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The Law of Investment Treaties, 2nd Edition by Salacuse, Jeswald W (1st May 2015)

7 Scope of Application of Investment Treaties

From: The Law of Investment Treaties (2nd Edition)

Jeswald W. Salacuse

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.  Subscriber: null; date: 16 January 2019

Subject(s):
BITs (Bilateral Investment Treaties) — Treaties, scope (temporal and territorial) — Arbitral tribunal — Investment — Investor — Specialized treaty frameworks

(p. 174) Scope of Application of Investment Treaties

7.1  The Significance of a Treaty’s Scope of Application

Any international regime must have rules to determine which persons and actions are governed by the regime. A fundamental question that all governments, investors, and arbitrators must answer in the application of an investment treaty is therefore whether the treaty applies to the particular persons, organizations, transactions, or assets seeking to benefit from its provisions. If it does apply, then those persons, organizations, transactions, and assets may be entitled to the privileges and protections of the treaty. If it does not so apply, then those persons, organizations, transactions, and assets are not protected and may not claim treaty benefits.

The scope of an investment treaty’s application has at least two important legal ramifications. First, a contracting state owes obligations under the treaty only to investors and investments that fall within the treaty’s scope of application or treaty definitions. Second, the treaty’s definitions and scope of application affect the jurisdiction of any international arbitral tribunal adjudicating a dispute brought under its provisions. Therefore, whether a company or person constitutes an ‘investor’ or whether an asset or transaction constitutes an ‘investment’ under the applicable treaty are important jurisdictional questions in investment treaty arbitrations and must be answered at the threshold of a case. A common, initial defensive move by governments in investor–state arbitrations is to argue that the treaty does not apply to the complaining investor or its investment and that, therefore, the arbitration tribunal has no jurisdiction to hear the dispute. Because of the large and growing number of cases dealing with such jurisdictional questions, the body of arbitral jurisprudence interpreting and applying the treaty definitions of ‘investments’ and ‘investor’ is substantial and expanding. It should be noted, however, that in ICSID arbitrations the underlying investment must meet the definitional requirements of both the applicable investment treaty and Article 25 of the ICSID Convention, which provides that a tribunal will have jurisdiction over ‘any legal dispute arising directly out of an investment’. It is possible for a particular asset to qualify as an investment under a treaty but not under the Convention; consequently, in order to establish jurisdiction in a particular case an ICSID tribunal must find that the investment upon which the claim is based meets the definition of investment under the treaty and under the Convention.1 (p. 175) Unlike nearly all investment treaties, however, the Convention does not define the term ‘investment’. This omission has provoked speculation as to whether certain cases will fail to meet ICSID jurisdictional requirements if they do not constitute an ‘investment’ under Article 25 even though they qualify under the applicable investment treaty.2

As a result of these factors, government officials, lawyers, arbitrators, and anyone seeking to understand an investment treaty must closely examine the treaty provisions to determine the persons, organizations, transactions, and assets to which it applies. The key provisions in answering these questions are usually located at the beginning of the treaty text, primarily in the treaty’s definitional articles,3 which define important terms such as ‘investments’, ‘investors’, ‘companies’, ‘nationals’, and ‘territory’.4 In some cases, a treaty may also include a separate article entitled ‘scope of application’. A person, organization, transaction, or asset that falls outside of one of the treaty’s terms or the scope of the treaty’s application is not entitled to benefit from its provisions.

Key questions that must always be answered in the application of an investment treaty are whether the alleged investment meets the definition of ‘investment’ under the treaty and whether the legal or physical person owning the investment meets the legal definition of ‘investor’. This chapter examines these two questions. At the outset, however, it should be stressed that while investment treaties exhibit strong similarities in definitions and definitional approaches, significant textual differences can also be found since contracting states always have control in defining the scope of the treaty.5 Consequently, those interpreting investment treaties (p. 176) to determine the extent of their coverage must focus carefully on the language of the definitional sections of the specific treaty in question.

7.2  ‘Investments’ Covered by Investment Treaties

As discussed in Chapter 2, the term ‘investment’ in ordinary parlance can refer to the process or transaction by which an investment is made or to the asset acquired as a result of that process or transaction. Generally speaking, investment treaties define an investment as an asset, rather than a process or transaction by which an asset is acquired. Thus, they tend to employ asset-based definitions of investments.6 Such definitions tend to be broad in scope. For example, Article I(g) of the Canada–Costa Rica BIT provides that ‘“investment” means any kind of asset owned or controlled either directly or, indirectly … by an investor of one Contracting Party in the territory of the other Contracting Party’.7 In order to come within this and similar asset-based, treaty definitions, an investment must first of all be an asset. An initial problem in applying this provision is that treaties, like the Canada–Costa Rica BIT, employing an asset-based definition of investment, rarely define the term ‘asset’. One must therefore look to dictionaries to determine its ordinary meaning. The word ‘asset’ in most dictionaries is defined as ‘anything of value’ or a ‘valuable item that is owned’. Thus, it can be seen that the concept of ‘asset’ is very broad indeed.

At the same time, one can identify three different approaches to employing an asset-based definition in investment treaties: (1) a broad asset-based definition with a non-exhaustive list of investment forms; (2) a broad asset-based definition specifying substantive investment characteristics as well as investment forms; and (3) an asset-based definition with an exhaustive list of investment forms.8

In addition, as will be seen, even if an investment meets the asset-based definition of a treaty, that asset may nonetheless not be covered by the treaty if it does not meet certain specified legal, geographical, temporal, or other requirements.

(p. 177) 7.3  Broad Asset-Based Definitions of Investments with an Illustrative List of Investment Forms

Most modern investment treaties provide for a very broad asset-based definition of investment.9 This definition recognizes the fact that investment forms are constantly evolving in response to the creativity of investors and the rapidly changing world of international finance, so a broad definition is necessary to cover the wide and potentially expanding spectrum of investments. The effect of this approach is to provide an expanding umbrella of protection to investors and investments. Treaties achieve this result by employing a formula in which the term ‘investment’ is defined as ‘every kind of asset’ and is followed by a non-exhaustive list of asset categories that usually includes: (1) movable and immovable property and any related property rights; (2) various types of interests in companies or any other form of participation in a company, business enterprise, or joint venture; (3) claims to money and claims under a contract having a financial value; (4) intellectual property rights; and (5) business concessions.10 One of the purposes of this broad language is to make clear that both tangible and intangible assets are protected and to clarify that the treaty’s protection of investments does not depend on the particular form an investment takes. Thus, for example, while it has been claimed that customary international law does not protect portfolio investments and patents,11 virtually all investment treaties affirm that shares and participations are ‘investments’ and so are subject to treaty protection. Most also provide protection to patents and other forms of intellectual property.

(p. 178) In interpreting a similar provision, one tribunal12 noted that ‘[t]‌he specific categories of investment included in the definition are included as examples rather than with the purpose of excluding those not listed’.13 The tribunal also emphasized that ‘[t]he drafters were careful to use the words “not exclusively” before listing the categories of “particularly” included investments’.14 Since one of the investment categories in that dispute consisted of ‘shares, rights of participation in companies and other types of participation in companies’, the tribunal found that the plain meaning of the term ‘investment’ in the Germany–Argentina BIT included shares held by a German shareholder.15

The tribunals in Abaclat v Argentina16 and Ambiente Ufficio v Argentina17 had to interpret a similar definition in the Argentina–Italy BIT in order to determine whether sovereign bonds and security entitlements held in those bonds were protected investments. In both cases, questions arose about the translation of the treaty from Italian and Spanish into English. The tribunal in Abaclat found that the BIT defined ‘investment’ as ‘any conferment or asset invested’, which ‘includes, without limitation: … (c) obligations, private or public titles or any other right to performances or services having economic value, including capitalized revenues’.18 It concluded that the term ‘obligations’ covered bonds and the term ‘titles’ covered securities.19 The claimants in Ambiente Ufficio argued that ‘obligaciones’ and ‘obbligazioni’ should be translated as ‘bonds’, while the respondent argued it should be translated as ‘obligations’.20 The tribunal in Ambiente Ufficio concluded that whichever translation it adopted, the BIT covered the bonds and security entitlements at issue.21

The tribunals also had to determine ‘whether the connection between the security entitlements and the bonds could be seen as so remote as to consider that the dispute is not “directly” related to an investment, since the dispute related primarily to the rights arising from Claimants’ security entitlements’.22 Argentina argued that the tribunal should distinguish between ‘bonds’ and ‘security entitlements’, whereas the claimants argued that both comprised the single economic operation of bond issuances. Both tribunals found that the bonds and security entitlements formed ‘part of one and the same economic operation and they make only sense together’.23 The tribunal in Ambiente Ufficio added:

To seek to split up bonds and security entitlements into different, only loosely and indirectly connected operations would ignore the economic realities, and the very function, of the bond issuing process. In particular, it would disregard the fact that it is the bond (p. 179) issuing State itself that departs from the assumption, and counts on the fact, that persons will purchase shares of the bonds on the secondary market, in the form of security entitlements, since otherwise the bond could not have been successfully issued in the first place.24

While the language of the Argentina–Italy BIT allowed the tribunal to find that it had jurisdiction, such claims could not have been brought under the UK–Colombia BIT, which provides a broad asset-based definition of ‘investment’ with an illustrative list, but states that ‘investment’ does not include ‘public debt operations’,25 a term which would include sovereign bonds issued by a state or state entity.

Some treaties may expand the definition of ‘investment’ even further. For example, a BIT between the Belgo-Luxembourg Economic Union and Egypt provides in Article III(1) that:

The term ‘investments’ means any kind of assets and any direct or indirect contribution in cash, in kind or in services, invested or reinvested in any sector of economic activity … and includes in particular, though not exclusively moveable and immoveable property, shares, debts, intellectual property, and business concessions, among others.26

The tribunal’s interpretation of this provision in Jan de Nul NV and Dredging International NV v Arab Republic of Egypt27 illustrates how a broad definition of ‘investment’ may alter a treaty’s scope of application. In that case, the tribunal had to decide whether the activities related to the dredging of the Suez Canal constituted an investment under the treaty. Based on common usage of the term ‘investment’, one might conclude that dredging activity could be considered to be only the provision of a service and not an investment. However, noting that the applicable BIT defined ‘investment’ to include ‘any direct or indirect contribution in cash, in kind, or in services, invested or reinvested in any sector of economic activity’, the tribunal found that the activities in question constituted a contribution in services and that, accordingly, they were an investment under the treaty.28

Many international investment agreements, including the Energy Charter Treaty (ECT),29 accompany their definition of the term ‘investment’ with a clause stating that any alteration in the form in which the assets are invested will not affect their classification as investment.30 The purpose of such a clause is to ensure (p. 180) that the treaty covers reinvestment of the proceeds of the initial investment to the same extent as it applies to the original assets. At the same time, any limitations imposed by the government on the original investment, for example that it be limited to a certain economic sector, will equally apply to the reinvestment.

Based on the preceding paragraphs, one may conclude that by extending the treaty’s application to ‘any kind of assets’ the definitions are designed to protect as wide a range of investment forms as possible. The non-exhaustive lists of investment categories that refer to ‘any kind of assets’ exist only for illustrative purposes and to guide interpreters with respect to what investment forms may be recognized under the applicable treaty. Accordingly, even if an alleged investment does not fall within any of the specified categories, it may still enjoy protection under the treaty if it qualifies as ‘an asset’. In addition, broad categories such as ‘claims to money’, ‘right to performance or services having economic value’, and ‘other types of participation’ would seem to broaden the scope of what one would traditionally consider to be an ‘asset’. Though tribunals have not addressed the issue, it is plausible that rights arising under a franchise agreement or management contract31 could qualify as an ‘asset’ within the meaning of an investment agreement.

On the other hand, even if a treaty uses a broad asset-based approach to defining investment, it may still state definitional limitations by specifying particular assets that are not to be covered. For example, the NAFTA definition of ‘investment’ in Article 1139 is broad, but specifies certain limits. It provides that ‘investment’ does not mean, among other things, ‘(i) claims to money that arise solely from … commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party, or … (ii) the extension of credit in connection with a commercial transaction, such as trade financing’. Thus, NAFTA is clearly seeking to exclude purely commercial transactions from the coverage of Chapter 11, which is intended to protect investments.

