Key World Bank Arbitration Forum Registers Complaint by BakerHostetler Client Seeking Redress for Long-Running Austrian Investigation of Famed Meinl Bank

ICSID arbitration panel asked to decide first investment treaty dispute against Austria; Malta-based principal shareholder of bank run by scion of illustrious Meinl family claims eight-year government witch hunt has destroyed value of its investment; seeks at least €200 million

Aug 04, 2015, 19:10 ET from BakerHostetler

WASHINGTON, Aug. 4, 2015 /PRNewswire/ -- The Washington-based International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank, has agreed to arbitrate a long-running dispute between the Austrian government and a banking and investment advisory business run by one of Austria's most prominent families.

BakerHostetler international arbitration partners Kenneth Reisenfeld and Mark Bailen represent B.V. Belegging-Maatschappij "Far East" in its claim against the Republic of Austria. Far East, a Malta-registered corporation, is controlling shareholder and principal owner of Meinl Bank, whose chairman of its Supervisory Board, Julius Meinl V, has been the target over the past eight years of a series of public, highly personal and increasingly feckless investigations by Austrian authorities, including the Vienna State Prosecutor's Office.  The extended, overreaching nature of the probe is especially painful given that the Meinl family had to flee Austria in the 1930s under a hostile Nazi regime purportedly operating under the "rule of law."

Far East contends that the baseless targeting by Austrian authorities has grievously harmed the value of its investment in Meinl Bank.  Its formal Request for Arbitration states, "Austria's unrestrained campaign against Meinl Bank … and its repeated failures to protect Far East's interest in Meinl Bank have been unfair, inequitable and arbitrary abuses of power. These actions and failures to act have directly and indirectly effected an expropriation of Far East's investment in Meinl Bank." 

The only charges brought against the bank or its officials – seven years into the investigation – were summarily rejected this past April by the Austrian courts because they did not set forth a criminal cause of action.  But even this has not stopped the government's harassment and unending pursuit of the bank.  In July, Austrian authorities sought to dismantle the bank's leadership, another attempt at expropriating Far East's investment.

Far East seeks redress through international arbitration under the terms of Malta's Bilateral Investment Treaty with Austria. The case marks the first time the Austrian government has been accused in an investment treaty dispute. Far East is asking a three-arbitrator ICSID panel to order Austria immediately to cease its futile and destructive investigations of Meinl Bank and its officials – carried out in contravention of its own laws, customary international law, and the bilateral investment treaty – and to compensate Meinl Bank shareholders in the amount of at least €200 million.

"Meinl Bank and Mr.  Meinl have been subject to massive violations of due process and international law by the Austrian government," said BakerHostetler's Mr. Reisenfeld.  "They are victims of a public smear campaign that has had the effect of running a historically successful bank into the ground."

He continued:  "Austrian courts repeatedly have condemned prosecutors and regulators' relentless pursuit of Meinl Bank officials, including characterizing the prosecutor's misconduct as 'grotesque' and 'massive violations.'  Yet the government has continued and even expanded its investigations despite numerous court rulings supporting Meinl Bank's due process and fairness objections. 

"The only attempt by the prosecutor to issue indictments was swiftly rejected as specious," Mr. Reisenfeld added.  "For the Meinl family this entire chapter is an uncomfortable reminder of previous injustices they endured during Austria's darkest time nearly 70 years ago. Quite simply, the Austrian government's arbitrary targeting of Meinl Bank officials should cease.  We are confident that an ICSID panel of independent arbitrators will render a just decision enjoining the government from further harassment of Meinl Bank officials and compensating in full Far East's investors."

Background

Julius Meinl V is the fifth generation of the family to run the Meinl business, originally established in 1862 as a coffee and grocery emporium, kicking off what grew into the global taste for "Viennese coffee." The company expanded to become the largest coffee supplier in the Austro-Hungarian Empire—it was the main provider to the Austro-Hungarian army during the First World War.

The Meinl business diversified into banking in the 1920s. By the eve of the Second World War, the company was the largest grocery concern in Central and Eastern Europe. But Mr. Meinl's paternal grandparents were forced to flee the persecution of Jews in Austria after the Anschluss, settling in Britain; the family was stripped of its Austrian citizenship and remain British citizens today. Mr. Meinl's maternal grandparents also fled Austria after a forced sale of their department store business in Vienna.

Taking the reins of Meinl Bank in the 1980s, Mr. Meinl turned it into a leading regional investment bank, capitalizing on the Meinl Group of companies' long experience in Central and Eastern Europe. The bank expanded into institutional asset management, M&A, advisory services, and financing and managing commercial real estate.

In 1997 the bank helped found Meinl European Land Ltd. (MEL), a real estate company registered in the Isle of Jersey. Within a decade MEL operated more than 160 properties in the CEE with a market value of €1.9 billion, and owned an additional portfolio of development projects worth €3.3 billion. MEL went public in 2002 and although Meinl Bank no longer owned MEL, it contracted with MEL to provide financial advisory services, including the issuance of securities.

In 2007 MEL initiated a stock buy-back program as part of a corporate strategy to sell a stake in the company to a larger international real estate concern.  But the global recession intervened and in 2007 greatly reduced the share prices of European real estate investment companies, leading some investors to question the stock repurchase program and to file shareholder lawsuits against Meinl Bank—although neither the bank nor Mr. Meinl were responsible for the buy-back decision.

