I. Introduction and Background
The case of Poštová banka (Poštová banka, a.s. and Istrokapital SE v. The Hellenic Republic, ICSID Case No. ARB/13/8, Award of 9 April 2015) is the most recent investment arbitration dealing with sovereign bonds as investments. This, eagerly anticipated, award was rendered on the back of three other ICSID cases brought by Italian bondholders against Argentina: Abaclat v. Argentina from 2011, Ambiente Ufficio v. Argentina from 2013 and Giovanni Alemanni v. Argentina from 2014. All of the mentioned cases were based on a similar set of facts. In the Poštová banka case, Poštová banka and its Cypriot shareholder, Istrokapital brought an investment arbitration claim under the Slovakia/Greece BIT and the Cyprus/Greece BIT for the haircut exercised by Greece in 2012. Greece passed a retroactive legislation (the Greek Bondholder Act), amending the terms of the bonds and investors were then forced to participate in an exchange offer causing significant losses to some. Greece was nevertheless forced to adopt the sovereign debt restructuring because otherwise it would not obtain the EUR 130 mil. bailout from the “troika” – European Central Bank, European Commission and the International Monetary Fund.
The related doctrine suggested that the Greek tribunal would choose the same route as the Argentinian ones – accept jurisdiction and proceed to merits (e.g. I. Glivanos, Haircut Undone? The Greek Drama and Prospects for Investment Arbitration, JIDS, 2014, p. 22). In fact, given the pro-investor climate nowadays and in light of the previous decisions from Argentina, I would have guessed similarly. But it was not meant to be. The tribunal comprised of Eduardo Zuleta, professor Brigitte Stern and John Townsend unanimously decided that bonds are not a covered investment under the Slovakia/Greece BIT. But is this really a departure from the Argentinian line of cases?
II. Istrokapital’s Investment
Istrokapital – a shareholder of Poštová banka – claimed that it made an indirect investment through its shareholding in Poštová banka, which in fact acquired the Greek bonds. It stated that this indirect investment is a monetary and contractual claim under art. 1.1. (c) of the Cyprus/Greece BIT. Istrokapital clearly expressed that its claim rests solely on the interests held by Poštová banka, i.e. not its shareholding in it (Poštová banka, par. 228). The tribunal, however, stated that nothing supports the proposition that a shareholder has standing to assert claims based on the assets of a company, in which it holds shares (Ibid., par. 229). The tribunal supported its finding with previous practice as follows. For instance, the HICEE, B.V. v. Slovak Republic (UNCITRAL, PCA Case No. 2009-11, Partial Award of 23 May 2011) found that the „default position“ in international law is that a company is a distinct entity from its shareholders (Poštová banka, par. 230). Moreover, the tribunal in El Paso v. Argentina (El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award of 31 October 2011) held that claimant’s shares in the Argentinian companies were an investment under the US/Argentina BIT, licenses and contracts granted to those companies were not (El Paso, par. 177 and 214). Similarly in BG. v. Argentina (BG Group Plc. v. The Argentine Republic, UNCITRAL, Final Award of 24 Decmeber 2007), which found that BG was not a party to license agreements of the company, in which it held shares and had, thus, no direct claims stemming thereunder (BG, par. 210). The shareholding itself was considered as an investment under the UK/Argentina BIT (e.g. BG, par. 138).
Based on the above case law, the tribunal found that it is open for Istrokapital to pursue claims against the impairment of its shareholding in Poštová banka. This protection, however, does not extend to the assets of this company (Poštová banka, par. 245). To put the tribunal’s finding in different words, although Poštová banka acquired Greek bonds, it does not automatically mean that its shareholdres made an investment and can make claims on their own. According to the tribunal, the sole investor is therefore Poštová banka, whose claim is analysed next.
III. Poštová Banka’s Investment
The tribunal first referred to the relevant facts of the bond issuance process and the acquisition of the bonds by Poštová banka and then it moved to analyse whether the acquisition consitutes an investment under the Slovakia/Greece BIT (A) and the ICSID Convention (B). I will not provide a lenghty analisys of the bond issuance process because it is essentially the same as it was in the Argentinian cases. Poštová banka was not a part of the original „sale“, i.e. issuance of the bonds by the so-called primary dealers and only acquired the bonds on the secondary market. It is, however, very useful that the tribunal provides the analysis because it can clearly show what exactly is supposed to be the investment of the investor in this particular case.