7.4  Broad Asset-Based Definitions Specifying Substantive Investment Characteristics as well as Illustrative Forms

Some investment treaties, while adopting a broad asset-based approach to defining investment and providing a non-exhaustive list of investment forms, also require that such forms have certain substantive investment characteristics. Thus, they define investment as ‘an asset that has the characteristics of an investment’ (p. 181) and include a non-exhaustive list of the forms that such an investment may take. For example, Article 1 of the 2005 US–Uruguay BIT provides that ‘“investment” means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk’ (emphasis added).32

Article 1 then proceeds to list the various forms that an investment may take, including:

(a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

This definition clearly demonstrates the contracting parties’ intention to limit the BIT’s scope of application to those assets having investment characteristics such as: (1) a commitment of capital or other resources; (2) the expectation of gain or profit; or (3) the assumption of risk. The treaty’s reference to these characteristics is designed to distinguish investments from transactions of an ordinary, short-term character (for example the sale of a good or a service or a short-term financial transaction) in order to exclude the latter from the treaty’s protection.33 The motivation behind this limitation is the belief of certain governments that while long-term economic transactions with the characteristics of ‘investments’ contribute to host countries’ economic development, which after all is one of the primary goals in concluding investment treaties, short-term financial transactions do not. Indeed, some governments believe that short-term transactions contribute to undesirable speculation, instability, and volatility in domestic markets. Through the treaty process, these countries seek to encourage asset flows that they consider constructive and discourage those they consider unconstructive.34

The 2009 ASEAN Comprehensive Investment Agreement adopts a similar approach. Article 4 of the Agreement gives the term ‘investment’ a broad asset-based definition with a non-exclusive list of examples; however, a footnote to that Article states: ‘Where an asset lacks the characteristics of an investment, that asset is not an investment regardless of the form it may take. The characteristics of (p. 182) an investment include the commitment of capital, the expectation of gain or profit or the assumption of risk.’35

In view of the fluidity and evolving nature of investment transactions, the task of drawing a precise boundary between desirable investments granted treaty protection and other forms of economic transaction is not easy. One method of providing greater precision to this delineation is by including in the treaty explanatory notes concerning the interpretation of the term ‘investment’. For example, Article 1 of the 2005 US–Uruguay BIT, clarifies that some forms of debt, such as bonds, debentures, and long-term notes, are more likely to have the characteristics of an investment; however, other forms of debt, such as bank accounts that do not have a commercial purpose and are not related to an investment in the territory where the bank account is located, and are not an attempt to make such an investment, are less likely to have such characteristics.36 Another note in the same treaty makes clear that claims to immediately due payments resulting from the sale of goods or services do not qualify as investments. Yet another stipulates:

Whether a particular type of license, authorization, permit, or similar instrument (including a concession, to the extent that it has the nature of such an instrument) has the characteristics of an investment depends on such factors as the nature and extent of the rights that the holder has under the law of the contracting party. Among the licenses, authorizations, permits, and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law. For greater certainty, the foregoing is without prejudice to whether any asset associated with the license, authorization, permit, or similar instrument has the characteristics of an investment.37

The notes also make clear that ‘investment’ does not include an order or judgment entered in a judicial or administrative action.38

Therefore, under this approach only assets that have certain desired substantive characteristics of an investment fall within the definition of ‘investment’ and are protected by the applicable treaty. Moreover, the fact that a treaty text references a non-exhaustive list of investment characteristics implies that other traditional characteristics of investment39 may also have to be satisfied for an asset to be covered by the treaty. On the other hand, the effectiveness of such limitation depends on the interpretations attached to them. For example, although the three investment characteristics of commitment of capital, expectation of profit, and assumption of risk are often used in investment treaties in an effort to limit the scope of (p. 183) investments covered, those three characteristics may be interpreted so broadly as to include almost any business transaction from a thirty-day promissory note to a bank account.

7.5  Asset-Based Definitions with an Exhaustive List of Investment Forms

In contrast to the approaches already mentioned, some treaties define the term ‘investment’ by providing an exhaustive list of the assets that are covered by the treaty and those that are not. Such listings are not merely illustrative or suggestive; they are intended to be definitive.40

(p. 184) Although such definitions limit the investments covered to only the listed forms, usually they are still broad enough to include all the major investment forms currently employed by investors. Meanwhile, the clarifications and exclusions ensure that any assets lacking the traditional characteristics required by the treaty parties will not be protected. An UNCTAD study has observed that among newer treaties this approach constitutes an emerging trend.41 The origins of this trend may be found in the decisions of tribunals applying treaties to transactions that the contracting states did not intend to protect.

7.6  Limitations on Definitions of ‘Investment’

Regardless of whether a treaty defines ‘investment’ broadly or narrowly, assets that fall within a treaty’s definition nonetheless may have to meet additional qualifications or requirements in order to come within that treaty’s scope of application and protection. Such additional qualifications may require that an investment be made (a) in accordance with the laws and regulations of the host state; (b) in the territory of a host state; (c) before and/or after the date of entry into force of the BIT; (d) in certain sectors of the economy; or (e) in projects classified as ‘approved’ by appropriate governmental authorities. The nature and application of each of these limiting conditions is now examined.

(a)  Legal requirements

The practice in most, but not all investment treaties,42 of conditioning coverage of an investment on its compliance with local laws is an attempt to achieve a very important public purpose—ensuring that foreign investors observe host states’ laws and regulations. This requirement also reflects the well-known legal maxim: ‘No one should benefit from his own wrong.’ For example, Article 1(1) of the Austria–Saudi Arabia BIT defines ‘investment’ to mean ‘every kind of asset, (p. 185) owned or controlled by an investor of a Contracting Party in the territory of the other Contracting Party according to its legislation and in particular, but not exclusively, includes …’ (emphasis added).43 Thus, under this definition an investment will enjoy treaty protection only if a claimant establishes that its investment has been owned and controlled in accordance with the host state’s legislation. Conversely, a host government, and ultimately a tribunal, may deny treaty protection of an investment that is found not to be in compliance with host state national law.

Three arbitration cases illustrate some of the issues involved in applying this type of provision. In Salini Construtorri SpA and Italstrade SpA v Morocco,44 the claimants relied on the broad definition of investment in the Italy–Morocco BIT, which included ‘rights to any contractual benefit having an economic value’ and ‘any rights of an economic nature conferred by law or by contract’ to argue that the contract in question gave them a right to economic value and that a breach of the treaty entitled them to damages. Morocco, however, responded that those categories of investments, when analysed in conjunction with the language ‘invested in accordance with the laws and regulations of the party’, should lead to the conclusion that ‘it is Moroccan law [not the Italy–Morocco BIT] that should define the notion of investment’.45 Accordingly, Morocco argued that because the transaction in question was characterized as a contract for services and not as a contract for investment under Moroccan law, the complaint did not allege violations of the BIT but only a contractual breach governed by Moroccan domestic law. The tribunal rejected this argument, concluding that ‘[i]‌n focusing on “the categories of investment assets … in accordance with the laws and regulations of the aforementioned party,” this provision refers to the validity of the investment and not to its definition’ (emphasis added).46 More specifically, the tribunal stressed that such language ‘seeks to prevent the Bilateral Investment Treaty from protecting investments that should not be protected, particularly because they would be illegal’.47 The tribunal found that the contract was legally valid in Morocco and that it constituted an investment under the Morocco–Italy BIT.

In Tokios Tokelés v Ukraine,48 the Ukrainian government argued that the claimant’s investments were not made in accordance with Ukrainian law as required by Article 1(1) of the Ukraine–Lithuania BIT. The Ukrainian government based its argument on the grounds that ‘the full name under which the Claimant registered its subsidiary … is improper, because “subsidiary enterprise” but not “subsidiary private enterprise” is a recognized legal form under Ukrainian law’. Ukraine also asserted that ‘it has identified errors in the documents provided by the Claimant related to asset procurement and transfer, including, in some cases, the absence (p. 186) of a necessary signature or notarization’.49 In responding to these allegations, the tribunal noted that Ukraine did not allege that the claimant’s investments were illegal per se. Moreover, it found that Ukrainian authorities registered the claimant’s subsidiary as a valid enterprise and had also subsequently registered each of the claimant’s investments. Although Ukraine claimed that some of the registered investments’ underlying documents contained various defects, some of which related to matters of Ukrainian law, the tribunal concluded: ‘Even if we were able to confirm the Respondent’s allegations, which would require a searching examination of minute details of administrative procedures in Ukrainian law, to exclude an investment on the basis of such minor errors would be inconsistent with the object and purpose of the Treaty [… which is to protect investments]’.50 The fact that Ukraine registered each of the claimant’s investments was sufficient evidence for the tribunal to conclude that the ‘investment’ in question was made in accordance with Ukrainian laws and regulations.

Finally, in Alasdair Ross Anderson et al v Republic of Costa Rica,51 the claimants, a group of 137 Canadian nationals, had deposited funds between 1996 and 2002 along with some 6,200 persons, with Luis Enrique Villalobos and his brother Osvaldo, money changers in San Jose, Costa Rica, with the promise of high interest on a monthly basis. Although the Villalobos brothers were licensed money changers, the Central Bank had not authorized them to receive deposits, such transactions constituting illegal financial intermediation under the Central Bank Law. In effect, the two brothers were operating a ‘Ponzi scheme’. As a result, the investors lost nearly all the money they had deposited. The Canadian investors brought a claim against the government of Costa Rica under the Canada–Costa Rica BIT,52 but Costa-Rica challenged jurisdiction on various grounds, including that the deposits were not within the scope of the BIT which states in Article I(g): ‘“investment” means any kind of asset owned or controlled either directly, or indirectly through an enterprise or natural person of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws …’. Costa Rica argued that the Ponzi scheme was illegal under Costa Rican law and that therefore the claimants’ deposits with the two brothers were not ‘investments’ under the BIT since they were not made in accordance with Costa Rican law. The tribunal found that the deposits by the claimants with the Villalobos brothers were assets since they resulted in a legal obligation to pay principal and interest therefore constituted a thing of value.53 However, it ultimately concluded that since the Ponzi scheme operated by the Villalobos brothers violated Costa Rican law, the obligations held by the claimants were not owned or controlled in accordance with the law of Costa Rica as required by the BIT, stating:(p. 187)

The entire transaction between the Villalobos brothers and each Claimant was illegal because it violated the Organic Law of the Central Bank. If the transaction by which the Villalobos acquired the deposit was illegal, it follows that the acquisition by each Claimant of the asset resulting from that transaction was also not in accordance with the law of Costa Rica.54

The tribunal denied jurisdiction in the case.

It is to be noted that the requirement that investments be in accordance with law raises a possible defence in investor–state arbitration, for example, where an investment has been made through corruption or illegal payments by the investor to governmental authorities, a situation that unfortunately occurs with some frequency. In Inceysa Vallisoletana SL v Republic of El Salvador, El Salvador claimed that the investor made investments through fraud and misrepresentation. Since the investments had not been established ‘in accordance with law’ as required by the BIT, El Salvador argued that the claimant should be deprived of the protections of the treaty. In the light of these facts, the tribunal dismissed the claims of the Spanish company Inceysa Vallisoletana SL for lack of jurisdiction, since the treaty conditioned the tribunal’s jurisdiction on investments being made ‘in accordance with law’. It also noted that any contrary finding would run counter to the general principle, inherent in the notion of the international public order, that parties should not benefit from their own wrongdoing.55 A similar result came about in the ICSID case of World Duty Free v The Republic of Kenya in which undisputed evidence was introduced during the proceedings that the claimant had secured its investment in question by paying a bribe to the then head of state. As a result, the tribunal held that the claimants’ claims should be dismissed immediately and in their entirety.56 In Metal-Tech v Uzbekistan, the tribunal also found that corruption was established to an extent sufficient to violate Uzbekistan law in connection with the claimant’s investment. Therefore, it concluded the investment in question was not ‘implemented in accordance with the laws’ of Uzbekistan and declined jurisdiction.57

In general, the inclusion of the qualification ‘in accordance with the laws and regulations of the host State’ in the definition of ‘investment’ refers to the validity of the investment and is designed to prevent the treaty from protecting investments that were not made in compliance with the host state’s national legislation. It should be noted that such provisions place an absolute obligation on the investor to make its investment in accordance with the host country law. The fact that an investor made a ‘reasonable effort’ or ‘exercised due diligence’ to assure the (p. 188) legality of its investment would not be sufficient to meet the obligation imposed by such treaty language.58

(b)  Territorial requirements

Investment treaties often specifically limit their application to investments made within the territory of the respective contracting parties. The rationale behind this practice is to ensure that the host state obtains the benefits from the operation of foreign investments within its territory, whether such benefits consist of obtaining new technologies, developing important economic sectors, creating new jobs, or collecting additional tax revenues. Such a condition may be included either in the definition of the term ‘investment’ or in the provision on the treaty’s scope of application. The former approach is illustrated in Article 1 of the Canada–Peru BIT, which provides: ‘“Covered investment” means, with respect to a Party, an investment in its territory of an investor of the other Party existing on the date of entry into force of this Agreement, as well as investments made or acquired thereafter’ (emphasis added).59 The latter approach is illustrated in Article II of the Switzerland–Philippines BIT, which provides: ‘The present agreement applies to investments in the territory of the one Contracting Party made in accordance with its laws and regulations by investors of the other Contracting Party, whether prior to or after the entry into force of the Agreement’.60 Thus, according to such provisions treaty protection extends to an investment only if it is made in the territory of the host State.

