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 dispute, 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 Such broad definition triggers multiple issues in practice on the approach to be adopted in understanding the nationality requirement.
Due to lack of a 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 one's 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 the concerns for the abuse of process in the 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 the tribunals in choosing one approach over the other. 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 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 that 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 nationals of dual nationality, such that 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 of the Nottebohm case, in which the International Court of Justice stated in pertinent part 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, the ICSID tribunals have rejected such 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, such 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 the Nottebohm case 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 persons 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 the home state nationality is relatively low.13 Moreover, it is recognised that if the investor has the nationality of the host state, Article 25(2)(a) of the ICSID Convention presents an absolute bar to jurisdiction. In such a situation, there is no room for such dual nationals to argue for the application of effective nationality to invoke protection under the ICSID Convention.14 On the other hand, 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
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 where 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'.16 Nevertheless, the UNCITRAL tribunal in Armas was reluctant to apply such 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.17
Several IIAs provide better guidance for dual nationals.18 For example, the definition of investor in the Canada–China BIT excludes natural persons having nationality of both contracting parties.19 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.20
The increasing incorporation of 'effective nationality' test in the IIAs provides greater certainty in handling the issues arising from the growing mobility of nationals in the trend of globalisation. Against this background, the principles of diplomatic protection will likely continue to play 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.21
In assessing nationality, tribunals will generally recognise the certificate of nationality and other official documents as prima facie evidence.22 There exists a presumption in favour of the validity of a state's conferment of nationality,23 often provided by the claimant. To rebut such 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.24 As such, tribunals have the power to investigate on the accuracy of the certificates issued by a state and in view of the totality of evidence, may consider the prima facie evidence effectively controverted. In such circumstances, the burden will remain on the claimant to prove his or her nationality.25 Notably, casting doubt is not sufficient and the threshold to overcome the presumption in favour of the prima facie evidence is high.26
When examining whether the nationality requirement under the domestic law has been met, tribunals would 'pay the utmost regards to the decisions of the municipal courts of a country', as the decisions represent the rules that are actually applied in that country.27 Inevitably, tribunals also find it helpful to rely on expert opinions on the interpretation of domestic laws.28
In the context of satisfying the two-fold test of dual nationality under Article 25(2)(a) of the ICSID Convention, the Ambiente tribunal has 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.29
iii Juridical persons
Similar to the determination of the nationality of a natural person, it is for each state to define the criterion for determining the nationality of a juridical entity.30
The test of incorporation is the most widely used criterion for the determination of a corporate's nationality.31 As the International Court of Justice has explained, '[t]he 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'.32 Some IIAs, including those concluded by China, have further required the companies to have economic interests or have the seat in the contracting state.33 As for the meaning of seat, it can either be statutaire, referring to the seat appearing in the company's bylaws or statutes, or réel, referring to the effective seat where the company is actually managed.34 Other IIAs extend the protections to the companies controlled by the natural persons and juridical persons of a contracting state.35 Such control test has been incorporated in Article 25(2) of the ICSID Convention to permit the local companies in the host state to claim against the host state if they are foreign-controlled and the host state consents to it.36
Due to the complicated ways to structure investments, there were far more cases in which respondent states called for the application of 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, although the company may be owned or controlled by nationals of the host state.37 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.38 The majority nevertheless refused to pierce the corporate veil and impose an additional control requirement because if the contracting states wanted to impose such 'denial of benefits' provision with respect to the entities controlled by nationals of the denying party, they could have done so.39 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.40 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'.41
Weil's dissent identified the origins of capital a highly relevant issue,42 but such 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 is unreasonable.43 Nevertheless, without explicit language in the 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.44 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 of 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'.45 The tribunal in National Gas adopted a similar approach for the reason that 'foreign control' must be established objectively.46 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 which has the nationality of the host state and held that the claimant has not satisfied the objective test in the second limb of Article 25(2)(b) of the ICSID Convention; and accordingly, it had no jurisdiction over the claimant's claim.47 Therefore, on balance, the better approach would appear to be a realistic look at the true controllers, thereby blocking access to the Centre for juridical persons that are controlled directly or indirectly by nationals of non-contracting states or nationals of the host state.48
