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Are Bondholders Investors? Sovereign Debt and Investment Arbitration after Poštová

Published online by Cambridge University Press:  28 February 2017

PIETRO ORTOLANI
Rights & Permissions [Opens in a new window]

Abstract

As a result of the 2010 sovereign debt crisis and the subsequent restructuring operations, bondholders have pursued different dispute resolution strategies. Litigation before US courts has proved to be a viable option, as demonstrated by the Argentine cases. State court litigation, however, is not the only available forum: in some cases, bondholders have commenced arbitration proceedings against the issuing state.

Arbitral case law has been consistent in concluding that the holders of sovereign bonds issued by the host state qualify as investors and thus have standing to bring investment treaty-based claims. The recent Poštová award, however, casts doubts over whether holders of sovereign bonds qualify as investors for the purposes of international investment law.

This article illustrates the main problems revolving around the qualification of sovereign bonds as investments for the purposes of international investment law. The article summarizes the relevant legal framework and the solutions adopted by arbitral case law so far. Subsequently, the contents of the Poštová decision are addressed in detail and the consequences of this decision are scrutinizsed.

Keywords

bilateral investment treatiesGreek crisisICSID Conventioninvestment arbitrationsovereign debt

Information

Type
INTERNATIONAL LAW AND PRACTICE
Information
Leiden Journal of International Law , Volume 30 , Issue 2 , June 2017 , pp. 383 - 404
Copyright
Copyright © Foundation of the Leiden Journal of International Law 2017 

1. Introduction

As a result of the 2010 sovereign debt crisis and the subsequent restructuring operations, bondholders have pursued different dispute resolution strategies. Litigation before US courts has proved to be a viable option, as demonstrated by the Argentine cases.Footnote 1 State court litigation, however, is not the only available forum: in some cases, such as Abaclat v. Argentina,Footnote 2 Ambiente Ufficio v. Argentina,Footnote 3 and Giovanni Alemanni v. Argentina,Footnote 4 bondholders have commenced arbitration proceedings against the issuing state, arguing that the ‘haircut’ amounts to a violation of international obligations arising out of the applicable investment treaty.

The aforementioned cases did not reach the merits stage and, therefore, the tribunals did not determine whether and to what extent a violation of international obligations existed.Footnote 5 Yet, arbitral case law so far seems to be consistent in concluding that the holders of sovereign bonds issued by the host state qualify as investors and thus have standing to bring investment treaty-based claims. The recent Poštová award, however, casts doubts over this.Footnote 6

This article illustrates the main problems revolving around the qualification of sovereign bonds as investments for the purposes of international investment law. To this end, it will be first of all necessary to summarize the relevant legal framework and the solutions adopted by arbitral case law so far: the notion of ‘investment’ under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and its definition in bilateral investment treaties (BITs) will be scrutinized. Subsequently, the contents and consequences of the Poštová decision will be addressed in detail. Before turning to the core of the issue, however, a preliminary discussion of the political and geo-economic context of sovereign insolvency is in order.

2. The political and geo-economic context of sovereign insolvency

The problem of sovereign debt dispute resolution is linked to broader political and geo-economic concerns. The restructuring of Greek sovereign debt was a key component of the attempt to salvage a distressed national system and avoid further negative consequences for the Eurozone and, more generally, the global economy.Footnote 7 The debate on the relations between sovereign debt litigation and economic recovery is articulate and controversial: on the one hand, it has been argued that the possibility for holdouts to successfully bring an action against the issuing state may undermine rescue attempts and, ultimately, endanger the sovereignty of states facing a situation of crisis.Footnote 8 In its most basic form, this narrative results in the characterization of market actors purchasing discounted bonds on the secondary market and bringing claims before either national courts or international tribunals as ‘vulture funds’.Footnote 9 On the other hand, it has been argued that sovereign debt litigation mitigates the risk of opportunistic defaults and ensures the efficiency of international capital markets.Footnote 10 The scope of this article is much narrower: rather than assessing the political and geo-economic effects of sovereign debt litigation, it simply discusses the availability of investment arbitration as a dispute resolution venue for bondholders, in light of the ICSID Convention and the relevant BITs.

The analysis can, of course, be relied upon to formulate more general prescriptive considerations in the context of the above debate. By way of example, those who stress the risks of sovereign debt litigation may rely on the analysis carried out in Sections 3–7 to argue that the notion of ‘investment’ currently enshrined in international investment law is too broad and should be re-modulated.Footnote 11 These considerations, however, cannot entirely overlap with the interpretation of the relevant legal provisions. The opposite view would require selecting the politically desired outcome (e.g., the exclusion of sovereign bonds from the purview of the notion of ‘investment’) and reconstructing, backwards, a line of interpretative reasoning leading to the preferred conclusion. Such an approach is only acceptable if one were to construe the relevant legal sources (in this case, the ICSID Convention, the Argentina-Italy BIT and the Slovakia-Greece BIT) as being indeterminate in meaning and equally open to all interpretations.Footnote 12 A full answer to these questions would require a detour into analytical jurisprudence, which is beyond the scope of this article. Suffice it to say that, according to the view adopted here, not all interpretations of legal texts are in principle equally tenable. To be sure, this observation should not be read as an espousal of narratives theorizing a static and absolute meaning of legal texts.Footnote 13 Legal rules are structurally the result of interpretation, rather than an automatic reading of the written word. Interpretations, however, should be the ground upon which conclusions are formulated, and not vehicles for the promotion of a pre-selected outcome. Furthermore, a non-goal-oriented analysis of legal problems seems to be one of the possible purposes (and privileges) of legal scholarship, while the imitation of judicial tropes and argumentative frameworks within scholarly discourse is, ultimately, illusory.Footnote 14

3. The notion of ‘investment’ under the ICSID Convention

3.1. BITs and the ICSID Convention

International investment law is currently dominated by a large network of BITs, which typically set forth a definition of ‘investment’; hence, nationals of both contracting states are entitled to protection under the BIT only inasmuch as their activities fall within the boundaries of such definition.

Although not all BITs are worded in the same terms, most of them provide that investors can initiate arbitration proceedings under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID). According to Article 25(1) of the ICSID Convention, the Centre has jurisdiction ratione materiae over ‘any legal dispute arising directly out of an investment, between a Contracting State . . . and a national of another Contracting State’. It is, therefore, necessary to analyze the notion of ‘investment’ set forth in Article 25 of the ICSID Convention and to clarify its relationship with the definition of ‘investment’ included in each BIT providing for ICSID arbitration.

3.2. Article 25(1) of the ICSID Convention

The ICSID Convention does not set forth a definition of the term ‘investment’:Footnote 15 it states that the Centre's jurisdiction covers disputes arising directly out of investments, without clarifying what ‘investment’ means. For this reason, it is debatable whether sovereign debt instruments qualify as investments for the purposes of Article 25. While sovereign bonds clearly fall within the contemporary ordinary meaning of the term,Footnote 16 this fact alone is insufficient to conclude that they fall within the scope of Article 25. It could be argued that not everything that falls within the ordinary meaning of investment is also covered by Article 25 of the ICSID Convention. The problem has been analyzed in detail in arbitral case law.

3.3. Fedax v. Venezuela

The first case in which an arbitral tribunal addressed the problem of the qualification of sovereign debt instruments as investments under Article 25 of the ICSID Convention was Fedax v. Venezuela. The case revolved around six promissory notes, negotiable on the secondary market. The notes were issued by Venezuela in order to acknowledge its debt for the provision of services under a contract with a private company, Fedax, which initiated ICSID arbitration proceedings after Venezuela failed to repay the debt.

Venezuela objected to the tribunal's jurisdiction, alleging that the transaction did not involve any long term transfer of financial resources and that Fedax did not have any direct relationship with Venezuela, since it had acquired the instruments on the secondary market.