The challenges of determining whether an investment was made in the territory of the treaty state and thus qualifies as a covered investment are illustrated in a number of arbitral cases. In Fedax NV v Venezuela,61 Venezuela argued that Fedax did not qualify as an investor because, only being the holder of promissory notes, it had not made any ‘investment’ in the territory of the host state. In response to this argument, the tribunal recognized that ‘it is true that in some kinds of investments, such as the acquisition of interests in immovable property, companies and the like, a transfer of funds or value will be made into the territory of the host country’ but it stressed that ‘this does not necessarily happen in a number of other types of investments, particularly those of a financial nature’.62

(p. 189) The test in such circumstances, according to the tribunal, is whether the available funds are used by the beneficiary of the credit to finance its various governmental needs.63 Since it was not disputed that through its promissory notes Venezuela had received credit that was put to work for its financial needs, those promissory notes were determined to be invested in the territory of Venezuela within the meaning of the treaty.64

The issue of whether an investment was made in the territory of a treaty party also arose in three cases by the same claimants involving similar transactions, one against Pakistan, one against the Philippines, and one against Paraguay.65 In SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan66 and SGS Société Générale de Surveillance SA v Republic of the Philippines,67 the disputes arose out of the alleged wrongful termination of contracts under which SGS, a Swiss group, was to provide ‘pre-shipment inspection services’, including comprehensive import supervision of goods before shipment to the Philippines and Pakistan. In SGS Société Générale de Surveillance SA v Republic of Paraguay,68 SGS brought a claim for unpaid invoices for the same services. Because of the nature of the services to be rendered, the SGS activity was carried out in the territories of exporting countries. In all three cases the respondent states objected to the tribunal’s jurisdiction by arguing that SGS’s investments were not made in the territory of the host states and so were not covered by the applicable BITs, which included the territoriality investment requirement. As a result, they argued, the dispute did not arise out of an investment. In determining whether SGS made an ‘investment’ (p. 190) ‘in the territory of Pakistan’, the tribunal noted that the Pre-Shipment Inspection (PSI) Agreement defined SGS’s commitments in such a way as to ensure that SGS, if it were to comply with them, had to make certain expenditures within Pakistan. It observed that ‘[w]‌hile the expenditures may be relatively small (Pakistan’s Reply estimated them as amounting to approximately US$800,000, while SGS’s estimate put them at US$1.5 million), they involved the injection of funds into the territory of Pakistan for the carrying out of SGS’s engagements under the PSI Agreement’.69 The tribunal also found relevant the fact that the claimant adduced evidence of expenditures to establish and operate liaison offices in Pakistan to perform its obligations under the PSI Agreement,70 and that Pakistan itself recognized that the PSI Agreement involved the delegation of some of the state’s customs powers to the private party in order to increase the customs revenue of that state.71 Therefore, the tribunal held that the expenditures made by SGS pursuant to the PSI Agreement constituted an investment within the meaning of the BIT and, moreover, that the ICSID Convention’s requirement that there be a legal dispute arising directly out of an ‘investment’ was satisfied.72

In the SGS arbitration against the Philippines, a different tribunal arrived at the same conclusion. The tribunal stressed the clear language of the territorial limitation and stated:

In accordance with normal principles of treaty interpretation, investments made outside the territory of the Respondent State, however beneficial to it, would not be covered by the BIT. For example the construction of an embassy in a third State, or the provision of security services to such an embassy, would not involve investments in the territory of the State whose embassy it was, and would not be protected by the BIT.73

In its analysis of the facts of the dispute, the tribunal found that under the Comprehensive Import Supervision Services (CISS) Agreement between SGS and the Philipines, SGS was to provide services, inside and outside the Philippines, to improve and integrate the import services and associated customs revenue-gathering of the Philippines. It gave particular attention to the fact that the purpose of the agreement was the creation in the Philippines of a reliable inspection certificate (Clean Report of Findings (CRF)) on the basis of which import clearance could be expedited and the appropriate duty charged. SGS’s inspections abroad were not carried out for their own sake but to provide an inspection certificate in the Philippines that governmental authorities could rely on in allowing the entry of goods to the customs territory of the Philippines and in assessing and collecting the resulting customs revenue. Although the certificate was not a legal instrument, it was nonetheless valuable evidence and its provision was central to SGS’s operations. Further, those operations were organized through SGS’s Manila Liaison Office, which under Article 5 of the CISS Agreement SGS was obliged to ‘continue and maintain … until the date upon which this Agreement ceases to be effective or its implementation is interrupted or indefinitely suspended’. (p. 191) The liaison office was of substantial size, employing a significant number of people, and played an important role in providing the required service.74 These elements taken together enabled the tribunal to find that SGS had made an investment in the Philippines within the meaning of the BIT; however, it implied that its position might have been different if SGS had provided the certificates and issued its reports abroad, for example to a Philippines trade mission in each exporting country.

In SGS v Paraguay, the respondent argued that the preponderance of SGS’s services took place outside Paraguay and that SGS’s specific claims concerned non-payment for services performed abroad and not acts and omissions affecting its activities in Paraguay.75 The tribunal rejected the respondent’s distinction, stating:

this Tribunal does not consider it consistent with the facts presented to subdivide Claimant’s activities into services provided abroad and services provided in Paraguay, and to then attribute Claimant’s claims solely to the former category. SGS’s inspections abroad were not carried out for separate purposes, but rather in order to enable it to provide, in Paraguay, a final Inspection Certificate on which the Paraguayan authorities relied to enter goods into the customs territory of Paraguay and to assess and collect the resulting customs revenue.76

The tribunal added that even if it were possible to separate the services between those provided abroad and those provided in Paraguay, there would be no way to attribute Paraguay’s non-payment to only those services provided abroad.77 The tribunal concluded its analysis by noting that its decision was consistent with those in SGS v Philippines and SGS v Pakistan.

NAFTA, unlike many BITs, contains no explicit territorial requirement in the definitions of ‘investor’ or ‘investment’. However, Article 1101 of Chapter Eleven’s scope of coverage makes clear that it applies only to ‘… (b) investments of investors of another Party in the territory of the Party’, thus leading the tribunal in Methanex v United States to state that Article 1101 is ‘the gateway leading to the dispute resolution provisions of Chapter 11’;78 a gateway that limits the powers of Chapter Eleven tribunals. Accordingly, NAFTA tribunals have consistently held that ‘in order to be an “investor” under Article 1139 one must make an investment in the territory of another NAFTA State, not in one’s own’.79 Thus, for example (p. 192) in Apotex Inc v United States,80 a Canadian pharmaceutical company instituted an arbitration against the United States under Chapter Eleven of NAFTA on the grounds that US regulatory agencies and federal courts violated their obligations under the treaty because of the measures they had taken against Apotex’s efforts to obtain approval to bring certain new generic drugs to market in the United States. The tribunal dismissed the complaint for lack of jurisdiction because all of Apotex’s activities occurred in Canada, not the United States, and because the claimant neither resided nor had a place of business in the United States, had no equity or debt interest in any US company, had not claimed to have purchased property, built facilities, or hired a workforce in the United States, and did not claim to have developed, tested, or manufactured its drugs in the United States. Furthermore, the claimant developed pharmaceutical products in Canada for the domestic market and for export to many other countries. The products at issue in the case were formulated, developed, manufactured, tested, and labelled outside the United States and then exported thereto. The tribunal held that activity by an exporter in its own country did not constitute an investment under Article 1139 of NAFTA.81

(c)  Temporal requirements

Most treaties extend the definition of ‘investment’ to cover all investments existing at the date of the treaty’s signature or entry into force, whether such investments were made before or after that date. For example, Article 1 of the Canada–Peru BIT provides that ‘covered investment’ means ‘an investment of an investor of the other Party existing on the date of entry into force of this Agreement, as well as investments made or acquired thereafter’.82 Article 1 of the Ghana–Guinea BIT provides that the term ‘investment’ includes ‘all investments, whether made before or after the date of entry into force of this Agreement’.83 Under these provisions all investments existing at the treaty’s effective date enjoy the benefit of its protection. The inclusion of all existing investments within an investment treaty’s scope of application may also signal the seriousness of the host state’s commitment to ensuring a favourable investment climate.

This issue of whether investments made prior to the entry into force of a treaty should nonetheless benefit from its provisions has not been without contention in some treaty negotiations. Developing countries have sometimes sought to limit (p. 193) a treaty’s application only to future investment or at least to investments made in the relatively recent past.84 Viewing treaties primarily as investment promotion mechanisms, they have claimed to see little purpose in granting additional protection to investments already made in the host country. Moreover, they argue that their governments might not have approved previous investments if they had realized that an investment treaty could later expand the investor’s rights and privileges.85 Capital-exporting states, on the other hand, have generally sought to protect all their nationals’ investments and companies, regardless of when they were made. For example, the US Model BIT defines ‘covered investment’ as ‘an investment in its territory of an investor of the other Party in existence as of the date of entry into force of this Treaty or established, acquired, or expanded thereafter’.86

Investment treaties, including the ECT and most BITs, also seek continued treaty protection for investors after the treaty has terminated or the host country has withdrawn. For example, the ECT states that it will continue to apply to investments for a period of twenty years from the effective date of withdrawal.87 This continuing effects provision is designed to protect investors who have made investments in reliance on the expectation of treaty protection. In many BITs, the period of continued protection is between fifteen and twenty years.88

However, where a new treaty supersedes obligations under an earlier treaty, the definition of ‘investment’, while continuing to cover existing investments, may exclude investment disputes arising before the new treaty’s entry into force from arbitration. For example, Article 1 of the UK–Croatia BIT provides that ‘the term investment includes all investments whether made before or after the date of entry into force of this Agreement, but the provisions of this Agreement shall not apply to a dispute concerning an investment which arose before its entry into force’.89 One reason behind this clause may be a desire by the contracting states to preclude investors from shopping among different international legal regimes and to ensure that investment disputes arising prior to a new treaty’s conclusion are decided in accordance with the provisions of the treaty under which the investment was originally made.

(p. 194) (d)  Sector requirements

Some treaties provide that for an asset to qualify as an investment that asset must be made in a specified sector of the economy. For example, Article III(1) of the Egypt–Belgo-Luxemburg Economic Union BIT contains the following general definition of investment: ‘The term “investments” shall comprise every direct or indirect contribution of capital and any other kind of assets, invested or reinvested in enterprises in the field of agriculture, industry, mining, forestry, communications, and tourism’.90 Thus, under this definition, for a contribution of capital to constitute an investment it must be made in one of the specified economic sectors.

The challenges that may arise in interpreting provisions of this kind are illustrated in Jan de Nul NV and Dredging International NV v Arab Republic of Egypt.91 In that dispute, the tribunal was faced with the question of whether a contribution of capital was invested in one of the fields specified in Article III(1), as just quoted. More specifically, the issue was whether the dredging of the Suez Canal was related to ‘communications’ within the meaning of that Article. Egypt argued that the dredging of the Canal did not relate to communications, since the ordinary meaning of ‘communications’ in English is limited to the exchange of information. In response, the claimants relied on authoritative English language dictionaries to support the argument that the word ‘communications’ is not limited to the transmission of information but includes a geographical dimension. For example, it may include: ‘any connective passage or channel’, ‘a system of routes for moving troops, supplies, and vehicles’, or ‘passage or an opportunity or means of passage between places’. The tribunal ultimately decided the issue in favour of the claimants, stating that it failed ‘to see how the Respondent can argue that including “road of communication” or “transport of persons and goods” in the meaning of “communications” under Article III(1) can be “at odds with the common and ordinary meaning of the term communications”’. The tribunal also found that just because the claimants’ activities related to dredging the canal, and not communicating through the canal, did not mean that the claimants had not invested in an enterprise in the field of communications within the meaning of the BIT.92

Although limiting an investment to certain economic sectors may be justified by economic development or the protection of a national economy, most modern BITs have not followed this practice.93 While the definition of investment is broad in virtually all BITs, the area of economic activity defined as an investment in the ECT is subject to limitations because it is only intended to (p. 195) cover the energy sector. Therefore, its drafters had to define that sector with some precision. Article 1(6) of the ECT states: ‘“Investment” refers to any investment Associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party as “Charter efficiency projects” and so notified to the [Energy Charter] Secretariat’. Under Article 1(4), ‘“Economic Activity in the Energy Sector” is defined broadly as “an economic activity concerning the exploration, extraction, refining, production, storage, land transportation, transmission, distribution, trade, marketing or Sale of Energy Materials and Products”’ with certain specified exceptions. The Understandings in the Final Act of the European Energy Charter Conference give examples of permitted ‘Economic Activity in the Energy Sector’ and further underscore the sectoral character of the Treaty by stating that it confers no right to engage in economic activities other than in the Energy Sector.

