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Decision(s) Discussed AwardFootnote 1
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Date of Decision(s) 9 April 2015
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Members of the Tribunal Mr E. Zuleta (Presiding Arbitrator); Professor B. Stern (Respondent's Appointee); Professor J. Townsend (Claimant's Appointee)
Introduction
In Poštová banka v. Greece, an ICSID case initiated on the basis of both the Cyprus‒Greece and the Czech Republic‒Greece bilateral investment treaties (the BITs), the tribunal concluded that it lacked jurisdiction over the dispute.
The case, which covers classic investor‒State arbitration jurisdictional issues, is particularly interesting as it relates to the downgrading of Greek sovereign debt obligations, following the financial crisis in the country.
Factual Background
The claimants were Poštová banka, a Slovak bank, and Istrokapital, a European Public Limited Liability Company organized under the laws of Cyprus (together, the Claimants). Istrokapital held shares in Poštová banka, which in turn owned Greek Government Bonds (GGBs) and interests in these GGBs. Due to the global financial crisis of 2008, Greece experienced a significant economic downturn, which resulted in rating agencies downgrading Greek debt. Although the award does not discuss in detail the merits of the investor claims, it was reported that the Claimants complained about the ‘haircut’ they were subjected to as a result of Greek financial legislation in 2012, which ‘retroactively and unilaterally amend[ed] the [investor's] bond terms’.Footnote 2
Main Findings
Greece challenged the jurisdiction of the tribunal on four different grounds. According to Greece, (i) the Claimant's operations were not ‘investments’ that were be protected under the BITs and the ICSID Convention (jurisdiction rationae materiae); (ii) the Claimants did not possess an investment at the time when the alleged BIT violation occurred (jurisdiction rationae temporis); (iii) both Poštová banka and Istrokapital were not investors (jurisdiction rationae personae), and (iv) the Claimants failed to establish prima facie their claim, a mandatory requirement to raise contentions based on a BIT umbrella clause.Footnote 3 The tribunal upheld the first of these four jurisdictional objections and deemed it not necessary to examine the three others.
The essence of the parties' dispute therefore revolved around the notion of investment. To address the question, the tribunal followed the so-called ‘double-barrel test’: the tribunal verified first whether the Claimants’ operation could be qualified as investment under the BITs and then under the definition developed in the case law in Article 25 of the ICSID Convention.Footnote 4
The Claimants Have No Protected Investment under their Respective BITs
The tribunal examined first the position of Istrokapital. Relying on arbitral case law on indirect investments, the tribunal affirmed that the ‘default position in international law is that a company is legally distinct from its shareholders’.Footnote 5 The tribunal then explained that while a company's shareholder ‘may assert claims based on measures taken against such a company's assets’ when the said measures ‘impair the value of the claimant's shares’, such a claimant ‘has no standing to pursue claims directly over the assets of the local company, as it has no legal right to such assets’.Footnote 6
Noting that Istrokapital had not relied on its shareholding in Poštová banka as the basis of its claim but on its shareholding in its indirect investment in the GGBs, the tribunal found that Istrokapital failed to establish it had any right to the assets of Poštová banka that qualified for protection under the Cyprus‒Greece BIT.Footnote 7
As for Poštová banka, the tribunal found that the interests held in the GGBs did not qualify as an investment under the Slovakia‒Greece BIT. To reach this conclusion, the tribunal looked first at Article 1(1) of the Slovakia‒Greece BIT, which includes a definition of investment. As is often the case with ‘classic’ BITs, this definition provided for a general statement on the notion of investment (Article 1(1) reads ‘investment means every kind of asset’) and, in addition, a non-exclusive list of examples (movable and immovable property, shares, loans, intellectual property rights, etc.).Footnote 8 Relying on VCLT Articles 31 and 32 and the principle of interpretation ‘in good faith’, the tribunal explained that the list of categories could not be considered as meaningless and were a ‘definitive element to determine whether the activity or operation at stake’ in a dispute can be qualified as an investment.Footnote 9 Focusing on the difference between the Slovakia‒Greece BIT and the other BITs referred to by the Claimants, the tribunal concluded that public debt or public obligations instruments, including sovereign debt instruments, were not covered under Article 1(1).Footnote 10
The Claimants Have No Protected Investment under the ICSID Convention
The tribunal explained that its conclusions relating to the definition of investment under the BITs made it ‘unnecessary’ to determine whether the Claimant's operations ‘would be considered as investments as that term is used in the [ICSID] Convention’. Yet, the tribunal addressed the issue for the sake of completeness (‘[b]ecause the Parties … devoted significant attention to that issue’].Footnote 11
On this issue, the tribunal recalled the difference between the subjective definition of an investment (the one contained in the BIT) and the objective one (the one developed in the case law on ICSID Article 25, pursuant to which investment as an ‘inherent’ meaning under international law).Footnote 12
For the tribunal's majority (Arbitrator J. Townsend dissented on this issue), this objective definition implied three elements: (i) a contribution to an economic venture, (ii) of a certain duration, (iii) implying an operational risk.Footnote 13
The majority therefore explained that if the objective test were to be applied, it would be necessary to verify whether the Claimant's operations contributed to a process of creation of value (as well as the other criteria, duration and risk).Footnote 14
For the tribunal's majority, the ‘process of creation of value’ is what distinguishes an investment from a sale or other economic operations, which are ‘process[es] of exchange of value’.Footnote 15 The majority further affirmed (i) that a State was not primarily an economic actor engaged in the process of creation economic ventures (ii) and that a distinction could be made between ‘sovereign bonds that are used for general funding purposes and those used for public works or services’.Footnote 16 Noting that the investor did not argue that the money they paid for the GGB interests was used in economically productive activities, the majority therefore concluded that the Claimant's operation could not be considered as investment under the objective definition of the term.Footnote 17
4. Post-award Developments
In August 2015, one of the two investors, Poštová banka, applied for partial annulment of the award. An ad hoc Committee has been constituted in accordance with Article 52(3) of the ICSID Convention. The Chairman of the ICSID Administrative Council has appointed the three following member to see in the ad hoc Committee: Mr A. Kettani (President of the Committee), D. Edward, and H. T. Shin. To date, this annulment procedure is still pending.Footnote 18
