The three factors set out above can be seen emerging as trends in recent investment arbitrations involving financial institutions.
Most recently, in September 2017, two claims by Austrian banks have been registered by ICSID (Raiffeisen Bank International AG & Raiffeisenbank Austria d.d. v Croatia (ICSID Case No. ARB/17/34) and Addiko Bank AG v Montenegro (ICSID Case No. ARB/17/35)) in the wake of the fallout from the Swiss central bank’s decision to abandon exchange rate controls in 2015. That decision briefly caused turmoil in financial markets by removing caps on the value of the Swiss franc and prompting both Croatia and Montenegro to pass legislation compelling the conversion of franc-denominated loans into Euros. UniCredit has also brought claims.
A decided case stemming from the fall-out and changing regulatory landscape in the wake of the global financial crisis is Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case ARB/13/8, Award April 9, 2015). The dispute arose from downgrading of Greek debt from 2009 and the adoption by the Greek government of austerity measures and sovereign debt restructuring, including an exchange of outstanding government bonds for new titles. The claimants brought a claim against Greece for expropriation and breach of the fair and equitable treatment standard in the Slovakia-Greece bilateral investment treaty (BIT).
State bailouts and compulsory administration of banks have also led to a number of investment protection cases. In Bank Melli Iran and Bank Saderat Iran v Bahrain for example, Future Bank was placed into administration by Bahraini authorities in order to “protect the rights of depositors and policyholders”. This led to a claim by the banks under the Bahrain-Iran BIT. Similarly in Hesham Talaat M. Al-Warraq v Republic of Indonesia (Award December 15, 2014) and Rafat Ali Rizvi v Republic of Indonesia (ICSID Case ARB/11/13) claims arose out of the Indonesian government’s bailout of a bank in which the claimants had allegedly invested (involving a similar fact pattern).
A proliferation of investor-state claims has also been triggered by state debt default, the most notable example being those brought against Argentina following that country’s default and debt restructuring including Abaclat and others v Argentine Republic (ICSID Case ARB/07/5, Decision on Jurisdiction and Admissibility August 4, 2011), Ambiente Ufficio S.p.A and others v Argentine Republic (ICSID Case ARB/08/9, Decision on Jurisdiction and Admissibility February 8, 2013) and Giovanni Alemanni and others v Argentine Republic (ICSID Case ARB/07/8, Decision on Jurisdiction and Admissibility November 17, 2014) brought under the Argentina-Italy BIT.
State actions arising out of political instability or transformation have led to recent claims by banks and financial institutions. A recent example of this is PJSC CB PrivatBank and Finance Company Finilon LLC v The Russian Federation (PCA Case No. 2015-21), a case brought before the Permanent Court of Arbitration (PCA) under the Russia-Ukraine BIT. The claimants alleged that Russia had breached its obligations under the BIT by preventing them from operating their banking business in Crimea. Another example is Indorama International Finance Limited v Arab Republic of Egypt (ICSID Case No. ARB/11/32), brought under the Egypt- UK BIT, seeking compensation for a foreign investment in the Shebin al-Kom textile factory, which had been privatised in 2007 during the Mubarak regime. In the wake of the protests that ousted Mubarak in 2011, factory workers occupied the site to protest against working conditions and redundancies. A Cairo administrative court then ruled that the privatisation had been unlawful. Similarly, in Saluka Investments v Czech Republic (UNCITRAL Arbitration Rules, Partial Award March 17, 2006), the dispute arose out of the re-organisation and privatisation of the Czech banking sector to replace the centralised banking system of the Communist period.
In many of these claims, the primary allegation of state liability under the investment treaty is for expropriation without payment of fair compensation. Expropriation can be direct (formal takeover of investment) or indirect (actions equivalent to depriving the investor of the benefit of the investment).
Expropriation claims have also arisen from policies of nationalisation and compulsory acquisition rather than political transformation and reorganisation of the financial sector or restructuring of public debt. Swissbourgh Diamond Mines (Pty) Limited, Josias Van Zyl, The Josias Van Zyl Family Trust and others v The Kingdom of Lesotho (PCA Case No. 2013-29) concerned expropriation of the claimants’ mining leases and KT Asia Investment Group B.V. v Republic of Kazakhstan (ICSID Case ARB/09/8), concerned forced nationalisation of the BTA Bank. In Fireman’s Fund Insurance Company v United Mexican States (ICSID Case ARB(AF)/02/1, award July 17, 2006), brought under the North American Free Trade Agreement (NAFTA), the claimant alleged that the Government of Mexico had expropriated its investment in Grupo Financiero BanCrecer. Similarly, British Caribbean Bank Ltd v Government of Belize (PCA Case 2010-18, Award December 19, 2014) concerned the Government’s compulsory acquisition of the claimant’s interest in certain loan and security agreements.
Recent political change and the growth of nationalistic policies in a number of emerging markets, such as East Africa, as well as in Western markets, suggest treaty expropriation claims will continue to proliferate.