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Journal of International Arbitration.
Defining Investors: Who Is Eligible To Claim?
Antoine ROMANETTI*
This article sets out the basic concepts of investors in investment arbitration and analyses a
selected number of decisions of arbitral tribunals in light of some objections to jurisdiction which
are frequently raised by respondent States. More specifically, the article deals with the thorny legal
question of the extent to which a national of a host State can sue its own State before an
international tribunal, such as the International Centre for Settlement of Investment Disputes
(ICSID) Tribunal.
In particular, the article touches upon two recent cases in which the author was involved as
co-counsel (in a team of several lawyers) for the States: a treaty-based case, Rompetrol v.
Romania, on the issue of shell companies, and an unpublished contract-based case involving a
West African State and a joint venture, on the issues of control and the interpretation of the term
‘under foreign control’ contained in Article 25(2)(b) of the ICSID Convention.
1
INTRODUCTION
The determination of who is eligible to claim is one of the key jurisdictional
issues in investment arbitration. When assessing their causes of action, foreign
investors tend to have a broad interpretation of the term ‘investor’ contained in the
applicable international instruments in order to pursue their claim before an
international tribunal. (They merely wish, sometimes, to pressurize the host State
that ICSID claims have been posted on the website of the ICSID,1 a branch of the
World Bank).
The identity of the claimant is, of course, a matter closely looked at by the
counsel to the respondent States, who endeavour, whenever possible, to challenge
the jurisdiction of the arbitral tribunal in order to delay and/or derail the
arbitration proceedings.
In an ICSID arbitration, there exist different stages at which a respondent
State may argue that the foreign investor is not eligible to claim, as follows:
*
1
Antoine Romanetti, admitted to practice at the Bars of Paris, France, and Geneva, Switzerland
(www.romanettiavocats.com). The present paper has been prepared on the basis of a presentation
delivered at King’s College London in the context of the Foreign Direct Investment (FDI)
International Arbitration Moot, sponsored by Skadden, in London on Nov. 4, 2011.
See http://icsid.worldbank.org/ICSID/Index.jsp/.
Romanetti,Antoine. ‘Defining Investors: Who Is Eligible To Claim?’. Journal of International Arbitration 29,
no. 3 (2012): 231–254.
© 2012 Kluwer Law International BV, The Netherlands
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JOURNAL OF INTERNATIONAL ARBITRATION
– before the Secretary General of ICSID on the basis that the claim is
‘manifestly outside the jurisdiction of the Centre’ (Articles 28(3) and 36(3) of the
ICSID Convention);
– before the arbitral tribunal within thirty days of its constitution in case the
State deems that the claim is ‘manifestly without legal merit’ (Rule 41(5) of the
new ICSID Arbitration Rules);
– before the arbitral tribunal in the course of the jurisdictional phase or
during the arbitration proceedings (if the tribunal has decided to join the
jurisdictional issues to the merits of the case);2 and
– once an award has been rendered, before an ICSID ad hoc Committee on
the ground that the Tribunal manifestly exceeded its powers (or in other
treaty-based cases (non-ICSID Convention cases) before the relevant State
court at the place of arbitration under the 1958 New York Convention).
The answer to this question of who the foreign investors entitled to file an investor
claim before an ICSID tribunal are, is contained in Article 25 of the ICSID
Convention, in the definition of the term ‘investor’ contained in the applicable
BIT, in the local laws of the host State of the investment on nationality and
control, in international law, and in the case law (or rather, the most persuasive
authorities).3
Prior to delving into the basic concepts of investors, it is worth noting that
there exists a basic principle in public international law, according to which a
national of a host State cannot sue its own State before an international tribunal
unless the State in question gives its consent.4 It is submitted that the ICSID
system was built around this pillar.
The author shall first present briefly the basic concepts of ‘investors’ in
investor-State arbitration (2). Then, the author shall discuss recent cases in light of
an analysis of some objections to the jurisdiction ratione personae of the arbitral
tribunal, which are commonly raised by respondent States in the course of the
arbitration proceedings (3).
2
3
4
See e.g., Julian Lew, Loukas Mistelis & Stefan Kröll, Comparative International Commercial Arbitration, at
paras. 28-72 (Kluwer Law International 2003).
See e.g., Jean-Michel Jacquet, Avons-nous besoin d’une jurisprudence arbitrale? Rev.Arb. 445-466 (2010).
This consent can be given in a contract, a law, or a treaty.
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
2
233
THE BASIC CONCEPTS OF INVESTORS
In treaty-based ICSID cases, the definition of ‘investors’ is contained in Article 25
of the ICSID Convention and in the applicable bilateral or multilateral treaty. In
other treaty-based cases which are not conducted under the ICSID Convention
(such as treaty-based cases conducted under the arbitration rules of the
International Chamber of Commerce (ICC Arbitration Rules) or the
UNCITRAL Arbitration Rules), the task of the claimant is somewhat easier in
that it must only meet the requirements ratione personae contained in the applicable
BIT. Prior to examining the various categories of definitions of the term ‘investor’,
which might be contained in BITs (2.2), the author shall set out first the definition
of the term ‘investor’ in Article 25 of the ICSID Convention (2.1).
2.1
THE DEFINITION OF ‘INVESTORS’ IN ARTICLE 25 OF THE ICSID CONVENTION:
‘A NATIONAL OF ANOTHER CONTRACTING STATE’
Article 25(1) of the ICSID Convention provides as follows:
The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an
investment, between a Contracting State […] and a national of another Contracting State,
which the parties to the dispute consent in writing to submit to the Centre. […]
(emphasis added).
Then,Article 25(2) establishes a distinction between physical and juridical persons.
2.1[a]
Physical Persons
Article 25(2)(a) of the ICSID Convention provides as follows:
‘National of another Contracting State’ means:
(a) any natural person who had the nationality of a Contracting State other than the
State party to the dispute on the date on which the parties consented to submit the dispute to
arbitration as well as on the date on which the request was registered […], but does not include any
person who on either date also had the nationality of the Contracting State party to the dispute
(emphasis added).
Articles 25(1) and 25(2)(a) establish a positive requirement: the physical person
must be a national of a Contracting State. In turn, Article 25(2)(a) of the ICSID
Convention also contains a negative condition. It provides in fine that physical
persons who have the same nationality as the host State on either date are not
eligible to claim. Article 29 of the Report of the Executive Directors on the
Convention makes it clear that ‘this ineligibility is absolute and cannot be cured even if
the State party to the dispute had given its consent.’ This Article 25(2)(a) illustrates this
basic principle of public international law, mentioned above, according to which a
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JOURNAL OF INTERNATIONAL ARBITRATION
national cannot sue its own State before an international tribunal unless the State
in question gives its consent.
The legal status and capacity of a physical person is determined by the laws of
the State whose nationality is claimed, subject where applicable to the rules of
international law.
2.1[b]
Juridical Persons
Article 25(2)(b) of the ICSID Convention provides as follows:
‘National of another Contracting State’ means:
(a) [….]; and
(b) any juridical person which had the nationality of a Contracting State other than the
State party to the dispute on the date on which the parties consented to submit such dispute to
arbitration [….] (emphasis added).