The Tribunal relied on the assumption that the notion of investment for the purposes of the ICSID Convention is not necessarily overlapping with its ordinary financial meaning. In determining whether sovereign bonds qualified as investments, it referred to the work of Schreuer, who described the concept of investment by listing a number of basic features (duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host state's development).Footnote 17 The Fedax tribunal concluded that the promissory notes qualified as investment, irrespective of whether the claimant had acquired the titles on the primary or secondary market. The changing identity of the investor was considered irrelevant, because the investment itself remained constant and the issuer enjoyed ‘a continuous credit benefit until the time the notes [became] due’.Footnote 18 Furthermore, the tribunal noted that the existence of a dispute as to the payment of the principal and interests itself evinced the existence of risk.Footnote 19

3.4. Analysis of the tribunal in Abaclat

The list of basic features presented by Schreuer was designed to serve as an illustration of the typical model of investment falling within the scope of Article 25 of the ICSID Convention and not an exhaustive list of requirements.Footnote 20 Nonetheless, arbitral case law has adopted this ‘basic features’ methodology as exactly that – a prescriptive list of requirements, the absence of which renders the ICSID Convention inapplicable.

These requirements were first set forth in Salini v. Morocco.Footnote 21 According to the Salini tribunal, the notion of investment entails financial contributions made by the investors, a certain duration of performance, regularity of profits and returns, a participation in the risk of the transaction, and a contribution to the economic development of the host state.Footnote 22 The use of such criteria to determine whether an investment exists within the meaning of Article 25 is commonly referred to as the ‘Salini test’.Footnote 23

The first ICSID claim concerning Argentina's default was Abaclat. In this case, a large group of Italian bondholders initiated ICSID proceedings under the Argentina-Italy BIT, arguing that Argentina's restructuring of its sovereign debt amounted to a violation of the state's obligations under the BIT.

The majority of the Abaclat tribunal refused to apply the Salini test, noting that if the bondholders’ contributions were to fail the Salini test, they would be deprived of the procedural protection afforded by the ICSID Convention. In light of a subjective interpretation of Article 25, the tribunal found that such a result would run counter to the ICSID Convention's aim, ‘to encourage private investment while giving the Parties the tools to further define what kind of investment they want to promote’. In other words, the tribunal argued that it would be contradictory to conclude that on the one hand Italy and Argentina agreed to protect a certain type of investment and to submit to ICSID arbitration, but on the other hand ICSID arbitration is not available, because of the Salini criteria. The tribunal further noted that the Salini criteria were ‘controversial’Footnote 24 and should not serve to limit ICSID jurisdiction, since they were never included in the ICSID Convention.

3.5. Analysis of the tribunal in Ambiente

Like Abaclat, the Ambiente case saw Italian nationals seeking compensation from Argentina for purported violations of the Argentina-Italy BIT relating to the respondent state's default on sovereign debt repayment in 2001. The latter tribunal reached the same conclusion, holding that the case fell within ICSID jurisdiction. Nonetheless, the Ambiente decision on jurisdiction and admissibility shed further light on the notion of investment enshrined in Article 25 of the ICSID Convention.

The Abaclat tribunal had rejected a priori the possibility that an investment protected under the Argentina-Italy BIT could fall outside ICSID jurisdiction. By contrast, the Ambiente tribunal concluded that the term ‘investment’ was to be given a broad meaning encompassing sovereign bonds and security entitlements,Footnote 25 and turned to consider the Salini test as well.Footnote 26

The Ambiente tribunal concluded that sovereign bonds and security entitlements passed the Salini test for the following reasons:

  • • when considering the substantial contribution on the investors’ part, what counts is not the contribution of any single claimant, but the relevance of the bonds issued as a whole, which generate a significant financial flow;Footnote 27

  • • with regard to the minimum duration of the investment, the duration of the bonds must be considered, irrespective of their velocity of circulation on the secondary market;Footnote 28

  • • concerning the requirement of an operational risk, the risk of the host state's sovereign intervention – which resulted in Argentina's default and restructuring – is not a mere commercial risk;Footnote 29

  • • interests supposed to be paid periodically satisfy the requirement of regularity of profits and returns;Footnote 30

  • • the fact that the funds generated through the bonds’ issuance process were ultimately made available to Argentina fulfiled the requirement of a significant contribution to the development of the host state.Footnote 31

Hence, the Ambiente decision reinforced the Abaclat tribunal's conclusion that holders of sovereign bonds fall within the scope of Article 25 of the ICSID Convention.

3.6. The dissenting opinions in Abaclat and Ambiente

Neither decision was unanimous. One of the arbitrators of the Abaclat tribunal (Prof. Georges Abi-Saab) issued a dissenting opinion covering several aspects of the Decision on Jurisdiction and Admissibility, including the definition of the scope of application of Article 25 of the ICSID Convention. The dissenting opinion noted that the definition of investment emerging from financial markets was too broadFootnote 32 and only investments fulfilling certain requirements fell within ICSID jurisdiction.Footnote 33

According to Abi-Saab, the model of foreign direct investment (FDI) serves as a touchstone to determine whether any other type of undertaking qualifies as an investment.Footnote 34 In light of this, he concludes that sovereign bonds do not qualify as investments, because the circulation of the bonds on the secondary market happens without any involvement of the sovereign debtor and does not create any direct flow of funds towards the state.Footnote 35

Similarly, in Ambiente Dr. Santiago Torres Bernárdez appended a dissenting opinion, arguing that the issuance of sovereign bonds and the purchase of security entitlements deriving from said bonds on the secondary market could not be described as two parts of one economic operation.Footnote 36 Purchasers of security entitlements on the secondary market therefore could not be equated to subscribers of sovereign bonds on the primary market.Footnote 37 Furthermore, Dr. Torres Bernárdez held that even subscribers on the primary market cannot qualify as investors for the purposes of the ICSID Convention, because the issuing state operates on the primary market as a commercial actor, not as a host state.Footnote 38

As for the ordinary meaning of ‘investment’, the opinion proposed a distinction between the current financial notion of investment, which clearly encompasses sovereign bonds, and the type of investments that the ICSID Convention sought to protect at its conclusion in 1965.Footnote 39 In Dr. Torres Bernárdez's view, the latter cannot encompass sovereign bonds, as ‘[i]n 1965 the time of the tradable Brady sovereign bonds of the 1990s and later markets was still far away’.Footnote 40

In conclusion, the problem of the applicability of Article 25 of the ICSID Convention to sovereign bonds has given rise to articulate and detailed dissenting opinions on the part of some arbitrators. However, both the Abaclat and the Ambiente majority decisions have held that sovereign bonds qualify as investments for the purposes of the ICSID Convention.

4. The definition of ‘investment’ in BITs

4.1. Fragmentation of the notion of investment

In order to be protected under international investment law, sovereign bonds must fulfil the requirements of applicability ratione materiae set forth in the relevant BIT.Footnote 41 It must be noted that the wording of BITs, although in many instances similar,Footnote 42 is not always identical; hence, whether bondholders qualify as investors for the purposes of BITs cannot be answered in general terms. Abaclat and Ambiente addressed the problem in the context of the Argentina-Italy BIT.

4.2. The analysis of the tribunals in Abaclat and Ambiente

BITs usually offer a general definition of investment, followed by a non-exhaustive list of examples. Article 1(1) of the Argentina-Italy BIT defines ‘investment’, ‘in conformity with the legal system of the receiving State and irrespective of the legal form adopted and of any other legal system’, as ‘any conferment or asset invested or reinvested by an individual or corporation of one Contracting Party in the territory of the other Contracting Party, in compliance with the laws and regulations of the latter party’. Furthermore, the Article includes a list of six types of investment, two of which play a significant role in the Abaclat and Ambiente decisions:

  • • ‘lit. (c): obligations, private or public titles or any other right to performances or services having economic value, including capitalized revenues’;

  • • ‘lit. (f): any right of economic nature conferred under law or contract, as well as any license and concession granted in compliance with the applicable provisions applicable to the concerned economic activities, including the prospection, cultivation, extraction and exploitation of natural resources’.

