The Investment Treaty Arbitration Review: Requirements of Ratione Personae in a Global Environment
Ratione personae, as a threshold jurisdictional requirement in an investment arbitration, has presented complexity in a dynamic global environment. For the purpose of investor-state disputes, an investor is generally defined as a national or an enterprise of a party that makes an investment that is entitled to protection under a given international investment agreement (IIA).2 This broad definition triggers multiple issues in practice on the approach to be adopted in understanding the nationality requirement.
Owing to a lack of clear guidance in the specific IIA and different facts involved in each case, tribunals differ as to the need to apply a substantive test to find the 'real and effective nationality' of a natural person or the real source of control for a juridical person in determining nationality, particularly where the investor concerned has the dual nationality of both the home state and the host state. In contrast, the formalistic approach requires the tribunal not to go beyond the text of the IIA and add additional requirements for the qualification of an investor. In the meantime, out of concern for the abuse of process in corporate restructuring, tribunals often find it necessary to resort to public international law, particularly the principle of good faith, to determine the validity of a nationality change. This chapter addresses a variety of considerations taken into account by tribunals in choosing one approach over another. In view of the importance of the underlying IIA, this chapter also discusses the IIAs that have incorporated public international law principles in handling the ratione personae requirements.
ii Natural persons
The essential character of investment treaty law is to afford protection to investors who are nationals of a contracting state other than the host state in which the investment is made.3 The International Centre for Settlement of International Disputes (ICSID) Convention's definition of nationality has clearly reflected this two-fold test (i.e., for a national to bring a claim against the host country, the person must meet the positive requirement of being a national of a contracting state and the negative requirement of not being a national of the host state). However, depending on the language of the IIA, questions may arise as to whether the same two-fold test is universally applicable to non-ICSID cases. Further, dual nationality gives rise to a wider range of issues; for example, what is the determining factor in ascertaining a person's nationality and whether and to what extent the diplomatic protection 'real and effective nationality' test is applicable.
i Applicable test – is a substantive test necessary?
In examining an individual case, it is crucial to consider the provision controlling nationality in a particular treaty that may be applicable, as well as the language in Article 25 of the ICSID Convention (if the Convention applies).4 The starting point is that each state is to determine nationality under its own law.5 This principle of international law has been widely accepted in the practice of investment treaty arbitration.6 For example, the ICSID tribunal in Micula noted that this principle was consistent with Article 1(2)(a) of the bilateral investment treaty (BIT) that defined an investor as 'any natural person who is a citizen of a Contracting Party in accordance with its Laws'.7 Some IIAs, including those recently concluded, may contain specific references to applicable domestic laws.8
Absent express provisions in the relevant BIT, respondent states often resort to a search for 'real and effective nationality' for individuals of dual nationality, such that the lack of a genuine link with the home contracting state will disqualify the claimant from claiming under the BIT. The rule of the 'real and effective nationality' was discussed in the landmark decision in the Nottebohm case, in which the International Court of Justice stated pertinently that 'the Court must ascertain . . . whether the factual connection between Nottebohm and Liechtenstein . . . appears to be sufficiently close, . . . that it is possible to regard the nationality conferred upon him as real and effective'.9 However, ICSID tribunals have rejected these arguments for the reason that neither the ICSID Convention nor the relevant BIT has included the 'genuine link' as an additional requirement to the determination of nationality.10 As noted by the Fakes tribunal, this additional requirement made sense when the state was asserting a claim on behalf of an individual in the context of diplomatic protection, but in treaty arbitration the state does not assert a claim.11 Even in the context of diplomatic protection, the additional factor suggested in Nottebohm has been used sparingly. As commented by the International Law Commission, in today's world of economic globalisation and migration, if the genuine link requirement proposed by Nottebohm was strictly applied, it would exclude millions of individuals from the benefit of diplomatic protection.12 As a result, the claim to nationality remains largely formalistic in investment treaty cases and the threshold to prove effectiveness of home state nationality is relatively low.13 Moreover, it is recognised that if an investor has the nationality of the host state, Article 25(2)(a) of the ICSID Convention presents an absolute bar to jurisdiction. In this situation, there is no room for dual nationals to argue for the application of effective nationality to invoke protection under the ICSID Convention.14 However, the Siag majority found that the claimant individuals had lost their Egyptian (host state) nationality without the need to consider whether either individual had a genuine link to Italian (home state) nationality. In dissent, Professor Francisco Orrego Vicuña provided a compelling argument that upholding Mr Waguih Siag's standing and denying his Egyptian nationality were at odds with the meaning of the ICSID Convention.15
Likewise, respondent states have sometimes challenged the ratione personae jurisdiction on the ground that the judicial person claimant was controlled by dual nationals who held the nationality of the host state and thus its claim was barred by Article 25(2)(a) of the ICSID Convention. This challenge has not been supported by ICSID tribunals, since neither the BIT nor the ICSID Convention provides for the exclusion of claims by juridical entities held by dual nationals.16 It is possible, though, that the nationality of the actual controller behind the corporate veil may be subject to scrutiny by tribunals in some cases (as elaborated below), bearing in mind that the purpose of the ICSID Convention and mechanism is to protect foreign investors.
