Staur Eiendom AS and others v Latvia From Warsaw to Riga

ICSID Review, Vol. 37, No. 1-2 (2022), pp.
558–564
doi: https://doi.org/10.1093/icsidreview/siab043
Published Advance Access 8 March 2022 WINTER/SPRING 2022
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20TH ANNIVERSARY OF ARSIWA
CASE COMMENT
Staur Eiendom AS and others v Latvia1
From Warsaw to Riga: The Role of
Exceptional Circumstances in the Attribution
of the Conduct of State Enterprises to the
State under the ILC Articles
Csaba Kovács2
I. INTRODUCTION
In an Award dated 28 February 2020, the Tribunal in Staur v Latvia found that
the conduct of SJSC International Airport Riga (‘SJSC Airport’), the Latvian State-
owned operator of the Riga International Airport (‘Airport’), in relation to a project
for the development of the Airport was not attributable to Latvia under the rules
of attribution of the International Law Commission’s Draft Articles on the Respon-
sibility of States for Internationally Wrongful Acts (‘ILC Articles’). While, as the
Tribunal itself acknowledged,3 the case did not present novel issues, it expounded
on the application of the ILC Articles’ main rules of attribution to the conduct of
State-owned enterprises (SOEs). The decision is notable for recounting specific fac-
tors that are insufficient to treat a State enterprise as a de facto organ of the State or
to consider its acts as acts of governmental authority. The Tribunal also considered
Flemingo v Poland,4 which connoted the status of a de facto organ of the State for the
Polish Airports State Enterprise (‘PPL’), the State-owned owner and operator of the
Warsaw Chopin Airport.
1
Staur Eiendom AS, EBO Invest AS and Rox Holding AS v Republic of Latvia, ICSID Case No ARB/16/38, Award
(28 February 2020) (Staur v Latvia) (Eric Schwartz, President; Kaj Hobér; Toby Landau QC).
2
Csaba Kovacs, Arbitration Counsel, CMS, London, United Kingdom, and Arbitrator, Kovacs Arbitration. Author of
‘Attribution in International Investment Law’ (Kluwer Law International, 2018). Email: csaba.kovacs@cms-cmno.com.
3
Staur v Latvia (n 1) para 527.
4
Flemingo DutyFree Shop Private Limited v Republic of Poland, UNCITRAL, Award (12 August 2016) (Flemingo v
Poland).
© The Author(s) 2022. Published by Oxford University Press on behalf of ICSID. All rights reserved.
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Staur Eiendom AS and others v Latvia 559
This case comment reviews the background to the dispute (Section II), summarises
the attribution-related findings in the Award (Section III) and discusses the Tri-
bunal’s application of the ILC Articles’ main rules of attribution to SJSC Airport’s
impugned conduct and its significance for future cases (Section IV).
II. BACKGROUND TO THE DISPUTE
The claims were mainly founded on the conduct of SJSC Airport relating to the leas-
ing of land parcels adjacent to the Airport to Rixport, the Claimants’ local subsidiary.
SJSC Airport was wholly State-owned, with the Ministry of Transport holding the
shares on behalf of the State. The land owned by SJSC Airport and leased to Rixport
was to be used for the development of privately operated hotels, parking facilities and
a business park.
SJCJ Airport awarded four long-term land lease agreements to Rixport pursuant to
a public tender process. SJSC was not required to obtain the approval of the Latvian
government for entering into the lease agreements. The Claimants contended that
the Ministry of Transport was involved in the negotiation of the lease agreements
and controlled the SJSC Airport’s decision-making process and operations.5 Rixport
sought to involve the Ministry of Transport in its discussions with SJSC Airport,
which the Ministry refused noting that the management of SJSC Airport’s affairs
was not within its competence and the discussions concerned a commercial matter.6
The Claimants argued that Rixport’s development plans were frustrated by con-
stant changes to the Airport’s expansion plan, while Rixport’s capital was depleted
by rent payments and other expenses. The Respondent countered that Rixport’s fail-
ure to progress the development project was attributable to the economic impact of
the global financial crisis, noting that Rixport did not secure project finance, did
not apply for construction permits, and did not undertake any construction work,
except with respect to an office building. After failed settlement attempts and upon
the request of SJSC Airport, the Riga District Court cancelled the land leases due to
Rixport’s failure to pay rent and penalties.