The Abaclat tribunal noted that Article 1(1) is not drafted in a restrictive way and should be interpreted broadly.Footnote 43 In light of this, the Decision concluded that sovereign bonds ‘constitute obligations and/or at least public securities in the sense of Article 1(1) lit. (c) of the BIT’.Footnote 44 With regard to security entitlements circulating on the secondary market, the tribunal held that they are also encompassed in Article 1(1) lit. (c), since they ‘constitute an instrument representing a financial value held by the holder of the security entitlement in the bond issued by Argentina’.Footnote 45

The Ambiente tribunal reached the same conclusions, highlighting how the broad term ‘obligations’ in Article 1(1) lit. (c),Footnote 46 while generic, did not exclude bonds or security entitlements, as suggested by the expression ‘any other right to performances or services having economic value’.Footnote 47 The majority further relied on the catch-all clause in Article 1(1) lit. (f) to conclude that bonds and security entitlements must be brought into the purview of the BIT.

4.3. The dissenting opinions in Abaclat and Ambiente

Interestingly enough, Prof. Abi-Saab did not disagree with the majority of the Abaclat tribunal as far as the interpretation of Article 1(1) lit. (c) was concerned: according to the dissenting opinion, the provision at hand ‘covers financial instruments’ and ‘its language is large enough to encompass the security entitlements in the Argentinean bonds’.Footnote 48 Distinguishing between primary market subscribers and secondary market purchasers, Abi-Saab argues that the latter have no legal nexus with Argentina and therefore do not fulfil the requirements set forth in the chapeau of Article 1.Footnote 49 Such argument, however, does not undermine the assumption that bonds and security entitlements are, in principle, covered by Article 1(1) lit. (c) of the BIT.

By contrast, the Ambiente dissenting opinion briefly states that sovereign bonds and security entitlements are not covered by the non-exhaustive list of examples set forth in Article 1(1) of the BIT;Footnote 50 however, Dr. Torres Bernárdez mainly justifies the inapplicability of the BIT by arguing that, even if an asset falls within one of the types enumerated in the list, it cannot be considered an investment if it has no link with the territory of the host state. Hence, the interpretation of Article 1(1) lit. (c) is, to a certain extent, put aside, the main focus of the dissent being the problem of the territorial connection between bondholders and Argentina.

It can thus be concluded that, dissents as to the applicability ratione materiae of the Argentina-Italy BIT notwithstanding, the applicability of Article 1(1) lit. (c) to sovereign bonds is one of the least controversial aspects of the two cases. It is for this reason that the position adopted by the Poštová tribunal is surprising, as it constitutes a significant departure from the Argentine precedents.

5. The Poštová award

5.1. Structure of the award

On 3 May 2013 ICSID received a request for arbitration from Poštová banka, a Slovak bank, and Istrokapital SE, a European Public Limited Liability Company, organized under the laws of Cyprus and holding shares in Poštová. The claimants argued that Greece's 2012 debt restructuring amounted to a violation of the obligations arising out of the Slovakia-Greece BIT and the Cyprus-Greece BIT.

On 9 April 2015 the ICSID tribunal rendered an award declining jurisdiction over the dispute and thus casting significant doubts on the viability of investment arbitration as a forum for the resolution of disputes concerning sovereign debt restructuring.

The tribunal declined jurisdiction with respect to the claims brought by both Poštová and Istrokapital. However, the reasons for this conclusion were different in respect of the two claimants: as far as Istrokapital was concerned, the tribunal based its decision on the simple fact that the company did not hold any Greek sovereign bonds, but rather held shares in Poštová, which in turn held Greek bonds. For this reason, the part of the award concerning Istrokapital is not relevant for the purpose of clarifying the status of bondholders under international investment law; hence, this article will only analyze the reasoning of the tribunal regarding the position of Poštová.

The tribunal recognized the relevance of the double-barrelled test, i.e., the necessity of fulfilling the requirements of applicability set forth in both the ICSID Convention and the invoked BIT. The contents of the Slovakia-Greece BIT were analyzed first, whilst Article 25 of the ICSID Convention was scrutinized subsequently.

5.2. Analysis of the contents of the Slovakia-Greece BIT

According to the tribunal, sovereign bonds do not qualify as investments under the Slovakia-Greece BIT. Article 1(1) of the BIT reads as follows:

“Investment” means every kind of asset and in particular, though not exclusively includes:

  1. a) movable and immovable property and any other property rights such as mortgages, liens or pledges,

  2. b) shares in and stock and debentures of a company and any other form of participation in a company,

  3. c) loans, claims to money or to any performance under contract having a financial value,

  4. d) intellectual property rights, goodwill, technical processes and know-how, business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.

The definition of ‘investment’ is described in the award as ‘a broad one’,Footnote 51 ‘but not unlimited’.Footnote 52 In order to determine its scope, the award advocates a good faith interpretation of Article 1(1). First of all, the tribunal notes that lists of examples illustrating what may constitute an investment vary significantly from one BIT to the other: it is thus argued that such differences should be taken into account, in order to reach the proper interpretation of the treaty.Footnote 53

Against this background, the tribunal differentiates the case at hand from Abaclat and Ambiente. Three main differences between the Argentina-Italy and the Slovakia-Greece BITs are highlighted:

  • • the chapeau of Article 1 of the Argentina-Italy BIT specifies that the existence of an investment should be assessed ‘irrespective of the legal form adopted’, whilst the corresponding Article in the Slovakia-Greece BIT includes no such provision;Footnote 54

  • • Article 1(1)(c) of the Argentina-Italy BIT refers to ‘obligations, private or public titles or any other right to performances or services having economic value, including capitalized revenues’, whilst Article 1(1)(c) of the Slovakia-Greece BIT refers to ‘loans, claims to money or to any performance under contract having a financial value’;Footnote 55

  • • Article 1(1)(f) of the Argentina-Italy BIT broadly encompasses ‘any right of economic nature conferred under law or contract’, whilst the Slovakia-Greece BIT uses no such language.Footnote 56

In light of the above factors, the award concludes that the Slovakia-Greece BIT includes ‘less encompassing language’ than the Argentina-Italy BIT,Footnote 57 thus allowing for a differentiation between Poštová and the Argentine cases.

Moving on to the analysis of the contents of the Slovakia-Greece BIT, the award notes that Article 1(1)(b) only covers private indebtedness and corporate debt; it is argued that sovereign debt cannot be equated to private debt, because of its role in the governance of the monetary and economic policy of a state.Footnote 58 As for Article 1(1)(c), covering ‘loans, claims to money or to any performance under contract having a financial value’, the tribunal reasons that loans and bonds are distinct financial products. In particular, it is contended that loans involve contractual privity between the lender and the debtor, while bonds circulate on the secondary market and the identity of the creditor ‘may change several times in a matter of days or even hours’.Footnote 59

Along the same lines, the award maintains that bonds cannot qualify as ‘claims to money or to any performance under contract having a financial value’, because no contractual relationship exists between the issuing state and the purchasers of bonds on the secondary market.Footnote 60 According to the tribunal, ‘Greece had a contractual relationship with the Participants and the Primary Dealers’; by contrast, since Poštová has acquired the bonds on the secondary market, it has no contractual relationship with Greece.