Because most other investment treaties are general rather than sectoral in scope, they have usually not employed such elaborate provisions to define the sectors in which investments are permitted. On the other hand, investment treaties rarely allow investments in all economic sectors. Most BITs either specifically identify sectors in which nationals from the other country may not invest, for example banking or maritime shipping, or they state that investments are allowed only in those sectors permitted by domestic law, a provision that incorporates legislation prohibiting foreign investment in defined economic areas into the treaty by reference.94

(e)  Approved project requirements

Some treaties may also limit their scope to investments in projects classified by appropriate governmental authorities as ‘approved projects’. The aim of this provision is to confine a treaty’s encouragement and protection only to investment in projects perceived by a host country’s governing authorities to be contributing to the state’s economic development or national interest. For example, Article 1 of the Sweden–Malaysia BIT, like many treaties, defines ‘investment’ as ‘any kind of asset’; however, the definition also contains an important proviso:

provided that such asset when invested:

  1. (i)  in Malaysia, is invested in a project classified by the appropriate Ministry in Malaysia in accordance with its legislation and administrative practice as an ‘approved project.’ The classification as an ‘approved project’ may, on application, be accorded to investments made prior to the date of the entry into force of this Agreement on conditions to be stipulated for each individual case (emphasis added).95

Although this provision contains a broad asset-based definition of ‘investment’, it attaches a condition limiting the BIT’s application to assets classified as ‘approved (p. 196) projects’. A failure to satisfy this condition would deprive an asset of the BIT’s protection because it would not constitute a covered investment within the meaning of the treaty.

The ICSID case of Gruslin v Malaysia,96 which involved an alleged investment made in securities listed on the Malaysian Stock Exchange (KLSE), required the tribunal to interpret a provision similar to that quoted earlier. Relying on that provision, Malaysia argued that the assets in question did not constitute an investment within the meaning of the treaty because they were not made in an approved project and because ‘mere investment in shares in the stock market, which can be traded by anyone and are not connected to the development of an approved project, are not protected’. The sole arbitrator upheld Malaysia’s position and rejected the claimant’s contention that the approval given to participate in the KLSE listing processes was sufficient to satisfy the ‘approved project’ requirement. The arbitrator noted: ‘What is required is something constituting regulatory approval of a “project”, as such, and not merely the approval at some time of the general business activities of a corporation.’97 He therefore concluded that the shares in question did not satisfy the treaty’s definition of ‘investment’ and consequently were not protected by the BIT. Thus, it would seem that clauses similar to the proviso found in the Sweden–Malaysia BIT require specific governmental authorization for the investment. The fact that an investment was made in accordance with the host country’s laws and regulations, as was discussed earlier in section 7.6(a), is not sufficient to meet this requirement.

7.7  Arbitral Applications of Investment Definitions in Special Situations

Arbitral tribunals have increasingly been called upon to interpret treaty definitions of ‘investment’ and apply them to a variety of assets and transactions. As noted earlier in this chapter, tribunals have found construction contracts,98 loan agreements,99 shares,100 locally incorporated corporations,101 promissory notes,102 and public concession agreements,103 among others, to come within the meaning of ‘investment’ in different investment treaties. Still, categories of assets exist (p. 197) where there is controversy as to whether they constitute protected investments. Among such complex situations are (a) pre-investment expenditures; (b) shareholdings; and (c) indirect holdings. This section examines each of these situations.

(a)  Pre-investment expenditures

One interesting question is whether expenses incurred by an investor in developing a project that does not ultimately come to fruition can be considered an ‘investment’ for the purposes of an investment treaty. A financial expert would probably consider such expenses to be investments, since they are a commitment of funds for a business purpose in the expectation of a return. However, that determination is not necessarily conclusive under investment treaties.

One of the first reported cases dealing with this issue is Mihaly International Corporation v Sri Lanka.104 In 1993, Mihaly entered into a series of arrangements with the Sri Lankan government in the hope of concluding a contract for constructing a 300 megawatt power plant in Sri Lanka on a build-own-transfer basis. This arrangement included a letter of intent, a letter of agreement, and a letter of intention. The letter of intent, however, specified that it ‘constitutes a Statement of Intention and does not constitute an obligation binding on any party’ and that ‘the project and contract details are subject to Cabinet approval’. The other two documents also clearly specified that they did not create binding obligations on either party. After the execution of those arrangements, and after Mihaly incurred significant expense, the government decided not to sign a project agreement. Seeking reimbursement of its expenses and compensation for lost profits, Mihaly filed a request for ICSID arbitration based on the US–Sri Lanka BIT, claiming that it had not received fair and equitable treatment at the hands of the Sri Lankan government. Sri Lanka defended itself by claiming that such pre-contractual expenses did not constitute an investment and were therefore not subject to international legal protection; consequently, ICSID and the tribunal did not have jurisdiction over Mihaly’s claim.

The tribunal found that the pre-contract expenditures did not constitute an investment within the meaning of Article 25 of the ICSID Convention and did not fall under the protection of the US–Sri Lanka BIT. It based its decision on two grounds. First, Sri Lanka had taken great care to state that none of the documents created a contractual obligation for building the power plant. Second, the negotiations between the parties never evolved into a contract.105 The tribunal also observed that ‘it is always a matter for the parties to determine at what point in their negotiations they wish to engage the provisions of the Convention by entering into an investment’.106

(p. 198) At the same time, the tribunal was careful to confine its holding to the facts of the case before it. It said that it ‘is not unmindful of the need to adapt the Convention to changes in the form of cooperation between investors and host States. However, these changes have to be considered in the context of the specific obligations which the parties respectively assume in the particular case’. The tribunal repeated that, in other circumstances, similar expenditure might be found to be an investment.107

It is interesting to note that the claimant did not present any arguments on whether its expenditures were investments within the meaning of the US–Sri Lanka BIT. Its only BIT-based arguments were based on Article II, which dealt with the standards of treatment for investments, and Article VI, which specified what investment disputes were subject to ICSID arbitration. The BIT, however, contained a very broad asset-based definition of the term ‘investment’ with no requirement that the asset arise out of a contract or that it be admitted, approved, or registered by the host state. This factor prompted one commentator to suggest that it would have been possible for Mihaly to argue that its rights fell within the BIT’s concept of investments and that therefore under the BIT pre-investment expenditures could be considered as a protected investment.108

A second case involving pre-investment expenses, PSEG v Turkey,109 dealt with claims under the US–Turkey BIT that arose from the cancellation of a concession contract by the Turkish government before any works commenced. Turkey argued that, while the parties signed and approved the concession contract, the contract did not constitute an investment because it did not contain essential agreed commercial terms and, at best, constituted a framework for further negotiation. Therefore, analogizing to Mihaly, Turkey argued that the claimants had incurred expenditures on a project that never materialized, but had not made an investment under the BIT.

The tribunal approached the question in two steps: first it had to determine whether a contract existed and then decide whether it was valid. On this issue, the tribunal found that the concession contract existed because it was couched in proper legal language, duly signed, approved, and later executed with all the necessary legal formalities and requirements. According to the tribunal, the existence of that contract was a substantive difference from the facts in Mihaly, where the (p. 199) parties never signed a concession contract and Sri Lanka had expressly disclaimed any legal obligations arising from the preparatory work undertaken.110

On the second issue, the tribunal also determined that the contract was valid. It looked to both the language of the contract as well as the circumstances of the case, which demonstrated an intent by the parties to be bound despite the fact that certain terms needed to be agreed upon at a later date.111 Moreover, it added:

Theoretically, on the basis of the Contract as signed and executed, the Claimants could still undertake the project on the commercial terms therein specified, which the Respondent has admitted was a possibility … [and the] fact that economically the project might be difficult to execute or even become unfeasible does not render the Contract invalid … [n]‌either does the fact that the project could become impossible to perform.112

Having thus established the existence and the validity of the contract, the tribunal determined that the contract was a protected investment within the meaning of the applicable treaties.

These two BIT cases demonstrate that a distinction can be drawn between disputes where expenses have been incurred before a contract or governmental approval has become effective and those arising after the government has approved a contract. This distinction may have serious implications for investors and host states alike. As one commentator observed, expenditures incurred in preparatory work for the making of an investment certainly represent a ‘pre-investment and development’ activity, which is a common feature of modern-day commercial activity. Investors may spend large amounts of money to prepare the resources necessary to fulfil the final stage of a contract for a major investment project. Thus, they may commit several million dollars on financing, negotiating, and engineering, as well as on legal work, environmental studies, and financial advice.113 In this connection, the concurring opinion in Mihaly by arbitrator D Suratgar underscored an important consideration:

if private foreign investors are to be encouraged to pursue transparency in seeking such … opportunities the international community must address the lessons of this case. Expenditure incurred by successful bidders do [sic] indeed produce ‘economic value’ as specified by Article 1 of the US–Sri Lanka BIT and the protection mechanism developed under the aegis of the World Bank in the form of the ICSID Convention should be available to those who are encouraged to embark on such expensive exercises.114

On the other hand, one can argue that expanding treaty protection to pre-investment expenses would create too heavy a burden for host states and arbitral institutions such as ICSID.115 The pre-investment bidding process typically (p. 200) involves a large number of potential investors, only one of which, ultimately, can be successful. Consequently, every project has many losers, some of whom may be motivated to file frivolous claims in the hope that the costs of defending the claim or the potential embarrassment and deterrent effect on future investment of an investor–state arbitration will induce the host state to settle rather than fight. The ICSID mechanism should not be extended to a new category of disputes unless the benefits to foreign investment clearly outweigh the costs—a result that is not at all clear in the case of pre-investment expenses. Moreover, further expanding access to ICSID and other arbitral institutions to encompass pre-investment expenditure disputes risks alienating developing countries, slowing down the BIT-making process, overburdening arbitral institutions, and perhaps even compromising the legitimacy of investor–state arbitration. Of course, potential investors and host states are always free to enter into binding, pre-investment agreements on a case-by-case basis and to provide for arbitration of pre-investment disputes in a non-ICSID forum.116

(b)  Minority shareholdings

For reasons of economic convenience or host government requirements, investors frequently carry out investments through companies incorporated in host states. To achieve this end, a foreign investor may establish a new local company or acquire shares in a pre-existing one. However, if a host state commits a wrongful act against the locally incorporated company, that company, in the absence of a specific provision to the contrary,117 may not have legal standing to bring a (p. 201) treaty claim for damages if that treaty does not consider the company to be an investor or investment of the other contracting party. In such cases, the applicable treaty may give the shareholder-investor the ability to bring claims for damages done to the corporate entity. As discussed earlier, many treaties define the term ‘investment’ to include ‘assets’ that an investor ‘owns or controls, directly or indirectly’ and specify that ‘shares in stock or other interests in a company or interests in the assets thereof’ may constitute one of the forms of a foreign investment. The plain meaning of such language does not require that the investor’s participation in a company be a controlling or direct one, and so covers portfolio investments (less than 10% of shares) and investments made indirectly through intermediaries. Accordingly, participation in a locally incorporated company qualifies as a foreign investment under applicable treaties. Thus, the owner of that investment may bring claims under the treaty against a host state for wrongful conduct that damages a locally incorporated company.

The prevailing treaty approach to this question stands as a repudiation of any suggestion that customary international law does not protect portfolio investments.118 As discussed in Chapter 3, a decision of the International Court of Justice (ICJ), Barcelona Traction Power and Light Co, Ltd,119 has been cited to support the opposing view. In that case, a Canadian corporation, Barcelona Traction, Light and Power Co, Ltd, supplying electricity to the city of Barcelona, Spain, allegedly went bankrupt as a result of certain actions taken by Spain. Many of the shareholders in the company were Belgian nationals, whose investments were lost as a result of the bankruptcy. Belgium brought an action against Spain in the ICJ for the alleged injury to the Belgian shareholders, claiming that Spain had breached its obligations to the shareholders under international law. The ICJ rejected the Belgian claim because the injury was done to a Canadian entity, Barcelona Traction Power and Light Co, Ltd and only incidentally to the shareholders. The Court held that Belgium lacked jus standi to exercise diplomatic protection of shareholders in a Canadian company with respect to measures taken against that company in Spain. Scholars have criticized the decision over the years as ignoring the realities of international business and denying fair treatment to investors.120

(p. 202) It seems clear that one of the purposes of employing a broad definition of the term ‘investment’ in treaties is to avoid any suggestion that the Barcelona Traction approach should be used in defining the scope of treaty protection. Indeed, it can be argued that most investment treaties seek to avoid the Barcelona Traction holding by making clear that shares, as well as companies, are meant to receive international law protection under relevant investment treaties. As a result, virtually all modern investment treaties reject the approach of Barcelona Traction with respect to the protection of corporate shares as a form of investment.

Nonetheless, in various investor–state arbitrations under investment treaties respondent states have sought to rely on Barcelona Traction to defend against actions brought by shareholders.121 Indeed, despite the usual breadth of treaty language in defining investment, the matter has been the subject of controversy and litigation on several occasions. These disputes usually arise in cases in which foreign investors have invested in a company organized in the host country in which they hold shares. Where governmental action has injured the company, those investors have brought actions based on the shares they hold and asserted that their shares constitute ‘investments’ under the treaty in question. Host countries have defended themselves by relying on Barcelona Traction; however, arbitration tribunals have unanimously rejected the argument where the investment treaty in question makes clear that ‘investment’ includes shares in companies.122

Respondent states have also repeatedly argued that foreign investors do not have standing to bring BIT claims because the foreign investors are either minority or indirect shareholders. As illustrated in the following decisions, arbitral tribunals have rejected this argument.

