HSBC initiates legal proceedings against El Salvador, claiming Supreme Court ruling was a denial of justice and breach of El Salvador-United Kingdom Bilateral Investment Treaty

Rhea-AI Summary

HSBC Latin American Holdings has filed legal proceedings against the Republic of El Salvador, claiming a breach of its investment treaty with the UK, seeking at least $49.3 million in damages. This legal action arises from a Supreme Court decision in El Salvador, which overturned lower court rulings that favored HSBC in recovering $2 million in unpaid loans, instead penalizing the bank. HSBC alleges that this represents a denial of justice and violates the El Salvador-UK Bilateral Investment Treaty. The case will be adjudicated by the International Centre for Settlement of Investment Disputes (ICSID).

Positive

• HSBC's arbitration case could potentially recover $49.3 million in damages, strengthening its financial position.
• The case highlights HSBC's commitment to protecting its rights as a UK investor under international law.

Negative

• The Supreme Court of El Salvador's decision reversed previous judgments, posing a significant financial risk to HSBC.
• Ongoing legal disputes may negatively impact HSBC's reputation and operations in the region.

HSBC Latin American Holdings (HSBC, the Bank) initiated legal proceedings against the Republic of El Salvador for breach of its investment treaty with the United Kingdom, and seeks to recover at least $49.3 million in damages that the Bank alleges were wrongly awarded against it by the Supreme Court of El Salvador.

The arbritation case will be heard by the International Centre for Settlement of Investment Disputes (ICSID). Based in Washington, D.C., ICSID is part of the World Bank Group and supports the resolution of international investment disputes between investors and sovereign states.

The dispute arises from a case in El Salvadoran courts in which HSBC sought to recover approximately $2 million in unpaid loans to a local business. The first court to hear the case found in HSBC’s favor. The borrower appealed, and the appellate court again found in HSBC’s favor. However, the Supreme Court overturned the lower courts’ decisions, not only failing to enforce the loan agreement but also ordering HSBC to pay the defendant $49.3 million. The damages award was more than twice the $22.5 million sought by the El Salvadoran business.

“HSBC is involved in legal cases in courts around the world, and we accept the outcome of those proceedings when they are resolved according to the rule of law,” said Leopoldo Ortega, General Counsel, HSBC Latin America. “This case is effectively a judicially sanctioned denial of justice, and our decision to take it to an independent international tribunal is meant to protect both our financial interests and the rule of law in international investing.”

In its filing with the ICSID, HSBC states that the Supreme Court decision, coupled with various serious irregularities in the judicial process, resulted in a clear violation of the Bank’s fundamental rights.

Specifically, the Supreme Court decision breached El Salvador’s obligations to UK investors under the El Salvador-United Kingdom Bilateral Investment Treaty, HSBC claims. Under that treaty, which was signed by both nations and has been in force since 2000, El Salvador and the UK agree to give each other’s investors fair and equitable treatment, and to protect them against unreasonable or discriminatory measures. The court’s decision amounts to a “denial of justice”, a well-established legal principle, and fails to protect the fundamental rights of HSBC as a UK investor in El Salvador, HSBC’s arbitration filing states.

Prior to filing its case with ICSID, HSBC sought an amicable settlement, writing to the Government of El Salvador in December 2020 and offering to discuss the case. To date, the Government of El Salvador has provided no substantive response, so HSBC moved forward with the arbitration proceeding.

ICSID is a dispute resolution institution established in 1965 under the ICSID Convention – an international treaty which has been signed by 155 states, including El Salvador and the UK. ICSID tribunals consist of independent arbitrators who do not share the nationality of either party. The outcomes of its arbitration proceeds are enforceable in any of the 155 nations which have signed the ICSID Convention, including El Salvador.

Note to editors:

About HSBC

HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in 64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of US$2,976bn at 30 June 2021, HSBC is one of the world’s largest banking and financial services organisations.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210818005795/en/

FAQ

What is HSBC's legal claim against El Salvador about?

HSBC claims a breach of the investment treaty between the UK and El Salvador and seeks $49.3 million in damages after a Supreme Court ruling.

What damages is HSBC seeking from the Republic of El Salvador?

HSBC is seeking at least $49.3 million in damages related to unpaid loans and subsequent court rulings.

Where will the arbitration case involving HSBC and El Salvador be heard?

The case will be heard by the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C.

How does the El Salvador-UK Bilateral Investment Treaty relate to HSBC's case?

HSBC claims the Supreme Court's decision violated the treaty, which mandates fair treatment for UK investors.

What actions did HSBC take prior to initiating the arbitration process?

HSBC sought an amicable settlement and contacted the Government of El Salvador in December 2020 but received no substantive response.