In non-ICSID cases, arguments have been made for and against applying an 'effective nationality' test where claimant individuals are dual home and host state nationals. The better view is that if an IIA does not specifically address the eligibility of dual nationals to bring arbitration proceedings, a tribunal may permit the application of the 'effective nationality' test to 'fill any perceived lacuna'.17 Nevertheless, the UNCITRAL tribunal in Armas was reluctant to apply the test to claimant individuals who were nationals of both Spain and Venezuela, unanimously holding that the BIT that contains no additional condition of effective nationality shall prevail.18 Similarly, the tribunal in Bahgat upheld jurisdiction over claims brought by dual nationals, noting that the UNCITRAL Rules do not contain a clear prohibition as found in Article 25(2)(a) of the ICSID Convention and neither does the underlying BIT contain a prohibition on claims brought by dual nationals.19 In any event, the tribunal in Bahgat held that the respondent state's ratione personae objection on dual nationality should be dismissed as time-barred.20
However, cases have emerged in which UNCITRAL tribunals have adopted the 'effective nationality' test, either relying on the explicit language of the relevant BIT or analysis under Article 31 of the Vienna Convention on the Law of Treaties (VCLT). In Carrizosa Gelzis, the BIT required that, for a natural person with dual nationality to qualify as investor, the person 'shall be deemed to be exclusively a citizen of the State of his or her dominant and effective nationality'. In assessing dominant and effective nationality, the tribunal reviewed the claimants' business and professional lives, their family and social lives and their public lives. Having concluded that the host state was the 'focal point' of the claimants' family, the tribunal declined its jurisdiction.21 Where there is no explicit language on whether dual nationals can bring a claim against the host state under the BIT, the tribunal may incorporate the 'effective nationality' test into the BIT, taking into consideration the treaty's context, object and purpose.22 Applying the same rationale, the Trapote tribunal declined jurisdiction over a natural person with dual nationality after finding that his dominant effective nationality was that of the host state. The tribunal was of the view that an interpretation of the underlying BIT neither prohibited nor allowed claims by dual nationals against one of their states of nationality. Instead, the tribunal found that customary international law on diplomatic protection is relevant by operation of Article 31.3(c) of the VCLT. Notably, the tribunal expressed its disagreements with previous awards allowing claims by dual nationals.23
Several IIAs provide better guidance for dual nationals.24 For example, the definition of investor in the Canada–China BIT excludes natural persons having nationality of both contracting parties.25 Some treaties have required the dual national to claim his or her dominant and effective nationality, which is understood to mean that a dual national sharing the nationality of the host state may nevertheless bring a claim against the host state so long as it is not his or her 'dominant and effective' nationality.26
The increasing incorporation of 'effective nationality' test in IIAs provides greater certainty in handling issues arising from the growing mobility of nationals resulting from the increase in globalisation. Against this background, the principles of diplomatic protection are likely to continue to have a role in the jurisprudence of investment treaty arbitration, although investment tribunals are free to develop a distinctive set of rules from those applied in general international law.
ii Burden of proof
Despite the pivotal role of each state in determining nationality, an international tribunal is empowered to decide for itself whether the person, on the facts and the domestic law before it, is in fact a national of the state in question for investment arbitration purposes.27
In assessing nationality, tribunals will generally recognise the certificate of nationality and other official documents as prima facie evidence.28 Similarly, the national authorities' decision in this regard is generally treated with deference.29 There exists a presumption in favour of the validity of a state's conferment of nationality,30 often provided by the claimant. To rebut this presumption, the burden of proof will immediately shift to the respondent state. Fraud or mistake can be a basis for disregarding a nationality at an international level.31 As such, tribunals have the power to investigate the accuracy of certificates issued by a state, taking account of the totality of evidence, and may consider the prima facie evidence effectively controverted. In these circumstances, the burden will remain on the claimant to prove his or her nationality.32 Notably, casting doubt is not sufficient and the threshold to overcome the presumption in favour of the prima facie evidence is high, which may only be satisfied if there was convincing and decisive evidence that the acquisition of nationality was fraudulent or at least resulted from a material error.33
When examining whether the nationality requirement under the domestic law has been met, tribunals would 'pay the utmost regard to the decisions of the municipal courts of a country', as the decisions represent the rules that are actually applied in that country.34 Inevitably, tribunals also find it helpful to rely on expert opinions on the interpretation of domestic laws.35
In the context of satisfying the two-fold test of dual nationality under Article 25(2)(a) of the ICSID Convention, the Ambiente tribunal articulated a rather clear test for allocation of burden of proof between the claimant and the respondent state: the burden of showing that the claimants were Italian fell on the claimants, while the burden to 'disprove the negative elements' (i.e., prove that the claimants were not Argentinean) fell on the respondent.36
iii Juridical persons
Similar to the determination of the nationality of a natural person, it is for each state to define the criteria for determining the nationality of a juridical entity.37
The test of incorporation is the most widely used criterion for the determination of a corporate's nationality.38 As the International Court of Justice has explained: 'The traditional rule attributes the right of diplomatic protection of a corporate entity to the states under the laws of which it is incorporated and in whose territory it has its registered office.'39 Some IIAs, including those concluded by China, have further required companies to have economic interests or have their seat in the contracting state.40 As for the meaning of seat, it can either be statutaire, referring to the seat appearing in a company's by-laws or statutes, or réel, referring to the effective seat where a company is actually managed.41 Other IIAs extend the protections to companies controlled by natural persons and juridical persons of a contracting state.42 This control test has been incorporated in Article 25(2) of the ICSID Convention to permit local companies in the host state to claim against the host state if they are foreign-controlled and the host state consents to it.43 States are encouraged to carefully structure their applicable test for and definition of 'investor' in the context of corporate investors, especially where multiple tests are involved.44