5.3. Analysis of Article 25 of the ICSID Convention

The conclusion concerning the definition of investment under the Slovakia-Greece BIT makes it unnecessary to consider the problem of the applicability ratione materiae of the ICSID Convention. Nonetheless, the award addresses the problem at hand in a detailed obiter dictum.Footnote 61

According to the award, the problem of the applicability of the ICSID Convention can in principle be approached in two different ways. On the one hand, it is possible to argue that the notion of investments is characterized by some ‘core elements’, in the absence of which the Convention cannot apply: the tribunal mentions the requirements of a contribution of money or assets, duration, and risk,Footnote 62 along the lines of the Salini test. On the other hand, it is also possible to conclude that the ICSID Convention does not provide any definition of ‘investment’ and, therefore, the state parties to a BIT are free to determine the scope of such concept by agreement.Footnote 63

Although the award does not choose between the ‘objective’ and the ‘subjective’ approach,Footnote 64 it notes that, were the former applied, sovereign bonds would not qualify as investments. In particular, it is argued that sovereign bonds do not entail any contribution, if they are not linked with an economic venture.Footnote 65 In other words, according to the tribunal, if the money paid for the bonds is not used in ‘economically productive activities’, but for the state's ‘budgetary needs’, the bonds do not qualify as an investment.Footnote 66

Furthermore, the award concludes that no risk exists in the case at hand. In this regard, it is argued that an ‘investment risk’ only exists when the investor cannot be sure of a return on the investment, even if all relevant parties discharge their contractual obligations.Footnote 67 In the tribunal's view, the risk of interference from the Government (which was evident in the case of Greece's retrofit introduction of collective action clauses) is a ‘sovereign risk’ and should be equated to a normal commercial risk, rather than to an investment or operational risk.Footnote 68 The tribunal thus argues that, were the Salini test (in one of its variants) to be applied, sovereign bonds would not be covered by the ICSID Convention.

6. Critical assessment

6.1. Definition of ‘investment’ in the Slovakia-Greece BIT

The Poštová award generates doubts as to the possibility for holders of sovereign bonds to bring investment treaty claims against the issuing state. The main reasoning of the award must be distinguished from the obiter, as the two parts call for different considerations.

The tribunal's analysis of Article 1(1) of the Slovakia-Greece BIT can, in part, be seen as a consequence of the current state of fragmentation of international investment law: given the discrepancies in BIT wording, it is not entirely surprising or unacceptable that arbitral tribunals operating under a disharmonious legal regime reach divergent conclusions.Footnote 69 Nonetheless, the tribunal's analysis of the term ‘loans’, included in Article 1(1)(c) of the Slovakia-Greece BIT, raises some concerns.

According to the Poštová award, the notion of ‘loan’ does not encompass sovereign bonds, because it involves contractual privity between the lender and the debtor. Although the decision does not elaborate on this point any further, it is doubtful whether the notion of ‘loan’ necessarily entails contractual privity. Since ‘loan’ is a generic term, it would be reasonable to construe it in broad terms, thus covering both sovereign bonds and other legal relationships, irrespective of the identity of the lender. In fact, it could be argued that bonds currently constitute the prevailing form of loan, as both states and privates commonly finance their activities by issuing tradable bonds. Furthermore, the conclusion reached in the Poštová award is incompatible with the treatment the term ‘loan’ has received in arbitral case law so far: according to Fedax, ‘promissory notes are evidence of a loan’, whether freely tradable or not.Footnote 70 For these reasons, the distinction between loans and bonds operated by the Poštová tribunal is unpersuasive.

Proceeding on the premise that loans require contractual privity, the arbitral tribunal differentiates between primary market subscribers, who are deemed to have a contractual relationship with the state,Footnote 71 and secondary market purchasers, who on the contrary are considered not to have such a relationship.Footnote 72 For this reason, the arbitral tribunal argues that Poštová is not entitled to protection under the Slovakia-Greece BIT.

The distinction between primary and secondary market is not convincing, as it does not take into account the mechanism of bond issuance and the close link between subscription on the primary market and circulation on the secondary market. The state's decision to issue tradable bonds clearly evinces its intention to make the credit transferable:Footnote 73 the ease of circulation is the mainspring of tradable bonds and this cannot be disregarded when analyzing the nature of the relationship between the issuing state and bondholders. The issuance of tradable bonds entails a unilateral promise in incertam personam: therefore, the existence of a contractual relationship cannot be ruled out merely because the identity of the bondholder may vary over time.Footnote 74 On the contrary, it must be concluded that sovereign bonds constitute a particular type of loan, encompassed within the general definition of loan of Article 1(1)(c) of the Slovakia-Greece BIT and characterized by the irrelevance of the identity of the creditor.Footnote 75 Furthermore, it should be noted that the tribunal's approach, whereby a contractual relationship exists only in the presence of contractual privity, would lead to illogical consequences: applying this line of reasoning, holders of shares in a company would have no contractual relationship with the company, since shares circulate freely without any relevance of intuitus personae.

In conclusion, although the different outcome can partly be explained in light of discrepancies between the applicable treaties, the Poštová award is openly at odds with the Abaclat and Ambiente decisions, inasmuch as it denies the existence of a close correlation between primary and secondary market operations. Given the lack of consensus among arbitral tribunals, it is currently impossible to determine clearly whether purchasers of bonds on the secondary market are entitled to the same treaty-based protection that may be available (depending on the wording of the applicable BIT) to primary market subscribers.

6.2. The meaning of ‘investment’ under Article 25 of the ICSID Convention

The Poštová tribunal argues obiter that, even if the claimants’ undertakings were encompassed in the definition of investment set forth in the Slovakia-Greece BIT, the dispute may still not fall within Article 25 of the ICSID Convention.

As discussed above, the meaning of ‘investment’ under the ICSID Convention is a largely unsettled question. In order to put this problem in perspective, it is necessary to consider the consent mechanism in ICSID arbitration.

The ICSID Convention implements a framework for the resolution of investment disputes by means of arbitration. However, no state is under an obligation to submit any particular dispute to arbitration merely by virtue of being a party to the ICSID Convention; to the contrary, the Convention requires that states express independent consent to arbitration, including a reference to ICSID arbitration in a separate legal instrument.Footnote 76 In practice, consent is often expressed in a BIT concluded by the state hosting the investment and the home state of the investor.Footnote 77

In light of this legal framework, it could be argued that states are free to determine the scope of application of the ICSID Convention: since Article 25 does not specify any criterion of applicability ratione materiae, it is up to the parties to the investment treaty expressing consent to ICSID arbitration to determine the type of disputes falling within the jurisdiction of the Centre.Footnote 78 This ‘subjective’ approach to the problem at hand clearly resonates with the reasoning of the Abaclat tribunal, according to which it would not be correct to conclude that disputes concerning sovereign debt are not covered by ICSID jurisdiction, since they fall within the scope of application of a BIT providing for ICSID arbitration.Footnote 79

Conversely, proponents of a prescriptive application of the Salini criteria argue that the notion of ‘investment’ under Article 25 of the ICSID Convention constitutes an objective jurisdictional constraint; from this point of view, state parties to an investment treaty would not be able to refer all kinds of dispute to ICSID arbitration.Footnote 80 In other words, according to the ‘objective’ approach, the fact that the contracting states to an investment treaty have consented to ICSID arbitration is not enough to conclude that Article 25 applies: if the dispute does not arise out of an ‘investment’, ICSID does not have jurisdiction, irrespective of the wording of the treaty where consent to ICSID arbitration has been expressed.

The Poštová tribunal does not explicitly favour an objective approach to interpreting Article 25 of the ICSID Convention. The ‘subjective’ reasoning of the Abaclat tribunal, whereby the ICSID Convention applies inasmuch as the contracting states to the BIT provided for ICSID arbitration, is therefore not directly undermined. However, the award argues that, were one to adopt an objective approach, sovereign bonds would not qualify as investments, as the Salini criteria would not be fulfilled. From this point of view, the award is openly at odds with Ambiente, as far as the criteria of contribution and risk are concerned.Footnote 81

The application of the Salini criteria by the Poštová tribunal is particularly controversial. However, before moving on to the analysis of the requirements of contribution and risk, it is important to analyze the dialectics between the objective and subjective approaches to the interpretation of Article 25. On the one hand, the Poštová award refuses to take a clear position in this regard, thus leaving the question as to the relevance of Article 25 unanswered. On the other hand, however, a closer scrutiny of the ICSID Convention would have allowed for a mitigation of the contrast between the objective and the subjective approaches, thus shedding a new light on the applicability of the ICSID Convention to disputes relating to sovereign debt restructuring.

