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Arbitration court closes dividend case

SLOVAKIA can now spend the €1 billion that it might have had to pay to a shareholder in two of Slovakia’s private health insurers after the European Court of Arbitration in Strasbourg issued a final ruling about Slovak legislation that was ruled unconstitutional by Slovakia’s Constitutional Court earlier this year.

SLOVAKIA can now spend the €1 billion that it might have had to pay to a shareholder in two of Slovakia’s private health insurers after the European Court of Arbitration in Strasbourg issued a final ruling about Slovak legislation that was ruled unconstitutional by Slovakia’s Constitutional Court earlier this year.

The European tribunal had issued a preliminary ruling in April stating that it was not authorised to decide on the specific issues in the legal dispute.

A Dutch company, HICEE, owned by the private equity group Penta Investments, is a shareholder in Dôvera and Apollo, two private health insurers in Slovakia, and filed the claim with the arbitration court in 2009 over what it called a brech of a bilateral investment protection treaty between Slovakia and the Netherlands. The breach was alleged to have occurred when Slovakia’s previous government passed a law preventing private health insurers from distributing profits to their shareholders in the form of dividends.

Slovakia’s Finance Ministry confirmed that the compensation sought by HICEE was €1 billion. The arbitration tribunal’s final ruling was issued on October 17. The Finance Ministry’s spokesman, Martin Jaroš, stated that the final ruling dealt with whether this case was properly before this particular arbitration court, according to a report by Slovak Radio.

An international law firm – Skadden, Arps, Slate, Meagher & Flom – represented the Slovak government in what the firm called the largest dispute ever brought against the country. The firm’s press release stated that the arbitration tribunal had accepted the legal argument that “HICEE’s interests in Dôvera and Apollo cannot be considered to be 'investments of investors of the other contracting party’ and dismissed the company’s claim in its entirety”.

The law firm added that the arbitral tribunal had considered whether the definition of an investment under the bilateral investment treaty between Slovakia and the Netherlands to protect “investments of investors of the other contractingparty” also extended to HICEE's indirect investment in Dôvera and Apollo.

Penta responded to the ruling by stating that the arbitral tribunal had not reached any decision on whether its investments, via HICEE and Dôvera and Apollo, were damaged or whether the firm is entitled to any compensation.

“The subject of the arbitration case between the Dutch company HICEE and Slovakia was on the question of whether the consequence of the ban on distributing profit to shareholders from the healthinsurers in Slovakia damaged the investment and if so what compensation should be awarded,” Martin Danko, the PR manager for Penta Investments, told The Slovak Spectator.

The arbitral tribunal had issued a preliminary decision in April 2011 stating that the case before it did not fall under its jurisdiction, Danko said.

“Considering the fact that the Constitutional Court in Slovakia ruled about the unconstitutional nature of the law on health insurers from 2007, we have decided not to seek any further corrective measures from international arbitration,” Danko told The Slovak Spectator.

Danko said Penta Investments is pursuing further hearings only in Slovak courts.

“In January 2010 a lawsuit on damages to our investment was filed with the Bratislava District Court,” Danko stated, but added that since it is an ongoing case Penta Investments would make no further comments on it.

Slovakia paid over €5.5 million for its legal representation in Strasbourg and made an upfrontpayment of €250,000 to cover t he costs of the tribunal. The SITA newswire reported that Slovakia still faces two other international arbitration cases and three lawsuits filed with Slovak courts by shareholders of the two health insurers.

The troubled legislation

The legislation passed by parliament in 2007 became one of the most criticised laws advanced by the government of former prime minister Robert Fico and also attracted the attention of the European Commission. The cabinet of Prime Minister Iveta Radičová amended the law in July this year so that private health insurers can distribute their profit to shareholders if they meet two conditions: they create a reserve fund of 20 percentof their share capital and they create reserves to pay for health care for patients who have been put on a waiting list.

Slovakia’s Constitutional Court ruled in January 2011 that the law, which took effect in 2008, restricted the property rights of the health insurers’ shareholders, interfered in the insurers’right to do business by preventing them from making autonomous decisions over how to use their profits, and was thus unconstitutional.

In defending the legislation in 2007, Fico told public broadcaster Slovak Radio that the previous centre-right government’s goal had been “to allow someone, mainly foreign firms, to access public resources and gradually carve off huge profits from these resources. People are now required to pay money for insurance premiums to the insurers and it is absolutely unacceptable to us to allow someone to keep part of this money.”

The private health insurers in Slovakia retorted that the legislation was hostile to the investment made by their shareholders. HICEE filed the suit against the Slovak Republic before the European Court of Arbitration in January 2009 and at that time Fico called the action “blackmail”.

Slovakia’s Association of Health Insurers (ZZP) had stated several times before passage of the legislation that it would conflict with international agreements on the protection of investments, as well EU law and Slovakia’s constitution.

In 2008, 49 members of Slovakia’s parliament asked the Constitutional Court to review the law, arguing that it violated the constitution as well as international laws. Later, Fico, who now serves as a deputy speaker of parliament, refused to represent the Slovak parliament at the hearing before the Constitutional Court on the constitutionality of the law.

A private health insurer, Európska Zdravotná Poisťovňa, left the Slovak market in 2008 citing dissatisfaction with market conditions. Dôvera and Apollo merged in 2010, leaving only one other private insurer, Union. Two stateowned healt h insurers, Všeobecná Zdravotná Poisťovňa (VšZP) and Spoločná Zdravotná Poisťovňa (SZP), merged as well in 2010.

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