The ICSID Convention is silent on the method which should be applied by
arbitral tribunals to determine the nationality of a juridical person. There exist
various methods or tests: the test of the place of incorporation, the test of the place
of the seat, the test of the place of the effective seat, the control test, and the test of
the nationality of the shareholders. Following the International Court of Justice
Barcelona Traction case,5 ICSID tribunals have most commonly retained the test
of the place of incorporation or seat. In this context, the definition of ‘investor’
contained in the applicable BIT is key in determining the method to be applied.
The second clause of Article 25(2)(b) of the ICSID Convention provides for an
exception to the basic principle of public international law mentioned above for
juridical persons only. A juridical entity may have the nationality of the host State
in certain specific circumstances.
Article 25(2)(b) of the ICSID Convention, second clause, provides as follows:
‘National of another Contracting State’ means:
(a) [….];
(b) any juridical person which had the nationality of a Contracting State other than the
State party to the dispute on the date on which the parties consented to submit such
dispute to arbitration and any juridical person which had the nationality of the Contracting State
party to the dispute on the date and which, because of foreign control, the parties have agreed should
be treated as a national of another Contracting State for the purposes of the ICSID Convention
(emphasis added).
Indeed, the drafters of the ICSID Convention took into account the fact that it is
common for a host State to require potential foreign investors to invest in its
territory through a locally incorporated company. The legitimate goal is to ensure that
foreign investors comply with local laws and pay taxes in the host State.Therefore,
the ICSID Convention provides for a specific exception for juridical persons: the
5
ICJ, Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain) (available at
http://www.icj-cij.org/docket/index.php?p1=3&p2=3&code=bt2&case=50&k=1a&p3=0).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
235
parties can agree to treat such local company, ‘because of foreign control’, as ‘a national
of another Contracting State’. This agreement can be contained in the underlying
contract or in a treaty.
The author shall discuss the meaning to be given to the terms ‘because of foreign
control’ below.6
2.2
THE DEFINITION OF THE TERM ‘INVESTOR’ IN BITS
Investment treaties define the term ‘investor’ in various ways.7 It would be difficult
to mention all of them in this paper, so the author shall just refer to some of them.
2.2[a] Physical Persons
The most usual definition of ‘investor’ in a BIT will comprise with regard to either
‘Contracting Party’ the following:
natural persons having the citizenship or the nationality of that Contracting Party in
accordance with its laws.8
Some BITs provide a more restrictive definition of natural persons and demand that
the physical person must have his permanent residence in the investor’s home State.
Another example of a more restrictive definition is contained in paragraph 1
of the Additional Protocol to the Argentinean-Italian BIT. It provides that to
benefit from the protection of the BIT, an Italian individual who makes an
investment in Argentina must not have been domiciled in Argentina for more than
two years prior to making an investment.9
By contrast, other BITs or multilateral treaties provide a more expansive
definition of physical persons.The term ‘investor’ encompasses not only citizens of
the investor’s home State, party to the BIT in question, but also citizens of third
countries who have their permanent residence in the investor’s home State.10
2.2[b]
Juridical Persons
As the juridical persons are, by far, those foreign investors who invest more money
in host States, the definition of ‘juridical persons’ in BITs is essential. It is a matter
6
7
8
9
10
See pp. 249-253, infra.
See generally, Rudolf Dolzer & Margaret Stevens, Bilateral Investment Treaties (Martinus Nijhoff
Publishers 1995).
Article 1(b)(i) of the Dutch-Romanian BIT.
See Additional Protocol to the Argentinean-Italian BIT, at para. 1; Abaclat and Others v. The Argentine
Republic, infra n. 24.
For an example contained in a multilateral agreement, see Energy Charter Treaty (ECT),Art. 1(7)(a)(i).
236
JOURNAL OF INTERNATIONAL ARBITRATION
of public policy for each State concerned, when negotiating or renegotiating a
particular BIT. Depending on several factors, such as the size of its internal market,
its stage of development, its integration or not in a broader custom union, States
may wish to attract as much foreign investment as possible or only certain
categories of investors.11
One of the most common definitions of ‘investor’ for juridical persons in
BITs is as follows:
Investor means ‘any entity established in the territory of [the investor’s home State] in
conformity with its laws and regulations’.12
It is a concise and broad definition, and arguably rather a laconic one. The thorny
legal question arises as to how to interpret a similar provision when there is no
express prohibition. For example, in the above-mentioned definition, there is no
express prohibition for a physical person residing in the host State to have recourse
to a ‘shell’ company incorporated in the other Contracting State (the investor’s
home State) to gain standing. If the ‘shell’ company was duly registered in the
investor’s home State ‘in conformity with its laws and regulations’, it would seem that
such company would qualify as an ‘investor’ within the meaning of the BIT.
However, this would also seem contrary to the fundamental principle of public
international law, cited above, according to which a national of a host State cannot
sue its own State before an international tribunal unless the State gives its
‘consent’. Thus, the question arises whether in the silence of the clause in the
applicable BIT, it is allowed or not. If the answer is in the affirmative, the question
then arises under what conditions, if any, it is allowed.
Other BITs provide a more restrictive, or sometimes, a more expansive
definition of the term ‘investor’ for juridical persons.
As an example of a more restrictive definition, a BIT may require that the
company must have its headquarters and its real place of business in the investor’s
home State. It is not sufficient that a company be registered in the investor’s home
State, it must have its main business interests and real economic activity in that
country.Thus,Article 1(1)(b) of the Romanian-Vietnam BIT reads as follows:
legal entities […] which are constituted or otherwise duly organized under the law of that
Contracting Party and have their seat together with real economic activities in the territory of the
same Contracting Party. (emphasis added)
11
12
Certain States, due to their specificities, such as Brazil and Saudi Arabia, consider that they do not
need BITs to attract foreign direct investments.
Lithuanian-Ukrainian BIT,Art. 1. See also ECT,Art. 1(7)(a)(ii).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
237
Conversely, as an example of a broader definition of ‘investor’, some BITs expressly
include in the definition of ‘investor’ juridical entities which do not have the legal
personality, such as an unincorporated joint venture.
Moreover, as an example of an expansive definition, the Dutch BITs often allow
companies incorporated in a third State to benefit from the protection of the
Dutch BIT if such companies are under the direct or indirect control of a Dutch
physical person or a legal entity registered in the Netherlands. Thus, Article
1(b)(iii) of the Dutch-Romanian BIT provides that the term ‘investor’ shall
comprise with regard to either Contracting Party the following:
legal persons owned or controlled, directly or indirectly, by natural persons as defined in i.
or by legal persons as defined in ii. above.
The provision of a BIT concerning the definition of the term ‘investor’ cannot
provide ICSID jurisdiction rationae personae unless the conditions of Article 25 of
the ICSID Convention are satisfied.13
Whilst the scope of the term ‘investor’ (i.e., a national of another Contracting
State, in ICSID parlance) contained in the ICSID Convention is the result of a
compromise reached by scores of countries in 1965, and it therefore inevitably
contains some ambiguities, one could have expected that the definition of
‘investor’ contained in more recent bilateral treaties in the 1990s would have been
much more detailed and precise, and would have brought clarification. It is not the
case. In fact, various arbitral tribunals have grappled with the notion of ‘investors’
contained in BITs. Some may argue that they did not reach a satisfactory
outcome.