6.3. A missed opportunity: The Poštová award between subjective and objective interpretations of Article 25

Investments tribunals interpret the ICSID Convention in light of the Vienna Convention on the Law of Treaties (VCLT). Although the rules of interpretation play a fundamental role in clarifying the meaning of international agreements, they should not be applied uncritically. The VCLT is based on the primacy of state consent: since international treaties enshrine the agreement of two or more states on certain rules, treaty interpretation should aim at clarifying what the states meant when they concluded said agreement. Such a rationale, albeit generally correct, fails to take into account the fact that, in some cases, states may intentionally decide to leave the agreement incomplete. In the case of the ICSID Convention, the lack of definition of ‘investment’ should be seen as an example of strategic silence on the part of the contracting states.

It is not uncommon for the parties to any kind of agreement to leave the contents thereof partially undefined. Such incompleteness is not necessarily due to the need to avoid excessive transactional costs: in some cases, the parties decide to leave certain aspects of the agreement undefined for strategic reasons. According to scholarly analyses of contract-making between privates, parties may intentionally leave a gap in their contract, when they cannot foresee how their own purposes may change over time.Footnote 82 Similarly, the parties to the ICSID Convention reached an agreement on the procedural framework for the resolution of investment disputes, at a time when no widespread consensus existed as to the substantive contents and the scope of application of international investment law. For this reason, the ICSID Convention has been accurately characterized as a ‘power-conferring treaty’, since it partially grants control over the meaning of its terms to entities other than the contracting States.Footnote 83 On the basis of this premise, the conflict between the ‘objective’ and the ‘subjective’ approach to the interpretation of Article 25 can, to a large extent, be composed.

During the negotiations of the ICSID Convention, the parties failed to agree on the notion of ‘investment’. The International Bank for Reconstruction and Development published a ‘Report of the Executive Directors’, which clarifies many aspects of the process of negotiation of the Convention.Footnote 84 According to this document, the lack of definition of the term ‘investment’ is not problematic, ‘given the essential requirement of consent by the parties’. In other words, since states are not bound to ICSID arbitration simply by accession to the ICSID Convention, but rather must express their consent to arbitration in a separate instrument, the scope of application of the Convention can be clarified at this later stage, when consent to arbitration is actually expressed.Footnote 85 Hence, the genesis of the ICSID Convention clearly suggests that the contracting parties have a significant margin of autonomy when determining the scope of application of the Convention itself.

The existence of such discretion is confirmed by two provisions of the Convention. Firstly, pursuant to Article 25(4), each contracting state can notify ICSID of the class or classes of disputes that it would or would not consider submitting to the jurisdiction of the Centre. Thus, the Convention confers upon the contracting states a power to manipulate the scope of Article 25 unilaterally.Footnote 86 Secondly, under Article 64, contracting states can resolve disputes relating to the interpretation or application of the Convention through negotiation.Footnote 87 Therefore, the Convention itself contemplates the possibility that it will be interpreted differently by different groupings of states.

The above analysis demonstrates the untenability of the assumption that the rules of interpretation should aim at clarifying the notion of ‘investment’ that the contracting states had in mind when the Convention was concluded.Footnote 88 On the contrary, the genesis and contents of the ICSID Convention evince that the notion of ‘investment’ is intrinsically fluid; for this reason BITs, as well as other instruments in which states express their consent to ICSID arbitration, play an important role in clarifying the boundaries of Article 25.

The subjective approach adopted by the Abaclat tribunal comports with the fluid character of the notion of ‘investment’ enshrined in Article 25. However, a purely subjective approach is unsatisfactory, as it does not value the contents of the provision at hand. Had the contracting states wished to eliminate all jurisdictional constraints, they could simply have extended the jurisdiction of the Centre to any dispute between a contracting state and a national of another contracting state. On the contrary, Article 25(1) states that disputes must arise directly out of investments: therefore, even in the absence of any agreed definition of ‘investment’, the provision must be construed as constituting a minimum constraint to the jurisdiction of the Centre. However, the contents of such provision should be ascertained by taking into account the strategic silence of the contracting states.

The contracting parties to the ICSID Convention intentionally left a gap, implementing a mechanism for the resolution of investment disputes in the absence of consensus on the notion of ‘investment’. Hence, they entrusted future interpreters of the Convention with the task of filling the gap, by relying on an evolving meaning of investment.Footnote 89 The question ‘what constitutes an investment?’ should be answered not by looking at the intention of the contracting states (which were purposely silent on this point), but by taking into consideration the contemporary meaning of the word. Consequently, the best view is that the Salini criteria are not strictly prescriptive, but rather serve as indicators of the prevailing characteristics of an investment. As such, they should not be relied upon rigidly, but rather used in an adaptive and circumstance-specific fashion.Footnote 90

The above arguments demonstrate that flexibility can play an important role in mitigating the conflict between the objective and subjective interpretations of Article 25. The interpretative autonomy afforded by this approach, however, is not unlimited, as a teleological interpretation of the Washington Convention necessarily entails a time constraint. Since the Convention aims at fostering growth by stimulating cross-border investment,Footnote 91 it must be construed as implementing a dispute resolution infrastructure which can, at least potentially, attain such goals by encouraging investors to undertake wealth-producing activities in a foreign host state. Such effect of encouragement could not be achieved, were the notion of ‘investment’ relevant for the purposes of Article 25 open to interpretative changes and adaptations, depending on circumstances arising after the investment has been performed. If this was the case, potential investors would have no certainty as to the availability of ICSID arbitration and, therefore, no additional reason-for-action when deciding whether and where to perform an investment. In other words, general economic circumstances existing at the time the investment was performed can be taken into account, in order to determine the distinctive characters of the notion of ‘investment’ under Article 25. Conversely, factors emerging after the investment has been performed should not be considered, so as to preserve the certainty of the investment protection framework.

This general observation has an important consequence for the case of sovereign debt restructuring. In principle, one could reason that the strategic silence of Article 25 can be relied upon to empower arbitral tribunals to adjust the scope of the notion of ‘investment’ in light of the broader geo-economic context of this type of dispute. It could thus be argued that, because of the particularly critical situation of the issuing state and the global ramifications of the crisis, arbitral tribunals should conclude that bonds cease constituting investments, because of a change in the surrounding economic conditions. This line of reasoning, however, cannot be followed, as it would jeopardize the overall purpose of the Convention: were tribunals free to determine post factum Footnote 92 that sovereign bonds do not qualify as investments, the ICSID regime could not constitute a reliable incentive for international undertakings.

In conclusion, the ‘agnostic’ point of view of the Poštová tribunal is unconvincing. The award presents a clear conflict between the objective and subjective approaches, refusing to express any preference. Such conflict could to a large extent be mediated, taking into account that on the one hand states have a significant margin of autonomy in determining the scope of application of Article 25, or, while on the other hand a minimum objective meaning of ‘investment’ can be ascertained by looking at the prevailing practice at the moment the investment is performed. In this regard the Poštová decision is a missed opportunity, as it unnecessarily perpetuates the current state of uncertainty regarding the applicability ratione materiae of the ICSID Convention.

6.4. Application of the Salini criteria

Further doubts arise when considering the application of the Salini criteria by the Poštová tribunal. The definition of risk proposed by the tribunal is tailored exclusively to the model of FDI, thus taking portfolio investments outside the ambit of the ICSID Convention. According to the Poštová award, the risk of the host state's sovereign intervention (‘sovereign risk’) would be different from an operational risk. Such assumption relies on the logical premise that foreign direct investment constitutes the ‘ideal type’Footnote 93 of investment covered by the ICSID Convention and that therefore the risk criterion must be modelled after the kind of risk that FDI typically incurs.

The tribunal's approach is unduly restrictive: since the contracting parties to the ICSID Convention failed to agree on any definition of ‘investment’, and considering that the drafting of the Convention was partially triggered by the World Bank's efforts to resolve disputes relating to portfolio investments,Footnote 94 there is no reason a priori to use FDI as a touchstone to determine the scope of application of Article 25. On the contrary, the notion of ‘operational risk’ should be understood in neutral terms, as a risk linked to the way an investment operates: this substance-neutral approach effectively accommodates the evolutionary character of the notion of investment, determined by the strategic silence of the ICSID Convention, within the Salini test.

