Československá Obchodní Banka, A.S. v The Slovak Republic

Year of the award: 2004
Forum: ICSID
Applicable law: Consolidation agreement, Czech law, Czech-Slovak BIT (1992)

Arbitrators:
Prof Hans van Houtte - President
Prof Piero Bernardini
Prof Andreas Bucher


Executive summary

Československá Obchodní Banka, A.S. (CSOB), a Czech commercial bank, brought a dispute against the Slovak Republic before an ICSID Tribunal, claiming the breach by the Slovak Republic of the so-called "Consolidation Agreement" and approx. US$ 1.4 billion in damages. The Consolidation Agreement was concluded in 1993 by the Czech Republic, the Slovak Republic and CSOB in order to carry out the Bank's financial restructuring in advance of its then planned privatization.

Under the Agreement, the Czech Republic and the Slovak Republic each established a special-purpose collection company to which CSOB assigned certain non-performing receivables. To enable the collection companies to pay for the assigned receivables, CSOB extended to each of them a loan facility in an amount equal to the nominal value of the non-performing loans that had been assigned.

As the non-performing loans assigned to the collection companies were not expected to generate revenues sufficient to satisfy the collection companies' loan obligation to CSOB, in the Consolidation Agreement the Czech and the Slovak republics each agreed to "cover any losses" of the respective collection companies. The Slovak Republic, however, failed to cover these losses, with the Slovak collection company consequently defaulting on its loan obligations to CSOB.

In the award, the Tribunal determined that the applicable law in this dispute comprised, in addition to the Consolidation Agreement, Czech law (chosen by the parties in the Agreement) and the Czech-Slovak BIT, also referred to in the Agreement. In fact, the Claimant invoked the BIT only to have resort to ICSID arbitration.

The Tribunal established that the Slovak Republic indeed breached the Consolidation Agreement by failing to cover losses of the Slovak collection company and consequently of the CSOB. The Tribunal awarded compensation of approx US$ 867 million comprising the loan not repaid to CSOB, interest due under the loan contract as well as interest under the Czech law. The Tribunal also awarded US$ 10 million in arbitration costs in favour of the Claimant.

The award has quite limited value for future disputes under BITs and other investment treaties as neither BIT rules, nor general international law rules were applied by the Tribunal and no relevant legal interpretations were developed.