3
SOME FREQUENT OBJECTIONS TO THE JURISDICTION OF THE
TRIBUNAL ON THE GROUND OF THE NON-ELIGIBILITY OF THE
‘INVESTOR’
Faced with an investment claim, respondent States typically raise several objections
to the jurisdiction of the tribunal, arguing inter alia that the ‘investor’ is not eligible
to bring the claim.
There are recent examples where arbitral tribunals have taken a restrictive
approach to the concept of ‘investor’: e.g., TSA Spectrum v.The Republic of Argentine,
Phoenix Action v. Czech Republic, Cementownia ‘Nova Huta’ S.A. v. Turkey, Gallo v.
Canada. Conversely, there are examples where arbitral tribunals have taken,
arguably, an ‘expansive’ approach to the concept of investor: Tokios Tokelès v. Ukraine,
Rompetrol v. Romania, Yukos v. Russia, Hulley v. Russia, Veteran Petroleum v. Russia,
13
See e.g., TSA Spectrum v. The Republic of Argentine, ICSID Case No. ARB/05/5, at para. 156, Award
(Dec. 19, 2008) (available at http://italaw.com/documents/TSAAwardEng_000.pdf/).
238
JOURNAL OF INTERNATIONAL ARBITRATION
Abaclat and Others v. The Argentine Republic, and an unpublished decision of an ad
hoc Committee involving a West African State and a locally incorporated
company.
The author shall examine in turn some recent cases relating to physical
persons (3.1), and then some recent cases relating to juridical persons (3.2).
3.1
CASES WHERE THE ‘INVESTOR’ IS A PHYSICAL PERSON
Depending on the facts of the case, respondent States may argue that the claimant
is not ‘a national of a Contracting State’ because the investor’s home State is not a
party to the ICSID Convention and/or is not an ‘investor’ within the meaning of
the BIT relied upon (Soufraki v.The United Arab Emirates). Respondent States may
argue that the claimant has a dual nationality, including that of the host State,
which is prohibited under the ICSID Convention (Champion Trading v. Egypt).
States may also allege that the investor must maintain the same nationality of the
investor’s home State from the date of the consent until the date of the issuance of
the award (Siag & Vecchi v. Egypt). Further, respondent States may argue that in case
of dual nationality, an investor cannot relinquish the nationality of the host State
(Victor Pey Casado v. Chile). Finally, they may allege that the ICSID system was not
designed to deal with collective claims in case of default by a State on its sovereign
debt (Abaclat and Others v.The Argentine Republic).
3.1[a]
The Determination of the Nationality of a Physical Person: the Acts and Decisions of the
Investor’s Home State Are Not Binding on the Arbitral Tribunal
A respondent State may argue that the claimant is not an ‘investor’ within the
meaning of the applicable BIT because he or she is not in truth a citizen of the
investor’s home State party to the BIT. The effects of the acts and decisions of
the investor’s home State (e.g., a passport) certifying that the physical person was a
citizen at the relevant dates are not absolute. As explained in Soufraki v.The United
Arab Emirates,14 an arbitral tribunal must accord ‘great weight’ to the domestic laws,
domestic acts, and decisions of the home State on the determination on the
nationality of the investor, but the arbitral tribunal is not bound by such
determination.
In Soufraki v. The United Arab Emirates, Mr Soufraki was both a Canadian and
an Italian national. He filed an ICSID claim against the United Arab Emirates
under the Italian-UAE BIT. Italy and the UAE have signed and ratified the ICSID
14
Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award, July 7, 2004 (available at
http://italaw.com/documents/Soufraki_000.pdf/).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
239
Convention, but Canada had not ratified it.The UAE argued that Mr Soufraki was
not an Italian national. As evidence of his Italian nationality, he relied on two
Italian passports and several letters issued by the Italian Ministry of Foreign Affairs
certifying that he was indeed an Italian citizen.
However, on the facts of the case, the Tribunal dismissed the claim on the
ground that Mr Soufraki was not an Italian national anymore, and accordingly he
could not rely on the Italian-UAE BIT.The Tribunal interpreted the Italian law on
nationality, and it applied an old Italian law finding that when Mr Soufraki left
Italy to settle down in Canada and became a Canadian citizen in 1991, he lost his
Italian nationality (and he never took the necessary steps to recover it, whereas he
could have). It is striking that the Tribunal concluded that it was not bound by
decisions and acts of the Italian State (the passports or the letters issued by the Italian
Ministry of Foreign Affairs).
The Tribunal stated the following:
[…] when, in international arbitral or judicial proceedings, the nationality of a person is
challenged, the international tribunal is competent to pass upon that challenge. It will
accord great weight to the nationality law of the State in question and to the interpretation
and application of that law by its authorities. But it will in the end decide for itself whether, on
the facts and law before it, the person whose nationality is at issue was not a national of
the State in question and when and what follows from that finding. Where, as in the
instant case, the jurisdiction of the international tribunal turns on an issue of nationality,
the international tribunal is empowered, indeed, bound, to decide that issue15 (emphasis
added).
It is noteworthy that Mr Soufraki would have had standing if he had incorporated
a company in Italy in due course, and channelled his investment in the UAE
through that company.
3.1[b]
The Prohibition of Dual Nationality for Physical Persons Contained in Article 25(2)(a) of
the ICSID Convention
Respondent States may argue that the physical person does not qualify as an
‘investor’ within the meaning of the ICSID Convention because the claimant has a
dual nationality, including that of the host State, which is expressly prohibited
15
Id. at 55. The investor subsequently filed an application for annulment of the award before an ICSID
ad hoc Committee claiming that the Tribunal had manifestly exceeded its powers when it considered
that it must only give ‘great weight’ to the nationality law of the UAE, but the Committee dismissed
the claim. See Decision of the Ad Hoc Committee on the Application for Annulment of Mr Soufraki,
June 5, 2007 (available at http://italaw.com/documents/SoufrakiAnnulment.pdf/).
240
JOURNAL OF INTERNATIONAL ARBITRATION
under Article 25(2)(a) of the ICSID Convention. This principle is reflected, for
example, in Champion Trading Co. et al v. Egypt.16
In Champion Trading Co. et al v. Egypt, two US corporations and three US
nationals, the Wahba brothers, filed a claim against Egypt, but the brothers had dual
nationality; they were both US and Egyptian citizens.
The Tribunal found that it did not have jurisdiction over the three physical
persons on the basis of the ‘clear and specific rule’ established in Article 25(2)(a) of the
ICSID Convention.This article excludes claims by individuals who have the same
nationality as the host State.
3.1[c]
The Potential Additional Jurisdictional Requirement Ratione Personae of Continuous
Nationality
Respondent States may also allege that the physical person does not qualify as an
‘investor’ within the meaning of the ICSID Convention, because the physical
person in question did not have the nationality of the investor’s home State at the
time of the issuance of the award. The thorny legal question as to whether or not
an investor must maintain the same nationality of the investor’s home State from
the date of the consent until the date of the issuance of the award has been dealt
with in Siag and Vecchi v. Egypt.17
In Siag and Vecchi v. Egypt, Ms Vecchi was an Italian national. She filed an ICSID
claim as a co-claimant against Egypt under the Egyptian-Italian BIT.
Unfortunately, she passed away in the course of the arbitral proceedings and her
heirs took over the claim. However, the heirs were also nationals of the host State;
that is, they were Egyptian nationals.
