practice of
Commercial Courts – Bulletin, No. 1/2009, RE-157.1.
1690
See Second Expert Report of Professor Mrijana Radovic, para. 12, footnote 13; Expert Report of Professor
Mrijana Radovic, para. 44.
1691
1692
See, e.g., Article 125 of the Law on Obligations, RE-32.
1693
1694
See Expert Report of Professor Mirjana Radovic, para. 55.
1695
1696
See Second Expert Report of Professor Mirjana Radovic, para. 29.
1697
Reply, para. 986.
383
1120.At the outset, it should be noted that Claimants continue to allege existence of
"continuous general control" of the Serbian Ministry of Economy over the Agency,1698
while ignoring that, in the context of Article 8, both the ILC and the ICJ underlined
that instructions, direction and control must be demonstrated with respect to specific
conduct.1699 This requirement was also confirmed in the context of international
investment law. For example, the Jan de Nul tribunal stated that attribution under
Article 8 requires "both a general control of the State over the person or entity and a
specific control of the State over the act the attribution of which is at stake".1700
1121.Claimants also allege that the Agency acted as "a de facto subordinate" of the Ministry
of Economy,1701 but this is yet another allegation of general control, which is
inadequate in the Article 8 context. The factual inaccuracy of this allegation has
already been addressed in the subsection dealing with Article 4, 1702 so here it is
sufficient to recall that actually the Agency refused to release the pledge and
ultimately terminated the Privatization Agreement despite the Ministry of Economy's
opinion that there was no economic justification for the termination.1703
1122.Further, Claimants allege that Respondent exercised "direct control" over the release
of pledge, termination of the Privatization Agreement and the seizure of shares
because these acts were decided by the Commission for Control which included
representatives from different ministries, who formed majority of its members.1704
Here, Claimants fail to take into account their own and their expert's statement that
the Commission for Control was an entity within the Agency. 1705 Since the
Commission for Control was a collegiate body, and also included members from the
Agency itself, it follows that its actions cannot be regarded as actions of its individual
members (including those coming from state administration) or of any combination
1698
1699
para. 3, CLA-24; Case concerning Application of the Convention on the Prevention and Punishment of the
Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), ICJ, Judgement of 26 February
2007 p. 169, para. 400, RLA-86; see, also, Counter-Memorial, paras. 579-581.
1700
ARB/04/13, Award, 6 November 2008, para. 173, RLA-83; see, also, White Industries Australia Limited v.
The Republic of India, UNCITRAL Case, Award, 30 November 2011, para. 5.1.27, RLA-133.
1701
Reply, para. 992.
1702
See above Sec.III.C.1.
1703
1704
1705
Memorial, para. 355; Expert Report of Milos Milosevic, para. 45.
384
of these members. Rather, these were actions of the Commission as a collegiate body
within the Agency, which had a will distinct from its individual members. In other
words, what Claimants' argument fails to take into account is that the Commission for
Control (as well as the Agency itself) had its distinct will (volonté distincte) which
was the result of its working and deciding as a collegiate body. Its decision cannot be,
without more, attributed to Respondent any more than decision of an organ of
international organization could be attributed to member states.1706
1123.Claimants point to the fact that the decision on termination was rendered by only three
members of the Commission for Control, two of them from the state administration
and one from the Agency, but this is irrelevant since what is important is that this was
a decision of the Commission, not of its individual members. It was also possible that
the decision could be rendered by the two members coming from the Agency and one
member coming from the state administration (who could also be against). According
to the scenario proposed by Claimants, that would make such decision not attributable
to Respondent.
1124.Again, what is required under Article 8 is the existence of specific instructions,

direction or control, which is the requirement that Claimants cannot avoid by its
flawed thesis that Respondent exercised "direct control" because members of the state
administration took part in the decision of the Commission for Control. For avoidance
of doubt, there is no evidence whatsoever that any of the members of the Commission
for Control from the state administration acted under, or provided, any instructions,
direction or control to other members, when the Commission's decisions on BD Agro
were taken.1707
1125.Claimants persist in arguing that the Agency received specific instructions to

terminate the Privatization Agreement both from the Ministry of Economy and the
Ombudsman.1708 As already discussed in the Counter-Memorial, this is completely
inaccurate.1709 These two allegations will be discussed in turn.
1706
Institut de Droit international, The Legal Consequences for Member States of the Non-Fulfilment by
International Organizations of Their Obligations Toward Third Parties, Article 6(a), RLA-134; Draft
Articles on Responsibility of International Organizations with commentaries, Article 62(2), RLA-135.
1707
See Privatization Agency’s Rulebook on Procedure for Control dated 20 May 2010, CE-763.
1708
1709
385
1126.First, the Ministry of Economy stated that the Agency should grant an additional time
limit to Mr. Obradovic to provide evidence that he complied with the Privatization
Agreement, and if he failed to do so "to undertake the measures within its legal
[powers]".1710 Respondent considers that this statement did not indicate (instruct,
direct, control) any specific conduct to be performed by the Agency. It is also
significant that the Ministry of Economy did not specifically request termination of
the Privatization Agreement or even use the word "termination". Claimants respond
that it is clear that the termination was "the measures" referred to by the Ministry of
Economy.1711 However, they fail to consider that the Ministry's statement used the
plural "the measures" instead of the singular "the measure" or even specific
"termination". Claimants completely fail to address the possibility of other measures,
which is crucial, because it shows that the Agency could as well decide not to
terminate and provide the Buyer with yet another time-limit for compliance or with a
certificate that it fulfilled all its obligations under the Privatization Agreement. This
shows that the Agency had a choice to make, and that it did not perform the impugned
act (termination, refusal to release the pledge) as the result of instructions, direction
and control but on the basis of its own will.
1127.Claimants' only argument here is that the Agency itself had requested several times
the Ministry of Economy's opinion regarding the termination of the Privatization
Agreement.1712 But this does not speak in favor of considering the Ministry's statement
as a specific instruction to terminate the Privatization Agreement, especially in light
of the fact that it previously opined that there was no economic justification for the
termination.1713
1128.As far as the alleged instructions, direction or control from the Ombudsman are
concerned, Respondent pointed out in the Counter-Memorial that the Ombudsman's
recommendation was not binding on the Agency and the Ministry of Economy and
that, in any case, its substance did not contain an instruction to terminate the
Privatization Agreement but to "take necessary measures to determine... whether all
conditions stipulated by the Law on Privatization for termination... have been
1710
Report of Ministry of Economy on the Control over the Privatization Agency, p. 13, CE-98.
1711
Reply, para. 994.
1712
Reply, para. 994.
1713
386
fulfilled", which left it to the Agency to decide what to do on the basis of its own
judgment.1714 In the Reply, Claimants point to the Ombudsman's follow up letter in
which he expressed his dissatisfaction with the measures taken. They argue that the
Ombudsman "would absolve the Privatization Agency only after it had terminated the
Privatization Agreement".1715 This, however, is not a fair reading of the letter. Rather,
the Ombudsman did not consider that the provision information about the control on
fulfillment of buyer's obligations was a sufficient response to his recommendation, so
he asked the information on "whether the issue of validity of disputable Agreement on
sale of socially owned capital was solved or not".1716 In other words, the Ombudsman
merely reiterated what he stated in his opinion. So Claimant's argument actually does
not bring anything new to the discussion.
1129.Finally, Claimants state that the events leading to the termination "are strikingly
similar" to Bayandir v. Pakistan, where the tribunal established government's
responsibility based on continuous governmental interference into a motorway
project. In particular, Claimants point to the fact that the tribunal paid "particular
attention to a clearance from the Pakistani President to the chairman of the NHA to
resort 'to the available contract remedies, including termination'" in response to
Bayandir failure to comply with the contract.1717 According to Claimants, the
Bayandir tribunal did not attach relevance to the lack of absolute specificity in the
instruction and considered NHA's subsequent conduct attributable to Pakistan under
Article 8 of the ILC Articles, which is equally applicable in the present case.1718
1130.However, Claimants fail to consider several crucial elements the Bayandir tribunal
took into account when establishing attribution, which do not exist in the present case.
First, the tribunal noted that the termination in Bayandir received "express clearance"
from the government, which is absent from the statements of either the Ministry of
Economy or Ombudsman. Second, and equally important, the government's
involvement in the present case cannot possibly be compared with direct, specific and
1714
Counter-Memorial, paras. 588-589, quoting Opinion of the Ombudsman of 19 June 2015, CE-42.
1715
Reply paras. 996-997.
1716
Letter from the Ombudsman to the Privatization Agency of 18 September 2015, p.1, CE-88.
1717
Reply, para. 999.
1718
387
detailed involvement and interest of the highest levels of government in Bayandir and
their guidance to terminate the contract.1719 As noted by the Bayandir tribunal:
"During the hearing on the merits, it became in particular clear that at a

meeting held on 12 April 2001, General Musharraf gave clearance to the
Chairman of NHA, General Javed, to resort to the available contract
remedies, including termination (Tr. M., 29 May 2008, 74-75). Similarly,
General Qazi, Minister of Communications, confirmed that the decision to
terminate the Contract could not have been taken without some guidance
from higher levels of the Pakistani government … ."1720
1131.These circumstances clearly do not obtain in the present case. In particular, statements
coming from the Ministry of Economy and Ombudsman do not reveal the specificity
of government's intervention seen from the above passage, which led the Bayandir
tribunal to establish attribution on the basis of Article 8 of the ILC Articles.
IV. THERE WERE NO VIOLATIONS OF SERBIA'S OBLIGATIONS UNDER THE

TREATIES
A. THE CONDUCT COMPLAINED OF WAS NOT PERFORMED IN A

SOVEREIGN CAPACITY
1. Claimants fail to show that there is "no firm requirement" in international law
that a violation must be committed in the exercise of sovereign powers
1132.In the Counter-Memorial, Respondent demonstrated, with reference to abundant

practice of arbitral tribunals,1721 that a treaty breach presupposes exercise of sovereign
1719
See Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Award, 27 August 2009, paras. 126-128 & 236, RLA-84.
1720
ARB/03/29, Award, 27 August 2009, para. 128, RLA-84 (emphasis added).
1721
Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22
April 2005, para. 260, RLA-33; Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of
Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, para. 345, CLA-37; Joy Mining Machinery
Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award, 6 August 2004, para. 79, RLA-94;
Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award, 22 December 2003, para.
51, RLA-92; Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No.
ARB(AF)/00/3, Award, 30 April 2004, para. 115, RLA-93; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S.
v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 180, RLA- 84;
388
powers. Claimants argue that this is "no firm requirement" but fail to provide any firm
evidence in support of their argument.1722
1133.Claimants first rely on a single an article which they say supports their position that
commercial and governmental acts are often intertwined and that any attempt to draw
a line between commercial and sovereign acts "may be artificial, if not outright
impossible."1723 However, Claimants fail to mention that this text, from 2007, clearly
confirms that the dominant position was to distinguish between sovereign and
commercial acts.1724 The author actually embraces the same position, while also trying
to propose certain modifications in case of violations of fair and equal treatment,
which is clear from the very part of the article relied upon by Claimants.1725 They
however fail to note that the trend continued, for example, Duke, Bayandir, and Almas
were decided after this text was published in 2007, and they continued to uphold the
principle that exercise of sovereign powers was necessary for a treaty breach.1726
1134.Claimants also invoke Eureko and Ampal awards but these cases did not even deal
with the issue. Claimants in fact admit this when they state that these two cases
allegedly upheld their position "implicitly".1727
1135.Further, Claimants continue to rely on SGS v. Paraguay and its statement that
"[l]ogically, one can characterize every act by a sovereign State as a 'sovereign act'"
so the state may also be internationally responsible for its acts in commercial
see, also, Kristian Almås and Geir Almås v. The Republic of Poland (UNCITRAL), PCA Case No. 2015-
13, Award, 27 June 2016, paras. 274-284, RLA-85, and the extensive review of arbitral practice pointing to
the same conclusion provided by the tribunal.
1722
1723
Reply, para. 1014, and footnote 1001 referring to Guido Santiago Tawil, The Distinction Between Contract
Claims and Treaty Claims: An Overview, In: Jan Van den Berg (ed)., International Arbitration 2006: Back
to Basics?, ICCA Congress Series, Volume 13 (2007), CLA-112.
1724
"As noted by Happ and Rubins, these cases would show the growing support obtained by the idea that a
sovereign act is needed as opposed to a commercial one in order to consider a contract breach as a treaty
breach.", Guido Santiago Tawil, The Distinction Between Contract Claims and Treaty Claims: An
Overview, In: Jan Van den Berg (ed)., International Arbitration 2006: Back to Basics?, ICCA Congress
Series, Volume 13 (2007), p.525, CLA-112.
1725
See Guido Santiago Tawil, The Distinction Between Contract Claims and Treaty Claims: An Overview,
In: Jan Van den Berg (ed)., International Arbitration 2006: Back to Basics?, ICCA Congress Series,
Volume 13 (2007), p.525, CLA-112.
1726
Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of Ecuador, ICSID Case No.
ARB/04/19, Award, 18 August 2008, para. 345, CLA-37; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v.
Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 180, RLA- 84;
Kristian Almås and Geir Almås v. The Republic of Poland (UNCITRAL), PCA Case No. 2015-13, Award,
27 June 2016, para. 274, RLA-85
1727
Reply, para. 1015.
389
sphere.1728 However, when one reads these remarks in their proper context, it is
obvious that the tribunal made them as an illustration of how difficult it was
sometimes to distinguish between commercial and sovereign acts and then reserved
its decision for the merits, as this was indeed a jurisdictional analysis and a
jurisdictional decision.1729
1136.All this shows that Claimants have not been able to provide direct support for their
position that there is no firm requirement that a treaty breach requires exercise of
sovereign powers.
1137.Claimants also continue to insist that "sovereign objectives" behind the Privatization
Agreement require that this well-accepted distinction be abandoned, for otherwise
states would be able to conceal their abusive behavior towards investors by entering
into contractual arrangements with them, unless there is "a specific showing of the
exercise of sovereign powers". This, allegedly, would run against the purpose of
international investment law.1730 In fact, Claimants' example with a possibility of a
state's abusive behavior is clearly inapposite because this would clearly be a situation
in which the state does not behave like an ordinary contracting party. So Claimants'
big words ring hollow. They should not obscure what is a well-established and
workable principle of international investment law.
1138.Finally, it should be noted that while Claimants question whether the requirement that
a treaty breach must be performed by an act undertaken in the exercise of sovereign
power is a "firm" requirement, they do not question the standard for distinguishing
1728
1729
This is clear if one considers the paragraphs in which the quote used by Claimants appear:
"135. The Tribunal notes here the challenge of drawing a line between an ordinary commercial breach of
contract and acts of sovereign interference or jure imperii, particularly in the context of a contract entered
into directly with a State organ (here, the Ministry of Finance). Logically, one can characterize every act
by a sovereign State as a “sovereign act”—including the State’s acts to breach or terminate contracts to
which the State is a party. It is thus difficult to articulate a basis on which the State’s actions, solely because
they occur in the context of a contract or a commercial transaction, are somehow no longer acts of the State,
for which the State may be held internationally responsible.
136. In any event the Tribunal need not, and cannot, at this stage decide whether Claimant has made a
showing of Treaty breach. As we explained in Section III.B above, the threshold at the jurisdictional stage
is whether the facts alleged by Claimant could, if proven, make out a claim under the Treaty. Claimant
maintains it has alleged sufficiently “sovereign” acts in connection with contractual non-performance;
Respondent maintains it has not. Resolution of that dispute is properly reserved to such time as both Parties
have fully presented their evidence and arguments." SGS Société Générale de Surveillance S.A. v. The
Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010, paras. 135-
136, CLA-41 (emphasis added).
1730
390
between commercial and sovereign acts suggested by arbitral practice - that there is
no exercise of sovereign power if the conduct in question is "conduct which any
contract party could adopt".1731
2. The alleged breaches do not stem from Respondent's exercise of sovereign

powers
2.1. Claimant's general argument that the privatization process was "inherently
governmental" is inapposite
1139.Claimants' contention that the Agency exercised governmental powers when it

terminated the Privatization Agreement and refused to release the Pledge over buyer's
shares in BD Agro is in most part based on their arguments made in the attribution
context. These arguments have been refuted in detail in the preceding chapter. In
particular, it should be recalled that Claimants are wrong to argue, repeatedly, that
since these acts were performed as part of privatization, thereby pursuing "broader
social purposes", this should supposedly make them an exercise of "sovereign
powers".1732 As the tribunal in Jan de Nul emphatically stated, "[w]hat matters is not
the 'service public' element, but the use of 'prérogatives de puissance publique' or
governmental authority".1733 Again, to establish whether the acts in question were an
exercise of governmental authority one should look into their substance rather than to
the fact that their ultimate purpose is to advance broader social goals of a public
policy, because many private and commercial forms of conduct also advance certain
public policy goals (for example, education and health). Therefore, as discussed, the
applicable test is whether the conduct in question is "conduct which any contract party
could adopt".1734
1140.Claimants continue to rely on Awdi and Bosca awards in the present context but fail
to consider one important distinguishing factor between these cases and the present
one. Namely, the relevant conduct in those cases included exercise of sovereign
1731
ARB/04/19, Award, 18 August 2008, para. 348, CLA-37.
1732
Reply, paras. 1005 & 1021-1024.
1733
1734
391
powers - in Awdi, to make reasonable efforts to procure issuance of a governmental
document;1735 in Bosca, the relevant conduct concerned pre-contract negotiations with
heavy government involvement ("multi-step State-approval process").1736 This is in
stark difference with the present case, which concerns an imminently commercial act
- termination of a contract. Claimants' allegation that there was also governmental
interference in the present case, through the Ministry of Economy's supervisory
powers and instructions to the Agency,1737 has been already discussed in the
attribution context and it has been demonstrated that the Agency was not instructed or
directed to terminate, but that it took the decision to terminate the Privatization
Agreement independently.1738
1141.The fact that the Agency's power to terminate a privatization agreement was ultimately
based on the Law on Privatization and the Law on Privatization Agency does not
change commercial nature of termination.1739 Namely, all its acts had ultimately to
have a legal basis in law, because the Agency itself was created by the Law on
Privatization Agency. This fact, by itself, does not say anything about the nature of its
conduct in a particular instance.
1142.Claimants are also wrong to argue in this context that there was a legal inequality
between the Agency and the Buyer as the parties of the Privatization Agreement,
because the buyer had minimal bargaining power in the negotiations, while the
Agency had powers of supervision during its implementation. This is nothing out of
ordinary in other commercial transactions, for example, banks frequently have
formalized pre-prepared loan contracts1740 and also may have sweeping powers of
supervision of the borrowing party's obligations. Indeed, all this does not say anything
about the nature of contract termination, which is relevant in the present case.
1143.Claimants also make an argument that since the Agency decided to terminate the
Privatization Agreement on the basis of termination grounds set out in the Law on
1735
Case No. ARB/10/13, Award, 2 March 2015, para. 321, CLA-26.
1736
Luigiterzo Bosca v. Lithuania (UNCITRAL), PCA Case No. 2011-05, Award, 17 May 2013, para. 127,
CLA-42.
1737
Reply, paras. 1012, 1026 & 1030.
1738
See above Sec.III.A&C.3.
1739
Reply, para. 1007.
1740
Expert Report of Professor Mirjana Radovic, para. 27; see, also, Second Expert Report of Professor
Mirjana Radovic, para 19.
392
Privatization and not in Article 7 of the Privatization Agreement, this somehow
indicates that the termination was exercise of governmental powers.1741 This is clearly
wrong. As Professor Radovic explains, the grounds for termination in Article 7 of the
Privatization Agreement supplemented the grounds in Article 41a of the Law on
Privatization,1742 and all applied cumulatively. They were all part of the commercial
relationship entered freely into by the Buyer and the Agency. Moreover, the reason
for the termination in the present case was a violation of a contractual provision,
which is clearly a commercial reason and has nothing to do with exercise of
governmental powers.
1144.Claimants also make an argument that motivations for the termination were political
and not commercial. As already explained, this is completely inaccurate and not
supported by evidence. Further, it should be noted that the tribunal in Jan de Nul did
not look into the reasons behind an act but into whether the act itself was an exercise
of governmental authority "irrespective of the reasons" for which it was
undertaken.1743
2.2. Respondent's impugned conduct did not involve exercise of sovereign powers
1145.Claimants' discussion arguing that the specific acts complained of were an exercise of
sovereign powers is mainly a restatement of their arguments from the attribution
context, which have already been refuted.1744
1146.As regards the Agency's refusal to release the pledge over Mr. Obradovic's shares, it
should first be noted that this was in accordance with the Privatization Agreement and
contract law, as confirmed by Professor Radovic.1745 Claimants here insist on the
Agency's alleged motive to do so, but as already discussed, motives for this were
purely commercial. Evidence shows that the Agency wanted to retain ability to ensure
Mr. Obradovic's compliance with his obligations under the Privatization
1741
1742
Expert Report of Professor Mirjana Radovic, paras. 31-32; Second Expert Report of Professor Mirjana
Radovic, para. 23.
1743
ARB/04/13, Award, 6 November 2008, para. 170, RLA-83 and above Sec.III.C.2.
1744
1745
393
Agreement.1746 Further, while Claimants state that the refusal to release the shares was
motivated by "the desire to avoid public backlash" and maintain control over the
shares pending termination,1747 the alleged political motivation of the Agency's action
is also not borne by the record.
1147.Further, Claimants argue that the Ombudsman's investigation was a governmental act,
and contend that it was only formally directed towards the Ministry of Economy and
the Agency, while it influenced the Agency and prompted it to terminate the
Privatization Agreement.1748 However, the fact that Ombudsman's investigation and
recommendations were not measures directly affecting Mr. Obradovic or BD Agro is
not a formal matter, as Claimants present, but substantive one, because what is
relevant is the nature and substance of the alleged act by which investor's treaty rights
were violated.1749 The alleged violations in the present case were obviously performed
by the actions of the Agency.
1148.Further, Claimants continue to make a parallel with Caratube, but it was already
showed in the Counter-Memorial that this case differs in several crucial elements from
the present one. Most importantly, the ministry as a contractual party in Caratube
changed its previously adopted position to extend the contract and terminated it after
prosecutor's intervention. In the present case, the Agency had repeatedly and for a
long time issued warnings that the Privatization Agreement would be terminated due
to Mr. Obradovic's non-compliance, so its eventual termination cannot be regarded as
its change of position following the Ombudsman's recommendation.1750 Claimants
conveniently ignore this argument in their Reply. Finally, and in any case, the
substance of the Ombudsman's recommendation was such that it did not constitute an
instruction to the Agency to terminate the Privatization Agreement.1751
1746
See Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, pp. 4
& 6, CE-768.
1747
Reply, para. 1032.
1748
1749
ARB/04/19, Award, 18 August 2008, para. 345, CLA-37 ("... in order to prove a treaty breach, the
Claimants must establish a violation different in nature from a contractual breach...") (emphasis added);
April 2005, para. 260, RLA-33 ("Only the state in the exercise of its sovereign authority... may breach the
obligations assumed under the BIT") (emphasis added).
1750
Counter-Memorial, paras. 618-620; Witness Statement of Julijana Vuckovic, paras. 10-11.
1751
394
1149.As regards the very act of termination of the Privatization Agreement, Claimants
argue that it was an administrative act and therefore exercise of governmental powers.
This is obviously a position only Claimants' expert holds, contrary to consistent court
practice and considered arguments of Professor Radovic.1752 Further, Claimants
continue to rely on one decision of the Higher Commercial Court also stating that
notice of termination is not an administrative act, but making a remark that by the
notice of termination the Agency uses its legal power obtained by the transfer of
authority under public law from the state.1753 However, as already noted, the latter
remark was not followed by court practice and cannot be decisive when considering
the nature of termination from the point of view of international law.
1150.Other Claimants' arguments have also been dealt with in the context of attribution.
They wrongly contend that the notice of termination established "an irrebuttable
presumption" that the buyer was a dishonest party, although it is clear that this could
be challenged in civil court proceedings.1754 Claimants retort that administrative acts
can also be challenged in court proceedings,1755 but in this way they fail to appreciate
the fundamental difference between the two types of court proceedings: civil
proceedings, where the notice of termination would be considered, and administrative
court proceedings, dealing with administrative acts. These differences are in detail
outlined by Professor Radovic1756 and are in any case well-known to any lawyer from
a civil law country such as Serbia.
1151.Claimants also dramatize that the transcript of the discussion during the meeting of
the Agency's Commission for Control held on 23 April 2015 reveal that it "shockingly
abused its powers" because it was well aware that there were not valid grounds for
termination under Article 7.1. of the Privatization Agreement.1757 However, the
termination was based Article 41a(1)(3) of the Law on Privatization, whose provisions
cumulatively with Article 7 provided grounds for termination. Therefore, the
termination was lawful and there was nothing "shocking" about it. In any case, all this
1752
Expert Report of Professor Mirjana Radovic, para. 50; Second Expert Report of Professor Mirjana
Radovic, para. 12, footnote 13; Counter-Memorial, para. 621.
1753
Reply, para. 1038, referring to Judgment of the Higher Commercial Court, Pž. 6463/2007 dated 8
1754
Second Expert Report of Professor Mirjana Radovic, para. 40; Expert Report of Professor Mirjana
Radovic, paras. 53-54.
1755
Reply, para. 1040.
1756
See Second Expert Report of Professor Mirjana Radovic, paras. 39-40.
1757
395
does not say anything at all about whether the notice of termination was an exercise
of governmental authority or a commercial act.
1152. Claimants continue to contend that the transfer of the shares to the Agency following
the notice of termination was also an exercise of Serbia's sovereign powers, because
no private party can do so.1758 However, they fail to appreciate the fact that this was
an automatic consequence of the termination under the law applicable to the
Privatization Agreement, having nothing to do with the governmental or commercial
nature of Agency's conduct. The transfer of shares was not an administrative act1759
and, importantly, was open to court challenge and injunctions from further disposal in
civil proceedings following contract termination.1760 This clearly shows that neither
the Agency's conduct, nor the ensuing situation, were an exercise of sovereign powers.
1153.Finally, Claimants also argue that the Agency terminated the Privatization Agreement
pursuant to the instructions of the Ministry of Economy and the Ombudsman,1761
which is factually inaccurate as has been in detail discussed in the chapter dealing
with attribution.1762 In any case, even assuming that there were instructions to the
Agency to terminate the Privatization Agreement (quod non), this would still not make
the termination an exercise of governmental powers. Involvement of state organs is
simply not sufficient to transform a commercial act into an exercise of governmental
powers.1763
1154.In conclusion, Respondent reiterates that the nature of both the refusal to release the
shares and the termination of the Privatization Agreement should be assessed on the
basis of the test accepted in arbitral practice for distinguishing between acts of
commercial (contractual) nature and exercise of sovereign power - whether "[t]hese
acts constitute conduct which any contract party could adopt".1764 As was discussed
in the Counter-Memorial, these acts of the Agency were acts of contractual nature,
1758
Reply, para. 1048.
1759
1760
Expert Report of Professor Mirjana Radovic, paras. 53-54.
1761
1762
1763
Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. The Argentine
Republic, ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, para. 153, RLA-116; Bayindir
Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award,
27 August 2009 , paras. 128-129, RLA-84.
1764
396
that any contract party could adopt, indeed, they correspond to what an ordinary
private party would do in a similar situation and reflect general rules of contract
law.1765
B. GENERAL EXCEPTIONS
1155.Claimants argue that Respondent cannot invoke the general exception clause
contained in Article 18 of the Canada-Serbia BIT because its conduct does not fulfill
the requirements for the application of such exceptions.1766 Namely, Claimants rely
on the case-law of the World Trade Organization (hereinafter: “the WTO”) concerning
Article XX of the 1994 General Agreement on Tariffs and Trade (hereinafter: “the
GATT”), on which Article 18 is modeled, in order to claim that the measures
undertaken by Respondent were neither necessary nor designed to secure compliance
with the Law on Privatization and that they actually represent a disguised restriction
on Claimants' investment.1767
1156.It should be noted, from the outset, that Claimants do not question the compatibility
of Article 41a(1)(3) of the Law on Privatization with the Canada-Serbia BIT, nor do
they rely on arbitrary and unjustifiable discrimination as part of the chapeau of Article
18 of the treaty.
1157.Claimants briefly state that it is Respondent’s burden of proof to show that the
measures it undertook were both “designed and necessary to ensure compliance with
Article 41a(1)(3)”.1768 However, Claimants do not further discuss the substance of
these requirements. As will be seen, these requirements, as interpreted by the WTO
bodies, are much less onerous than what Claimants purport to present them.
1158.Namely, that a measure is designed to ensure compliance with a provision of the law
compatible with the Canada-Serbia BIT simply means that the measure is capable of
achieving such a goal. As noted by the WTO Appellate Body in India – Solar Panels:
1765
Counter-Memorial, paras. 599-602; see, also, Expert Report of Professor Mirjana Radovic, para. 67.
1766
See Reply, paras. 1051 & 1053.
1767
1768
397
“As noted previously, the legal standard as clarified by the Appellate Body
requires a panel to apply ‘an initial examination of the relationship between
the inconsistent measure and the relevant laws or regulations’. A panel, thus,
must ‘scrutinize the design of the measures sought to be justified’. The
Appellate Body further clarified that the standard for ascertaining whether
such a relationship exists is whether the assessment of the design of the
measure reveals that the measure is not incapable of securing compliance
with the relevant laws and regulations in Indonesia. Finally, we note that the
Appellate Body has described this test as ‘not… particularly
demanding’…”1769
1159.The requirement of necessity, on the other hand, is often assessed through the lens of
a reasonably available alternative measure that would be less restrictive on the
investment (or trade, in the case-law of the WTO bodies), and would make an
equivalent contribution to the objective.1770 In line with that, the panel in United States
– Section 337 established that:
“[i]t was clear to the Panel that a contracting party cannot justify a
measure inconsistent with another GATT provision as "necessary" in terms
of Article XX(d) if an alternative measure which it could reasonably be
expected to employ and which is not inconsistent with other GATT
provisions is available to it. By the same token, in cases where a measure
consistent with other GATT provisions is not reasonably available, a
contracting party is bound to use, among the measures reasonably available
to it, that which entails the least degree of inconsistency with other GATT
provisions.”1771
1769
Panel Report, Indonesia – Measures Concerning the Importation of Chicken Meat and Chicken Products,
WT/DS484/R and Add.1, adopted 22 November 2017, DSR 2017:VIII, p. 3769, para. 7.248, RLA-143. See
also Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules,
WT/DS456/AB/R and Add.1, adopted 14 October 2016, DSR 2016:IV, p. 1827, para. 5.58, RLA-144;
Appellate Body Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and
Footwear, WT/DS461/AB/R and Add.1, adopted 22 June 2016, DSR 2016:III, p. 1131, para. 5.68, RLA-
145.
1770
See Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for
Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January
2010, DSR 2010:I, p. 3, para. 335, RLA-146.
1771
Panel Report, United States – Section 337 of the Tariff Act of 1930, L/6439 - 36S/345, adopted 7 November
1989, para. 5.26, RLA-147, also quoted in Appellate Body Report, Korea – Various Measures on Beef,
2001, para. 165, CLA-113.
398
1160.Such an alternative measure would still need to preserve Respondent’s right to achieve
its desired level of protection with respect to the objective pursued.1772
1161.Claimants argue that the failure to release the Pledge was a violation of the Share
Pledge Agreement and unlawful under Serbian law and thus cannot be a measure that
is considered to be designed and necessary to comply with Article 41a(1)(3) of the
Law on Privatization.1773 The circumstances and lawfulness of the Agency’s refusal
to release the pledge have already been explained in detail.1774 Claimants further assert
that the refusal to release the Pledge was not necessary because the release of the
pledge would have not prevented the Agency from terminating the Privatization
Agreement and then seeking damages, which seems to be a reasonable available
alternative measure in the eyes of Claimants.1775 Such a proposition is wrong.
1162.Both the refusal to release the pledge and the termination of the Privatization
Agreement were designed, i.e. “capable of”, and necessary to ensure compliance with
the Privatization Agreement and Article 41a(1)(3) of the Law on Privatization, which
provides that a Privatization Agreement shall be terminated if the buyer of a privatized
company disposes of the property of such company “contrary to provisions of the
[privatization] agreement”.1776 Respondent has explained at length the conduct by
which Claimants have violated Article 41a(1)(3).1777 Nevertheless, it is important to
note here that Article 41a(1)(3), same as Article 5.3.4 of the Privatization Agreement,
serves the ultimate objective of ensuring continued well-being of the company and
preserving its material base which is, in turn, meant to secure its continued operation.
Bearing that in mind, Claimants' suggestion that seeking damages after the termination
of the Privatization Agreement might have been a reasonably available alternative is
inappropriate as such measure would not have been capable of securing the viability
and continued operation of the company. The Agency’s refusal to release the Pledge
1772
See Appellate Body Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and
Footwear, WT/DS461/AB/R and Add.1, adopted 22 June 2016, DSR 2016:III, p. 1131, para. 5.115, RLA-
145. See also, Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules,
WT/DS456/AB/R and Add.1, adopted 14 October 2016, DSR 2016:IV, p. 1827, para. 5.59, note 214, RLA-
144; Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for
Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January
2010, DSR 2010:I, p. 3, para. 318, RLA-146.
1773
1774
See above Sec.I.D.
1775
1776
2001 Law on Privatization, Article 41a, CE-220.
1777
See above Sec.I.B.5.1.
399
serves the same goal because the buyer would be able to dispose of the privatized
shares after which ensuring compliance with the Privatization Agreement would be
impossible. As noted by Professor Radovic,
"the purpose of pledge over shares in a privatized company was to secure

the rights of the Privatization Agency in case the buyer breached the
contract in such a way that justified its termination. In particular, in case of
privatization, the pledge secured the Privatization Agency’s (future and
conditional) right to claim shares back from the buyer in case his potential
breach of contract eventually led to termination of the privatization
agreement."1778
1163.Therefore, the refusal to release the pledge over the buyer's shares in BD Agro was a
necessary measure.
1164.On the other hand, at the time when the Agreement was terminated, the termination
was the only reasonable measure left that could be undertaken in order to ensure
compliance with the law. Namely, the Agency gave Mr. Obradovic seven extensions
of the deadline for remedying the breach of Article 5.3.4. over a period of five
years.1779 Mr. Obradovic’s clear unwillingness to act accordingly,1780 ultimately left
no other reasonable recourse to the Agency then to terminate the Agreement in order
to ensure compliance with Article 41a of the Law on Privatization.
1165.Claimants further argue that the conduct of the Agency falls outside of the ambit of
Article 18 of the Canada-Serbia BIT as it represents a “disguised restriction on the
Claimants' investment”.1781 However, Respondent has already explained that Mr.
Obradovic’s breach of Article 5.3.4 of the Privatization Agreement provided
legitimate grounds for termination.1782 Moreover, the breach was acknowledged by
Mr. Obradovic himself.1783 The Agency has also consistently held the attitude that Mr.
Obradovic was in breach of his contractual obligations, at least since January 2011,1784
1778
1779
See Appendix I.
1780
See above Sec.I.B.3.
1781
1782
See above Sec.I.B.2&3.
1783
See e.g., Letter from Mr. Obradovic and BD Agro to the Agency, 23 July 2012, RE-21.
1784
See Notice of the Agency on Additional Time Period dated 24 February 2011, CE-31.
400
and that the failure to remedy the breach of Article 5.3.4 of the Privatization
Agreement would be grounds for termination of the agreement under Article 41a of
the Law on Privatization.1785 Therefore, the Agency clearly had a genuine reason for
the termination of the Privatization Agreement and for its refusal to release the Pledge.
1166.In conclusion, the conduct Claimants complain of falls under the exception of Article
18 of the Canada-Serbia BIT and all claims under this treaty should be dismissed.
C. RESPONDENT DID NOT EXPROPRIATE CLAIMANTS’ INVESTMENT
1167.As demonstrated in Respondent’s Counter–Memorial and explained further above,