In AAPL v Sri Lanka,123 a dispute arose between AAPL, a minority shareholder in a locally incorporated company named Serendib, and Sri Lanka, when government security forces destroyed Serendib’s property during a military operation. As a direct consequence, AAPL allegedly suffered a total loss of its investment and made a claim for compensation from the Sri Lankan government. The arbitration tribunal noted that the UK–Sri Lanka BIT defined ‘investments’ to include ‘shares, stock and debentures of companies or interests in the property of such companies’. It concluded that the claimant’s shareholdings fell within that (p. 203) definition. Consequently, it upheld the investor’s right to bring a damage claim under the BIT, stating:

The undisputed ‘investments’ effected since 1985 by AAPL in Sri Lanka are in the form of acquiring shares in Serendib Company, which has been incorporated in Sri Lanka under the domestic Companies Law. Accordingly … [t]‌he scope of international law protection granted to the foreign investor in the present case is limited to a single item: the value of his share-holding in the joint-venture entity.124

In CMS v Argentina,125 the claimant alleged that Argentina breached the US–Argentina BIT by modifying the legal and regulatory framework that had initially induced CMS, a US incorporated company, to acquire a 29.42 per cent share in TGN, a gas transportation company incorporated in Argentina. Argentina’s subsequent forced change from a dollar tariff regime to one based on the Argentine peso at a one-to-one exchange rate (when the real exchange rate dropped to one to three) and the subsequent freeze of those tariffs were alleged to be a breach of Argentina’s obligation to treat CMS’s investment fairly and equitably and to observe certain obligations Argentina had entered into with regard to the investment. Argentina advanced two principal arguments against the admissibility of CMS’s claims. First, as TGN was the licensee and CMS was only a minority shareholder, Argentina argued that the claimant did not hold the rights upon which it based its claim. According to this reasoning, only TGN as a corporation could make a claim for damages. However, since TGN was an Argentine company, it did not qualify as a foreign investor under the BIT. Second, Argentina asserted that CMS’s claim was not for direct damages arising from measures affecting the shares, such as expropriation of shares or interference with the property rights tied to those shares, but rather was for indirect damages, that is, claims connected to damage suffered by TGN as a separate corporate entity. While admitting that claims for direct damages are allowed by international law, Argentina asserted that the right to claim for indirect damages had to be explicitly provided in the BIT.

The tribunal rejected Argentina’s objections on several grounds. First, it found no bar in current international law to allowing claims by shareholders independently from those of the corporation concerned, even if those shareholders were minority or non-controlling shareholders.126 It based this finding on two important conclusions. First, although Barcelona Traction ruled out the protection of investors by the state of their nationality when that state was different from the state of incorporation of the corporate entity concerned in a case dealing with damages suffered in a third state, Barcelona Traction only concerned the exercise of diplomatic protection in that particular setting and did not deal with the possibility of extending protection to shareholders in different contexts. Second, the (p. 204) tribunal pointed to the fact that the very concept of diplomatic protection had been dwindling in international law in recent years and now constituted a residual mechanism only resorted to in the absence of other specific arrangements recognizing a direct right of action by individuals. Because of the rapid proliferation of international investment agreements, which do provide an arrangement for individuals to bring a direct action, such arrangements, previously considered as lex specialis, have become prevalent enough to now be considered the general rule.

Second, the tribunal held that in the light of the ICSID convention there was no bar to the exercise of jurisdiction over the claims brought by a minority shareholder investor.127 It noted that because the ICSID Convention does not define ‘investment’, it does not purport to define the requirements that an investment must meet to qualify for ICSID jurisdiction. Therefore, ‘there is indeed no requirement that an investment in order to qualify, must necessarily be made by shareholders controlling a company or owning the majority of its shares’.128

Third, the tribunal concluded that since the US–Argentina BIT defines ‘investments’ as including ‘shares of stock or other interests in a company or other assets thereof’ without providing any qualifications concerning the measure of control by a shareholder, the latter enjoys an independent right of action for direct and indirect damages and that right is not tied to the legal and economic performance of its investment.129

(c)  Indirect shareholdings

For a variety of financial and economic reasons, investors often make their investments in host countries indirectly through one or more subsidiaries or other intermediaries. This practice has raised the question of whether the holders of such indirect investments may seek treaty protection for injurious actions done directly to the underlying enterprise but which, as a result, also diminish the value of the claimants’ indirect investments. Various cases have dealt with this issue.

In Siemens v Argentina,130 the dispute concerned the indirect shareholding through the investor’s home state intermediary. It arose out of the termination of an investment contract that Argentina concluded with Siemens IT Services SA (SITS), a company incorporated in Argentina by the German-based company Siemens through its wholly-owned affiliate Siemens Nixdorf Informationssysteme AG (SNI). Argentina argued that since the shares in SITS were held through SNI, and not by Siemens directly, Siemens had no right to claim damages. The tribunal rejected Argentina’s submission on the following grounds.

Having conducted a detailed analysis of the definition of ‘investment’ and ‘investor’ in the Germany–Argentina BIT, the tribunal observed that the treaty contained no explicit distinction between direct and indirect investments and that, in fact, the broad definition of ‘investment’ seemed to cover any kind of (p. 205) asset, including ‘shares, rights of participation in companies and other types of participation in companies’. The tribunal thus concluded:

a plain meaning of [such a] provision is that shares held by a German shareholder are protected under the Treaty. The Treaty does not require that there be no interposed companies between the investment and the ultimate owner of the company. Therefore, a literal reading of the Treaty does not support the allegation that the definition of investment excludes indirect investments.131

In Enron v Argentina,132 the dispute arose out of allegedly excessive taxes imposed by Argentina on the gas distribution company Transportadora de Gas del Sur (TGS). TGS was incorporated in Argentina but the US company Enron indirectly held shares in it through locally registered companies and several layers of ownership. That complex structure can be summarized as follows. Enron owned 50 per cent of the shares of CIESA, an Argentine-incorporated company that controlled TGS by owning 55.30 per cent of its shares. Enron’s participation in CIESA was held by two wholly-owned companies, EPCA and EACH. Through EPCA, EACH, and ECIL, another corporation controlled by Enron, Enron also owned 75.93 per cent of EDIDESCA, another Argentine corporation that owned 10 per cent of the shares of TGS. Enron also acquired an additional 0.02 per cent of TGS through EPCA. The investment, as a whole, amounted to 35.263 per cent of TGS.

Argentina asserted that Enron’s complex shareholding in TGS could not qualify as an investment and consequently was not protected by the US–Argentina BIT. The tribunal, relying on the broad definition of ‘investment’ in the BIT, found that that treaty did not exclude the independent claims of shareholders, even if they were not in the majority or did not control the corporation concerned.133 At the same time, the tribunal was sympathetic to Argentina’s concerns that the ability of minority shareholders to pursue arbitration claims independently of an affected corporation could trigger a potentially endless chain of claims, since any shareholder in a company that had made an investment in another company could potentially invoke a right of action for measures affecting the corporation at the end of the chain. The tribunal noted that while minority shareholders can claim their own rights under the provisions of the treaty, ‘there is indeed a need to establish a cut-off point beyond which claims would not be permissible as they would have only a remote connection to the affected company’.134 According to the tribunal, the cut-off point should be determined by the extent of the consent to arbitration of the host state:

if consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investors are admissible under the treaty; but if the consent cannot be considered as extending to another investor or investment, these (p. 206) other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.135

The tribunal cited the following factors as among those to be considered in evaluating the extent of Argentina’s consent to arbitration: that Argentina gave a specific invitation to Enron to undertake the investment, that the investment was made in an approved project, that the investors had decision-making power in the management of TGS, and that the pertinent officials of the Argentine government were kept informed of the corporate structures related to the investment.136

In Standard Chartered Bank v Tanzania,137 the tribunal had to interpret language in the UK–Tanzania BIT that granted jurisdiction to ICSID over disputes arising between a contracting party and a national or company of the other contracting party ‘concerning an investment of the latter in the territory of the former’ (emphasis added).138 The claimant was Standard Chartered Bank, a UK company whose subsidiary, Standard Chartered Bank (Hong Kong), acquired a loan to finance a power plant in Tanzania.139 The dispute over the jurisdictional clause of the treaty concerned the meaning of the word ‘of’. The claimant contended that an investment may be ‘of’ an entity by virtue of an ownership interest, while the respondent argued that ‘of’ required an association between the investor and investment beyond indirect ownership, such as a contribution or flow of funds.140 After interpreting the text and object and purpose of the treaty, the tribunal concluded that to benefit from the treaty a claimant must demonstrate ‘that the investment was made at the claimant’s direction, that the claimant funded the investment or that the claimant controlled the investment in an active and direct manner. Passive ownership of shares in a company not controlled by the claimant where that company in turn owns the investment is not sufficient’.141 A transfer of something of value, such as money, know-how, contacts, or expertise would suffice.142 Because the claimant did not show such contribution or control over the loans, the tribunal found that the claimant was not an investor under the treaty and declined jurisdiction.143

7.8  ‘Investors’ Covered by Investment Treaties

Even though an asset qualifies as an ‘investment’ under an investment treaty, a person or entity will not be able to claim treaty protection for that asset unless that person or entity is deemed to be an ‘investor’ as that term is defined in the applicable treaty. Defining which investors can benefit from the treaty is important, as (p. 207) the goal of the contracting state is to secure benefits for its own nationals, companies, and investors, and not those of other countries. The problem is essentially one of determining what link needs to exist between an investor and a party to a treaty for the investor to benefit from the treaty’s provisions. In examining this problem, one must distinguish between two types of investors: (a) natural persons and (b) legal entities. Virtually all treaties make this distinction in setting out their definitions of ‘investor’. Most treaties provide a definition of investor that applies equally to natural and legal persons of both Contracting parties; however, some treaties may apply different definitions to legal investors of each of the two contracting states in order to take account of special needs or conditions within one of such states. Thus, for example, Saudi Arabia’s BITs normally adopt this approach by specifying that with respect to Saudi Arabia the term ‘investor’ means inter alia ‘the Kingdom of Saudi Arabia and its financial institutions and authorities such as the Saudi Arabian Monetary Agency, public funds, and other similar governmental institutions existing in Saudi Arabia’.144

(a)  Natural persons as ‘investors’

In the case of physical persons or individuals, investment treaties specify the necessary link between the individual and a contracting state primarily on the basis of nationality or citizenship and to a lesser extent by domicile, permanent residence, or some combination thereof. Thus, for example, Article 1(7)(a)(i) of the ECT defines ‘investor’ as including a ‘natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law’.145 Whether a person has the necessary link is determined by the domestic law of the country with which the link is claimed.

Persons having more than one nationality pose a special problem under investment treaties. Unless the treaty specifically treats this question, a variety of possible solutions present themselves. One possibility is to follow the principle of international law that a person with more than one nationality is a national of the state of that person’s dominant and effective nationality.146 Another approach is to hold that if a person is a national of both contracting states that fact automatically denies that person protection, since the treaty is not meant to provide protection to nationals who invest in their own state. Such individuals receive protection from the legal system of the state of which they are nationals.