Relying inter alia on the Loewen v. USA case, Egypt argued that the claim of
Ms Vecchi should be dismissed by the Tribunal on the basis that her heirs were
Egyptian nationals and were therefore not entitled to claim before the ICSID,
pursuant to Article 25(2)(a) of the ICSID Convention. Egypt argued that the
investors must have the nationality of the investor’s home State not only on the
dates of the consent and the registration of the request for arbitration, but also on
the date of the issuance of the award.Thus, Egypt argued that there exists a rule of
continuous nationality, which was originally developed in the context of
diplomatic protection, and which applies in the ICSID context.
16
17
Champion Trading Company et al v.The Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on
jurisdiction, Oct. 21, 2003 (available at http://italaw.com/documents/champion-decision.pdf/).
Waguih Elie George Siag and Clorinda Vecchi v.The Arab Republic of Egypt, ICSID Case No. ARB/05/15,
Decision on jurisdiction and Partial Dissenting Opinion, Apr. 11, 2007 (available at
http://italaw.com/documents/Siagv.Egypt.pdf/).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
241
However, the Arbitral Tribunal dismissed the claim. It stated that the supposed
requirement for claimants to maintain a continuous nationality from the date of
the consent to the date of the rendering of the award is a controversial doctrine,
and has been criticized by some authors.The Tribunal, citing a paragraph from the
Schreuer treatise, concluded that the ICSID Convention does not require that a
party retain the continuous nationality up to the date of the ruling of the award,
and that the two ‘relevant dates under the ICSID Convention are the date of consent and
the date of registration.’18 In accordance with this, the heirs to Ms Vecchi were
deemed to be eligible investors.
Some may conclude that ‘[c]hanges in the ownership of the investment, with or
without a change of nationality, after the institution of proceedings are immaterial for ICSID
jurisdiction’.19
3.1[d]
The Relinquishment by a Physical Person of his Nationality of the Host State
In case a physical person makes an investment in a host State and happens to have
a dual nationality, including that of the host State, some authors consider that such
investor would be entitled to sue the host State before ICSID, if prior to the host
State giving its consent to the ICSID arbitration, the physical person would
relinquish the nationality of the host State. In such a situation, the respondent State
may argue that a citizen’s renunciation of his nationality is not permitted under its
Constitution and accordingly the investor is not eligible to file a claim under
Article 25(2)(b) of the ICSID Convention. However, in Victor Pey Casado and
President Allende Foundation v. Republic of Chile,20 the Tribunal ruled that a physical
person may have recourse to a certain form of nationality shopping by renouncing
one of his nationalities.
In Victor Pey Casado and President Allende Foundation v. Republic of Chile, Mr
Casado was originally a Spanish national who had immigrated to Chile, had made
an investment in Chile and had subsequently acquired Chilean nationality. After
General Pinochet’s military coup in 1973, Mr Casado fled Chile and returned to
Spain, where he lived from 1974 to 1993.A few years later, in 1997, he sent a letter
to the Chilean Consulate in Mendoza, Argentina, informing the Chilean
authorities that he was renouncing his Chilean nationality. Then, he consented to
ICSID arbitration and filed an ICSID claim against Chile under the
18
19
20
Id. at 205, 206.
See Christoph Schreuer, Loretta Malintoppi, August Reinisch & Anthony Sinclair, The ICSID
Convention:A Commentary Art. 25, at para. 356 (2d ed., Cambridge U. Press 2009) [emphasis added].
Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2,
78-79,Award (Apr. 22, 2008) (available in French at http://italaw.com/documents/Peyaward.pdf/).
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Chilean-Spanish BIT. In August 1998, a Chilean civil servant filed a mention with
the Chilean civil registry stating that Mr Casado was a foreigner.
Chile argued that Mr Casado was not an eligible investor as he was a dual
national (a Spanish and a Chilean citizen). Chile also referred to the Chilean
Constitution, arguing that it provides that a Chilean citizen is not allowed to
renounce his or her nationality.
The Arbitral Tribunal interpreted the Chilean laws, which were not very clear
on this particular point. It concluded that the renunciation of the nationality was
possible and consistent with the Chilean Constitution.21 It also found that Mr
Casado had carried out, in due course, certain acts in order to renounce his
Chilean nationality and that the mention in the civil registry implied that Chile
had recognized that he had renounced his Chilean nationality.22 Thus, the Tribunal
concluded that it had a margin of appreciation to interpret the Chilean laws23 and
that Mr Casado was not a Chilean national for the purposes of the ICSID
jurisdiction.
3.1[e] The Collective Claim Submitted by Several Physical Persons
In line with the alleged Americanization of the arbitration proceedings, respondent
States may be increasingly faced, in the future, with collective claims put forward
by scores of physical persons. In such an unexpected situation, a respondent State
may argue that the ICSID system was not designed to deal with collective claims
in case of default by a State on its sovereign debt, and that in any event it never
gave its consent in the applicable BIT. However, in Abaclat and Others v. The
Argentine Republic,24 the majority of the Arbitral Tribunal agreed to entertain such
a collective claim.
In the wake of the emergency measures passed by Argentina in the period
December 2001 – January 2002 and its default on its sovereign debt, the Argentine
Government and the bondholders of Argentinean treasury bonds concluded a
restructuring agreement. Thousands of foreign bondholders, however, refused to
sign the agreement as they wanted to recoup the full value of their investment.
Thus, thousands of Italian nationals,25 who held ‘sovereign debt instruments’ linked
to Argentinean bonds filed an ICSID claim against Argentina under the
Argentinean-Italian BIT.
21
22
23
24
25
Id. at 78-99.
Id. at 317.
Id. at 319, 320.
Abaclat and Others (Case formerly known as Giovanna a Beccara and Others) v. The Argentine Republic,
ICSID Case No. ARB/07/5, Decision on jurisdiction and admissibility (Aug, 4, 2011) (available at
http://italaw.com/documents/AbaclatDecisiononJurisdiction.pdf/).
It would appear that more than sixty thousand Italian bondholders participate to this collective claim.
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
243
Neither the ICSID Convention nor the ICSID Arbitration Rules or the
Argentinean-Italian BIT provide a definition of ‘investors’ which contemplates the
possibility of thousands of physical persons to file a collective claim. In addition,
the term ‘national of another Contracting State’ contained in Article 25(1) of the
ICSID Convention uses the singular (and not the plural). In the silence of the legal
instruments, the question arises whether thousands of investors are eligible to file a
claim together in a single proceeding. Practical questions arise, such as whether
each investor should pay the lodging fee of US Dollars (USD) 25,000 to lodge his
or her claim.25
The majority of the Tribunal found that the Tribunal was competent to
entertain the collective claim on the basis of Article 25 of the ICSID Convention,
and the definition of ‘investor’ contained in Article 1 of the BIT and its Protocol.26
It stated the following:
Assuming that the Tribunal has jurisdiction over the claims of several individual Claimants,
it is difficult to conceive why and how the Tribunal could lose such jurisdiction where the
number of Claimants outgrows a certain threshold.27
As a clarification to explain why, in the silence of the ICSID Convention and the
applicable BIT, a collective claim filed by scores of physical persons should be
admitted, the Tribunal declared the following:
[….] it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require
in addition to the consent to ICSID arbitration in general, a supplementary express
consent to the form of such arbitration. In such cases, consent to ICSID arbitration must
be considered to cover the form of arbitration necessary to give efficient protection and
remedy to the investors and their investments, including arbitration in the form of
collective proceedings.28
The party-appointed arbitrator nominated by Argentina, Professor Georges
Abi-Saab, issued a strong dissenting opinion and he subsequently resigned from the
Tribunal. In a nutshell, he considered that Argentina had not given its consent in
the BIT for investors to submit collective claims to ICSID arbitration, and that the
Tribunal ‘does [not] have the power to devise new procedures to hear such an action’.29
25
26
27
28
29
See the note of the ICSID Secretariat explaining how to file a claim (available at
http://icsid.worldbank.org/ICSID/ICSID/HowToFileReq.jsp/).