Since FDI and portfolio investments operate in different ways, they are linked to a different type of operational risk. In the case of portfolio investment, the operational risk is the risk of a sovereign restructuring of the debt: differently from the commercial risk of non-performance, the risk of a restructuring of the debt is linked to the exercise of sovereign powers by the issuing state and the characteristic way in which portfolio investments operate.Footnote 95 For these reasons, the position of the Poštová award concerning the requirement of risk does not seem to be convincing.

As for the requirement of contribution, the Poštová award distinguishes between sovereign bonds that are used for general funding purposes and those used for public works or services. According to the tribunal, the former do not fulfil the requirement of contribution, while the latter do. This assumption is untenable, as it disregards the fact that the issuance of freely tradable bonds always aims at generating a financial flow in favour of the issuer, irrespective of its purpose of use: given the fungible nature of money, there are no reasons to differentiate among tradable bonds on the basis of their alleged aim. In fact, doing so may lead to paradoxical results: the issuing state would have a unilateral power to determine the scope of application of the ICSID Convention, by simply specifying the reason why the bonds have been issued. On the contrary, the best view is that the requirement of contribution is satisfied, inasmuch as the issuer benefits from the financial flow arising out of the bonds. Once again, the approach of the Poštová award seems to be unnecessarily restrictive and exclusively focused on the model of FDI.

7. Conclusions

The Poštová award casts significant doubts as to the viability of investment arbitration as a forum for the resolution of disputes relating to sovereign debt restructuring.

The decision of the arbitral tribunal to decline jurisdiction hinges mainly on the wording of the Slovakia-Greece BIT, which is different from the Argentina-Italy BIT. In light of this, the difference in outcome from Abaclat and Ambiente can partly be explained as a consequence of the current fragmentation in international investment law. Nonetheless, some parts of the Poštová award are expressly at odds with the Argentine precedents: first of all, the decision relies on the differentiation between primary market subscribers and secondary market purchasers, which both the Abaclat and the Ambiente tribunals rejected (albeit with dissenting opinions). Furthermore, the outcome of Poštová is irreconcilable with the Argentine cases, as far as the applicability of Article 25 of the ICSID Convention is concerned.

The Poštová tribunal refuses to take a position on the correct interpretation of Article 25, merely presenting a conflict between the subjective approach – whereby the scope of application of the ICSID Convention is determined by states expressing consent to ICSID arbitration – and the objective approach, according to which the term ‘investment’ has an independent and ascertainable meaning. By entrenching the dichotomy between ‘objectivists’ and ‘subjectivists’, the tribunal misses the opportunity to advance the understanding of the ICSID Convention: the obiter could have mediated between different positions by highlighting the strategic silence of the contracting States in the wording of Article 25, rather than simply presenting the opposite views as irreconcilable.

In addition the Poštová award argues that, were an objective approach to be followed, holders of sovereign bonds would not fulfil the requirements of contribution and risk. Such findings are unpersuasive, as they use FDI as a touchstone to assess whether sovereign bonds fulfil the Salini criteria. On the contrary, there are good reasons to conclude that the requirements of contribution and risk are met. First, since all tradable bonds aim at generating a financial flow in favour of the issuing state, and given the fungible nature of money, there is no reason to make a distinction based on the alleged purpose of the funds. Second, the risk of sovereign restructuring is linked to the peculiar way in which a portfolio investment operates and, as such, it cannot be equated to the normal commercial risk of non-performance.

The clash between the Poštová award and the Abaclat and Ambiente decisions evinces the state of dissent among different arbitral tribunals as to the qualification of holders of sovereign bonds as investors for the purposes of international investment law. Given the decentralized nature of investment arbitration, such conflict is unlikely to be settled in the near future. As a result, it is doubtful whether investment treaty arbitration will maintain its role in the protection of holders of sovereign bonds in the future: the current reality of arbitral case law raises more questions than answers.

References

1 Schumacher, J., ‘Sovereign Debt Litigation in Argentina: Implications of the Pari Passu Default’, (2015) 1 (1) Journal of Financial Regulation 143 CrossRefGoogle Scholar.

2 Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5 (formerly Giovanna Beccara and Others v. The Argentine Republic), Decision on Jurisdiction and Admissibility of 4 August 2011.

3 Ambiente Ufficio S.p.A. and others v. Argentine Republic, ICSID Case No. ARB/08/9 (formerly Giordano Alpi and others v. Argentine Republic), Decision on Jurisdiction and Admissibility of 8 February 2013.

4 Giovanni Alemanni and Others v. The Argentine Republic, ICSID Case No. ARB/07/8. As the Decision on Jurisdiction and Admissibility in this case relies to a large extent on the findings of the Abaclat and Ambiente tribunals, it need not be analyzed in detail in this article.

5 The Ambiente and Alemanni cases were discontinued for lack of funding: see L.E. Peterson, ‘As Another Argentine Bond Arbitration Collapses at ICSID, Arbitrators Doubt Their Power to Award Costs in These Circumstances’, IAReporter, 14 December 2015, available at www.iareporter.com/articles/as-another-argentine-bond-arbitration-collapses-at-icsid-arbitrators-doubt-their-power-to-award-costs-in-these-circumstances/ (accessed 24 June 2016). In Abaclat, by contrast, a settlement agreement was reached, following a change in government in Argentina: see L.E. Peterson, ‘Third (and Largest) of Italian Bondholder Claims against Argentina Is Settled; Cases Blazed a Trail, but Arbitrators Continue to Disagree as to Scope for ICSID to Be Used for Sovereign Debt Disputes’, IAReporter, 2 February 2016, available at www.iareporter.com/articles/third-and-largest-of-italian-bondholder-claims-against-argentina-is-settled/ (accessed 24 June 2016).

6 For a comment on the state of uncertainty triggered by the award see Montanaro, F., ‘Poštova Banka SA and Istrokapital SE v Hellenic Republic – Sovereign Bonds and the Puzzling Definition of “Investment” in International Investment Law’, (2015) 30 (3) ICSID Rev. 549 CrossRefGoogle Scholar.

7 Brooks, S. and Lombardi, D., ‘Sovereign Debt Governance’, in Guzman, M., Ocampo, J. Antonio and Stiglitz, J.E (eds.), Too Little, Too Late: The Quest to Resolve Sovereign Debt (2016), 56 CrossRefGoogle Scholar; International Monetary Fund, ‘Sovereign Debt Restructuring – Recent Developments and Implications for the Fund's Legal and Policy Framework’, available at www.imf.org/external/np/pp/eng/2013/042613.pdf (accessed 24 June 2016); J, Zettelmeyer, C. Trebesch and M. Gulati, ‘The Greek Debt Restructuring: An Autopsy’ (August 2013), Peterson Institute for International Economics Working Paper Series 13-8, available at piie.com/publications/wp/wp13-8.pdf (accessed 24 June 2016).

8 Chan, K., ‘The Relationship between the International Investment Arbitration and Sovereign Debt Restructuring’, (2014) 7 (1) Contemporary Asia Arbitration Journal 229 Google Scholar; Muse-Fisher, J., ‘Starving the Vultures: NML Capital v. Republic of Argentina and Solutions to the Problem of Distressed-Debt Funds’, (2014) 102 Cal. L. Rev. 1671 Google Scholar; K.P. Gallagher, ‘The New Vulture Culture: Sovereign debt restructuring and trade and investment treaties’, 2011, The IDEAs Working Paper Series 02/2011, available at www.ase.tufts.edu/gdae/publications/GallagherSovereignDebt.pdf (accessed 27 June 2016); Monteleone, T.A., ‘A vulture's gamble: high-stakes interpretation of sovereign debt contracts in NML Capital, Ltd v Republic of Argentina ’, (2013) 8 (2) CMLJ 149 Google Scholar; Weidemaier, W.M.C., ‘Sovereign Debt after NML v Argentina ’, (2013) 8 (2) CMLJ 123 Google Scholar; Wheeler, C.C. and Attaran, A., ‘Declawing the Vulture Funds: Rehabilitation of a Comity Defense in Sovereign Debt Litigation’, (2003) 39 Stan. J. Int'l L. 253 Google Scholar.