A. Investment under the Slovakia/Greece BIT
The definition of investment is contained in art. 1 of the Slovakia/Greece BIT and claimant mostly based its acquisition of bonds on letter c of this article:
“Investment” means every kind of asset and in particular, though not exclusively includes:
c) loans, claims to money or to any performance under contract having a financial value,
This definition was absolutely crucial to the tribunal’s decision and it interpreted it in light of the VCLT rules (Poštová banka, par. 281 et seq.). The tribunal, firstly, agreed with claimant that the definition is a broad one but it also emphasised that does not mean that „any and all categories, of any nature whatsoever, may qualify ” (Ibid., par. 287). Additionally, the fact that the treaty contains a non-exclusive list cannot give the tribunal in an investment arbitration the authority to expand the investments intended to be protected by the contracting states (Ibid., par. 288). The tribunal, therefore, had to take into account good faith, text, context and the object and purpose of the Slovakia/Greece BIT when interpreting the same pursuant to the VCLT. Importantly, the tribunal suggested that the nature of the examples in the definition of investment has meaning as a part of the context of the treaty (Ibid., par. 293). The tribunal drew this conclusion when comparing the assets mentioned in other definitions of investments from other Greek and non-Greek investment treaties. Conclusively, „if the interpretation stops by simply indicating that any asset is an investment, the examples will be unnecessary, redundant or useless“ (Ibid., par. 294).
The list of assets, in itself, is the most important distinguishing factor in comparison with the Argentinian cases. The Abaclat tribunal was clear when it stated that the Italy/Argentina BIT “covers an extremely wide range of investments, using a broad wording and referring to formulas such as “independent of the legal form adopted,” or “any other” kind of similar investment” (Abaclat and others v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility of 2011, par. 354). In fact, the tribunal relied heavily on an explicit inclusion of investments in financial instruments (“obligations, […] public titles […], including capitalized revenue”) in the definition of investment under the Italy/Argentina BIT (Ibid., par. 355, similarly in Ambiente Ufficio, paras. 488-495).
In referring to the Argentinian cases, the tribunal concluded that the language of the two BITs is “substantially different” (Poštová banka, par. 306). The difference is best contrasted by the examples of assets invoked by the claimants when subsuming sovereign bonds under the applicable BIT: the Italian claimants in the Argentinian cases relied on „obligations“ and „public titles“, whereas Poštová banka invoked „loans“ and „claims to money“. The tribunal, moreover, emphasised that the Slovakia/Greece BIT expressly protects debentures issued by companies but omits sovereign debt, which cannot be without meaning (Ibid., par. 334). A difference between loans and bonds was also addressed by the tribunal:
“[C]reditor in a loan is generally a bank or group of banks, normally identified in the pertinent agreement” whereas “[b]onds are generally held by a large group of creditors, generally anonymous” and, moreover, “unlike creditors in a loan, the creditors of bonds may change several times in a matter of days or even hours” (Ibid., par. 337).
Therefore, the tribunal was not able to make the same conclusions as the Argentinian tribunals and found that Poštová banka’s bonds are not an investment under the Slovakia/Greece BIT and it lacks jurisdiction (Ibid., par. 350).
B. Investment under the Washington Convention
The tribunal remarked that since there is no investment under the applicable BIT, an analysis of the ICSID Convention is essentially superfluous. A dicta discussion was, however, necessary because the issue was extensively debated in the parties‘ briefs (Ibid., par. 351). The tribunal recognized that some tribunals have developed an understanding that there are some requirements, which every investment must fulfill: contribution, duration and risk (Ibid., par. 356.). These criteria are well-known in investment arbitration and I would not want to go into their deep analysis in this (already too long) blog post. It suffices to state that the Poštová banka tribunal decided not to answer the theoretical question whether the criteria are binding as requirements of jurisdiction (so-called „objective“ approach) or whether a business activity need only be tested in light of the applicable investment treaty (so-called „subjective“ approach).
However, had the tribunal applied the „objective“ approach based on the aforementioned criterions, its majority would find that Poštová banka did not make an investment (Ibid., par. 360 et seq.). In respect of contribution, the tribunal found that an investment has to create (at least purported) value, which is not present in sale contracts (Ibid., par. 361). Therefore, it was important for the tribunal to distinguish whether the funds acquired by Greece through the bonds were used for general funding purposes or public works and services. It appeared that the funds were used for the former reason, specifically to repay Greece’s outstanding debts and the funds thus did not create any value. At this point, the tribunal pointed to Fedax v. Venezuela, where the promissory notes (form of debt) were linked to a specific service or to CSOB v. Slovakia, where the loans in questions were considered an investment only because they were a part of a restructuring program of the CSOB – a national bank (Ibid., par. 365). Such a value-creating link was completely missing the case of Poštová banka’s purchase of bonds and the criterion of contribution was not fulfilled in the eyes of the tribunal.
Before addressing the risk criterion, the tribunal held that the purported investment fulfils the necessary duration. As to risk, the tribunal distinguished between operational, commercial and sovereign risk, whereas only the first one was relevant for purposes of jurisdiction. In the eyes of the tribunal, operational risk arises only if the investor’s investment depends on the success or a failure of a value-creating venture in the host state (Ibid., par. 370). And as suggested above, since there was no such enterprise, the element of risk could also not be fulfilled.
The outcome of this case once again highlights the importance of the particular wording of each and every investment treaty. In conclusion and generally speaking, a question whether bonds/contracts/services are an investment cannot be answered because it strictly depends on the applicable international treaty. Therefore, one cannot conclude that this award departs from the previous Argentinian cases. Quite the contrary, it deeply analyzed previous decisions and then made a distinguishing conclusion based on the applicable law.
written by Peter Plachy