Abaclat and Others v.The Argentine Republic, supra n. 24, at 158-161.
Id. at 490.
Id. at 490.
Dissenting Opinion of Professor Georges Abi-Saab, Oct. 28, 2011, at para. 276 (available at http://
italaw.com/documents/Abaclat_Dissenting_Opinion.pdf/).
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CASES WHERE THE ‘INVESTOR’ IS A JURIDICAL PERSON
Respondent States may put forward various arguments to object to the
jurisdiction of the tribunal ratione personae when the claimant is a juridical person.
They may argue that the corporate claimant is in fact not the proper investor
because it is not a ‘juridical person’ within the meaning of the ICSID Convention
(Consortium L.E.S.I. – DIPENTA v. People’s Democratic Republic of Algeria), or that
the investor is not eligible as it is a State-owned entity, which exercises essentially
sovereign functions (CSOB v. Slovakia). Respondent States may also argue that the
investor is a mere ‘shell’ company with no real economic activity in the State of its
incorporation (Tokios Tokelès v. Ukraine; Rompetrol v. Romania, Yukos v. Russia, Hulley
v. Russia, Veteran Petroleum v. Russia). Finally, respondent States may object to the
jurisdiction of the tribunal on the ground that the claimant, a local company
incorporated in the host State, is not under ‘foreign control’ within the meaning of
the second clause of Article 25(2)(b) of the ICSID Convention, as it is ultimately
controlled by a national of the host State (TSA Spectrum v.The Republic of Argentine,
an unpublished case involving a West African State).
3.2[a]
The Corporate Claimant Must Have, in Principle, the Legal Personality
Respondent States may contend that the corporate claimant is not a ‘juridical
person’ within the meaning of the ICSID Convention: Consortium Groupement
L.E.S.I. – DIPENTA v. People’s Democratic Republic of Algeria.31
In L.E.S.I. – DIPENTA v. People’s Democratic Republic of Algeria, the legal
question arose as to whether a non-incorporated joint venture can have access to
ICSID arbitration when only its members were the signatories to the underlying
construction contract.
In 2003, a consortium L.E.S.I. – DIPENTA, composed of two Italian
construction companies, filed an ICSID claim against Algeria on the ground that
Algeria had breached the underlying construction contract to build a dam, and the
applicable Italian-Algerian BIT. Crucially, the consortium in question was an
unincorporated joint venture under Italian law, which did not have the legal
personality (e.g., the power to start judicial or arbitral proceedings) and the
underlying contract was signed by the two Italian companies, and not by the joint
venture itself. The Arbitral Tribunal dismissed the claim on the ground that the
claim was not admissible. It found that the consortium was not eligible to file a
claim, as it was not the proper investor (it was not the owner of the rights and
31
Consortium Groupement L.E.S.I. – DIPENTA v. People’s Democratic Republic of Algeria, ICSID Case No.
ARB/03/8,Award (Jan. 10, 2005) (available at http://italaw.com/documents/dipentav.algeria.pdf/).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
245
obligations of the underlying contract through which the investment had been
carried out).32 The two Italian companies subsequently filed another ICSID claim
in their own names, wherein the Tribunal found that it had jurisdiction to
entertain the claim.
It follows that to qualify as an investor under the ICSID Convention, a
juridical person must have the legal personality33 (and it must have made a
protected investment).
3.2[b] State-Owned Entities May Be Eligible to Claim
The ICSID system was originally designed as a forum to entertain claims of a
mixed nature between a private investor and a State. In principle, a corporate
investor must be privately owned. The Convention’s Preamble expressly refers to
‘private international investment’.34 Further, the Travaux préparatoires of the ICSID
Convention show that a clear decision was made to exclude States, State agencies,
or State organisations from access to ICSID jurisdiction. However, in CSOB v.
Slovakia,35 the Tribunal ruled that state-owned entities may have standing before
ICSID tribunals subject to certain conditions.
In CSOB v. Slovakia, Slovakia challenged the Tribunal’s jurisdiction on the
ground that the investor was a State agency of the Czech Republic, and that the
investor was discharging essentially governmental activities.
The Tribunal rejected this argument and found that it had jurisdiction. It
declared the following:
the concept of ‘national’ under the ICSID Convention was not limited to privately owned
companies and did not depend upon whether or not the company was partially or wholly
owned by the Government. The decisive test was whether the company was discharging
an essentially governmental function or was acting in a commercial capacity. CSOB’s activities in
executing international banking transactions under the State’s control had to be judged by
their nature and not by their purpose and were hence commercial36 (emphasis added).
32
33
34
35
36
Consortium Groupement L.E.S.I. – DIPENTA v. Algeria, id. at paras. 37-41; [French original] 19 ICSID
Rev. 426 (2004) (available at http://italaw.com/documents/dipentav.algeria.pdf/). See also LESI,
S.p.A. and Astaldi, S.p.A. v. People’s Democratic Republic of Algeria, ICSID Case No. ARB/05/3,
Decision on jurisdiction, July 12, 2006, at paras. 38-42 (available at http://italaw.com/
documents/LESIAlgeria.pdf/); Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/3, Decision on Jurisdiction (Apr. 22, 2005). (An Italian company, member of an
unincorporated joint venture, filed an ICSID claim on its behalf and on behalf of the other members
of the joint venture under the Italian-Pakistan BIT.These other members of the joint venture did not
have the Italian nationality.The Tribunal dismissed the claims of the other members).
See Schreuer, Malintoppi, Reinisch & Sinclair, supra n. 19, at paras. 690-693.
See Schreuer, Malintoppi, Reinisch & Sinclair, supra n. 19, at para. 270.
Ceskoslovenska Obchodni Banka, a.s. v.The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the
Tribunal on the Objections to Jurisdiction (May 24, 1999) 14 ICSID Rev. 251, 257-261 (1999).
See Schreuer, Malintoppi, Reinisch & Sinclair, supra n. 19, at paras. 272-276.
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It is arguable that this test can be applied in a subjective fashion. Besides, the
CSOB case occurred in extraordinary circumstances, in the wake of the break-up
of the former Czechoslovakia.
In practice, it is quite rare for a state-owned entity to be an investor in an
investor-State arbitration, as the aim of the ICSID Convention was to depoliticize
investment disputes. Usually, investors that trigger an investment arbitration are a
physical person or most commonly a privately held company owned by private
parties. State-owned companies may be reluctant to sue a State. For example, it was
reported a few years ago that Petrobras, a Brazilian State oil entity, through one of
its subsidiaries incorporated in a Contracting State of the ICSID Convention, had
a potential investment claim against another South American State. Petrobras’s
subsidiary finally decided not to commence the investment arbitration.
