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Adamakopoulos and Others v. Cyprus: “Massive” Problems Concerning a Mass Claims Proceeding in Investment Treaty Arbitration?

Published online by Cambridge University Press:  09 December 2021

Keer HUANG
Keer HUANG*
Affiliation:
Institute of International Law, Wuhan University, Wuhan, China
*
Corresponding author: Keer HUANG, email: keerhuang@whu.edu.cn
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Abstract

The Adamakopoulos and Others v. Cyprus Decision is noteworthy because it provides a blueprint for mass claims proceedings in investment treaty arbitration, justifying the possibility of addressing investment claims en masse in the future. This case comment reviews the background to the dispute, addresses the majority decision on the mass claims, and comments on the Tribunal's reasoning regarding the non-requirement of additional consent to mass claims arbitration, the homogeneity of the claims, and procedural flexibility.

Keywords

Dispute SettlementInternational Economic Law

Information

Type
Notes and Comments
Information
Asian Journal of International Law , Volume 11 , Issue 2 , July 2021 , pp. 253 - 260
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

In a Decision on Jurisdiction (the “Decision”) dated 7 February 2020,Footnote 1 the majority of the Tribunal in Adamakopoulos and Others v. Cyprus upheld jurisdiction over a mass arbitration brought by almost 1,000 bondholders and depositors in the Cyprus Popular Bank (the “Laiki Bank”) and the Bank of Cyprus with 617 separate claims, and considered the mass claims admissible within the existing procedural framework of the International Centre for Settlement of Investment Disputes (ICSID) Convention.Footnote 2

This Decision is noteworthy because it provides a blueprint for mass claims proceedings in investment treaty arbitration, justifying the possibility of addressing investment claims en masse in the future. This case comment reviews the background to the dispute (Section I), addresses the majority decision on the mass claims (Section II), and comments on the Tribunal's reasoning regarding the non-requirement of additional consent to mass claims arbitration, the homogeneity of the claims, and procedural flexibility (Section III).

I. Background to the Dispute

A. The Claimants and the Alleged Measures

The 956 Claimants, who are holders of certain financial instruments and bank deposits in Laiki Bank and the Bank of Cyprus, include 951 natural persons and 5 companies.Footnote 3 Except for a company incorporated in Luxembourg, the remaining Claimants have Greek nationality.Footnote 4

In 2012–2013, the two banks incurred heavy losses due to their exposure to the Greek economic crisis. In response to the economic emergency, in March 2013, Cyprus reached an agreement with the European Commission, the European Central Bank, and the International Monetary Fund. Under the agreement, an adjustment plan was adopted, which led to the merger of Laiki bank with the Bank of Cyprus and a bail-in of shareholders, bondholders, and deposit holders of the Bank of Cyprus.Footnote 5 According to the Claimants, as a consequence of these actions, the bondholders either had their bonds converted into equity, thus becoming valueless in the case of the Bank of Cyprus, or rendered worthless through the demise of the bank in the case of Laiki bank. In addition, deposit holders in both banks with assets exceeding $100,000 received a “haircut” that reduced their deposits to $100,000.Footnote 6 The Claimants alleged that the adoption of the adjustment plan by the Cyprus Government had violated its obligations under both the Cyprus-Greece bilateral investment treaty (BIT)Footnote 7 and the Cyprus-BLEU BIT.Footnote 8, Footnote 9

B. The Parties’ Positions on the Mass Claims

The Respondent submitted that the mass claims proceeding brought by the Claimants was outside the Tribunal's jurisdiction and was therefore inadmissible. First, the Respondent argued that there was no consent by the host State to a multiparty arbitration. Extending singular terms of “national” and “investor” embodied in the ICSID Convention and the BITs to include the plural was not supported by the ordinary meaning of the terms, or the context, purpose, or travaux preparatoires of the treaties.Footnote 10 Second, the Respondent pointed out that the Tribunal lacked jurisdiction ratione materiae over a collection of separate disputes, and the Claimants’ multiple claims involving different events and differential treatment failed to constitute a single dispute.Footnote 11 Third, the Respondent maintained that the mass claims proceeding was inadmissible due to the claims’ numerosity and diversity, which would not only conflict with the ICSID Convention and the Respondent's due process rights, but also result in a heavy burden on the length and cost of proceedings.Footnote 12