termination of the Privatization Agreement and subsequent transfer of shares held by
Mr. Obradović were consequences of a genuine breach of contractual duties by Mr.
Obradović. The Agency terminated the Privatization Agreement using its right
envisiged by the contractual framework after several years of urging the buyer of BD
Agro to remedy the breach. In such circumstances there cannot be unlawful
expropriation under the relevant BITs. Nothing that Claimants submit in their Reply
can affect this conclusion.
1168.The Claimants’ case on purported expropriation is based on misinterpretation of facts

and law. In certain instances, Claimants’ presentation of relevant facts amounts to
outright manipulation. On other occasions, Claimants choose to deal with
Respondent’s arguments by resorting to straw man fallacy or by simply ignoring them.
1169.The crux of Claimants’ argument on the alleged expropriation is an assertion that the
Agency fabricated the pretext for the termination of the Privatization Agreement, with
the idea of depriving Claimants of the shares in BD Agro held by Mr. Obradović and
referred to by Claimants as “Beneficially Owned Shares.”1786
1170.However, Respondent will once again show below that Claimants’ assertions are
without any merit.
1785
See Counter Memorial, Section II.A.2.
1786
401
1. Claimants did not acquire property rights recognized by Serbian law
1171.As Respondent previously submitted,1787 any analysis with regard to the alleged
expropriation of Claimants’ property rights is obsolete if Claimants are incapable to
demonstrate that they were holding those rights in accordance with Serbian law at the
relevant moment (i.e. at the time of the purported breach).
1172.International law (relevant BITs in this case) offers protection to property rights, but
the existence and content of those rights is subject to national law. 1788 Thus, before
turning to the issue of whether Respondent’s acts or omissions represented
expropriation of shares in BD Agro or Claimants’ purported contractual rights, the
Tribunal should resolve a preliminary question – did Claimants acquire the right of
ownership in shares or any contractual rights through the conclusion of the
Privatization Agreement. This question must be answered by the application of
Serbian law.1789
1173.Therefore, Claimants’ assertion that their “beneficial ownership is not based on the
acquisition of any right in rem to the Beneficially Owned Shares under Serbian
law”1790 or that “the protection of the Claimants’ beneficial ownership does not rest
upon the recognition of such proprietary aspects of the Claimants’ beneficial
ownership under Serbian law”1791 is clearly misplaced.
1174.In their brief response to the argument raised by Respondent, Claimants argue that
“all of their investments are capable of being expropriated.”1792 The argument misses
the point entirely.
1787
Respondent’s Counter-Memorial, Section C.2.
1788
Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27,
Award of the Tribunal, 13 November 2019, para. 341, RLA-184.
1789
Case No. ARB/06/2, Award, 16 September 2015, para. 135, RLA-108; EnCana Corporation v. Republic of
Ecuador (UNCITRAL), LCIA Case No. UN3481, Award, 3 February 2006, para. 184, RLA-109; Emmis
International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi
és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, para.
162, RLA-110; Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award,
para. 257, CLA-32; Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No.
ARB/12/39, Award, 25 July 2018, para. 432, RLA-111.
1790
1791
1792
402
1175.Respondent has never disputed that rights in rem or contractual rights are capable of
being expropriated under international law. What Respondent does contest is the
assertion that Claimants acquired ownership of Mr. Obradović’s shares according to
Serbian law or any of his contractual rights stemming from the Privatization
Agreement.
1176.As previously demonstrated by Respondent, Claimants have never been considered

the owners of shares acquired by Mr. Obradović under the pertinent rules of Serbian
law. Claimants argue that it does not matter whether their alleged ownership of Mr.
Obradović’s shares “is qualified as a right in rem or a purely contractual right.”1793
They also imply that the termination of the Privatization Agreement could amount to
expropriation even if Claimants did not possess the right in rem over the shares, since
the wrongful termination of a contract, according to Claimants, can give rise to
expropriatory taking even if the State does not interfere with the investor’s rights in
rem.1794 Bearing in mind the circumstances of the case at hand and the way in which
the Claimants plead their case in this arbitration, both arguments are illogical and
untenable.
1177.First, ownership is by definition a property right (right in rem).1795 The ownership as

purely contractual right cannot exist. If Claimants’ were not the owners of Mr.
Obradović’s shares under Serbian law at the time of the Privatization Agreement’s
termination (which they were not), they could not have been deprived of their
ownership.
1178.Second, it is impossible to identify how exactly the Claimants’ purported right of

ownership of Mr. Obradović’s shares could be affected without the transfer of shares
to the Share Fund. The only sanction for the breach of the Privatization Agreement by
the buyer (Mr. Obradović) that was available to the Agency was the transfer of shares
back to the Agency. It would make no sense for the Agency to terminate the
Privatization Agreement based on the Mr. Obradović’s breach and to leave the buyer
in the possession of shares. However, the only person whose ownership was affected
1793
1794
1795
403
by the termination and subsequent transfer was the person that owned the shares in
accordance with Serbian law – Mr. Obradović.
1179.Likewise, Sembi’s rights under the Sembi Agreement were not expropriated by
Respondent for the same reason that applies to the alleged beneficial ownership of
shares in BD Agro – Sembi has never validly acquired any contractual rights capable
of being expropriated. Sembi’s purported rights hinge upon the validity of the
assignment of Mr. Obradović’s “right, title and interest” from the Privatization
Agreement to Sembi. As it was already explained, the Sembi Agreement never created
any effect under Serbian law since it was concluded in breach of the mandatory
provision contained in the 2001 Law on Privatization.
1180.Finally, Claimants refer to Mr. Rand’s loans to BD Agro as another (separate)

investment that was allegedly expropriated by Respondent.1796
1181.Respondent has already explained why these loans do not represent “covered
investment” under Article 1 of the Canada – Serbia BIT.
1182.In any event, in their argument on merits, Claimants do not dedicate a single paragraph
in which they would explain how precisely the loss of those loans would be
attributable to any act or omission of Respondent. A casual reference that Mr. Rand’s
loans to BD Agro were capable of being expropriated is not substitute for analysis and
cannot lead to the Respondent’s liability under the BIT.
2. The Agency did not act in exercise of sovereign authority
2.1. The PA did not terminate the Privatization Agreement in exercise of sovereign
authority
1183.Respondent submits that for an expropriation to happen the State must perform its
sovereign powers in relation the contract in order to attract the responsibility under
the BITs. The performance of public powers is, therefore, indispensable for the
existence of expropriation.
1796
404
1184.The Claimants’ assertion that there is no firm requirement that a Treaty breach
requires exercise of sovereign powers1797 clearly cannot stand.
1185.As already shown by Respondent in its Counter-Memorial,1798 all cases dealing with
expropriation as a consequence of the State’s termination of a contract speak in one
voice – expropriation can occur only if the other party to the contract uses public
powers in relation to the termination of that contract.1799 A list of cases confirming
that “[o]nly the State in the exercise of its sovereign authority (‘puissance publique’),
and not as a contracting party, may breach the obligations assumed under the BIT”1800
is endless.
1186.Only a decree or legislative act or some other form of a clear puissance publique may
turn the breach or termination of a contract into the BIT claim and potentially trigger
international responsibility of a State. As famously stated by the Waste Management
Tribunal:
“Any private party can fail to perform its contracts, whereas

nationalization and expropriation are inherently governmental acts. (…)
The Tribunal concludes that it is one thing to expropriate a right under a
contract and another to fail to comply with the contract. Non-compliance
by a government with contractual obligations is not the same thing as, or
equivalent or tantamount to, an expropriation.”1801
1187.The cases in which investment tribunals upheld claims of expropriation based on the
State’s termination of a contract are the cases in which tribunals searched for and
found the manifestation of sovereign power in the acts that deprived claimants of their
investment. For example, in Siemens v. Argentina the contract entered into by
1797
Claimants’ Reply, Section V.A.1.
1798
Respondent’s Counter-Memorial, paras. 660, 661.
1799
April 2005, para. 260; footnotes omitted; emphasis added, RLA-33. See, also, Bayindir Insaat Turizm
Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August
2009, para. 444, RLA-84; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17
January 2007, para. 248, RLA-48; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID
Case No. ARB/07/24, Award, 18 Jun 2010, para. 330, RLA-115; Supervision y Control S.A. v. Republic of
Costa Rica, ICSID Case No. ARB/12/4, Final Award, 18 January 2017, para. 279, RLA-25.
1800
April 2005, para. 260, RLA-33.
1801
Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3, Award,
30 April 2004, para. 115, RLA-93.
405
Siemens’s subsidiary (SITS) and Argentinean Government was terminated by a
government decree.1802 That was the case as well in Occidental v. Ecuador, Caratube
v. Kazakhstan and Urbaser v. Argentina.1803
1188.In the case at hand, the Agency terminated the Privatization Agreement as a result of
a persistent breach of contractual duties by Mr. Obradović and using its prerogatives
as a contracting party under the Privatization Agreement and the applicable law.
1189.Claimants attempt to label the Agency’s use of contractual prerogatives as exercise of

sovereign powers is inapposite.
1190.First, Claimants argue that “privatization in Serbia was inherently governmental

process.”1804 The argument is purportedly based on the purpose of the privatization
process. The general purpose of privatization is, however, irrelevant for the
expropriation analysis.1805 Respondent reiterates that it does not matter whether the
Agency was entrusted with some elements of public authority in general terms. The
crucial issue here is whether the termination of the Privatization Agreement itself was
done in exercise of sovereign powers. This was explained in no uncertain terms by the
tribunal in Suez v. Argentina. There, the tribunal dismissed the claim that the
termination of the concession/privatization contract by the host State represented an
expropriation an offered several observations relevant for the dispute at hand:
“In investor-State arbitrations which involve breaches of contracts

concluded between a claimant and a host government, tribunals have
made a distinction between acta iure imperii and acta iure gestionis, that
is to say, actions by a State in exercise of its sovereign powers and actions
of a State as a contracting party. It is the use by a State of its sovereign
powers that gives rise to treaty breaches, while actions as a contracting
1802
Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007, para. 97,
RLA-48.
1803
Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of
Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012, para 199, RLA-119: Caratube International
Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan, ICSID Case No. ARB/13/13,
Award, 27 September 2017, para 76, CLA-28; Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao
Biskaia Ur Partzuergo v. TheArgentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016,
para 856, RLA-121.
1804
Claimants’ Reply, Section V.A.2.a.
1805
ARB/04/13, Award, 6 November 2008, paras. 169, 170, RLA-83.
406
party merely give rise to contract claims not ordinarily covered by an
investment treaty.
[…]
In the present case, did the Province act in the exercise of its sovereign
powers (acta iure imperii) or as an ordinary contracting party (acta iure
gestionis) when it terminated the Concession Contract with APSF? (…)
While Argentina exercised its public authority on various occasions
during the crisis, the Tribunal does not consider that the Province’s
termination of the Concession Contract was an exercise of such authority.
Rather, its actions were taken according to the rights it claimed under the
Concession Contract and the legal framework.”1806
1191.Second, Claimants assert that the termination of the Privatization Agreement was a
sovereign act primarily relying on Mr. Milošević’s interpretation with regard to the
nature of notice on termination under Serbian law.1807 As explained by Respondent
above and by Respondent’s legal expert, Professor Radovic, this is simply wrong –
notice of termination in not an administrative act but rather a notice of intent
(expression of will) of a contracting party to terminate the contract, which is the
conclusion unequivocally adopted by Serbian courts.1808
1192.Third, Claimants attempt to insinuate that the alleged involvement of Ombudsman

and the Ministry of Economy in the control of BD Agro’s privatization somehow
transforms the termination of the Privatization Agreement from contractual act to the
exercise of sovereign powers by the Agency.1809 However, as held by the tribunal in
Suez v. Argentina – “the mere fact that there is some government involvement in the
events that lead to the termination of a contract does not necessarily mean that such
termination is the result of an exercise of sovereign powers…”1810 In other words,
1806
Republic, ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, paras. 153, 154 (emphasis
added), RLA-116.
1807
1808
First Expert Report of Professor Mirjana Radovic, paras. 44, 45.
1809
1810
Republic, ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, para. 153 (emphasis added),
RLA-116.
407
contrary to what seems to be the Claimants’ allegation, the mere fact that a certain act
can be attributed to the State does not automatically entail that such act qualifies as
sovereign.1811
1193.Fourth, Claimants insist on the alleged irrelevance of the fact that Mr. Obradović was
able to commence the court proceeding to quash the notice of termination. This fact
is, however, crucial for determining the nature of the notice. The termination of the
Privatization Agreement does not amount to an authoritative decision of the Agency,
determining the rights of the Buyer (Mr. Obradović) in definitive manner. 1812
Disputes originating from privatization contracts in Serbia are treated as commercial

disputes and settled by commercial courts.1813 While it is correct that the judicial
review is possible also for administrate acts, the applicable law, procedure and scope
of powers of commercial and administrative courts respectively are fundamentally
different.1814
1194.Finally, Claimants’ last attempt to prove that the termination of the Privatization
Agreement was a sovereign act relies on the misrepresentation of facts. Claimants
argue that the Agency abused its powers by terminating the Privatization Agreement,
although it was aware that Article 7 of the Agreement does not expressly provide for
the termination based on the breach of Article 5.3.4. According to Claimants, the audio
recordings of the meeting held on 23 April 2015 by the Agency’s Commission for
Control allegedly demonstrate that the Agency “shockingly abused its powers in a
manner unheard of in private contractual relationships.”1815 Leaving aside the
obvious question of why would the act of a contracting party taken in disregard of the
contractual terms necessarily and automatically qualify as sovereign, the Claimants’
allegations are simply untrue. As already explained above, Claimants’ presentation of
facts purposely neglects the part of the recordings that reveal the position of the
Agency that was consistently communicated to Mr. Obradović for several years -
Article 41a of the Law on Privatization contains a valid ground for the termination
triggered by Mr. Obradović’s breach of Article 5.3.4.
1811
ARB/03/29, Award, 27 August 2009, para. 129, RLA-84.
1812
1813
Second Expert Report of Professor Mirjana radovic, para. 39.
1814
Second Expert Report of Professor Mirjana radovic, para. 39.
1815
408
1195.In their Reply, Claimants once again rely on the award in Siag v. Egypt in order to
demonstrate that investor’s contractual rights can be directly expropriated through the
termination of a contract.1816 The repeated reliance on Siag is equally misplaced.
1196.In Siag, the termination of the contract for sale of a plot of land was executed based
not on the prerogative of the contractual party envisaged in the contractual framework
(as it was the case with the Privatization Agreement), but rather on series of decrees
issued by the Egyptian Minister of Tourism, the President of Egypt and the Prime
Minister.1817 Clearly, the Siag case falls into the line of cases in which termination of
a contract was indeed an exercise of puissance publique, unlike the case at hand.
Furthermore, in that case Egypt did not contest that the expropriation had actually
taken place,1818 which prevented the Siag tribunal from espousing its position on the
relationship between the termination of a contract and expropriation – the fact that
necessarily limits usefulness of the tribunal’s reasoning for any future discussions on
the issue.
1197.In sum – termination of the Privatization Agreement by the PA did not represent the
exercise of sovereign authority. Consequently, even if the termination could be
attributed to Respondent, it cannot lead to its liability under the BITs.
2.2. Consequential transfer of shares was not an exercise of sovereign authority
1198.Termination of the Privatization Agreement due to the breach of Mr. Obradović

unavoidably resulted in the transfer of previously sold shares to the seller (the
Agency). The transfer did not occur in isolation. It was an automatic consequence of
termination envisaged by the law governing the Privatization Agreement. As such, the
transfer of shares represented the right of the Agency exercised under the contract and
not an act ex iure imperii.
1199.Claimants disagree and argue that the Agency’s right to effectuate the transfer is
sovereign in nature and that it does not lose its sovereign nature simply because it is a
1816
Claimants’ Reply, paras. 1074, 1075; Claimants’ Memorial, paras. 396, 397.
1817
Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No.
ARB/05/15, Award, 1 Jun 2009, paras. 36, 76, 77, CLA-9.
1818
Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No.
ARB/05/15, Award, 1 Jun 2009, para. 427, CLA-9.
409
consequence of another act.1819 However, their submission, apart from the general
contention about the nature of act in question, offers little in terms of analysis. This is
in particular the case with the Claimants’ argument on expropriation – the relevant
part contains two short paragraphs dismissing en bloc Respondent’s argument about
the lack of manifestation of sovereign powers in acts of the Agency.1820
1200.In any event, Respondent will here again demonstrate that the transfer of shares from
Mr. Obradović to the Agency cannot serve as ground of its liability under international
law.
1201.First, Respondent reiterates that the physical taking of assets that occurred as a regular
consequence of the contract’s termination cannot by itself represent an act of direct
expropriation. This follows from the reasoning of the tribunal in Vannessa v.
Venezuela.1821 The Tribunal in that case found that the physical taking of the mining
site and related assets by a Venezuelan Government Agency (CVG) did not amount to
expropriation, since that was the consequence of the concession contract’s termination
envisaged by the contract.1822
1202.The Claimants’ attempt to distinguish the findings of Vannessa tribunal is

unpersuasive. Claimants assert that the reasoning of the Vannessa tribunal is not
applicable to the case at hand, since there the contract provided specifically for the
Canadian investor’s consent for taking of property without entitlement to any
damages, in case of the contract’s termination for any reason. Claimants also add that
the Vannessa tribunal found that the termination of the contract in that case was
justified.1823
1203.The reasoning of the tribunal in Vannessa fully applies here. By entering into the
Privatization Agreement, the buyer (Mr. Obradović) accepted all of the consequences
of possible breach and termination of the Agreement. The Agency did not simply
invent the transfer of shares as a repercussion of the termination. This possibility was
known to Mr. Obradović at the time he concluded the Privatization Agreement since
1819
1820
1821
1822
Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)04/6), Award, 16
January 2015, RLA-107.
1823
410
it was envisaged in Article 41(5) of the 2001 Law on Privatization – the law that was
applicable to the Privatization Agreement by virtue of its own provisions.1824
Claimants cannot seriously assert that Mr. Obradović did not accept the obligation to
return the shares that he bought in case of the contract’s termination. Likewise, the
termination of the Privatization Agreement was a legitimate reaction to Mr.
Obradović’s persistent refusal to honor his contractual obligation, just as the
termination of the concession contract in Vennessa was deemed justified.
1204.Second, Claimants again distort the Respondent’s argument with regard to the
applicability of the share transfer provision from the Law on Privatization. In
Claimants’ interpretation, to assert that the Law on Privatization must be applied as
part of the contractual framework defined by the parties to the Privatization
Agreement is to invoke provisions of national law in order to escape liability under
international law, in breach of the principle contained in Article 27 of the VCLT. 1825
This is plainly absurd. Mr. Obradović explicitly accepted application of the Law on
Privatization with all of its provisions (including the provision on transfer of shares in
case of termination) when he entered into the contractual relationship with the
Agency. Therefore, provisions of the Law on Privatization were incorporated into the
Privatization Agreement. What Claimants now attempt to argue is basically that the
Agency could not use its contractual prerogatives since that was against Serbia’s
international obligations. Claimants in effect propose that contractual provisions are
subject to international constitutionality test. The argument is clearly misplaced.
1205.Finally, as a general rule of contract law, any party to a contract that was terminated
is entitled to restitution of what has been given under the contract.1826 What Claimants
refer to as “the Privatization Agency’s legal power to unilaterally appropriate
ownership of the Privatized Shares”1827 is in reality an act by which the Agency simply
withdrew what it had previously sold, as a result of the breach and termination of the
Privatization Agreement, and not the exercise of sovereign powers.
1824
Privatization Agreement, Recitals, CE-17. The Agreement stipulated that BD Agro’s capital was sold
“[I]n accordance with the provisions on the Law on Privatization…and the provisions of the Regulation on
Sale of Capital and Property in Public Auction…”
1825
1826
Law on Obligations, Article 132 (2), RE-32.
1827
411
1206.The rule that each contractual party must return what it has received under the
terminated contract can be modified by the terms of the contract. Such modification
was made by virtue of Article 7(2) of the Privatization Agreement which established
a rebuttable presumption that the buyer (Mr. Obradović), as a party acting in bad faith,
loses his right to recovery of the purchase price in case of termination.1828 However,
Mr. Obradović was able to challenge the termination of the Privatization Agreement
before the competent court and to refute the presumption of his liability.1829
1207.In conclusion – no act of the Agency during the execution and termination of the
Privatization Agreement was taken in exercise of sovereign authority. As a result,
termination and ensuing transfer of shares from Mr. Obradović to the Agency did not
amount to expropriation under the BITs.
2.3. Claimants failure to challenge purported breach of the Privatization

Agreement before contractually chosen forum disqualifies their expropriation
claim as a matter of substance
1208.The dispute at hand is purely contractual dispute. All of Claimants’ allegations are
essentially matter of contract law – whether the Agency had the right to refuse release
of the pledge on shares and to terminate the Privatization Agreement based on the
breach of Article 5.3.4. of the Agreement. Claimants’ attempt to implicate
Ombudsman and the Ministry of Economy into their contractual relationship with the
Agency serves only the purpose of distorting the true character of the dispute.
1209.In such circumstances, a breach of an international treaty can arise due to the breach
of the contract by the State only if the existence of breach was previously established
by the competent contractual forum. As held by the Parkerings tribunal:
“Under certain limited circumstances, a substantial breach of a contract could

constitute a violation of a treaty. So far, case law has offered very few
illustrations of such a situation. In most cases, a preliminary determination by
a competent court as to whether the contract was breached under municipal law
is necessary. This preliminary determination is even more necessary if the
1828
Privatization Agreement, Article 7(2), CE-17. See, also, the 2001 Law on Privatization, Article 41a(3),
CE-220.
1829
Second Expert Report of Mirjana Radovic, para. 30.
412
parties to the contract have agreed on a specific forum for all disputes arising
out of the contract.”1830
1210.Claimants respond to this argument by asserting that Serbia seeks to import the
substantive requirement of exhaustion of local remedies into the expropriation
analysis.1831 Obviously, this is incorrect.
1211.The formal rule on exhaustion of local remedies, by its scope of application, requires
applicants to exhaust all available remedies which exist in the internal legal system
and which can effectively undo the wrong suffered, regardless of the particular legal
framework within which the rights were acquired. This rule applies in relation to
judicial and administrative branches of government and in relation to all remedies
available. Clearly, to assert that a contractual party is under an obligation to seek
redress for breach of a contract before contractually agreed forum is not the same as
to invoke the local remedies rule.
1212.Thus, Respondent has never argued that Mr. Obradović (acting as a supposed alter
ego of Claimants) was under an obligation to exhaust all available local remedies to
challenge any administrative or judicial decision that was allegedly harmful to his
(Claimants’) interest, as a substantive precondition for Respondent’s liability under
international law. What Claimants cannot do, however, is to bypass the forum
specifically designated in the Privatization Agreement as competent for disputes
arising out of the contract, and still argue that the alleged breach of the Agreement by
the Agency represented expropriation under the BITs.
1213.For this reason, the Claimants’ reliance on obiter of the ad hoc Committee in Helnan
v. Egypt is misplaced.1832 In that case, the Committee discussed the tribunal’s
reasoning with regards Helnan’s complaint about an administrative measure rendered
by the Egyptian Minster of Tourism (downgrading category of the hotel managed by
the claimant).1833 The measure was obviously not of contractual nature or rendered
under any contract. The Committee voiced its concerns that, in such circumstances, to
1830
2007, para 316 (emphasis added), RLA-114.
1831
1832
1833
Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July
2008, paras. 146-148, CLA-115.
413
insist that Helnan was required to challenge the measure before administrative courts
would be akin to the imposition of the local remedies rule. 1834 The same reasoning is
clearly not applicable in the case at hand. Here, Claimants are complaining about the
allegedly wrongful termination of the contract by the Agency. The Notice of
Termination (as a measure of contractual character) was issued under the Privatization
Agreement and the applicable law, and the Buyer (allegedly acting as Claimants’ alter
ego) was required to address the issue before the competent Commercial Court, not
because he was under an obligation to peruse local remedies but because a purely
contractual breach can amount to expropriation only when the access to the
contractual forum is “legally or practically foreclosed.”1835
1214.Claimants also rely on Crystallex v. Venezuela in support of the reasoning adopted by

the Helnan Committee.1836 However, in Crystallex the tribunal found that the
termination of the contract between Crystallex and Venezuelan state-run corporation
(CVG) was effectuated through the act representing the State’s exercise of sovereign
authority.1837 In the tribunal’s opinion, such character of the measure was evident,
inter alia, based on the law of Venezuela as well.1838 This is in evident contradiction
with the dispute at hand where the Privatization Agreement was terminated using the
act of contractual nature.
1215.Furthermore, Respondent’s argument does not contradict the requirement of waiver

of local proceedings under the Canada – Serbia BIT, as Claimants now argue.1839 The
requirement is aimed at preventing parallel proceedings before different forums. The
sheer existence of the requirement did not prevent Claimants from submitting their
contractual dispute to the competent forum before initiating arbitration.
1216.Finally, Claimants look to distinguish Waste Management and Parkerings (invoked

by Respondent in its Counter-Memorial)1840 from the present dispute by asserting that
1834
Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Decision of the
ad hoc Committee, 14 June 2010, paras. 46, 47, CLA-116.
1835
30 April 2004, para. 174,, RLA-93.
1836
1837
Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB(AF)/11/2, Award, 4 April 2016, para. 700, CLA-117.
1838
Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB(AF)/11/2, Award, 4 April 2016, para. 706, CLA-117.
1839
1840
414
in those cases disputes were purely contractual and no severing act was involved in
the breach.1841 The distinction is nonexistent – the dispute at hand is also contractual.
It revolves around interpretation of certain provisions contained in a contract (the
Privatization Agreement) and the issue of whether the Notice of Termination issued
by the Agency was justified.
1217.In sum, the lack of exercise of governmental authority disqualifies the breach of
contract as grounds for the expropriation claim. Further, the failure of Claimants (i.e.
Mr. Obradović) to sue the Agency in the appropriate forum to remedy the breach is
testament to the lack of evidence that any breach had occurred.
3. Termination of the Privatization Agreement was justified under the applicable

law
1218.Without prejudice to what has been stated above, Respondent submits that the State’s
termination of a contract (even if executed through acts ex iure imperri) must represent
a breach of the contract under the applicable law in order to amount to expropriation.
In other words, if there was no breach of the contact by the act of its termination, there
cannot be a breach of the State’s international obligation.
1219.Thus, two prerequisites for the existence of expropriation are applied cumulatively –
if there is no breach of the contract by the State there is no need to examine the nature
of the act employed in order to terminate the contract and vice versa. This was the
reasoning upheld by the tribunal in Malicorp v. Egypt:
“The first question, therefore, is whether the Republic had the right to discharge
itself from the Contract pursuant to the private law rules governing it (see above,
no. 93). If that is the case, it is unnecessary to examine whether the Respondent
also took a measure under its public powers (“measures de puissance
publique”), not as a party to the Contract but as a State, the effectiveness and
conformity with the Agreement of which would have to be examined.”1842
1841
1842
Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011,
415
1220.In the case at hand, not only that the Agency terminated the Privatization Agreement
using the act available to any ordinary contractual party, but the termination was also
legitimate and justified under the law applicable to the Privatization Agreement.
1221.Respondent has already explained in detail why the termination of the Privatization
Agreement was fully in conformity with the governing law (Law on Privatization).1843
In order to avoid unnecessary repetition, Respondent will here briefly deal with
allegations raised by Claimants in their Reply.
3.1. The Agency did not act in bad faith in terminating the Privatization
Agreement
1222.During the course of contractual relationship with Mr. Obradović which lasted for ten
years in case of BD Agro only, the Agency gave 30 different notices to the buyer,
warning him about various breaches of the Privatization Agreement. For the 221
Million Pledge alone, Mr. Obradović was given seven extensions of deadlines for
remedying the breach and the Agency waited for almost five years before it finally
terminated the Privatization Agreement due to Mr. Obradović’s unwillingness to
fulfill his contractual obligation.
1223.This is not a bad faith conduct on behalf of the Agency. This is exactly the opposite
of bad faith.
1224.The Claimants’ accusations about the Agency’s alleged disingenuous conduct is built
primarily on Claimants’ presentation of facts which in itself is done in bad faith.
1225.First, Claimants rely on the audio recordings from the meeting of the Agency’s
Commission for Control that supposedly demonstrate that the Agency was aware of
the fact that the Privatization Agreement could not be terminated for the breach of
Article 5.3.4.1844 Claimants conveniently leave out the part of the recordings showing
the Agency’s understanding that it was able to terminate the Agreement for the breach
of said provision based on Article 41a of the Law on Privatization.1845
1843
1844
1845
768.
416
1226.Second, Claimants once again attempt to manipulate the Tribunal by asserting that the
loan that was the reason for the 221 Million Pledge was repaid. 1846 As shown
previously, the truth of the matter is that the payment of the loan was simply postponed
(through the conclusion of the Refinancing Loan with Nova Agrobanka) and
guaranteed with the same pledge on BD Agro’s assets, which remains in place even
today.1847
1227.Finally, Claimants dispute that Mr. Obradović was well aware of his breaches and
duly warned about the risk of termination, by arguing that “[M]r. Obradović never
accepted his responsibility for alleged breaches of the Privatization Agreement
because he correctly considered the transactions in dispute to be fully compliant with
the contractual terms.”1848 The assertion is not only inapposite but it is also untrue.
Whether or not Mr. Obradović accepted that he was in breach of the contract has
nothing to do with the fact that he was aware of the consistent position of the Agency
– breach of Article 5.3.4. is a valid reason for the termination. Long history of
contractual relationship between the Agency and Mr. Obradović clearly shows that
this fact was communicated to him also in the context of other privatizations that he
was involved in and that Mr. Obradović has never challenged the Agency’s
position.1849 In any event, Mr. Obradović did accept that he was in breach of Article
5.3.4. when it comes to the Privatization Agreement and even asked for an extension
of the deadline to fulfill his obligation.1850
3.2. Irrelevance of proportionality
1228.In their Reply, Claimants reiterate that the termination of the Privatization Agreement
was unlawful under Serbian law because it was allegedly disproportionate. The
argument advanced by Claimants relies on the analysis offered by their legal expert,
Mr. Milošević,1851 on the effects that Article 20(3) of Serbian Constitution (the
Constitution) supposedly should have on contractual relationships.
1846
1847
1848
1849
1850
1851
Claimant’ Reply, para. 1097.
417
1229.Article 20 of the Constitution reads:
Restriction of human and minority rights
Article 20
Human and minority rights guaranteed by the Constitution may be restricted by

the law if the Constitution permits such restriction and for the purpose allowed
by the Constitution, to the extent necessary to meet the constitutional purpose of
restriction in a democratic society and without encroaching upon the substance
of the relevant guaranteed right.
Attained level of human and minority rights may not be lowered.
When restricting human and minority rights, all state organs, particularly the
courts, shall be obliged to consider the substance of the restricted right,
pertinence of restriction, nature and extent of restriction, relation of restriction
and its purpose and possibility to achieve the purpose of the restriction with less
restrictive means.1852
1230.First obvious problem with the Claimants’ argument is the fact that the provision at
stake clearly refers to obligations of “all state organs” and the Agency is not an organ
of Serbia. That aside, the provision of Article 20(3) obviously contemplates
restrictions of human and minority rights.
1231.The absurdity of the Claimants’ argument hardly warrants any explanation. If what
Claimants now argue would be true, no state organ would ever be able to breach a
contract without restricting human or minority rights of the other contractual party. In
any case, Respondent’s legal expert, Professor Radovic, explained why the
proportionality analysis has no place in a contractual relationship.1853 In sum, if the
termination of the contract was justified under the rules governing the contract, the
analysis of proportionality is obsolete.
1852
Constitution of the Republic of Serbia (2006), Article 20, RE-333.
1853
First Expert Report of Professor Mirjana Radovic, para. 34; Second Expert Report of Professor Mirjana
Radovic, para. 29.
418
1232.Claimants once again rely on the findings of the tribunal in Ampal v. Egypt. They
submit that “[S]erbia attempts to do away with the proportionality analysis on the
basis of a pure misinterpretation of the findings of the tribunal in Ampal v. Egypt.”1854
This is incorrect. In fact, Claimants misinterpret the findings of the tribunal.
1233.The Ampal tribunal first established that Egypt had unjustifiably terminated the
contact with the claimant’s Egyptian subsidiary.1855 Only then it turned to the
proportionality analysis in order to determine whether the breach of the contract
represented the breach of the US – Egypt BIT as well.1856 Thus, contrary to the
Claimants’ interpretation, the proportionality criterion was not applied when the
tribunal was examining whether Egypt had breached the contract under the contractual
framework.
1234.Based on the forgoing, it is clear that the termination of the Privatization Agreement
by the Agency was of contractual nature and justified under the contractual
framework. The only way in which liability of Respondent under the BITs could arise
is to somehow qualify acts of the Agency as “disguised abuse of public authority.”1857
However, no such abuse was present, despite the obvious efforts of Claimants to
fabricate the existence of bad faith on Agency’s side.
1235.Respondent respectfully reiterates that the appropriate test to be applied by the