Owing to the complicated ways of structuring investments, there have been far more cases in which respondent states have called for the application of a substantive control test to lift the corporate veil of the claimant than if the claim is brought by a natural person. Tribunals in both ICSID and non-ICSID cases, however, seem reluctant to apply this test unless otherwise specified in the relevant BIT, regardless of whether the company is owned or controlled by nationals of the host state.45 In Tokios, Ukraine argued that to find jurisdiction to this case would be tantamount to allowing Ukrainian nationals to pursue international arbitration against their own government, which would be inconsistent with the object and purpose of the ICSID Convention.46 The majority nevertheless refused to pierce the corporate veil and impose an additional control requirement because if the contracting states wanted to impose the 'denial of benefits' provision with respect to the entities controlled by nationals of the denying party, they could have done so.47 According to the majority, the object and purpose of Article 25(2)(b) of the ICSID Convention is not to limit jurisdiction but to set its outer limits.48 The majority's approach was criticised by the dissenting chairman, Prosper Weil. As noted by the TSA tribunal, such a strict literal interpretation 'may appear to go against common sense in some circumstances, especially when the formal nationality covers a corporate entity controlled directly or indirectly by persons of the same nationality as the host State'.49
Weil's dissent identified the origins of capital as a highly relevant issue,50 but this relevance was only considered by tribunals in interpreting the 'foreign control' under the second limb of Article 25(2)(b) of the ICSID Convention. Where the disputing parties specifically identified in the relevant agreement the criterion to be applied with respect to the meaning of 'foreign control', the tribunal would respect the parties' autonomy unless the criterion were unreasonable.51 Nevertheless, without explicit language in BITs, tribunals differ as to how many corporate layers after the one bearing the nationality of the host state shall be lifted to reach the real source of control. As one of the earliest cases to address this issue, the tribunal in Amco went only one step behind the nationality of the host state in finding jurisdiction over the claimant, which was directly controlled by a US company, but refused to take care of a control at the second, and possibly third, fourth or xth degree.52 In contrast, the tribunal in TSA went for the actual controller behind the second corporate layer. Specifically, the tribunal noted that 'the reasons for piercing the corporate veil up to the real source of control is a fortiori more compelling under the second clause of Article 25(2)(b) when ultimate control is alleged to be in the hands of nationals of the host State'.53 The tribunal in National Gas adopted a similar approach for the reason that '“foreign control” must be established objectively'.54 The tribunal further explained that if foreign control is exercised by a national of the contracting state against which the claimant asserts its claim, it would go against the object and purpose of the ICSID Convention. On this basis, the tribunal identified the ultimate controller of the claimant that has the nationality of the host state and held that the claimant had not satisfied the objective test in the second limb of Article 25(2)(b) of the ICSID Convention; accordingly, it had no jurisdiction over the claimant's claim.55 Therefore, on balance, the better approach would appear to be a realistic look at the true controllers thereby blocking access to ICSID for juridical persons who are controlled directly or indirectly by nationals of non-contracting states or nationals of the host state.56
The determination of control itself may be subject to controversy. Although 100 per cent foreign ownership almost certainly would result in foreign control, there is no definite formula as to how much shareholding is enough. The tribunal may regard any criterion based on management, voting rights, shareholding or any other reasonable theory.57 Notably, in the circumstances where the shareholder cannot exercise affirmative control over the corporate through its shareholding or voting rights, it may nevertheless be treated as a controller if it possesses the capacity for an effective veto.58
In short, the determination of corporate nationality remains formalistic despite respondent states' calls to take into account the object and purpose of the ICSID Convention. While the search for substantive control seems to be only relevant in the exception under the second limb of Article 25(2)(b) of the ICSID Convention, the debate on the tribunal's power to investigate the source of actual control is far from settled. Because of a wide range of commercial arrangements available to structure investments, investigations into the actual control will continue to present challenges. Unlike the presumption in favour of the certificate of nationality in proving a natural person's claim to nationality of the home state, the formal certificate of incorporation could be easily subject to challenge by various factors pointing to foreign control. As a result, the boundaries of protections afforded to a corporate structure under investment law may become increasingly flexible, along with the free movement of capital.
In the meantime, movement of capital gives rise to the concerns of treaty shopping. To address these concerns, some IIAs have expressly included a denial of benefits clause, authorising the state party to deny the benefits of treaty protection to an investor that holds nationality of the home state but does not have genuine or substantial business relations with that state.59 In practice, tribunals have found that 'substantial' relations did not necessarily require extensive activities and that holding companies with offices and projects may fulfil this requirement.60 However, the situation and finding may be different if the claimant only has limited investment and business activities, for example, holding shares without incurring operating expenses.61 Further, if a state 'may' or if it 'reserves the right' to deny the benefit of the treaty to an investor from the other state party to the BIT, it must effectively exercise that right from the outset of the investment in its territory by notifying the investor. Otherwise, the investor shall have a legitimate expectation not to be denied the benefit of the treaty.62 In this regard, some IIAs explicitly provide that a contracting party may deny the benefits of this Agreement 'at any time, including after the institution of arbitration proceedings'.63
iv Abuse of right
Tribunals often have to look behind the formal requirements of nationality where respondent states object to jurisdiction on the basis of a claimant's abuse of a corporate structure with the principal aim of gaining access to protection under another country's treaty. At least 12 tribunals have dismissed claims on the basis of the claimant's abuse of right.64