Conversely, the Claimants contended that their multiparty claims were admissible and did not preclude the Tribunal's jurisdiction. First, the Claimants maintained that neither the ICSID Convention nor the BITs has ever required separate and express consent by the host State to a multiparty proceeding.Footnote 13 Second, the Claimants submitted that their claims were sufficiently linked and homogenous so as to constitute a single dispute, which was consistent with the object and purpose of the ICSID Convention.Footnote 14 Third, and more importantly, the Claimants averred that if the arbitration were limited to a single two-party dispute, absurd consequences would ensue, including a de facto denial of justice and hugely inefficient proceedings.Footnote 15

II. The Tribunal's Decision on the Mass Claims Proceeding

As a preliminary matter, the Tribunal denied that any consequences flowed from the use of the term “mass claims” in relation to its determination on jurisdiction and admissibility, holding that the questions of jurisdiction and admissibility should be decided by the claims’ substantive nature instead of terminology.Footnote 16 The Tribunal, by a majority, decided that it had jurisdiction to hear a mass claims proceeding, and that the Claimants’ claims were admissible. Three previous cases involving mass claims arising from Argentina's 2001 sovereign debt default were referred to: Abaclat et al. v. Argentina,Footnote 17 Ambiente Ufficio et al. v. Argentina,Footnote 18 and Alemanni et al. v. Argentina,Footnote 19 all of which were settled before the issuance of an award of liability. In the view of the Tribunal, the real source of concern stemmed from the considerable number of claimants, and since none of the aforementioned Argentine cases proceeded to a final resolution, there had hitherto been no resolution of the complexities of a mass claims case.Footnote 20

A. The Tribunal's Decision on Jurisdiction

The Adamakopoulos Tribunal established its jurisdiction over the mass claims through two lines of reasoning. The first concerned whether there was consent to mass claims. In response to the Respondent's arguments relying on the use of singular terms, the Tribunal clarified that the singular terms (e.g., “any dispute”) implied the plural ones, and vice versa.Footnote 21 After reviewing the wording of the jurisdictional provisions of the BITs and the ICSID Convention, the Tribunal highlighted that all the treaties were simply silent on the question of whether disputes have to be brought individually or may be brought together in a mass claims proceeding.Footnote 22 Moreover, the Tribunal found no basis for the Respondent's dual consent argument that separate consent, above and beyond that found in the treaties, was required for mass claims.Footnote 23 Meanwhile, silence in the treaties on dual consent could not be interpreted as implying such a requirement.Footnote 24 Accordingly, the Tribunal rejected the argument that jurisdiction was not established for the Respondent's lack of consent to a mass claims proceeding.

The second related to jurisdiction ratione materiae. The Tribunal emphasized that there must be “a dispute” within the meaning of BITs instead of a myriad of separate disputes.Footnote 25 In other words, the multiple claims must be homogenous. Unlike reservations about the articulation of the homogeneity test in previous mass claims cases, the Tribunal drew its conclusion that the mass claims were substantially united and thus could constitute a single dispute.Footnote 26 The following elements of claims were taken into consideration: (i) the alleged measures of Cyprus were identical measures in key respects; (ii) the alleged breaches of provisions of the two BITs were essentially the same; and (iii) the alleged liability of Cyprus did not differ in respect of individual Claimants.Footnote 27 Furthermore, the Tribunal clarified that differences in the damages claimed by each Claimant did not affect the question of jurisdiction, although it might have an influence upon admissibility.Footnote 28

