HFW has announced plans to launch a $5bn multi-party investor-state arbitration against Switzerland arising from the collapse of Credit Suisse and the write-down of the bank’s junior bonds known as AT1s.
HFW has been instructed by a substantial group of Credit Suisse AT1 bondholders to commence an investor-state treaty arbitration against Switzerland from August.
The claim is one of several being brought following the 2023 takeover of Credit Suisse by UBS, at which time the Swiss financial supervisory authority FINMA reduced the value of these bonds to zero, amounting to a write-down of some CHF16bn, which caused considerable turmoil in the bond markets.
The bonds, a form of debt that converts into equity, were written down when the Swiss bank ran into trouble, with losses being imposed on bondholders while allowing equity investors to recover $3.3bn, according to the Financial Times – a reversal of the usual banking hierarchy.
The arbitration, which will be heard at ICSID – the International Centre for Settlement of Investment Disputes – headquartered in Washington DC, concerns investor-state dispute settlement claims based on Switzerland’s alleged breaches of its obligations under international law, in particular treaty obligations owed under relevant investment treaties.
HFW argues that writing down AT1 bonds went against standard loss absorption rules, sparking controversy among regulators and markets, as many industry observers argued the conditions for triggering the write-down were not met.
The claim, which is supported by litigation funders, is being led by HFW partner Shaun Leong with support from Melbourne partner Paul Buitendag, and arbitration partners Nick Longley in Melbourne, Julien Fouret in Paris and Damian Honey in London.
Leong said: “We have already gathered a substantial group of some of the largest Credit Suisse AT1 bondholders in Singapore, with an approximate aggregate claim sum accounting for interest and coupon rates at over $80m.
“Bondholders from China, Hong Kong, the United Arab Emirates, Japan, the Republic of Korea, Kuwait, Oman, the Philippines, Qatar and Saudi Arabia are welcome to join. They should act quickly if they wish to get involved. The estimated aggregate bondholder exposure quantum would be more than $5bn.”
He added: “We can expect Switzerland to claim a three-year statute of limitations. As the write-down occurred in April 2023, we are a few months away from April 2026, when we can expect Switzerland to argue that any claims not formally launched would have expired by then, even though we would say that this is inapplicable under international law.”
The proposed proceedings are not the sole claim against Switzerland at ICSID. Clyde & Co is also preparing to initiate investment arbitration proceedings, while Withers is preparing additional claims and stated to Singaporean media in 2024 that it is “proactively co-ordinating funded investor-state arbitration claims” on behalf of Credit Suisse AT1 holders in Asia and the Middle East.
Similarly, Singapore’s Drew & Napier, in collaboration with Swiss law firms and backed by funder Omni Bridgeway, is undertaking related efforts. Japanese law firm Mori Hamada & Matsumoto is bringing related claims on behalf of Japanese investors, having initiated ICSID proceedings in December 2024, funded by litigation funders LCM.
Other claims in litigation are being made by a variety of law firms, including Quinn Emanuel, which is co-ordinating an international group of law firms, including litigation boutique Keidan Harrison, while Pallas Partners is also supporting two groups of bondholders, ranging from institutions, family offices, asset management funds and high net worth retail investors.
It is understood that the Swiss government has instructed external law firms, including Swiss firm Lévy Kaufmann-Kohler, to respond to the claims. It has denied liability in other litigation proceedings in the Swiss and other courts, including related class actions in the US, in which Switzerland is being actively represented by Wachtell Lipton Rosen & Katz.
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