The Claimants contended that breaches of the Norway–Latvia BIT (‘BIT’)7
resulted from the acts and omissions of SJSC Airport, the Mārupe Municipality,
the Ministry of Transport, the Ministry of Justice, the Latvian Parliament and the
Latvian courts, all acting as State organs within the meaning of article 4 of the ILC
Articles, or, alternatively, in the case of SJSC Airport, on the basis of articles 5 or 8
of the ILC Articles.8
The Claimants contended that SJSC Airport was a de facto organ of the State,
because it was ‘an instrument of the Latvian State, with no real autonomy of its own,
notwithstanding its separate legal personality’.9 They also noted that the Latvian
government had classified the Airport as an ‘object of national interest, necessary to
ensure essential public interests’.10 Citing Flemingo v Poland, the Claimants argued
5
Staur v Latvia (n 1) paras 87, 113 and 258.
6
ibid paras 197–99.
7
Agreement between the Government of the Kingdom of Norway and the Government of the Republic of Latvia on
the Mutual Promotion and Protection of Investment (signed 16 June 1992, entered into force 1 December 1992) (BIT).
8
9
ibid paras 258 and 265.
10
ibid para 259.
560 ICSID Review VOL. 37 1-2
that, similarly to PPL, SJSC Airport was functioning ‘within the structure of the Min-
istry of Transport’.11 Alternatively, for the purposes of article 5 of the ILC Articles,
the Claimants argued that Latvian law endowed SJSC Airport with governmental
authority ‘to ensure sanitary, quarantine, customs and border (passport) and other
control of aircraft, crews and passengers’ and the management of an international
airport necessarily involved the exercise of governmental authority.12 With respect to
article 8 of the ILC Articles, the Claimants argued that SJSC Airport suspended or
altered the Airport’s development plans upon the instructions, or under the direction
or control, of the State.13
The Respondent argued that there were no extraordinary circumstances sufficient
to connote the status of a de facto organ of the State to SJSC Airport. It noted that,
unlike with the relationship between the Polish Ministry of Transport and PPL in
Flemingo v Poland, the Latvian Ministry of Transport ‘consistently made it clear that,
in accordance with Latvian law, it could not interfere with the operation of the com-
pany’.14 As to article 5 of the ILC Articles, the Respondent argued, among others,
that the alleged designation of the Airport as an ‘object of national interest’ concerned
only parts of the Airport’s territory that could be used for ‘landing aircrafts which have
been intercepted by NATO aviation’.15 The Respondent submitted that the exercise
of government authority involved the use of coercive power and the mere exercise of
public functions did not meet this test.16 It argued that, in any event, governmental
authority was not exercised in relation to the land leases to Rixport.17 With respect
to article 8 of the ILC Articles, the Respondent submitted that the Claimants have
failed to identify any specific controlling conduct and have failed to establish that any
conduct taken as a result of State control was intended to further a State purpose
rather than SJSC Airport’s perceived commercial best interests.18
The Respondent argued that its non-attribution objection had a jurisdictional char-
acter as its acceptance meant that there would be no investor-State dispute within the
meaning of the dispute settlement provision of the BIT.
III. THE TRIBUNAL’S DECISION

The Tribunal observed that the non-attribution objections concerned the merits of
the claims and not its jurisdiction.19 It applied the ‘prima facie’ test, noting that
the question whether the host State is the proper respondent is to be examined at the
jurisdictional stage only if it is manifest that the entity involved has no link whatsoever
with the State.20 As the claims concerned also State actors who were not parties to
the lease agreements and whose conduct was evidently attributable to the State, the
Tribunal upheld its jurisdiction leaving the extent of the State’s involvement to be
examined together with the merits of the claims.21
11
ibid para 270.
12
13
ibid para 277.
14
ibid paras 282 and 284.
15
ibid para 288.
16
ibid para 289.
17
ibid para 290.
18
ibid para 292.
19
ibid para 299.
20
ibid para 303.
21
ibid para 305.