(p. 208) (b)  Companies and other legal entities as ‘investors’

For investors that are companies or other legal entities, the problem of determining an appropriate link with a contracting state is more complex. Such legal entities may be created and owned by persons who have no real connection with the countries that are a party to the treaty. In particular, three types of cases raise problems: (1) companies organized in a treaty country by nationals of a non-treaty country; (2) companies organized in a non-treaty country by nationals of a treaty country; and (3) companies in which nationals of a non-treaty country hold a substantial interest. For a company to be covered by the treaty, most treaties require that a treaty partner at least be one of the following: (1) the country of the company’s incorporation;147 (2) the country of the company’s seat, registered office, or principal place of business;148 or (3) the country whose nationals have control over, or a substantial interest in, the company making the investment.149 Sometimes these requirements are combined so that an investing company must satisfy two or more conditions to qualify for coverage under a particular investment treaty. For example, the Switzerland–Slovakia BIT provides that the term ‘investor’ refers to ‘legal entities, including companies, corporations, business associations and other organizations, 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 that same Contracting Party’.150 In Alps Finance and Trade AG v Slovak Republic,151 the tribunal, in order to establish jurisdiction, had to determine whether the claimant, a Swiss corporation, had (p. 209) a ‘seat’ in Switzerland as required by the BIT. To support its claim to a seat in Switzerland, the claimant argued that it was registered in the commercial registry of the Swiss locality where it had its headquarters, that the company books were held in Switzerland, that it had a bank price list for the costs of its bank account in Switzerland, and that it had a tax receipt showing the company’s revenues, profits, and losses for the year 2007. Defining the term ‘business seat’ as meaning ‘an effective center of administration of business operations’, the tribunal stated that proof of a seat requires regular board or shareholder meetings, top management, a certain number of employees, an address with phone and fax numbers, and expenses and overhead costs in the location of the seat. Since the claimant had proved none of these elements, the tribunal concluded that the claimant corporation did not have a seat in Switzerland and was therefore not an investor under the BIT.152

Another example of an approach taken with respect to corporate investors in a treaty regime is the ECT, which adopts the relatively simple rule that a company is an investor of a contracting party if it has been organized in accordance with the law applicable in the contracting state. Thus, even if nationals of a non-ECT state organize a company in an ECT state, such a company would qualify as an investor of a contracting party under the treaty. Moreover, unlike most BITs, the ECT explicitly recognizes the possibility that a natural or legal person from a ‘third state’ (ie a non-ECT state) can be considered an investor if it fulfils the treaty conditions, mutatis mutandis, specified for contracting states.153 So, if under the laws of an ECT state a company organized in another state was considered to be organized under the laws of the ECT state, that company would still qualify as an investor under the treaty. In order to prevent these provisions from being abused by nationals and companies of non-ECT states, Article 17 of the ECT, in terms almost identical to those of the United States Model BIT,154 gives each contracting party the right to deny the advantages of the treaty to a legal entity if it is owned or controlled by third country nationals and has no substantial business activities in the state of the contracting party. A contracting party may also deny the advantages of the treaty to the investments of third country investors with which the host country does not maintain diplomatic relations or prohibits transactions.

To be protected under many investment treaties, an investor must ‘own’ or ‘control’ the investment. While determining ownership is usually easy, control is a more vague and ambiguous concept. In order to give some specificity to the term, some treaties contain an annexed or supplementary agreement defining the term ‘control’ in the treaty. For example, the Understandings of the Final Act, IV 3, of the European Energy Charter Conference that adopted the ECT provides as follows:

control of an Investment means control in fact, determined after examining the actual circumstances in each situation. In any such examination, all relevant factors should be considered, including the Investor’s(p. 210)

  1. (a)  financial interest, including equity interest in the Investment;

  2. (b)  ability to exercise substantial influence over the management and operation of the Investment; and

  3. (c)  ability to exercise substantial influence over a selection of members of the board of directors or other managing body.

States have sometimes dealt with the issue of control in the text of the BIT itself or in separate protocols or an exchange of letters.155 The concern in most investment treaties has been the same: to prevent persons and companies having no genuine link with treaty partners from obtaining benefits under the treaty.

Two arbitration decisions are of interest with respect to the interpretation and application of treaty provisions concerning the ability of corporations to qualify as ‘investors’. In Tokios Tokelés v Ukraine,156 a Lithuanian corporation brought an arbitration proceeding against the government of Ukraine under the Ukraine–Lithuania BIT for Ukraine’s alleged violation of the BIT’s guarantees of investor treatment. Ukraine argued that Tokios Tokelés was not an ‘investor’ under the treaty, since 99 per cent of its shares were owned by Ukrainian nationals, who also constituted two-thirds of its management. Ukraine argued that, therefore, while Tokios Tokelés was technically a Lithuanian corporation it was effectively owned and operated by Ukrainian nationals. Relying on the BIT’s definition of investor, which included ‘any entity established in the territory of the Republic of Lithuania in conformity with its laws and regulations’, the tribunal, with strong dissent by its president, found that Tokios Tokelés satisfied the requirements of the treaty. The majority acknowledged that many investment treaties expressly provide that an entity controlled by nationals of the host country shall not be considered an investor of the other contracting party. Regardless, it found no such limitation in the Ukraine–Lithuania BIT. In a statement that negotiators and drafters of investment treaties should bear in mind, the majority observed: ‘We regard the absence of such a provision as a deliberate choice of the Contracting Parties. In our view, it is not for tribunals to impose limits on the scope of BITs not found in the text, much less limits nowhere evident from the negotiating history.’157

In a second ICSID case, Rompetrol Group NV v Romania,158 the claimant, a Dutch corporation whose principal shareholder was a Romanian national, commenced arbitration against Romania under the Netherlands–Romania BIT, which defined ‘investors’ of a contracting party as ‘legal persons constituted under (p. 211) the law of that Contracting Party’. Romania sought dismissal of the case on the grounds that Rompetrol was merely a shell company controlled by Romanian nationals and that it therefore did not qualify as an ‘investor’ under the BIT. The tribunal rejected this argument and found that the treaty very clearly stated that an entity merely had to be constituted under the law of a contracting party to establish a legal link with that state and qualify it as an investor. On the basis of these two cases, it would seem that tribunals are reluctant to impose on corporate investors substantive conditions that the applicable investment treaty does not specifically require.

(c)  States and state-owned entities as ‘investors’

The growing role of states and state-owned entities, such as government corporations and sovereign wealth funds, in international investment raises a question as to whether they are to be considered ‘investors’ under international investment treaties and whether their investments therefore are subject to treaty protections, including investor–state dispute settlement.159 Some treaties provide a clear answer to this question by expressly including such state-entities within their definitions of ‘investor’. Indeed, this seems to be the growing trend. Thus, for example, Article 4(d) of the 2009 ASEAN Comprehensive Investment Agreement defines investor as ‘any juridical person of a member state’ and then Article 4(e) clarifies that ‘“juridical person” means any legal person duly constituted or otherwise organized under the law of a Member State, whether for profit or otherwise, and whether privately-owned or governmentally-owned’. Similarly, Article 1 of the 2012 Model US BIT states that ‘“investor of a Party” means a Party or state enterprise thereof, or a national or an enterprise of a Party, that attempts to make, is making, or has made an investment in the territory of the other Party; provided, however, that a natural person who is a dual national shall be deemed to be exclusively a national of the State of his or her dominant and effective nationality’. Examples of other treaties that expressly include state-owned entities with their definition of ‘investor’ include the US BITs with Azerbaijan,160 Argentina,161 Armenia,162 and Bahrain;163 Canada’s (p. 212) BITs with Armenia,164 Costa Rica,165 and Panama;166 and Saudi Arabia’s BITs with Italy,167 Belgium-Luxembourg,168 and Korea.169

Most investment treaties, however, do not expressly provide that state entities fall within the definition of investor.170 In defining investors who are physical persons such treaties simply refer to ‘legal persons’, ‘juridical persons’, or ‘companies’ under the laws of a contracting party.171 For example, Article 1 (1)(7) (a)(ii) of the ECT merely states that an ‘“investor” … means a company or other organization organized in accordance with the law applicable in that Contracting Party’ and the France–Argentina BIT defines an investor (‘investisseur’) as ‘legal persons organized on the territory of one of the Contracting Parties and having its administrative headquarters (siège sociale) there’.172 If one were to give such terms as ‘company or other organization in accordance with … law’ and ‘legal person’ their ordinary meaning as required by Article 31(1) of the Vienna Convention on the Law of Treaties, one would have to conclude that such entities as state corporations, sovereign wealth funds, and government-owned corporations are indeed investors under these treaties since they ordinarily have separate legal personality, headquarters in a contracting party, and are organized according to that party’s law. And in fact it appears that no tribunal has refused jurisdiction in an investor–state dispute because a claimant is owned or controlled by a government. And although questions have also been raised about whether the ICSID Convention should properly apply to a case in which a state-entity is a complaining party, tribunals that have dealt with the question have always found that such entities are within the tribunal’s jurisdiction.173

Footnotes:

1  In Salini Costruttori SpA & Italstrade SpA v the Kingdom of Morocco, ICSID Case No ARB/00/4 (Decision on Jurisdiction) (23 July 2001), (2001) 42 ILM 609, the tribunal stated at ¶ 44: ‘The Arbitral Tribunal, therefore, is of the opinion that its jurisdiction depends on the existence of an investment within the meaning of the Bilateral Treaty, as well as that of the Convention, in accordance with the case law.’

2  eg F Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement?’ (2005) 22(2) J Int’l Arb 105; M Waibel, ‘Opening Pandora’s Box: Sovereign Bonds in International Arbitration’ (2007) 101 AJIL 711. See generally, CH Schreuer, The ICSID Convention—A Commentary (2nd edn, Cambridge University Press, 2009).

3  Note, however, that definitions in some treaties are found at the end of the text. See eg NAFTA, Chapter 11 which includes definitions at the end of the Chapter in Art 1139.

4  See eg Agreement between Japan and the Socialist Republic of Vietnam for the Liberalization, Promotion and Protection of Investment (14 November 2003), Art 1 (defining ‘investor’, ‘investments’, and ‘Area’); Treaty between the United States of America and the Czech and Slovak Federal Republic Concerning the Reciprocal Encouragement and Protection of Investment (22 October 1991), Art 1(a)–(b) (defining ‘investment’ and ‘company of a Party’); Treaty between the United States of America and the Republic of Turkey Concerning the Reciprocal Encouragement and Protection of Investments (3 December 1985), Arts 1(a), (c), (e) (defining ‘company’, ‘Investment’, and ‘national’).

5  See Romak SA v Republic of Uzbekistan, PCA Case No AA280 (Award) (26 November 2009) ¶ 205:

contracting States are free to deem any kind of asset or economic transaction to constitute an investment as subject to treaty protection. Contracting States can even go as far as stipulating that a ‘pure’ one-off sales contract constitutes an investment, even if such a transaction would not normally be covered by the ordinary meaning of the term ‘investment.’ However, in such cases, the wording of the instrument in question must leave no room for doubt that the intention of the contracting States was to accord to the term ‘investment’ an extraordinary and counterintuitive meaning.

6  UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007) 7.

7  Agreement between the Government of Canada and the Government of the Republic of Costa Rica for the Promotion and Protection of Investments (18 March 1998). See Alasdair Ross Anderson et al v Republic of Costa Rica, ICSID Case No ARB(AF)/07/3l (Award) (19 May 2010), applying this provision of the Canada–Costa Rica BIT.

8  See generally UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007) 7–12; N Rubins, ‘The Notion of “Investment” in International Investment Arbitration’ in N Horn and S Kröll (eds), Arbitrating Foreign Investment Disputes (Ringgold Inc, 2004) 283–324; R Dolzer, ‘The Notion of Investment in Recent Practice’ in S Charnovitz, D Steger, and P van den Bossche (eds), Law in the Service of Human Dignity. Essays in Honor of Florentino Feliciano (Cambridge University Press, 2005) 261–75.

9  UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007) 7–12. See also Fedax NV v Venezuela, ICSID Case No ARB/96/3 (Decision of the Tribunal on Objections to Jurisdiction) (11 July 1997), in which the tribunal stated at ¶ 34: ‘A broad definition of investment … is not at all an exceptional situation. On the contrary, most contemporary bilateral treaties of this kind refer to “every kind of asset” or to “all assets”’. The tribunal also found that ‘[a]‌ similar trend can be found in the context of major multilateral instruments’ (ibid ¶ 35).

10  Such an approach can be seen in the Germany–Bosnia and Herzegovina BIT, Art 1(1) which states:

the term ‘investment’ comprises every kind of asset, in particular, though not exclusively :

  1. (a)  movable and immovable property as well as any other rights in rem, such as mortgages, liens and pledges;

  2. (b)  shares of companies and other kinds of interest in companies;

  3. (c)  claims to money which has been used to create an economic value or claims to any performance having an economic value;

  4. (d)  intellectual property rights, in particular copyrights, patents, utility-model patents, industrial designs, trade-marks, trade-names, trade and business secrets, technical processes, know-how, and good will;

  5. (e)  business concessions under public law, including concessions to search for, extract and exploit natural resources. (emphasis added)

Treaty between the Federal Republic of Germany and Bosnia and Herzegovina concerning the Encouragement and Reciprocal Protection of Investments (18 October 2001).

11  M Sornarajah, The International Law on Foreign Investment (3rd edn, Cambridge University Press 2010) 8, 12 (without citing supporting authority for the statement).

12  Siemens v Argentina, ICSID Case No ARB/02/8 (Decision on Jurisdiction) (3 August 2004).

13  ibid ¶ 137.

14  ibid.

15  ibid.

16  Abaclat and Ors v Argentine Republic (Case formerly known as Giovanna a Beccara and Ors), ICSID Case No ARB/07/5 (Decision on Jurisdiction and Admissibility) (4 August 2011).

17  Ambiente Ufficio SPA and Ors v Argentine Republic (Case formerly known as Giordano Alpi and Ors), ICSID Case No ARB/08/9 (Decision on Jurisdiction and Admissibility) (8 February 2013).

18  Abaclat (n 16 above) ¶ 352.

19  ibid ¶¶ 355–357.

20  Ambiente Ufficio (n 17 above) ¶ 489.

21  ibid ¶ 490.

