{"id":3417,"date":"2015-08-04T16:53:54","date_gmt":"2015-08-04T21:53:54","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3417"},"modified":"2024-08-09T18:26:18","modified_gmt":"2024-08-09T16:26:18","slug":"postova-banka-a-s-and-istrokapital-se-v-the-hellenic-republic-icsid-case-no-arb-13-8","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/08\/04\/postova-banka-a-s-and-istrokapital-se-v-the-hellenic-republic-icsid-case-no-arb-13-8\/","title":{"rendered":"Government bonds not covered, despite broad definition of \u201cinvestment\u201d in Slovakia\u2013Greece BIT; tribunal dismisses claims against Greece"},"content":{"rendered":"

Po\u0161tov\u00e1 Banka, a.s. and Istrokapital SE v. The Hellenic Republic, ICSID<\/span> Case No. ARB\/13\/8<\/em><\/h2>\n

On April 9, 2015, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed for lack of jurisdiction a case against Greece related to the downgrading of Greek Government Bonds (GGBs) as a result of the economic crisis in the country.<\/p>\n

The claimants were Po\u0161tov\u00e1 banka, a.s. (Po\u0161tov\u00e1 banka), a Slovak bank, and Istrokapital SE (Istrokapital), a company organized under Cypriot law. Po\u0161tov\u00e1 banka had acquired a total of \u20ac504 million in GGBs through several transactions in 2010; Istrokapital held shares in Po\u0161tov\u00e1 banka. The deterioration of Greece\u2019s economy and the downgrading of the GGBs by bond rating agencies led the claimants to initiate arbitration on May 3, 2013 under the Slovakia\u2013Greece and Cyprus\u2013Greece bilateral investment treaties (BITs).<\/p>\n

Greece\u2019s jurisdictional objections<\/h3>\n

Greece objected to the tribunal\u2019s subject matter, personal, and temporal jurisdiction; it also maintained that the claims should be dismissed for abuse of process, and that the tribunal had no jurisdiction over the umbrella clause claims. The tribunal focused first on Greece\u2019s two-fold objections to subject matter jurisdiction, concerning Istrokapital\u2019s claims under the Cyprus\u2013Greece BIT<\/span> and Po\u0161tov\u00e1 banka\u2019s claims under the Slovakia\u2013Greece BIT.<\/p>\n

Istrokapital under Cyprus\u2013Greece BIT: \u201cindirect investment\u201d not protected<\/h3>\n

Istrokapital argued that it had made an indirect investment in GGBs through its shareholding in Po\u0161tov\u00e1 banka, and that this investment\u2014and not its shareholding in Po\u0161tov\u00e1 banka\u2014was protected under the Cyprus\u2013Greece BIT. Greece objected to the tribunal\u2019s jurisdiction on the grounds that Istrokapital itself did not have an investment under the Cyprus\u2013Greece BIT and could not base jurisdiction on Po\u0161tov\u00e1 banka\u2019s GGBs.<\/p>\n

The tribunal extensively reviewed case law on whether shareholders have claims or rights in assets of companies in which they hold shares; it looked at\u00a0HICEE B.V. v. Slovakia<\/em>,\u00a0ST-AD GmbH v. Bulgaria<\/em>,\u00a0El Paso v. Argentina<\/em>,\u00a0BG v. Argentina<\/em>,\u00a0Urbaser v. Argentina<\/em>,\u00a0CMS v. Argentina<\/em>, and\u00a0Paushok v. Mongolia<\/em>. For the tribunal, these decisions established that, while \u201ca shareholder of a company incorporated in the host State may assert claims based on measures taken against such company\u2019s assets that impair the value of the claimant\u2019s shares,\u201d the shareholder does not have \u201cstanding to pursue claims directly over the assets of the local company, as it has no legal right to such assets\u201d (para. 245).<\/p>\n

Considering that Istrokapital had sought jurisdiction on its indirect investment, but failed to establish that it had any rights to Po\u0161tov\u00e1 banka\u2019s assets protected by the BIT, the tribunal dismissed all of Istrokapital\u2019s claims for lack of jurisdiction.<\/p>\n

Po\u0161tov\u00e1 banka under Slovakia\u2013Greece BIT: the tribunal structures its approach to interpreting whether GGBs qualified as \u201cinvestments\u201d<\/h3>\n

The parties disagreed as to how the Vienna Convention on the Law of the Treaties (VCLT<\/span>) guides the interpretation of \u201cinvestment\u201d under the ICSID Convention<\/span> and the Slovakia\u2013Greece BIT, and as to whether Po\u0161tov\u00e1 banka\u2019s GGBs were within the scope of those definitions of \u201cinvestment.\u201d<\/p>\n

The tribunal first analyzed how the GGBs were issued by Greece and acquired by Po\u0161tov\u00e1 banka. In particular, it pointed out that Po\u0161tov\u00e1 banka acquired its interests in the GGBs not in their initial distribution, but on the secondary market, and that it deposited these interests with Clearstream Banking Luxembourg (Clearstream), a universal depository. It then turned to analyzing whether Po\u0161tov\u00e1 banka\u2019s interests in the GGBs qualified as \u201cinvestments\u201d under Article 1(1) of the Slovakia-Greece BIT.<\/p>\n

If \u201cinvestment\u201d is \u201cevery kind of asset,\u201d does the illustrative list serve a purpose?<\/h3>\n

