Clyde & Co to support Credit Suisse bondholders in Swiss expropriation claim

Proposed investment treaty arbitration to offer alternative to court proceedings against Swiss government

Credit Suisse was bought by UBS last year in a rescue bid that wiped out AT1 bondholders rarrarorro /

London law firm Clyde & Co is assisting a group of Credit Suisse bondholders to launch an investment treaty claim against Switzerland for expropriation.

The Swiss state wrote down the value of the $1.7bn bonds – known as AT1s – to zero as part of UBS’s 2023 takeover of Credit Suisse, causing significant losses for investors after what the Financial Times called a “shotgun marriage to UBS”.

The move by the Swiss financial regulators came without notice, ranking bondholders behind Credit Suisse shareholders, who say the decision disregarded the rules and conventions of capital structures. AT1 bonds are unlike normal bonds as they don’t have a maturity date and are designed to convert to equity in certain circumstances.

The decision has led to litigation in the Swiss courts. Quinn Emanuel and Pallas Partners act for various groups of claimants whose cases will be determined under Swiss national law. Those proceedings, including public law challenges, aim to challenge the ordinance that allowed Switzerland’s financial regulator to write down the bonds.

Clyde & Co says the AT1 bondholders, who include sophisticated claimants like institutional investors and asset managers, have an alternative remedy using international arbitration – specifically investor-state dispute settlement, or ISDS.

ISDS is a well-recognised means for investors to challenge state actions under bilateral investment treaties, which are international agreements between states. The claimants will say the Swiss government’s actions, through the regulator, amount to expropriation.

The claims would be determined by an independent arbitration tribunal rather than Swiss judges, administered by the International Centre for the Settlement of Investment Disputes, ICSID, whose secretary-general, Meg Kinnear, will address London International Disputes Week later this year.

While ISDS has its critics, especially among civil society groups, Clyde & Co – led by Loukas Mistelis, a partner at the firm – says that a multi-jurisdictional approach where they launch a series of investment arbitration claims on behalf of investors from key jurisdictions including China, Hong Kong, Japan, Korea, Singapore and the UAE, may achieve more success.

For example, Hong Kong investors could argue that the decision breached a bilateral investment treaty between Hong Kong and Switzerland under the protected investments clause and seek damages. The firm has prepared a detailed legal opinion supporting such claims, supported by an expert financial report from Charles River Associates.

Mistelis said: “It is clear to us that de-localised and depoliticised proceedings against Switzerland based on international investment agreements are the most likely route to a favourable outcome for bondholders, who were treated outrageously as Credit Suisse collapsed and had their investments unlawfully expropriated.”

He added: “We now intend to bring a series of international arbitration claims against Switzerland in the coming months on behalf of groups of affected investors in a range of countries, particularly in Asia and the Middle East.”

Clyde & Co is not the only firm exploring this prospect – London rival RPC is also known to act for Asian bondholders. According to the Global Arbitration Review, Allen & Overy withdrew as counsel to other bondholders in a prospective investment treaty claim against Switzerland after being pressured by long-standing client UBS.

However, the use of ISDS in this context is novel, supported by litigation funding. It would marry public international law and investor protection provisions with collective redress techniques for investors, which would have wider implications for other banks and their bondholders if used in similar situations.

The Swiss government declined to comment. 

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