The timing of the corporate restructuring is the basis for determining its validity. As the Mobil tribunal recognised, the claimant's restructuring 'was a perfect legitimate goal as far as it concerned future disputes'.65 In practice, the dividing line between a valid nationality change and abuse of right may be complicated by factual uncertainties. In the view of the Pac Rim tribunal, this dividing line occurs 'when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy'.66 In Philip Morris, the tribunal dismissed the claims because the dispute was foreseeable at the time of the restructuring; according to the tribunal, a dispute is foreseeable when there is 'a reasonable prospect' that 'a measure which may give rise to a treaty claim will materialize'.67 Interestingly, IIAs have started to provide guidance on the criteria for tribunals to apply to decline jurisdiction for abuse of acquisition of investment.68 Despite subtle differences in the test articulated by tribunals, the proximity of timing is key: the closer the acquisition of the investment is to the act giving rise to the dispute, the higher the degree of foreseeability will normally be.69
In examining the validity of a corporate restructuring, tribunals are more concerned with substance than formality and frequently adopt public international law, including the principle of good faith, to ensure that 'only investments that are made in compliance with good faith are protected'.70 Tribunals will examine the true nature of the restructuring operation and can only be satisfied with a restructuring that is indeed 'an economic activity in the market place' rather than 'a rearrangement of assets within the family' to bring a claim that may otherwise be precluded.71 The two essential elements of 'foreseeability' and 'genuineness of the economic activity' relevant to the abuse of process analysis were reinforced by the Cascade Investments tribunal, which adopted holistic analysis to assess whether the dispute was 'reasonably' foreseeable at the time of investment (as compared to the 'very high probability' standard adopted by the tribunals in Pac Rim and Levy and Gremcitel) with a view of protecting bona fide investments. Notably, the Cascade Investments tribunal commented that the abuse of process doctrine was not limited to corporate restructuring. In this context, 'the nature of any relationship between the seller and the acquiror' is an important aspect of the analysis, and might be extra-corporate.72
In contrast, the challenge to a change of nationality in the case of an individual investor is less prevalent,73 possibly because a corporate structure frequently involves multiple layers rather than a single company directly owned by a natural person. Legitimate grounds may exist to apply the general principle of good faith to look behind an individual's acquisition of nationality. As the Fakes tribunal acknowledges, the 'effective nationality' test could be justified in light of the particular circumstances of a given case; for example, where a nationality of convenience is acquired 'in exceptional circumstances of speed and accommodation', for the purpose of bringing a claim or is acquired merely because such nationality has passed over several generations.74 The need to examine the good faith of an individual to acquire a nationality will be more apparent in cases of dual nationality, particularly in non-ICSID cases where tribunals undertake an 'effective nationality' analysis to determine the individual's dominant nationality.
The concerns for abuse of right frequently arise in parallel proceedings with overlapping claims, often involving concurrent shareholders' claims for reflective loss.75 Generally, governments appear to have only very rarely explicitly addressed the issue of reflective loss or the scope of shareholder rights in investment treaties; treaties simply refer to shares without further elaboration.76 In contrast, tribunals have consistently interpreted IIAs to allow shareholder claims for reflective loss, no matter whether the claims are brought by direct or indirect, majority or minority shareholders.77 For example, the tribunal in CMS 'finds no bar in current international law to the concept of allowing claims by shareholders independently from those of the corporation concerned, not even if those shareholders are minority or non-controlling shareholders'.78 As a result, the availability of reflective loss claims greatly increases the practical impact of the frequent extension of treaty coverage to minority and indirect shareholders.79 On the other hand, where the shareholder has the same interest as the company it owns or other shareholders in the ownership tree, the shareholder's double pursuit of reflective loss may be considered as abusive80 and, therefore, precluded from being pursued as a parallel proceeding. Notably, the threshold for a finding of abuse of right is high, and normally requires 100 per cent ownership.81 In Eskosol, the tribunal refused to preclude the company from bringing claims after a shareholder who owned 80 per cent of the corporate shares already had done so, holding that it would not be appropriate for tribunals to preclude arbitration by qualified investors, simply because other qualified investors may have proceeded before them without their participation.82
To address the concerns of double recovery in parallel proceedings, some treaties have established a distinctive regime for covered shareholder claims. For example, the North American Free Trade Agreement (NAFTA) permits claims by a controlling shareholder on behalf of the company for loss incurred by the company and with recovery that accrues to the company, in addition to claims by shareholders on their own behalf.83 However, in their interpretations, NAFTA-party governments have stated that covered shareholders cannot bring reflective loss claims on their own behalf.84 Tribunals have made varying decisions, with some more recently concluding in favour of the NAFTA parties' consistent interpretative statement that NAFTA prohibits reflective loss claims.85 A notable exception to lack of attention to address reflective loss is the China–Mexico BIT, which expressly recognises that the treaty provisions only allow minority shareholders to make claims for direct loss or damage.86 With these developments, one may wonder whether the dividing line between a legitimate act and an abuse of rights is shifting towards more regulation and discouragement of forum selection.
Although tribunals tend to place primary emphasis on the relevant IIA in making nationality determinations, they differ as to the weight to be applied on previous ratione personae decisions. In today's world of economic globalisation and migration, dual nationality and change of nationality will increasingly present challenges to determine a valid nationality of an investor and its entitlement to protections under a given treaty. The object and purpose of the IIA (and the ICSID Convention if it applies) as well as the principles of public international law will continue to feature in the debate on the interpretation of a qualified investor. In the meantime, the proliferation of the IIAs that have specifically addressed the issue at hand will help to formulate a more consistent approach in interpreting the ratione personae requirements.
1 Huawei Sun is a partner and Xingyu Wan is an associate at Zhong Lun Law Firm.
2 See, e.g., Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Article 9.1: 'investor of a Party means a Party, or a national or an enterprise of a Party, that attempts to make, is making, or has made an investment in the territory of another Party'.
3 Campbell McLachlan, et al., International Investment Arbitration: Substantive Principles (2nd edition, 2017), para. 5.01 at 156.
4 ibid., para. 5.38 at 169.
5 Convention on Certain Questions Relating to the Conflict of Nationality Laws (1930), Article 1: 'It is for each State to determine under its own law who are its nationals.'