The determination of control itself may be subject to controversy. While 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.49 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.50
In short, the determination of corporate nationality remains to be formalistic despite the 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 into the source of actual control is far from settled. Because of a wide range of commercial arrangements available to structure investments, the investigations on 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 the home state's nationality, 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 such 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 the nationality of the home state but does not have genuine business relations to that state.51 Nevertheless, 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.52 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.53
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 the 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 the claimant's claims on the basis of the claimant's abuse of right.54
The timing of the corporate restructuring is the basis in determining its validity. As the Mobil tribunal recognised, the claimant's restructuring 'was a perfect legitimate goal as far as it concerned future disputes'.55 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'.56 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'.57 Interestingly, IIAs have started to provide guidance on the criterion for the tribunals to apply to decline jurisdiction for abuse of acquisition of investment.58 Despite subtle differences in the test articulated by the 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.59
In examining the validity of a corporate restructuring, the 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'.60 Tribunals will examine the true nature of the restructuring operation and can only be satisfied with the 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.61
In contrast, the challenge to the change of nationality in the case of an individual investor is less prevalent,62 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.63 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 the situation of parallel proceedings with overlapping claims, often involving concurrent shareholders' claim for reflective loss. 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.64 In contrast, tribunals have consistently interpreted IIAs to allow shareholder claims for reflective loss, no matter whether such claims are brought by direct or indirect, majority or minority shareholders.65 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'.66 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.67 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 abusive68 and therefore, precluded from being pursued as a parallel proceeding. Notably, the threshold for a finding of abuse of right is high, which normally requires the 100 per cent ownership.69 In Eskosol, the tribunal refused to preclude the company from bringing claims after its 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.70
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.71 However, in their interpretations, NAFTA-party governments have stated that covered shareholders cannot bring reflective loss claims on their own behalf.72 Tribunal decisions have reached varying results, with more recent tribunals concluding in favour of the NAFTA parties' consistent interpretative statement that NAFTA prohibits reflective loss claims.73 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.74 With these developments, one may wonder whether the dividing line between a legitimate act and an abuse of right is shifting its course towards more regulation and discouragement of forum selection.
While 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 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 edn, 2017, para. 5.01 at 156.
4 id., 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 July 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 April 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 September 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 following the agreement in principle announced on 30 December 2020, Article 2, '“investor of a Party” means a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making, or has made an investment in the territory of the other Party; . . . ''natural person” means: (i) For the People's Republic of China, a natural person who is a national of the People's Republic of China as defined in the Nationality Law of the People's Republic of China; and (ii) In the case of the EU, a natural person having the nationality of one of the Member States of the EU according to their respective legislation'. Please 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 the published text at https://trade.ec.europa.eu/doclib/press/index.cfm?id=2237. See also Peru–US Trade Promotion Agreement (signed on 12 April 2006, effective on 1 February 2009), Chapter Ten Investment, Article 10.28, 'investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of a Party, that attempts through concrete action to make, is making, or has made an investment in the territory of another 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'; 'national means a natural person who has the nationality of a Party according to Annex 1.3 (Country-Specific Definitions)'; Annex 1.3, 'natural person who has the nationality of a Party means: (a) with respect to Peru, Peruvians by birth, naturalization, or choice in accordance with Articles 52 and 53 of the Constitución Política del Perú; and (b) with respect to the United States, “national of the United States” as defined in the existing provisions of the Immigration and Nationality Act'.
9 Nottebohm case (second phase), Judgment of April 6th, 1955: I.C.J. Reports 1955 (Nottebohm), p. 24.
10 See, e.g., Siag; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 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, 'The effectiveness of Mr. Fakes's Dutch nationality is demonstrated, inter alia, by the fact that both of his parents held Dutch nationality, his wife and three children are also Dutch, he has spent a significant part of his childhood and early adulthood in the Netherlands, has studied in the Netherlands, holds a Dutch passport and driver's licence . . . Against this background, the tribunal is satisfied in the present case that the Claimant's links to the Netherlands are genuine and effective'; Siag, para. 200, 'Italian nationality was also acquired for recognized reasons i.e. marriage to an Italian in the case of Mr Siag and reacquisition following the death of a husband in the case of Ms Vecchi. The tribunal finds that the Claimants possess genuine links to Italy'.
