ICSID tribunal rejects intra-EU jurisdictional objection and upholds jurisdiction over mass claim

Theodoros Adamakopoulos and others v. Republic of Cyprus, ICSID Case No. ARB/15/49

On February 7, 2020, the majority of an ICSID tribunal upheld its jurisdiction over mass claims brought against Cyprus by 951 natural persons and seven companies (the claimants) under the Cyprus-Greece BIT (1992) and the Cyprus-Belgium-Luxembourg Economic Union (BLEU) BIT (1991).  Cyprus’s nominee to the tribunal dissented, upholding a jurisdictional objection related to the intra-EU character of the case.

Background and claims

The claimants, Greek nationals and one Luxembourger company, held bonds and deposits in the Bank of Cyprus and Laiki Bank. In the wake of the 2012–2013 Cypriot financial crisis, both banks were “bailed in” after Cyprus came to an agreement with the European Commission, the European Central Bank and International Monetary fund (“TROIKA”) on a memorandum of understanding (MoU) on the adoption of an adjustment plan. The MoU led to the merger of Laiki Bank and Bank of Cyprus and the conversion of Bank of Cyprus bonds into bank equity and a haircut of deposits over USD 100,000 in both banks.

The claimants initiated arbitration under the aforementioned BITs in 2015, arguing that the conversion of bonds into bank equity rendered their investment worthless and reduced the value of their deposits, resulting in USD 300 million in losses.  Cyprus challenged the jurisdiction of the tribunal to examine the claims mainly due to their intra-EU character and their submission as mass claims.

Tribunal rejects the intra-EU objection brought by respondent

Cyprus argued that in light of the Achmea judgment of the CJEU,  the tribunal did not have jurisdiction over the claim, as intra-EU BITs have been superseded by the EU treaties in accordance with Article 30 and 59 of the VCLT.

The tribunal rejected those allegations by clarifying that the basis of jurisdiction of the tribunal was the relevant BIT and Article 25 of the ICSID Convention. In contrast,  EU law would only be relevant when dealing with issues that required an examination of either the respondent’s domestic law or of other rules of international law (paras. 157–161). Regarding the latter, the tribunal did not consider the Achmea decision as binding as it dealt with the issue of intra-EU BIT compatibility only on the basis of EU law, while the tribunal’s scope is different.

As such, the tribunal rejected the claim that EU law and BITs deal with the same subject matter, as EU law does not provide for an alternative dispute resolution to domestic courts while BITs do. Additionally, the operation of EU treaties is not prevented by the operation of the BITs.  Rather they “can both operate side by side” since neither the operation of ISDS outside of the internal EU judicial system nor the possible minor inconsistencies in the examination of EU bail-in measures between the CJEU and an arbitral tribunal, could be considered an incompatibility under Articles 30 and 59 of the VCLT. The practice of EU Member States during the entry into force of the TFEU and after the Achmea judgment further underscores that the requirements of Article 59 of the VCLT have not been met (paras. 163–180).

Lastly, the tribunal clarified that it shall not decide on issues of rights and obligations under EU law since it will consider the EU-related measures as a matter of fact, while it did not consider crucial the fact that the intra-EU awards would not be easily enforceable within the EU (paras. 181–186).

The tribunal upheld jurisdiction over mass claims

The tribunal considered that the usage of singular terms in the relevant BITs and the ICSID Convention such as “dispute” and “investor” did not conclusively support the jurisdictional challenge of the respondent. In addition, the tribunal rejected Cyprus’s argument that mass claims require special consent in addition to consent provided in BITs. Rather, the tribunal decided that the crucial question to be answered was whether the claims at hand were homogenous enough to constitute one single dispute (paras. 197-201, 205, 209). In this regard, the tribunal considered that the claims allege the same treaty breach, even if under two separate BITs, complain about the same illegality, and relate to the same measures involving  the same two banks, in the same context. As such, they should be considered as being part of a single dispute.

Respondent’s admissibility allegations were rejected

The tribunal focused on responding to the respondent’s allegation that the admission of such mass claims would render the process unmanageable. At the outset, the tribunal disagreed with the tribunal in Abaclat, which decided that a tribunal has the power to adapt the arbitral processes and adopt new special procedures in order to avoid a denial of justice to claimants since the BIT at hand did not provide for a specific right to bring a mass claim. Therefore, the tribunal had to examine whether the current rules and procedures under the ICSID Convention could process the mass claims. (paras. 242–246).

After examining a series of procedural issues such as document discovery, length of proceedings and verification of claims, the tribunal decided that the mass claim was manageable under the current framework without putting into jeopardy the procedural rights of the parties. (paras. 247–259). Finally, the tribunal considered it necessary to fix the pool of claimants at 956, meaning that none could withdraw without the respondent’s consent, and to propose a further bifurcation of the proceedings (liability and damages) as well as an application for security for costs on behalf of the respondent.

Further jurisdictional objections were rejected

The tribunal considered and rejected additional challenges to its jurisdiction over some of the claimants for allegations that the instruments (life insurance contracts, bonds)  at hand did not constitute a qualified investment or that the Greece–Cyprus BIT does not cover beneficial ownership of investments.

Lastly, the tribunal rejected Cyprus’s allegations that some of the claimants failed to meet the pre-arbitral requirements, i.e., the mandatory notice and cooling-off period provided by the relevant BITs. The tribunal considered that the requirement of prior notice and the six-month waiting period began and was satisfied from the moment an initial group of 21 claimants sought the settlement of the dispute with the respondent. Cyprus failed to seek an amicable settlement within this six-month notice, and thus any additional investor “involved” can be considered to have satisfied said requirement (paras. 305–319).

Conclusion

The tribunal upheld its jurisdiction over the mass claims and considered them admissible. It invited the parties to submit their view on the further bifurcation of the dispute and reserved its decision on costs for a later stage.

Marcelo Kohen’s dissenting opinion

In his dissenting opinion, Marcelo Kohen, appointed by Cyprus, disagreed with the majority’s conclusions. His dissenting opinion was primarily focused on the application of Article 30 of the VCLT in the present case. Kohen considered that the EU treaties and the intra-EU BITs cover the same subject matter as both regulate the substantial protection and treatment to be granted to investors and investments, and the enhancement of cooperation among contracting parties. As such, the accession of Cyprus to EU treaties renders Cyprus’s intra-EU-BITs obsolete,  as these are incompatible with the common market and the related rules.  As such, the arbitrator considered that the tribunal should have followed the authentic interpretation of the parties and give precedence to EU treaties over the intra-EU BITs.

Notes: The tribunal was composed of Donald M. McRae (president appointed by the ICSID Secretary General, Canada/New Zealand national), Alejandro Escobar (claimants’ appointee, Chile national) and Marcelo G. Kohen (respondent’s appointee, Argentina national). The decision of February 7, 2020, including the dissent, is available at https://www.italaw.com/cases/7939

Marios Tokas is an international lawyer based in Geneva. He is pursuing his Master’s in international law at the Graduate Institute of International and Development Studies. He holds an LL.M. in public international law and an LL.B. from the University of Athens. He is currently interning at IISD’s Geneva Office.