The Tribunal accepted that SJSC Airport operated in its own commercial interest
and autonomously from the State.22 It found not only that there was no evidence
that the Ministry of Transport had any material involvement in the tendering and
contracting of the land leases or their later amendment and termination,23 but also
that the Ministry of Transport expressly refused to become involved in those discus-
sions.24 The Tribunal emphasised that the role of the Ministry of Transport in the
appointment and removal of SJSC Airport’s management and its oversight over SJSC
Airport’s conduct and policy objectives were comparable to that ordinarily played by
the shareholder of any private company and, as such, were insufficient for disregard-
ing the separate corporate personality of SJSC Airport.25 The Tribunal distinguished
the facts from those in Flemingo v Poland on the basis that this case did not concern
a State shareholder that assumed, either expressly or impliedly, responsibility for the
actions of the SOE concerned.26 The Tribunal also noted that an SOE must not
be treated as a State organ merely because certain of its activities may be regarded
as important to the national interest, particularly where the SOE’s activities are pri-
marily of a commercial nature and its operations are financed through commercial
activities.27 It concluded that there was insufficient evidence of direct State control
for SJSC Airport to be treated as a de facto organ of the State.28
The Tribunal found that Latvian law did not delegate the performance of any spe-
cific governmental tasks to SJSC Airport.29 In any event, in the Tribunal’s view, the
arbitration did not implicate the exercise of governmental authority, as the invoked
conduct of SJSC Airport was ‘of a quintessentially commercial character, ie the man-
agement of its relationship with private investors in relation to the development of real
estate in accordance with contracts concluded for that purpose on commercial terms
and governed by Latvian private law.’30 The Tribunal observed that the alleged con-
duct implicated ordinary contractual acts, rather than acts of ‘puissance publique’, and
the land at issue was intended for commercial use.31
The Tribunal noted that the leased land was not part of the Airport facility per
se, but concerned land adjacent to it, which was to be used entirely for commercial
purposes.32 According to the Tribunal, SJSC Airport’s consideration of the State’s
objectives in the preparation and modification of the development plans of the Airport
was insufficient to imbue its conduct with governmental authority.33
In considering the conduct of SJSC Airport for the purposes of article 8 of the ILC
Articles, the Tribunal noted that the Claimants made a commercial decision not to
proceed with any development before the expansion of the terminal was completed.
It then found that there was no evidence that SJSC Airport’s development plans con-
cerning the delayed expansion of the terminal were the product of any instructions
22
23
ibid para 330.
24
ibid.
25
ibid para 332.
26
ibid para 333.
27
ibid para 335.
28
29
ibid para 342.
30
ibid para 343.
31
32
ibid para 350.
33
ibid para 351.
from the State to SJSC Airport.34 The Tribunal concluded that SJSC Airport’s con-
duct did not go beyond that of an ordinary contracting party and therefore was not
attributable to the State under article 8 of the ILC Articles.35
IV. COMMENTS
The Tribunal conceptualised the non-attribution objection in line with the
Commentary on the ILC Articles36 (‘Commentary’) and jurisprudence constante.37
The Respondent’s position that the non-attribution objection had a jurisdictional
character concerned the Tribunal’s task of verifying if the State was the proper respon-
dent in the dispute, on the basis that the ratione personae scope of the BIT’s dispute
settlement provision was limited to disputes between ‘an investor of one Contracting
Party and the other Contracting Party’.38 Tribunals limit their jurisdictional enquiry
to a prima facie standard focusing on the clear-cut existence of State involvement in
the impugned conduct and leaving the analysis of the parameters of that involvement
to the merits. This approach enables a contextualised qualitative assessment of the
relevant entity’s relationship with the State and safeguards the parties’ procedural
right to be heard.
Tribunals frequently consider the attribution of the conduct of SOEs to the State
on the basis of article 4 (Conduct of organs of a State), article 5 (Conduct of per-
sons or entities exercising elements of governmental authority) and article 8 (Conduct
directed or controlled by a State) of the ILC Articles. The application of these attribu-
tion rules requires the establishment of structural, functional or factual links between
the State and the actor alleged to engage the State’s international law responsibility.
The Commentary emphasises that ‘[i]n some systems the status and functions of var-
ious entities are determined not only by law but also by practice’39 and the notion of
governmental authority raises ‘questions of the application of a general standard to
varied circumstances’.40 The inherent flexibility required by the application of these
attribution rules has been recognised also in practice. The F-W Oil v Trinidad and
Tobago Tribunal noted that in applying the notion of governmental authority ‘it is not
the case that the same answer would necessarily emerge on every occasion; in some
of its activities a State enterprise might fall on one side of the line, in others on the
other’.41
As the Tribunal emphasised, ordinary shareholder supervision of an SOE’s man-
agement and operation does not translate into political interference in its commercial
34
ibid para 461.
35
ibid para 469.
36
International Law Commission, ‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts
with Commentaries’, UN GAOR 56th Session Supp 10, ch 4, UN Doc A/56/10 (2001) (ARSIWA).