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 October 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., pp. 183 and 184.
16 McLachlan et al., p. 185, citing C Dugan, D Wallace, N Rubins and B Sabahi, Investor-State Arbitration, 2008, 304.
17 Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela, PCA Case No 2013-3, Decision on Jurisdiction, 15 December 2014 (Armas), paras 174 and 206. After a prolonged journey through the French court system, this jurisdictional award was annulled in its entirety by the Paris Court of Appeal on 3 June 2020, but for the reason that the arbitral tribunal had failed to examine whether the Garcias were Spanish nationals at the time when their investments were made, and therefore wrongly upheld jurisdiction over the dispute. See www.iareporter.com/articles/paris-court-sets-aside-jurisdictional-award-in-long-running-garcia-armas-case/.
18 For a discussion of such relevant treaties, see McLachlan et al., pp. 175 and 176.
19 Canada–China BIT, Article 1.2, 'investor means with regard to either Contracting Party: (a) any natural person who has the citizenship or status of permanent resident of that Contracting Party in accordance with its laws and who does not possess the citizenship of the other Contracting Party.' See also China–Uruguay BIT, Article 1.2, 'This Agreement shall not apply to investments made in the Oriental Republic of Uruguay by natural persons who, in accordance with Uruguayan law, are considered double nationals'.
20 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 at Patrick W Pearsall, David Manners-Weber, Covered Investors, The Investment Treaty Arbitration Review, 4th edition, 2019.
21 Soufraki, Award, 7 July 2004, para. 55; Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, para. 93.
22 See, e.g., Soufraki, Award, 7 July 2004, para. 63; Siag, para. 151.
23 International Law Commission, Draft Articles on Diplomatic Protection, Article 4, p. 30.
24 Flegenheimer Case, 1958, 25 I.L.R., p. 108, 'From the standpoint of merit, even certificates of nationality the content of which is proof under municipal law of the issuing State, can be examined and, if the case warrants, rejected by international bodies rendering judgment under the Law of Nations, when these certificates are the result of fraud, or have been issued by favour in order to assure a person a diplomatic protection to which he would not otherwise entitled, or when they are impaired by serious errors'. See also Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, para. 71.
25 Soufraki, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki, 5 June 2007, para. 109.
26 RY Jennings and A Watts (eds), Oppenheim's International Law, 9th edition, 1992, p. 855, 'An international tribunal called upon to apply rules of international law based upon the concept of nationality has the power to investigate the state's claim that a person has its nationality. However, this power of investigation is one which is only to be exercised if the doubts cast on the alleged nationality are not only not manifestly groundless but are also of such gravity as to cause serious doubts with regard to the truth and reality of that nationality'. See also Micula, paras 87 and 95.
27 Case concerning the Payment in Gold of Brazilian Federal Loans Contracted in France, Permanent Court of International Justice, 12 July 1929, paras 80 and 81.
28 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 156–173.
29 McLachlan et al., 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., para. 5.52 at 173.
30 Schreuer et al., p. 287, 'Definitions of corporate nationality in national legislation or in treaties providing for ICSID's jurisdiction are . . . part of the legal framework for the host State's submission to the Centre. Upon acceptance in writing by the investor, they become part of the agreement on consent between the parties'.
31 id., p. 279.
32 Case concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Judgment, I.C.J., 5 February 1970, para. 70.
33 See, e.g., China–Swiss BIT, Article 1(2), 'the term investor refers with regard to either Contracting Party to . . . (b) legal entities . . . which are constituted or otherwise duly organised under the law of that Contracting Party and have their seat, together with real economic activities, in the territory of that same Contracting Party'; see also 2012 US Model BIT, Article 1, 'enterprise of a Party means an enterprise constituted or organized under the law of a Party, and a branch located in the territory of a Party and carrying out business activities there'; see also China–Netherlands BIT, Article 1.2, 'The term investor means . . . (b) economic entities, including companies, corporations, associations, partnerships and other organization, incorporated and constituted under the laws and regulations of either Contracting Party and have their seats in that Contracting Party, irrespective of whether or not for profit and whether their liabilities are limited or not'.