6 See, e.g., Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7 (Soufraki), Award (7 Jul. 2004), para. 55: 'It is accepted in international law that nationality is within the domestic jurisdiction of the State, which settles, by its own legislation, the rules relating to the acquisition (and loss) of its nationality'; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction (11 Apr. 2007) (Siag), para. 143: 'It is well established that the domestic laws of each Contracting State determine nationality'; Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility (24 Sep. 2008) (Micula), para. 86: 'It is not disputed by the Parties that as a general principle it is for each State to decide in accordance with its law who is its national.'
7 Micula, paras. 84 and 86.
8 See, e.g., the text of the EU–China Comprehensive Agreement on Investment (CAI) following the agreement in principle announced on 30 December 2020, Article 2. Note that the text is published for information purposes only and may undergo further modifications as a result of the process of legal and technical revision, including of the final structure (such as numbering, sequencing or titles of articles, or any duplication) (see published text at https://trade.ec.europa.eu/doclib/press/index.cfm?id=2237). On 20 May 2021, the European Parliament passed a resolution to freeze ratification of the CAI (see https://www.europarl.europa.eu/news/en/press-room/20210517IPR04123/meps-refuse-any-agreement-with-china-whilst-sanctions-are-in-place) (web pages last accessed 22 Apr. 2022). See also Peru–US Trade Promotion Agreement (signed on 12 April 2006, effective on 1 February 2009), Chapter Ten Investment, Article 10.28.
9 Nottebohm case (second phase), Judgment of April 6th, 1955: International Court of Justice Reports 1955 (Nottebohm), p. 24.
10 See, e.g., Siag; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award (14 Jul. 2010) (Fakes).
11 Fakes, para. 68.
12 International Law Commission, Draft Articles on Diplomatic Protection, Article 4, p. 30.
13 See, e.g., Fakes, para. 80; Siag, para. 200.
14 Christoph H Schreuer, et al., The ICSID Convention: A Commentary (2nd edition, 2009), p. 271. See also Champion Trading Company, Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction (21 Oct. 2003) (Champion Trading), p. 16: 'The Nottebohm and A/18 decisions, in the opinion of the Tribunal, find no application in the present case. The Convention in Article 25(2)(a) contains a clear and specific rule regarding dual nationals. The Tribunal notes that the above cited A/18 decision contained an important reservation that the real and effective nationality was indeed relevant “unless an exception is clearly stated”. The Tribunal is faced here with such a clear exception.' Having said that, the tribunal recognised the potential 'manifestly absurd or unreasonable' result under the blanket exclusion of Article 25(2)(a), where 'the third or fourth foreign born generation, which has no ties whatsoever with the country of its forefathers, could still be considered to have, for the purpose of the Convention, the nationality of this state' (pp. 16–17).
15 Siag (Partial Dissenting Opinion, Professor Francisco Orrego Vicuña), paras. 6–23. For comment on this case, see McLachlan, et al. (op. cit. note 3, above), pp. 183 and 184.
16 Champion Trading, p. 18. See also Infracapital F1 S.à r.l. and Infracapital Solar B.V. v. Kingdom of Spain, ICSID Case No. ARB/16/18, Decision on Jurisdiction, Liability and Directions on Quantum (Infracapital) (13 Sep. 2021), para. 227.
17 McLachlan, et al. (op. cit. note 3, above), p. 185, citing C Dugan, D Wallace, N Rubins and B Sabahi, Investor-State Arbitration, 2008, 304.
18 Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela, PCA Case No. 2013-3, Decision on Jurisdiction (15 Dec. 2014) (Armas), paras. 174 and 206. However, France's highest civil court, the Court of Cassation, in its decision made on 1 December 2021, found that the lower court, the Paris Court of Appeal, had wrongly added a requirement that the claimants must hold Spanish nationality at the time of the investment to bring claims against Venezuela under the Spain–Venezuela bilateral investment treaty (BIT) and decided to overturn the lower court's decision, which annulled the jurisdictional award in its entirety on such basis, while remanding the case to the Court of Appeal (see https://www.iareporter.com/articles/french-cour-de-cassation-sees-no-indication-that-bits-nationality-requirements-must-be-met-at-the-time-when-the-investment-was-made/ (last accessed 30 Mar. 2022).
19 Mohamed Abdel Raouf Bahgat v. The Arab Republic of Egypt, PCA Case No. 2012-07, Decision on Jurisdiction (30 Nov. 2017) (Bahgat), paras. 222–24. On the merits, Egypt was held to be responsible for indirect expropriation of the investment and breach of the fair and equitable treatment standard. Egypt sought to set this award aside on several grounds, including the denial of an opportunity to raise the dual nationality objection. However, the Court of Appeal of The Hague, in a decision of 20 October 2021, refused to set aside the award, noting that, among other things, the BIT contained no exclusion towards dual nationals initiating claims against one of their home states (see https://www.iareporter.com/articles/dutch-court-rejects-egypts-attempt-to-annul-unicitral-award-seeing-no-general-rule-prohibiting-claims-by-dual-nationals-against-one-of-their-home-states/). See also Sergei Viktorovich Pugachev v. The Russian Federation, UNCITRAL, Award on Jurisdiction (18 Jun. 2020) (Pugachev), paras. 382–88.
20 Bahgat, para. 233.
21 Alberto Carrizosa Gelzis, Enrique Carrizosa Gelzis, Felipe Carrizosa Gelzis v. The Republic of Colombia, PCA Case No. 2018-56, Award, 7 May 2021 (Carrizosa Gelzis), paras. 237–54.
