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Are Bondholders Investors? Sovereign Debt and Investment Arbitration after Poštová

Published online by Cambridge University Press:  28 February 2017


As a result of the 2010 sovereign debt crisis and the subsequent restructuring operations, bondholders have pursued different dispute resolution strategies. Litigation before US courts has proved to be a viable option, as demonstrated by the Argentine cases. State court litigation, however, is not the only available forum: in some cases, bondholders have commenced arbitration proceedings against the issuing state.

Arbitral case law has been consistent in concluding that the holders of sovereign bonds issued by the host state qualify as investors and thus have standing to bring investment treaty-based claims. The recent Poštová award, however, casts doubts over whether holders of sovereign bonds qualify as investors for the purposes of international investment law.

This article illustrates the main problems revolving around the qualification of sovereign bonds as investments for the purposes of international investment law. The article summarizes the relevant legal framework and the solutions adopted by arbitral case law so far. Subsequently, the contents of the Poštová decision are addressed in detail and the consequences of this decision are scrutinizsed.

Copyright © Foundation of the Leiden Journal of International Law 2017 

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1 Schumacher, J., ‘Sovereign Debt Litigation in Argentina: Implications of the Pari Passu Default’, (2015) 1 (1) Journal of Financial Regulation 143 CrossRefGoogle Scholar.

2 Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5 (formerly Giovanna Beccara and Others v. The Argentine Republic), Decision on Jurisdiction and Admissibility of 4 August 2011.

3 Ambiente Ufficio S.p.A. and others v. Argentine Republic, ICSID Case No. ARB/08/9 (formerly Giordano Alpi and others v. Argentine Republic), Decision on Jurisdiction and Admissibility of 8 February 2013.

4 Giovanni Alemanni and Others v. The Argentine Republic, ICSID Case No. ARB/07/8. As the Decision on Jurisdiction and Admissibility in this case relies to a large extent on the findings of the Abaclat and Ambiente tribunals, it need not be analyzed in detail in this article.

5 The Ambiente and Alemanni cases were discontinued for lack of funding: see L.E. Peterson, ‘As Another Argentine Bond Arbitration Collapses at ICSID, Arbitrators Doubt Their Power to Award Costs in These Circumstances’, IAReporter, 14 December 2015, available at (accessed 24 June 2016). In Abaclat, by contrast, a settlement agreement was reached, following a change in government in Argentina: see L.E. Peterson, ‘Third (and Largest) of Italian Bondholder Claims against Argentina Is Settled; Cases Blazed a Trail, but Arbitrators Continue to Disagree as to Scope for ICSID to Be Used for Sovereign Debt Disputes’, IAReporter, 2 February 2016, available at (accessed 24 June 2016).

6 For a comment on the state of uncertainty triggered by the award see Montanaro, F., ‘Poštova Banka SA and Istrokapital SE v Hellenic Republic – Sovereign Bonds and the Puzzling Definition of “Investment” in International Investment Law’, (2015) 30 (3) ICSID Rev. 549 CrossRefGoogle Scholar.

7 Brooks, S. and Lombardi, D., ‘Sovereign Debt Governance’, in Guzman, M., Ocampo, J. Antonio and Stiglitz, J.E (eds.), Too Little, Too Late: The Quest to Resolve Sovereign Debt (2016), 56 CrossRefGoogle Scholar; International Monetary Fund, ‘Sovereign Debt Restructuring – Recent Developments and Implications for the Fund's Legal and Policy Framework’, available at (accessed 24 June 2016); J, Zettelmeyer, C. Trebesch and M. Gulati, ‘The Greek Debt Restructuring: An Autopsy’ (August 2013), Peterson Institute for International Economics Working Paper Series 13-8, available at (accessed 24 June 2016).