3.2[c]
Shell Company with No Real Economic Activity in the Investor’s Home State
Respondent States may object to the jurisdiction of the arbitral tribunal on the
ground that the corporate investor is a mere ‘shell’ company with no real
economic activity in the State of its incorporation and that, in light of its chain of
control, the real investor is not the shell company but a national of the host State.
However, based on a formal analysis of the definition of ‘investor’ in the
applicable BIT, two ICSID tribunals have found in similar circumstances that they
had jurisdiction to entertain an ICSID claim filed by a corporate investor
ultimately controlled by nationals of the host State: Tokios Tokelès v. Ukraine37 and
The Rompetrol Group N.V. v. Romania.38
In Tokios Tokelès v. Ukraine, the investors were Ukrainian nationals who set up
a holding company in Lithuania,Tokios Tokelès.These Ukrainian nationals owned
99% of the capital of this holding company in Lithuania. Tokios Tokelès, in turn,
set up a locally incorporated company in Ukraine, Taki Spravy. The headquarters
of the holding company was, in fact, in Ukraine and two thirds of its management
were Ukrainian nationals. When a dispute arose between the locally incorporated
company, Taki Spravy, and the Ukrainian Government, the holding company
Tokios Tokelès initiated an ICSID claim against Ukraine under the
Lithuanian-Ukrainian BIT.
Article 1(2)(b) of the Lithuanian-Ukrainian BIT defines the term ‘investor’,
with respect to Lithuania, as ‘any entity established in the territory of the Republic
37
38
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on jurisdiction (Apr. 29, 2004)
(available at http://italaw.com/documents/Tokios-Jurisdiction_000.pdf/).
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Respondent’s
Preliminary Objections on Jurisdiction and Admissibility (Apr. 18, 2008) (available at http://
italaw.com/documents/RomPetrol.pdf/).
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
247
of Lithuania in conformity with its laws and regulations’. The definition is rather
classic and laconic. It is silent on the issue of whether a national of the host State
can have standing through a holding company. This provision must be interpreted
in accordance with the rules set forth in the Vienna Convention on the Law of
Treaties, much of which reflects customary international law.
The majority of the Tribunal applied a formal corporate nationality test. It
considered irrelevant the fact that physical persons of Ukraine controlled the
holding company set up in Lithuania. In accordance with this, the majority of the
Tribunal found that the investor was eligible to bring a claim. A ‘shell’ company
was deemed to be an ‘investor’ within the meaning of Article 25(1) of the ICSID
Convention and Article 1(2)(b) of the BIT.
It is noteworthy that for the first time in the history of ICSID, the chairman
of the ICSID Tribunal, Professor Prosper Weil, rendered a strong dissenting
opinion and subsequently resigned from the Tribunal. The dissenting opinion
severely criticized the decision of the majority. It underlined the facts that the
capital used to make the investment came from Ukrainian nationals, and not from
a foreign country, and above all that it was in fact a claim filed against Ukraine by
its own nationals. He stated the following:
The ICSID mechanism and remedy are not meant for, and are not to be construed as,
allowing – and even less encouraging – nationals of a State party to the ICSID
Convention to use a foreign corporation, whether pre-existent or created for that purpose,
as a means of evading the jurisdiction of their domestic courts and the application of their
national law. It is meant to protect – and thus encourage – international investment. It is
regrettable, so it seems to me, to put the extraordinary success met by ICSID at risk by
extending its scope and application beyond the limits so carefully assigned to it by the
Convention.39
There is a similar case involving a holding company incorporated in the
Netherlands.
In Rompetrol v. Romania, a wealthy Romanian national and a US national
owned 80% and 20% respectively of the share capital in a holding company
registered in Switzerland. In turn, the Swiss holding company owned 100% of the
capital of a holding company incorporated in the Netherlands, The Rompetrol
Group N.V. (TRG), which in turn owned 51% of the share capital of a company
incorporated in Romania, Rompetrol SA. The latter owned several assets,
including a refinery (which was the key asset). The main headquarters of the
Rompetrol group of companies was located in Bucharest.
39
TokiosTokelés v. Ukraine, ICSID Case No. ARB/02/18, Dissenting opinion, Apr. 29,2004, at para. 30
(available at http://italaw.com/documents/tokios-dissenting opinion 000.pdf/). See also at para. 13.
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Article 1(b)(ii) of the Dutch-Romanian BIT also provides a broad and laconic
definition of the term ‘investor’ (similar to that in the Tokios Tokelès case). It reads
that the term ‘investors’:
shall comprise with regard to either Contracting Party: […] ii. legal persons constituted
under the law of that Contracting Party.
Romania filed several objections to the jurisdiction of the Tribunal. It is
noteworthy that at the beginning of the jurisdiction phase, Romania hired
external consultants specializing in business intelligence to carry out an
investigation on the activities of the holding company in the Netherlands. The
expert report, which was submitted to the Tribunal, demonstrated that the Dutch
holding company was, in fact, a shell company (but not a mere letterbox company
since it had a few square metres of premises and was carrying out certain limited
activities in the Netherlands). It is striking that during the jurisdiction phase, the
management of the Rompetrol group of companies strengthened the business of
the Dutch holding company. It hired new staff and transferred new activities to the
Netherlands. (It is difficult to assess, however, the extent to which these acts were
carried out to reassure the Tribunal that the holding company was not a mere shell
company.)
On the facts, the Tribunal found that the Dutch holding company was an
eligible investor and that it had jurisdiction to entertain the dispute. It followed the
reasoning of the majority of the Tribunal in Tokios Tokelès. It simply looked at the
terms of the BIT itself and applied a formal corporate nationality test. It refused to
use a control test, to pierce the corporate veil (though this was not requested by
the Respondent State), or to rule that the nationality of the Dutch holding
company was not opposable by Romania in the arbitration.
It stated the following:
The question, in other words, is not what the Parties to this bilateral treaty might (or
might not) conceivably have intended, but what they actually did, and the evidence for
that is the terms of the treaty they concluded. That, so far as the Tribunal can see, is what
the Vienna Convention requires.40
So, in the silence of the BIT on the issue of shell company, it is arguable that the
Tribunal adopted an expansive approach to the concept of investor.
40
Supra n. 39, at 109.
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
3.2[d]
249
The Locally Incorporated Company must be under ‘Foreign Control’ within the Meaning
of Article 25(2)(b) of the ICSID Convention
The findings reached by the tribunals in the Tokios Tokelés and Rompetrol cases
should be contrasted with the TSA Spectrum case in which the Arbitral Tribunal, in
the context of an interpretation of the terms ‘because of foreign control’ contained in
Article 25(2)(b) of the ICSID Convention, reached an opposite conclusion.
In TSA v.The Republic of Argentine,41 an Argentinean national set up a holding
company in the Netherlands, TSI Spectrum International N.V. (TSI) This
Argentinean individual held, directly or indirectly, a majority of its shares, starting
with 51%, increasing over time to near totality. The Dutch holding company, TSI,
in turn set up a locally incorporated company in Argentina, TSA Spectrum (and
owned 100% of its share capital). When a dispute arose, the locally incorporated
company, TSA, filed an ICSID claim against Argentina under the
Argentinean-Dutch BIT.