B. The Tribunal's Decision on Admissibility

In the view of the Tribunal, matters in the post-Award phase, such as annulment procedures and cost allocation, were irrelevant to the admissibility of the mass claims.Footnote 29 Instead, the assessment of manageability of mass claims involves the following elements: (i) balancing the Claimants’ rights to have their claims heard; (ii) the due process rights of the Respondent; and (iii) the capacity of the ICSID framework to manage the mass claims proceeding.Footnote 30

These elements are intertwined. To determine the need for any procedural adjustment to preserve both parties’ procedural rights, the Tribunal first clarified its authority to establish a new procedural framework under the ICSID Convention as a preliminary matter.Footnote 31 The Tribunal then referred to the Abaclat Tribunal, which simplified the examination process on the basis of Article 44 of the ICSID ConventionFootnote 32 and Rule 19 of the ICSID Arbitration Rules.Footnote 33 The Abaclat Tribunal justified the diminution of the Claimants’ rights on the basis that the alternative of each Claimant bringing an individual claim would be prohibitive for individual Claimants and hence constituted a denial of justice.Footnote 34 Differing from the Abaclat Tribunal, however, the present Tribunal held that denial of a forum could only be a denial of justice if there was a right to the forum in the first place.Footnote 35 Additionally, the Tribunal quoted Judge Crawford, holding that neither Article 44 of the ICSID Convention nor Rule 19 of the ICSID Arbitration Rules provides a mandate for the Tribunal to devise a new procedural framework when dealing with mass claims.Footnote 36 Instead, the manageability of mass claims should be tested under the current ICSID framework.Footnote 37

Under the existing procedural framework, the Tribunal turned to the question of completing an arbitral process in a long period of time without infringing the parties’ rights. To fulfil such a challenging task, the Tribunal looked at each stage to review certain issues for the purpose of preserving the parties’ rights in the subsequent procedural phases (as shown in Table 1).

Table 1

The Tribunal's efforts on preserving the parties’ rights during the processFootnote 38

Furthermore, the Tribunal listed several other conditions under which the mass claims would be admissible. First, in accordance with Article 25(1) of the ICSID ConventionFootnote 39 and Rule 44 of the ICSID Arbitration Rules,Footnote 40 the claimant pool had to be fixed at the date when the claimant list was clarified to the Tribunal, with the purpose of avoiding the potential uncertainty created by individual Claimants exiting from the mass claims proceeding at will. Consequently, the Claimants within the pool would receive the benefit of any award in their favour and be responsible for any costs ordered by the Tribunal.Footnote 41 Second, a bifurcation between a liability phase and a damage phase was required to ensure the manageability of the mass claims proceeding.Footnote 42 Third, security for costs should be awarded in favour of the Respondents as a reasonable protection of the Respondent's interests.Footnote 43 Although common reasons for granting security of costs were not seen in this case, the Tribunal acknowledged the potential difficulty for the Respondent to pursue claims against 956 Claimants to recover costs, which could be even more costly than the costs awarded.Footnote 44

In sum, the Tribunal held that the mass claims were admissible, for they were manageable under the existing ICSID framework with a proper balance of the parties’ procedural rights.Footnote 45

III. Concluding Comments

As a preliminary issue, it is necessary to make a distinction between the mass claims proceeding and other proceedings involving multiple interested parties. First, the mass claims proceeding in investment treaty arbitration is different from proceedings in international mass claims commissions, such as the Iran-US Claims Tribunal. In those commissions, case by case arbitration was conducted and each claim treated as a separate one.Footnote 46 Second, the mass claims proceeding is different from most consolidated claims proceedings, in which the disputing parties are more likely to belong to the same or compatible arbitration agreements arising out of a single common legal transaction.Footnote 47 Third, the mass claims arbitration is also distinct from the representative class arbitration that is initiated by an entity acting on behalf of interested right holders who forego partial procedural informalities.Footnote 48 Overall, there are three distinguishing features of a mass claims proceeding in investment treaty arbitration: (i) there are mass claims brought by a substantial number of claimants; (ii) the mass claims can constitute a particular “dispute”; and (iii) such claims are sought to be handled within a single arbitration case.