8 Chan, K., ‘The Relationship between the International Investment Arbitration and Sovereign Debt Restructuring’, (2014) 7 (1) Contemporary Asia Arbitration Journal 229 Google Scholar; Muse-Fisher, J., ‘Starving the Vultures: NML Capital v. Republic of Argentina and Solutions to the Problem of Distressed-Debt Funds’, (2014) 102 Cal. L. Rev. 1671 Google Scholar; K.P. Gallagher, ‘The New Vulture Culture: Sovereign debt restructuring and trade and investment treaties’, 2011, The IDEAs Working Paper Series 02/2011, available at (accessed 27 June 2016); Monteleone, T.A., ‘A vulture's gamble: high-stakes interpretation of sovereign debt contracts in NML Capital, Ltd v Republic of Argentina ’, (2013) 8 (2) CMLJ 149 Google Scholar; Weidemaier, W.M.C., ‘Sovereign Debt after NML v Argentina ’, (2013) 8 (2) CMLJ 123 Google Scholar; Wheeler, C.C. and Attaran, A., ‘Declawing the Vulture Funds: Rehabilitation of a Comity Defense in Sovereign Debt Litigation’, (2003) 39 Stan. J. Int'l L. 253 Google Scholar.

9 Blackman, J.I. and Mukhi, R., ‘The Evolution of Modern Sovereign Debt Litigation: Vultures, Alter Egos, and Other Legal Fauna’, (2010) 73 Law & Contemporary Problems 47 Google Scholar. On the influence of Unanimous Action Clauses (UACs) and Collective Action Clauses (CACs) on the behaviour of bondholders see Bratton, W.W. and Gulati, G. Mitu, ‘Sovereign Debt Reform and the Best Interest of Creditors’, (2004) 57 Vanderbilt Law Review 1 Google Scholar.

10 Kingdon, E., ‘Leveraging Litigation: Enforcing Sovereign Debt Obligations in NML Capital, Ltd. v. Republic of Argentina ’, (2014) 37 B.C. Int'l & Comp. L. Rev. 30 Google Scholar; A.C. Porzecanski, ‘From Rogue Creditors to Rogue Debtors: Implications of Argentina's Default’, (2005) Chi. J. Int'l L. 311; Fisch, J.E. and Gentile, C.M., ‘Vultures or Vanguards?: The Role of Litigation in Sovereign Debt Restructuring’, (2004) 53 Emory L.J. 1047; Elliott Assocs. v. Banco de la Nación, 194 Google Scholar F.3d 363, 380 (2d Cir. 1999), noting how the possibility of sovereign debt litigation ensures the possibility for sovereign entities to borrow money in the long term.

11 It should, incidentally, be noted that such considerations would not be merely speculative, but rather resonate with an ongoing treaty-making tendency, reducing the relevance of sovereign bonds in the field of investment protection. For instance, Annex 8-B of the draft text of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) specifies that negotiated debt restructuring cannot give rise to investor claims: see (accessed 24 June 2016). Along the same lines, Annex G of the US-Uruguay BIT and Annex 10-F of the US-Peru Trade Promotion Agreement exclude negotiated restructurings from the scope of investor-state dispute settlement.

12 From this point of view, it has been argued that law is so indeterminate that any interpretation entails discretionary value choices: D. Kennedy, A Critique of Adjudication (fin de siècle) (1997).

13 A. Scalia, A Matter of Interpretation: Federal Courts and the Law (1998).

14 Interestingly, the same argument is put forth by critical lawyers highlighting the indeterminacy of the law: Schlag, P., ‘Spam Jurisprudence, Air Law, and the Rank Anxiety of Nothing Happening (A Report on the State of the Art)’, (2009) 97 Geo. L.J. 803 Google Scholar, at 812–13. Additionally, with specific regard to investment arbitration, further reflection is necessary as far as the potential modes of goal-oriented interpretation are concerned. Even if one were to start from the a priori assumption that bondholders should not be allowed to undermine sovereign debt restructuring through investor-state dispute settlement, there are no compelling reasons to conclude that this result should be attained by excluding the jurisdiction of arbitral tribunals. Glinavos, I., ‘Haircut Undone? The Greek Drama and Prospects for Investment Arbitration’, (2014) 5 (3) JIDS 475 Google Scholar notes that the same goal could be pursued at the merits stage by relying on the notion of ‘fair market value’ enshrined in the BIT provisions concerning expropriation when valuating compensation. In principle, this solution would seem more suitable, as it allows distinguishing among different bondholders, depending on the moment of purchase of the bonds on the secondary market and, potentially, on the ‘bad faith’ element. On the possible defences of the issuing state at the merits stage see Ziff, R.M., ‘The Sovereign Debtor's Prison: Analysis of the Argentine Crisis Arbitrations and the Implications for Investment Treaty Law’, (2011) 10 (3) Richmond Journal of Global Law and Business 345 Google Scholar.