22 See Dawood Rawat v. The Republic of Mauritius, PCA Case 2016-20, Award on Jurisdiction (6 Apr. 2018), paras. 170–79. In this case, the underlying BIT did not expressly exclude dual nationals from its definition of 'national'. However, the tribunal noted that Article 9 of the BIT directed all French and Mauritian nationals who entered into investment contracts with the other state to arbitrate disputes with the host state under the ICSID Convention. Therefore, the tribunal concluded that by incorporating a mandatory reference to the ICSID Convention in the notion of 'ressortissant' (i.e. national) through Article 9 of the BIT, France and Mauritius have implicitly, but necessarily, excluded French-Mauritian dual nationals from the scope of application of the BIT. The claimant has applied for setting aside the award, but the First Instance Court of Brussels, in its decision dated 30 June 2021, held that, in light of both the immediate and the broader context of the underlying 1973 France–Mauritius BIT, the arbitral tribunal had validly found that it lacked jurisdiction over claims brought by dual nationals holding the nationality of the host state (see https://www.iareporter.com/articles/brussels-court-upholds-uncitral-award-that-declined-jurisdiction-over-claims-by-dual-national/) (last accessed 30 Mar. 2022).
23 Fernando Fraiz Trapote v. Bolivarian Republic of Venezuela, PCA Case No. 2019-11, Final Award (31 Jan. 2022). In the meantime, the tribunal recognised the different circumstances in which a dual national brought claims against a third state and a dual national brought claims against the host state; the latter would require a more exhaustive analysis whereas in the former situation, it was enough that the claimant's nationality was not fraudulent so that the nationality requirement was satisfied without the need to apply the principle of effective and dominant nationality (see para. 382). This award was originally made in Spanish; a summary can be found at https://www.iareporter.com/articles/analysis-uncitral-tribunal-finds-that-dominant-and-effective-nationality-test-deriving-from-law-on-diplomatic-protection-should-apply-given-bits-silence-on-claims-by-dual-nationals-against-o/ (last accessed 30 Mar. 2022).
24 For a discussion of the relevant treaties, see McLachlan, et al. (op. cit. note 3, above), pp. 175 and 176.
25 Canada–China BIT, Article 1.2.
26 See, e.g., Agreement between the United States of America, the United Mexican States, and Canada, Article 14.1: 'investor of a Party means a Party, or a national or an enterprise of a Party, that attempts to make, is making, or has made an investment in the territory of another Party, provided however that: (a) a natural person who is a dual citizen is deemed to be exclusively a national of the State of his or her dominant and effective citizenship'. See also similar definition at Article 1 of the 2012 US Model BIT and relevant discussions by Patrick W Pearsall and David Manners-Weber in 'Covered Investors', The Investment Treaty Arbitration Review (4th edition, 2019).
27 Soufraki, Award (7 Jul. 2004), para. 55; Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki (5 Jun. 2007), para. 93; Micula, para. 94.
28 See, e.g., Soufraki, Award (7 Jul. 2004), para. 63; Siag, para. 151.
29 Pugachev, paras. 277–85. In this case, the tribunal observed that the claimant obtained French nationality through a naturalisation decree issued by the French administration. See also Bahgat, paras. 173–74.
30 International Law Commission, Draft Articles on Diplomatic Protection, Article 4, p. 30.
31 Flegenheimer case, 1958, 25 International Law Reports, p. 108. See also Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki (5 Jun. 2007), para. 71.
32 Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki (5 Jun. 2007), para. 109.
33 R Y Jennings and A Watts (eds), Oppenheim's International Law (9th edition, 1992), p. 855. See also Micula, paras. 87 and 95; Pugachev, para. 309.
34 Case concerning the Payment in Gold of Brazilian Federal Loans Contracted in France, Permanent Court of International Justice (12 Jul. 1929), paras. 80 and 81.
35 For example, the Siag tribunal referred to both parties' expert opinions in reaching the conclusion that Mr Siag did not have Egyptian nationality. Siag, paras. 156–73.
36 McLachlan, et al. (op. cit. note 3, above), p. 173, citing Ambiente Ufficio SpA v. Argentina (Decision on Jurisdiction and Admissibility, ICSID Case No. ARB/08/9), paras. 312, 314 and 319; also noting that the Siag tribunal had adopted a different approach that was less clear in allocating the burden of proof yet similarly helpful to the claimant, stating that in relation to a jurisdictional objection, the claimant did not have to disprove Egyptian nationality (i.e., the host state nationality), McLachlan, et al. (op. cit. note 3, above), para. 5.52 at 173.
37 Schreuer, et al. (op. cit. note 14, above), p. 287.
38 ibid., p. 279.
39 Case concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Judgment, International Court of Justice (5 Feb. 1970), para. 70.
40 See, e.g., China–Swiss BIT, Article 1(2); see also 2012 US Model BIT, Article 1; see also China–Netherlands BIT, Article 1.2; see also Regional Comprehensive Economic Partnership Agreement (effective on 1 January 2022), Article 10.1.
41 Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Award (31 May 2017) (Orascom), para. 273. The features for such an effective seat may include 'the place where the company board of directors regularly meets or the shareholders' meetings are held is in [the Contracting State's] territory; there is a management at the top of the company sitting in [the Contracting State]; the company has a certain number of employees working at the seat; an address with phone and fax numbers are offered to third parties entering in contract with the company; certain general expenses or overhead costs are incurred for the maintenance of the physical location of the seat and related services' (see Alps Finance and Trade AG v. The Slovak Republic, UNCITRAL, Award (5 Mar. 2011), para. 217).
42 See, e.g., China–Uzbekistan BIT, Article 1.2.
43 ICSID Convention, Article 25(2)(b): 'National of another Contracting State means: . . . (b) . . . any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention'. This is generally referred to as the second limb of Article 25(2)(b).