The definition of the term ‘investor’ contained in the Argentinean-Dutch BIT
was broad but demanded that a company exercise real economic activity in the
Contracting State. Article 1(b)(ii) provides that: ‘the term ‘investor’ shall comprise
with regard to either Contracting Party: […] ii. […], legal persons constituted
under the law of that Contracting Party and actually doing business under the laws
in force in any part of the territory of that Contracting Party in which a place of
effective management is situated.’ Therefore, the Dutch holding company TSI,
presumably, did not file the claim itself because its place of effective management
was in Argentina.
Article 10(6) of the Argentinean-Dutch BIT contained the consent of the
parties to treat the locally incorporated company, TSA, as a national of another
Contracting State for the purposes of Article 25(2)(b) of the ICSID Convention.42
Therefore, the subjective condition of Article 25(2)(b) of the ICSID Convention
was satisfied. However, the Tribunal rightly sought to check whether or not the
locally incorporated company was under ‘foreign control’ (the objective
condition). From the facts, it was found that it was controlled by an Argentinean
national.
The Tribunal concluded that TSA Spectrum was not an eligible investor and,
accordingly, that it did not have jurisdiction to entertain the claim. It adopted a
restrictive approach to the concept of investor. Indeed, it established that at the
time of the consent, the locally incorporated company, TSA, was not objectively
41
42
TSA Spectrum v.The Republic of Argentine, supra n. 13.
Article 10(6) of the Argentinean-Dutch BIT provides that: ‘A legal person which is incorporated or
constituted under the law in force in the territory of one Contracting Party and which, before a
dispute arises, is controlled by nationals of the other Contracting Party shall, in accordance with article
25 (2) (b) of the Convention be treated for the purposes of the Convention as a national of the other
Contracting Party.’
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under foreign control as it was ultimately controlled by an Argentinean national.43
The Tribunal therefore identified the ultimate controller of the local company.
It did not arguably follow the majority of the doctrine on the topic of the
chain of control (or the majority decision in the Tokios Tokelès and Rompetrol cases).
In obiter dictum, the Tribunal even criticized the ‘strict constructionist interpretation’
taken in the Tokios Tokelès and Rompetrol cases, stating that such interpretation ‘may
appear to go against common sense … when the formal nationality covers a corporate entity
controlled directly or indirectly by persons of the same nationality of the host State’.44
The TSA v. The Republic of Argentine case does not reflect, however, the
majority of the case-law as most of the ICSID tribunals have retained, in line with
the majority decision in the Tokios Tokelès and the Rompetrol cases, an expansive
approach to the concept of corporate investor. This trend has been recently
endorsed by an ICSID ad hoc Committee in an unpublished decision.
By contrast, in a recent unpublished ICSID decision, an ad hoc
Committee refused to annul an ICSID award wherein it was found that a locally
incorporated company was under ‘foreign control’, on the ground that the sum of
the ‘foreign interests’ held by foreign companies in the locally incorporated company
represented more than 50% of the capital, whereas the host State indirectly
controlled more than 41% of the capital.
The award and the decision of the ad hoc Committee hinged on the notion
of control and the interpretation of the terms ‘because of foreign control’ within
the meaning of the second clause of Article 25(2)(b) of the ICSID Convention.45
The facts can be summarized as follows: in the late 1990s, a West African state
signed a concession agreement with a locally incorporated company ‘A’. The
concession agreement contained an ICSID clause and an agreement of the parties
to treat the locally incorporated company ‘A’ as ‘a national of another Contracting
State for the purposes of Article 25(2)(b) of the ICSID Convention.’46
The corporate structure of the investor was quite complex. At the time of the
signature of the concession agreement, the locally incorporated company ‘A’ was
43
44
45
46
TSA Spectrum v.The Republic of Argentine, supra n. 13, at paras. 160-162.
Id. at 146.
See generally, Schreuer, Malintoppi, Reinisch & Sinclair, supra n. 19, at paras. 813-902.
The Model contract was provided by consultants of the World Bank, whose mission was to facilitate
the privatization of certain companies in the State in question.Tribunals tend to infer from this ICSID
clause an agreement on nationality. However, this agreement on nationality merely creates a
presumption. ICSID tribunals have invariably examined the actual existence of foreign control over
the local company. In situations where the element of control is lacking, the tribunal will find that it
has no jurisdiction. See e.g., Amco v. Indonesia, Decision on Jurisdiction (Sept. 25, 1983) 1 ICSID
Reports 396/7; Klöckner v. Cameroon, Award (Oct. 21, 1983), 2 ICSID Reports 15/16; SOABI v.
Senegal, Decision on Jurisdiction (Aug. 1, 1984), 2 ICSID Reports 182/3; LETCO v. Liberia, Decision
on Jurisdiction (Oct. 24, 1984) 2 ICSID Reports 352; Vacuum Salt v. Ghana, Award (Feb. 16, 1994) 4
ICSID Reports 329.
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
251
controlled by another locally incorporated holding company, which had several
shareholders, such as Belgian, Danish, French, US, Luxembourg companies (the
‘foreign interests’). It is striking that the host State held, indirectly, a 41.88% stake
in the capital of the claimant. The Tribunal was composed of three arbitrators of
French nationality.47
The African State subsequently terminated the concession agreement. Then,
the locally incorporated company ‘A’ filed an ICSID claim against the host State
under the concession agreement (there was no BIT in this case).
It is noteworthy that one of the sons of the former president of the African
state was the president of the locally incorporated holding company (but this issue
was never raised by the parties before the ad hoc Committee).
The African State argued in the initial arbitration proceedings that the claim
should be dismissed on jurisdictional grounds, because the local company was not
under foreign control; it was a claim filed by domestic investors against the host
State. The claimant, in turn, alleged that the dispute was within the jurisdiction of
the Tribunal on the ground that the parties had agreed in the concession
agreement to treat it as a ‘national of another Contracting State’ (a subjective
condition) and that it was under ‘foreign control’ by ‘foreign interests’ owned by
investors of Contracting States (an objective condition).The Tribunal finally found
that the dispute was within its jurisdiction and, on the merits, it ordered the
African State to pay to the investor more than US Dollars (USD) 250 million in
damages.
The African State filed an application for annulment of the award within 120
days of the issuance of the award in compliance with Article 52(1) of the ICSID
Convention. It claimed that the Tribunal manifestly exceeded its powers (when it
found that it had jurisdiction), that there was a serious departure from a
fundamental rule of procedure, and that the award failed to state the reasons on
which it was based. For the first time, a State also alleged that the Tribunal was not
properly constituted (Article 52(1)(a) of the ICSID Convention).
In particular, the African State claimed that the Tribunal manifestly exceeded
its powers and failed to state the reasons on which it was based, when it merely
stated that the locally incorporated company was under ‘foreign control’ because
‘foreign interests’ together held more than 50% of the capital of the locally
incorporated company. It claimed that the Tribunal should have determined the
‘effective nationality’ of the local company and the predominant nationality of
47
The investor appointed a French arbitrator.The Respondent State then also chose a French arbitrator,
but the parties could not agree on the name of the chair. The president of the Tribunal was finally
chosen by the president of the Administrative Council in compliance with Article 38 of the ICSID
Convention. (It should be noted, however, that the State did not agree to the appointment of the
French arbitrator appointed by the investor).
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these ‘foreign interests’.48 It reproached the Tribunal for having had a misguided
approach of the notion of control of a company, because it had carried out a mere
summing of the direct and indirect stakeholdings of the foreign companies in the
capital of the locally incorporated company, without having demonstrated that
those foreign interests were acting together in concert or that they had concluded
a shareholder agreement.
