In pursuing an investment arbitration, companies – especially those dealing with financial products – acquire advantages such as technical expertise of the decision-maker and the security of a virtually worldwide enforcement of an award under the New York Convention. Nonetheless, when seeking to enforce their investments through investment arbitration, banking and financial institutions may face some major concerns.
At the same time, although it seems at first glance to be hard to reconcile disputes arising out of financial investments with issues of access to justice (given that financial institutions are not usually at pains to pay for their disputes to be resolved in any given fora), it may also happen that retail purchasers of debt instruments be faced with real problems in exercising their rights in foreign fora.
The case of the Italian group of bond holders issued by the Argentinian government (Abaclat) is paradigmatic in this respect. It is well beyond imagination that they could effectively obtain redress to their losses in the Argentinian courts. The resort to investment arbitration under the ICSID regime has proven to be the most effective means for protecting their investments. However, the ICSID and investment tribunals do not assume jurisdiction without scrutinising a host of requirements.
Among others, we now consider two important issues requisite for the enforcement of foreign debt agreements, namely the fulfilment of requisite territory and the definition of ‘investment’ within common international treaties.
Generally, we find great progress in the advancement of protection afforded by international instruments. In concluding such, we consider recent tribunal decisions made in the ICSID framework in respect of the exchange of assets in investment disputes.
Where it has been previously argued that assets transferred must be made physically present within the host state, some investment tribunals have confirmed the question, instead, depends upon the funds being made available to the host state and/or whether the funds support its economic development. Indeed, otherwise such a stance cannot correspond with modern-day financial products.
Similarly, whilst a broad list of assets might be considered pointless if a tribunal could reach beyond that list for the fulfilment of defining ‘investment’, we also conclude that the finding of sovereign debt originating from the secondary market outside this scope to be out of touch with modern financial custom.
This out-dated opinion was concluded in Poštová Banka. Indeed, in this case, the tribunal was open to consider only investments in financial products where the privity nature would exist. It remains to be seen whether future tribunals will follow this reasoning.
At least for financial products, must we look to investments that are ‘non-tradable’, that are a result of the bargain between the host state and the investor? This is not conclusive – arguably, the privity character would be of considerable relevance. To resolve that the investment must have been entered into with the host state would alienate many investments contained in most investment protection treaties, thus proving to be a step too far.
Written by Duarte Henriques.
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Duarte Henriques is a lawyer and arbitrator based in Lisbon – Portugal, and partner at BCH Lawyers. Since 1990, he has acted both as counsel and arbitrator in several litigation and arbitrations cases related to investment disputes, banking & finance, corporate, commercial and construction disputes. He serves as sole arbitrator, chair or member of tribunals in domestic and international arbitration proceedings, and as counsel in domestic and international arbitration proceedings, both institutional and ad hoc.