44 Pawlowski AG and Project Sever s.r.o. v. Czech Republic, ICSID Case No. ARB/17/11, Award (1 Nov. 2021), paras. 218–22. In this case, the underlying BIT provides the definition of a corporate investor in sub-sections (b) and (c). The respondent state argued that as one of the claimants was incorporated in Switzerland (i.e.. the contracting party to the underlying BIT), the corporate could only claim if it passed the 'real economic activities' test under sub-section (b). However, the tribunal held that the BIT indicated nothing that 'a failure to qualify under one clause would prohibit qualification under the other', therefore upholding its jurisdiction under sub-section (c). On 9 March 2022, ICSID registered the claimants' requests for partial annulment of the underlying award (see https://www.iareporter.com/articles/investors-seek-partial-annulment-of-bit-award-that-granted-them-a-pyrrhic-victory/)(last accessed 30 Mar. 2022).
45 In ICSID cases, the issue is how to interpret the first limb of Article 25(2)(b), which provides that a juridical person must hold the nationality of a contracting state other than the state party to the dispute. See, e.g., Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18 (29 Apr. 2004) (Tokios), paras. 28 and 52. In non-ICSID cases, the issue lies in the interpretation of the relevant BIT. See Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 Mar. 2006) (Saluka), paras. 240–42. See also Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. 2005-04/AA227, Interim Award on Jurisdiction and Admissibility (30 Nov. 2009) (Yukos), paras. 411–15. (In a judgment dated 18 February 2020, Hague Court of Appeal ruled against Russia's grounds to set aside the award. When Russia appealed against that decision to the Dutch Supreme Court, the Dutch Supreme Court in its judgment dated 5 November 2021 overturned the decision of the Hague Court of Appeal and decided to remand the case to a lower court with directions to address Russia's fraud allegations (see https://www.iareporter.com/articles/breaking-yukos-v-russia-saga-to-continue-as-dutch-supreme-court-overturns-lower-courts-decision-to-uphold-the-three-underlying-awards-without-considering-russias-fraud-arguments/)) (last accessed 30 Mar. 2022).
46 Tokios, para. 22. Nationals of Ukraine owned 99 per cent of the claimant, a Lithuanian company, and comprised two-thirds of its management.
47 ibid., paras. 36 and 39. Actually, Article 1(2)(c) of the Ukraine–Lithuania BIT contained an additional category of nationals – any entity established in any third state controlled, directly or indirectly, by nationals of either Ukraine of Lithuania, or by entities with their seat in the contracting party.
48 ibid., para. 49.
49 TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award (19 Dec. 2008) (TSA), para. 145.
50 Tokios (Dissenting Opinion, Chairman Prosper Weil), para. 19.
51 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction (27 Sep. 2001), paras. 117–21. In this case, the relevant concession agreement under which the claimant initiated the investment arbitration proceedings defines the term 'foreign control' only by reference to the claimant's direct shareholding. The claimant's immediate shareholder was a US company, but its ultimate controller was a Mexican company and Mexico was not a contracting state of the ICSID Convention at that time. The tribunal held that it must respect the parties' autonomy and may not discard the criterion of direct shareholding, unless it proves unreasonable. On this basis, the tribunal found that the criterion of direct shareholding is reasonable and upheld its jurisdiction without going beyond the immediate shareholder of the claimant.
52 Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction (25 Sep. 1983) (Amco), para. 14.
53 TSA, paras. 152–54.
54 National Gas S.A.E. v. Arab Republic of Egypt, ICSID Case No. ARB/11/7, Award (3 Apr. 2014) (emphasis added).
55 ibid., paras. 133–37, 149.
56 Schreuer, et al. (op. cit. note 14, above), p. 323.
57 Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award (16 Feb. 1994), paras. 43 and 44.
58 Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction (21 Oct. 2005), para. 317.
59 See, e.g., China–United Republic of Tanzania BIT, Article 11(2); see also Energy Charter Treaty, Article 17.
60 Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award (26 Mar. 2008), paras. 68–69; Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award (16 May 2018), para. 254.
61 Littop Enterprises Limited, Bridgemont Ventures Limited and Bordo Management Limited v. Ukraine, Stockholm Chamber of Commerce Case No. 092/2015, Final Award (4 Feb. 2021), paras. 623–38. In this case, the claimants did not have any offices or employees in Cyprus, and they only held one investment: shares in Ukrnafta (i.e., a local Ukrainian company). The tribunal also saw no growth in the claimants' business: while the shares had gained in value, this merely reflected Ukrnafta's growth; the claimants' shareholding, however, had not increased since 2011. The tribunal further found that the companies had no 'real working staff or employees' and their expenses merely encompassed auditing and accountancy fees. Although the claimants pointed to the two 2010 agreements, the tribunal noted that these agreements had been concluded in Kyiv, and therefore could not evidence any substantial business activities in Cyprus. A summary of the case can be found at https://www.iareporter.com/articles/uncovered-littop-v-ukraine-ect-tribunal-recognizes-unclean-hands-principle-and-declines-jurisdiction-over-6-billion-usd-case-after-finding-that-the-investment-was-tainted-by-corrup/ (last accessed 30 Mar. 2022).
62 Suzy H Nikièma, 'Best Practices: Definition of Investor', International Institute for Sustainable Development (March 2012), p. 18. See Yukos, paras. 456–59. See also Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 Feb. 2005), paras. 161–65.
63 See, e.g., Canada–China BIT, Article 16 (Denial of Benefits).
64 Carmen Martinez Lopez and Lucy Martinez, 'Corruption, Fraud and Abuse of Process in Investment Treaty Arbitration' in The Investment Treaty Arbitration Review (4th edition, 2019).
