Casenote: Postova Banka vs. Greece

Casenote: Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case No. ARB/13/8)


Poštová Banka is a Slovak bank (along with its Cypriot shareholder, Istrokapital SE) that sued Greece at ICSID for losses incurred due to the 2012 haircut on Greek sovereign bonds. In fact, Poštová banka never held Greek bonds directly, instead it acquired a stake in a pool of freely negotiable, fungible interests by Clearstream in secondary market transactions. As a holder of bond interests, Poštová banka was in contractual privity with Clearstream and not with the Hellenic Republic. Nonetheless, Postova and Istrokapital argued that under the Greece-Slovak Republic and the Cyprus-Greece bilateral investment treaties they are entitled to compensation for their losses, which amount roughly to half the invested amount of €504,000,000.

Once investors start thinking about utilising investor-state dispute resolution mechanisms to protest their losses under the Greek haircut, they will have to deal with the question of jurisdiction. This is a two pronged question. Firstly, does an investor qualify as a protected entity and secondly, does the BIT in question treat financial investments as protected? An illustrative case on how these issues could be tackled is Argentina and the case of Abaclat. The case of Abaclat involved investor protection provisions under the Argentina-Italy BIT. The matter in dispute was whether the Treaty covered bonds issued by Argentina, held by Italian investors, on the payment of which Argentina had defaulted. The claimants had submitted that Argentina enacted legislation repudiating all obligations to the claimants, which destroyed the value of their investments, with the consequence that Argentina acted as a rogue debtor violating its international treaty obligations under the Argentina-Italy BIT. The claimants requested that the Arbitral Tribunal declare that the Argentine Republic had breached its obligations and was thus liable to the claimants in compensatory damages. The Tribunal made a determination on jurisdiction and admissibility in August 2011, accepting that financial investments, such as bonds came under the definition of protected investments.

In the current case, Postova was clearly a protected entity (while Istrokapital was not, as a mere shareholder of Postova incorporated elsewhere). The issue that won the case for Greece was that of whether the type of investment Postova made qualified as a protected investment. Unlike in the Italy-Argentina BIT, there is no reference in the Slovakia-Greece BIT to a general concept such as “obligations,” much less to “public titles.” A wide term like “obligations” – particularly in the context in which it must be understood in civil law systems – and a reference to “private or public titles” may well lead, as it seems to have led the Abaclat and Ambiente Ufficio tribunals, to the conclusion that a Government bond is generally an obligation and specifically a public title. However, the same conclusion may not be reached when a treaty, interpreted in accordance with the rules of interpretation of the Vienna Convention, includes less encompassing language.

The objective of the Slovakia-Greece BIT, as pleaded by Postova, is for the State parties to the treaty to create favourable conditions for investments by investors. But this does not mean that, in case of doubt, the treaty must be interpreted in favour of the investor, or that protecting investments is the sole purpose of the treaty. The State parties, in addition to expressing their desire to intensify their mutual cooperation (first section of the Preamble), agree that it is necessary to create favourable conditions to investors (second section of the Preamble) and then recognize that the promotion and protection of investment “on the basis of the present Agreement, will stimulate the initiative in this field” (third section of the Preamble). The conclusion seems obvious: the promotion and protection of the investments made by the investor of one State party in the territory of the other State party is “on the basis” of the Slovakia-Greece BIT, i.e., subject to the terms of the BIT.

In other words, an interpretation of the text and context of Article 1(1) led the Tribunal to consider that the State parties to the treaty wanted an ample definition of what could constitute an investment, but within certain categories that are also broad, but not unlimited. Otherwise, the examples could be expanded to include any asset whatsoever, and would become useless or meaningless. In sum, sovereign debt is an instrument of government monetary and economic policy and its impact at the local and international levels makes it an important tool for the handling of social and economic policies of a State. It cannot, thus, be equated to private indebtedness or corporate debt. It was clear to the Tribunal that the list of investments contained in Article 1(1) of the Slovakia-Greece BIT does not include the language of the Italy-Argentina BIT from which the Abaclat tribunal derived its conclusions on admissibility and jurisdiction, and specifically, does not contain any reference to “obligations” or to “securities,” much less to public titles or obligations. The express inclusion of debentures issued by companies and the omission of any other reference to bonds or to public obligations in the treaty must be given some meaning for purposes of the interpretation of the text and context of the treaty.

In a statement that is likely to have far reaching consequences, the tribunal argued: “A Tribunal should not lightly expand the language of a treaty so as to conclude that a general reference to “claims to money” includes bonds or other securities issued by a State, where there is no indication that the State parties intended to do so.” The Tribunal concluded that neither of the Claimants is an investor with an investment as defined in Article 1(1) (c) of the Slovakia-Greece BIT and in Article 1(1) (c) of the Cyprus-Greece BIT.

It will be interesting to see what the effect of this decision will be on the debate as to the need of ISDS in TTIP. The Greek win weakens the arguments of opponents by showing that investors do not always win and that tribunals are not always investor biased (the language of the Tribunal here makes this clear). The case however also weakens the arguments of the European Commission as to the need to codify standards to prevent ever expanding definitions of investor rights (it did not happen in this case).

The case was expensive to defend for Greece, the fees of Cleary Gottlieb Steen & Hamilton LLP (the main lawyers) exceed €4,650,000, with the arbitration cost (for the respondent) being US$300,000. The costs were higher for the claimant, exceeding US$500,500,000. In the case of Greece, these are costs worth paying for, considering the damage the uncertainty of a full trial would have caused to market expectations (see what happened in Argentina after the Griesa judgement). A good result for Tsipras’ government who has other things on its mind.

But there is a catch. Postova lost on jurisdiction because of the exact wording of the BIT it was relying on. Other investors from one of the 43 states Greece holds BITs with may have better luck. Bondholder BIT based arbitrations remain a danger therefore for Greece; and as we well know, there is no doctrine of precedent in ICSID arbitrations.

The full Postova award is available here

For an analysis of the substantive issues raised by the case click here

For a discussion on Abaclat and its consequences click here

For my views on ISDS and the TTIP listen to the audio here, and see this mini documentary

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