22  Abaclat (n 16 above) ¶ 358.

23  ibid ¶ 359; quoted in Ambiente Ufficio (n 17 above) ¶ 423.

24  Ambiente Ufficio (n 17 above) ¶ 425.

25  Bilateral Agreement for the Promotion and Protection of Investments between the Government of the United Kingdom of Great Britain and Northern Ireland and the Republic of Colombia (17 March 2010), Art 1(2)(b)(i). In Art 1(2)(d) the BIT also requires that investments have certain substantive characteristics, specifically the commitment of capital and the assumption of risk. See the discussion in section 7.4 below.

26  Agreement between the Belgo-Luxembourg Economic Union and the Arab Republic of Egypt on the Reciprocal Promotion and Protection of Investments (28 February 1999).

27  Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13 (Decision on Jurisdiction) (16 June 2006).

28  ibid ¶¶ 105–106.

29  ECT, Art 1(6): ‘A change in the form in which investments are invested does not affect their character as investments.’

30  See eg Agreement between the Government of the United Kingdom and Northern Ireland and the Government of the Republic of Croatia for the Promotion and Protection of Investments (11 March 1997); Treaty between the Federal Republic of Germany and Bosnia and Herzegovina Concerning the Encouragement and Reciprocal Protection of Investments (18 October 2001); Agreement between the Government of the Republic of Azerbaijan and the Government of the Republic of Finland on the Promotion and Protection of Investments (26 February 2003).

31  See Saur International SA v Argentine Republic, ICSID Case No ARB/04/4 (Award, in French) (22 May 2014) ¶ 329, in which Argentina did not contest and the tribunal accepted that a technical assistance contract was an ‘investment’ under both the Argentina–France BIT and the ICSID Convention.

32  Treaty between the United States of America and the Oriental Republic of Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (4 November 2005); see also 2012 US Model BIT, Art 1; Agreement among the Government of Japan, the Government of the Republic of Korea and the Government of the People’s Republic of China for the Promotion, Facilitation and Protection of Investment (13 May 2012), Art 1(1).

33  eg in the ICSID case of Joy Mining Machinery, the tribunal concluded that since the contract whose breach gave rise to claims under the Egypt–UK BIT had the characteristics of a normal sales contract, it did not qualify as an investment within the meaning of that treaty. Joy Mining Machinery Ltd v Egypt, ICSID Case No ARB/03/11 (Award on Jurisdiction) (6 August 2004) ¶¶ 55–63.

34  Rubins (n 8 above) 286–7.

35  2009 ASEAN Comprehensive Investment Agreement, signed by the Economic Ministers at the 14th ASEAN Summit in Cha-am, Thailand, on 26 February 2009, available at <http://agreement.asean.org/media/download/20140119035519.pdf> accessed 17 October 2014.

36  Treaty between the United States of America and the Oriental Republic of Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (4 November 2005), Art 1.

37  ibid.

38  ibid.

39  The question of the characteristics that an asset must have to establish ICSID jurisdiction is separate from what characteristics, if any, are required under an investment treaty. For a list of characteristics drawn from ICSID jurisprudence that are common in investment operations, see Schreuer (n 2 above).

40  This approach is illustrated in the 2006 Canada–Peru BIT, Art 1, which states:

Investment means:

  1. (I)  an enterprise;

  2. (II)  an equity security of an enterprise;

  3. (III)  a debt security of an enterprise

    1. (i)  where the enterprise is an affiliate of the investor, or

    2. (ii)  where the original maturity of the debt security is at least three years;

  4. (IV)  a loan to an enterprise

    1. (i)  where the enterprise is an affiliate of the investor, or

    2. (ii)  where the original maturity of the loan is at least three years;

  5. (V)(i)  notwithstanding subparagraphs (III) and (IV) above, a loan to or debt security issued by a financial institution is an investment only where the loan or debt security is treated as regulatory capital by the Party in whose territory the financial institution is located, and

    1. (ii)  a loan granted by or debt security owned by a financial institution, other than a loan to or debt security of a financial institution referred to in (i), is not an investment;

    • for greater certainty:

    1. (iii)  a loan to, or debt security issued by, a Party or a state enterprise thereof is not an investment; and

    2. (iv)  a loan granted by or debt security owned by a cross-border financial service provider, other than a loan to or debt security issued by a financial institution, is an investment if such loan or debt security meets the criteria for investments set out elsewhere in this Article;

  6. (VI)  an interest in an enterprise that entitles the owner to share in income or profits of the enterprise;

  7. (VII)  an interest in an enterprise that entitles the owner to share in the assets of that enterprise on dissolution, other than a debt security or a loan excluded from subparagraphs (III) (IV) or (V);

  8. (VIII)  real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes; and

  9. (IX)  interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory, such as under

    1. (i)  contracts involving the presence of an investor’s property in the territory of the Party, including turnkey or construction contracts, or concessions, or

    2. (ii)  contracts where remuneration depends substantially on the production, revenues or profits of an enterprise; but investment does not mean,

  10. (X)  claims to money that arise solely from

    1. (i)  commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of the other Party, or

    2. (ii)  the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraphs (IV) or (V); and

  11. (XI)  any other claims for money, that do not involve the kinds of interests set out in sub-paragraphs (I) through (IX).

Agreement between Canada and the Republic of Peru for the Promotion and Protection of Investments (14 November 2006); see also Agreement Between the Government of Canada and the Government of the Republic of Benin for the Promotion and Reciprocal Protection of Investments (9 January 2013), Art 1.

41  UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007) 7–12.

42  eg the ECT contains no such requirement, a fact noted by the tribunal in Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v Republic of Kazakhstan, SCC Case No V116/2010 (Award) (19 December 2013) ¶ 812 (‘the Tribunal notes that the ECT contains no requirement in this regard. Indeed, if the contracting states had intended there to be such a requirement, they could have written it into the text of the Treaty’).

43  Agreement between The Kingdom of Saudi Arabia and The Republic of Austria concerning the Encouragement and Reciprocal Protection of Investments (30 June 2001).

44  Salini Construtorri SpA and Italstrade SpA v Morocco, ICSID Case No ARB/00/4 (Decision on Jurisdiction) (23 July 2001) 42 ILM 609.

45  ibid ¶ 38.

46  ibid ¶ 46.

47  ibid.

48  Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18 (Decision on Jurisdiction) (29 April 2004).

49  ibid ¶ 83.

50  ibid ¶ 86.

51  Alasdair Ross Anderson et al v Republic of Costa Rica, ICSID Case No ARB(AF)/07/3l (Award) (19 May 2010).

52  Agreement between the Government of the Republic of Costa Rica and the Government of Canada for the Protection and Promotion of Investment (18 March 1998).

53  Alasdair Ross Anderson et al v Costa Rica (n 51 above) ¶ 49.

54  ibid ¶ 55.

55  Summary of Award by counsel for El Salvador, Inceysa Vallisoletana SL v Republic of El Salvador, ICSID Case No ARB/03/26 (Award) (2 August 2006).

56  For a summary of this case, see Chatham House, ‘World Duty Free v. The Republic of Kenya: A Unique Precedent?’, available at <http://star.worldbank.org/corruption-cases/sites/corruption-cases/files/documents/arw/Moi_World_Duty_Free_Chatham_House_Mar_28_2007.pdf> accessed 17 October 2014. See also JW Yackee, ‘Investment Treaties & Investor Corruption: An Emerging Defense for Host States?’ (2012) 52 Va J Int’l L 723.

57  Chatham House, ‘World Duty Free’ (n 56 above) ¶¶ 372–373.

58  See Alasdair Ross Anderson et al v Costa Rica (n 51 above) ¶ 58.

59  Agreement between Canada and the Republic of Peru for the Promotion and Protection of Investments (14 November 2006).

60  The French text of Art II reads:

Champ d’application

Le présent Accord est applicable aux investissements effectués sur le territoire d’une Partie contractante, conformément à ses lois et règlements, par des investisseurs de l’autre Partie contractante, avant ou après son entrée en vigueur. (emphasis added).

Accord entre la Confédération suisse et la République des Philippines concernant la promotion et la protection réciproque des investissements (31 March 1997).

61  Fedax NV v Venezuela, ICSID Case No ARB/96/3 (Award on Jurisdiction) (11 July 1997).

62  On this point the tribunal observed:

It is a standard feature of many international financial transactions that the funds involved are not physically transferred to the territory of the beneficiary, but put at its disposal elsewhere. In fact, many loans and credits do not leave the country of origin at all, but are available to suppliers or other entities. The same is true of many important offshore financial operations relating to exports and other kinds of business. And, of course promissory notes are frequently employed in such arrangements.

ibid ¶ 41.

63  ibid.

64  This approach has been adopted in subsequent cases. See Abaclat and Ors (Case formerly known as Giovanna a Beccara and Ors) v Argentine Republic, ICSID Case No ARB/07/5 (Decision on Jurisdiction and Admissibility) (4 August 2011) ¶¶ 373–378 (security entitlements on sovereign bonds fulfilled territorial requirement because funds were ultimately made available to Argentina and financed its economic development); Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka, ICSID Case No ARB/09/2 (Award) (31 October 2012) ¶¶ 288–292 (hedging agreement to protect Sri Lanka against rising oil prices fulfilled territorial requirement because funds were made available to Sri Lanka, were linked to an activity taking place in Sri Lanka, and served to finance its economy); Ambiente Ufficio SPA and Ors (Case formerly known as Giordano Alpi and Ors) v Argentine Republic, ICSID Case No ARB/08/9 (Decision on Jurisdiction and Admissibility) (8 February 2013) ¶¶ 498–509 (security entitlements on sovereign bonds fulfilled territorial requirement because bonds aimed to raise money for budgetary needs of Argentina and further its development).

65  See also Bureau Veritas, Inspection, Valuation, Assessment, and Control, BIVAC BV v The Republic of Paraguay, ICSID Case No ARB/07/9 (Decision of the Tribunal on Objections to Jurisdiction) (29 May 2009) ¶¶ 74–105.

66  SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/ 01/13 (Decision on Jurisdiction) (6 August 2003).

67  SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No ARB/ 02/6 (Decision on Jurisdiction) (29 January 2004).

68  SGS Société Générale de Surveillance SA v The Republic of Paraguay, ICSID Case No ARB/07/29 (Decision on Jurisdiction) (12 February 2010).

69  SGS v Pakistan (n 66 above) ¶ 136.

70  ibid ¶ 137.

71  ibid ¶ 139.

72  ibid ¶ 140.

73  SGS v Philippines (n 67 above) ¶ 99.

74  ibid ¶¶ 101–102.

75  SGS v Paraguay (n 68 above) ¶ 111.

76  ibid ¶ 113.

77  ibid ¶ 115.

78  Methanex Corp v United States, NAFTA/UNCITRAL (First Partial Award) (7 August 2002) ¶ 106.

79  Bayview Irrigation District et al v United Mexican States, ICSID Case No ARB(AF)/05/1 (Award on Jurisdiction) (19 June 2007) ¶ 105. See also Canadian Cattlemen for Fair Trade v United States, NAFTA/UNCITRAL (Award on Jurisdiction) (28 January 2008) ¶ 126; Grand River Enterprises Six Nations Ltd v United States, NAFTA/UNCITRAL (Award) (12 January 2011) ¶ 87, stating that NAFTA Chapter Eleven is applicable ‘only to investors of one NAFTA Party who seek to make, are making, or have made an investment in another NAFTA Party: absent those conditions, both the substantive protection of Section A and the remedies provided in Section B of Chapter Eleven are unavailable to an investor’.

80  Apotex Inc v United States, UNCITRAL (Award on Jurisdiction and Admissibility) (14 June 2013).

81  Ibid. ¶¶ 160–176.

82  Agreement between Canada and the Republic of Peru for the Promotion and Protection of Investments (14 November 2006).

83  Agreement between the Government of the Republic of Ghana and the Government of the Republic of Guinea for the Promotion and Protection of Investments (18 May 2001).

84  See eg Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Indonesia for the Promotion and Protection of Investments (27 April 1976), Art 2(3) (‘The rights and obligations of both Contracting Parties with respect to investments made before 10 January 1967 shall be in no way affected by the provisions of this Agreement’).

85  UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998) 42.

86  2012 US Model BIT, Art 1; see also Malaysia–Australia Free Trade Agreement (22 May 2012), Art 12.2(a).

87  ECT, Art 47(3).

88  UNCTC, Bilateral Investment Treaties (1988) 36–40.

89  Agreement between the Government of the United Kingdom and Northern Ireland and the Government of the Republic of Croatia for the Promotion and Protection of Investments (11 March 1997).

90  Agreement between the Arab Republic of Egypt on the One Hand, and the Belgo-Luxemburg Economic Union on the Other Hand, on the Encouragement and Reciprocal Protection of Investments (28 February 1977), Art III.

91  Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13 (Decision on Jurisdiction) (16 June 2006).

92  ibid ¶¶ 101–102, 104.