37
Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13, Decision on
Jurisdiction (16 June 2006) para 85l; Noble Energy Inc and MachalaPower Cía Ltd v Republic of Ecuador and Consejo Nacional
de Electricidad, ICSID Case No ARB/05/12, Decision on Jurisdiction (5 March 2008) para 166; Gustav FW Hamester
GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award (18 June 2010) paras 143–44; Electrabel SA v
Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November
2012) para 7.61. Mesa Power Group, LLC v Government of Canada, UNCITRAL, PCA Case No 2012-17, Award (24
March 2016) para 340; Consutel Group SpA in liquidazione v People’s Democratic Republic of Algeria, UNCITRAL, PCA
Case No 2017-33, Final Award (3 February 2020) para 316.
38
art IX of the BIT.
39
ARSIWA (n 36) art 4, commentary para 11.
40
ibid, art 5, commentary para 6.
41
F-W Oil Interests, Inc v Republic of Trinidad and Tobago, ICSID Case No ARB/01/14, Award (3 March 2006) para
203.
transactions.42 Concerns about the political interference of the State in the manage-
ment of its SOEs may nevertheless prompt questions whether it is appropriate to
lend presumptive force to the corporate form.43 The Commentary addressed these
concerns by specifying that ‘a State cannot avoid responsibility for the conduct of
a body which does in truth act as one of its organs merely by denying it that sta-
tus under its own law’44 and by recognising that ‘international law acknowledges the
general separateness of corporate entities at the national level, except in those cases
where the “corporate veil” is a mere device or a vehicle for fraud or evasion’.45
The Tribunal’s position that the importance of the SOE’s activities to the national
interest46 is insufficient to connote a de facto State organ status is aligned with the
jurisprudence.47 In practice, the importance of an economic area or asset to the
State may, however, serve as a departure point for examining whether, in light of
such consideration, the SOE enjoys operational autonomy from the State or exercises
governmental authority delegated to it by the State.
The Tribunal’s analysis for the purposes of article 5 of the ILC Articles underscores
the narrow scope of this rule. The Commentary suggests that article 5 was designed
to deal with the ‘exercise functions of a public character normally exercised by State
organs’.48 The second prong of this rule, ie the exercise of the delegated governmen-
tal authority in the particular instance, is often not met by the impugned conduct
of an SOE. This occurs because the exercise of governmental authority necessarily
involves acts exceeding the normal course of conduct of a State shareholder.49 The
Tribunal’s characterisation of the development of privately operated facilities on land
adjacent to an airport as ‘quintessentially commercial’50 and the Ministry of Trans-
port’s refusal to become involved in the discussions between SJSC Airport and the
investor supported the conclusion that the impugned conduct did not implicate the
exercise of governmental authority. The Airport’s designation as ‘object of national
interest’ concerned a military defence role that did not implicate the leased land.
The decision illustrates the importance of testing whether the impugned conduct
implicates the exercise of the host State’s governmental authority. It shows that an
SOE’s management of a strategic State asset and its pursuit of a public interest do
not necessarily turn such SOE’s commercial transactions into governmental acts.
The Tribunal’s factual determinations in relation to the lack of involvement of the
Ministry of Transport also sealed the fate of the Claimants’ argument under article
8 of the ILC Articles.
The decision shows that, absent exceptional circumstances denoting a lack of oper-
ational autonomy or the exercise of powers beyond that of an ordinary shareholder
and/or contracting party, tribunals will not disregard the SOEs’ separate corporate
42
Staur v Latvia (n 1) paras 319, 322 and 332.
43
David D Caron, ‘The Basis of Responsibility Attribution and Other Trans-Substantive Rules’ in Richard B Lillich
and Daniel B Magraw (eds), The Iran–United States Claims Tribunal: Its Contribution to the Law of State Responsibility
(American Society of International Law Transnational Publishers 1998) 173.
44
45
ibid art 8, commentary para 6.
46
47
Kristian Almås and Geir Almås v The Republic of Poland, UNCITRAL, PCA Case No 2015-13, Award (27 June
2016) para 210.
48
49
Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award (24 July 2008)
para 460; Hamester v Ghana (n 37) para 938.
50
personality and will give effect to their abilities to engage, on their own account, in
private law or commercial transactions without thereby engaging the international
law responsibility of their State shareholder.

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ICSID Review, Vol. 37, No. 1-2 (2022), pp.

III. THE TRIBUNAL’S DECISION

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