Tribunal was the one developed in Vigotop v. Hungary:
“The issues for determining an expropriation in the context of a contract

termination are (i) whether the contract is terminated by the contractual
procedure rather than a legislative act or executive decree, and (ii) whether
there exists a legitimate contractual basis for termination, i.e., (a) the contract
or the governing law provides the ground for termination, (b) the evidence
substantiates a factual basis for invoking the contractual ground, and (c) the
1854
1855
Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11,
Award, 21 February 2017, paras. 329, 331-333, CLA-31.
1856
Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11,
Award, 21 February 2017, paras. 334, 335, CLA-31.
1857
Mr. Kristian Almås and Mr. Geir Almås v. The Republic of Poland (UNCITRAL), PCA Case No 2015-
13, Award, 27 Jun 2016, para. 282, RLA-85.
419
State acts in good faith, not abusing its right by a fictitious or malicious exercise
of it.”1858
1236.As explained in Respondent’s Counter-Memorial,1859 applied to the circumstances of

the present dispute, the test evidently indicates that the termination of the Privatization
Agreement did not amount to expropriation under the BITs.
4. There was no expropriation of Mr. Rand’s indirect shareholding
1237.Claimants do not dispute the fact that MDH Serbia’s 3.9% shareholding in BD Agro
was not affected by the Privatization Agreement’s termination. Instead, they develop
a theory that the termination of the Agreement and subsequent actions of the Agency
resulted in BD Agro’s bankruptcy and to loss of value of shares indirectly owned by
Mr. Rand. The claim is advanced under the label of indirect expropriation and based
on the Claimants’ interpretation of Annex B.10 contained in the Canada – Serbia
BIT.1860 Claimants’ assertions are wrong both as a matter of fact and law.
1238.Annex B.10 contains a list of factors that should be considered during the inquiry
about purported indirect expropriation:
(b) the determination of whether a measure or a series of measures of a Party

constitutes an indirect expropriation requires a case-by-case, fact-based inquiry
that considers, among other factors:
i. the economic impact of the measure or the series of measures, although

the sole fact that a measure or a series of measures of a Party has an
adverse effect on the economic value of an investment does not establish
that an indirect expropriation has occurred,
ii. the extent to which the measure or the series of measures interferes with
distinct, reasonable investment-backed expectations, and
iii. the character of the measure or the series of measures;1861
1858
Vigotop Limited v. Hungary, ICSID Case No. ARB/11/22, Award, 1 October 2014, para. 331 (emphasis
added), RLA-113.
1859
1860
Claimants’ Reply, Section V.C.5.
1861
Annex B.10(b), CLA-001.
420
1239.The Claimants’ argument with regard to the alleged indirect expropriation is based
mainly on misinterpretation of relevant facts.
1240.First, the loss of value of Mr. Rand’s shares was not caused by termination of the
Privatization Agreement. Rather, “the economic impact” suffered by Mr. Rand was
result of BD Agro’s bankruptcy. Contrary to what Claimants have been unsuccessfully
attempting to prove, it was Mr. Obradović (the alleged alter ego of Mr. Rand) that
managed BD Agro into bankruptcy and not the Agency. As it was explained
previously by Respondent, the pre-pack reorganization plan for BD Agro was quashed
by the decision of the Commercial Court of Appeals on 30 September 2015, before
the termination of the Privatization Agreement. It failed simply because BD Agro was
unsuccessful in securing and maintaining support of its biggest commercial creditor
(Banca Intesa).1862 The adoption of the Amended plan was not thwarted by the
Agency.1863
1241.Furthermore, the bankruptcy proceeding was conducted in lawful way and fully in
accordance with relevant Serbian laws. Mr. Rand has never used an opportunity to
object to any act taken during the course of BD Agro’s bankruptcy. As explained by
Respondent in its previous submission, if loss of an investment was a result of
bankruptcy, liability of the State for expropriation can arise only if the proceeding
itself was conducted in arbitrary manner and in breach of the host State’s law.1864
Claimants do not even try to argue otherwise.
1242.Second, Claimants submit that Respondent frustrated their legitimate expectations that
the pledge over BD Agro’s shares would be released after 8 April 2011 and that the
Privatization Agreement would not be terminated for reasons not expressly listed in
the Agreement.1865 The argument advanced here is in reality an attempt to read into
the Canada – Serbia BIT the existence of an umbrella clause. What Claimants
basically ask the Tribunal to do is to protect Mr. Obradović supposed contractual
expectations as Claimants’ legitimate expectation under international law. This is not
possible.
1862
1863
1864
1865
421
1243.Several investment tribunals have found that contractual expectations (expectations
that the contractual counter-party will live up to its obligations) cannot be equated
with legitimate expectations protected by international treaties. 1866 Moreover,
legitimate expectations arise out of specific representations made by the State towards
the investor.1867 Simply put – Respondent could not have made any commitments
directed to Claimants based on the contract concluded between the Agency and Mr.
Obradović. In addition, expectations need to be reasonable (objective) in order to be
legitimate.1868 Claimants were not objectively able to form expectations that the
Agency would not declare termination based on breach of Article 5.3.4. in
circumstances where the Agency has been warning Mr. Obradović for several years
that it considered such breach as a legitimate reason for termination and where Law
on Privatization expressly stipulated this.
1244.Finally, both measures complained of (refusal to release pledge on shares and

termination of the Privatization Agreement) are typical contractual measures. It
should be noted that Claimants attempt to analyze the character of Agency’s measures
by employing the method of mind reading, i.e. by submitting that those measures were
“fueled by improper motives.”1869 This is again both inapposite and untrue.
1245.To conclude, Claimants’ assertion that Mr. Rand’s indirect shareholding in BD Agro
was indirectly expropriated is manifestly unfounded.
5. Destruction of Claimants’ purported investment was not caused by Serbia
1246.As already explained in Respondent’s Counter-Memorial1870 and further elaborated

above,1871 demise of BD Agro’s business was inevitable consequence of Mr.
Obradović’s managerial techniques. BD agro was de facto bankrupt as early as March
1866
2007, para 561, RLA-114; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No.
ARB/07/24, Award, 18 Jun 2010, para. 335, RLA-115; Impregilo S.p.A. v. Argentine Republic, ICSID
Case No. ARB/07/17, Award, 21 jun 2011, para. 292, RLA-142 ; Glencore International A.G. and C.I.
Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019, para. 1378,
RLA-176.
1867
Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award on the
Merits, 6 June 2008, paras. 185, 186, RLA-186.
1868
RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v.
Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Responsibility and on the Principles of
Quantum, 30 November 2018, para. 261.
1869
1870
Respondent’s Counter-Memorial, Section V.C.4.
1871
422
2013.1872 Formal bankruptcy finally ensued in August 2016, on the initiative of Banca
Intesa, one of BD Agro’s biggest commercial creditor.1873 As a result, the company
was sold at the public auction in April 2019 for approximately EUR 13 million.1874
Since liabilities of BD Agro that caused the bankruptcy in the first place were
significantly larger in comparison with the price achieved at the auction, this clearly
demonstrates that the value of BD Agro at the date which Claimants refer to as the
date of expropriation was practically nonexistent.1875
1247.Respondent respectfully reiterates that the existence of causal link between the State’s
act or omission and harm suffered by the investor is precondition to the State’s liability
for expropriation under international law.1876 Apart from referring to the prerequisite
of causal link as “alleged requirement”1877 Claimants do not seriously dispute this
contention. Instead, they attempt to refute the Respondent’s argument in two different
ways.
1248.First, Claimants allege that BD Agro was not bankrupt at the time the Privatization
Agreement was terminated and that bankruptcy would have been avoided if not for
the termination.1878 This is wrong. As explained earlier, the company has never
obtained support for reorganization from one of its major creditors - Banca Intesa1879
Without support of that creditor the adoption of the pre-pack reorganization plan was
practically impossible. On the other hand, Mr. Cowan in his Expert Report explains
that, considering the record of BD Agro’s past performance, it is unlikely that the pre-
pack reorganization plan would be successful, even if adopted.1880
1249.Second, Claimants imply that the allegedly low purchase price for BD Agro achieved
as a result of the sale through public auction was somehow a result of non-transparent
1872
Pre-pack Reorganization Plan dated November 2014, p. 8, CE-321 – stating that the Company’s business
account was blocked under the enforce collection procedure on 8 March 2013 and has remained
continuously blocked ever since.
1873
Decision of the Commercial Court in Belgrade on opening bankruptcy proceedings over BD Agro of 30
August 2016, CE-109.
1874
Evidence of the sale of BD Agro dated 9 April 2019, RE-171.
1875
Second Expert Report of Sandy Cowan, para. 2.7.
1876
Oxus Gold v. Republic of Uzbekistan, UNCITRAL, Final Award, para. 748, RLA-123; Link-Trading Joint
Stock Company v. Department for Customs Control of the Republic of Moldova (UNCITRAL), Final Award,
April 18, 2002, para. 87, RLA-122.
1877
1878
1879
1880
Second Expert Report of Sandy Cowan, paras. 7.15., 7.16.
423
and illegal character of the public auction.1881 Respondent reminds once again that
such serious accusations are not supported by any evidence of wrongdoing.
1250.Therefore, the loss of Claimants’ purported investment was unavoidable consequence

of circumstances caused by Claimants themselves and not the result of expropriatory
taking by the Republic of Serbia.
6. Legality of the alleged expropriation
1251.In their Reply Claimants once again reiterate the contention that Serbia’s
“expropriation” was unlawful under international law. Their submission, however,
hardly adds anything new to the analysis since Claimants obviously struggle in effort
to find any support for the assertion in facts of the case.
1252.First, Claimants maintain that the recommendation issued by Ombudsman in his

control of the Agency’s and the Ministry of Economy’s conduct during the
privatization of BD Agro lacked public purpose.1882 It follows from here that
Claimants consider Ombudsman’s recommendation as a measure that terminated the
Privatization Agreement, allegedly leaving them without their investment.
Respondent has already explained why this is patently wrong.1883 In sum, Ombudsman
did not terminate the Privatization Agreement. Moreover, he did not even recommend
it termination. Ombudsman merely recommended that the Agency and the Ministry
finally clarify the legal status of BD Agro.1884
1253.In any event, Ombudsman’s recommendations are not binding, neither formally nor
practically,1885 and cannot be deemed as orders, as Claimants would like to label them.
There is absolutely no evidence that the recommendation affected the Agency’s
decision to terminate the Privatization Agreement in any way. The recommendation
was not even mentioned during the internal discussions at the Commission for
Control’s sessions about BD Agro.1886
1881
1882
Claimant’s Reply, para. 1124.
1883
1884
Opinion of the Ombudsman of 19 June 2015, p. 2, CE-42.
1885
1886
424
1254.Furthermore, even if the recommendation could be perceived as a recommendation to
terminate the Privatization Agreement, according to the reasoning adopted by the
tribunal in Tulip v. Turkey, a recommendation to consider termination of a contract is
not a misuse of sovereign powers.1887
1255.Claimants try to prove that the findings of the Tulip tribunal cannot be applied here
because, according to Claimants, the tribunal in that case found that the
recommendation of a State organ (Supreme Audit Board) to the contractual party
(Emlak) to consider terminating the contract with the investor did not affect the
decision to terminate.1888 The Claimants’ reading of the award is peculiar. The
observation relied on by Respondent was made by the tribunal separately and in
addition to the fact that the recommendation had no real impact on the decision. The
relevant paragraph of the award reads:
“As regards the recommendation of the Supreme Audit Board, suggesting

that Emlak consider termination of the project in light of the slow pace of
construction, the record does not reveal that any such recommendation had
any particular influence on Emlak. What is more, Claimant offers no basis
on which the Tribunal could find a mere recommendation to consider taking
an action as an improper exercise of sovereign power. Especially is that so
in the absence of any evidence that the Board exerted pressure on Emlak to
terminate the Contract or that its recommendation was motivated by an
improper purpose.”1889
1256.Clearly, Claimants’ interpretation of the award in Tulip is misplaced.
1257.By initiating control over the privatization process of BD Agro, the Ombudsman acted
fully in accordance with his statutory mandate.1890 Claimants again insist that the
Ombudsman acted out of ulterior motives.1891 However, blank assertions are not
substitute for evidence and labeling is not substitute for analysis. It is up to Claimants
1887
Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28,
Award, 10 March 2014, para. 418, RLA-114.
1888
1889
Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28,
Award, 10 March 2014, para. 418 (emphasis added), RLA-114.
1890
1891
425
to prove the existence of such motives.1892 Since they are unable to do so, the argument
lacks any merit.
1258.Second, Claimants submit that the alleged expropriation was done in breach of their
due process rights. Just as it was the case with their Memorial, Claimants again omit
to explain exactly how their right to be heard was breached by the Agency. This is
unsurprising. Discussions between Mr. Obradović and the Agency about the breach
of Article 5.3.4. lasted for several years. During that time Mr. Obradović had plenty
of opportunities to voice his position. He was also able to challenge the Agency’s
decision before the competent court – a right that he decided to use only to withdraw
his lawsuit in March 2016.1893
1259.Instead, Claimants concentrate on the supposed lack of due process during the
Ombudsman’s control of BD Agro’s privatization.1894 Respondent has already
indicated the fundamental flaw in Claimants’ reasoning in this matter1895 - due process
guaranties apply in an administrative or judicial procedure when the competent organ
determines rights and obligation of a party. The Ombudsman simply did not conduct
the administrative or judicial proceeding that would result in final determination of
Claimants’ rights. That alone should be more than enough to put the Claimants’
erroneous contention out of the way. The fact that Claimants chose not to respond to
this argument in their Reply is equally telling.
1260.Thus, the procedure in which Ombudsman exercises control over activities of State
organs and bodies entrusted with public authority cannot possible lead, even in theory,
to expropriation of anyone’s rights.
1261.In any event, the existence of due process guarantees does not entail that an investor
has the right to “participation in the sovereign decision to expropriate.”1896 Article
10(4) of the Canada – Serbia BIT and Article 5(2) of the Cyprus – Serbia BIT
respectively elaborate on the meaning of the due process guarantee in the context of
1892
See South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30
August 2018, paras. 565, 566, RLA-124.
1893
Witness Statement of Mr. Djura Obradovic dated 20 September 2017, para. 30.
1894
1895
1896
South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30
426
expropriation by declaring that the affected investor has a right to prompt review of
its case before an independent authority.1897 Claimants argue that the relevant BITs
require protection of an investor’s due process rights both during the adoption of the
expropriatory measure and the right to challenge the measure afterwards.1898
Claimants also assert that the Respondent’s reliance on South American Silver v.
Bolivia award is inapposite, since the tribunal in that case applied the provision of the
UK – Bolivia BIT that does not contain the requirement of due process during the
course of expropriation.1899 However, the South American Silver tribunal based its
findings that the claimant was not entitled to participate in the process of rendering
the decision on expropriation not only on text of Article 5 of the UK – Bolivia BIT,
but on the purpose and object of the BIT as well. In dismissing the claimant’s
argument, the tribunal opined:
“Such a result does not arise from the object and purpose of the Treaty, and
the Claimant does not allege or substantiate that the effective protection of
the investment under the Treaty requires participation to the investor in the
sovereign decision to expropriate. Nothing in the Treaty mandates a
Contracting Party, as the Claimant argues, to establish “legal recourse” to
call into question the “legality” of a decision that has not yet been
made.”1900
1262.More importantly, both cases on which Claimants rely in support of their argument
(Bear Creek v. Peru and AIG v. Kazakhstan) involved decisions issued in
administrative proceedings (Governmental decree in Bear Creek1901 and cancelation
of the construction permits by local authorities in AIG1902) that were addressed to the
investors and directly affected their rights. This was not the case with the control
1897
Article 10(4) of the Agreement between Canada and the Republic of Serbia for the Promotion and
Protection of Investments, CLA-1; Article 5(2) of the Agreement between Serbia and Montenegro and the
Republic of Cyprus on Reciprocal Promotion and Protection of Investments, RLA-130.
1898
1899
1900
South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30
August 2018, para. 587 (emphasis added), RLA-124.
1901
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November
2017, para. 446, CLA-119.
1902
AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan,
ICSID Case No. ARB/01/6, Award, 7 October 2003, para. 10.3.2(o)., CLA-121.
427
initiated by Ombudsman and finalized with the recommendation to competent bodies
to finally clarify the legal status of BD Agro.1903
1263.Finally, Respondent submits that it was under no obligation to compensate Claimants

since no expropriation of their investment occurred. Furthermore, Respondent
reiterates that the lack of compensation – in circumstances where all other conditions
for lawful expropriation are met – does not of itself render expropriation unlawful
under international law.
1264.This is the position espoused by the tribunal in Tidewater v. Venezuela, based on

comprehensive analysis of decisions rendered by international tribunals and scholarly
writings on the issue.1904 The strongest argument relied on by the tribunal in that case
refers to the relationship between the requirement of compensation and lawfulness of
indirect expropriation. Simply put, if expropriation could be considered unlawful for
the mere fact that no compensation was paid to the investor, no indirect expropriation
could ever be in accordance with international law – the fact which would render the
treaty-based standard of compensation effectively obsolete:
“Most expropriation claims turn on the question whether a measure is

expropriatory at all. In such cases, where the tribunal finds expropriation,
compensation is almost always due. Cases where expropriation is
acknowledged and the dispute revolves around the proper amount of
compensation are rare; cases where no compensation has been paid
because the label of expropriation itself is contested are the norm. That
means that almost every decision finding expropriation would also find
unlawful expropriation – and almost every tribunal would then set aside
the ‘fair market value at the time of expropriation’ standard for
compensation for expropriation. Such an approach thus would make a
detailed and elaborate element of the expropriation provision in modern
BITs, including the provisions of Article 5 of the Venezuela-Barbados BIT,
effectively nugatory.”1905
1903
Opinion of the Ombudsman of 19 June 2015, p. 2, CE-42.
1904
Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., et al. v. The Bolivarian Republic of
Venezuela, ICSID Case No. ARB/10/5, Award, 13 March 2015, paras. 129-240, RLA-125.
1905
Venezuela, ICSID Case No. ARB/10/5, Award, 13 March 2015, para, 138 (emphasis added), RLA-125.
428
1265.Contrary to what Claimants argue,1906 the fact that the dispute in Tidewater revolved
around the issue of whether the level of compensation offered by Venezuelan Reserve
Law was reasonable in the circumstances,1907 detracts nothing from the persuasiveness
of the tribunal’s reasoning.
D. THERE WAS NO IMPAIRMENT OF THE INVESTMENT BY ARBITRARY,

UNREASONABLE AND DISCRIMINATORY MEASURES
1. Sembi is not entitled to rely on non-impairment clauses contained in investment

treaties concluded between Serbia and third states
1266.Claimants invoke the most favored nation clause (the “MFN clause”) in order to avail
themselves of the non-impairment standard contained in (i) Article 2(3) of the
Germany-Serbia BIT; (ii) Article 2(2) of the BLEU-Serbia BIT; (iii) Article 2(3) of
the Finland-Serbia BIT; (iv) Article 3(2) of the UAE-Serbia BIT; and (v) Article 2 of
the Croatia-Serbia BIT.1908
1267.Respondent recalls that Sembi has not made an investment in the sense of the Cyprus-
Serbia BIT.1909 Nevertheless, even if the tribunal were to find otherwise, Cyprus-
Serbia BIT does not itself contain a non-impairment clause, and thus, Claimants are
attempting to introduce a standard of treatment not afforded to it by the basic treaty,
rather than just availing themselves of a more favorable standard already accorded to
it. This would be wrong.
1268.Claimants challenge as inapposite Respondent’s reliance on Hochtief v. Argentina

where the tribunal concluded that:
“it cannot be assumed that Argentina and German intended that the MFN
clause should create wholly new rights where none otherwise existed under
the Argentina-Germany BIT. The MFN clause stipulates a standard of
treatment and defines it according to the treatment of third parties. The
reference is to a standard of treatment accorded to third parties, not to the
1906
1907
Venezuela, ICSID Case No. ARB/10/5, Award, 13 March 2015, para, 143, RLA-125.
1908
1909
See above Sec.II.B.3.
429
extent of the legal rights of third parties. … The MFN clause is not a renvoi
to a range of totally distinct sources and systems of rights and duties: it is a
principle applicable to the exercise of rights and duties that are actually
secured by the BIT in which the MFN clause is found.”1910
1269.Claimants argue that the Hochtief decision does not support Respondent’s theory
because the analysis, in this case, did not concern the use of the MFN clause to import
substantive standards of treatment and instead related to the issue whether an investor
may circumvent the requirement to litigate the dispute for 18 months before local
courts, through an MFN clause.1911 However, the cited language from the decision
shows that the Hochtief tribunal did not, in any way, differentiate between the
operation of the MFN clause with respect to the substantive standards of treatment
and the procedural requirements for accessing jurisdiction. This is further confirmed
by the following considerations of the tribunal:
“Indeed, the (‘procedural’) right to enforce another (‘substantive’) right is

one component of the bundles of rights and duties that make up the legal
concept of what property is.
This is clear if one considers the case of a claim to money or to performance

having an economic value, both of which are stipulated by Article 1(c) of
the Argentina-Germany BIT to be within the definition of an ‘investment, or
of intellectual property rights, addressed in Article 1(d). The argument that
although a State could not cancel such claims or intellectual property rights
without violating the BIT, it could cancel the right to pursue the claims or
enforce the intellectual property rights through litigation or arbitration
without violating the BIT is nonsensical. It is nonsensical because the right
to enforcement is an essential component of the property rights themselves,
and not a wholly distinct right.”1912
1910
Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, Decision on Jurisdiction, 24 October
2011, para. 81, RLA-88.
1911
1912
2011, paras. 66-67, RLA-88
430
1270. Therefore, the tribunal’s pronouncement should be equally applicable to both
situations.
1271.A similar conclusion was also reached by the tribunal in Access Mezzanine v.
Hungary:
“The Tribunal is of the view that an investor may properly rely only on
rights set forth in the basic treaty, meaning the BIT to which the investor’s
home state and the host state of the investment are directly parties, but not
more than that.”1913
1272.Therefore, in case that the tribunal were to consider Sembi as an investor within the
meaning of the Cyprus-Serbia BIT, it could still only avail itself of the rights it was
afforded under the basic treaty, whose substance may be expanded by operation of the
MFN clause. However, these rights may not be supplemented with new rights, not
envisaged in the original treaty, such as protection against impairment of the
investment through arbitrary or discriminatory conduct.
2. The legal standard for arbitrary conduct
1273.In arguing what should be taken as the standard for arbitrary conduct, rather than
replying to the interpretation of the standard put forward by Respondent, Claimants
mostly repeat their arguments from the Memorial. Claimants essentially take a
somewhat convoluted journey in order to make a full circle and come to a supposed
agreement between the parties on the expression given to the standard by Professor
Schreuer, which Claimants initially proposed.1914 In doing this Claimants miss the
point of Respondent’s argument on the meaning of “arbitrary”, namely, that this is a
standard entailing a high threshold1915, and that impugned measures need to reach a
certain level of excessiveness and gravity in order to breach the BIT, as clearly stated
by the ICJ in the ELSI case. 1916.
1913
Case No. ARB/12/3, Decision on Respondent’s Objections under Arbitration Rule 41(5), 16 January 2013,
para. 74, RLA-148.
1914
1915
See Counter Memorial, paras. 705-711.
1916
See Case Concerning Elettronica Sicula S.p.A. (United States of America v. Italy), ICJ, Judgment of 20
July 1989, I.C.J. Reports 1989, para. 128, RLA-89.
431
1274.Claimants reiterate Professor Schreuer’s summary of certain types of arbitrary
conduct as, it seems, their preferred interpretation1917 and criticize Respondent’s
arguments against relying on this summary.1918 Nevertheless, Claimants themselves
concede that such a summary is not a final statement of the law.1919 Moreover, in his
treatise, Professor Schreuer himself refers to the summary as only one of the ways in
which tribunals have approached the determination of the substance of arbitrary
conduct.1920 This only underlines his earlier conclusion that the “conceptual contours
[of the standard of protection against arbitrary or discriminatory measures] are still
somewhat sketchy”,1921 which is precisely why Respondent has suggested application
of the standard pronounced in the ELSI case.1922 Namely that:
“Arbitrariness is not so much something opposed to a rule of law, as

something opposed to the rule of law... It is a wilful disregard of due process
of law, an act which shocks, or at least surprises, a sense of judicial
propriety.”1923
1275.Furthermore, in defining arbitrariness and setting the standard for arbitrary conduct,
arbitral tribunals regularly rely on the definition provided in ELSI.1924 Even the
tribunal in Lemire v. Ukraine which quotes Professor Schreuer’s categories does this
by incorporating them together with the ELSI language:
1917
1918
1919
1920
See Rudolf Dolzer, Christoph Schreuer, Principles of International Investment Law, Oxford University
Press, 2012, p. 193, CLA-130 (“Some tribunals have accepted the following categories of measures as
arbitrary: (a) a measure that inflicts damage on the investor without serving any apparent legitimate
purpose; (b) a measure that is not based on legal standards but on discretion, prejudice, or personal
preference; (c) a measure taken for reasons that are different from those put forward by the decision maker;
(d) a measure taken in wilful disregard of due process and proper procedure.” (emphasis added)), See also,
ibid, pp. 191-193.
1921
Christoph Schreuer, Protection against Arbitrary or Discriminatory Measures, 2009, p. 198, CLA-13.
1922
See Counter Memorial, para. 707.
1923
Case Concerning Elettronica Sicula S.p.A. (United States of America v. Italy), ICJ, Judgment of 20 July
1989, I.C.J. Reports 1989, para. 128, RLA-89.
1924
See, e.g., Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, para.
392, CLA-39; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January
2007, para. 318, RLA-48; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12
October 2005, paras. 176-177, CLA-40; Duke Energy Electroquil Partners and Electroquil S.A. v. Republic
of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, para. 378, CLA-37; Cervin
Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica, ICSID Case No. ARB/13/2,
Award, 7 March 2017, paras. 521-523, RLA-149; Crystallex International Corporation v. Bolivarian
Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, Award, 4 April 2016, paras.
577-578 & 597, CLA-117.
432
“Arbitrariness has been described as “founded on prejudice or preference
rather than on reason or fact”; “…contrary to the law because…[it] shocks,
or at least surprises, a sense of juridical propriety”; or “wilful disregard of
due process of law, an act which shocks, or at least surprises a sense of
judicial propriety”; or conduct which “manifestly violate[s] the
requirements of consistency, transparency, even-handedness and non-
discrimination. … Summing up, the underlying notion of arbitrariness is
that prejudice, preference or bias is substituted for the rule of law.”
Professor Schreuer has defined (and the Tribunal in EDF v. Romania has
accepted) as “arbitrary”:
“a. a measure that inflicts damage on the investor without serving any
apparent legitimate purpose;
b. a measure that is not based on legal standards but on discretion,

prejudice or personal preference;
c. a measure taken for reasons that are different from those put forward by
the decision maker;
d. a measure taken in wilful disregard of due process and proper

procedure.”
Summing up, the underlying notion of arbitrariness is that prejudice,

preference or bias is substituted for the rule of law.” 1925
1276.Claimants rely on the decisions in LG&E v. Argentina, Siag v. Egypt and Lauder v.
Czech Republic in seemingly trying to relax the standard.1926 However, the tribunal in
LG&E v. Argentina, as already quoted by Respondent1927, found that arbitrariness
required the state to implement a measure “without engaging in rational decision-
making process”1928, which can hardly be interpreted as a low threshold. Both the
tribunals in Siag v. Egypt and Lauder v. Czech Republic relied on the ordinary
meaning of the term “arbitrary”, but this does not conflict with the ELSI standard as
1925
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability,
14 January 2010, paras. 262-263, RLA-150 (emphasis added).
1926
See Reply, paras. 1152, 1154-1155.
1927
1928
LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID
Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 158, CLA-8.
433
proposed by Respondent.1929 Namely, the pronouncement of the ICJ in the ELSI case
has been widely relied on by the tribunals as the authoritative interpretation of the
standard precisely because it is close to the ordinary meaning of the term.1930
1277.Claimants also quote the recent decision in Glencore v. Colombia in arguing that the
term “unreasonable measures” is broader than arbitrary measures, including also
“measures that are irrational in themselves or result from irrational decision-making
process”.1931 This goes against the general wisdom that the terms “arbitrary”,
“unreasonable” and “unjustifiable” are used interchangeably, without any apparent
distinction.1932 Even more importantly, such definition of unreasonableness does not
seem to actually add any substance to the standard than what is already encompassed
by the definition of arbitrariness.1933 Nonetheless, it should be noted that the tribunal
in Glencore v. Colombia explicitly observed that the threshold for finding
unreasonableness is a high one.1934
1278.As already noted by Respondent the high threshold suggests that an ordinary failure
to comply with the law would not be sufficient for the finding of arbitrariness. This
was noted by the Tribunal in Cargill v. Mexico when it stated that:
“[…] [A]rbitrariness may lead to a violation of a State’s duties […] but

only when the State’s actions move beyond a merely inconsistent or
questionable application of administrative or legal policy or procedure to
the point where the action constitutes an unexpected and shocking
1929
1930
See e.g. Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007,
para. 318, RLA-48 (“the definition in ELSI is the most authoritative interpretation of international law and
it is close to the ordinary meaning of the terms emphasizing the willful disregard of the law.”); Azurix Corp.
v.Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 392, CLA-39 (“the
definition in ELSI is close to the ordinary meaning of arbitrary since it emphasizes the element of wilful
disregard of the law.”).
1931
Award, 27 August 2019, para. 1452, CLA-128, cited in Reply, para. 1153.
1932
See Christoph Schreuer, Protection against Arbitrary or Discriminatory Measures, 2009, p. 183, CLA-
13; Rudolf Dolzer, Christoph Schreuer, Principles of International Investment Law, Oxford University
Press, 2012, p. 191, CLA-130; National Grid plc v The Argentine Republic, Award, UNCITRAL, 3
November 2008, para. 197, CLA-6.
1933
See e.g. LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic,
ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 158, CLA-8.
1934
See Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No.
ARB/16/6, Award, 27 August 2019, paras. 1455-1456, CLA-128.
434
repudiation of a policy’s very purpose and goals, or otherwise grossly
subverts a domestic law or policy for an ulterior motive.”1935
1279.Even more to the point, as the tribunal in Duke Energy v. Ecuador concluded,
“contractual breaches do not amount, in themselves, to arbitrary conduct”1936 and
Claimants must show something beyond a normal contractual dispute, which would
shock (or surprise) the judicial propriety, in order to establish arbitrary or
unreasonable conduct.1937
1280.Finally, Claimants allege that Respondent is taking the stance that bad faith is a
necessary component of arbitrary conduct.1938 However, Claimants are taking
Respondent’s argument out of context. Namely, Respondent does not allege that bad
faith is an element of arbitrariness in general. Rather, the point is in the following.
When claiming specifically that certain conduct is arbitrary because it is “a measure
taken for the reasons that are different from those put forward by the decision-maker”,
as Claimants do with respect to the termination of the Privatization Agreement,1939
they ought to also show an element of bad faith.1940 The reason is that bad faith is
clearly present when false reasons are provided for one's action. It may even be
augmented with a desire to harm the investor, mentioned in Professor Schreuer's
specification that this applies “in particular, where a public interest is put forward as
a pretext to take measures that are designed to harm the investor” .1941 .
1281.In any event, while there may be some overlap in the standards proposed, Claimants
need to show that the conduct complained of reaches a certain threshold to breach the
non-impairment standard, or in other words, the conduct must “shock[], or at least
surprise[], a sense of juridical propriety”, and breaches the rule of law, rather than
just a rule of law.1942
1935
Cargill Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18 September
2009, para. 293, CLA-129.
1936
1937
1938
1939
See Memorial, para. 428 & Reply, paras. 1181-1202.
1940
1941
Christoph Schreuer, Protection against Arbitrary or Discriminatory Measures, 2009, p. 188, CLA-13.
1942
Elettronica Sicula SpA (ELSI) (United States v. Italy), ICJ Reports 1989, Judgment of 20 July 1989, para.
128, RLA-89.
435
3. The conduct of the Agency was not arbitrary nor unreasonable
1282.Claimants argue that the following conduct of the Agency was arbitrary and
unreasonable: (i) refusal to release the pledge over BD Agro shares; (ii) refusal to
allow the assignment of the Privatization Agreement to Coropi; and (iii) the
termination of the Privatization Agreement. Respondent will in turn show that nothing
in the conduct of the Agency in these instances could be understood as either arbitrary
or unreasonable.
3.1. Agency’s refusal to release the pledge was not arbitrary nor unreasonable
3.1.1. The refusal was in accordance with the Serbian Law
1283.Claimants first argue that the Agency’s refusal to release the pledge was contrary to
Serbian Law. They claim that the Share Pledge Agreement only allowed the Agency
to “maintain the pledge ‘for a period of 5 years as of the day of conclusion of the sale
and purchase agreement, that is, until the final payment of the sale and purchase
price’”.1943 According to Claimants this means that the Agency had to release the
Pledge immediately upon the payment of the Purchase Price.1944
1284.Respondent, relying on the expert report of Professor Radovic, already explained that
the purpose of the Pledge was to prevent the disposal of the shares by Mr. Obradovic
while he still had obligations to comply with under the Privatization Agreement.1945
Claimants attempt to refute this by arguing that the Pledge could only secure monetary
receivables, and thus, could not possibly secure Mr. Obradovic’s compliance with all
obligations assumed under the Privatization Agreement.1946 However, this rule is not
expressly provided by Serbian law and is only derived from the manner in which the
pledge is generally enforced, namely, by selling the pledged object and satisfying the
1943
See Reply, para. 1163, citing Privatization Agreement, 4 October 2005, Schedule 1: Share Pledge
Agreement, Article 2, CE-17. As noted by Respondent’s expert, Professor Radovic, this translation of the
Article 2 of the Share Pledge Agreement is incorrect and the provision states the pledge is established for a
period of five years or until the final payment of the purchase price. Second Expert Report of Professor
Mirjana Radovic, para. 50.
1944
1945
See Counter-Memorial, para. 716; see also First Expert Report of Professor Mirjana Radovic, paras. 65-
67.
1946
436
secured claim from the purchase price. Contrary to this, as Professor Radovic
concludes,
“in case of privatization, the pledge secured the Privatization Agency’s

(future and conditional) right to claim shares back from the buyer in case
his potential breach of contract eventually led to termination of the
privatization agreement”.1947
1285.This clearly encompassed any breach of the Privatization Agreement, irrespective of

whether it arose from a monetary or non-monetary obligation.
1286.Furthermore, the Agency had clear legal grounds for its refusal to release the pledge
for as long as Mr. Obradovic did not fulfill his obligation and remedied the breach of
Article 5.3.4 of the Privatization Agreement. Namely, under Article 122 of the Law
on Obligations, a contracting party in a bilateral contract is not obliged to fulfill its
obligation unless the other party fulfills or is ready to simultaneously fulfil its own
obligation.1948 Mr. Obradovic was first notified of the breach and the obligation to
remedy it in early 2011,1949 and from that moment on until the termination of the
Privatization Agreement he has failed to fulfill his obligation. Therefore, the refusal
to release the Pledge was not an arbitrary act, but a legitimate exercise of the Agency’s
legal rights.
1287.Claimants argue that it is evident from the report of the Ministry of Economy which
states that the limitations imposed by Article 5.3.4 of the Privatization Agreement
should be considered concluding with 8 April 2011 – the day Mr. Obradovic paid the
last installment of the purchase price – and even from Respondent’s own submission
stating that disposal of assets in contradiction with Article 5.3.4 occurring after 8 April
2011 should not be considered as a breach of the Privatization Agreement, that the
term of the Agreement expired upon the payment of the Purchase Price.1950 According
to Claimants, because Article 5.3.4 provides that it will apply during the term of the
Agreement, the statements referred to above prove that that term expired on 8 April
2011. This is a misrepresentation of these arguments. Namely, the only thing that was
1947
Second Expert report of Professor Mirjana Radovic, para. 47.
1948
See Law on Obligations, Article 122, RE-32. See also above Sec.I.D.3.
1949
1950
437
stated by the Ministry and Respondent is that disposal of assets which are subsequent
to the payment of the Purchase Price cannot be grounds for a breach of Article 5.3.4.
This however has no effect on the consequences of a breach that occurred and was
established prior to the payment of the purchase price, as in the present case, nor does
it affect the Buyer’s obligation to remedy the existing breach.1951
3.1.2. The Commission for Control did not act in an arbitrary nor
unreasonable manner
1288.Claimants also contend that the Commission for Control acted in bad faith and rely
on the audio recordings of two separate sessions of the Commission as their
evidence.1952 Claimants argue that the Agency purposefully ignored Mr. Obradovic’s
request for release of the Pledge, and avoided the issue as it knew that the Pledge had
to be released.1953
1289.Mr. Obradovic submitted his first request for the release of the Pledge in 2012.
Claimant’s argue that the fact that the Agency did not act on or reply to Mr. Obradovic
was arbitrary and unreasonable because it was required under the Share Pledge
Agreement to immediately do so.1954 Respondent has explained already in the
preceding paragraphs that the Agency was under no such obligation and that there
were valid reasons for the Agency to refuse the release of the Pledge. It was precisely
these reasons that the Agency took into account when deciding upon this course of
action:
“We did not act upon this request. We did not reply to this request because
of the same reasons we are giving now in our, so to say, letter to the
Commission. Therein we say that if the Commission was to render a
decision on deletion of pledge against shares, excuse me, if the Agency was
to render a decision on deletion of pledge against shares to the buyer
registered to his benefit, [he] would be free to dispose of them, which [is]
1951
1952
See Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, CE-
768; Transcript of the audio recording from meeting of the Commission for Control, 19 June 2015, CE-770.
1953
1954
438
certain bearing in mind the buyer’s request for assignment of the
agreement.1955
1290.Moreover, Mr. Obradovic was subsequently informed that the Agency would not
release the Pledge on shares before he demonstrates the performance of the
Privatization Agreement in line with the Agency’s Notices. At a meeting held on 4
February 2014, Mr. Obradovic was expressly informed that the Agency could not
issue the decision on the release of the pledge since he had not complied with the
Notices instructing him to remedy the breaches of the Privatization Agreement noted
in January 2011.1956 Likewise, in the 27 April 2015 Notice, issued after the above-
mentioned session of the Commission for Control, Mr. Obradovic was informed that
his request for the release of the Pledge would be considered only after expiration of
the additional term for compliance granted by the said Notice.1957
1291.Claimants also refer to Mr. Obradovic’s additional request submitted in June 2015
through his lawyer and quote one of the members of the Commission commenting on
this request and stating:
“Fortunately, the attorney did not submit a valid power of attorney, so we

will reply that we do not know who authorized him, and so forth.”1958
1292.For Claimants, this is a clear show of bad faith. Respondent, on the other hand, submits
that this was just one of the comments put forth as part of the discussion at the session.
The actual letter sent to Mr. Obradovic’s attorney on 26 June 2015, in response to his
request of 16 June 2015 followed the clear stance of the Agency and explicitly stated
that the request would be considered only after the expiration of the period granted to
Mr. Obradovic to comply with his obligations.1959
1293.As the second and to them “even more shocking” showing of the Agency's bad faith,
Claimants invoke its supposed conscious violation of the Share Pledge Agreement, as
1955
768;
1956
1957
Letter from the Privatization Agency to D. Obradović of 27 April 2015, p. 3, CE-348.
1958
See Reply, para. 1170, quoting Transcript of the audio recording from meeting of the Commission for
Control, 19 June 2015, p. 4, CE-770.
1959
Letter from Mr. Vasiljevic to the Privatization Agency of 16 June 2015, p. 1, RE-65. Letter from the
Privatization Agency to Mr. Vasiljevic of 26 June 215, p. 1, RE-66.
439
the Agency knew that Mr. Obradovic was entitled to the release of the Pledge.1960
They rely on a quote from Ms. Vuckovic that is nevertheless, as already shown above,
in line with the Agency's consistent approach towards the matter of the release of the
Pledge exhibited throughout this privatization process whereas the Pledge could only
be removed once Mr. Obradovic remedied the breach of the Privatization
Agreement.1961
1294.The Agency’s conduct was fully in accordance with the Privatization Agreement and
general contract law. It also had a legitimate motivation and purpose, and as such it
cannot be said not to have engaged “rational decision-making process” as Claimants
attempt to portray it.1962
1295.Claimants also rehash their argument that the audio recordings of the sessions of the
Commission for Control show that the refusal to release the Pledge was not a
commercial conduct and that it was a measure adopted to ease the supposed public
pressure. Respondent has already refuted this argument above and respectfully directs
the Tribunal to that discussion.1963
3.2. Agency’s refusal to allow the assignment of the Privatization Agreement to

Coropi was not arbitrary nor unreasonable
1296.Claimants also assert that the Agency’s refusal to allow for the assignment of the
Privatization Agreement from Mr. Obradovic to Coropi “significantly contributed to
BD Agro’s insolvency”, “constituted an arbitrary and unreasonable measure” and
inflicted damage on the investor “without serving any legitimate purpose”.1964
1297.Namely, Claimants argue that the Agency “clearly did not regard a bank guarantee
as the sole method of securing its rights, but expressly communicated to the Claimants
that it would be satisfied with ‘other means of security’”.1965 They then go on to say
that Mr. Obradovic offered such security by agreeing in the assignment agreement
with Coropi to guarantee the performance of Coropi’s obligations.1966 Claimants draw
1960
1961
See above Sec.I.D.2.
1962
1963
1964
1965
1966
See, Reply, para. 1178.
440
their conclusions from the list of documents that Mr. Markicevic testifies was
provided to them in 2013 by the Agency which lists the following:1967
“(…) certified statement on pledge provided by the buyer as guarantee that

the assignee will perform his/her obligations from the assigned sale
agreement (the pledge can be provided in the form of a bank guarantee, solo
promissory note, pledge or other means of security or by signing as the
pledgor the Amendment to the Sale Agreement to be concluded by the
Agency and the assignee)”
1298.However, Claimants presuppose that the Agency would necessarily have to accept the
security of the buyer’s choosing. This is difficult to accept, especially in cases where
the buyer has a proven record of negligence in contract performance like Mr.
Obradovic.1968 In any event, as shown by Respondent, the conditions for the
assignment were not fully met at any moment.1969 Moreover, the Agency was clear
that it cannot render any measures or take any decision with regard to BD Agro while
the Supervision Proceedings were ongoing1970 and the Rulebook which was in force
at the time the Supervision Proceedings concluded in April 2015, had the bank
guarantee as the only possible type of security.1971
1299.Claimants also argue that the Agency never got to the stage where it would actually
review the documentation, and thus, it engaged in negotiations on this matter in bad
faith.1972 They base this on the audio recording of one of the sessions of the
Commission for Control, however, the relevant part actually states the following:
“In order for an agreement to be assigned certain conditions need to be met.