9 Blackman, J.I. and Mukhi, R., ‘The Evolution of Modern Sovereign Debt Litigation: Vultures, Alter Egos, and Other Legal Fauna’, (2010) 73 Law & Contemporary Problems 47 Google Scholar. On the influence of Unanimous Action Clauses (UACs) and Collective Action Clauses (CACs) on the behaviour of bondholders see Bratton, W.W. and Gulati, G. Mitu, ‘Sovereign Debt Reform and the Best Interest of Creditors’, (2004) 57 Vanderbilt Law Review 1 Google Scholar.

10 Kingdon, E., ‘Leveraging Litigation: Enforcing Sovereign Debt Obligations in NML Capital, Ltd. v. Republic of Argentina ’, (2014) 37 B.C. Int'l & Comp. L. Rev. 30 Google Scholar; A.C. Porzecanski, ‘From Rogue Creditors to Rogue Debtors: Implications of Argentina's Default’, (2005) Chi. J. Int'l L. 311; Fisch, J.E. and Gentile, C.M., ‘Vultures or Vanguards?: The Role of Litigation in Sovereign Debt Restructuring’, (2004) 53 Emory L.J. 1047; Elliott Assocs. v. Banco de la Nación, 194 Google Scholar F.3d 363, 380 (2d Cir. 1999), noting how the possibility of sovereign debt litigation ensures the possibility for sovereign entities to borrow money in the long term.

11 It should, incidentally, be noted that such considerations would not be merely speculative, but rather resonate with an ongoing treaty-making tendency, reducing the relevance of sovereign bonds in the field of investment protection. For instance, Annex 8-B of the draft text of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) specifies that negotiated debt restructuring cannot give rise to investor claims: see trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (accessed 24 June 2016). Along the same lines, Annex G of the US-Uruguay BIT and Annex 10-F of the US-Peru Trade Promotion Agreement exclude negotiated restructurings from the scope of investor-state dispute settlement.

12 From this point of view, it has been argued that law is so indeterminate that any interpretation entails discretionary value choices: D. Kennedy, A Critique of Adjudication (fin de siècle) (1997).

13 A. Scalia, A Matter of Interpretation: Federal Courts and the Law (1998).

14 Interestingly, the same argument is put forth by critical lawyers highlighting the indeterminacy of the law: Schlag, P., ‘Spam Jurisprudence, Air Law, and the Rank Anxiety of Nothing Happening (A Report on the State of the Art)’, (2009) 97 Geo. L.J. 803 Google Scholar, at 812–13. Additionally, with specific regard to investment arbitration, further reflection is necessary as far as the potential modes of goal-oriented interpretation are concerned. Even if one were to start from the a priori assumption that bondholders should not be allowed to undermine sovereign debt restructuring through investor-state dispute settlement, there are no compelling reasons to conclude that this result should be attained by excluding the jurisdiction of arbitral tribunals. Glinavos, I., ‘Haircut Undone? The Greek Drama and Prospects for Investment Arbitration’, (2014) 5 (3) JIDS 475 Google Scholar notes that the same goal could be pursued at the merits stage by relying on the notion of ‘fair market value’ enshrined in the BIT provisions concerning expropriation when valuating compensation. In principle, this solution would seem more suitable, as it allows distinguishing among different bondholders, depending on the moment of purchase of the bonds on the secondary market and, potentially, on the ‘bad faith’ element. On the possible defences of the issuing state at the merits stage see Ziff, R.M., ‘The Sovereign Debtor's Prison: Analysis of the Argentine Crisis Arbitrations and the Implications for Investment Treaty Law’, (2011) 10 (3) Richmond Journal of Global Law and Business 345 Google Scholar.

15 For an analysis of the reasons leading to the failure of attempts at defining the term see Waibel, M., ‘Opening Pandora's Box: Sovereign Bonds in International Arbitration’, (2007) 101 Am. J. Int'l L. 711 Google Scholar, at 719.

16 Nolan, M.D., Sourgens, F.G. and Carlson, H., ‘Leviathan on Life Support? Restructuring Sovereign Debt and International Protection after Abaclat ’, in Sauvant, K.P., Yearbook on International Investment Law & Policy 2011-2012, (2013) 485 Google Scholar, at 486, 488.

17 Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, para. 43, with reference to Schreuer, C. ‘Commentary on the ICSID Convention’, (1996) 11 ICSID Rev. 316 CrossRefGoogle Scholar, at 372. See also to C. Schreuer, The ICSID Convention: A Commentary, (2001) Article 25, para. 122.

18 Fedax, supra note 17, para. 40.

19 Ibid.

20 C. Schreuer, L. Malintoppi, A. Reinisch and A. Sinclair, The ICSID Convention: A Commentary, (2009) Art. 25, at 171–4.

21 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4.

22 Ibid., Decision on Jurisdiction (French Original (2002) 129 Journal du droit international 196; English translation (2003) 42 ILM 609, (2004) 6 ICSID Rep. 400) para. 52.

23 Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, para 91.

24 Abaclat, supra note 2, para. 364.

25 Ambiente, supra note 3, paras. 470–1.

26 According to Ambiente, ibid., para. 481, the Salini criteria are not jurisdictional requirements stricto sensu, but useful ‘guidelines’.

27 Ibid., para. 483.

28 Ibid., para. 484.

29 Ibid., para. 485.

30 Ibid., para. 486.

31 Ibid., para. 487.

32 Abaclat, supra note 2, Dissenting Opinion to Decision on Jurisdiction and Admissibility of Prof. Georges Abi-Saab (hereinafter ‘Abaclat dissent’), para. 42.

33 Abaclat dissent, supra note 32, paras. 51–2. The dissenting opinion refers not only to the Salini test, but also to the criteria set forth in Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5 and Romak S.A. (Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award of 15 April 2009.

34 Abaclat dissent, supra note 32, para. 55.

35 Ibid., para. 71 with reference to Waibel, supra note 15, at 727.

36 Ambiente, supra note 3, Dissenting Opinion of Santiago Torres Bernárdez (hereinafter ‘Ambiente dissent’) paras. 157–8.

37 Ambiente dissent, supra note 36, para. 158.

38 Ibid., para. 186. In other terms, Argentina was, ‘making a commercial dealing of a financial product of its own outside the Republic in international markets as could be the selling of any other eventual kind of Argentine governmental goods, getting a price in return’ (para. 187).

39 Ibid., para. 250.

40 Ibid., para. 267.

41 Therefore, in order to be able to bring a treaty-based ICSID claim, the claimants must both fulfil the requirements of Art. 25 of the ICSID Convention and fall within the scope of application of the investment treaty where the state has expressed its consent to ICSID arbitration (‘double-barrelled test’).

42 The convergence of BITs towards homogeneous standards of investment protection is described in detail by S.W. Schill, The multilateralization of international investment law (2009), 65–120.

43 Abaclat, supra note 2, para. 354.

44 Ibid., para. 356.

45 Ibid., para. 357.

46 The translation of the term, which reads as ‘obligaciones’ in the Spanish version and ‘obbligazioni’ in the Italian version of the BIT, has been subject to controversy between the parties. Both the Abaclat and the Ambiente tribunals relied on the English term ‘obligations’, proposed by Argentina: see Abaclat, supra note 2, para. 352 and Ambiente, supra note 3, para. 491.

47 Ambiente, supra note 3, para. 491.

48 Abaclat dissent, supra note 32, para. 68.

49 Abaclat dissent, supra note 32, paras. 73–119.

50 Ambiente dissent, supra note 36, para. 282. Although para. 282 notes en passant that sovereign bonds and security entitlements would not be covered by the non-exhaustive list of examples, thus marking a difference with the Abaclat dissent, the reasoning of the dissenting opinion focuses entirely on the territorial link requirement set forth in the chapeau of Art. 1(1).

