The International Centre for Settlement of Investment Disputes Arbitral tribunal accepts jurisdiction over mass claim (Adamakopoulos v Cyprus ICSID Case No. ARB/15/49)

By its decision dated 7/2/2020, the international Centre for Settlement of Investment Disputes (ICSID), accepted jurisdiction over arbitration proceedings initiated by a group of 951 Greek individuals (bank depositors and bondholders) and 7 companies, claiming that they sustained heavy losses as a result of the Cyprus’ 2013 financial crisis.

The claimants’ claims that the Republic of Cyprus rendered their bonds worthless and substantially decreased the value of their deposits when Laiki Bank was absorbed by the Bank of Cyprus—were found to be admissible. The investors claim to have lost approximately EUR 300 million in total.

The claimants held deposits in Laiki Bank and Bank of Cyprus and suffered losses in 2013, after Cyprus reached an agreement with TROIKA (i.e., the European Commission, the European Central Bank and the International Monetary Fund) to implement bail-in and other resolution measures as part of the memorandum of understanding between the Republic of Cyprus and TROIKA.

The bondholders allege that this so-called ‘bail-in’ resulted in the conversion of the Bank of Cyprus bonds they held, being converted into bank equity, rendering them worthless, or in the case of Laiki Bank, bonds were rendered worthless through the ‘resolution’ measures for that bank. Deposit holders with deposits over USD 100,000 in both banks, meanwhile, argued that they received a ‘haircut’ reducing their deposits to USD 100,000 as a result of the absorption of Laiki from Bank of Cyprus.

In its decision, the ICSID tribunal rejected Cyprus’ argument that the claim was barred under the European Court of Justice’s (ECJ) decision in Slovak Republic v Achmea Case C‑284/16, where the court concluded that dispute resolution provisions in investment treaties between EU Member States are contrary to EU law.

In Achmea, the ECJ found that these provisions improperly allow tribunals to review questions of EU law without giving them the ability to refer those issues to the ECJ, the supreme judicial authority on the interpretation and application of EU law. But the ICSID tribunal concluded that scenario was a ‘limited possible incompatibility’.

According to the decision ‘Investment tribunals deal with disputes relating to the obligations set out in bilateral investment treaties and such substantive obligations are interpreted and applied on the basis of the principles of international law, not the domestic law of a party’.. It was expressly held that, ‘Investment tribunals have no mandate to decide on the rights of the parties under EU law’.

Additionally, the arbitrators found, by a majority, (despite the dissent from Cyprus in relation to the homogeneity of the claims) that the claims were substantially similar enough to allow the proceeding to move forward. ‘The claims are linked in a single dispute in that they are all claiming essentially the same treaty breach under the two [bilateral investment treaties], they complain about the same illegality, they have essentially identical prayers for relief, and they base themselves on the same factual background to establish their claims’, the decision stated. Despite the above, the ICSID tribunal expressed concern about how the proceeding would be managed given the high number of claimants, including, for example, how costs could be awarded against multiple claimants and the potential for changes in counsel. They invited the parties to comment on the possibility of bifurcation, leading with a liability phase before proceeding to a damages phase and gave Cyprus the opportunity to seek security for costs.

This is a very important decision given that, despite the fact that the intention of the European Union is to limit the importance of bilateral investment treaties between member states, it puts ICSID at the forefront of international arbitration jurisprudence.