15 For an analysis of the reasons leading to the failure of attempts at defining the term see Waibel, M., ‘Opening Pandora's Box: Sovereign Bonds in International Arbitration’, (2007) 101 Am. J. Int'l L. 711 Google Scholar, at 719.

16 Nolan, M.D., Sourgens, F.G. and Carlson, H., ‘Leviathan on Life Support? Restructuring Sovereign Debt and International Protection after Abaclat ’, in Sauvant, K.P., Yearbook on International Investment Law & Policy 2011-2012, (2013) 485 Google Scholar, at 486, 488.

17 Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, para. 43, with reference to Schreuer, C.Commentary on the ICSID Convention’, (1996) 11 ICSID Rev. 316 CrossRefGoogle Scholar, at 372. See also to C. Schreuer, The ICSID Convention: A Commentary, (2001) Article 25, para. 122.

18 Fedax, supra note 17, para. 40.

19 Ibid.

20 C. Schreuer, L. Malintoppi, A. Reinisch and A. Sinclair, The ICSID Convention: A Commentary, (2009) Art. 25, at 171–4.

21 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4.

22 Ibid., Decision on Jurisdiction (French Original (2002) 129 Journal du droit international 196; English translation (2003) 42 ILM 609, (2004) 6 ICSID Rep. 400) para. 52.

23 Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, para 91.

24 Abaclat, supra note 2, para. 364.

25 Ambiente, supra note 3, paras. 470–1.

26 According to Ambiente, ibid., para. 481, the Salini criteria are not jurisdictional requirements stricto sensu, but useful ‘guidelines’.

27 Ibid., para. 483.

28 Ibid., para. 484.

29 Ibid., para. 485.

30 Ibid., para. 486.

31 Ibid., para. 487.

32 Abaclat, supra note 2, Dissenting Opinion to Decision on Jurisdiction and Admissibility of Prof. Georges Abi-Saab (hereinafter ‘Abaclat dissent’), para. 42.

33 Abaclat dissent, supra note 32, paras. 51–2. The dissenting opinion refers not only to the Salini test, but also to the criteria set forth in Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5 and Romak S.A. (Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280, Award of 15 April 2009.

34 Abaclat dissent, supra note 32, para. 55.

35 Ibid., para. 71 with reference to Waibel, supra note 15, at 727.

36 Ambiente, supra note 3, Dissenting Opinion of Santiago Torres Bernárdez (hereinafter ‘Ambiente dissent’) paras. 157–8.

37 Ambiente dissent, supra note 36, para. 158.

38 Ibid., para. 186. In other terms, Argentina was, ‘making a commercial dealing of a financial product of its own outside the Republic in international markets as could be the selling of any other eventual kind of Argentine governmental goods, getting a price in return’ (para. 187).

39 Ibid., para. 250.

40 Ibid., para. 267.

41 Therefore, in order to be able to bring a treaty-based ICSID claim, the claimants must both fulfil the requirements of Art. 25 of the ICSID Convention and fall within the scope of application of the investment treaty where the state has expressed its consent to ICSID arbitration (‘double-barrelled test’).

42 The convergence of BITs towards homogeneous standards of investment protection is described in detail by S.W. Schill, The multilateralization of international investment law (2009), 65–120.

43 Abaclat, supra note 2, para. 354.

44 Ibid., para. 356.

45 Ibid., para. 357.

46 The translation of the term, which reads as ‘obligaciones’ in the Spanish version and ‘obbligazioni’ in the Italian version of the BIT, has been subject to controversy between the parties. Both the Abaclat and the Ambiente tribunals relied on the English term ‘obligations’, proposed by Argentina: see Abaclat, supra note 2, para. 352 and Ambiente, supra note 3, para. 491.