34 Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Award, 31 May 2017, para. 273.
35 See, e.g., China–Uzbekistan BIT, Article 1.2, 'The term “investor” means nationals or enterprises of one Contracting Party who are investing or have invested in the territory of the State of other Contracting Party: (a) the term “national” means natural persons who have nationality of either Contracting Party in accordance with the applicable laws of that Contracting Party; (b) the term “enterprise” means any entities . . . incorporated or constituted under the applicable laws and regulations of either Contracting Party and have their seats and substantial business activities in that Contracting Party . . . (c) legal entities constituted under the laws of a non-Contracting Party but directly owned or controlled by nationals in paragraph (a) or enterprises in Paragraph (b)'.
36 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 the Article 25(2)(b).
37 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 April 2004 (Tokios), paras 28 and 52, 'We find no basis in the BIT or the Convention to set aside the Contracting Parties' agreed definition of corporate nationality with respect to investors of either party in favour of a test based on the nationality of the controlling shareholders'. 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 March 2006 (Saluka), paras 240–242, 'That agreed definition required only that the claimant-investor should be constituted under the laws of (in the present case) The Netherlands, and it is not open to the Tribunal to add other requirements which the parties could themselves have added but which they omitted to add'. 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 November 2009 (Yukos), paras 411–415, 'Claimant was organised “in accordance with the law applicable” in a Contracting Party. Claimant accordingly qualifies as a company so organized in the instant case. The Tribunal is not entitled, by the terms of the ECT, to find otherwise. In so concluding, the Tribunal follows the holding of the Partial Award in Saluka.' (In a judgment dated 18 February 2020, the Hague Court of Appeal ruled against Russia's grounds to set aside the award. Russia's appeal against the Court of Appeal's decision to the Dutch Supreme Court remains pending. Hearings before the Supreme Court were held in early February 2021 and according to the Russian Ministry of Justice (as reported by local media), a decision by the Dutch Supreme Court can be expected by the end of 2021, see www.iareporter.com/articles/cis-round-up-possible-claims-arising-out-of-the-armenia-azerbaijan-conflict-and-an-update-on-disputes-involving-russia-turkmenistan-kazakhstan-and-moldova/).
38 Tokios, para. 22. Nationals of Ukraine owned 99 per cent of the claimant, a Lithuanian company, and comprised two-thirds of its management.
39 Tokios, 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.
40 Tokios, para. 49.
41 TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award, 19 December 2008 (TSA), para. 145.
42 Tokios (Dissenting Opinion, Chairman Prosper Weil), para. 19.
43 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction, 27 September 2001, paras 117–121. 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.
44 Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983 (Amco), para. 14.
45 TSA, paras 152–154.
46 Emphasis added.
47 National Gas S.A.E. v. Arab Republic of Egypt, ICSID Case No. ARB/11/7, Award, 3 April 2014, paras 133–137, 149.
48 Schreuer et al., p. 323.
49 Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award, 16 February 1994, paras 43 and 44.
50 Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, para. 317.
51 See, e.g., China–United Republic of Tanzania BIT, Article 11(2), 'A Contracting Party may deny the benefits of this Agreement to an investor of the other Contracting Party that is an enterprise of such other Contracting Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Contracting Party and nationals or enterprises of the denying Contracting Party own or control the enterprise'; see also Energy Charter Treaty, Article 17, 'Each Contracting Party reserves the right to deny the advantages of this Part to: (1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organised; . . .'.
52 Suzy H. Nikièma, Best Practices: Definition of Investor, International Institute for Sustainable Development, March 2012, p. 18. See Yukos, paras 456–459. See also Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, paras 161–165.