65 Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010 (Mobil), paras. 190, 204–06. The tribunal accepted that the main, if not the sole purpose of the restructuring was to gain access to ICSID arbitration but held that this purpose is perfectly legitimate as far as it concerned future disputes. The tribunal upheld its jurisdiction over the disputes arising after the restructuring and rejected its jurisdiction over the pre-existing disputes.
66 Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Jurisdictional Objections (1 Jun. 2012) (Pac Rim), para. 2.99.
67 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 Dec. 2015) (Philip Morris), paras. 554, 566–69 and 588.
68 See, e.g., EU–Vietnam Investment Protection Agreement (signed on 30 June 2019, not in force), Article 3.43: 'For greater certainty, the Tribunal shall decline jurisdiction where the dispute had arisen, or was foreseeable on the basis of a high degree of probability, at the time when the claimant acquired ownership or control of the investment subject to the dispute and the Tribunal determines, on the basis of the facts of the case, that the claimant has acquired ownership or control of the investment for the main purpose of submitting the claim under this Section. The possibility to decline jurisdiction in such circumstances is without prejudice to other jurisdictional objections which could be entertained by the Tribunal'.
69 Renée Rose Levy and Gremcitel S.A. v. Republic of Peru, ICSID Case No. ARB/11/17, Award (9 Jan. 2015), para. 187.
70 Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award (15 Apr. 2009) (Phoenix), paras. 100, 106 and 113.
71 Phoenix, para. 140.
72 The tribunal declined jurisdiction because the investment was not bona fide but an abuse of process. See Investment Arbitration Reporter's report on Cascade Investments NV v. Republic of Turkey (ICSID Case No. ARB/18/4) (Cascade Investments) at https://www.iareporter.com/articles/revealed-cascade-v-turkey-tribunal-expresses-concern-about-the-states-treatment-of-opposition-media-but-it-ultimately-declines-jurisdiction-after-finding-that-the-investor-engaged-in-an-ab/ (last accessed 30 Mar. 2022). The award has not been published.
73 As noted by McLachlan, the problem of changing nationality for the purpose of treaty protection has less relevance in the case of an individual investor (McLachlan, et al. (op. cit. note 3, above), para. 5.170 at 208). However, while noting that more facts are needed to establish the challenge, Korea indicated the likelihood of abuse of process by an individual claimant in Seo v. Korea, in which the Korea-born claimant changed the name of the title document of her property to her new US name only seven days after the disputed government measure took place (see Seo Jin Hae v. Republic of Korea, HKIAC Case No. HKIAC/18117, Respondent's Amended Application for Preliminary Objections (12 Apr. 2019), paras. 9.2–9.4).
74 Fakes, para. 78, citing A Sinclair, 'ICSID's Nationality Requirement' in TJ Grierson Weiler (ed.), Investment Treaty Arbitration and International Law (2008), at p. 101 and Champion Trading at pp. 16–17.
75 For example, the tribunal in Orascom noted that an investor who controls several entities in a vertical chain of companies may commit an abuse if it seeks to impugn the same host state measures and claims for the same harm at various levels of the chain in reliance on several investment treaties concluded by the host state. However, the tribunal did not deny the possibility that several corporate entities in the chain might be in a position to bring an arbitration against the host state in relation to the same investment (see para. 542).
76 David Gaukrodger, 'Investment Treaties and Shareholder Claims: Analysis of Treaty Practice', OECD Working Papers on International Investment (March 2014), p. 16.
77 Vera Korzun, Shareholder Claims for Reflective Loss: How International Investment Law Changes Corporate Law and Governance, University of Pennsylvania Journal of International Law 40(1) (Jan. 2018), pp. 215 and 218. See also Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction (3 Aug. 2004), para. 142. The tribunal in this case found that indirect shareholdings are covered by the relevant BIT, including for purpose of reflective loss – see para. 137.
78 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (17 Jul. 2003) (CMS), para. 48.
79 David Gaukrodger (op. cit. note 76, above), p. 6.
80 Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent's Application Under Rule 41(5), 20 March 2017 (Eskosol), para. 167.
81 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction (1 February 2016), paras. 330–33. See also RSM Production Corporation and others v. Grenada, ICSID Case No. ARB/10/6, Award, paras. 7.1.5–7.1.7.
82 Eskosol, paras. 167–70.
83 North American Free Trade Association (NAFTA), Article 1116(1). See also Bilcon of Delware et al v. Government of Canada, Permanent Court of Arbitration, Case No. 2009-04, Award on Damages (10 Jan. 2019) (Bilcon), para. 370. 'NAFTA Article 1116 permits claims by an investor where there has been a breach of NAFTA and “the investor has incurred loss or damage by reason of, or arising out of, that breach”. NAFTA Article 1117 permits claims by an investor in respect of an enterprise that it controls directly or indirectly where there has been a breach of NAFTA and “the enterprise has incurred loss or damage by reason of, or arising out of, that breach”.'
84 UNCITRAL Work Group III (Note by the Secretariat), Shareholder Claims and Reflective Loss (Oct. 2019), para. 28 at 7.
85 ibid., citing Bilcon, para. 389. The tribunal stated: 'Articles 1116 and 1117 (of NAFTA) are to be interpreted to prevent claims for reflective loss from being brought under Article 1116 . . . Moreover, the Tribunal takes account of the common positions of the NAFTA Parties in their submission to Chapter Eleven tribunals.'
86 David Gaukrodger (op. cit. note 76, above), p. 16, fn 24. See China–Mexico BIT, Article 13(8).