They did, at one point, deliver this documentation which we did not review
officially. The Centre, of course, reviewed it and it was not complete, but we
1967
See Second Witness Statement of Mr. Igor Markicevic, paras. 26-29; List of documents requested by the
Privatization Agency dated 11 June 2013, CE-272.
1968
1969
See above Sec.I.E.5. See also Counter-Memorial, Sections II.D.2.-3.
1970
See above Sec.I.E.3.
1971
“Commission [for Control] shall render decision on prior approval to the buyer for assignment of the
[privatization] agreement if the buyer delivers the following documents:
(…) certified statement on pledge by which the buyer guarantees that the assignee will perform his/her
obligations from the assigned agreement in the form of a bank guarantee in the value of 30% of the purchase
and sale price [from the privatization agreement] …” Rulebook on Undertaking of Measures of 7 April
2014, Article 34, RE-93.
1972
441
had never... (Julijana Vuckovic adds: put it on the agenda) reached that
phase where we would ask them to supplement the documentation.”1973
1300.This is in line with what was said at the same session just a few minutes earlier:
“[…] in August 2013, the buyer submitted a request for assignment of the
agreement to one Canadian company […] the Centre for Control reviewed
the documentation submitted by the assignee, and we determined at that
point that the assignee did not submit the entire documentation, which was
pointed out on several occasions in meetings held at the mere headquarters
of the Agency”1974
1301.Contrary to Claimants’ assertion, this clearly shows that there was no bad faith on part
of the Agency.
1302.At the outset, Respondent reiterates that in refusing to consent to assignment the
Agency did not affect any contractual rights of the buyer under the Privatization
Agreement. Claimants reply to this that the purpose of the Privatization Agreement
was to transfer ownership of BD Agro shares to Mr. Obradovic, and disposal of
property as Mr. Obradovic sees fit would be one of the most fundamental aspects of
those ownership rights.1975 However, an assignment of contract is not a simple
disposal of property rights, and in such case the Agency would be fully entitled to
refuse assignment under general contract law. It did so, as any party to a contract
would in a situation where the other party is in breach of its obligations.
1303.In conclusion, the Agency’s refusal to consent to the proposed transfer does not fall
within the scope of the impairment standard and in any event the Agency’s decision
in the circumstances and insistence on proper documentation can hardly be viewed as
arbitrary.
1973
768;
1974
768.
1975
Reply, para. 1180.
442
3.3. The termination of the Privatization Agreement was not arbitrary nor
unreasonable
1304.Claimants allege that the termination of the Privatization Agreement constitutes

unreasonable or arbitrary treatment. First, they argue that the Agency’s decision to
terminate the Privatization Agreement could not have been a rational reaction to Mr.
Obradovic’s breaches because the decision disregarded the “instruction” contained in
the opinion of the Ministry of Economy of 30 May 2012 an the advice of the Agency’s
legal counsel given in June 2013.1976 Claimants further argue that for the issue at hand
it is not important whether these opinions were binding, but whether the decision to
disregard them was rational.1977
1305.To begin with, the 2012 opinion of the Ministry of Economy simply states that there
is “no economic justification for the termination of the agreement”.1978 This is
different from an assessment of potential legal grounds for the termination. The latter
aspect of the issue was covered only by the report of the Ministry issued after its
control of the legality of the Agency’s conduct in 2015. This report found that a breach
of Article 5.3.4. did indeed exist.1979
1306.Further, as regards 2013 Attorney’s Opinion, while the Agency was free to seek
outside legal advice, it was certainly not bound to follow it, nor can the choice not to
do so automatically be judged as unreasonable. Nevertheless, as Respondent
explained above, the 2013 Attorney’s Opinion was superficial and ignored the existing
court practice of the Supreme Court of Cassation.1980 Bearing that in mind, the
Agency’s disregard of the opinion is not surprising or unreasonable.
1307.Second, Claimants allege a “series of inexplicable turnabouts” continuing with the

report from the Supervision Proceedings which, in opposition to the Ministry’s
opinion from 2012, directed the Agency to grant Mr. Obradovic an additional period
of time in order to rectify the breach of Article 5.3.4 of the Privatization Agreement.
According to Claimants this deadline was “fully discretionary” and “unrealistic” and
1976
1977
1978
Letter from the Ministry of Economy to the Privatization Agency, 30 May 2012, CE-33.
1979
Report of Ministry of Economy on the Control over the Privatization Agency 7 April 2015, p. 13, CE-98.
1980
See above para. 217.
443
had a hidden agenda – to postpone the Commission’s decisions on the release of the
pledge and the assignment of the Privatization Agreement.1981
1308.As explained, the stances taken by the Ministry do not contradict each other as they
simply assess different aspects of the issue. Furthermore, Claimants’ insistence that
the time left for Mr. Obradovic to remedy the breach was unrealistic is hard to
understand. Namely, the deadline corresponds to previous additional time periods left
for Mr. Obradovic to remedy breaches of the contract.1982 Mr. Obradovic was
subsequently granted a second extension of the time to remedy the breach. 1983 It
should be recalled however, that the breach occurred in late 2010 and was discovered
in early 2011.1984 By the time the deadline Claimants complain of was granted, more
than four years have passed from the breach.
1309.Claimants also argue that it is evident from the audio recordings of the sessions of the
Commission for Control that the Commission was aware that Claimants would not be
able to remedy the breach in the given time.1985 But as explained by Respondent,
Claimants pick and choose among the statements of the members of the commission
and omit relevant information as it suits their arguments. The recordings actually show
that the Commission even engaged in a bona fide examination of different contractual
options and even at one point considered a certain “loosening” of the conditions.1986
Finally, in relation to Claimants’ argument that the aim was to find plausible excuse
for postponement of the Commission’s decision on the release of the pledge and the
assignment of the Privatization Agreement, a simple question needs to be asked –
what would have been the purpose of this postponement? The only reasonable
explanation is that, had the Agency been so set on the termination of the Agreement
as Claimants purport to present it, it would have done it in 2011 when the Buyer failed
1981
1982
See e.g. Notice of the Privatization Agency on Additional Time Period, 24 February 2011, CE-31; Notice
of the Privatization Agency on Additional Time Period 22 June 2011, CE-96; Notice of the Privatization
Agency on Additional Time Period 6 October 2011, CE-97; Notice of the Privatization Agency on
Additional Time Period 22 December 2011, CE-32; Notice on Additional Time Period of 22 June 2012,
RE-15; Notice of the Privatization Agency on Additional Time Period 31 July 2012, CE-78; Notice of the
Privatization Agency on Additional Time Period 8 November 2012, CE-79.
1983
Letter from the Privatization Agency to Djura Obradovic and BD Agro, CE-351.
1984
1985
1986
See above Sec.I.D.2; see also Transcript of the audio recording from meeting of the Commission for
Control, 23 April 2015, p. 10, CE-768; Transcript of the audio recording from meeting of the Commission
for Control, 19 June 2015, p. 5, CE-770.
444
comply with its Notice for an additional time period to remedy the breach of Article
5.3.4. and it would have not given Mr. Obradovic yet another opportunity to do so in
April 2015.
1310.Third, much of Claimants argument in the context of impairment is still mainly based
on the assumption that the Ombudsman’s recommendation was the main cause and
the main reason for the termination. Respondent has extensively discussed the
absurdity of this theory. To begin with, Ombudsman’s recommendations lack any
binding force. Claimants, however, assert that this is irrelevant. They argue that the
recommendations nevertheless carry significant authority and invoke an 86.3%
compliance rate that the recommendation have.1987 As Professor Radovic notes, this
still leaves a significant number of recommendations that were not complied with.1988
Moreover, Claimants do not provide any evidence of the supposed influence of the
Ombudsman on the Agency apart from relying on the general role that the
Ombudsman has within the state administration.1989
1311.Claimants further argue that while the Ombudsman did not provide express orders to
the Ministry of Economy and the Agency, he did not need to as his recommendation
and subsequent letters were “clear enough”.1990 However, the substance of
Ombudsman’s recommendation in the present case is different from how Claimants
present it. The Ombudsman never recommended to the Agency to terminate the
Privatization Agreement. Rather, the recommendation was that the Privatization
Agency and the Ministry of Economy should finally clarify the status of the
Privatization Agreement, i.e. whether the conditions for the termination have or have
not been met.1991 Clearly, the Privatization Agency’s was not required in any way to
terminate the Privatization Agreement by the Ombudsman’s recommendation, as it
could as well determine that the conditions for termination had not been met and
1987
1988
1989
1990
1991
“In cooperation with the Ministry of Economy, the Privatization Agency shall take all necessary measures
to determine, within the shortest period of time, whether all conditions stipulated by the Law on Privatization
of 2001 for termination of the Agreement on sale of socially owned capital through the method of public
auction of the subject of privatization “Buducnost” Dobanovci have been fulfilled, in order to finally clarify
legal status of the subject of privatization, that is, of company “BD Agro AD” Dobanovci and its employees
who, for a long period of time, have lacked any certainty regarding manner of exercising of their labour
rights.” Opinion of the Ombudsman of 19 June 2015, p. 1, para. 1, CE-42.
445
decide to issue the Buyer with a certificate confirming that he fulfilled his duties under
the Privatization Agreement and to formally end the privatization process of BD Agro.
1312.Claimants also invoke subsequent correspondence between the Agency and the
Ombudsman.1992 They argue that the Privatization Agreement was terminated only ten
days after the letter of the Ombudsman dated 18 September 2015.1993 Claimants’ also
make much of the fact that on 21 October 2015, the Ombudsman sent a letter to the
Agency, closing his investigation, where he stated that the Agency fully acted in
accordance with the recommendation.1994 However, as Respondent already explained,
in all correspondence the Ombudsman simply maintained the same position – that the
Agency ought to take necessary measures in order to decide whether or not to
terminate the Privatization Agreement.
1313.Finally, Claimants argue that the Ombudsman’s interference was “a patent example
of an abuse of power without any legitimate function”, because the exercise of
Ombudsman’s powers must pursue the goal of protecting citizens’ rights.1995
According to Claimants the control over the legality of the conduct of the Agency
would not satisfy this requirement because the Agency’s and the Ministry’s control of
Mr. Obradovic’s compliance with Articles 5.3.3 and 5.3.4 of the Privatization
Agreement concerned only financial aspects of the transaction and were unrelated to
the rights of employees.1996 Nevertheless, as Professor Radovic states:
“pursuant to Article 1 of the Law on Ombudsman, the Ombudsman is

defined as ‘an independent state body that protects the rights of citizens and
controls the work of [...] organizations [...] entrusted with public authority’
(emphasis added). As I explained in my First Expert Report, the
Ombudsman was expressly authorized to control the legality and proper
work of authorities (Art. 17(2)), including holders of public authority (such
as the Privatization Agency) Since the Privatization Agency was entrusted
to control the privatization process and to follow up on contract
1992
1993
1994
See Letter from the Ombudsman to the Privatization Agency, CE-727.
1995
1996
446
performance, in my view the Ombudsman had the authority to look into the
case of BD Agro.”1997
1314.Finally, Claimants comment that if the Ombudsman were truly concerned with rights
of employees he would have, for example intervened in the failed privatization of
Minel Transformatori which ended in much controversy.1998 However, this argument
is completely irrelevant. Claimants submit only one newspaper article1999 which
provides very little context, and never mentions the Ombudsman, clearly making it
impossible to determine anything on the role he had or did not have in the case.
1315.Fourth, Claimants argue that the Privatization Agreement was terminated due to the
pressure from the Ombudsman and the trade unions, and not for reasons put forward
by Respondent. However, Claimants fail to produce any actual evidence of the
pressure they claim, let alone evidence of its supposed effect on the decision of the
Commission for Control. Claimants further claim that the decision was unclear on the
grounds for termination,2000 referring to both Article 5.3.3. and 5.3.4. Respondent has
already addressed this issue. Namely, the Notice on Termination states that the
Commission for Control took into account the conduct of the buyer with respect to the
alienation of the fixed assets (Article 5.3.3), but does not state that this was a reason
for termination.2001 Claimants assert that this is highly inappropriate due to the impact
of the Notice on Claimants’ rights.2002 However, the only relevant matter is that it is
undoubtedly clear what was the ground for the termination, as only this had legal
effect on the legal relationship of the parties, and there is absolutely no confusion
about that.
1316.Essentially, the entirety of Claimants’ case about alleged arbitrary treatment in the
termination of the Privatization Agreement hinges upon the erroneous notion that the
Ombudsman ordered the Agency to terminate the agreement. It looks as if Claimants
argue that the repeated Notices of the Agency requesting Mr. Obradovic to remedy
1997
Second Expert Report of Professor Mirjana Radovic, para. 44. (footnotes omitted)
1998
1999
See Disastrous Privatization by Influential Serbian Minister Goes Uninvestigated, Organized Crime and
Corruption Reporting Project, 11 February 2019, CE-796.
2000
2001
Notice on Termination of the Privatization Agreement of 28 September 2015, CE-50.
2002
447
the breach of Article 5.3.4,2003 are irrelevant for the act of termination.2004 This is
absurd. The Agency's notices show the consistent stance that the Agency took that the
Privatization Agreement could be and would be terminated if Mr. Obradovic failed to
remedy the breach. The same grounds for termination were clearly established by the
Commission for Control, which is evident from the audio recordings of their sessions
and numerous written reports.2005 The record shows that the Agency acting on the
Ombudsman's recommendation was not, and could not be, "the real reason for the
termination" of the Privatization Agreement. The real and only reason was the failure
of Mr. Obradovic to remedy the violation of Article 5.3.4. of the Privatization
Agreement in additional time given and after numerous extensions.
1317.Bearing in mind the reasons above, there has been no violation of the impairment
standard by arbitrary treatment in the present case.
E. THERE WAS NO VIOLATION OF THE FET STANDARD
1. The only source of obligations under Article 6(2) of the Canada-Serbia BIT is
the customary international law minimum standard of treatment
1318.Article 6(2) of the Canada-Serbia BIT makes it clear that the only source of obligation
for Respondent is the customary international law minimum standard of treatment.
Namely, the provision clearly states that
“The concepts of “fair and equitable treatment” and “full protection and
security” in paragraph 1 do not require treatment in addition to or beyond
that which is required by the customary international law minimum
standard of treatment of aliens.”2006
2003
Privatization Agency on Additional Time Period 22 June 2011, CE-96; Notice of the Privatization Agency
on Additional Time Period 6 October 2011, CE-97; Notice of the Privatization Agency on Additional Time
Period 22 December 2011, CE-32; Notice on Additional Time Period of 22 June 2012, RE-15; Notice of
the Privatization Agency on Additional Time Period 31 July 2012, CE-78; Notice of the Privatization
Agency on Additional Time Period 8 November 2012, CE-79; Letter from the Privatization Agency to Djura
Obradovic and BD Agro, CE-351.
2004
See Reply, para. 11
2005
See above Sec.I.B.3.3.1.3.
2006
27 April 2015, CLA-1.
448
1319.Contrary to Claimants’ assertion,2007 it is not in question whether the content of
customary international law minimum standard of treatment can evolve over time.
However, this does not mean that the standard as it exists in customary international
law can be equated to the “autonomous” FET standard envisioned by some investment
treaties.
1320.Claimants rely on the text of the norm providing the minimum standard of treatment
in order to claim that it was the intention of the parties to incorporate the fair and equal
treatment as “defined by treaty practice”, into the standard.2008 They further rely on
the pronouncement of the tribunals in Mondev v. US and Pope & Talbot v. Canada2009
in order to come to the conclusion that the minimum standard of treatment provided
by Article 6 of the Canada-Serbia BIT “springs from that of autonomous FET
standards contained in other treaties” and furthermore, that “[s]uch FET standard
does not ‘go beyond what is required under customary international law’ because it is
a part of that very customary international law”.2010 Claimant’s argument essentially
comes to the conclusion that there is no difference between the international
customary minimum standard of treatment as found in Article 6 of the Canada-Serbia
BIT and an autonomous FET standard provided by some other BITs.
1321.The problem with such argument, however, is that it blatantly disregards the explicit
language of Article 6 of the Canada Serbia BIT quoted above, and moreover, turns it
on its head. While the language of Article 6 of the BIT includes fair and equal
treatment into the minimum standard, the point is to say that such treatment is limited
to what is required under customary international law and does not require “treatment
in addition or beyond” this. This is clear from the conclusions of the tribunal in Mesa
Power Group v. Canada:
“[t]he Tribunal disagrees with the Claimant’s submissions that the

“autonomous” fair and equitable treatment provisions in other treaties
impose additional requirements on Canada beyond those deriving from the
2007
2008
2009
See Reply, paras. 1209 & 1211. It should be noted here that the more correct interpretation of the
pronouncement of the tribunal in Mondev v. US would be simply that the tribunal did not view the minimum
standard of treatment as frozen in time and incapable of evolving, but that investments under NAFTA are
still only entitled to fair and equal treatment as contained in customary international law.
2010
Reply, para. 1212.
449
minimum standard. As was already discussed above, the FTC Note is clear
that the Tribunal must apply the customary international law standard of
the international minimum standard of treatment, and nothing else. There
is thus no scope for autonomous standards to impose additional
requirements on the NAFTA Parties.”2011
1322.Similarly, the tribunal in Grand River v. US found that:
“the content of the obligation imposed by Article 1105 must be determined

by reference to customary international law, not to standards contained in
other treaties … Further, the concepts of ‘fair and equitable treatment’ and
‘full protection and security’ refer to existing elements of customary
international law regarding the treatment of aliens and do not add to that
standard.”2012
1323.Simply put, Claimants’ contention that the minimum standard of treatment is

practically derived from the autonomous FET standard (and because of that has the
same content) is plainly wrong.
1324.Finally, while the customary international law minimum standard of treatment may in
principle evolve, the burden is on Claimants to establish that the breaches they allege
do fall within the content of such standard.2013 In that sense, it should be noted that the
autonomous FET clauses contained in some BITs cannot be understood as reflecting
customary rules. This was confirmed by the tribunal in Cargill v. Mexico:
“significant evidentiary weight should not be afforded to autonomous

clauses inasmuch as it could be assumed that such clauses were adopted
precisely because they set a standard other than that required by custom. It
2011
Mesa Power Group, LLC v. Government of Canada, UNCITRAL, PCA Case No. 2012-17, 24 March
2016, para. 503, RLA-136; see also, Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No.
ARB/11/33, Award, 3 November 2015, para. 380, RLA-137. (“The parties accept that the minimum
standard of treatment under the US–Oman FTA refers to the customary international law standard and not
an autonomous treaty standard. That conclusion is compelled by Article 10.5.2, which expressly provides
that the Treaty’s standards of fair and equitable treatment and full protection and security “do not require
treatment in addition to or beyond that which is required by [the minimum standard of treatment]’.”).
2012
Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL, Award, 12
2013
See Cargill Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18
September 2009, paras. 271-273, CLA-126; Glamis Gold, Ltd. v. The United States of America,
UNCITRAL, Award, 8 June 2009, para. 601, RLA-127.
450
may be that widespread adoption of a strict autonomous meaning to "fair
and equitable treatment" may in time raise international expectations as to
what constitutes good governance, but such a consequence is different than
such clauses evidencing directly an evolution of custom.”2014
2. The content and threshold of the customary international law minimum

standard of treatment
1325.Claimants further argue that the minimum standard of treatment is “by no means
restricted to host State’s conduct that is ‘shocking or egregious’”.2015 Claimants
proceed to make much ado about Respondent's supposed reliance on the Neer standard
which they assert is outdated and obsolete.2016 The entire discussion is aimed at
discrediting the standard as adopted by the tribunal in Glamis Gold v. US.2017 It should
be noted that when asserting that a “myriad” of tribunals criticized the Glamis Gold
tribunal,2018 Claimants predominantly rely on decisions that predate the Glamis Gold
award,2019 and are actually a criticism on Neer.
1326.In any case, Respondent never relied on the Neer standard; it rather invoked the
content and threshold for the minimum standard of treatment as articulated in a recent
award rendered by the tribunal in Eli Lilly v. Canada, which in turn relied on the
Glamis Gold award.2020 A number of other arbitral tribunals, interpreting the provision
of Article 1105 of the NAFTA, which is equivalent to Article 6 of the Canada-Serbia
BIT, came to the equally stringent standard. The tribunal in Cargill v. Mexico, for
example, concluded that:
“the obligations in Article 1105(1) of the NAFTA are to be understood by

reference to the customary international law minimum standard of
treatment of aliens. The requirement of fair and equitable treatment is one
2014
2009, para. 276, CLA-126.
2015
2016
2017
See Reply, paras. 1213, 1217 & 1219.
2018
2019
See Reply, note 1207, in particular, Pope & Talbot Inc. v. The Government of Canada (UNCITRAL),
Award on the Merits of Phase 2, 10 April 2001, CLA-136; Waste Management, Inc. v. United Mexican
States (“Number 2”), ICSID Case No. ARB (AF)/00/3, Award, 30 April 2004, RLA-093; ADF Group Inc.
v. United States of America, ICSID Case No. ARB(AF)/00/1, Award, 9 January 2003, CLA-138.
2020
See Counter-Memorial, para. 745, quoting Eli Lilly and Company v. The Government of Canada
(UNCITRAL), ICSID Case No. UNCT/14/2, Final Award, 16 March 2017, para. 222, RLA-128.
451
aspect of this minimum standard. To determine whether an action fails to
meet the requirement of fair and equitable treatment, a tribunal must
carefully examine whether the complained of measures were grossly unfair,
unjust or idiosyncratic; arbitrary beyond a merely inconsistent or
questionable application of administrative or legal policy or procedure so
as to constitute an unexpected and shocking repudiation of a policy's very
purpose and goals, or to otherwise grossly subvert a domestic law or policy
for an ulterior motive; or involve an utter lack of due process so as to offend
judicial propriety.”2021
1327.Similarly, the tribunal in Mobil & Murphy v. Canada found that the standards are set
“at a level which protects against egregious behavior” and went on to say that “[i]t
is not the function of an arbitral tribunal established under NAFTA to legislate a new
standard which is not reflected in the existing rules of customary international
law”.2022
1328.More recently the tribunal in Al Tamimi v. Oman concluded that:
“In the Tribunal’s view, therefore, to establish a breach of the minimum

standard of treatment under Article 10.5, the Claimant must show that
Oman has acted with a gross or flagrant disregard for the basic principles
of fairness, consistency, even-handedness, due process, or natural justice
expected by and of all States under customary international law. Such a
standard requires more than that the Claimant point to some inconsistency
or inadequacy in Oman’s regulation of its internal affairs: a breach of the
minimum standard requires a failure, wilful or otherwise egregious, to
protect a foreign investor’s basic rights and expectations. It will certainly
not be the case that every minor misapplication of a State’s laws or
regulations will meet that high standard.”2023
2021
2009, para. 296, CLA-126.
2022
Mobil Investments Canada Inc. and Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4,
Decision on Liability and Principles of Quantum, 22 May 2012, para. 153, RLA-139.
2023
Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015,
para. 390, RLA-137. The tribunal was discussing Article 10.5 of Chapter 10 of the United States – Oman
Free Trade Agreement, RLA-157. The provision contains language limiting the obligation to provide “fair
and equitable treatment” to covered investments in a way similar to Article 6(2) of the Canada Serbia BIT.
452
1329.It is important to note that even tribunals which have accepted that the minimum
standard of treatment may evolve over time, still consider that there is a high threshold
for a breach of the minimum standard of treatment, which is relevant for the tribunal’s
analysis.2024 In their Reply, Claimants rely on the standard as set out in the Waste
Management v. Mexico award.2025 However, it would be wrong to consider that the
pronouncement of the tribunal in Waste Management v. Mexico is in any way a
lowering of the high threshold generally required for a breach of the minimum
standard of treatment. As the tribunal in Al Tamimi v. Oman concluded with reference
to the Waste Management award:
“In that case, the minimum standard was said to require “arbitrary, grossly
unfair, unjust or idiosyncratic” conduct by a State party, or a “complete
lack of transparency and candour”, or “a lack of due process leading to an
outcome which offends judicial propriety – as might be the case with a
manifest failure of natural justice in judicial proceedings”. As other
tribunals have noted, adjectives such as “gross” and “manifest” indicate
the acknowledged stringency of the standard.”2026
3. A violation of another provision of the agreement does not automatically

constitute a violation of the minimum standard of treatment
1330.Claimants argue that it was never their contention that “a finding of expropriation
necessarily resulted in a finding of a violation of the FET standard”.2027 If this is
indeed correct, Respondent agrees with such a statement. In any event, the provision
of Article 6(3) of the Canada-Serbia BIT is very clear on the matter: “[a] breach of
another provision of this Agreement, or of a separate international agreement, does
2024
2016, para. 504, RLA-136; William Ralph Clayton and others v. Government of Canada, PCA Case No.
2009-04, Award on Jurisdiction and Liability, 17 March 2015, para. 441, CLA-139. International
Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award 26 January
2006, para 194, CLA-95 (“Notwithstanding the evolution of customary law […] the threshold for finding a
violation of the minimum standard of treatment still remains high, as illustrated by recent international
jurisprudence […] For the purposes of the present case, the Tribunal views acts that would give rise to a
breach of the minimum standard of treatment […] as those that, weighed against the given factual context,
amount to a gross denial of justice or manifest arbitrariness falling below acceptable standards.”).
2025
2026
Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015,
para. 384, RLA-137.
2027
Reply, para. 1223.
453
not establish that there has been a breach of this Article.”2028 Plainly no breach of a
different provision of the Canada-Serbia BIT, or of a provision of a different treaty,
including a standard imported through an MFN clause, can be taken to automatically
constitute a breach of the minimum standard of treatment. This is not to say that
Claimants cannot demonstrate that the same conduct breached various standards of
protection, but Claimants’ arguments go well beyond that.
1331.Namely, Claimants do argue that a finding of the violation of the non-impairment

standard set forth, inter alia, in Article 2(3) of the Germany-Serbia BIT and imported
by virtue of the MFN clause contained in the Cyprus-Serbia BIT, would automatically
result in the violation of the minimum standard of treatment provided by Article 6 of
the Canada-Serbia BIT.2029 They equally seem to argue that a finding of lack of due
process with regard to the Ombudsman’s conduct in the context of expropriation
would automatically lead to a breach of the minimum standard of treatment.2030
1332.First, arbitral decisions on which Claimants rely in support of their argument concern
the interpretation and application of a FET provision which contains the autonomous
standard, rather than the minimum standard of treatment provided by the Canada-
Serbia BIT, and as such are not relevant for the analysis of its Article 6. 2031 Second,
as quoted above, the very text of Article 6 of the Canada-Serbia BIT prevents such an
automatic finding of a breach.
1333.In addition, as shown by Respondent, the threshold for the breach of Article 6 of the
Canada-Serbia BIT is exceptionally high,2032 and any finding of arbitrary conduct or
lack of due process would need to reach this threshold in order to constitute a violation
of Respondent’s obligation. This is not to say that a finding of arbitrariness, in general,
2028
27 April 2015, CLA-1.
2029
See Reply, paras. 1226-1227 & 1230.
2030
2031
See Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009, paras. 608 &
610-611, RLA-127; Cargill Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2,
Award, 18 September 2009, paras. 278 & 280, CLA-126; Grand River Enterprises Six Nations, Ltd., et al.
v. United States of America, UNCITRAL, Award, 12 January 2011, para. 176, RLA-138; Adel A Hamadi
Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015, para. 386, RLA-
137. The FET clause contained in the Argentina-US BIT relevant to the dispute in El Paso v. Argentina,
provides that “[i]nvestment shall at all times be accorded fair and equitable treatment, shall enjoy full
protection and security and shall in no case be accorded treatment less than that required by international
law”, and evidently does not set the same limitations as Article 6 Canada-Serbia BIT.
2032
See above Sec.IV.E.2.
454
would not require a high threshold, indeed Respondent has shown quite the
opposite,2033 but nevertheless, one needs to be mindful of the specific requirements of
FET standard qualified by the link to customary international law when trying to over
impose findings made under different standards. In any event, Respondent has already
shown that the conduct of the Agency was not arbitrary in any of the instances
Claimants’ allege and respectfully directs the tribunal to that discussion.2034
1334.Respondent here simply wishes to stress that a threshold for finding of arbitrariness
under the international customary law minimum standard of treatment requires
“wholly arbitrary” conduct,2035 “manifest arbitrariness falling below international
standards”,2036 or “something greater than mere arbitrariness, something that is
surprising, shocking, or exhibits a manifest lack of reasoning”.2037 Moreover, mere
contractual breach certainly does not amount to an arbitrary act in violation of the FET
standard, unless it can be shown that the government committed an “outright and
unjustified repudiation of the transaction” and prevented the creditor from having any
remedy to address the problem, or unless it can be shown that the breach of contract
was “motivated by sectoral or local prejudice”.2038
1335.Finally, Respondent has already explained above the reasons for which Claimants'
assertion that due process rights apply in respect to the Ombudsman’s control of BD
Agro’s privatization is erroneous and respectfully directs the tribunal to that section
of its submission.2039
4. There was no violation of the FET standard
1336.Claimants argue that the Agency breached the FET standard contained in Article 6 of
the Canada-Serbia BIT and Article 2(2) of the Cyprus-Serbia BIT by (i) acting in bad
faith; (ii) engaging in a pattern of wrongful conduct with the aim of destroying
2033
See above Sec.IV.D.2.
2034
See Sec.IV.D.1&3.
2035
30 April 2004, para. 115, RLA-93.
2036
Award 26 January 2006, para 194, CLA-95.
2037
Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009, paras. 608 & 610-
617, RLA-127.
2038
30 April 2004, para. 115, RLA-93.
2039
See above Sec.IV.C; see also, Counter-Memorial, para. 689.
455
Claimants’ investment; and (iii) frustrating Claimants’ legitimate expectations.
Respondent will in turn address and refute each of these allegations.
4.1. The Agency did not act in bad faith
1337.At the outset, it should be noted that good faith in itself is not a source of substantive
obligations. This was confirmed by the ICJ in the Case Concerning Border and
Transborder Armed Actions:
“The principle of good faith is, as the Court has observed, "one of the basic
principles governing the creation and performance of legal obligations"
[…]; it is not in itself a source of obligation where none would otherwise
exist.”2040
1338.Therefore, rather than being a separate substantive obligation under the minimum
standard of treatment or the autonomous FET standard, good faith determines the
manner in which an existing obligation should be fulfilled.
1339.In any case, Claimants absolutely fail to show bad faith on part of the Agency. At the
outset, it should be noted that the standard of proof of bad faith is very high under
both standards:
“Although Claimant has avoided formulating this allegation in such terms,