93  See generally UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998) 7–12.

94  UNCTC, Bilateral Investment Treaties (1988) 27.

95  Agreement between the Government of Sweden and the Government of Malaysia concerning the Mutual Protection of Investments of 1979, Art 1.

96  Gruslin v Malaysia, ICSID Case No ARB/99/3 (Final Award) (27 November 2000).

97  ibid ¶ 25.5.

98  Salini Construtorri SpA and Italstrade SpA v Morocco, ICSID Case No ARB/00/4 (Decision on Jurisdiction) (23 July 2001).

99  Ceskoslovenska Obchodni Banka, AS v The Slovak Republic, ICSID Case No ARB/97/4 (Award on Jurisdiction) (24 May 1999).

100  Asian Agricultural Products Ltd v Sri Lanka, ICSID Case No ARB/87/3 (Final Award) (27 June 1990) (UK–Sri Lanka BIT); American Manufacturing and Trading, Inc v Zaire, ICSID Case No ARB/93/1 (Award) (21 February 1997); CMS Gas Transmission Co v The Argentine Republic, ICSID Case No ARB/01/8 (Decision on Jurisdiction) (17 July 2003).

101  Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18 (Decision on Jurisdiction) (29 April 2004).

102  Fedax NV v Venezuela, ICSID Case No ARB/96/3 (Award on Jurisdiction) (11 July 1997).

103  Lanco International Inc v Argentina, ICSID Case No ARB/97/6 (Decision on Jurisdiction) (8 December 1998).

104  Mihaly International Corp v Sri Lanka, ICSID Case No ARB/00/2. For further comments, see R Hornick, ‘The Mihaly Arbitration Pre-Investment Expenditure as a Basis for ICSID Jurisdiction’ (2003) 20(2) J Int’l Arb 189; Yala (n 2 above) 105–26.

105  Mihaly International (n 104 above) ¶ 48.

106  ibid ¶ 51. It further observed:

If the negotiations during the period of exclusivity, or for that matter, without exclusivity, had come to fruition, it may well have been the case that the moneys expended during the period of negotiations might have been capitalised as part of the cost of the project and thereby become part of the investment. By capitalising expenses incurred during the negotiation phase, the parties in a sense may retrospectively sweep those costs within the umbrella of an investment. (emphasis added)

107  ibid ¶ 49.

108  WB Hamida, ‘The Mihaly v. Sri Lanka Case: Some Thoughts Relating to the Status of Pre-investment Expenditures’ in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (Cameron May, 2005) 53, 64–6.

109  PSEG Global, Inc, The North American Coal Corp, and Konya Ingin Electrik Uretim ve Ticaret Ltd Sirketi v Turkey, ICSID Case No ARB/02/5 (Decision on Jurisdiction) (4 June 2004).

110  ibid ¶ 81.

111  ibid ¶ 88.

112  ibid ¶¶ 83, 85.

113  Hamida (n 108 above) 60–1.

114  Individual Concurring Opinion by Mr David Suratgar of 15 March 2000 in Mihaly International Corp v Sri Lanka (n 104 above) ¶ 10.

115  The tribunal in Nordzucker v Poland stated:

It is not surprising that the host States that waive a part of their sovereign rights by their agreement to arbitrate the disputes concerning the investments made and admitted in accordance with their legislation do not agree to arbitration of disputes related to pre-investment relations with persons merely intending to invest. Taking into account the fact that tenders … attract usually a large number of foreign bidders only one of whom can be successful, the State would be exposed to many international arbitration proceedings commenced by unsuccessful bidders. For this reason the States in principle … agree to grant the full Treaty protection only with regard to investments actually made and admitted in accordance with the law of the host State and not to intended investments.

Nordzucker AG v Republic of Poland, UNCITRAL (Partial Award Jurisdiction) (10 December 2008) ¶ 189. The case was brought under the Germany–Poland BIT, which stated in Art 2(1):

Each Contracting Party shall in its territory promote as far as possible investments by investors of the other Contracting Party and admit such investments in accordance with its respective laws. Investments that have been admitted in accordance with the respect law of one Contracting Party shall enjoy the protection of this Treaty. Each Contracting Party shall in any case accord investments fair and equitable treatment.

The tribunal interpreted this language to require that the contracting states accord fair and equitable treatment to potential as well as admitted investments. For the treaty to cover such intended investments, however, the investment must be in the making or about to be made, there must be more than a mere intention in the mind of the investor, and the host state must be aware of the investment and be ready to admit it. ibid ¶ 185. The tribunal found that two of the claimant’s projects had reached a sufficient stage to qualify for FET protection: Poland knew of the claimant’s intention to invest, the claimant was the winning bidder and had deposited a bid bond, and only the final step of formal approval remained. ibid ¶¶ 202–208.

116  Hornick (n 104 above) 192–3.

117  NAFTA provides that an investor who owns or controls a company directly or indirectly that is registered in the state of another party may submit a claim to arbitration on behalf of that company. The NAFTA Agreement, Art 1117 states: ‘An investor of a Party, on behalf of an enterprise of another Party that is a juridical person that the investor owns or controls directly or indirectly, may submit to arbitration under this Section a claim that the other Party has breached an obligation under … Section A [protection of investments]’.

The ICSID Convention provides that a host state and a foreign investor may agree that a locally incorporated company should be treated as a foreign company because it operates under foreign control. ICSID Convention, Art 25(2)(b) reads, in relevant parts: ‘“National of another Contracting State” means: … any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of the foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention’. Convention on the Settlement of Investment Disputes between States and Nationals of Other States (18 March 1965).

118  Sornarajah (n 11 above) 8, 12 (without citing supporting authority for the statement).

119  Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain) [1970] ICJ Rep 3.

120  eg RB Lillich ‘Two Perspectives on the Barcelona Traction Case’ (1971) 65 AJIL 522–32.

121  See eg Suez, Sociedad General de Aguas de Barcelona SA and Vivendi Universal v Argentine Republic, ICSID Case No ARB/03/19 (Decision on Jurisdiction) (3 August 2006).

122  See ibid. The tribunal stated, referring to Barcelona Traction:

That decision, which has been criticized by scholars over the years, concerned diplomatic protection of its nationals by a State, an issue that is in no way relevant to the current case. Unlike the present case, Barcelona Traction did not involve a bilateral treaty which specifically provides that shareholders are investors and as such are entitled to have recourse to international arbitration to protect their shares from host country actions that violate the treaty.

ibid ¶ 50.

123  Asian Agricultural Products Ltd v Sri Lanka, ICSID Case No ARB/87/3 (Final Award) (27 June 1990).

124  ibid ¶ 95.

125  CMS Gas Transmission Co v The Argentine Republic, ICSID Case No ARB/01/8 (Decision on Jurisdiction) (17 July 2003).

126  ibid ¶ 48.

127  ibid ¶ 56.

128  ibid ¶ 51.

129  ibid ¶¶ 57–65.

130  Siemens v Argentina, ICSID Case No ARB/02/8 (Decision on Jurisdiction) (3 August 2004).

131  ibid ¶ 136.

132  Enron Corp and Ponderosa Assets, LP v Argentine Republic, ICSID Case No ARB/01/3 (Decision on Jurisdiction) (14 January 2004).

133  ibid ¶¶ 39, 44.

134  ibid ¶ 52.

135  ibid ¶ 52.

136  ibid ¶¶ 53–56.

137  Standard Chartered Bank v United Republic of Tanzania, ICSID Case No ARB/10/12 (Award) (2 November 2012).

138  Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Republic of Tanzania (7 January 1994), Art 8(1).

139  Standard Chartered Bank (n 137 above) ¶¶ 2–3.

140  ibid ¶¶ 209–211.

141  ibid ¶ 230.

142  ibid ¶ 232.

143  ibid ¶ 271.

144  eg Agreement Between the Kingdom of Saudi Arabia and the Government of Malaysia Concerning the Promotion and Reciprocal Protection of Investment (25 October 2000), Art 1.3(b)(iii).

145  ECT, Art 1(7)(a)(i).

146  UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007) 14. It is to be noted that the Uruguay–US BIT, Art 1 specifically adopts this position in its definition of ‘investor’, which states ‘provided however, that a natural person who is a dual citizen shall be deemed to be exclusively a citizen of the State of his or her dominant and effective citizenship’. Treaty between the United States of America and the Oriental Republic of Uruguay concerning the Encouragement and Reciprocal Protection of Investment (4 November 2005).

147  See eg Treaty between the United States of America and the Democratic Socialist Republic of Sri Lanka Concerning the Encouragement and Reciprocal Protection of Investment (20 September 1991), Art 1(b) (‘“company” of a Party means any kind of corporation, company, association, partnership or other organization, legally constituted under the laws and regulations of a Party or a political subdivision thereof …’). BITs concluded by Denmark, the Netherlands, the UK, and the US are frequently of this type. UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998) 39.

148  See eg Treaty between the Federal Republic of Germany and the Kingdom of Swaziland Concerning the Encouragement and Reciprocal Protection of Investments (5 April 1990), Art 1(4)(a) (‘The term “companies” means … in respect of the Federal Republic of Germany: any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the German area of application of this Treaty, irrespective of whether or not its activities are directed at profit’). BITs concluded by Belgium, Germany, and Sweden are frequently of this type. UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998) 40.

149  See eg Agreement on Encouragement and Reciprocal Protection of Investments between the Government of the Kingdom of the Netherlands and the Government of the Republic of Lithuania (26 January 1994), Art 1(b)(iii):

The term ‘investor’ shall comprise with regard to either contracting party: … (iii) legal persons not constituted under the law of that Contracting Party but controlled, directly or indirectly, by natural persons as defined in (i) [of the Contracting Party’s nationality] or by legal persons as defined in (ii) [legal persons constituted under the law of the Contracting Party] above, who invest in the territory of either Contracting Party.

‘Ownership or control’, as these provisions are called, are used in BITs concluded by the Netherlands, Sweden, and Switzerland. UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998) 39.

150  Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments (5 October 1990), Art 1(1)(b).

151  Alps Finance and Trade AG v Slovak Republic, UNCITRAL (Award) (5 March 2011).

152  ibid ¶¶ 215–218.

153  ECT, Art 1(7)(b).

154  2012 US Model BIT, Art 17.

155  See Mobil Corp Venezuela Holdings, BV, Mobil Cerro Negro Holding Ltd, Mobil Venezolana de Petróleos Holdings, Inc, Mobil Cerro Negro Ltd, and Mobil Venezolana de Petróleos, Inc v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27 (Decision on Jurisdiction) (10 June 2010) ¶¶ 150–160 for a discussion of the control requirement in the Netherlands–Venezuela BIT and Protocol and its application to wholly-owned subsidiaries incorporated in third party states.

156  Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18 (Decision on Jurisdiction) (29 April 2004).

157  ibid ¶ 36.

158  Rompetrol Group NV v Romania, ICSID Case No ARB/06/3 (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) (18 April 2008).

159  On the role of states and state-owned entities in international investment, see Ch 2, section 2.4(b).

160  Treaty Between the Government of the United States of America and the Government of the Republic of Azerbaijan Concerning the Encouragement and Reciprocal Protection of Investment (1 August 1997).

161  Treaty Between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment (14 November 1991).

162  Treaty Between the United States of America and the Republic of Armenia Concerning the Encouragement and Reciprocal Protection of Investment (23 September 1992).

163  Treaty Between the Government of the United States of America and the Government of the State of Bahrain Concerning the Encouragement and Reciprocal Protection of Investment (29 September 1999).

164  Agreement between the Government of Canada and the Government of the Republic of Armenia for the Promotion and Protection of Investments (8 May 1997).

165  Agreement between the Government of Canada and the Government of the Republic of Costa Rica for the Promotion and Protection of Investments (18 March 1998).

166  Treaty between the Government of Canada and the Government of the Republic of Panama for the Protection and Promotion of Investments (12 September 1996).

167  Tra Il Governo Della Repubblica Italiana Ed Il Regno Dell’arabia Saudita Sulla Reciproca Promozione E Protezione Degli Investimenti (10 September 1996).

168  Agreement between the Kingdom of Saudi Arabia and the Belgo-Luxembourg Economic Union (b.l.e.u.) concerning the Reciprocal Promotion and Protection of Investments (22 April 2001).

169  For a detailed listing of investment treaties that specifically define the term ‘investor’ as including state entities, see C Annacker, ‘Protection and Admission of Sovereign Investment Under Investment Treaties,’ (2011) 10 Chinese J Int’l L 531.

170  ibid 542.

171  ibid 539.

172  Accord entre La République Francaise and La République Argentine sur l’encouragement and la protection réciproques des investissements (3 July 1991), Art.1.2(b) (‘personnes morales constituées sur le territoire de l’une des Parties contractantes, conformément a la législation de celle-ci et y possédant leur siége sociale’).

173  See generally, M Feldman, ‘The Standing of State-owned Entities Under Investment Treaties’ in K Sauvant (ed) Yearbook on International Investment Law and Policy 2010–2011 (OUP, 2012) 615–37.