53 Emphasis added. See, e.g., Canada–China BIT, Article 16:
1. A Contracting Party may, at any time including after the institution of arbitration proceedings in accordance with Part C, deny the benefits of this Agreement to an investor of the other Contracting Party that is an enterprise of that other Contracting Party and to covered investments of that investor: (a) if investors of a non-Contracting Party own or control the enterprise; and (b) the denying Contracting Party adopts or maintains measures with respect to the non-Contracting Party: (i) that prohibit transactions with the enterprise; or (ii) that would be violated or circumvented if the benefits of this Agreement were accorded to the enterprise or to its covered investments.
2. A Contracting Party may, at any time including after the institution of arbitration proceedings in accordance with Part C, deny the benefits of this Agreement to an investor of the other Contracting Party that is an enterprise of that other Contracting Party and to covered investments of that investor if investors of a non-Contracting Party or of the denying Contracting Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the other Contracting Party under whose law it is constituted or organised.
3. For greater certainty, a Contracting Party may deny the benefits of this Agreement pursuant to paragraphs 1 and 2 at any time, including after the initiation of arbitration proceedings in accordance with Part C.
54 Carmen Martinez Lopez and Lucy Martinez, Corruption, Fraud and Abuse of Process in Investment Treaty Arbitration, The Investment Treaty Arbitration Review, 4th edition, 2019.
55 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, 204–206. The tribunal accepted that the main, if not the sole purpose of the restructuring was to gain access to ICSID arbitration but held that such 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.
56 Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Jurisdictional Objections, 1 June 2012 (Pac Rim), para. 2.99.
57 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015 (Philip Morris), paras 554, 566–569 and 588.
58 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'.
59 Renée Rose Levy and Gremcitel S.A. v. Republic of Peru, ICSID Case No. ARB/11/17, Award, 9 January 2015, para. 187.
60 Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 (Phoenix), paras 100, 106 and 113.
61 Phoenix, para. 140.
62 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., 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, where the Korea-born claimant changed the name of the title document of her property to her new US name only 7 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 April 2019, paras 9.2–9.4.
63 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.
64 David Gaukrodger, Investment Treaties and Shareholder Claims: Analysis of Treaty Practice, OECD Working Papers on International Investment, March 2014, p. 16.
65 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) (January 2018), pp. 215 and 218. See also Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004, para. 142, 'As regards ICSID case law dealing with the issue of the right of shareholders to bring a claim before an arbitral tribunal, the decisions of arbitral tribunals have been consistent in deciding in favor of such right of shareholders'. The tribunal in this case found that indirect shareholdings are covered by the relevant BIT, including for purpose of reflective loss. See para. 137.
66 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction, 17 July 2003 (CMS), para. 48.
67 David Gaukrodger, Investment Treaties and Shareholder Claims: Analysis of Treaty Practice, OECD Working Papers on International Investment, March 2014, p. 6.
68 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, 'there may be certain circumstances in which a foreign shareholder and the local company in which it holds shares have such identical interests that it would be abusive to permit arbitration of a given dispute by one after the other already has concluded an arbitration over the same dispute'.
69 Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras 330–333. See also RSM Production Corporation and others v. Grenada, ICSID Case No. ARB/10/6, Award, paras 7.1.5–7.1.7.
70 Eskosol, paras 167–170.
71 NAFTA Article 1116(1), 'An investor of a Party may submit to arbitration under this Section a claim that another Party has breached an obligation under: (a) Section A . . . and that the investor has incurred loss or damage by reason of, or arising out of, that breach'; Article 1117(1), '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: (a) Section A . . . and that the enterprise has incurred loss or damage by reason of, or arising out of, that breach'. See also Bilcon of Delware et al v. Government of Canada, PCA Case No. 2009-04, Award on Damages, 10 January 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”.'
72 UNCITRAL Work Group III (Note by the Secretariat), Shareholder Claims and Reflective Loss (October 2019), para. 28 at 7.
73 id., 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.'
74 David Gaukrodger, Investment Treaties and Shareholder Claims: Analysis of Treaty Practice, OECD Working Papers on International Investment, March 2014, p. 16, fn 24. See China–Mexico BIT, Article 13(8), 'The Contracting Parties recognize that under this Article, minority non-controlling investors have standing to submit only a claim for direct loss or damage to their own legal interest as investors'.