the underlying idea is that the PMRA acted in bad faith and launched a
review process for reasons unrelated to its mandate and to the international
obligations of Canada. The burden of proving these facts rests on the
Claimant, in accordance with well established principles on the allocation
of the burden of proof, and the standard of proof for allegations of bad faith
or disingenuous behavior is a demanding one.”2041
1340.Claimants argue that there are clear elements of bad faith in the conduct of the Agency,
which used “the provisions of the Privatization Agreement and the Share Pledge
2040
Case Concerning Border and Transborder Armed Actions (Nicaragua v. Honduras), Jurisdiction and
Admissibility, Judgment of 20 December 1988, para. 94, RLA-140.
2041
Chemtura Corporation v. Government of Canada, UNCITRAL, Award, 2 August 2010, para 137, RLA-
141 (emphasis added); see also Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of
Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 143, RLA-84.
456
Agreement ‘for purposes other than those for which they were created’”.2042
Claimants’ argument is based on two alleged instances of bad faith conduct of the
Agency – the refusal to release the Pledge with the sole aim of retaining the option to
expropriate Claimants’ investment2043 and the termination of the Privatization
Agreement with the full knowledge that Article 5.3.4. cannot constitute a legitimate
ground for termination.
1341.First, with regard to the refusal to release the Pledge, Claimants draw their evidence
of bad faith from the recordings of the meetings of the Commission for Control held
on 23 April 2015 and 19 June 2015.2044 However, Claimants grossly misrepresent
what was said in those meetings and the position taken by the Commission.
1342.Namely, Claimants argue that the Commission was fully aware that the pledge should
have been released upon the full payment of the purchase price and yet, it deliberately
chose not to do so in order to prevent Mr. Obradovic from transferring the Privatized
shares.2045 Claimants’ assertions are based on a purposeful misrepresentation of much
of the discussion happening during the two meetings of the Commission.2046
1343.To begin with, the purpose of the Pledge, as already explained by Respondent was not
simply to secure the full payment of the Purchase Price, rather it allowed the Agency
to continue to effectively seek compliance from Mr. Obradovic, i.e. to remedy the
breach of the Privatization Agreement, and in the event of his failure to do so and
termination - reclaim the shares.2047 This had a broader purpose in ensuring the
compliance of the buyer with the sum of its contractual obligations, and as shown by
Respondent, precisely this concern served as Commission’s motivation for refusing
the release of the Pledge.2048 Namely, Mr. Obradovic, a buyer with an established
record of negligence, had already breached the Privatization Agreement, and made it
clear that as soon as he was able he would transfer the rights on the shares to a third
2042
Reply, para. 1243, quoting Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final
Award, 12 November 2010, para. 300, CLA-131.
2043
2044
See Transcript of the audio recording from meeting of the Commission for Control, 23 April 2015, CLA-
768; Transcript of the audio recording from meeting of the Commission for Control, 19 April 2015, CLA-
770.
2045
2046
2047
2048
457
party, making it effectively impossible for the Agency to ensure compliance with the
Privatization Agreement.
1344.Claimants attempt to paint this in quite dramatic terms, however, the reasoning and
actions of the Agency were fully justified, especially when taking into account that
the Agency had sufficient legal grounds for its refusal to release the Pledge under
Article 122 of the Law on Obligations.2049 Moreover, Mr. Obradovic was familiar with
the Agency’s reasons for refusing to release the Pledge,2050 and the Agency was in
general completely consistent and transparent in its dealings with Mr. Obradovic.
1345.Claimants also contend that the Agency deliberately imposed on Mr. Obradovic non-
existent contractual obligations, knowing he would not be able to comply with them,
in order to enable the termination of the Privatization Agreement. 2051 However,
Claimants again base this statement on a selective (mis)presentation of the statements
of the members of the Commission, ignoring the discussion as a whole and omitting
relevant information in order to have it conform to their arguments. As shown by
Respondent the recordings of the discussions of the Commission show that the
Commission engaged in a bona fide examination of different contractual options and
even at one point considered a certain “loosening” of the conditions.2052 Nevertheless,
the Commission could not have simply ignored the fact that Mr. Obradovic was in a
long-lasting continuous breach of the Privatization Agreement.
1346.Second, Claimants argue that it is evident from the audio recordings of the meeting of
the Commission for Control that the Agency decided to terminate the Privatization
Agreement despite knowing that a breach of Article 5.3.4. could not constitute
grounds for termination under Article 7.1. of the Agreement. This is again, a
misrepresentation. The Agency had always understood that it could terminate the
Agreement for the breach of said provision on the basis of Article 41(a) of the Law
on Privatization. This is even clearly stated in the audio recording Claimants rely
2049
2050
See above Sec.I.D.3; see also Minutes from meeting held at the Privatization Agency on 4 February 2014,
RE-36.
2051
2052
See above Sec.I.D.2; see also Transcript of the audio recording from meeting of the Commission for
Control, 23 April 2015, p. 10, CE-768; Transcript of the audio recording from meeting of the Commission
for Control, 19 June 2015, p. 5, CE-770.
458
on,2053 and yet they have conveniently chosen to ignore this part. The Agency’s
reliance on Article 41(a) of the Law on Privatization is also evident from the Notices
the Agency sent to Mr. Obradovic granting him additional time periods to comply
with his contractual obligations, which repeatedly state that
“[i]n the event of failure to comply with the above stated contractual
obligations within the additionally granted term as per this Notice, the
Privatization Agency will undertake the measures under Article 41a of the
Law on Privatization”.2054
1347.Finally, Claimants argue that the conduct of the Agency was politically motivated and
a result of external pressure from labor unions.2055 However, Claimants fail to show
any evidence of the supposed “pressure from labor unions” having effect on the
Agency’s actions.2056 Quite the contrary, the Agency tended to treat these complaints
as a matter of fact and simply forward them to institutions and authorities competent
to deal with them.2057
1348.In conclusion, the Agency has exhibited a clear and consistent approach towards Mr.
Obradovic’s breach of the Privatization Agreement which was based on the Agency’s
understanding and interpretation of the Privatization Agreement and the Law on
Privatization and there is no evidence whatsoever that the provisions of the
2053
See above Sec.I.B.3.1.3. Transcript of the audio recording from meeting of the Commission for Control,
23 April 2015, p. 2, CE-768.
2054
Agency on Additional Time Period 8 November 2012, CE-79.
2055
2056
See above, Sec.I.B.5.6.
2057
See e.g. Transcript of the audio recording from meeting of the Commission for Control dated 23 April
2015, pp. 4-5, CE-768. (Ms. Vuckovic: "So this is it. These are the two topics regarding BD Agro
Dobanovci. You also have the rest here in the materials. We have mentioned daily communications we are
receiving from the employees and trade unions, wherein they are requesting urgent measures to be taken
and stating that they generally have big problems concerning business operations, in particular maintaining
production and keeping the cattle alive, which is the core business activity of the subject of privatization.
We have stated this as well. One of those from BD Agro Dobanovci who have addressed us also states that
salaries are not being paid for a long period, from November 2013, December and so on...even for the
entirety of 2014. We have even held a meeting at the request of the director of BD Agro Dobanovci and the
bankruptcy trustee. And in oral communication these allegations are false. Bearing in mind that we no
longer monitor this, our proposal would be to forward these communications to the competent labor
inspectorate and it should act within its competence and request from the subject of privatization to abide
by the Labor Law.") (emphasis added)
459
Privatization Agreement, including the Share Pledge Agreement, were used for any
other purpose than what they were intended for. Simply put, Claimants completely
fail to show any bad faith on part of the Agency, let alone satisfy the demanding
standard of proof for bad faith.
4.2. There was no pattern of orchestrated conduct aimed at destroying Claimants

investment
1349.Claimants’ assertion that “Serbia engaged in a pattern of wrongful conduct which

effectively destroyed Claimants’ investment and thus breached the FET standard”2058
is simply another iteration of their bad faith argument. Respondent reiterates that there
is a high standard of proof for bad faith, which is only emphasized by the arbitral
awards on which Claimants rely.
1350.Namely, Claimants quote the tribunal in RosInvest v. Russia, which was one of the
Yukos related cases. The facts of Yukos were quite exceptional and this must be taken
into account. These facts included a staggering VAT assessment against Yukos
together with an inconsistent approach of the tax authorities in application of tax law
to Yukos.2059
1351.A particularly significant aspect of the case, underlined by the tribunal in the
paragraph quoted by Claimants is that “despite having used nearly identical
structures, no other Russian oil company was subjected to the same relentless and
inflexible attacks as Yukos”. This is in clear contradiction to the case of BD Agro,
considering that, as already explained above, the Agency took the same approach as
the one in the present case in numerous other privatizations, including with respect to
the refusal to release the Pledge until all contractual obligations had been complied
with,2060 and with respect to the termination of the Privatization Agreement for breach
2058
2059
This included the inconsistencies between VAT assessments and profit tax assessments by applying tax
rules only to the detriment of Yukos, and not when that would have benefited the company; essentially
assessing a punitive tax against Yukos for exploiting ambiguous legislation in rather the same manner as
many other companies operating on the market, without applying the same treatment to those companies; a
3.8 billion USD repeat offender fine issued to Yukos for conduct pre-dating the tax audit, in departure from
previous practice and treatment accorded to other companies; auction sale of the company where the bidders
were under Russian control and the winning bidder was a completely unknown company with no real offices
and the purchase price was paid with the assistance of the Russian state-owned oil company, all indicating
a scheme to bring Yukos’ assets under state control. See RosInvestCo UK Ltd. v. The Russian Federation,
SCC Case No. V079/2005, Award, 12 September 2010, para. 620, CLA-147.
2060
See Sec.I.D.2.2.
460
of Article 5.3.4. (or provisions equivalent to this provision),2061 and even with respect
to termination after the payment of the last installment of the purchase price.2062
1352.Claimants further rely on Rompetrol v. Romania but the circumstances of that case
were equally different from the present one as the Yukos case. Namely the Rompetrol
case concerned state conduct against company directors of the claimant which
included arrest, detention, criminal investigations and wiretapping. The tribunal found
that
“[t]here is however no evidence that steps were taken either to assess or to

avoid, minimise, or mitigate that possibility of harm, nor has the Respondent
so pleaded in its written arguments. On the basis of the procedural
irregularities during the criminal investigation of Mr. Patriciu and others
… the Tribunal accordingly holds that to that limited extent the Respondent
is in breach of the guarantees accorded to the Claimant by Article 3(1) of
the BIT, notably the guarantee of ‘fair and equitable treatment’”.2063
1353.These irregularites included “animus and hostility” towards Mr Patriciu on behalf of

the prosecutorial officials which may have affected the authorities’ tactical
approach2064 and the arrest and attempted imprisonment of claimant’s directors on
patently thin grounds put forward in attempt to justify pre-trial detention, with equally
baseless repeated applications and what generally seemed to be wilfulness of the
prosecutor.2065
1354.The Rompetrol tribunal nevertheless stressed that
“the Tribunal wishes to make it plain that it would not regard any breach,
or indeed any series of breaches, of procedural safeguards provided by
national or international law in the context of a criminal investigation or
prosecution as giving rise to the breach of an obligation of fair and
2061
See Sec.I.B.5.2.
2062
See Sec.I.B.5.3.
2063
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3 278, Award, 6 May 2013, para. 679,
CLA-148.
2064
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3 278, Award, 6 May 2013, paras. 645
& 648, CLA-148.
2065
CLA-148.
461
equitable treatment. All will depend on the nature and strength of the
evidence in the particular case, on the impact of the events complained
about on the protected investor or investment, and on the severity and
persistence of any breaches that can be duly proved, as well as on whatever
justification the respondent State may offer for the course of events. The
Tribunal’s finding is based entirely on the facts of the present case.”2066
1355.As is obvious, both RosInvest and Rompetrol cases only reinforce the stringent
standard of proof necessary for a finding of bad faith. Nothing of the conduct that
Claimants invoke can possibly reach that threshold.
1356.Claimants allege that the Agency continuously refused to release the Pledge and
approve the assignment of the Privatization Agreement in order to prevent Mr.
Obradovic from disposing of BD Agro shares and in order to maintain control over
BD Agro.2067 Claimants’ argument simply makes no sense. The Agency’s reasoning
in refusing to release the Pledge has already been extensively discussed by
Respondent.2068
1357.On the other hand, Claimants’ argument with regard to the Agency’s intention to
“maintain its control over BD Agro” is novel. However, what Claimants intend by
this is unclear, as BD Agro was not within the Agency’s control. The Agency was
simply controlling Mr. Obradovic’s compliance with certain contractual obligations,
which he had accepted by entering into the Privatization Agreement. The control over
the company itself was always fully in the hands of Mr. Obradovic, and as Respondent
explained, Mr. Obradovic was free to manage BD Agro as he deemed fit with the sole
exception of not being able to dispose of the shares until he remedied the breach of
the Privatization Agreement.2069 In any event, subsequent to the termination of the
Privatization Agreement, BD Agro was sold in bankruptcy proceedings to a private
owner, further undermining the contention that the Agency ever acted with intent to
“maintain its control over BD Agro”.
2066
CLA-148.
2067
2068
See above Sec.I.D.2; see also Counter-Memorial, paras. 55-57 & 719-720.
2069
462
1358.With regard to the recommendation of the Ombudsman supposedly having the
purpose of realizing the termination of the Privatization Agreement, as explained by
Respondent’s expert, professor Radovic, the Ombudsman’s recommendations had no
binding effect at all.2070 Moreover, the Ombudsman never actually recommended that
the Agency terminate the Privatization Agreement, but rather to finally clarify the
status of BD Agro.2071 Finally, Claimants provide no evidence of influence of the
Ombudsman’s recommendation on the decision-making process of the Agency when
terminating the Privatization Agreement, apart from a mere speculation based on
concurrence of events. For a finding of bad faith and conspiracy this cannot possibly
be sufficient.
1359.Claimants also argue that the Ministry of Economy was part of this supposed
conspiracy against them. Namely, according to Claimants, the report of the Ministry,
issued on 7 April 2015, effectively instructed the Agency to terminate the Privatization
Agreement.2072 As already explained by Respondent, at that time there had already
been a long-standing and clear breach of Article 5.3.4. by Mr. Obradovic.2073
Nevertheless, the Ministry of Economy did not request from the Agency to terminate
the Privatization Agreement, but rather, to give Mr. Obradovic an additional period of
time to remedy the breach. In case that Mr. Obradovic failed to do so, the report simply
stated that the Agency “should undertake the measures within its legal
authorization”.2074
1360.For Claimants, however, this was deliberate because it was obvious that Mr.
Obradovic could not fulfil his obligation.2075 However, it is evident from the audio
recordings of the sessions of the Commission for Control that the Commission had no
such impression. Namely, while the members of the Commission acknowledged the
possibility of termination, they never considered it to be fait accompli.2076 In any case,
as already stated, the Agency could not have simply disregarded the fact that Mr.
Obradovic was in long and continuous breach the Privatization Agreement. Moreover,
2070
Second Expert report of Professor Mirjana Radovic, section II.3.
2071
Opinion of the Ombudsman of 19 June 2015, CE-42.
2072
2073
See above, Sec.I.B.4.
2074
Report of the Ministry of Economy on the Control over Privatization Agency, 7 April 2015, p. 13, CE-
98.
2075
2076
See above, Sec.I.B.3.1.3.
463
Mr. Obradovic never truly contested the existence of the breach, 2077 and was given
ample opportunity to remedy it.2078 It is Mr. Obradovic’s utter unwillingness to
actually remedy the breach that ultimately led to the termination of the Privatization
Agreement.
1361.In conclusion, Claimants construct a flimsy theory of conspiracy between the Agency,
the Ombudsman and the Ministry of Economy that finds no support in the record of
this case and, as such, does not even come close to satisfying the high standard of
proof necessary for a finding of bad faith.
4.3. No legitimate expectations
4.3.1. Legitimate expectations as part of the minimum standard of treatment
1362.Respondent recalls that the fair and equal treatment provided to investors under the
Canada-Serbia BIT is limited to the international customary law minimum standard
of treatment. For that reason, Claimants’ reliance on protection of legitimate
expectations as provided under autonomous FET standard is inapposite.
1363.Protection of Claimants’ legitimate expectations under the minimum standard of

treatment is quite narrow. First, the tribunals applying the minimum standard of
treatment generally concur that legitimate expectations do not represent a stand-alone
element of the FET. As concluded by the tribunal in Mesa Power Group v. Canada:
2077
See above, Sec.I.B.3.2. Furthermore, Mr. Obradovic was also involved in a number of other privatizations
where the issue of a breach of equivalent provisions to Article 5.3.4. was raised and Mr. Obradovic never
protested and actually acted upon the Agency’s requests to remedy the breaches. See also Letter from the
Agency to Mr. Obradovic, 27 December 2010, RE-389; Letter from Mr. Vladimir Kovac to the Agency, 28
January 2011, RE-391; Letter from the Agency, 25 February 2011, RE-288; Letter from Mr. Obradovic to
the Privatization Agency, 4 March 2011, RE-390; Letter from the Agency to Mr. Obradovic, 28 January
2011, RE-409; Letter from the Agency to Mr. Obradovic, 18 March 2011, RE-473; Report from the 9th
control of Beotrans (with supplementations), 21 April 2011, RE-404. This pattern was also repeated with a
previous breach of Article 5.3.4. in the course of the privatization of BD Agro. See also Notice on
additionally granted term for compliance with Article 5.3.4. of the Privatization Agreement of 24 February
Agreement of 31 March 2009, RE-100;
2077
Privatization Agreement of 1 June 2009, RE-102; Letter from BD Agro to the Privatization Agency, 8 July
Agreement of 30 July 2009, RE- Notice from the Privatization Agency to Mr. Obradovic, 16 October 2009,
RE-384; Notice from the Privatization Agency to Mr. Obradovic, 8 December 2009, RE-475; Email from
BD Agro to the Privatization Agency, 18 January 2010, RE-406.
2078
See Annex I, detailing nine separate notices granting extension of time to Mr. Obradovic, including the
notices issued subsequent to the report of the Ministry of Economy.
464
“the Tribunal shares the view held by a majority of NAFTA tribunals that
the failure to respect an investor's legitimate expectations in and of itself
does not constitute a breach of Article 1105, but is an element to take into
account when assessing whether other components of the standard are
breached.”2079
4.3.2. Stable environment
1364.In order to be taken into account, investors' legitimate expectations must meet certain
requirements that significantly narrow their scope. This is true both in the context of
the minimum standard of treatment and the autonomous FET standard. For example,
the tribunal in Mobil & Murphy v. Canada found that any legitimate expectations that
an investor could have must be:
(i) clear and explicit representations made by or attributable to the NAFTA

host State in order to induce the investment, and
(ii) were, by reference to an objective standard, reasonably relied on by the

investor, and
(iii) were subsequently repudiated by the NAFTA host State.”2080
1365.The Glamis Gold tribunal also found that the expectations must be objective and based
on specific assurances and commitments.2081
1366.Similarly, in the context of the autonomous FET standard, the tribunal in Duke Energy
v. Ecuador stated the relevant rules and factors as follows:
“The stability of the legal and business environment is directly linked to the
investor’s justified expectations. The Tribunal acknowledges that such
2079
2016, para. 502, RLA-136. See also, Waste Management, Inc. v. United Mexican States (“Number 2”),
ICSID Case No. ARB (AF)/00/3, Award, 30 April 2004, para. 96, RLA-093; Cargill Incorporated v. United
Mexican States, ICSID Case No. ARB(AF)/05/2, Award, para. 296, 18 September 2009, CLA-126; Mobil
Investments Canada Inc. and Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4, Decision
on Liability and Principles of Quantum, 22 May 2012, para. 152, RLA-139.
2080
Decision on Liability and Principles of Quantum, 22 May 2012, para. 152, RLA-139.
2081
Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009, paras. 615, 627 &
766, RLA-127; see also Grand River Enterprises Six Nations, Ltd., et al. v. United States of America,
UNCITRAL, Award, 12 January 2011, para. 127, RLA-138.
465
expectations are an important element of fair and equitable treatment. At the
same time, it is mindful of their limitations. To be protected, the investor’s
expectations must be legitimate and reasonable at the time when the investor
makes the investment. The assessment of the reasonableness or legitimacy
must take into account all circumstances, including not only the facts
surrounding the investment, but also the political, socioeconomic, cultural
and historical conditions prevailing in the host State. In addition, such
expectations must arise from the conditions that the State offered the investor
and the latter must have relied upon them when deciding to invest.”2082
1367.Therefore, only legitimate and reasonable expectations are protected, which is

assessed on the basis of all circumstances – both the circumstances generally
prevailing in the state and the circumstances directly related to the investment in
question. Further, expectations must be content-specific and objective, and as such
may arise from the conditions that the State offered, which were, in turn, relied upon
by the investor when deciding to invest.
1368.The minimum standard of treatment does not encompass expectations based on

general legislation,2083 nor expectations of stable and predictable environment.2084
This means that Claimants’ reliance on expectations that “that their business would
be conducted in a stable regulatory framework and would be shielded from undue
government influence”2085 must fail. Moreover, upon a closer look at the way
Claimants formulate this expectation it becomes evident that Claimants
misunderstand what is meant by a stable framework.
1369.Claimants rely on the award in Merrill and Ring v. Canada,2086 where the tribunal
stated:
2082
Duke Energy Partners and Electroquil SA v. Republic of Equador, ICSID Case No. ARB/04/19, Award,
18 August 2008, para. 340, CLA-37; also quoted by Bayindir Insaat Turizm Ticaret Ve Sanayi A.Ş. v.
Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 179, RLA-84;
see also Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, 11
September 2007, para. 334, RLA-114.
2083
Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL, Award, 12
January 2011, para. 127, RLA-138
2084
2009, para. 296, CLA-126
2085
2086
This is a sole decision with a similar finding among tribunals applying the minimum standard of treatment
and was not followed by other tribunals.
466
“While it is clear that no representations have been made by Canada to
induce the Investor to make a particular decision or to engage in conduct
that is later frustrated, any investor will have an expectation that its
business may be conducted in a normal framework free of interference from
government regulations which are not underpinned by appropriate public
policy objectives. Emergency measures or regulations addressed to social
well-being are evidently within the normal functions of a government and it
is not legitimate for an investor to expect to be exempt from them. Yet,
regulations which end-up creating benefits for a certain industry, to the
detriment of an investor, might be incompatible with what that investor
might reasonably expect from a government.”2087
1370.From the above quote it is clear that the tribunal speaks of the stability of the
regulatory framework and interference by change in regulations. Claimants, however,
argue that such expectations were frustrated by the “unwarranted and unlawful
investigation conducted by the Ombudsman” who had no authority to intervene in the
manner he had.2088 Essentially, Claimants argue that their expectations have been
frustrated by the conduct of the Ombudsman in contravention of the legal rules
governing his competence.2089 State’s conduct in contravention to legal rules does not
amount to breaches of legitimate expectations even under the pronouncement relied
upon by Claimants, but may be relevant in the context of other elements of investment
protection, such as prohibition of arbitrary conduct, discrimination, or denial of
justice.
1371.Claimants attempt to circumvent this by relying on the award in TECO v. Guatemala

where the tribunal purportedly found that “the essential expectation in regulatory
context is that ‘legal framework will not be applied arbitrarily’”.2090
1372.However, Claimants misrepresent the findings of the tribunal, which cannot assist
their legitimate expectations claim. The tribunal actually said the following:
2087
Merrill and Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010, para.
233, CLA-137.
2088
2089
See Reply, paras. 1270-1271
2090
See Reply, para. 1269, quoting TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case
No. ARB/10/23, para. 617, CLA-150.
467
“In the Arbitral Tribunal’s view, in a regulatory context, a distinction needs
to be made between the expectations arising from a specific representation
that the legal framework will not change in all or in part, and the general
expectation that the legal framework will not be applied arbitrarily.”2091
1373.The tribunal concluded that “[w]hat matters is whether the State’s conduct has
objectively been arbitrary, not what the investor expected years before the facts. A
willful disregard of the law or an arbitrary application of the same by the regulator
constitutes a breach of the minimum standard, with no need to resort to the doctrine
of legitimate expectations. There is therefore no need to dwell any further on the
Parties’ arguments on representations and legitimate expectations.”.2092
1374.In essence, Claimants’ reliance on TECO v. Guatemala is inapposite as the decision

does not support a legitimate expectations claim and rather states the obvious - that
arbitrary behavior is part of the minimum standard of treatment.
1375.Moreover, as Respondent explained above, BD Agro was not the only privatization
where the Ombudsman intervened.2093 There was actually another privatization where
Mr. Obradovic was the buyer of PIK Pester, and where the Ombudsman conducted
control over the work of the Agency based on the complaints of the employees that
the Agency failed to react appropriately to the breaches of that privatization
agreement.2094 In such circumstances, Claimants expectations related to the
Ombudsman cannot be deemed reasonable or objective.
1376.In any event, it has been clearly shown by Respondent that the Ombudsman in all
instances acted within his powers. Namely, as Respondent’s expert, prof. Radovic
explains, Article 1 of the Law on Ombudsman, defines the Ombudsman as “an
independent state body that protects the rights of citizens and controls the work of [...]
2091
TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, para. 617-618,
CLA-150.
2092
TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, para. 621-622,
CLA-150 (emphasis added).
2093
See above Sec.I.C.3.
2094
Ibid.
468
organizations [...] entrusted with public authority”.2095 Professor Radovic goes on to
explain:
“the Ombudsman was expressly authorized to control the legality and

proper work of the authorities (Art. 17(2)), including the holders of public
authority (such as the Privatization Agency). In case of holders of public
authority, naturally, the Ombudsman’s authority was limited to controlling
the performance of administrative tasks conferred to a particular
organization. Since the Privatization Agency was entrusted to control the
privatization process and to follow up on contract performance, in my view
the Ombudsman had the authority to look into the case of BD Agro.”2096
1377.There was simply nothing arbitrary about the Ombudsman’s control of the conduct of
the Agency in order to ascertain its legality in light of the Law on Privatization.
4.3.3. Contractual obligations cannot serve as legitimate expectations
1378.Claimants also argue that their legitimate expectations were breached by the Agency’s
failure to observe the Privatization Agreement, including the Share Pledge
Agreement.2097 According to Claimants, the Agency frustrated the Claimants
legitimate expectations that (i) the Pledge would be released upon the full payment of
the Purchase Price; (ii) the Privatization Agreement would not be terminated for
reasons other than those stipulated by the Privatization Agreement itself.2098
1379.However, tribunals have also come to the conclusion that the legitimate expectations
of one party to a contract are not violated by the mere fact that the other party has
breached the terms of the contract. In the words of the tribunal in Glamis Gold:
“mere contract breach, without something further such as denial of justice

or discrimination, normally will not suffice to establish a breach of Article
2095
Second Expert report of Professor Mirjana Radovic, para. 44; see also Law on Ombudsman, Article 1,
CE-112.
2096
Second Expert report of Professor Mirjana Radovic, para. 44; see also Second Expert report of Professor
Mirjana Radovic, paras. 57-59.
2097
2098
469
1105. Merely not living up to expectations cannot be sufficient to find a
breach of Article 1105 of the NAFTA.”2099
1380.Numerous other tribunals have come to the same conclusion, whether applying the
minimum standard of treatment or the autonomous FET standard.2100 The finding has
also been upheld by the award in Glencore v. Colombia, which Claimants rely on.
Namely, subsequent to the paragraph relied on by Claimants the tribunal goes on to
say:
“The question is not so much whether representations and assurances

formalized in contracts generate legitimate expectations (they do), but
rather whether the subsequent breach by the State of obligations undertaken
by contract results in a violation of the FET standard.
[…]
Summing up, different kinds of acts and measures, including contracts

between the investor and the State, can give rise to an investor’s legitimate
expectations. But a mere contractual breach by the State will not per se
result in a violation of the international law FET standard. An additional
element (be it the special significance of the breach, an act of puissance
publique, loss of a secure and stable legal framework, and so on) is required
to trigger international responsibility.”2101
1381.At the outset, Respondent recalls that the actions of the Agency in refusing to release
the Pledge and in terminating the Privatization Agreement were not performed in
sovereign capacity.2102 Respondent also submits that there was no breach of contract
and that the Agency acted in all in accordance with the Law on Privatization, and the
Privatization Agreement (including the Share Pledge Agreement).
2099
Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009, para. 615, RLA-
127.
2100
See e.g. Parkerings-Compagniet A.S. v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September
2007, para. 344, RLA-114; Gustav F.W. Hamester GmbH & Co. K.G. v. Ghana, ICSID No. ARB/07/24,
Award, 18 June 2010, para. 337, RLA-115; Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17,
Final Award, 21 June 2011, para. 292, RLA-142.
2101
Award, 27 August 2019, paras. 1375 & 1378, CLA-128.
2102
See above Sec.IV.A.
470
1382.As for Claimant’s expectation that the Pledge would be released upon the payment of
the Purchase Price, Respondent has already explained that the purpose of the Pledge
was much broader than to secure the payment of the Purchase Price. As Professor
Radovic explains, the purpose of a pledge on the shares of a privatized company
differs from the purpose of pledge in general. Namely, rather than securing collection
of receivables, the pledge in the context of privatization “secured the Privatization
Agency’s (future and conditional) right to claim shares back from the buyer in case
his potential breach of contract eventually led to termination of the privatization
agreement.”2103 This is clearly derived from the fact that Article 41a(2) of the Law on
Privatization prescribes that subsequent to the termination of a privatization
agreement privatized shares are to be returned to the Share Fund,2104 and the fact that
there was no possibility of selling the shares by activation of a pledge in order for the
purchase price to be collected, which would be in line with the general purpose of
pledge as means of security. Ultimately, this means that, as long as there existed
reasons and possibility for termination, the pledge had a purpose to serve.
1383.Claimants argue that the Agency retained the Pledge with the sole purpose of
preventing Mr. Obradovic from transferring the shares, blatantly disregarding the
purpose of the Pledge.2105 However, as explained above, the Agency was precisely
following the purpose of the Pledge. Namely, the Agency was responsible for
controlling Mr. Obradovic’s compliance with the terms of the contract. Once a breach
of the contract was established,2106 the Agency could not have, in good faith, released
the Pledge, as there was still the request for the breach of the Agreement to be
remedied. Releasing the Pledge would make that request meaningless as it was evident
that Mr. Obradovic intended to transfer the shares to third party. Also, due to the
breach, there was the possibility for termination of the Privatization Agreement
remained, regardless of the payment of the purchase price, and the Agency had to
retain the ability to comply with Article 41a(2) of the Law on Privatization. Moreover,
the Agency entitled to refuse to release the Pledge under Article 122 of the Law on
Obligations.2107
2103
Second Expert report of Professor Mirjana Radovic, para. 47.
2104
2001 Law on Privatization, Article 41a(2), CE-220.
2105
2106
See Notice of the Privatization Agency on Additional Time Period, 24 February 2011, CE-31.
2107
471
1384.Claimants also argue that by not releasing the Pledge the Agency essentially re-
imposed on Mr. Obradovic the obligation not to transfer the shares of BD Agro
prescribed by Article 5.3.1. of the Privatization Agreement which expired two years
after the conclusion of the contract.2108 However, this argument is inapposite. Simply
because, due to its effect, the refusal to release the Pledge may seem as re-imposing
an obligation that has been fulfilled does not mean that it really is so. Moreover, there
is no substantial difference in the effect of having the Pledge shares in the period
between 2007, when this obligation lapsed, and 8 April 2011, when the Purchase Price
was paid, which is considered as legitimate by Claimants, and on the other hand, the
effect of having the Pledge in the subsequent period.
1385.Finally, as already explained, the retention of the Pledge had no effect on Mr.
Obradovic’s ability to manage BD Agro and actually had no adverse effect on the
operation of the company.
1386.Claimants’ second expectation was that the Privatization Agreement would not be
terminated for reasons other than those provided by Article 7.1 of the Privatization
Agreement. However, Mr. Obradovic was always aware that the Agency applied the
Law on Privatization, as the law governing the contract, in the course of its work. This
law was a part of the contractual framework accepted by Mr. Obradovic when he
entered into the Privatization Agreement. The plain reading of Article 41(a) of the
Law on Privatization clearly shows that a privatization contract can be terminated both
on the grounds explicitly listed in the contract,2109 and because the buyer “disposes of
the property of the subject of privatization contrary to provisions of the
agreement”2110. Moreover, Mr. Obradovic was dully warned of the consequences of
the failure to remedy the breach of Article 5.3.4 of the Privatization Agreement from
the moment the breach was established, and directed to Article 41(a) of the Law on
Privatization as the legal grounds for imposing those consequences.2111 Therefore, the
grounds for termination could not have come as surprise to him.
2108
2109
2001 Law on Privatization, Article 41a(1)(7), CE-220.
2110
2001 Law on Privatization, Article 41a(1)(3), CE-220.
2111
472
1387.Claimants also argue that the Agency terminated the Privatization Agreement for a
breach that it knew did not exist.2112 This is entirely untrue. First, Claimants state that
this was evident from the audio recordings of the sessions of the Commission for
Control, but it is unclear what they are referencing as the Agency not for a second
wavered from its position that there was a breach of Article 5.3.4. Moreover, Mr.
Obradovic himself accepted that there was a breach.2113 Further, Mr. Obradovic was
well aware of the consequences because this was not the first time he was involved in
this type of situation. Namely, he was involved in a number of other privatizations as
the buyer where the Agency determined a breach of equivalent provisions to Article
5.3.4. in a similar manner as in the present case. Mr. Obradovic never protested these
breaches and actually acted upon the Agency’s requests to remedy them.2114 The same
applies to a previous breach of Article 5.3.4 in the course of privatization of BD Agro
which happened in 2009.2115
1388.Even if the Tribunal accepts that contractual breaches can frustrate legitimate
expectations, these expectations must still be reasonable to enjoy protection.2116
Considering the sheer number of times Mr. Obradovic was forewarned that the
contract can be terminated on the basis of Article 41a of the Law on Privatization due
to violation of Article 5.3.4 it is confounding that he would come to expect precisely
the opposite.
Agency on Additional Time Period 8 November 2012, CE-79.
2112
2113
See above, Sec.I.B.3.2.
2114
See Letter from the Agency to Mr. Obradovic, 27 December 2010, RE-389; Letter from Mr. Vladimir
Kovac to the Agency, 28 January 2011, RE-391; Letter from the Agency, 25 February 2011, RE-288; Letter
from Mr. Obradovic to the Privatization Agency, 4 March 2011, RE-390; Letter from the Agency to Mr.
Obradovic, 28 January 2011, RE-409; Letter from the Agency to Mr. Obradovic, 18 March 2011, RE-473;
2115
See above Sec.I.B.3.3.3; see also Notice on additionally granted term for compliance with Article 5.3.4.
of the Privatization Agreement of 24 February 2009, RE-99; Notice on additionally granted term for
compliance with Article 5.3.4. of the Privatization Agreement of 31 March 2009, RE-100;
2115
Privatization Agreement of 1 June 2009, RE-102; Letter from BD Agro to the Privatization Agency, 8 July
Agreement of 30 July 2009, RE- Notice from the Privatization Agency to Mr. Obradovic, 16 October 2009,
RE-384; Notice from the Privatization Agency to Mr. Obradovic, 8 December 2009, RE-475; Email from
BD Agro to the Privatization Agency, 18 January 2010, RE-406.
2116
Decision on Liability and Principles of Quantum, 22 May 2012, para. 152, RLA-139; Duke Energy Partners
and Electroquil SA v. Republic of Equador, ICSID Case No. ARB/04/19, Award, 18 August 2008, para.
340, CLA-37.
473
1389.In conclusion, what Claimants invoke as their legitimate expectations is not actually
protected as such in arbitral practice, neither under the minimum standard of
treatment, nor the autonomous FET standard. Even if the tribunal were to find
differently, none of Claimants' alleged expectations are reasonable. Namely, in the
circumstances where Claimants are aware that the Ombudsman has the competence
to control the conduct of the Agency when it controls compliance with the
privatization contracts, and where they have been forewarned of the possibility of the
termination of the Privatization Agreement, their expectations that this could not have
happened cannot be deemed reasonable.
F. NO VIOLATION OF THE UMBRELLA CLAUSE
1390.Sembi relies on the MFN clause contained in the Cyprus-Serbia BIT in order to avail
itself of the umbrella clause in Article 2(2) of the UK-Serbia BIT which provides that
“each Party shall observe any obligation it may have entered into with regard to
investments of investors of the other Contracting Party”.2117 On this basis, Sembi
alleges that the Agency’s refusal to release the Pledge of BD Agro shares after the
payment of the Purchase Price in full and the termination of the Privatization
Agreement violated the umbrella clause.
1391.First, Respondent recalls its position elaborated above in the context of the non-
impairment clause that the MFN clause does not allow for importation of rights that
are not already contained in the basic treaty.2118 In the context of the umbrella clause,
Respondent further submits that the ejusdem generis principle requires that both the
basic treaty and the treaty invoked by Claimant contain a provision dealing with the
same subject-matter.2119 Even if the substantive protection of the MFN clause were to
be set wide, contractual breaches cannot be seen as a matter regulated by an
investment treaty which does not already contain an umbrella clause, and thus
importing it would go against the ejusdem generis principle.2120 Consequently,
considering that the Cyprus-Serbia BIT does not contain an umbrella clause, none can
2117
2118
See above Sec.IV.D.1.
2119
The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), Award, 6 March
1956, UNRIAA Volume XII, pp. 83-153, p. 107, RLA-156.
2120
See Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Final Award, 21 June 2011, para. 184,
RLA-142.
474
imported through the operation of the MFN clause contained in Article 3(1) of this
BIT.
1392.Second, even if Sembi could rely on the umbrella clause from Article 2(2) of the UK-
Serbia BIT, the conditions for its application have not been met in the present case.
Claimants attempt to disprove Respondent’s previous objections2121 by arguing that
(i) Sembi can avail itself of the protection of the umbrella clause even though it is not
a party to the Privatization Agreement;2122 (ii) Serbia can be held liable for the
violation of the umbrella clause event though itself is not party to the contract, because
the conduct of the Agency is attributable to it;2123 (iii) an umbrella clause can be
violated by actions that do not constitute exercise of sovereign powers. 2124 Each of
this arguments shall be refuted in turn.
1393.Claimants argue that the UK-Serbia BIT requires only that the State has entered into
an obligation (“any obligation”) “with regard to the investments of the investors” and
there is no requirement that the state had entered into this obligation directly with the
investor.2125 However, Claimants ignore the generally upheld requirement of privity
of contract, namely, that the contract needs to be concluded between the protected
investor and the host state.2126 The requirement has recently been upheld by the
Tribunal in WNC v. Czech Republic:
“To summarise, the Claimant's contention that there is no requirement of

privity in relation to umbrella clauses finds no authoritative support in the
case law of international investment tribunals. To the contrary, tribunals
have rather consistently resolved that they have no jurisdiction under
2121
2122
2123
2124
2125
2126
See e.g. Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case no. ARB/03/3, Decision on
Jurisdiction, 22 April 2005, para. 223, RLA-151; Azurix Corp. v. Argentine Republic, ICSID Case no.
ARB/01/12, Award, 14 July 2006, para. 52, CLA-39; CMS Gas Transmission Company v. The Republic of
Argentina, ICSID Case No. ARB/01/8, Decision on the Application for Annulment, 25 September 2007,
para. 95(b), RLA-152; Limited Liability Company Amto v. Ukraine, SCC Case no. 080/2005, Final Award
26 March 2008, para. 110, RLA-90; EDF (Services) Limited v. Romania, ICSID Case no. ARB/05/13,
Award 8 October 2009, para. 318, RLA-87, Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17,
Final Award, 21 June 2011, para. 185, RLA-142.
475
umbrella clauses to consider contractual obligations between host states
and investors' locally incorporated subsidiaries.
If it were necessary to do so, the Tribunal would uphold the requirement of

privity even for generally worded umbrella clauses, which are intended to
give effect to legal commitments entered into by the host state with regard
to investments, not to change their scope or content.”2127
1394.Clearly the requirement has not been met in the present case as the parties to the
Privatization Agreement are Mr. Obradovic and the Agency.2128
1395.Claimants attempt to support their claim with regard to Sembi by referring to the
awards in Continental Causality v. Argentina and Amto v. Ukraine in order to assert
that the underlying contract can be signed by an entity other than the investor.2129
However, these awards refer to a subsidiary company of the investor as the original
party to the contract.2130 This is significantly different from Sembi, which, as
Respondent has already explained,2131 did not even exist at the time when Mr.
Obradovic concluded the Privatization Agreement with the Agency, 2132 and thus the
Agency could not have possibly entered into an obligation “with regard to [Sembi’s]
investment”.
1396.Moreover, it is not entirely clear that these awards support Claimants position. As
noted by the WNC tribunal in relation to the statement in Continental Causality v.
Argentina award quoted by Claimant:
“This statement is seemingly in conflict with the cases considered above.