Investigations Began in 2007

Austrian government investigations of the bank launched in 2007 focused on MEL's securities offerings and stock repurchase program.   Despite a constant stream of public accusations by Austrian prosecutors, these investigations have not born fruit after eight years.  None have pursued lawful grounds for civil or criminal liability and there have been no findings of criminal wrongdoing against Meinl Bank or Julius Meinl.  But they have been grist for a steady drumbeat of official grandstanding and leaks casting aspersions on the bank and Mr. Meinl. 

According to Far East's filing with ICSID, Austrian officials repeatedly have breached Meinl Bank's rights to due process of law, through violations including (a) appointment of biased experts; (b) attempts to manipulate experts' findings; (c) repeated, illegal house searches, even of Meinl Bank outside counsel; (d) improper surveillance of Meinl Bank officers; (e) repeated refusal to share critical investigation files; (f) denial of the right to a fair and speedy trial; (g) denial of the right to be informed of the government's charges and to confront its accusers; and (h) massive and unreasonable delays in concluding their investigation. 

The investigations included Mr. Meinl's humiliating public handcuffing and arrest in 2009. After serving two days in jail, he was released after posting bail in an amount 100 times higher than any ever before levied in Austria.

Austrian courts have condemned prosecutors and market authorities more than three dozen times for infringing Meinl Bank's basic legal rights.  But that has not stopped prosecutors and other officials from commencing new, unjustified investigations or Austria's serial abuse of Meinl Bank's rights to due process, or fair and equitable treatment.

In 2008 MEL was acquired by an international joint venture and renamed Atrium European Real Estate. Atrium's acquisition canceled MEL's service contract with Meinl Bank.  Atrium paid a negotiated termination fee, which resulted in Meinl Bank earning a significant profit during 2008.  Unexceptionally, the bank's board decided to return a portion of its profits to its shareholders in the form of an in-kind dividend. Six years later, on New Year's Eve  2014, the Vienna State Prosecutor decided to bring indictments against five Meinl Bank board members, including Mr. Meinl on allegations completely unrelated to the Austrian authorities' public accusations that stigmatized the Meinl name for many years, i.e, MEL's securities offerings and buy-back program.

Instead, the indictment alleged that the dividend issued to shareholders for 2008 amounted to a breach of trust and attempted defrauding of investors who had filed civil cases against Meinl Bank. For the first time during the entire government investigations, it identified Far East in the indictment, demanding payment of a penalty in the amount of EUR 212 million

Coming two weeks after Far East announced in December 2014 that it would exercise its bilateral treaty rights and seek consultations with Austria to negotiate resolution of the dispute or pursue its rights to international arbitration, the indictment appears to be an act of retaliation. Consistent with the arbitrariness of the government's targeting of Julius Meinl and Meinl Bank, a court dismissed this indictment within four months for failing to raise justified grounds for criminal liability.  Austria appears to have retaliated further when, just days after receiving a copy of this arbitration request from ICSID, it has now ordered the removal of Meinl Bank's leadership.

Austria summarily rejected Far East's request for consultations in December 2014.  In keeping with its recurring efforts to sidestep international obligations, Austria tried to deny applicability of the Austria-Malta BIT to the Meinl Bank investigation.  The government's conduct smacks of prosecutorial abuse and discriminatory targeting. Indeed, the head of the Criminal Section of the Austrian Ministry of Justice recently conceded that the duration of the proceedings against the bank "is no longer justified on objective grounds." He had previously acknowledged the "burden" of a lengthy state investigation on its subjects, and noted that "it would be fair to grant adequate compensation in such a case."

Far East's Request for Arbitration

According to the request for arbitration,  Austria has breached international law and its investment treaty obligations, through (a) failure to provide fair and equitable treatment to Far East's investment; (b) impairment of Far East's investment by arbitrary and discriminatory means, including harassment and retaliation; (c) failure to provide full and constant protection to Far East's investment through lawful and proportionate treatment; (d) direct and indirect expropriation of Far East's investment in Meinl Bank, via the progressive dismantling of Meinl Bank's operations and its recent demand for payment from Far East; and (e) failure to consult or attempt to reach a settlement of this case in good faith, as prescribed in the Bilateral Investment Treaty.

"After failed attempts to negotiate with the government in good faith, Far East had no choice but to commence this ICSID arbitration to stop Austria's constantly morphing and destructive investigations," Mr. Reisenfeld said. 

"Far East seeks nothing more than a level playing field protecting its legitimate expectations of a transparent, even-handed and fair legal system.   This arbitration seeks justice for one of Austria's most esteemed family businesses that has been dragged through the mud in public fashion," he continued. 

"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, order Austria to cease and desist its illegal investigations of Meinl Bank and its officials, and compensate our clients, who have watched the Austrian state effectively dismantle their investment."

About BakerHostetler
One of the nation's leading law firms, BakerHostetler helps clients around the world to address their most complex and critical business and regulatory issues. With five core national practice groups – business, employment, intellectual property, litigation, and tax – the firm has more than 900 lawyers located in 14 offices coast to coast. Recognized for its role as court-appointed counsel to the Securities Investor Protection Act (SIPA) Trustee in the recovery of billions of dollars in principal lost in the Ponzi scheme perpetrated by Bernard L. Madoff, For more information, visit www.bakerlaw.com.

About BakerHostetler's International Dispute Practice
Through a cohesive team of international advocates working across the firm, BakerHostetler provides international arbitration, litigation, and alternative dispute resolution representation for multinationals, foreign states, international organizations and private investors.  Our lawyers have served as advocates and counsel in complex investor-state, public international, human rights, civil and criminal disputes in virtually every country and before major international arbitration institutions world-wide. 

Contact:

Allan Ripp 212-262-7477 aripp@rippmedia.com


Tracy Hager 303-764-4090 thager@bakerlaw.com

SOURCE BakerHostetler



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