47 Ambiente, supra note 3, para. 491.

48 Abaclat dissent, supra note 32, para. 68.

49 Abaclat dissent, supra note 32, paras. 73–119.

50 Ambiente dissent, supra note 36, para. 282. Although para. 282 notes en passant that sovereign bonds and security entitlements would not be covered by the non-exhaustive list of examples, thus marking a difference with the Abaclat dissent, the reasoning of the dissenting opinion focuses entirely on the territorial link requirement set forth in the chapeau of Art. 1(1).

51 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Award, para. 286.

52 Ibid., para. 314. On the boundaries of the notion of investment, see also para. 288.

53 Ibid., paras 294–5.

54 Ibid., para. 305.

55 Ibid., para. 306.

56 Ibid., para. 307.

57 Ibid., para. 308.

58 Ibid., paras. 318–24.

59 Ibid., paras. 337–8.

60 Ibid., paras. 343–4.

61 Ibid., paras. 352–71.

62 Ibid., para. 356.

63 Ibid., para 357.

64 Ibid., para. 359.

65 Ibid., para. 365.

66 Ibid., para. 363.

67 Ibid., paras. 368–9, with reference to Romak, supra note 33, paras. 229–30.

68 Ibid., para. 369.

69 Hofmann, C., ‘A Legal Analysis of the Euro Zone Crisis’, (2013) 18 (3) Fordham J. Corp. Fin. L. 519 Google Scholar, at 560–1 highlights how the transposition of the Abaclat line of reasoning to the Greek scenario depends, inter alia, on the wording of the applicable Greek BIT.

70 Fedax, supra note 17, para. 29.

71 Poštová, supra note 51, para. 338.

72 Ibid., para. 339.

73 The possibility to transfer securities acquired on the primary market to third parties is expressly enshrined in the Greek law governing the issuance of dematerialized titles: see Greek Law 2198 of 1994, Chapter B, Art. 6.2.

74 Similar arguments have been put forth with regard to private bonds: see Gargantini, M., ‘Jurisdictional Issues in the Circulation and Holding of (Intermediated) Securities; the Advocate General's Opinion in Kolassa v. Barclays’, (2014) 4 Rivista di diritto internazionale privato e processuale 1095 Google Scholar, at 1099–1103.

75 A subtler question is whether different techniques of retention of the bonds may have a consequence on the existence of a direct loan relationship between the claimants and the Hellenic Republic, and hence on the applicability of the BIT. Investors usually hold securities through intermediaries, but the methods of retention may vary from one jurisdiction to another, as well as on a case-by-case basis. In the European Union, the different techniques of retention of securities are described in European Commission, ‘EU Clearing and Settlement. Legal Certainty Group - Questionnaire. Horizontal answers’, MARKT/G2/MNCT D (2005). In particular, in some cases the intermediaries do not have any legal entitlements on the securities they hold on behalf of the investors; conversely, in other cases, the intermediary is the formal owner of the bonds, whilst the position of the investor is regulated by the law of trust. It could be argued that, in the latter scenario, the purchasers of the bonds on the secondary market do not have standing to bring a treaty-based action, because they do not formally qualify as owners. In any case, this distinction does not alter the boundaries of arbitral jurisdiction ratione materiae, as its consequences are limited to the applicability of the relevant investment agreement ratione personae.

76 ICSID Convention, Preamble: ‘no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration’.

77 Schreuer, Malintoppi, Reinisch and Sinclair, supra note 20, at 205–6.

78 Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction of 24 May 1999, paras. 64–6; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment of 16 April 2009, para. 73.

79 Abaclat, supra note 2, para. 364.

80 Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award of 1 November 2006, para. 31; Phoenix, supra note 33, para. 82; Joy Mining Machinery Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction of 6 August 2004, para. 49.

81 Ambiente, supra note 2, paras. 483, 485.

82 Barnett, R.E., ‘The Sound of Silence: Default Rules and Contractual Consent’, (1992) 78 Va. L. Rev. 821 CrossRefGoogle Scholar, at 822; Ayres, I. and Gertner, R., ‘Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules’, (1989) 99 Yale L.J. 87 CrossRefGoogle Scholar, at 94.

83 Cole, T. and Vaksha, A. Kumar, ‘Power-Conferring Treaties: The Meaning of “Investment” in the ICSID Convention’, (2011) 24 LJIL 305 CrossRefGoogle Scholar, at 307.