However, there are a number of reasons why Continental Casualty should
not upset the otherwise consistent jurisprudence on the privity objection.
First, in making this statement, the tribunal was referring to obligations of
2127
WNC Factoring Limited v. The Czech Republic, PCA Case No. 2014-34, Award, 22 February 2017, paras.
334-335, RLA-153.
2128
Privatization Agreement with Annexes, CE-17.
2129
2130
See Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award, 5
September 2008, para. 297, CLA-151; Limited Liability Company Amto v. Ukraine, SCC Case no. 080/2005,
Final Award 26 March 2008, para. 110, RLA-90.
2131
See Counter-Memorial, para. 753.
2132
See Extract from the Department of Register of Companies and Official Receiver concerning Sembi, RE-
142, showing that the company was incorporated on 31 December 2007, more than two years after the
conclusion of the Privatization Agreement.
476
the host state in general and not contractual promises in particular. Second,
the tribunal did not ultimately pursue its investigation of whether
contractual obligations of Argentina were justiciable under the umbrella
clause because it had already decided Argentina could rely on the defence
of necessity with respect to those obligations. As such, it did not need to
conduct a full analysis of the issue or engage with cases that had resolved
similar questions. Finally, it commented that the contracts in question
"could ... be considered as guaranteed by the umbrella clause, subject to the
caveat that they were not directed to foreign investors nor specifically
addressed to their investments". Accordingly, it is not apparent that the
contracts would have fallen under the umbrella clause even if the tribunal
had taken this question to its conclusion.”2133
1397.On the other hand, the award in Amto v. Ukraine clearly upheld that where contractual
obligations have been undertaken by a separate legal entity from the state, the
umbrella clause has no direct application.2134 Claimants attempt to circumvent this by
arguing that it is sufficient that the conduct of such entity be attributable to the state
for its liability under international law standards. This, however, does not correspond
to the prevailing arbitral practice on the issue.
1398.As expressly clarified by the tribunal in EDF v. Romania:
“the attribution to Respondent of AIBO’s and TAROM’s acts and conduct

does not render the State directly bound by the ASRO Contract or the SKY
Contract for purposes of the umbrella clause.”2135
1399.The question of attribution under international law simply does not arise in the
umbrella clause context but liability is resolved in accordance with national law:
“In accordance with this general principle (which is undoubtedly

declaratory of general international law), whether there has been a breach
2133
WNC Factoring Limited v. The Czech Republic, PCA Case No. 2014-34, Award, 22 February 2017, para.
333, RLA-153.
2134
Limited Liability Company Amto v. Ukraine, SCC Case no. 080/2005, Final Award 26 March 2008, para.
110, RLA-90.
2135
EDF (Services) Limited v. Romania, ICSID Case no. ARB/05/13, Award 8 October 2009, para. 318, RLA-
87.
477
of the BIT and whether there has been a breach of contract are different
questions. Each of these claims will be determined by reference to its own
proper or applicable law—in the case of the BIT, by international law; in
the case of the Concession Contract, by the proper law of the contract, in
other words, the law of Tucumán. For example, in the case of a claim based
on a treaty, international law rules of attribution apply, with the result that
the state of Argentina is internationally responsible for the acts of its
provincial authorities. By contrast, the state of Argentina is not liable for
the performance of contracts entered into by Tucumán, which possesses
separate legal personality under its own law and is responsible for the
performance of its own contracts.”2136
1400.In any event, Respondent has already explained in detail that the actions of the Agency
are not attributable to Serbia.2137
1401.Finally, contrary to Claimant’s assertions,2138 there is substantial arbitral practice

showing that that the umbrella clause can only be violated through acts that constitute
exercise of sovereign powers.2139 In that sense, Respondent reiterates that the conduct
complained of by Claimant was not performed in sovereign capacity. This has been
explained in detail above, and Respondent respectfully directs the tribunal to that
discussion.2140
1402.Third, even if the umbrella clause were applicable, the conduct complained of does
not constitute a violation. Claimant in this regard refers to the Agency’s refusal to
2136
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case
No. ARB/97/3, Decision on Annulment, 3 July 2002, para. 96, RLA-155. See also, Gustav F W Hamester
GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para. 346, RLA-
115 (“a contractual obligation between a public entity distinct from the State and a foreign investor cannot
be transformed by the magic of the so-called ‘umbrella clause’ into a treaty obligation of the State towards
a protected investor”).
2137
See above Sec.III.
2138
2139
See e.g. Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case no. ARB/03/3, Decision on
Jurisdiction, 22 April 2005, para. 260, RLA-151; El Paso Energy International Company v. Argentine
Republic, ICSID Case no. ARB/03/15, Decision on Jurisdiction of 27 April 2006, para. 79, CLA-19; Pan
American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No.
ARB/03/13, Decision on Preliminary Objections, 27 July 2006, paras. 108-109, RLA-91; Sempra Energy
International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, para.
310, CLA-52; Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7
February 2011, para. 126, RLA-77.
2140
See above Sec.IV.C.
478
release the pledge and the termination of the Privatization Agreement. 2141 As already
explained, the Agency was fully within its legal rights when it refused to release the
pledge. Namely, under Article 122(1) of the Law on Obligations, the Agency did not
have to release the pledge for as long as the Buyer did not comply with his obligations
under Article 5.3.4 of the Privatization Agreement.2142
1403.With regard to the termination of the Privatization Agreement, Claimants again allege
that this was done in violation of its plain language and is thus, also a violation of the
umbrella clause.2143 However, the Privatization Agreement was terminated on the
grounds of Article 41a of the Law on Privatization, as extensively discussed by
Respondent.2144 Claimants also argue that the termination after the full payment of the
purchase price was unlawful. This is contradicted by the existing court practice of
Serbian Courts.2145 Moreover, that such practice is not unlawful has been recognized
by Claimants themselves,2146 and thus, they are now contradicting their own
statements.
1404.In conclusion, Sembi cannot rely on the umbrella clause from the UK-Serbia BIT, and
even if the could there is no violation.
V. QUANTUM
A. INTRODUCTION
1405.In this chapter, Respondent will discuss Claimants' compensation claim, specifically:
(A) erroneous and unproved factual assumptions concerning BD Agro's ownership
over land (B); causality (C); various land valuations invoked by Claimants to show
that they should not be relied upon when determining the value of BD Agro's land
2141
2142
2143
2144
2145
2146
See Reply, para. 410. (“To be clear: the Claimants are not arguing that a privatization agreement cannot
be terminated after the payment of the purchase price for violation of the buyer’s other essential obligations
relating, for example, to compliance with the agreed social program for the employees of the privatized
company. They argue—and show—that the Privatization Agreement could not be terminated for the alleged
violation of Article 5.3.4. alone after payment of the full purchase price and the fulfilment of all (other)
contractual obligations”).
479
(D); summarize its own expert's valuation of all BD Agro's land valued by Claimants'
experts (E); discuss whether BD Agro's business should be valued as a going concern
(F); summarize findings of Mr. Cowan's second report and his valuation of BD Agro
(G); discuss calculation of interest (H); and discuss the value of Claimants' interest in
BD Agro's equity (I).
1406.The present Rejoinder is accompanied by the second report of Mr. Sandy Cowan,
Respondent's financial expert, but also by a report of Ms. Danijela Ilic, an experienced
real estate expert.2147
1407.Finally, Respondent would also like to address Claimants' allegation that they could
not verify the amount of applicable taxes in the BD Agro's valuation due to Serbia's
failure to produce relevant documents.2148 This is a completely inappropriate
allegation, especially considering that Claimants themselves state that they "trust that
Serbia diligently searched its archives and that the documents are missing simply
because they are unavailable."2149 Indeed, Respondent diligently searched for these
documents but they could not be located.
B. THE REASONS FOR BD AGRO'S OVERVALUATION, IN PARTICULAR THE

LAND THAT DOES NOT BELONG TO IT
1408.Claimants seek compensation for alleged breaches in the amount of at least EUR 81
million.2150 This immediately raises the question how could a company, which was
bought for about EUR 5.5 million in 20052151 see its value skyrocket over the course
of ten years until 21 October 2015. Obviously, BD Agro was not Amazon or Apple,
it was a struggling agricultural company and it did not suddenly discover an oil reserve
or gold on its land. There are several answers to the above question:
i. One part of the answer lies in the fact that Claimants and their experts have
valued BD Agro pretending that it was a company without problems, while in
2147
Second Expert Report of Sandy Cowen & Expert Report of Ms. Danijela Ilic.
2148
See Reply, Chapter VI(D)(2)(d) ("The Claimants are unable to verify the amount of applicable taxes due
to Serbia's failure to produce relevant documents").
2149
Reply, para. 1378.
2150
See Reply, para. 1450, and Second Expert Report of Richard Hern, para. 202.
2151
See Privatization Agreement, Article 1.2, CE-17.
480
reality it was on the verge of bankruptcy, not only at the valuation date but years
before.2152 This is immediately obvious from the fact that its bank accounts were
permanently blocked from 8 March 2013 (for EUR 7 million) and remained so
until the valuation date.2153 The company's financial sickness has been
thoroughly demonstrated by Mr. Cowan, who stated that it could not be
considered a going concern.2154
ii. Another part of the answer can be found in the fact that Claimants grossly
overvalue BD Agro's land.
iii. Finally, a significant part (over 40%) of the land that Claimants present as being
in BD Agro's ownership cannot be taken into account as a basis for
compensation. Specifically, out of approximately 936ha of the land claimed to
be BD Agro's, approximately 394ha is either not in the company's ownership or
its ownership is disputed. This has been noted in a valuation prepared for the
purpose of BD Agro’s sale in the bankruptcy proceedings, which did not take
into account such land.2155
1409.In light of all these facts, the value of BD Agro diminishes to nil, as demonstrated by
Mr. Cowan, Respondent's financial expert.
1410.Moreover, there is another consideration that could not be seen by analysis of financial
reports and therefore was not mentioned by previous valuators - only an analysis of
years of BD Agro's transactions has revealed the extent of mismanagement of BD
Agro by Mr. Obradovic, Mr. Rand and their associates, who were ruining the company
by their financial machinations and were draining its value and cash for years. They
have gone that far that the company actually paid for its own privatization.2156
1411.As already mentioned, BD Agro's accounts were blocked for about two and a half
years before the termination of the Privatization Agreement. Since the end of 2014,
2152
Second Expert Report of Sandy Cowan, paras. 3.15 & 3.16.
2153
2154
Second Expert Report of Sandy Cowan, paras. 3.10-3.21.
2155
See Report on evaluation of market value of bankruptcy debtor’s property and evaluation of debtor as
legal entity “BD AGRO“ad Dobanovci in bankruptcy on 30 June 2018 (Mr Bodolo valuation), CE-511, as
well as his list of valued property submitted as RE- 553; See, also, list of BD Agro's property that was not
sold, dated 30 June 2018, RE-451.
2156
See above Sec.I.F.
481
the company was on the verge of bankruptcy. On 21 October 2015, its total liabilities
were between EUR 43.8 million and EUR 61.2 million on any count.2157 This could
not be possibly offset by its business value, as the company was practically not
operating. Claimants well know that, as they were part of the whole operation for
years, together with Mr. Obradovic. While the company had surplus land, whose sale
was liberally used to offset losses by Mr. Obradovic, it also had a problem that a large
part of the land was actually not BD Agro's property (although recorded in the
cadastre) or was subject to disputes. In such situation, it does not come as a suprise
that BD Agro's value at the valuation date was nil, as demonstrated in more detail by
Mr. Cowan.
1412.Claimants blatantly ignore the land issue in their compensation claim. According to a
valuation report by Mr. Bodolo, prepared in the bankruptcy proceedings, BD Agro's
total claimed land is approximately 936ha, out of which 542 may be valued as BD
Agro's property, while the rest of 394ha had to be excluded from the valuation, for the
following reasons:
"The difference between the surface in ownership which has been recorded as
the ownership of the bankruptcy debtor in the land registry extracts of 936ha
20ar 45m2 and surface which is the subject of valuation (and sale) of 542 ha
05ar20 originates from the plots and parts of the plots which were allocated to
the employees and Municipality of Zemun in the previous period for the
construction of family housing facilities, and which change was not
implemented in the Republic Geodetic Authority, as well as the plots which are
the subject of court disputes which have not been finally solved, land which
may be the subject to restitution, as well as the land which should have been
subject of expropriation, and the real consequence of which may be the deletion
of the ownership right."2158
1413.Therefore, Claimants factor into their valuation BD Agro's ownership over the land
that is not in its ownership because it was given away (to employees to build family
houses or to the local municipality of Zemun) or was subject to expropriation or
2157
See Second Expert Report of Sandy Cowan, para. 2.4.
2158
entity “BD AGRO“ad Dobanovci in bankruptcy on 30 June 2018 (Mr Bodolo valuation), p. 11, CE-511.See
also p. 13 of Mr. Bodolo valuation.
482
restitution (denationalization). Mr. Bodolo notes that the changes of ownership were
not implemented through the cadaster, so BD Agro remains inscribed as owner but in
reality it is not. Further, there is the land whose legal status is controversial and is
subject to court disputes, "the real consequence of which may be the deletion of the
ownership right". Therefore, BD Agro either does not have ownership over significant
parts of "its" land, or such ownership is subject to controversy, as also confirmed by
its bankruptcy administrator in the sales documentation.2159All this means that this
land should not be taken into account in valuation of the company.
1414.Claimants must be very well aware of this fact. Mr. Obradovic and Mr. Rand, as well
as their associates, were for years involved in BD Agro's operations. It would be
astonishing if they did not know anything about the fact that almost one half of its
land was not in company's ownership or was subject to controversy. Further, Mr. Rand
had this information at its disposal from the bankruptcy proceedings, both as a
creditor, and through the fact that Mr. Broshko bought the sales documentation, which
clearly flagged this information.2160 Nevertheless, Mr. Rand chose to ignore that fact.
1415.Obviously, an accurate determination of BD Agro's ownership over the land is an

essential prerequisite for the part of claim for compensation made on the basis of the
value of this land. Claimants have failed to carry their burden in proving that the land
in question really belongs to BD Agro and should be included in the valuation. In
contrast to that, Respondent has showed, including by the evidence known to and
submitted by Claimants themselves, that over 40% of the land evaluated by Claimants
experts is not in ownership of BD Agro or its ownership is in dispute, so it should not
be taken into account in valuation. On this basis, Mr. Cowan has been asked to provide
also an alternative valuation of the company, taking this into account.
1416.Mr. Cowan was instructed to use Ms. Ilic's valuation, but also findings in Mr. Bodolo's
report, in particular his determination that substantial part of BD Agro's land is subject
to ownership controversy. Accordingly, Mr. Cowan has provided alternative
calculations, both under bankruptcy scenario and a going concern scenario. In
addition, under both scenarios Mr. Cowan provides calculations of BD Agro's value
2159
See Documentation required for sale of bankruptcy debtor - BD Agro ad Dobanovci, dated March 2019,
p. 2, RE-559.
2160
See Third Witness Statement of Erinn Broshko, para. 32; see, also, Sales documentation for BD Agro, p.
2, RE-559.
483
on the basis of all its land (assuming that there is no ownership controversy) and of
only part of its land taking into account the ownership controversy, as will be
explained below. Here, Respondent would like to clarify that although these
alternative calculations have been prepared for the benefit of the Tribunal, its position
is that only a bankruptcy scenario taking into account the valuation of undisputed part
of BD Agro's land is the proper basis for establishing the fair market value of the
company. The valuation based on this scenario yields the result that is fully in
accordance with the dark reality that has been exposed in Respondent's submissions:
after years of mismanagement, a company that had been initially bought for
approximately EUR 5.5 million became worthless by October 2015.
C. ON CAUSALITY
1417.The Parties agree that payment of compensation presupposes a causal link between a
treaty breach and the injury suffered for which compensation is sought.2161
1418.According to Claimants, the termination of the Privatization Agreement and the

transfer of the Buyer's shares to the Agency were expropriatory and caused them
injury that needs to be compensated. Interestingly, Claimants' discussion of causality
does not state, at least not expressly, that that they suffered damage due to alleged
violations of other Respondent's obligations under the BITs by the termination. Also,
they do not state expressly that other measures complained of (refusal to release the
Pledge and refusal to consent to assignment of the shares) caused them damage that
requires compensation.
1419.The arbitral tribunal Bilcon v. Canada has provided a useful summary of international
standards relating to causality:
"Authorities in public international law require a high standard of factual

certainty to prove a causal link between breach and injury: the alleged
injury must “in all probability” have been caused by the breach (as in
Chorzów), or a conclusion with a “sufficient degree of certainty” is
required that, absent a breach, the injury would have been avoided (as in
Genocide). While the facts of the Genocide case were of course markedly
2161
See Reply, para. 1288; Counter-Memorial, para. 765.
484
different from those underlying the present arbitration, there is an important
similarity: the ICJ, as the Tribunal in the present case, was confronted with
a situation of factual uncertainty, where in the view of one of the parties,
the same injury would have occurred even in the absence of unlawful
conduct.
An even stricter approach was established in Nordzucker, where the

tribunal enquired whether the State’s conduct “necessarily” led the investor
to act in ways that harmed its profitability."2162
1420.On this basis, the Bilcon tribunal formulated the causality test as follows:
"the test is whether the Tribunal is “able to conclude from the case as a
whole and with a sufficient degree of certainty” that the damage or losses
of the Investors “would in fact have been averted if the Respondent had
acted in compliance with its legal obligations” under NAFTA. Alternatively,
the Tribunal must be convinced that the Investors’ alleged injury would, “in
all probability”, not have occurred if the NAFTA violation had not been
committed."2163
1421.Claimants seek to establish causality between the termination of the Privatization

Agreement and the alleged loss of profits that would have been obtained by future
activity of BD Agro in the following way:
"Was it not for Serbia's unlawful actions, BD Agro would have implemented
the prepack reorganization plan and continued its operations. The
reorganization had been already agreed with and approved by BD Agro's
creditors - who believed in BD Agro's potential."2164
1422.As has been discussed above, in the chapter about BD Agro's bankruptcy proceedings,
the approval of the Amended plan by BD Agro's creditors, which is mentioned by
Claimants, was actually revoked on appeal.2165 Further, it is important to note that BD
2162
Bilcon of Delaware et al v. Government of Canada, PCA Case No. 2009-04, Award on Damages, 10
January 2019, paras. 110-111, RLA-154.
2163
Bilcon of Delaware et al v. Government of Canada, PCA Case No. 2009-04, Award on Damages, 10
2164
Reply, para. 1291.
2165
See Sec.I.G.
485
Agro tried to avoid having Banca Intesa as the majority creditor in Class A of secured
creditors by overvaluing its land property, and that Banca Intesa challenged the
Amended plan inter alia on this basis.2166 Given (i) Banca Intesa's opposition to the
pre-pack reorganization plan, (ii) its continuous seeking that BD Agro be put into
bankruptcy and (iii) opposition to company's reorganization, it is certain that any new
pre-pack reorganization plan prepared by Claimants' controlled management would
face considerable obstacles in its adoption, delays due to appeals and possible veto.2167
Therefore, its adoption was not probable or certain at all, regardless of the termination
of the Privatization Agreement. This conclusion is augmented by Mr. Cowan's
detailed opinion that it was not likely that the proposed pre-pack reorganization plans
would work, even if adopted.2168 All this clearly indicates that the purported causality
invoked by Claimants (had there been no termination, BD Agro would have become
a profit-making company and there would be no bankruptcy) is simply not realistic,
let alone that there was "a sufficient degree of certainty" or "all probability" that
Claimant's rosy scenario would materialize. This is even more so, considering Mr.
Obradovic's record of mismanagement in BD Agro and other companies that he
privatized and then brought to destruction.2169
1423.In conclusion, Claimants have failed to establish causality, which is the necessary step
in proving damages.
D. LAND VALUATIONS INVOKED BY CLAIMANTS SHOULD NOT BE

RELIED UPON
1424.Valuation of BD Agro's land is a major factor in valuation of the company as a whole.

Claimants' expert Dr. Hern makes his own assessment of the value of BD Agro's land,
but in that he also relies on previous valuations prepared by Mr. Mrgud and
Confineks.2170 The relevant part of Dr. Hern's report has been positively reviewed by
2166
See Objections of Banca Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. 2-7, RE-
460; Appeal of Banca Intesa dated 30 July 2015, CE-354. See Section II Reasons related to the content of
the reorganization plan, CE-354.
2167
See above Sec.I.G..
2168
See Second Expert Report of Sandy Cowan, paras. 3.20 & 3.21; Expert Report of Sandy Cowan, paras.
5.1-5.3.
2169
See Sec.I.F.
2170
Expert Report of Richard Hern, Sec. 3.2.3.
486
Mr. Grzesik, who also provides his own assessment of the value of BD Agro's land.2171
All these reports have been reviewed by Ms. Ilic and found to have serious flaws,
which make them unreliable. They will be considered in turn.
1. Dr. Hern's land "valuation"
1425.Respondent's Counter-Memorial mentioned a number of deficiencies in Dr. Hern's

valuation of BD Agro's land which were identified in Mr. Cowan's expert report. 2172
Now Respondent also submits expert report of Ms. Ilic, which in detail discusses Dr.
Hern's "valuation" and demonstrates that it is not in accordance with accepted
international standards and should not be relied upon.2173 In short, Ms. Ilic shows that:
 Dr. Hern's exercise is methodologically flawed because it is not clear which

valuation standards he applies in his "valuation" and whether he performs an
"valuation" or "assessment";
 Dr. Hern does not consider the specific factors affecting the price of particular
land plots (size, location etc), but values the land according to its category and a
total size within the category.
 when determining the price of the land, Dr. Hern predominantly uses the Tax
Administration's assessments of property value for the purpose of property sale
tax and third party valuations, instead of evidence of real market prices, which
is available from the Republic Geodetic Authority - and does so particularly
when it suits his higher valuation.
 he uses both outdated evidence and evidence which post-dates the valuation date.
1426.First, Dr. Hern does not clearly state whether he performs a valuation of the land,
which is necessary for the purpose of valuation of BD Agro, or he performs an
assessment, which is a different exercise used for mass appraisals of real property for
taxation purposes, not appropriate for the present purpose.2174 Moreover, he
2171
See Expert Report of Krzystof Grzesik, paras. 1, 5.11 & 11.1.
2172
See Counter-Memorial, paras. 786-787; Expert Report of Sandy Cowan, paras. 7.8.2, 7.8.3, 7.8.5, 7.10 &
7.12.
2173
Expert Report of Danijela Ilic paras 5.1.-5.24.
2174
“While valuation process is strictly defined in all internationally recognized valuation standards , the term
“assessment” is used only in IAAO Standard on mass appraisal of real property - 2013 in the context of
assessment of value of real property for taxation purpose.”, Expert Report of Danijela Ilic, para 4.4.
487
interchangeably and therefore inconsistently uses the terms "valuation" and
"assessment" and in this way confuses the analysis.2175
1427.Second, Dr. Hern's analysis relates to the total size of land by the categories of its use,
without considering specific factors such as the number of parcels, their size, use and
location.2176 If Dr. Hern wished to value large tracks of land, he was supposed to form
a representative sample of the tract and on this basis seek comparable sales and make
all necessary adjustments to estimate the market value. Ms. Ilic notes that she has not
detected anything of the sort in Dr. Hern's report.2177 Further, Dr. Hern is not accurate
about the size of developable BD Agro's land in Zones A, B and C, which he should
have determined with reference to graphics of the General Regulation Plan.2178 This
is of crucial importance because the land in Zones A, B and C presents over 80% of
the value of all BD Agro's land according to Dr. Hern's valuation.2179
1428.Third, once one inspects underlying evidence provided by Dr. Hern in support of his
"valuation", one realizes that it is mainly based on Tax Administration's assessments
for the purpose of property sale tax, and not on market evidence, i.e. actual sales
transactions.2180
1429.Ms. Ilic also notes that Dr. Hern uses evidence of third parties "whenever there is a
need to support a higher estimate of value".2181 Ms. Ilic states that valuations of third
parties are not suitable to be used as market evidence.2182 On this basis, she concludes
that Dr. Hern should have based his opinion on the value of BD Agro's land in Zones
A, B and C on actual sale transactions from 2014-2015, which may be obtained from
the database of the Republic Geodetic Authority of Serbia.2183 Significantly, Dr. Hern
based his opinion on the value of "other construction land" on the sales data from the
Republic Geodetic Authority, but failed to do so in case of Zones A, B, and C land.2184
This difference in approach reveals not only the inconsistency of Dr. Hern's method,
2175
Expert Report of Danijela Ilic, para. 4.4.
2176
Ibid.
2177
Ibid.
2178
Expert Report of Danijela Ilic, 4.11.
2179
See Hern, 1, para. 110, Table 3.10.
2180
Expert Report of Danijela Ilic, paras. 5.8-5.13, see Expert Report of Richard Hern, para. 64, Table 3.3.
2181
2182
Expert Report of Danijela Ilic, paras. 4.9-4.10.
2183
Expert Report of Danijela Ilic, paras. 5.14-5.15.
2184
488
but also undermines credibility of his report, to say the least, since the sales data would
lead to much lower value of the land, as demonstrated by Ms. Ilic's valuation of Zones
A, B and C land.2185
1430.Fourth, Dr. Hern labels his sources as contemporaneous to the valuation date, but in
reality this is not so. Even when he uses evidence from actual market transactions, Dr.
Hern includes evidence that is outdated2186 and/or inappropriate (conditional
agreements).2187 He also uses assessments of the Tax Administration that are either
outdated (2012) or subsequent to 21 October 2015, the date of valuation.2188
1431.Claimants dismiss Respondent's criticism of Dr. Hern's report concerning his failure
to appreciate the fact that conversion and development of agricultural land for
construction purposes could take years. Claimants respond to this by quoting Dr. Hern
stating that there is "no basis to take account of a size discount where land does not
need to be sold in large chunks, as in the situation in this case".2189 This, however, is
inapposite, because Dr. Hern's argument here concerns the question whether a size
discount should be applied in the valuation, and it does not say anything about the
argument that conversion and development of the agricultural land could take years.
As noted by Ms. Ilic,
"...developer expects that seller completes Detailed regulation plan which

on the other hand presumes availability of access from public roads and
serviced land with appropriated communal infrastructure. Simply, buyer is
not prepared to bear risk, both time wise and finance wise, of taking all
2185
Mr. Hern values this land at 62.9-82.9 mil. EUR, see Expert Report of Richard Hern, para. 94, Table 3.5,
while Ms. Ilic values it at 39 mil. EUR on the basis of market data, see Expert Report of Danijela Ilic, para.
10.2.
2186
Purchase agreement between BD Agro and Hypo Park dated 11 June 2008, CE-144, Purchase agreement
between BD Agro and Eko Elektrofrigo dated 27 October 2008, CE 145, Purchase agreement between BD
Agro and Trajan dated 12 November 2009, CE 146, dating from 2008-2009.
2187
See Purchase agreement between BD Agro and Eko Elektrofrigo dated 27 October 2008, CE 145,
Purchase agreement between BD Agro and Trajan dated 12 November 2009, CE 146.
2188
Expert Report of Danijela Ilic, para. 5.5;and Expert Report of Richard Hern, para. 62; see, also, Purchase
agreement between BD Agro and Eko Elektrofrigo dated 27 October 2008, CE 145; Purchase agreement
between BD Agro and Trajan dated 12 November 2009, CE 146; Tax Administration Branch B Stara
Pazova, Number 235-464-08-00090/2016-J2B02, Delivery of Information dated 23 December 2016, CE-
158; Tax Administration Zemun Branch, Number 021-464-08-00029/2016-I1A02, Delivery of Information
dated 12 February 2016, CE-159, Tax Administration Zemun Branch, Number 021-464-08-00029-1/2016-
I1A02, Delivery of Information dated 25 May 2016, CE-160, Tax Administration Zemun Branch, Number
021-464-08-00125/2016-I1A02, Delivery of information dated 28 July 2016, CE-161.
2189
Reply, para. 1373, quoting Second Expert Report of Richard Hern, para. 124.
489
these actions in order to have construction land ready for development.
Therefore, at the date of purchase he is willing to pay only part of the full
development potential due to the uncertainty of achieving it."2190
1432.Claimants quote the statement of Mr. Grzesik, their expert, that Dr. Hern's valuation
can "be classified as being in line with internationally recognized valuation
standards", with the reservation that he should have provided "the single market value
as postulated by the definition of market value".2191 However, as has been seen above,
Ms. Ilic's report demonstrates that Mr. Grzesik's review of Dr. Hern's report was
superficial and failed to note numerous deficiencies that make Dr. Hern's "valuation"
unreliable. Further, as will be seen in the next section, Mr. Grzesik's own valuation"
of BD Agro's land is prone to similar deficiencies.
2. Mr. Grzesik's land "valuation"
1433.Ms. Ilic demonstrates that Mr. Grzesik's "valuation" of BD Agro's land is unreliable.
In essence, it suffers from similar deficiencies as Dr. Hern's - inconsistency as to
whether he performs a valuation or assessment; use of evidence and valuation
standards that post-date the date of valuation; methodological and evidentiary flaws.
1434.The methodological inconsistency concerning the very nature of exercise he performs