The African State developed its reasoning before the ad hoc Committee as
follows: either the locally incorporated company was not under foreign control and
was ultimately controlled by the host State49 (according to the domestic laws, it
was controlled by the host State, given that the Government had an indirect
stakeholding of more than 41%), or the locally incorporated company was in fact
under the control of French ‘foreign interests’ (because the sum of the interests of
the French companies was by far the highest). In the latter case, there is a violation
of Articles 38 and 39 of the ICSID Convention and accordingly, the award should
be annulled as the Tribunal was not properly constituted.50
The ad hoc Committee dismissed all the arguments put forward by the
African State and refused to annul the award. It was found that the Tribunal was
not under an obligation to determine the ‘effective’ nationality of the locally
incorporated company.The Tribunal was neither under an obligation to determine
the ultimate effective controller of the local company nor the dominant nationality
of the ‘foreign interests.’ For the purposes of Article 25(2)(b), it was sufficient that
48
49
50
See generally, Valérie Pironon, L’arbitrage des différends entre une joint venture et l’Etat d’accueil de
l’investissement : à la recherche de la nationalité de l’investisseur, Rev.Arb. 235-252 (2010).
See e.g., UNCTAD Module 2.4 Requirements Ratione Personae, 2003, 22 (‘The Convention does
not define the term “foreign control”, but the drafting history indicates that control must be exercised
by nationals of other Contracting States. This interpretation excludes control by nationals of
non-Contracting States or by nationals of the host State. This interpretation is in line with the
objective of the Convention to promote the settlement of disputes between host States and nationals
of other Contracting States.’) [emphasis added] (available at http://www.unctad.org/en/docs/
edmmisc232add3_en.pdf/).
Article 38 of the ICSID Convention provides as follows: ‘If the Tribunal shall not have been
constituted within 90 days after notice of registration of the request has been dispatched by the
Secretary- General in accordance with paragraph (3) of Article 36, or such other period as the parties
may agree, the Chairman shall, at the request of either party and after consulting both parties as far as
possible, appoint the arbitrator or arbitrators not yet appointed. Arbitrators appointed by the Chairman
pursuant to this Article shall not be nationals of the Contracting State party to the dispute or of the
Contracting State whose national is a party to the dispute.’ [emphasis added]. Art. 39 of the ICSID
Convention reads that: ‘The majority of the arbitrators shall be nationals of States other than the
Contracting State party to the dispute and the Contracting State whose national is a party to the
dispute; provided, however, that the foregoing provisions of this Article shall not apply if the sole
arbitrator or each individual member of the Tribunal has been appointed by agreement of the parties.’
[emphasis added] Some commentators wrote that the parties ‘must comply with Article 39, according to
which the majority of arbitrators must have a different nationality from those of the parties. The effect of this
provision is that only if the parties appoint all members of the tribunal together can they appoint arbitrators of their
nationality. In this respect the ICSID Convention differs from the rules of other institutions which only require
that the chairman or sole arbitrator is a neutral national.’ See Lew, Mistelis & Kröll, supra n. 2, at paras.
28-66.
DEFINING INVESTORS: WHO IS ELIGIBLE TO CLAIM?
253
the Tribunal had found that ‘foreign interests’ controlled more than 50% of the
capital of the locally incorporated companies, that a Belgian company brought its
technical expertise in the venture, that ten foreigners were members of the board
of the holding company, and that it was not seriously contested by the State that
the ‘foreign interests’ were not acting in an inconsistent manner. It is striking that
it found that the exclusivity of control is not a prerequisite condition in the
determination of control within the meaning of Article 25(2)(b) of the ICSID
Convention.
As to the claim that the Tribunal had not been properly constituted, the
African State argued that the French arbitrators should have resigned when they
found out that the locally incorporated company was in fact under the control of
French ‘foreign interests’ and that the award should be annulled (as this was a
breach of Articles 38 and 39 of the ICSID Convention).
However, the ad hoc Committee (wrongly) declared that the claim was
inadmissible on the ground that it was raised only for the first time at the hearing
before the ad hoc Committee, i.e. after 120 days had elapsed from the date of
issuance of the award (and not in the application for annulment or the written
submission). Nevertheless, it subsequently examined this ground of annulment in
obiter dicta. It was found that in any event such claim would have been dismissed on
the ground of good faith and for estoppel reasons. During the first Session of the
Tribunal, the African State had declared that the Tribunal had been properly
constituted. It could not invoke a violation of Articles 38 and 39 of the ICSID
Convention at a later stage when it was displeased with the outcome of the case.
The African State should have challenged the relevant arbitrators immediately if it
thought there was a risk of Articles 38 and 39 of the Convention being violated.
4
CONCLUSION
Whilst it can be said that the majority of arbitral tribunals have taken an expansive approach towards the concept of ‘investor,’ it is also true that most BITs contain a broad
and laconic definition of the term ‘investor.’ In the silence of the applicable BIT on
whether a national of a host State can sue its own State before an international tribunal,
it appears somehow difficult to interpret the treaty in question.
When drafting or renegotiating BITs, States should perhaps reflect on their
specific intentions in their negotiated definition of the term ‘investor’. For
example, they could clarify their position on the issue of nationality shopping, this
‘grey’ area. They could indicate clearly if a natural person of a host State can or
cannot sue his or her own State through a holding company; they could also make
it clear that a holding company must be incorporated in the Contracting State at
least six months, one year, or more, prior to any interference by the host State with
254
JOURNAL OF INTERNATIONAL ARBITRATION
the investment. Given that very few States actually renegotiate their BITs, one
must conclude that the current situation is satisfactory to them.
As to the interpretation of the terms ‘under foreign control’, it can be noted that
the ICSID practice is not uniform.
Finally, it must be borne in mind that when a tribunal eventually assumes
jurisdiction over an investment dispute, the only victory of the foreign investor(s)
– after, sometimes, more than two years of litigation – is that its dispute will be
heard by an arbitral tribunal. There is no guarantee at all that the investor(s) will
prevail on the merits. If one analyses the latest statistics, generally speaking, States
win in 40% of the cases, the investors win in 30% of the cases, and the parties
reach a settlement agreement in the remaining 30% of the cases.51 It is, somehow,
disconcerting how some critics of the ICSID system tend to forget these figures,
and continue ranting about its alleged bias.
51
However, in 2010 there have been twenty awards rendered: fourteen were in favour of the State, five
in favour of the investor; see UNCTAD, II Issues notes, Latest Developments in Investor– State Dispute
Settlement (available at http://www.unctad.org/en/docs/webdiaeia20113_en.pdf/).
General Editor
Dr. Michael J. Moser
Notes and Current Developments Editor
Dominique Hascher
Assistant Editor
Friven Yeoh
Advisory Board
Dominique Brown-Berset
Professor Dr. Bernard Hanotiau
Michael Hwang S.C.
Professor Dr. Gabrielle Kaufmann-Kohler
Dr. Wolfgang Kühn
Toby Landau Q.C.
Ramon Mullerat
Dr. Horacio A. Grigera Naón
Lucy Reed
Samir A. Saleh
Audley Sheppard
Abby Cohen Smutny
Dorothy Udeme Ufot
V.V. Veeder Q.C.
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