The claimants understood that their interests were encompassed in the broad definition of \u201cinvestment\u201d in the chapeau of the Article 1(1) (\u201c[i]nvestment means every kind of asset and in particular, though not exclusively includes: [\u2026]\u201d) and in the references to \u201cloans\u201d or \u201cclaims to money\u201d in its section (c). They argued that \u201cinvestment\u201d has no inherent meaning under international law. Greece disagreed, maintaining that the term has an inherent meaning, and that the tribunal should not look for a special definition under the treaty.<\/p>\n

The tribunal considered that, while the definition of \u201cinvestment\u201d under the BIT was broad (\u201cevery kind of asset\u201d), this meant neither that all categories qualified as an \u201cinvestment\u201d nor that the only way to exclude a category would be an express exclusion. It held that \u201cinvestor\u2013State tribunals are [not] authorized to expand the scope of the investments that the State parties intended to protect merely because the list of protected investments in the treaty is not a closed list\u201d (para. 288).<\/p>\n

While observing that several treaties include broad asset-based definitions of \u201cinvestment,\u201d the list of categories that illustrate what may constitute an investment can vary significantly. To interpret the treaty in good faith\u2014considering its text, context, object, and purpose, as required by the VCLT\u2014the tribunal understood that it should interpret the list of examples under the \u201cinvestment\u201d definition without making the list useless or meaningless.<\/p>\n

The tribunal also looked to case law to support its conclusion. It found that the decisions in\u00a0Fedax v. Venezuela<\/em>,\u00a0Abaclat v. Argentina<\/em>\u00a0and\u00a0Ambiente Ufficio v. Argentina<\/em>\u00a0\u201chave consistently considered the text of the list of categories that may constitute an investment as a definitive element to determine whether the activity or operation at stake may be considered an investment\u201d (para. 303).<\/p>\n

Are GGBs \u201cinvestments\u201d under any of the categories of the illustrative list?<\/h3>\n

The tribunal set out to determine whether Po\u0161tov\u00e1 banka\u2019s interests in GGBs fit within the categories of investments listed in the BIT. It started from the premise\u2014undisputed by the parties\u2014that GGBs constitute sovereign debt, which cannot be equated to private debt, as well as securities in the form of bonds, which are subject to specific and strict regulation.<\/p>\n

It then noted that none \u201c[n]either Article 1(1) of the Slovakia\u2013Greece BIT nor other provisions of the treaty refer, in any way, to sovereign debt, public titles, public securities, public obligations or the like\u201d (para. 332). The only reference to bonds, under Article 1(1)(b), is limited to bonds issued by private companies (\u201cdebentures\u201d). The tribunal agreed with Greece that the exclusion of sovereign bonds from the definition of \u201cinvestment\u201d indicates that the contracting parties did not intend to cover them as investments.<\/p>\n

The claimants had proposed that GGBs fit within a wide interpretation of Article 1(1)(c), which refers to \u201cloans, claims to money or to any performance under contract having a financial value.\u201d<\/p>\n

The tribunal disagreed that GGBs could be considered loans, because of the distinction between loans and bonds. Loans generally have identified creditors and limited tradability, are not subject to securities regulations, and involve a contractual relationship between lender and the ultimate debtor. In turn, bonds are generally held by large groups of anonymous creditors, have high tradability, are subject to restrictions and regulations, and involve a contractual relationship between the holder and the intermediaries (not with the ultimate debtor). The facts of the case emphasized the relevance of the distinction: Po\u0161tov\u00e1 banka was able to trade the GGBs fast, and had a direct contractual relationship not with Greece, the ultimate debtor, but with Clearstream, the intermediary from which it had acquired GGBs.<\/p>\n

The claimants had also wanted to include GGBs within \u201cclaims to money\u201d under Article 1(1)(c). The tribunal again disagreed. First, it explained that it should not lightly expand treaty language to interpret a general reference to \u201cclaims to money\u201d as including government bonds. Second, looking at the context\u2014\u201cclaims to money or to any performance\u00a0under contract having a financial value<\/em>\u201d\u2014the tribunal held that any claim to money, to fall within the definition, must arise from a contract with the respondent. This was not the case, given that Po\u0161tov\u00e1 banka did not have a contract with Greece.<\/p>\n

Dismissal and costs<\/h3>\n

Concluding that neither of the claimants had an \u201cinvestment\u201d within the meaning of the relevant BITs, the tribunal dismissed the case for lack of jurisdiction, and considered it unnecessary to examine Greece\u2019s other objections.<\/p>\n

Even ruling in favour of Greece, the tribunal noted that \u201cthe jurisdictional issue was not clear-cut and involved a complex factual and legal background\u201d (para. 377), and ordered each party to bear its own legal costs and an equal share of the arbitration costs.<\/p>\n

\n

Notes<\/h3>\n

The ICSID tribunal was composed of Eduardo Zuleta (President appointed by the Secretary-General of ICSID, Colombian national), John M. Townsend, (claimant\u2019s appointee, U.S. national) and Brigitte Stern (respondent\u2019s appointee, French national). The award is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw4238.pdf<\/a>.<\/p>\n

\n

Author<\/h3>\n

Martin Dietrich Brauch<\/strong> is an International Law Advisor and Associate of IISD<\/span>\u2019s Investment for Sustainable Development Program, based in Latin America.<\/p>\n