- whether it is a valuation or assessment - has already been discussed in the previous
section. Further, Mr. Grzesik uses primarily third party valuations and tax assessments
in his valuation, in the same way as Dr. Hern does, which is not in accordance with
international valuation standards.2192 He also relies on valuation standards that were
published after the date of valuation.2193
1435.Ms. Ilic assess not only Mr. Grzesik's "review" of Dr. Hern's "valuation" of BD Agro's
land, but also Mr. Grzesik's own "valuation" of this land and shows that it is unreliable.
1436.Mr. Grzesik has failed to directly analyze the size of land in Zones A, B and C and
relies in this regard on Dr. Hern, who is not reliable about the size of developable BD
2190
2191
See Reply, para. 1356, quoting Expert Report of Krzystof Grzesik, paras. 5.4 & 5.11.
2192
2193
490
Agro's land in Zones A, B and C, because he failed to determine it precisely with
reference to graphics of the General Regulation Plan.2194
1437.Further, as regards the land in Zones A, B and C, Mr. Grzesik determines the lower
bound of price by reference to BD Agro's own previous transactions.2195 However,
these transactions are outdated since they are from 2008-2009 and precede the
valuation date by six years.2196 As Ms. Ilic explains, international standards allow use
of old transactions if they are combined with knowledge of market trends occurring
between their own date and the date of valuation. There is no evidence that Mr.
Grzesik has done so.2197 On the other hand, Mr. Grzesik forms his opinion about the
upper bound of price of land in Zones A, B and C by using price assessments prepared
by the Tax Administration for the purpose of property transfer tax, which are not
market valuations and evidence of market price. Mr. Grzesik considers that individual
assessments of land plots in Batajnica by the Serbian tax authorities "for the purpose
of expropriation represent the best evidence in support of a valuation of Zones A, B
and C at a price of € 30/m2".2198 However, while Mr. Grzesik refers to Dr. Hern's
report, he fails to note that both Dr. Hern and the assessments state that they were
made for tax purposes.2199 Actually, Mr. Grzesik refers to a footnote in Mr.
Markicevic's witness statements as the only source that these assessments were made
for the purpose of expropriations, but this itself is not supported by the document
referred to by Mr. Markicevic.
1438.On the basis of his flawed analysis, Mr. Grzesik sets the price for land in Zones A, B
and C at 30 EUR/m2 and values BD Agro's land in the zones at EUR 87 million.2200
However, Ms. Ilic concludes that, if Mr. Grzesik disregarded the price assessments
2194
2195
Expert Report of Krzystof Grzesik, para. 6.5.
2196
2197
Expert Report of Danijela Ilic, para. 4.17; Mr. Grzesik also states that older transactions are not reliable,
which raises the question why does he refer to these old BD Agro's transactions at all, see Expert Report of
Krzystof Grzesik, para. 6.8.
2198
2199
See Expert Report of Richard Hern, para. 71 & Tax Administration Zemun Branch (17 March 2016),
Number 021-464-08-00029/2016-I1A02, Delivery of information on market value of immovable, your
reference number 9268/6-5 CE-159, Tax Administration Zemun Branch (8 June 2016), Number 021-464-08-
00029-1/2016-I1A02, Delivery of information on market value of immovable your reference number 32381/6-
05, CE-160, Tax Administration Zemun Branch (24 August 2016), Number 021-464-08-00125/2016-I1A02,
Delivery of of information on market value of immovable your reference number 47336/6-05, CE-161.
2200
Expert Report of Krzystof Grzesik, para. 6.19. After subtracting the conversion fee, Mr. Grzesik arrives
at the value of EUR 85.3 million for BD Agro's land in Zones A, B and C, see ibid. para. 6.26.
491
which do not comply with international standards and relied on actual sale transactions
recorded in Republic Geodetic Authority, he would have come to a much lower price
than 30 EUR/m2 for land in Zones A, B and C.2201
1439.As regards "other construction land", Mr. Grzesik simply restates what Dr. Hern stated
in his first report and adopts his upper bound price as it is based on market
transactions, arriving at the value of EUR 3.8 million (EUR 3.5 million adjusted for
the conversion tax).2202 However, Mr. Grzesik fails to note that Dr. Hern's review of
market transactions also includes one transaction of mere 50m2 of land, which was
sold for 30 EUR/m2 and had strong impact on his calculation, since Dr. Hern used the
average price from the market transactions in his valuation. Here, it should be noted
that Ms. Ilic also criticizes the use of average price, because median price would be
more appropriate when there is a wide range of prices reached in market transactions,
as here. With these corrections, the price reached for "other construction land" would
be 30% lower than the one reached by Dr. Hern nd Mr. Grzesik.2203
1440.Finally, as regards BD Agro's agricultural land, Mr. Grzesik has also accepted Dr.
Hern's evidence of market transactions and data on expropriations, and arrives at the
value of EUR 10 million.2204 However, as regards the expropriations, Mr. Grzesik has
failed to note that the location of the expropriated land in question was not
comparable, and that the information about the price paid was ambiguous.2205 Had he
disregarded such information about expropriation compensation his assessment would
have been 50% lower.2206
3. Mr. Mrgud's land valuation
1441.Claimants contend that Mr. Mrgud's valuation of BD Agro's land which valued it at
EUR 87 million is supported by the valuation of Mr. Grzesik, who comes at only
slightly lower figures.2207 However, as already discussed, Mr. Grzesik's valution has
serious problems and is not reliable. As such, it cannot render any legitimacy to Mr.
2201
See Expert Report of Danijela Illic, para. 4.23.
2202
Expert Report of Krzystof Grzesik, paras. 8.1-8.3.
2203
2204
2205
2206
2207
492
Mrgud's results. Furthermore, Ms. Ilic has also reviewed Mr. Mrgud's valuation and
found it not to be in line with internationally recognized valuation standards. Among
other things, he did not state under which valuation standards he performed his
valuation and he did not research actual market transactions available from the
Republic Geodetic Authority.2208 Mr. Mrgud's valuation was also strongly criticized
by Banca Intesa in the bankruptcy proceedings and the Commercial Appeals Court
apparently agreed that the report is flawed so it instructed the lower court to check its
veracity in new proceedings.2209
4. Confineks land valuations
1442.Claimants follow Dr. Hern in reliance on land valuations in Confineks reports and
also argue that Respondent supposedly accepted these valuations. However, the
Confineks land valuations are not reliable, as demonstrated by Ms. Ilic, and, further,
they were not accepted by Serbia. These two issues will be discussed in turn.
4.1. Confineks land valuations are not reliable
1443.Confineks made two valuations of BD Agro, both of which included the value of its
land.2210 According to Ms. Ilic, the valuations of BD Agro's land have a number of
deficiencies. To start with, they were prepared based on inventory lists which were
not cross-checked with information from cadaster. For this reason, they contain
mistakes relating to the size od land that was valued. Further, while Confineks claims
that it valued the land using comparative approach, Ms. Ilic notes that "there is no
evidence of comparable land, no evidence of analytical processes undertaken in
carrying out the valuation of cadastral parcels". On this basis, she concludes that
Confineks land valuation was not in line with internationally recognized valuation
standards.2211 Deficiencies of the Confineks land valuation are also noted by Mr.
Grzesik.2212
2208
2209
Decision of the Appellate Court, dated 30 September 2015, CE-358.
2210
See Report on the valuation of assets, liabilities and capital of BD Agro Dobanovci of December 2015,
Sec. 4.2, CE-142; Confineks d.o.o. Beograd, Report on the Valuation of Assets, Liabilities and Capital of
BD Agro AD Dobanovci of January 2016, Sec. 4.2, CE-172.
2211
Expert Report of Danijela Ilic, paras. 8.1 & 8.3.
2212
493
1444.Claimants state that credibility of Confineks valuations is supported by the fact that
they correspond to Dr. Hern's valuation.2213 However, instead of confirming them, Dr.
Hern's land valuation itself was, inter alia, based on Confineks land valuations. The
flaws of Confineks land valuations must then taint Dr. Hern's valuation as well.
4.2. Serbia has not accepted Confineks valuations and, in any case, this would
have no impact on the present case
1445. Claimants persist with their claim that Respondent somehow "accepted" the Confinex
valuations, through the alleged actions of the Agency.2214 The fact that the Agency's
conduct cannot be attributed to Respondent disposes of this claim immediately. But
in any case, it is unclear what Claimants seek to achieve with their argument that
Serbia somehow approved of Confineks valuations. They do not and cannot claim any
"estoppel" or even reliance on that fact, even if it were accurate. It seems that
Claimants argument' is directed to support their claim that Confineks (and Mrgud)
valuation are "more relevant" than other contemporaneous valuation of BD Agro,
because they were "expressly accepted" by Serbia (in case of Mrgud valuation, by
creditors).2215 In any case, the methodological flaws of these reports clearly make
them unreliable as far as land valuation is concerned, which obviously disqualifies
them,.2216 Even Claimant's real estate expert distanced himself from Confineks land
valuations.2217
1446.Claimants make much of the fact that temporary administrator of socialy owned
capital appointed by the Agency directed Mr. Markicevic to engage Confineks and in
fact approved all important decisions taken by BD Agro's management.2218 However,
it should be noted that temporary administrator, while at the relevant time appointed
and removed by the Agency, was under law independent in her work.2219 Virtually all
2213
Reply, para. 1300.
2214
2215
Reply, para. 1324.
2216
Expert Report of Danijela Ilic, paras. 8.1-8.3 & 8.9.
2217
As regards the Confineks land valuation, Mr. Grzesik states that it is only "secondary" evidence, which
does not reveal evidence on which it is based. See Expert Report of Krzystof Grzesik, para. 12.4.
2218
2219
Law on Privatization, Article 42, paras. 3&4, CE-223.
494
conduct allegedly approving Confiks reports is the conduct of BD Agro's
management,2220 and cannot be attributed to the Agency, let alone Respondent.
1447.Moreover, as already discussed in the Memorial, various "approvals" of Confineks

reports were performed by the representative of socially-owned capital in BD Agro's
shareholders assembly, not by the Agency as Claimant contend.2221 Not only that she
was independent in her work under the Law on Privatization, but also she acted as a
member of the shareholders assembly, which is a collegial organ of the company.
Actions of the shareholders assembly may only be held opposable as regards BD Agro
itself, not anyone else. Further, as already mentioned in the Counter-Memorial,
shareholder's acceptance of financial reports at the shareholders meeting cannot
possibly be interpreted as an automatic acceptance of all documents on which the
financial report was based or referred to, such as Confineks valuations. This would be
absurd.
1448.In this regard, Claimants' response is clearly wanting, as they only state that Serbia
cannot "seriously contend" that the Agency accepted BD Agro's financial statements
"while it believed that they seriously overrepresented the value of BD Agro's
assets".2222 However, this is not what is in issue here, but whether anyone's acceptance
of a valuation in one context (exercise of corporate rights) should be held as binding
years afterwards in a completely different context. Simply put, the Confineks land
valuations have been exposed as flawed and unreliable and as such should not be used
in the present proceedings as evidence of fair market value of BD Agro.
E. MS. ILIC'S VALUATION OF BD AGRO'S LAND
1449.In response to valuation of BD Agro's land prepared by Claimant's experts, Ms. Ilic
has prepared her own valuation. It should be noted that Ms. Ilic has valued all land of
BD Agro that was valued by Claimants' experts but that, at the beginning of her report,
she makes the following remark:
"I would like to clarify that I understand my task as being principally to review
BD Agro’s land valuations provided by the real estate experts. I provide such
2220
2221
See, e.g, Reply, para. 1321.
2222
Reply, para. 1321.
495
review and then I provide my own valuation in response. As such, my valuation
concerns all land owned by BD Agro on 21 October 2015, because this was
also subject of the land valuations prepared by experts. However, from the
evidence and reports provided to me, I see that the ownership of BD Agro is
controversial with respect to a substantial part of its land, which I understand
was the reason why only undisputed land was sold in the bankruptcy
proceedings. This has not been taken into account in the land valuations
provided by the experts so far. Since I provide my valuation as a response to
the land valuations provided by the real estate experts and in particular by
Claimants’ experts Mr. Hern and Mr. Grzesik, I also do not distinguish
between disputed and undisputed land, but I want to make a general
qualification that controversial legal status of the land would either be an
impediment to its sale or at least would substantially affect the market price of
such land. The undisputed land was however valued in the valuation of Mr.
Tibor Bodolo and his team which was provided in the bankruptcy proceedings.
As I would discuss later in my report, I consider Mr. Bodolo's valuation to be
realistic and in line with international standards. Therefore, it may be used as
an expert valuation of BD Agro's undisputed land."2223
1450.Therefore, Ms. Ilic notes what Claimants and their experts ignore - that a substantial
part of BD Agro's land has disputed ownership status. Not only they ignore this fact,
but also provide an excessive overvaluation of this land, as Ms. Ilic demonstrates in
her report.
1451.Ms. Ilic's valuation is in line with international valuation standards. In her report, she
explains in detail her methodology.2224 For the present purposes, it is sufficient to state
that she applied the market approach for valuation of BD Agro's agricultural and
construction land and basis her analysis on actual sale transactions, and not on third
party valuations or tax assessments, as Mr. Hern and Mr. Grzesik predominantly do.
For the valuation of market value of land tracts owned by BD Agro in Dobanovci,
Ugrinovic, Becmen, Asanja, Dec, and Novi Becej, she has prepared a representative
sample for each location and selected comparable market transactions from the data
2223
Expert Report of Danijela Ilic, Introduction, para. 6 (footnotes omitted).
2224
Expert Report of Danijela Ilic, para. 9.1-9.4.
496
base of the Republic Geodetic Authority in the period 2014-2015, that is close to the
valuation date.2225 Her findings are in detail explained in her report and the Tribunal
is kindly referred to it.
1452.Ms. Ilic concludes her report by stating the following:
"The valuation is prepared in line with International Valuation Standards

IVS 2013, which were in effect at the date of valuation, 21 October 2015. I
have applied the market evidence, which is of highest relevance, actual sale
prices recorded in RGA and where necessary I have also applied adjusted
asking prices. I have applied Market approach (IVS 2013) aligned for the
characteristics of subject of valuation. Since subject of valuation is large
land tracts in different locations, I have applied statistical tools (median;
representative sample on the level of the land tract) which have allowed
valuation of the whole group of cadastral parcels in an accurate and
efficient manner."2226
1453.On this basis, her opinion on market value of BD Agro's land, on 21 October 2015, is
as follows:
2225
Expert Report of Danijela Ilic, para. 9.21. and Appendix 2 containing data on comparable transactions.
2226
497
Agricultural land Size (m2) Market value (eur)
Ašanja 309,160 92,748
Deč 17,641 5,292
Bečmen 227,021 976,190
Ugrinovci 583,448 711,806
Dobanovci 4,511,189 4,510,781
Novi Bečej 5,756 2,878
Total agricultural land 5,654,215 6,299,695
Forest land
Novi Bečej 80,385 72,346
Total forest land 80,385 72,346
Construction land
Bečmen 150,280 833,519
Dobanovci 2,852,015 39,014,194
Novi Bečej 55,426 162,952
Ugrinovci 37,219 327,527
Total construction land 3,094,940 40,338,192
Total BD Agro land 8,829,539 46,710,233
1454.Therefore, Ms. Ilic values BD Agro's land at EUR 46,710,233, and specifically: EUR
6,299,695 for agricultural land; EUR 40,338,192 for construction land (including
Zones A, B and C) and EUR 72,346 for forest land. Since her valuation follows reports
of Claimants' experts, Ms. Ilic has made a general reservation that it does not take into
account the fact that 349ha of BD Agro's land is either not in reality in its ownership
or the ownership is under controversy.
1455.This valuation has been used in valuation report of Mr. Cowan, as well. In addition,
in line with Ms. Ilic's warning, Mr. Cowan also uses findings of Mr. Bodolo's report
on the size of BD Agro's land whose status is not in controversy. Having in mind Mr.
Bodolo's findings, Mr. Cowan prepared a calculation considering the most valuable
part of the uncontested land (Zone A, B, C land) but on the basis of Ms. Ilic's land
prices at the valuation date relevant in the present case, 21 October 2015. On this basis
his valuation of the not contested land is EUR 24.1 million.2227
2227
498
F. WHETHER BD AGRO'S BUSINESS SHOULD BE VALUED AS A GOING
CONCERN
1456.One of the main issues in dispute between the Parties and their financial experts is
whether BD Agro was a going concern at the valuation time, i.e. on 21 October 2015.
1457.Respondent's expert, Mr. Cowan, states that BD Agro was not a going concern at the
valuation date, considering its operational and financial difficulties, which were
threatening its ability to continue operations.2228 In particular, the company was in a
situation of illiquidity for many years, and from 2014 was in bankruptcy proceedings,
trying to agree a restructuring plan with its creditors2229. Mr. Cowan also points to the
fact that the company's auditor report for 2013 emphasized that the company would
not be able to continue operating as a going concern unless it obtains additional
operating capital, which had not been seen.2230 The company's bank accounts were
under permanent blockade from 8 March 2013 and remained so until the valuation
date.2231 In contrast to that, expert authority notes that "the business is a going concern
if it has a record of several years profitability".2232 Mr. Cowan also considers that the
pre-pack reorganization plan proposed by the company did not seem realistic,
especially in light of previous failed attempts to revitalize the company made on the
basis of a similar strategy.2233
1458.On the other hand, Dr. Hern, Claimants' financial expert, states that, as a matter of
fact, BD Agro was not in bankruptcy at the time of valuation and that its pre-pack
reorganization plan was adopted by majority of creditors.2234 However, as noted in the
chapter dealing with bankruptcy proceedings above, one of BD Agro's creditors,
Banca Intesa, itself initiated bankruptcy proceedings against the company in 2015 and
was not willing to accept the pre-pack reorganization plan proposed by the company.
It was listed as a minority creditor in its class (because BD Agro's management wanted
to circumvent its opposition to the plan) and for this reason was unable to prevent
2228
Expert Report of Sandy Cowan, para. 2.21.
2229
2230
2231
Second Expert Report of Sandy Cowan, para. 3.16,
2232
See Kantor, M. (2008), Valuation for arbitration,– Compensation Standards, Valuation Methods, and
Expert Evidence, Wolters Kluwer, page 95, , RE-486, quoted in Second Expert Report of Sandy Cowan,
para. 3.12.
2233
Expert Report of Sandy Cowan, paras. 5.2. & 5.5.
2234
Second Expert Report of Richard Hern, para. 34; Reply, para. 1299.
499
adoption of the Amended plan. However, it objected to and subsequently appealed the
Amended plan.2235 The plan was revoked by the higher court and sent back for
amendments. It is highly likely that Banca Intesa would continue to vote against the
adoption of the pre-pack reorganization plan and that it would appeal the plan.
Notably, in the period of almost two years (November 2014 to August 2016)2236 BD
Agro, managed by managers appointed by Mr. Obradovic and subsequently by the
Agency, was unsuccessful in persuading its creditors to support the pre-pack
reorganization plan. There is not a single document indicating that it would succeed
with that in the following period. All this shows that BD Agro’s bankruptcy was
inevitable in September 2015. This further confirms Mr. Cowan's financial analysis
indicating that the company was not a going concern.
1459.Further, Dr. Hern considers that a distress discount applied by Mr. Cowan, on the basis
of its conclusion that BD Agro was not a going concern at the date of valuation, is not
consistent with the fair market valuation principle, which by definition cannot reflect
a distressed sale of assets.2237 However, as Mr. Cowan states in his second report, the
definition of market value inter alia assumes a willing buyer, i.e. it reflects a value
that a buyer would be willing to pay for an asset or business in full knowledge of all
the facts.2238
"Dr. Hern has not included any discount on his Market Value to reflect that
a willing buyer would factor into the price negotiations that BD Agro was
a loss-making business with significant operational and financial issues,
and on the verge of bankruptcy (...) and that a willing seller would accept a
discounted sales price rather than go into bankruptcy and potentially
receive nothing for their shares."2239
1460.Accordingly, Mr. Cowan applies a 30% discount on this basis.2240
2235
See Objections of Banca Intesa to Amended pre-pack reorganization plan dated 7 May 2015, pp. 2-7, RE-
460; Appeal of Banca Intesa dated 30 July 2015, CE-354. For more, see Sec.I.G.
2236
Original pre-pack reorganization plan, November 2014, CE-321; Decision of the Commercial Court in
Belgrade on opening bankruptcy proceedings over BD Agro dated 30 August 2016, CE-109.
2237
Second Expert Report of Richard Hern, para. 33.
2238
2239
Second Expert Report of Sandy Cowan, paras. 7.33; see, also, ibid, para. 6.23.
2240
500
1461.Further, considering that BD Agro was not a going concern, Mr. Cowan also considers
that it is inappropriate to value it on the basis of the DCF method. Instead, it should
be valued on the basis an asset basis.2241
1462.Mr. Cowan does not consider that the use of DCF method would be warranted because
cash-flow projections are unrealistic when compared to the business's historic
performance.2242 Claimants and Dr. Hern consider otherwise, arguing that cash-flows
projects in the Amended plan were in line with historical data and accepted by BD
Agro's creditors.2243 Mr. Cowan provides a detailed analysis why this conclusion is
unfounded.2244
1463.Mr. Cowan's approach that BD Agro's lack of past profitability makes DCF method
unwarranted is also in line with international practice. As noted by the arbitral tribunal
in Vivendi,
"And, as Respondent points out, many international tribunals have stated

that an award based on future profits is not appropriate unless the relevant
enterprise is profitable and has operated for a sufficient period to establish
its performance record."2245
1464.It is a fact that BD Agro was not a profitable enterprise for years. The use of DCF is
therefore clearly not warranted.2246
1465.Here, it should be noted that the Vivendi tribunal also allowed for a possibility that
"… in an appropriate case, a claimant might be able to establish the

likelihood of lost profits with sufficient certainty even in the absence of a
genuine going concern. For example, a claimant might be able to establish
clearly that an investment, such as concession, would have been profitable
by presenting sufficient evidence of its expertise and proven record of
2241
2242
Second Expert Report of Sandy Cowan, paras. 7.8.1 & 7.10-7.20.
2243
Reply, para. 1347, referring to Second Expert Report of Richard Hern, para. 144.
2244
2245
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case
No. ARB/97/3, Award, 20 August 2007, para. 8.3.3, CLA-49 (emphasis added).
2246
501
profitability of concessions it (or indeed others) had operated in similar
circumstances."2247
1466.This sets very stringent evidentiary requirements for application of DCF in the
exceptional case where there is no genuine going concern - "sufficient evidence of
[claimant's] expertise" and "proved record of profitability of concessions... operated
in similar circumstances". As has been demonstrated, Mr. Obradovic (and by
extension Claimants) has demonstrated criminal negligence (if not worse) in
managing BD Agro into bankruptcy. He similarly behaved in other privatizations,
where he ruined the companies he bought. This is his apparent "expertise". Further, as
a matter of burden of proof, Claimants have not provided any evidence that similar
companies have had a proved record of profitability in similar circumstances. Rather,
their only argument is that BD Agro's creditors approved the Amended plan. Apart
from all problems with these proceedings, and revocation of the plan on appeal, it is
clear that this argument cannot possibly demonstrate "proved record of profitability"
of similar companies in similar circumstances.
G. MR. COWAN'S SECOND REPORT
1467.Mr. Cowan's valuation of BD Agro provides two general scenarios: one assuming a
bankruptcy scenario, which he considers realistic, and one assuming a going concern
scenario. In both scenarios, his valuation has two parts, one values BD Agro's
business, another values its surplus land. With regard to the valuation of land in both
valuation scenarios, Mr. Cowan was instructed to use Ms. Ilic's land valuation of al
BD Agro's land, but also to take into consideration report of Mr. Badolo, who indicates
disputed ownership status of a substantial part of this land. Under both bankruptcy
and a going concern scenarios, Mr. Cowan provides calculations of BD Agro's value
on the basis of all its land (assuming that there is no ownership controversy), and on
the basis of the value of the most valuable part of the land that is not disputed, as
explained below.2248
2247
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case
No. ARB/97/3, Award, 20 August 2007, para. 8.3.4, CLA-49.
2248
502
1468.Starting with the valuation based on the value of all BD Agro's land, under the
bankruptcy scenario, Mr. Cowan has applied a bankruptcy sales discount of 50%. He
states that "it is typical to apply a discount to represent the impact on value of
undertaking a sales process of a distressed business."2249 Further, he also includes
bankruptcy costs in his valuation, which he estimates at 20% of BD Agro's discounted
asset value, on the basis of a Doing Business report by the World Bank. 2250 In this
bankruptcy valuation, Mr. Cowan values BD Agro at - EUR nil.2251
1469.In the going concern valuation, based on the value of all BD Agro's land, Mr. Cowan
applies asset-based method. He makes a provision for EUR 9.2 million due to pending
court proceedings, which were likely to be lost by the company's own admission in its
financial reports.2252 He also uses a 30% distress discount at entity level, as he
considers that "a willing buyer would factor the price negotiations that BD Agro was
a loss-making business with significant operational and financial issues, and on the
verge of bankruptcy. It is likely that a willing buyer would pay less for the shares in
BD Agro than it would if the company was in a better financial situation ..."2253 In the
going concern valuation, Mr. Cowan values BD Agro at EUR 8.8 million in the variant
based on the value of all land.2254 Under that scenario, the compensation for Sembi's
owernship of 75.87% of BD Agro's shares, together with applicable interest would be
EUR 6.6 million while compensation to Mr. Rand on the basis of 3.9% of MDH
Serbia-held shares would be EUR 0.3 million, also with interest.2255 As will be
discussed further below, the latter compensation is subject to applicable taxes, which
is partly admitted by Claimants.2256
1470.Then, taking into account findings of Mr. Badolo's report concerning ownership over
the land, Mr. Cowan has used reduced size of the Dobanovci development land for his
valuation. The reason why Mr. Cowan taken into account only the reduction in the
2249
Second Expert Report of Sandy Cowan, para. 2.5.2.
2250
2251
Second Expert Report of Sandy Cowan, Table in para. 2.4.
2252
2253
2254
Second Expert Report of Sandy Cowan, Table in para. 2.4.
2255
Second Expert Report of Sandy Cowan, para. 2.7
2256
See Memorial, paras. 567-568.
503
Dobanovci development land from 285-290ha to 164ha and not all land considered
controversial by Mr. Badolo is as follows:
" There are several parcels of land that Mr Bodolo states are not owned by BD
Agro and are therefore not available for sale. However, the most significant
value of BD Agro’s land arises from the Dobanovci Development Land.
(…)
To take into consideration the potential reduction in the area of Dobanovci

Development Land available for sale, I have prepared a separate calculation
of BD Agro’s land value using Mr Bodolo’s Dobanovci Development Land
area of 164ha and Ms Ilic’s value of €14.7/ha ."2257
1471.On this basis, he has prepared
"two further valuations, again assuming a bankruptcy scenario and a going

concern scenario, in which the Dobanovci Development Land has an area of
164ha2258, with the accompanying interest calculations, which show a business
valuation of BD Agro of between €nil and €0.1 million"2259
1472.As already mentioned, Respondent submits that only the bankruptcy scenario based
on the valuation of undisputed part of BD Agro's land is the proper basis for
establishing the fair market value of the company, because it takes into account the
real situation of BD Agro's property, as well as failing business as at 21 October 2015.
As Mr. Cowan has established, this value is nil.2260
1473.Alternatively, in the going concern scenario and under the same input for the value of
the land, the value of BD Agro is also nil.2261
1474.Finally, and briefly, Claimants and Dr. Hern criticize Mr. Cowan's first report.2262
Some of the substantial points raised by them have already been exposed as
2257
Second Expert Report of Sandy Cowan, paras. 5.6. – 5.8.
2258
entity “BD AGRO“ ad Dobanovci in bankruptcy on the date of 30 June 2018 (Valuation team headed by Mr
Tibor Bodolo), p. 15, CE-511.
2259
Second Expert Report of Sandy Cowan, , para. 2.8
2260
Second Expert Report of Sandy Cowan, para. 2.8
2261
Second Expert Report of Sandy Cowan ,para. 2.8.
2262
504
unfounded, including distressed discount, going concern and the conduct of
bankruptcy proceedings.2263 The rest is deal with in Mr. Cowan's second report, to
which the Tribunal is kindly directed.2264
H. CALCULATION OF INTEREST
1475.Claimants argue that interest on the amount of their claim should be calculated
according to the provisions of Serbian law, because it is more favorable for them, and
not with reference to interest rate usually awarded in international tribunal awards.2265
1476.As has been already pointed out by Respondent, Claimants are wrong, because the
relevant BITs, while being silent on the specific question of calculation of interest for
treaty breaches, point to application of rules of international law, not to national
law.2266
1477.The basis for possible awarding of interest on the principal amount of Claimants’
damages claim lies in the international legal rule reflected in Article 38 of the ILC
Articles, which establishes the full reparation principle.2267 The main purpose of said
principle is to help Claimants restore the position they would have enjoyed if the
alleged breach had not occurred. Thus, addressing the issue of applicable interest rate,
the tribunal in Siemens v. Argentina stated that:
“… in determining the applicable interest rate, the guiding principle is to

ensure “full reparation for the injury suffered as a result of the
internationally wrongful act.” 2268
1478.In accordance with full reparation principle, Claimants are entitled to an interest rate
calculated in manner which “best approximates the value lost by an investor”2269. The
applicable interest rate thus should not be chosen on the basis that it is more
2263
See previous section and, also, Sec.I.G.
2264
2265
Reply, para. 1391.
2266
2267
Article 38 of Draft articles on Responsibility of States for Internationally Wrongful Acts with
commentaries dated 2001, CLA-24 and Memorial, para. 495; Counter-Memorial 831.
2268
Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007, para. 396
(footnote omitted), RLA-48. See, also, LG&E Energy Corp., LG&E Capital Corp., and LG&E International,
Inc .v. Argentine Republic, ICSID Case No. ARB/02/1, Award, para. 55.,
2269
Azurix Corp. v. The Argentine Republic, Award, para. 440, CLA-39.
505
advantageous either for Claimants or for Respondent, but should be objective and
should reflect economic reality, as much as possible. And that economic reality is that
Claimants are international investors who are active on the world market. Therefore,
a more generally applicable interest rate than the local Serbian one approximates their
economic reality.
1479.In this regard, the choice of the average annual LIBOR rate has been supported by
arbitral practice:
“This being an international tribunal assessing damages under a bilateral

investment treaty in an internationally traded currency related to an
international transaction, it would seem in keeping with the nature of the
dispute that the applicable rate of interest be the annual LIBOR on
November 5 of each year since November 5, 1998 until payment of the
awarded amount of damages.”2270
1480.Further, interbank interest rate (LIBOR/EURIBOR) increased by 2 percentage points

appears also to have been accepted. For example, the tribunal in National Grid v.
Argentina referred to six-months LIBOR plus two percentage points as “average
interest rate which Claimant would have paid to borrow from that date to present”.2271
Similarly, the tribunal in Khan Resources v. Mongolia found the same interest rate as
“commercially reasonable borrowing rate over the relevant period (…) consistent
with recent practice amongst ICSID tribunals and the prevailing scholarly view”.2272
1481.As illustrated, reasons for opting for application of any interest rate are reflected in
showing actual economic reality on the financial market and reaching “closer
approximation to the actual value lost by an investor”.2273 None of these tribunals
chose to apply some rate just because it was “more advantageous”, as Claimants
would have it. In the circumstances of the present case, and in particular considering
newly revealed revelations about BD Agro's mismanagement by Mr. Obradovic, it is
2270
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award,
para. 250, CLA-51.
2271
National Grdi v. Argentina, Award, 3 November 2008, para. 294, CLA-6.
2272
Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. The Government of
Mongolia, UNCITRAL, Award, dated 2 March 2015, para. 425, RLA-195.
2273
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award,
para. 251, CLA-51.
506
submitted that only interbank interest rate (LIBOR/EURIBOR), without increase of
2%, would be appropriate.
1482.On their part, Claimants interpret full reparation principle as a basis for establishing
rights that they do not enjoy. In fact, Claimants are trying to apply interest rate that is
“more advantageous” for them in order to put themselves in a better position, not the
objective one. For that point, they find no support. Notably, they have failed to submit
any case law showing that tribunals deciding cases under bilateral investment treaties
have applied a “more advantageous” interest rate on the basis of MFN clause or
preservation of right clause.
1483.Therefore, Claimants mistakenly rely on the preservation of right clauses in Article

10 of the Cyprus-Serbia BIT, as well as in Article 13(1) of the Qatar-Serbia BIT,
which the Canadian Claimants invoke under the MFN clause in Article 5 of the
Canada-Serbia BIT.2274 However, interest rate has nothing to do with the treatment
that Serbia is obliged to provide to Claimants under the Cyprus-Serbia and the
Canada-Serbia BITs.
1484.Claimants are trying to justify application of a higher interest rate relying on

importation of additional substantive standards of treatment through MFN clause. In
support of that, they rely on case law that allegedly allows them only to show the
existence of more beneficial provisions from other BITs in order to import such
provision by the use of MFN.2275
1485.Respondent's Counter-Memorial has already discussed why the MFN clause is

inapplicable in calculation of interest.2276 In this regard, Claimants deny applicability
of Hochtief in the sphere of substantive investment protection, arguing that its
pronouncement was made with regard to procedural rights.2277 However, the Hochtief
award does not confine to the "procedural" rights its position that a MFN clause cannot
import new rights where none exist in the basic treaty.2278
2274
Reply, 1391.
2275
2276
Counter-Memorial,paras. 821-826.
2277
2278
2011, paras. 66-67, RLA-88; see, also, above Sec.IV.D.
507
1486.Claimants criticize, as "highly restrictive", the approach taken by the tribunal in Ickale
v. Turkmenistan which held that investors cannot be said to be in a "similar situation"
merely because they invested in a particular state.2279 However, the Ickale tribunal
provided a detailed and convincing analysis of the phrase, in line with the customary
rules of interpretation codified in the VCLT.
1487.As already pointed out, arbitral practice invoked by Claimants in this context did not
discuss calculation of interest in the context of MFN standard, but dealt with
substantive investment protection. As such, it should not be determinative in the
present context. Rather, as already mentioned, the present context requires that
analysis starts from the rules of general international law. From that point, one
immediately realizes that the use of MFN clause as an instrument for determination
of appropriate interest rate would effectively amend full reparation principle from
Article 38 of the ILC Articles, because it would base calculation of interest on the best
treatment and not on full reparation, as the latter may obviously be achieved even
without the best treatment.
1488.Finally, Claimants fail to explain how the wording of the MFN clause from Canada-
Serbia BIT allows them to import provisions concerning interest rate. Namely, the
MFN clause contained in Article 5 of the Canada-Serbia BIT is very narrow in its
scope because it uses language that links the term “treatment” to specific aspects of
the investment process - “establishment, acquisition, expansion, management,
conduct, operation and sale or other disposition of an investment”. Under no
circumstances this provision can be understood to allow invocation of interest rate
prescribed by Serbian law that has nothing to do either with establishment, acquisition,
expansion, management, conduct, operation and sale or other disposition of an
investment. Claimants have no response to this treaty language other than an empty
phrase - that Respondent is "fabricating purported limitations to the scope of [the BIT]
limitation".2280
2279
İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Award, 8 March 2016, para.
328, RLA-129.
2280
Reply, para. 1394.
508
I. THE VALUE OF CLAIMANTS' INTEREST IN BD AGRO'S EQUITY
1. Introduction
1489.Claimant's discussion of the value of each Claimant's interest in BD Agro's equity is

largely based on their justification of their alleged investment structure, which has
already been in detail discussed from the jurisdictional perspective.2281 In this part,
Claimants discuss now the allocation of the compensation they claim should be
effected.2282 That discussion repeats many of the misconceptions that have already
been thoroughly refuted in Respondent's submissions. One such misconception is that
the value of MDH Serbia's shares in BD Agro, which are still in its ownership, was
indirectly expropriated due to the Agency's termination of the Privatization
Agreement and the transfer of Buyer's shares.2283 This argument has already been
refuted and the Tribunal is respectfully directed to the chapter dealing with the
bankruptcy proceedings, which demonstrates that BD Agro was on the verge on
bankruptcy long before the termination of the Privatization Agreement.2284
1490.In this part, Respondent will address (a) applicable Serbian tax on the value that would
have been received on Claimants' alleged interest in BD Agro's equity; (b) the claim
for a tax gross up if compensation is received by the Canadian Claimants beneficiaries
of the Ahola Trust; (c) Mr. Rand's claim for damages for its receivables towards BD
Agro.
2. Applicable Serbian tax
1491.With respect to the compensation for MDH Serbia's interest in BD Agro's equity,
Claimants accept that MDH Serbia would have to pay capital gain tax of 15% in
Serbia.2285 Therefore, Claimants accept the principle that tax could be paid on any
amount received as a fair market value of BD Agro. However, what Claimants admit
as MDH Serbia's tax obligation is in fact not all tax that would be payable on the fair
value of BD Agro in case of a market sale.
2281
See Sec.II.
2282
2283
See Reply, para. 1413 et seq.
2284
See Sec.I.G.
2285
See Memorial, para. 567.
509
1492.First, according to Claimants, the shares in BD Agro that were registered in Mr.
Obradovic's name (75.87% share in the company) were held for benefit of Sembi.2286
In case of a market sale, Mr. Obradovic would be considered as the seller of these
shares and would be required to pay tax before transferring the proceeds of the sale to
Sembi. Specifically, if Mr. Obradovic sold his shares in BD Agro, he would have an
obligation to pay 15% capital gain tax.2287 Capital gain in this case would be the
difference between the sale price of his share, i.e. his interest in equity of BD Agro
and its purchase price.2288 The purchase price of Mr. Obradovic’s share in BD Agro,
for the purposes of determination of capital gain, shall be considered the price at which
Mr. Obradovic purchased his share increased according to the annual retail price index
as of the date of acquisition until the date of sale, according to the official statistics
data.2289
1493.Second, as already mentioned, Claimants have accepted that MDH Serbia in case of
sale of its share in BD Agro would have to pay 15% corporate income tax in Serbia
on the difference between the selling price and the original purchase price and claim
that this tax would amount to EUR 0.4 million.2290
1494.However, in case of transfer of the selling price to Mr. Rand in Canada, MDH Serbia
would also have obligation to pay another 15% for dividend tax.2291 The 15% dividend
tax to be paid in Serbia in this case is allowed by Convention between Canada and the
Republic of Serbia for the Avoidance of Double Taxation with Respect to Taxes on
Income and on Capital.2292 In addition, even in case Mr. Rand were to decide to
liquidate MDH Serbia, the obligation of paying 15% dividend tax would still exist.
Personal Income Tax Law provides that in case of liquidation of the company, the
liquidation reminder, i.e. surplus above the value of invested capital is considered as
dividend2293 and such amount is subject to dividend tax.
2286
2287
See Personal Income Tax Law, Article 72, para. 3 and 77, RE-564.
2288
See Personal Income Tax Law, Article 72 para 1(3), RE-564.
2289
See Personal Income Tax Law, Article, Article 74, paras. 1 and 8, RE-564
2290
See Memorial, para. 567.
2291
See Personal Income Tax Law, Articles 61, para. 1(2) and 64, para 1, RE-564
2292
Convention Between Canada andthe Republic of Serbia for the Avoidance of Double Taxation with
Respect to Taxes on Income and on Capital, 27 April 2012, Article 10, RE-565
2293
See Personal Income Tax Law, Article 61, para. 2,RE-564
510
1495.Since Mr. Rand expressly claims the value of its indirect shareholding in MDH
Serbia,2294 the amount of compensation related to this shareholding would need to be
reduced by the amount of applicable taxes as if this amount was transferred to him as
a dividend.
1496.Respondent's position is that the value of compensation that would be due in case the
Tribunal find that it breached the applicable BIT is nil. Therefore, it makes the above
argument for the sake of completeness. However, should the Tribunal find that the
compensation is due (quod non), it should also reduce it on the basis of applicable tax,
as discussed above. In such case, Respondent stands at its disposal to provide the
relevant calculation.
3. The claimed tax gross-up for the Canadian Claimants beneficiaries of the
Ahola Family Trust
1497.Claimants argue that in case the compensation is instead of Sembi paid to Canadian
beneficiar of the Ahola Family Trust, the Canadian Claimants beneficiaries of the
Ahola Trust (Ms. Kathleen Elizabeth Rand, Ms. Allision Ruth Rand and Robert Harry
Leander Rand) should also receive a gross-up for any Canadian tax payable.2295
Claimants' arguments are flawed both from the point of international law and from the
point of the Canadian ta law on which they rely.
3.1. No support for the tax gross up in international law
1498.At the outset, it should be noted that there is no reason why Respondent should pay a
tax gross up just because Claimants employed a particular investment scheme for their
own benefit. This argument is reinforced by the fact that the whole scheme, if not
illegal under Canadian law (as it was against the Serbian privatization and company
legislation) was obviously designed to circumvent applicable tax law and, as such,
should not be legitimized.2296
2294
2295
See Memorial, paras. 581-591; Reply, paras. 1432-1442.
2296
See Counter-Memorial, para. 809.
511
1499.Second, Claimants claim for a tax gross up is speculative and fails to satisfy the basic
requirements of causality between the alleged breach and the injury for which
compensation is sought.2297
1500.According to an unequivocal pronouncement of the arbitral tribunal in Venezuela

