Global Arbitration Review | 3 August 2015
Austria hit with first ICSID claim
The owner of a Vienna bank targeted by multiple fraud investigations has lodged what is thought to be the first-ever investment treaty claim against Austria.
The €200 million claim was filed last month by a Malta-based holding company whose ultimate beneficiaries are the family of Julius Meinl V, part of an Austrian business dynasty that founded a famous coffee business in the country dating back to the 1860s.
The company, BV Belegging-Maatschappij "Far East", is bringing the claim under the 2002 Malta-Austria bilateral investment treaty. The case was registered at ICSID on 30 July.
Far East owns a 99 per cent stake in Vienna-based private investment bank Meinl Bank, of which Meinl, aged 56, is the supervisory board chairman. It seeks compensation for a series of public, highly personal and increasingly feckless investigations targeting Meinl and the bank over eight years, which it says have yet to result in any findings of criminal wrongdoing.
Austrian prosecutors began investigating Meinl in 2007 after he was accused of using a stock buy-back scheme to manipulate the share price of a Jersey real estate investment fund, Meinl European Land, leading to substantial losses for investors.
In 2009, Meinl was arrested and spent two days in jail. He was released after posting a bail bond of €100 million, a figure that the UK’s Daily Telegraph describes as a "world record."
The claimant accuses Austrian authorities of breaching Meinl Bank’s due process rights through appointing biased experts, manipulating experts’ findings, conducting illegal house searches (including of the bank’s outside counsel), improper surveillance of bank officers and refusing to share case files. It also says there has been a "steady drumbeat of official grandstanding" and leaks casting aspersions against Meinl and the bank.
Last December, the Vienna State Prosecutor’s Office indicted Meinl and four other bank board members, alleging that a dividend issued to the bank’s shareholders amounted to a breach of trust and attempt to defraud investors who had filed civil lawsuits against Meinl Bank. Far East was also named in the indictment, in which prosecutors sought a penalty of €212 million.
Far East says the indictment appears to be an "act of retaliation", coming only a few weeks after the company had filed a notice of dispute under the BIT. The claimant says that the case was thrown out by the Austrian courts this year for failure to state a criminal cause of action.
It adds that the state appears to have already responded to the request for arbitration by ordering the removal of Meinl Bank’s leadership.
In its request for arbitration, Far East alleges that the state has impaired its investment by arbitrary and discriminatory means; failed to provide full and constant protection to its investment; committed a direct and indirect expropriation through the "progressive dismantling" of Meinl Bank’s operations; and failed to attempt a settlement in good faith.
Far East is represented in the arbitration by a team from BakerHostetler including partner Kenneth Reisenfeld, who joined the firm four months ago from Squire Patton Boggs. It is not clear whether Austria has hired external counsel yet.
Resienfeld says, "This arbitration seeks justice for one of Austria’s most esteemed family businesses that has been dragged through the mud in public fashion."
He adds, "The government’s eight-year campaign of stigmatization and its repeated breaches of the bank’s procedural safeguards amount to a denial of justice and actionable government misconduct. Our hope is that a neutral ICSID panel will right this historic wrong."
The Meinl family is best known for supplying Viennese coffee and other groceries since the days of the Hapsburg Empire. On the eve of World War II, members of the family fled to England to escape Nazi persecution, only returning after the war. Meinl was born in Austria in 1959 and holds British citizenship.
Reisenfeld says the investigations of Meinl are "an uncomfortable reminder of previous injustices they endured during Austria’s darkest time nearly 70 years ago".
While the Meinl family sold their grocery business in the 1990s, they still own the coffee business, as well as the flagship Julius Meinl am Graben store in central Vienna, one of the city’s most famous attractions.
The new ICSID case adds to the growing number of investment claims filed against European states, following a spate of cases against Spain relating to its solar power reforms, and a controversial case against Germany over nuclear power.
It will also attract controversy as yet another claim brought under an intra-EU BIT. In June, the European Commission launched infringement proceedings against Austria and four other member states over their refusal to terminate their intra-EU BITs. The Commission argues that such treaties are redundant and has appeared as amicus curiae in a number of arbitrations brought under them.
B.V. Belegging-Maatschappij "Far East" v Republic of Austria (ICSID Case No. ARB/15/32)
Counsel for BV Belegging-Maatschappij "Far East"
BakerHostetler, Partners Kenneth Reisenfeld and Mark Bailen in Washington, DC
Counsel for Austria
Financial Procurator, Vienna, Austria
External counsel not yet known