Cyprus legitimately exercised its police powers, defeats ICSID claims by Greek bankers

Marfin Investment Group Holdings S.A., Alexandros Bakatselos and Others v. Republic of Cyprus, ICSID Case No. ARB/13/27

In an award dated July 26, 2018, an ICSID tribunal concluded that Cyprus’s actions did not breach the 1992 Cyprus–Greece BIT (the BIT). Claims of EUR 1.05 billion were brought by Marfin Investment Group Holdings S.A. (MIG), an international investment holding company incorporated in Greece, and 18 other Greek corporations or shareholders following measures taken by Cypriot authorities in the context of the Eurozone crisis. The tribunal affirmed its jurisdiction over the case, but dismissed all claims against Cyprus and ordered the investors to pay EUR 5 million toward the state’s costs.

Factual overview of the bank crisis dispute

The claimants partly owned Marfin Popular Bank Public Co. Ltd. (Laiki Bank), the second largest bank in Cyprus. In May 2012, through the enactment of public measures, Cyprus acquired majority ownership in the bank and took over the management control in a EUR 1.8 billion recapitalization intended to limit the bank’s exposure to defaulting Greek debt during the country’s debt crisis.

The following year, the bank was placed in administration, and EUR 100,000 deposits were made subject to a levy, as part of a rescue deal agreed between Cyprus and the “Troika,” consisting of the European Commission, the European Central Bank and the International Monetary Fund.

In response to these public measures, the claimants initiated ICSID arbitration against Cyprus, claiming breaches of FET and full protection and security (BIT Article 2(2)) and the expropriation clause (BIT Article 4). Particularly, the claimants challenged Cyprus’s regulation of the bank, including the Central Bank of Cyprus’s decision to remove management officers, and the terms of the 2012 recapitalization plan.

Tribunal accepts jurisdiction over the disputes, despite the Achmea judgment

Cyprus focused its jurisdictional objection on the question of the application of successive treaties in time. It alleged that the BIT and its arbitration clause (Article 9) were terminated or superseded by the later EU Treaties and that, therefore, the ICSID tribunal had no jurisdiction over the case.

The tribunal rejected that it lacked jurisdiction to proceed with the case as a result of the March 2018 CJEU judgment in the Achmea case, which found that BITs between EU member states were incompatible with EU law. The tribunal relied on prior case law decisions (EURAM v. Slovakia), finding that intra-EU BITs and the EU Treaties deal with different subject matters. In the present case, the tribunal asserted that the relevant provisions of EU law guaranteeing the fundamental freedoms or prohibiting discrimination do not have the same topic or substance as the substantive protections offered under the BIT (for example, the FET standard). Therefore, the tribunal declined to examine the question of compatibility, which arises only if the two treaties have the same subject matter.

Accordingly, the tribunal rejected all jurisdictional objections by Cyprus and declared that the BIT remains in force, including its arbitration clause.

Expropriation claim dismissed on grounds of legitimate exercise of police powers by Cyprus

The claimants alleged that Cyprus’s conduct constituted an act of nationalization and therefore a breach of the expropriation clause of BIT Article 4. In the tribunal’s view, given that Cyprus held the majority stake in the Laiki Bank after the June 2012 recapitalization, such actions would not constitute violations of the BIT, but represented a legitimate exercise of Cyprus’ regulatory powers. It held that the Cypriot regulatory authorities were entitled to a certain degree of discretion in making their choice in the recapitalization framework. The tribunal found that Cyprus had not sought to nationalize the bank and that its strategy at the Eurozone summit was not guided by such an intention.

Moreover, the tribunal asserted that Cyprus’ failure to negotiate better terms or to seek Troika support for its banking sector immediately following the summit could not be seen as expropriatory. Referring to SD Myers v. Canada, the tribunal stated that it should not second-guess political and policy decisions made by a state, particularly where those decisions were made based on continuously developing threats to the safety of the financial system. It was persuaded that Cyprus faced one such difficult political decision on the occasion of the Eurozone summit. Therefore, it held that there was nothing arbitrary, capricious or unreasonable in Cyprus’ lack of attempt to negotiate better terms.

Finally, it concluded that the removal of management was a legitimate exercise of the state’s regulatory powers to protect the public welfare, which gave Cyprus the tools to intervene in order to support distressed banks and avoid systemic risks to its banking system and economy.

No breach of FET or full protection and security standard; no discrimination

The claimants alleged that Cyprus breached the FET standard through a failure to provide due process to claimants’ investment, denying them justice and engaging in arbitrary and abusive conduct in criminal proceedings initiated against the claimants.

The tribunal endorsed the view in Philip Morris v. Uruguay that “it is not enough to have an erroneous decision or an incompetent judicial procedure” for a finding of denial of justice, and agreed with Cyprus that exhaustion of local remedies was not a mere precondition to arbitration, but “a constituent element of the delict” (para. 1272). Thus, for the tribunal, the claimants’ failure to exhaust local remedies was sufficient to dismiss their denial of justice claims (para. 1277).

The tribunal also concluded that the criminal proceedings against the claimants were in compliance with Cyprus criminal laws, and had not been initiated abusively, for tactical reasons or with the intent to harass the claimants. For these reasons, the tribunal found no breach of FET through a failure to provide due process.

Moreover, the tribunal found that there was no difference in treatment between claimants’ investment (Laiki Bank) and the Bank of Cyprus, whose shareholders were Cypriot. Even if the two banks were in similar circumstances, both were exposed to the recapitalization plan and management removal after emergency financial assistance was offered by the state. The tribunal concluded that the claimants’ investment was not discriminated against on the basis of their Greek nationality.

The claimants argued that Cyprus’s decision to impose conditions on Laiki Bank’s commercial operations and enact amendment of the Management of Financial Crises Law breached the full protection and security standard. The tribunal noted that Cyprus’s conduct was a legitimate exercise of its police powers, and that there was thus no excess of power against which the claimants deserved protection. Consequently, the tribunal concluded that, even if it were to interpret the standard as imposing an obligation to ensure a secure investment environment (as argued by the claimants), the standard was not breached.

Notes: The tribunal was composed of Bernard Hanotiau (chair appointed by the parties, Belgium national), Daniel M. Price (claimant’s appointee, U.S. national) and David A. O. Edward (respondent’s appointee, British national). The award is available at

Stephanie Papazoglou is a Greek MIDS LLM Candidate (2018–2019) at the University of Geneva and the Graduate Institute (IHEID).