Holdings v. Venezuela,
"Regarding foreign taxation, the Claimants contend that there is a risk that
other jurisdictions will seek to impose taxes that would have been prevented in
the absence of the expropriation. According to the Claimants, such taxation
would constitute additional consequential damages. The Tribunal considers
that this claim is speculative and uncertain. Accordingly, the claim is
dismissed."2298
1501.Similarly, in Rusoro v. Venezuela, the arbitral tribunal held the following:
"In its Memorial and Reply, Rusoro sought indemnity in respect of any double
taxation of the Award that may rise in Canada (or elsewhere), to the extent this
liability would not have arisen had Venezuela observed its international
commitments under the Treaty6. This claim seems to have been abandoned in
Rusoro’s Post Hearing Brief. In any case, the claim lacks merit. Any tax
liability arising under Canadian tax laws (or from any other fiscal regime,
other than the Venezuelan), does not qualify as consequential loss arising from
Venezuela’s breach of the Treaty and does not engage Venezuela’s
liability."2299
1502.Therefore, as clearly stated by the tribunal, a tax gross up on the basis of tax liability
arising (no less than) under Canadian law was simply not a consequential loss arising
from a treaty breach in Venezuela. The same analysis is equally applicable in the
present case.
2297
See, e.g., Ceskoslovenska obchodni banka, a.s. v. Slovak Republic, para. 367, RLA-198; Venezuela
Holdings v. Venezuela, award, para. 388, RLA-197; Rusoro v. Venezuela, para. 854, RLA-196.
2298
Venezuela Holdings v. Venezuela, award, para. 388, RLA-197.
2299
Rusoro v. Venezuela, para. 854, RLA-196.
512
3.2. No support for the tax gross up under Canadian law
1503.In addition, Claimants' claim for a tax gross up suffers from a number of flaws and
inconsistencies relating to the tax residence of the Ahola Family Trust and the
Canadian income tax consequences of Claimants that would receive compensation for
damages directly, and not through the Ahola Family Trust's interest in Sembi.
Accordingly, Serbia disputes Claimant's interpretation of Canadian tax law and their
calculation of the gross tax gross up.
3.2.1. Tax Residence of the Ahola Family Trust
1504.The Claimants argument is premised on the Ahola Family Trust being a non-resident
trust for purposes of the Federal Act. Their position fails to take into account the fact
that the residence of a trust for Canadian tax purposes is determined by the location
of central management and control of the trust, not the residence of the trustee and
that the non-resident trust rules in subsection 94(3) of the Federal Act may apply in
the circumstances to deem the Ahola Family Trust to be resident in Canada.2300
1505.In paragraph 583 of the Claimants’ Memorial, the Claimants state that the Ahola
Family Trust is not resident in Canada because (a) it was settled outside of Canada
and (b) the trustee is not resident in Canada. However, in Fundy Settlement v. R, the
Supreme Court of Canada established that the residence of a trust is determined by
applying the principles traditionally applied to determine the residence of corporations
– that is, the location of central management and control.2301 Prior to Fundy
Settlement, the leading Canadian court case to deal with trust residency had suggested
that the residence of a trust would be the same as the residence of its trustee.2302 This
interpretation was considered in Fundy Settlement and explicitly rejected as a rule of
general application in determining the residence of a trust for tax purposes.
2300
Subsection 94(3) of the Federal (Income Tax) Act (Canada), RE-566.
2301
“The principal basis for imposing income tax in Canada is residency. As with corporations, the residence
of a trust should be determined by the principle that a trust resides for the purposes of the Income Tax Act
where its real business is carried on, which is where the central management and control of the trust actually
takes place.” , p.3, St. Michael Trust Corp., as Trustee of the Fundy Settlement and St. Michael Trust Corp.,
as Trustee of the Summersby Settlement v. Her Majesty The Queen, 2012 SCC 14, aff'g 2010 FCA 309 and
2009 TCC 450 ("Fundy Settlement"), RE-366. See also, ibid para. 15. The name of the case changed from
Garron at the Tax Court of Canada level to Fundy Settlement at the Supreme Court level.
2302
Dill v. Her Majesty The Queen 78 DTC 6376 (FCTD) (commonly referred to as “Thibodeau”), RE-367.
513
1506.The phrase “central management and control” refers to effective decision-making
relating to the overall strategic direction and governance of the trust and is a fact
driven analysis. Factors such as the scope of the beneficiaries involvement in making
decisions with respect to the Ahola Family Trust and the scope of the trustee’s ability
to delegate its authority should be considered. In this regard:
(a) Paragraph 40 of the Claimants’ Memorial, provides that Mr. Rand, a Canadian
resident, had “full control over the Beneficially Owned Shares from the moment
of their acquisition… until … 21 October 2015.” Moreover, paragraph 42 of the
Claimants’ Memorial provides that Mr. Rand “kept the Beneficially Owned
Shares under his sole control.”
(b) The Ahola Family Trust Indenture lists certain restricted powers which the
trustee shall not exercise without giving 30 days-notice to the protector.2303
(c) The protector has the power to remove the trustee at any time.2304
(d) The Claimants’ Memorial suggests that Mr. Rand, and not the Trustee, actively
managed the Ahola Family Trust’s affairs (and provides no evidence of any
activities of the Trustee).2305
1507.Claimants have not established that the Ahola Family Trust is a non-resident trust
from a Canadian tax perspective. In any event, even if the central management and
control of the Ahola Family Trust was exercised outside Canada, subsection 94(3) of
the Federal Act should deem the Ahola Family Trust to be resident in Canada. More
particularly, subsection 94(3) of the Federal Act deems a non-resident trust to be
resident in Canada where there is a “resident contributor”2306 or a “resident
beneficiary”2307 of the trust as those terms are defined in subsection 94(1) of the
Federal Act. Subject to certain exceptions, which do not apply here, these definitions
operate to deem a trust formed outside of Canada with beneficiaries in Canada to be
2303
The Ahola Family Trust Indenture, subclause 5(4), CE-8.
2304
The Ahola Family Trust Indenture, subclause 5(3), CE-8.
2305
Ibid at para 67.
2306
A “contributor” is someone that, at or before that time, has made a contribution to the trust. “Contribution”
is defined in subsection 94(1) to mean a transfer or loan of property (other than an arm’s length transfer)
made to the trust by a particular entity. See Federal (Income Tax) Act (Canada), RE-566.
2307
A beneficiary of the trust will be a “resident beneficiary” if, at a particular time, the beneficiary is resident
in Canada and the trust has a “connected contributor” as defined in subsection 94(1) of the Federal (Income
Tax) Act (Canada), RE-566.
514
resident in Canada for specific purposes, including for purposes of determining
liability for Canadian tax in section 2 of the Federal Act. Because the beneficiaries of
the Ahola Family Trust are resident in Canada (see paragraph 42 of Claimants’
Memorial and the structure chart at page 16 therein), the trust should be deemed to be
resident in Canada. This renders the Claimants’ claim for a tax gross-up untenable.
1508.As a resident of Canada for purposes of the Federal Act, either because its central
management and control is located in Canada or because it is deemed to be resident
in Canada under subsection 94(3) of the Federal Act, the Ahola Family Trust should
have been filing Canadian tax returns on an annual basis as required under paragraph
150(1)(c) of the Federal Act, and was required to pay taxes in Canada on its world-
wide income under section 2 of the Federal Act computed at the highest marginal rate
in Canada.2308 Canada has a progressive tax rate system with tax brackets for personal
income tax, so this would be more tax payable than the gradual rates afforded to Ms.
Kathleen Elizabeth Rand, Ms. Allison Ruth Rand and Mr. Robert Harry Leander Rand
as individuals.
1509.Separately, paragraph 48 of the Claimants’ Memorial provides that Mr. Rand was a
director of Sembi, and that Mr. Rand had “a control agreement with the remaining
directors of Sembi”. As a result, Sembi was likely also a resident of Canada for
purposes of the Federal Act. As a resident of Canada, Sembi should have been filing
tax returns annually in Canada as required under paragraph 150(1)(a) of the Federal
Act, and should have been paying tax in Canada on its world-wide income under
section 2 of the Federal Act.
3.2.2. Canadian Tax Consequences and Computational Errors
1510.In determining the character of a damages payment in Canada, the surrogatum

principle is generally applied. This principle considers whether the payment was a
replacement of income or capital and provides for the same tax treatment as what the
payment was intended to replace.2309
2308
Subsections 104(1) and para 122(1)(a) of the Federal (Income Tax) Act (Canada), RE-566.
2309
Tsiaprailis v. Her Majesty the Queen, 2005 SCC 8, dated 2005, p. 2, RE-428; Transocean Offshore Ltd.
v. Her Majesty the Queen, 2005 DTC 5201 (FCA), dated 2005, para 50, RE-429.
515
1511.If the Ahola Family Trust is determined to be resident in Canada, even if Sembi was
not a resident of Canada, Sembi and BD Agro would each have been a “controlled
foreign affiliate” as defined in subsection 95(1) of the Federal Act for purposes of
Canada’s controlled foreign corporation rules. If Sembi had sold the shares of BD
Agro, that sale would have been a taxable event in Canada and tax would have been
payable by the trust at the highest marginal rate and not at the graduated personal tax
rates of the individual beneficiaries either at the time of the disposition or at the time
the proceeds were distributed to the Ahola Family Trust.2310
1512.The relief that Ms. Kathleen Elizabeth Rand, Ms. Allison Ruth Rand and Mr. Robert
Harry Leander Rand are requesting for direct payment by the Tribunal appears to be
a result of jurisdictional issues relating who can bring a claim against the Republic of
Serbia. Because they are requesting payment directly as beneficiaries of the trust, it is
as if the beneficiaries had disposed of their interest in the Ahola Family Trust. If the
beneficiaries had disposed of their interest in the Ahola Family Trust, that event would
have been taxable in Canada regardless of whether the trust was resident in Canada or
not.2311 Alternatively, it is possible that they are seeking to receive payments directly
to avoid the Canadian taxes that would otherwise apply if any payments were to be
received by the Ahola Family Trust.
1513.Directing compensation to be received by the beneficiaries of the Ahola Family Trust

is analogous to a directed payment for purposes of subsection 56(2) of the Federal Act
and any capital gain on the disposition for Canadian tax purposes should be reduced
by the tax cost in the shares.2312 For example, if the BD Agro shares held indirectly
through Sembi had a tax cost of $100 and a damages payment is determined to be
$200, the resulting capital gain on the shares should be $100 (not $200). Moreover,
only 50% of capital gains are taxable in Canada – such that in this example the actual
income inclusion would only be $50.2313 The Claimants’ calculation of the gross-up
is flawed because it assumes no tax cost in the underlying shares.
2310
Subsections 104(1) and para 122(1)(a) of the Federal (Income Tax) Act (Canada), RE-566.
2311
See the definitions of “disposition”, “capital property” and “adjusted cost base” in section 248 of the
Federal (Income Tax) Act (Canada), RE-566.
2312
Subsection 56(2) of the Federal (Income Tax) Act (Canada), RE-566.
2313
Section 38 and subsection 248(1) of the Federal (Income Tax) Act (Canada), RE-566.
516
1514.Under the Canadian tax rules, the disposition of the BD Agro shares would be taxed
at the highest marginal rate by the Ahola Family Trust so there should be no rate
differential.2314 In fact, there is an argument that any damages payment awarded by
this Tribunal that is to be received by the beneficiaries directly should be discounted
by any tax savings that results from the beneficiaries receiving the amount personally.
The Claimants’ requested relief does not take into account Canada’s progressive tax
rate system2315 as it calculates the tax gross-up using the highest marginal rate on the
entire amount of the damages payment. This does not take into account Canada’s
graduated personal tax rates or the potential availability of lifetime capital gains
exemption.2316
1515.In conclusion, Claimants' claim for a tax gross up for the Canadian Claimants
beneficiaries of the Ahola Family Trust is without merit and should be dissmised.
4. Mr. Rand's claim for damages for its receivables towards BD Agro.
1516.Finally, Mr. William Rand personally claims compensation for his payments to BD
Agro’s Canadian suppliers for the purchase and transport of heifers in the amount of
EUR 2,177,903, as well as a short-term loan he provided to BD Agro in the amount
of EUR 219,000.2317
1517.This claim has already been discussed in the Counter-Memorial.2318 Initially,

Claimants contended that the BD Agro's bankruptcy proceedings were stalled and that
Mr. Rand could not satisfy his claim there. In the meantime, however, it is obvious
that the bankruptcy proceedings have moved on at a reasonable pace and BD Agro
was sold. Now, Claimants contend that it was sold below its real value and even allege,
without any evidence, that this is the result of wrongdoing.2319 Their objections
concerning the bankruptcy proceedings were refuted in detail above. 2320 For the rest
of Claimants arguments, it is clear that they do not add anything new to the discussion.
They merely repeat their allegations that the termination of the Privatization
2314
Subsections 104(1) and paragraph 122(1)(a) of the Federal (Income Tax) Act (Canada), RE-566.
2315
Section 117 of the Federal (Income Tax) Act (Canada), RE-566.
2316
Subsection 110.6(1) and section 117 of the Federal (Income Tax) Act (Canada), RE-566.
2317
2318
2319
2320
See Sec.I.G.
517
Agreement caused the bankruptcy. In this, they forget the extent of financial abyss
BD Agro found itself in 2014-2015.
1518.Consequently, Mr. Rand's claim resulting from alleged loss from his receivables
against BD Agro should be dismissed.
VI. PRAYER FOR RELEIF
Respondent requests the Arbitral Tribunal to
(1) dismiss all Claimants’ claims for the lack of jurisdiction,
in eventu, dismiss all Claimants’ claims for the lack of merit,
(2) order Claimants to reimburse Respondent all its costs of the proceedings, with interest.
Belgrade / Novi Sad, 24 January 2020
Respectfully submitted,
Senka Mihaj, attorney at law
Professor Petar Djundic
Dr. Vladimir Djeric, attorney at law
518
519
Appendix 1. Overview of Correspondence between the Agency, Ministry of Economy and BD Agro/Mr. Obradovic
Concerning the Breach of Article 5.3.4 of Privatization Agreement
Meeting /
Date Agency’s / Ministry’s / Buyer’s stance concerning the breach of Article 5.3.4 PA
Letter
24 Feb Agency’s Notice “Buyer is given additionally granted term of 60 days from the day of the receipt of this
2011 (CE-31, pp. 6 Decision for fulfillment of obligations referred to in item(s 5.3.3 and) 5.3.4 of the
and 7) Agreement and submission of [an audit] report… In the event of failure to comply… the
Privatization Agency will undertake the measures under Article 41a of the Law on
Privatization.”
29 Apr Audit Report This Report confirmed that: (i) funds received by BD Agro from the 221 Million Loan
2011 (RE-13, pp. 5-7) were used for the benefit of third parties, i.e. Crveni Signal and Inex; (ii) amount of RSD
18,170,690.00 was still owed to by Inex; (iii) amount of RSD 70,944,422.27 was still owed
by Crveni Signal; (iv) 221 Million Pledge was still registered.
24 Jun Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
2011 (CE-96, pp. 4 article 5.3.4 and delivery of auditor’s report, as in the first Notice from 24 February 2011
and 5) and again noted that in case of noncompliance the Agency will undertake the measures
under Article 41a.
6 Oct Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
2011 (CE-97, p. 7) article 5.3.4 and delivery of auditor’s report, as in the first Notice from 24 February 2011
and again noted that in case of noncompliance the Agency will undertake the measures
under Article 41a.
9 Nov Letter of Mr. Letter: “Fulfillment of the obligation referred to in articles 5.3.3. and 5.3.4. of the
2011 Obradovic to the Agreement which relates to sale of fixed assets, their collection and fund spending shall
Agency (RE-60, be documented by the audit report …
pp. 1)
23 Nov Meeting in the “At the meeting the draft auditor’s report prepared by “Auditor” Beograd was presented,
2011 Ministry of on acting of the Buyer within the additional deadline according to the Agency’s Decision
Economy (RE- of 6 October 2011.”
71, p. 1)
16 Dec Meeting in the “It was concluded on the above meetings that the Buyer shall deliver the auditor’s report
2011 Agency (RE-71, which has to include declaration of the auditor whether the buyer performed, did not
p. 2) perform or partially performed obligations under Art. 5.3.3 and 5.3.4 of the Agreement”
27 Dec Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
2011 (CE-32, pp. 4 article 5.3.4 and delivery of auditor’s report, as in the first Notice from 24 February 2011
and 5) and again noted that in case of noncompliance the Agency will undertake the measures
under Article 41a.
2 Feb Audit Report This Report confirmed that there had been no changes since 2011 Audit Report concerning
2012 (RE-17, pp. 4-6) the debts of Inex and Crveni signal, i.e. the Report confirmed that: (i) Inex still owed RSD
18,170,690; (ii) Crveni Signal still owed RSD 70,944,422.27; (iii) 221 Million Pledge was
still registered.
21 Mar Meeting in the “… the Buyer stated that he will make additional effort in order for Crveni signal to
2012 Agency (RE- settle its obligation towards the Subject of privatization….and that Inex would return the
72.1, p. 21) loan when the conditions are met, and regarding the obligation to invest into the Subject
again, because the subject of execution of investment obligation was sold, the Buyer
believes that the Agency’s request is not legitimate, and it will not act in accordance with
the Agency’s request. At the meeting, the Agency’s representatives continued to repeat
that the Buyer must act in accordance with the Agency’s Decision dated 22 December
2012.”
30 Mar Meeting in the “…the Buyer notified the Agency that he prepared an appeal for the Ministry against the
2012 Agency (evident Agency’s decisions…”
from RE-72.1, p.
21)
2 Apr Letter from Mr. “Return of the loans BD AGRO gave to third parties from the loan assets has been partially
2012 Obradovic to the implemented. The loans which have not been returned are the loans given to the company
Ministry of Crveni signal (70 million dinars) and Inex, N. Varos (18 million dinars). We think that
Economy (also these loans did not directly cause the damage to the company, for the following
then forwarded reasons… On April 8, 2011, I made the payment of the sixth and last installment of the
to the sale and purchase ... I think that I have thus completely complied with all the obligations
Agency)(CE-77, towards the Agency in the capacity of the Buyer of the capital.”
pp. 4 and 5)
22 Jun Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
2012 (RE-15, p. 1) article 5.3.4 and delivery of auditor’s report, as in the first Notice from 24 February 2011
under Article 41a.
23 Jul Letter of Mr. “Regarding your other requests, there were no changes in the meantime, so we submit the
2012 Obradovic and Request for an additional period during which the contractual obligations may be
BD Agro to the realized pursuant to your Decision of 27 December 2011.”
Agency (RE-21,
pp. 1 and 2)
3 Aug Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
under Article 41a.
2 Nov Meeting in the “At the meeting representatives of the Ministry confirmed that the Buyer has the obligation
2012 Agency to submit to the Agency the auditor’s report with auditor’s statement on acting of the Buyer
(RE-75, p. 1) within the additional deadline, as well as to submit explanation of reasons for not being
able to meet the obligations under the Agreement as a whole.”
9 Nov Agency’s Notice Agency granted another additional term and made the same request for fulfilment of the
under Article 41a.
13 Dec Audit Report This Report confirmed that: (i) although Crveni signal repaid part of its debt towards BD
2012 (RE-19, pp. 6 Agro, it still owed RSD 65,904,569.84; (ii) Inex still owed RSD 18,170,690.00 to BD
and 7) Agro.
4 Feb Meeting held at “He [Djura Obradovic] does not understand why the Agency does not issue the said
2014 the Agency (RE- certificate [of execution of contractual obligations] since he paid the price…
36, pp. 1 and 2)
The Executive Director [of the Agency], Dr. Albina Kecman Susnjar, stated that the
payment of the purchase price is only one of the contractual obligations and that the
execution of other contractual obligations is independent of the obligation to pay the
purchase price. She also stated that the Agency in its work applies the Law on Privatization
and controls the concrete sale contract, that all obligations are important and that what
is signed must be completed to the end. This is a standard form contract of sale by public
auction and the treatment during the control is the same, for any offense, irrespective of
the gravity of the offense. She also pointed out that assignation is possible only while the
contract is in force.
By the representative of the Center for Control of Performance of Agreements the Buyer
was informed that the violation of contractual obligations was established before the Buyer
paid the full purchase price, and that before the payment of the price the measures were
taken towards the Buyer, i.e., there was a remedial period given to him to submit proof
that the violations have been cured and that the Buyer has still not acted accordingly…”
15 Dec Meeting held at “… The representative of the Entity of Privatization have committed to prepare for the
2014 the Ministry of next meeting, which is agreed in principle to be held on 17 December 2014 in the Ministry,
Economy (RE- the materials on the state of the mortgages registered on the property of the Entity
38, p. 1) undergoing privatization as a collateral warranty for the liability of third parties.”
16 Dec Letter from BD BD Agro submitted to the Agency several documents from 201 and 2012, including,
2014 Agro to the Supplementary Auditor’s Report from December 2012 which confirmed that there were
Agency (CE- outstanding debts of Inex and Crveni signal towards BD Agro and that the 221 Million
323, p. 1) Pledge was still registered.
17 Dec Meeting held at “The representative of the Entity stated that the condition regarding the already stated audit
2014 the Ministry of finding had not been changed, and that, in their opinion, the biggest problems in
Economy (RE- execution of obligations of the Buyer from the respective Agreement… were claims
22, p. 2) which the Entity had towards the company Crveni Signal Beograd and Inex Nova Varos…
Contractual obligations which the Buyer undertook under Articles 5.3.3 and 5.3.4 of the
Agreement of Sale of Socially-owned capital were underlined [by the Agency], with
special emphasis on duration of the respective contractual obligations, but it was stated at
the meeting that the Buyer should meet the stated obligations according to the balance on
the date of payment of purchase price.”
15 Jan BD Agro The preparation of this Report was commissioned by MDH instead of BD Agro, due to
2015 delivered to the which fact the Agency refused it.
Agency Prva
revizija’s audit
report (RE-39, p.
1)
16 Jan Meeting held at “At the meeting it was noted that ….the submitted report was prepared according to the
2015 the Ministry of order given by the company “MARINE DIVE HOLDING” doo Belgrade, and not by the
Economy (RE- Buyer… therefore it cannot be taken as a basis for making a decision, since it was not
39, p.1) ordered and delivered by the Buyer. It was also stated that the said report does not include
the auditor's statements on all obligations of the Buyer as instructed by the Privatization
Agency by its last Decision from November 2012, but that it indisputably includes the
statement of the auditor confirming that the Buyer has disposed with the fixed assets of
the Entity contrary to the Agreement...”
23 Mar Request for Igor Markicevic requested from the Agency to issue Certificate on Fulfillment of the
2015 issuance of Obligations Referred to in the Agreement.
confirmation
(RE-51, p. 1)
3 Apr Agency’s The Agency notified Igor Markicevic that the conditions for issuing the requested
2015 response to Certificate have not been met.
request for
issuance of
confirmation
(RE-52, p. 1)
20 Apr Meeting held at “The representatives of the Agency informed the attendees that the Ministry of Economy
2015 the Agency (RE- concluded the procedure of supervision over the work of the Agency in the case “BD
41, p. 1) Agro” Dobanovci, and gave an order to the Agency to grant the Buyer an additional period
of 90 days to comply with the previously granted remedial period.”
27 Apr Meeting held at “… Director of the Entity summarized the line of actins after receiving the decision of the
2015 the Agency (RE- Agency, including: supplying audit report which confirms execution of obligations within
23, p. 2) additionally approved deadline, which should be submitted by the Buyer, Djura
Obradovic...”
27 Apr Letter from the “In line with the Ministry’s report…, as per Article 88 of the Law on Privatization… in
2015 Agency to Djura regards to Article 41a, paragraph 1, item 3 of the Law on Privatization… the Buyer is
Obradovic (CE- given a subsequently granted 90-day term as of the receipt of Notification for submission
348, p. 2) of evidence on activities taken as per the Agreement… that is, in line with the
Notification… of 9 November 2012…”
30 Apr Letter from Mr. Acting upon the Agency’s Decision dated 27 April 2015, Mr. Obradovic resubmitted Audit
2015 Obradovic to the Reports from April 2011, February 2012, December 2012 and January 2015, to the
Agency (RE-42, Agency. He also submitted for the first time November 2011 Audit Report. All these
p. 1) reports demonstrated that: (i) debts of Inex and Crveni signal towards BD Agro remained
unpaid; (ii) the 221 Million Pledge remain registered.
23 Jun Letter from the “The Buyer is notified that until the end of the subsequent deadline, in line with the
2015 Agency to Djura decision of the Privatization Agency of April 23, 2015, that is until July 27, 2015, he is
Obradovic and under obligation to deliver auditor’s report where the auditor shall… provide a statement
BD Agro (CE- on performance of the obligations of the Buyer referred to in Article 5.3.4 of the
351, p. 2) Agreement …”
2 Jul Letter from BD “On April 30, 2015, the buyer from the Agreement… submitted to the Agency the reports
2015 Agro to Agency of auditor companies "Auditor" and "Prva revizija", in which it is clearly and
(CE-46, p. 7) unequivocally stated that the buyer fulfilled all contractual obligations as of the date of
payment of the last instalment of the purchase price (April 8, 2011), except in relation
to lending to third parties, namely Inex Nova Varos ad Nova Varos and Crveni signal
a.d. Beograd...
20 Jul Letter from the The Agency noted that auditing company “Prva Revizija d.o.o.” Belgrade confirmed that
2015 Agency to BD there was a failure in fulfillment of the obligations referred to in Article 5.3.4 of the
Agro (CE-47, p. Agreement, by stating that on 8 April 2011, 221 Million Pledge was still registered while
8) Inex and Crveni signal still owned to BD Agro RSD 18,170,690.00 and RSD
70,944,422.27 respectively.
10 Sep Letter from Mr. In this letter Mr. Obradovic tried to deceive the Agency that conditions for deletion of
2015 Obradovic to the 221 Million Pledge were met: “…please find attached the evidence that BD Agro is in
Agency (CE-48, possession of all the documents needed for deletion of pledges registered on its immovable
p. 3) property as security instruments for the loans BD Agro received from Nova Agrobanka
a.d. Beograd, which were partially used to finance loans approved to related parties —
Inex — Nova Varos a.d. Nova Varos and Crveni Signal a.d. Beograd. Since BD Agro
repaid these loan obligations in timely manner, on September 4, 2015, Nova Agrobanka
provided appropriate statement for deletion of these pledges… This is also confirmed by
the Auditing Company Prva Revizija… This way, complete fulfillment of obligations
referred to in Article 5.3.4 of the Agreement was ensured...”
28 Oct Notice of “In respect of performance of the obligation referred to in item 5.3.4 of the Agreement
2015 Termination of within additionally granted term, and pursuant to auditor's reports of 2011, 2012 and 2015,
Privatization as well as documentation delivered along with auditor's reports and subsequently, it was
Agreement (CE- ascertained that the pledge was registered on the immovable property of the Subject as
50, pp. 6 and 7) security instrument for the loan of the Subject in the amount of 221,000,000.00 dinars…
which the Subject received from Agrobanka Belgrade. Part of that loan in the amount of
70,944,422.77 RSD was used on the basis of the Guarantee Agreement… for settling of
the obligations of the company AD "Crveni signal" Belgrade towards Agrobanka…
Subsequently, part of the stated loan in the amount of 221,000,000.00 was used for issuing
a loan to the company AD "Ineks" Nova Varos, in the amount of 30,670,690.00 dinars….
Since the Buyer failed to provide evidence in the additionally granted term that he
had complied with the obligation referred to in item 5.3.4 of the Agreement, and
according to the auditor’s reports of 2011, 2012 and 2015, as well as documentation
submitted along with auditor’s reports, the obligation has not been performed, we hereby
inform you that, at its 22nd session held on September 28, 2015, the Commission…
rendered the decision that the Agreement… is considered terminated due to non -
fulfillment, and in accordance with Article 88, paragraph 3 of the Law on Privatization…
and in regards to Article 41a, paragraph 1, item 3 of the Law on Privatization… in
line in line with the Report of the Ministry of Economy… of April 7, 2015.
- Agency’s / Ministry’s letters

- BD Agro’s / Mr. Obradovic’s letters
- Meetings

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IN THE MATTER OF ARBITRATION BEFORE THE INTERNATIONAL CENTRE

FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID Case No. ARB/18/8)

RAND INVESTMENTS LTD., WILLIAM ARCHIBALD RAND, KATHLEEN

SEMBI INVESTMENT LIMITED

THE REPUBLIC OF SERBIA

Prof. Gabrielle Kaufmann-Kohler, President of the Tribunal

Secretary of the Tribunal

A. BD AGRO WAS OWNED BY MR OBRADOVIC ........................................................... 14

II. JURISDICTIONAL OBJECTIONS ................................................................................ 194

A. NO JURISDICTION RATIONE MATERIAE UNDER THE CANADA - SERBIA BIT194

III. ATTRIBUTION ............................................................................................................... 362

A. GENERAL ....................................................................................................................... 362

IV. THERE WERE NO VIOLATIONS OF SERBIA'S OBLIGATIONS UNDER THE

A. THE CONDUCT COMPLAINED OF WAS NOT PERFORMED IN A SOVEREIGN

A. INTRODUCTION ........................................................................................................... 479

VI. PRAYER FOR RELEIF .................................................................................................. 518

Agency Privatization Agency of the Republic of Serbia

Adventis Adventis Real Estate Management doo

Article 5.3.4. Article 5.3.4. of the Privatization Agreement (Exhibit RE-12)

Coropi Coropi Holdings Limited

Imlek AD Industrija mleka i mlecnih proizvoda Imlek Padinska Skela,

Inex Inex ad Nova Varos, a Serbian joint-stock company owned by Mr.

JLL Jones Lang LaSalle d.o.o.

Ministry’s Report Report of the Ministry of Economy on concluded Supervision

Notice on Termination Privatization Agency’s Notice of 1 October 2015 informing Mr.

Nova Agrobanka Nova Agrobanka ad Beograd (in bankruptcy)

Original plan Original pre-pack reorganization plan of BD Agro, dated 25 November

Privatization Privatization of BD Agro in 2005

Recommendation Opinion of the Ombudsman dated 19 June 2015 (Exhibit CE-42)

Refinancing Loan Agreement on Long-Term Loan no. D-07/12-NA-00, concluded between

Second plan Pre-pack reorganization plan of BD Agro, dated 11 January 2016

SIEPA Serbian Investment Promotion Agency of the Republic of Serbia

Supervision Proceedings Ministry of Economy’s control of the Privatization Agency’s work in

Third plan Pre-pack reorganization plan of BD Agro, dated 16 May 2016

ii. The agreement on sale of 70% of socially-owned capital in BD Agro (the

vii. This is by no means the only example of Mr. Obradovic’s treatment of BD

ix. Another peculiar aspect of the dispute at hand is a remarkable transformation of

x. Claimants invest considerable effort in order to explain how they acquired

xiv. Another instance of misrepresentation of facts relates to the BD Agro’s financial

A. BD AGRO WAS OWNED BY MR OBRADOVIC

1. The privatization process in Serbia is mainly regulated by the Law on Privatization.

1. Mr. Rand could appear as the buyer

6. Privatization is conducted through either sale of capital or transfer of capital free of

7. Sale of capital of the subject of privatization could be performed through a public

10. Therefore, an individual could appear at an auction in three different capacities:

1) as a buyer acting in his own name and on his own behalf;

16. As he regularly did in other privatizations, Mr. Obradovic personally participated at

3. Mr. Obradovic was registered as the owner of BD Agro shares

(ii) the right to participate in the shareholders’ assembly;

(vii) the right to receive distributions on shares in accordance with law.38

5.1. Communication with state officials

“Company BD AGRO Dobanovci was privatized in 2005 […]

5.2. Communications with the Agency

“Director of the Entity, Igor Markicevic, introduced Erinn

“At the meeting, you introduced Erinn Broshko, director of “Rand

“The buyer, Djura Obradovic, stated that during the purchase of

5.3. Canadian flag, Canadian Embassy, Mr. Rand’s business partners

6. Mr. Obradovic acted and was treated as the owner of BD Agro

6.1. Mr. Obradovic’s behavior