84 International Bank for Reconstruction and Development, ‘Report of the Executive Directors on the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’, in A.R. Parra, The History of ICSID (2012), 410.

85 Ibid., para. 27.

86 States which have made a notification remain free to subsequently disregard it and consent to arbitration, irrespective of whether the dispute falls within one of the classes which the notification refers to: Ibid., para. 31; PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Decision on Jurisdiction of 4 June 2004, paras. 135–47. However, when notifying a class of dispute which it would not consider submitting to ICSID jurisdiction, a state sets forth a default rule, which will serve as a guide for the interpretation of future treaties: Mortenson, J. Davis, ‘The Meaning of “Investment”: ICSID's Travaux and the Domain of International Investment Law’, (2010) 51 Harv. Int'l L.J. 257 Google Scholar, at 295.

87 On the role of Art. 64 see Desierto, D., ‘The International Court of Justice in the Settlement of International Investment Disputes’, (2012) 1 J. Disp. Prev. Res. 10 Google Scholar; Vannieuwenhuyse, G., ‘Bringing a Dispute concerning ICSID Cases and the ICSID Convention before the International Court of Justice’, (2009) 8 LPICT 115 Google Scholar.

88 Ambiente dissent, supra note 36, para. 250.

89 A confirmation that the ICSID Convention should be interpreted in an evolutionary way, taking into due account the current reality of international investment, can be found in the way consent to ICSID arbitration operates. The simplest type of consent, which the drafters of the Convention had in mind, is the insertion of an arbitration clause in an investment contract, concluded directly by the investor and the host state: L. Reed, J. Paulsson and N. Blackaby, Guide to ICSID Arbitration (2010), 22–3. However, in practice, consent to ICSID arbitration is currently often expressed in a standing offer, formulated by the host state either in its domestic laws or in an investment treaty with the home state of the investor: Paulsson, J., ‘Arbitration Without Privity’, (1995) 10 (2) ICSID Rev. 232 CrossRefGoogle Scholar. Such evolution has triggered a rapid extension of arbitral jurisdiction in recent times, as demonstrated by the ICSID caseload statistics, available at (accessed 8 February 2017). The legitimacy of expressions of consent included in investment treaties is currently undisputed in international investment law, although the drafters of the ICSID Convention had not specifically focused on this possibility; therefore, the evolution of international investment law clearly suggests the viability of an evolutionary approach to the interpretation of the Convention.

90 Cole and Vaksha, supra note 83, at 329 with reference to the Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Merits, Judgment of 13 July 2009, [2009] ICJ Rep. 213, para. 66.

91 The Convention's Preamble contains numerous indications in this sense.

92 Given the inextricable connection between primary and secondary markets operations, described above in Section 6.1, the relevant chronological reference would necessarily be the moment of the purchase of the instruments on the primary market.

93 The Weberian notion of ‘ideal type’ is expressly invoked by Prof. Abi-Saab in the Abaclat dissent, supra note 32, para. 55.

94 Nolan, Sourgens and Carlson, supra note 16, at 495–6 note that the establishment of ICSID was preceded by the City of Tokyo Bonds case, a dispute between the City of Tokyo and French bondholders, submitted for conciliation to the president of the International Bank for Reconstruction and Development. On the City of Tokyo Bonds case see M. Waibel, Sovereign Defaults before International Courts and Tribunals (2011), 82–3. In addition, during the negotiations of the ICSID Convention, sovereign bonds were mentioned as an example of investment: ICSID, The History of the ICSID Convention: Documents concerning the origin and the formulation of the Convention on the Settlement of Investment Disputes between states and nationals of other states (1970) vol. II, Part 1, at 514. The reference to sovereign bonds during the negotiations of the ICSID Convention is relied upon in Giovanni Alemanni and Others v. The Argentine Republic, supra note 4, Decision on Jurisdiction and Admissibility, para. 296, which largely replicates the findings of Abaclat, supra note 2 and Ambiente, supra note 3.

95 Although the Poštová award relies on Romak, supra note 33, the latter defines commercial risk rather specifically as ‘the risk of non-performance’ (para. 229). It is therefore unclear how such notion could encompass the event of a sovereign restructuring of the debt, which is different from mere non-compliance.