Referring back to the Decision, there is convergence and divergence between the Adamakopoulos approach to mass claims and the previous approaches.Footnote 49 The Abaclat case is widely believed to have “opened the door” for future mass claims arbitrations,Footnote 50 while the Adamakopoulos case seems to have paved the way as the fourth case involving mass claims in investment treaty arbitration. The Tribunal conducted a detailed theoretical analysis regarding mass claims in investment treaty arbitration for the first time. Despite the analysis in the Decision, however, “massive” problems in the mass claims proceeding merit further discussion.

The first one is the jurisdictional issue – the parties’ consent to mass claims. In previous arbitration cases and studies, the lack of parties' consent to adjudicate a great number of individual disputes before a single tribunal is not justified due to the following reasons: (i) the ICSID Convention envisions the possibility of mass claims arbitrations;Footnote 51 (ii) a tribunal that has jurisdiction over several individual claimants cannot lose its jurisdiction once the number of the claimants outgrows a certain threshold;Footnote 52 and, alternatively, (iii) the implied consent can be evidenced through various ways, including the conduct of the parties, the applicable procedural rules, etc.Footnote 53 Similar to the practice of previous tribunals, the Tribunal in the Decision did not treat the silence in the treaties as an implied basis for requiring additional consent to mass claims.Footnote 54 However, it disagreed with the Abaclat tribunal, holding that jurisdiction over mass claims cannot be proved by the established jurisdiction over individual claims.Footnote 55 Although the Tribunal regarded the existence of a single dispute as the crux of the matter, it did not provide an explicit answer to the repeatedly discussed question of whether the magnitude of the number of claimants changes the nature of the arbitration,Footnote 56 which might cause the necessity for additional consent. Additionally, there is a contradiction in the number of disputes during the reasoning process.Footnote 57

Second, as reflected in Professor Kohen's dissenting opinion, the homogeneity of the mass claims is not without vagueness, which may deprive the Tribunal of jurisdiction. For one, the situations of the Bank of Cyprus and Laiki Bank are different from each other. Moreover, the times when the alleged investments were made appears to be different,Footnote 58 resulting in damages in various degrees. Existing ICSID jurisprudence has quoted the Permanent Court of International Justice's Mavrommatis Judgment,Footnote 59 defining a dispute as “a disagreement on a point of law or fact, a conflict of legal views or of interests”.Footnote 60 Accordingly, it seems that disagreement occurring in different situations is likely to end with different disputes involving different parties. Despite the claims’ several shared elements, doubts remain on whether all the claims in Adamakopoulos case could actually be identified as a single dispute.

Last but not least, an inevitable challenge in the mass claims proceeding is how to manage a huge number of claims during the arbitration proceeding. When determining the manageability, the Adamakopoulos Tribunal departed from the Abaclat tribunal, in which the tribunal's power to adopt procedural devices was recognized to cater for the needs of a mass claims proceeding. By contrast, the Decision serves as a reminder that tribunals should comply with the existing procedural rules. It seems that making good use of the flexibility embodied in the current procedural framework is enough for tribunals to bridge the gap between mass claims proceedings and usual proceedings.

In conclusion, from Abaclat to Adamakopoulos, problems concerning mass claims proceedings remain. With the Adamakopoulos case going on, the manageability of mass claims under the investor-state dispute settlement (ISDS) regime will be further tested. In the post-Covid-19 era, an increase in the number of mass claims proceedings may be witnessed for considerable anti-epidemic measures. Therefore, mass claims should be handled in a more consistent and appropriate way under the ISDS regime to avoid “massive” problems at both pre-award and post-award phases.

Acknowledgements

Special thanks are owed to the journal editors and to the anonymous reviewer for their insightful comments. All errors remain solely the author's own.

