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The Cypriot Debt Crisis and Recourse to International Arbitration


The first arbitration against Cyprus is already underway in the aftermath of the Cypriot banking crisis. A Greek company filed a notice of dispute under the Greece-Cyprus bilateral investment treaty shortly after Cyprus’ recent banking crisis began, citing its unfair and inequitable treatment as a result of the effective takeover by Cyprus of the ailing Cyprus Popular Bank.

Many foreign investors in Cyprus are weighing their legal options to recover their assets that were devalued in an EU-imposed Cypriot response to the island’s financial crisis. As Russian investors are the primary investors in Cyprus, they are clearly the most heavily impacted foreign investors by these measures, with some depositors facing losses of up to 40%. Russian officials have repeatedly indicated that its government will not intervene on behalf of private investors, so foreign investors are on their own.

Investment-State arbitration proceedings against Cyprus remain one of the few viable options worth considering. Claims against Cyprus could potentially be made on the basis of expropriation, unfair and inequitable treatment, and even potentially discrimination with respect to Russians, as long as they had a sound jurisdictional basis.

The most obvious jurisdictional basis for Russian companies to initiate arbitration against Cyprus, would be on the basis of the Russian-Cypriot Bilateral Investment Treaty (“BIT”), where the two countries agreed to protect their mutual investments, defined broadly as “all kinds of assets invested by investors of one Contracting Party in the territory of the other Contracting Party in accordance with its legislation.”  While the existence of this treaty is not in doubt, it has been reported to have never been ratified, calling this jurisdictional basis into doubt.

Even if this treaty was never ratified, it still might be possible for Russians to bring a claim against Cyprus under a different BIT. For instance, if Russian investors are owners of intermediate corporate entities located in one of countries which has both signed and ratified a BIT with Cyprus, then recovery by way of arbitration is feasible, as long as a BIT has been signed between the State of its registration and Cyprus.

In other words, if a Russian-controlled corporate vehicle is located in Armenia, Belgium, Bulgaria, Belarus, China, Egypt, Greece, Hungary, India, Israel, Lebanon, Poland, Romania, or the Seychelles, all of which appear to have both signed and ratified treaties with Cyprus, then a claim could be considered on the basis of these treaties. For instance, many holding structures are created in the Seychelles, which could bring a claim against Cyprus on the basis of the Seychelles-Cyprus BIT.

Moreover, other treaties, such as the Energy Charter Treaty to which Russia and Cyprus are both parties, could be used as a basis for bilateral investment claims against Cyprus by certain companies. The definition of investments protected by this Charter, while very broad, is limited by Article 1(6), however, which associates the notion of “investment” to “an Economic Activity in the Energy Sector,” providing a sectorial approach of limited usefulness to companies in industries unrelated to energy.