51 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Award, para. 286.

52 Ibid., para. 314. On the boundaries of the notion of investment, see also para. 288.

53 Ibid., paras 294–5.

54 Ibid., para. 305.

55 Ibid., para. 306.

56 Ibid., para. 307.

57 Ibid., para. 308.

58 Ibid., paras. 318–24.

59 Ibid., paras. 337–8.

60 Ibid., paras. 343–4.

61 Ibid., paras. 352–71.

62 Ibid., para. 356.

63 Ibid., para 357.

64 Ibid., para. 359.

65 Ibid., para. 365.

66 Ibid., para. 363.

67 Ibid., paras. 368–9, with reference to Romak, supra note 33, paras. 229–30.

68 Ibid., para. 369.

69 Hofmann, C., ‘A Legal Analysis of the Euro Zone Crisis’, (2013) 18 (3) Fordham J. Corp. Fin. L. 519 Google Scholar, at 560–1 highlights how the transposition of the Abaclat line of reasoning to the Greek scenario depends, inter alia, on the wording of the applicable Greek BIT.

70 Fedax, supra note 17, para. 29.

71 Poštová, supra note 51, para. 338.

72 Ibid., para. 339.

73 The possibility to transfer securities acquired on the primary market to third parties is expressly enshrined in the Greek law governing the issuance of dematerialized titles: see Greek Law 2198 of 1994, Chapter B, Art. 6.2.

74 Similar arguments have been put forth with regard to private bonds: see Gargantini, M., ‘Jurisdictional Issues in the Circulation and Holding of (Intermediated) Securities; the Advocate General's Opinion in Kolassa v. Barclays’, (2014) 4 Rivista di diritto internazionale privato e processuale 1095 Google Scholar, at 1099–1103.

75 A subtler question is whether different techniques of retention of the bonds may have a consequence on the existence of a direct loan relationship between the claimants and the Hellenic Republic, and hence on the applicability of the BIT. Investors usually hold securities through intermediaries, but the methods of retention may vary from one jurisdiction to another, as well as on a case-by-case basis. In the European Union, the different techniques of retention of securities are described in European Commission, ‘EU Clearing and Settlement. Legal Certainty Group - Questionnaire. Horizontal answers’, MARKT/G2/MNCT D (2005). In particular, in some cases the intermediaries do not have any legal entitlements on the securities they hold on behalf of the investors; conversely, in other cases, the intermediary is the formal owner of the bonds, whilst the position of the investor is regulated by the law of trust. It could be argued that, in the latter scenario, the purchasers of the bonds on the secondary market do not have standing to bring a treaty-based action, because they do not formally qualify as owners. In any case, this distinction does not alter the boundaries of arbitral jurisdiction ratione materiae, as its consequences are limited to the applicability of the relevant investment agreement ratione personae.

76 ICSID Convention, Preamble: ‘no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration’.

77 Schreuer, Malintoppi, Reinisch and Sinclair, supra note 20, at 205–6.

78 Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction of 24 May 1999, paras. 64–6; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment of 16 April 2009, para. 73.

79 Abaclat, supra note 2, para. 364.

80 Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award of 1 November 2006, para. 31; Phoenix, supra note 33, para. 82; Joy Mining Machinery Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction of 6 August 2004, para. 49.

81 Ambiente, supra note 2, paras. 483, 485.

82 Barnett, R.E., ‘The Sound of Silence: Default Rules and Contractual Consent’, (1992) 78 Va. L. Rev. 821 CrossRefGoogle Scholar, at 822; Ayres, I. and Gertner, R., ‘Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules’, (1989) 99 Yale L.J. 87 CrossRefGoogle Scholar, at 94.

83 Cole, T. and Vaksha, A. Kumar, ‘Power-Conferring Treaties: The Meaning of “Investment” in the ICSID Convention’, (2011) 24 LJIL 305 CrossRefGoogle Scholar, at 307.

84 International Bank for Reconstruction and Development, ‘Report of the Executive Directors on the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’, in A.R. Parra, The History of ICSID (2012), 410.

85 Ibid., para. 27.

86 States which have made a notification remain free to subsequently disregard it and consent to arbitration, irrespective of whether the dispute falls within one of the classes which the notification refers to: Ibid., para. 31; PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Decision on Jurisdiction of 4 June 2004, paras. 135–47. However, when notifying a class of dispute which it would not consider submitting to ICSID jurisdiction, a state sets forth a default rule, which will serve as a guide for the interpretation of future treaties: Mortenson, J. Davis, ‘The Meaning of “Investment”: ICSID's Travaux and the Domain of International Investment Law’, (2010) 51 Harv. Int'l L.J. 257 Google Scholar, at 295.

87 On the role of Art. 64 see Desierto, D., ‘The International Court of Justice in the Settlement of International Investment Disputes’, (2012) 1 J. Disp. Prev. Res. 10 Google Scholar; Vannieuwenhuyse, G., ‘Bringing a Dispute concerning ICSID Cases and the ICSID Convention before the International Court of Justice’, (2009) 8 LPICT 115 Google Scholar.

88 Ambiente dissent, supra note 36, para. 250.

89 A confirmation that the ICSID Convention should be interpreted in an evolutionary way, taking into due account the current reality of international investment, can be found in the way consent to ICSID arbitration operates. The simplest type of consent, which the drafters of the Convention had in mind, is the insertion of an arbitration clause in an investment contract, concluded directly by the investor and the host state: L. Reed, J. Paulsson and N. Blackaby, Guide to ICSID Arbitration (2010), 22–3. However, in practice, consent to ICSID arbitration is currently often expressed in a standing offer, formulated by the host state either in its domestic laws or in an investment treaty with the home state of the investor: Paulsson, J., ‘Arbitration Without Privity’, (1995) 10 (2) ICSID Rev. 232 CrossRefGoogle Scholar. Such evolution has triggered a rapid extension of arbitral jurisdiction in recent times, as demonstrated by the ICSID caseload statistics, available at icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx (accessed 8 February 2017). The legitimacy of expressions of consent included in investment treaties is currently undisputed in international investment law, although the drafters of the ICSID Convention had not specifically focused on this possibility; therefore, the evolution of international investment law clearly suggests the viability of an evolutionary approach to the interpretation of the Convention.

90 Cole and Vaksha, supra note 83, at 329 with reference to the Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Merits, Judgment of 13 July 2009, [2009] ICJ Rep. 213, para. 66.

91 The Convention's Preamble contains numerous indications in this sense.

92 Given the inextricable connection between primary and secondary markets operations, described above in Section 6.1, the relevant chronological reference would necessarily be the moment of the purchase of the instruments on the primary market.

93 The Weberian notion of ‘ideal type’ is expressly invoked by Prof. Abi-Saab in the Abaclat dissent, supra note 32, para. 55.

94 Nolan, Sourgens and Carlson, supra note 16, at 495–6 note that the establishment of ICSID was preceded by the City of Tokyo Bonds case, a dispute between the City of Tokyo and French bondholders, submitted for conciliation to the president of the International Bank for Reconstruction and Development. On the City of Tokyo Bonds case see M. Waibel, Sovereign Defaults before International Courts and Tribunals (2011), 82–3. In addition, during the negotiations of the ICSID Convention, sovereign bonds were mentioned as an example of investment: ICSID, The History of the ICSID Convention: Documents concerning the origin and the formulation of the Convention on the Settlement of Investment Disputes between states and nationals of other states (1970) vol. II, Part 1, at 514. The reference to sovereign bonds during the negotiations of the ICSID Convention is relied upon in Giovanni Alemanni and Others v. The Argentine Republic, supra note 4, Decision on Jurisdiction and Admissibility, para. 296, which largely replicates the findings of Abaclat, supra note 2 and Ambiente, supra note 3.

95 Although the Poštová award relies on Romak, supra note 33, the latter defines commercial risk rather specifically as ‘the risk of non-performance’ (para. 229). It is therefore unclear how such notion could encompass the event of a sovereign restructuring of the debt, which is different from mere non-compliance.