Funding statement

None.

Competing interests

The author declares none.

Keer HUANG is PhD candidate at the Institute of International Law, Wuhan University.

References

1 Theodoros Adamakopoulos and Others v. Republic of Cyprus, Decision on Jurisdiction, 7 February 2020, ICSID Case No. ARB/15/49 [Adamakopoulos].

2 Ibid., at para. 342.

3 Ibid., at paras. 7 and 111, n. 122.

4 The number of Claimants has changed since the filing of the request for arbitration. The final number of Claimants, excluding the two whose claims were withdrawn, is 956. See ibid., at Annex I.

5 Ibid., at para. 5.

6 Ibid., at para. 208.

7 Agreement between the Government of the Hellenic Republic and the Government of the Republic of Cyprus for the Reciprocal Promotion and Protection of Investments, 30 March 1992 (entered into force 26 February 1993).

8 Agreement between the Republic of Cyprus and the Belgo-Luxemburg Economic Union on the Reciprocal Promotion and Protection of Investment, 26 February 1991 (entered into force 5 June 1999) [Cyprus-BLEU BIT].

9 Adamakopoulos, supra note 1 at para. 94.

10 Ibid., at para. 64.

11 Ibid., at paras. 68–9.

12 Ibid., at paras. 70–1.

13 Ibid., at paras. 112–15

14 Ibid., at paras. 116–17

15 Ibid., at para. 118.

16 Ibid., at paras. 190–1.

17 Abaclat and Others v. Argentine Republic, Decision on Jurisdiction and Admissibility, 4 August 2011, ICSID Case No. ARB/07/5 [Abaclat].

18 Ambiente Ufficio S.p.A. and Others v. Argentine Republic, Decision on Jurisdiction and Admissibility, 8 February 2013, ICSID Case No. ARB/08/9 [Ambiente].

19 Giovanni Alemanni and Others v. Argentine Republic, Decision on Jurisdiction and Admissibility, 17 November 2014, ICSID Case No. ARB/07/8 [Alemanni].

20 Adamakopoulos, supra note 1 at para. 189.

21 Ibid., at para. 198.

22 Ibid., at paras. 194–200.

23 Ibid., at para. 201.

24 Ibid., at para. 201.

25 Ibid., at para. 205.

26 Ibid., at para. 210.

27 Ibid., at paras. 210–13.

28 Ibid., at paras. 219–21.

29 Ibid., at para. 235.

30 Ibid., at para. 224.

31 Ibid., at para. 236.

32 Article 44 of the ICSID Convention provides: “Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question (emphasis added).”

33 Rule 19 of the ICSID Arbitration Rules provides: “The Tribunal shall make the orders required for the conduct of the proceeding.”

34 Adamakopoulos, supra note 1 at paras. 237–41.

35 Ibid., at para. 242.

36 Ibid., at paras. 245–6.

37 Ibid., at para. 247.

38 Ibid., at paras. 250–7.

39 Article 25(1) of the ICSID Convention provides: “The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally (emphasis added).”

40 Rule 44 of the ICSID Arbitration Rules provides: “If a party requests the discontinuance of the proceeding, the Tribunal, or the Secretary-General if the Tribunal has not yet been constituted, shall in an order fix a time limit within which the other party may state whether it opposes the discontinuance. If no objection is made in writing within the time limit, the other party shall be deemed to have acquiesced in the discontinuance and the Tribunal, or if appropriate the Secretary-General, shall in an order take note of the discontinuance of the proceeding. If objection is made, the proceeding shall continue.”

