Investment arbitration of financial claims: the uncharted crossroads of two trodden paths



The latest issue of the Organisation for Economic Co-operation and Development (OECD) Sovereign Borrowing Outlook estimated that the marketable sovereign debt issued by central governments in the OECD region would amount to roughly 77 percent of their GDP.

At the same time, the International Centre for Settlement of Investment Disputes (ICSID) reports that, in spite of only 35 cases having been registered under the ICSID Convention in its first 30 years since its execution in 1965, by its 50th year, in 2015, ICSID had registered an aggregate 516 investment arbitration cases under the ICSID and Additional Facility rules. ICSID further states that approximately 7 percent of those cases involved the financial industry. Our own queries have found not less than 47 investment arbitration cases (within and outside the ICSID system) dealing with financial institutions or financial products, spread over the last three decades and involving claimants or respondents from Europe, Africa, Asia and the three Americas.

To put things into context and assess the materiality of these figures, a recent study estimated that the average amount claimed in investment arbitrations is US$622m, which would mean that the amount at stake in investment arbitrations involving the financial industry probably exceeds US$29bn at the time of writing.

At the outset, we must note that the actual universe of issuances and disputes may very well be somewhat understated by the OECD and ICSID figures identified, as the OECD statistics only look at marketable sovereign debt issued by central governments, but do not include that issued by local governments or other State instrumentalities, while ICSID caseload figures do not reflect other forms of investment arbitration (i.e., arbitration conducted ad hoc or administered by other arbitration centres).

Also, our own queries, carried out with the assistance of University of Buenos Aires research groups, were mostly based on publicly available materials, which may mean that there are currently unreported investment cases dealing with financial matters which would not appear in our calculations.

These areas of practice, individually, have blossomed handsomely. But the actual crossroads between these flourishing legal specialties seems to have remained a relatively obscure, disputed corner of the legal world. While a small number of investment cases deal specifically with the issue of rights over sovereign debt acquired in capital markets by foreign investors, none have conclusively reached a convincing solution to the question of whether retail-sized purchases and holdings of marketable sovereign debt acquired in capital markets by foreign investors can peacefully qualify as a protected investment under the ICSID Convention and the bilateral investment treaties usually invoked as the source of substantive protection.

It is worth noting that every case in which the Tribunal, always by majority, adopted a decision in the affirmative (Beccara/Abaclat v. Argentina, Alpi/Ambiente Ufficio v. Argentina and Alemanni v. Argentina) was subject to strong dissent by one of the acting arbitrators, and none has reached a final decision yet. One case – Alpi/Ambiente Ufficio v. Argentina – has been discontinued. Another – Alemanni v. Argentina – has been suspended for a long period. And Argentina has requested the annulment of the decision on jurisdiction issued in Beccara/Abaclat, with ICSID having decided that annulment would only be permitted after a final decision on the merits is issued.

On the other hand, the Tribunal in Poštová Banka v. Greece recently handed down a decision which found that sovereign debt acquired through capital markets would not constitute a qualifying investment under the relevant bilateral investment treaty, with a majority of that Tribunal considering that it would similarly not satisfy the ‘investmentness’ requirement under the ICSID Convention to allow for an ICSID Tribunal to assume jurisdiction (under Art. 25 of the ICSID Convention, there has to be a legal dispute directly related with an ‘investment’ for an ICSID Tribunal to have jurisdiction).

We will posit that, except in exceptional circumstances too rare to be found outside of a legal laboratory, financial holdings in sovereign debt acquired through capital markets cannot and do not constitute protected investments for purposes of enabling the jurisdiction of investment arbitration tribunals, as they are premised on incompossible, mutually exclusive notions on a number of their respective key features. Two of the most easily perceivable features are summarised below.

The uniformity of rights conferred

While investment arbitration is based on the notion that, irrespective of the terms of a particular agreement, certain legal protections based on nationality of the foreign investor can supersede the contractual language and provide additional rights, capital markets require that no two holders of the same financial asset can claim different rights when compared with one another. Indeed, it is the very notion that the rights granted by any individual, minuscule portion of an issuance are identical to those granted by any other individual, minuscule portion of that same issuance which allows trading of those portions in the standardised platforms we call capital markets.

To maintain that the rights conferred by holdings in sovereign debt depend on the nationality of the holder at a given point in time – as would be required if they were protected under investment law – would, among other disruptive effects, make it impossible to assign a single value to each type of instrument in an issuance, since any given security entitlement would change in value depending on the nationality or nationalities of any prior or current holders, as each relevant nationality would change the scope of the rights granted by such entitlement. This would in practice put an end to the trading of sovereign debt in capital markets.

The identification of the foreign beneficiary of the rights conferred

On the one hand, investment law is built around the notion that foreign investors, by reason of their nationality or the special agreements individually reached with the sovereign host State, are entitled to claim special protections and rights which are not generally available, and which, by definition also, are not available to nationals of that same host State (take, for instance, the unavailability of ICSID arbitration to nationals – including through double nationality – of the State which is a party to the controversy). This would require that States should be able to assess the identity and nationality of those investors entitled to these special, discrete forms of treatment, in order to allow those States to actually discharge their obligations through providing differential treatment.

On the other hand, however, capital markets operate on the basis that ultimate debtors (in the case of sovereign marketable debt, the borrowing State) cannot differentiate between the several holders of security entitlements on the debt issued (the ultimate creditors) as a way to guarantee that debtors do not discriminate among creditors. This is one of the reasons underlying the principle of pars conditio creditorum, which, subject to certain rules and limitations, means that no distinction should be drawn among different holders of the same entitlement. Capital markets are heavily invested in ways to guarantee the operation of this creditor anonymity, ranging from the issuance of dematerialised entitlements to the involvement of depositories, escrow agents and payment agents in connection with marketed indebtedness. In practice, this means that sovereign borrowers do not and cannot know the identity of the ultimate beneficiaries, making it impossible for them to provide differential levels of treatment based on their nationality.


Even though investment arbitration attempts on sovereign debt have been discussed for the better part of the last decade (Beccara/Abaclat v. Argentina was registered in 2006), capital markets have assumed that investment arbitration and investment law were not applicable to issuances of marketable sovereign indebtedness, as can be confirmed by a perusal of the prospectuses of sovereign debt issued in the last decade.

If any serious doubt existed that the literal terms of the issuance would be superseded by investment law materials depending on the nationality of holders, certainly that information should be prominently disclosed in the issuance materials made available to the investing public. No such reference can be found in the wide sample reviewed by the author, which included several continents and currencies.

In fact, if it were true that marketed sovereign debt is subject to applicable laws other than as described in the relevant prospectuses, failure to make such disclosure would, under the regulatory framework of most capital markets, justify delisting or suspension of the trading of the relevant securities. This would certainly be the opposite of the object and purpose of the investment treaties invoked, and, under the customary law governing the law of treaties, any interpretation resulting in such effect should be discarded.


Diego Brian Gosis is of counsel to Gomm & Smith (Miami) and also to Guglielmino & Asociados (Buenos Aires). He can be contacted on +1 (305) 856 7723 or by email:

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Diego Brian Gosis

Gomm & Smith

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