41 Adamakopoulos, supra note 1 at paras. 260–1.

42 Ibid., at paras. 262–3.

43 The Tribunal ordered the Claimants to provide security of US$5 million in the form of a deed of indemnity or other forms of irrevocable guarantee to ensure that a future Arbitral Award requiring the Claimants to compensate the Republic for the costs it might incur in the arbitration could be satisfied. At the same time, the Tribunal rejected the Claimants’ request for an equivalent order that the Respondent be required to provide security for costs. See Press and Information Office of Cyprus, “Statement by the Office of the Attorney-General of the Republic in relation to the case of Theodoros Adamakopoulos and others v. Republic of Cyprus” (5 August 2020), online: Press and Information Office of Cyprus, https://www.pio.gov.cy/en/press-releases-article.html?id=15119.

44 Adamakopoulos, supra note 1 at paras. 264–6.

45 Ibid., at paras. 258–9.

46 Deepu J. SUSHAMA, “Mass Claims in Investment Arbitration- The Need of the Hour” Kluwer Arbitration Blog (4 March 2015), online Kluwer Arbitration Blog <http://arbitrationblog.kluwerarbitration.com/2015/03/04/mass-claims-in-investment-arbitration-the-need-of-the-hour/>.

47 PERMESLY, Jennifer and CRAVEN, Meredith, “Where Are We Now? Investment Treaty Arbitration, Sovereign Debt, and Mass Claims in the Post-Abaclat Era” (2018) 15 Transnational Dispute Management 1Google Scholar at 10.

48 KABRA, Ridhi, “Has Abaclat v. Argentina left the ICSID with a ‘mass'ive problem?” (2015) 31 Arbitration International 425CrossRefGoogle Scholar; DEMIRKOL, Berk, “Does an Investment Treaty Tribunal Need Special Consent for Mass Claims” (2013) 2 Cambridge Journal of International and Comparative Law 612CrossRefGoogle Scholar.

49 The Abaclat Tribunal simply concluded that there was jurisdiction over the individual claims. The Ambiente Tribunal assumed jurisdiction over mass claims on the basis of ICSID practice involving a small number of claimants. The Alemanni Tribunal joined the mass claims jurisdiction objection to the merits phase.

50 STRONG, S.I., “Mass Procedures as a Form of Regulatory Arbitration – Abaclat v. Argentine Republic and the International Investment Regime” (2013) 38 Journal of Corporation Law 259Google Scholar; NAKAJIMA, Kei, “Beyond Abaclat: Mass Claims in Investment Treaty Arbitration and Regulatory Governance for Sovereign Debt Restructuring” (2018) 19 The Journal of World Investment & Trade 208Google Scholar; WIESSNER, Siegfried, “Democratizing International Arbitration? Mass Claims Proceedings in Abaclat v. Argentina” (2014) 1 Journal of International and Comparative Law 55Google Scholar.

51 Kabra, supra note 48.

52 Ambiente, supra note 18 at para. 150; Abaclat, supra note 17 at para. 490.

53 Kabra, supra note 48.

54 Adamakopoulos, supra note 1 at paras. 198–201; Demirkol, supra note 48.

55 Adamakopoulos, supra note 1 at para. 205.

56 Ibid., at paras. 202–3.

57 On the one hand, the Tribunal acknowledged that more than one dispute might be brought against the host State, although the treaties kept silent on whether the disputes should be brought individually or might be brought together in a mass proceeding. On the other hand, it agreed with the Alemanni tribunal that there must be “a dispute” instead of a myriad of disputes. See ibid., at paras. 198 and 205.

58 Theodoros Adamakopoulos and others v. Republic of Cyprus, Statement of Dissent of Professor Marcelo Kohen, 3 February 2020, ICSID Case No. ARB/15/49 at para. 72.

59 Lao Holdings N.V v. Lao People's Democratic Republic, Decision on Jurisdiction, 21 February 2014, ICSID Case No. ARB(AF)/12/6 at para. 120.

60 Mavrommatis Palestine Concessions (Greece v. U.K.), Judgment No. 2, 30 August 1924, [1924] PCIJ (Ser. A) No. 2 at 11, para. 19.

Figure 0

Table 1 The Tribunal's efforts on preserving the parties’ rights during the process38